-----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, QsT4cuys/eZHH7G9IiSUoB9SSKTirX4x+rd6SeryH4g0azKPR+l6MTHeyPXCZ9Jq qgj6gsXs/w6UpT5YueFvdQ== 0000950135-01-501317.txt : 20010516 0000950135-01-501317.hdr.sgml : 20010516 ACCESSION NUMBER: 0000950135-01-501317 CONFORMED SUBMISSION TYPE: 10-Q PUBLIC DOCUMENT COUNT: 3 CONFORMED PERIOD OF REPORT: 20010331 FILED AS OF DATE: 20010515 FILER: COMPANY DATA: COMPANY CONFORMED NAME: FLEETBOSTON FINANCIAL CORP CENTRAL INDEX KEY: 0000050341 STANDARD INDUSTRIAL CLASSIFICATION: NATIONAL COMMERCIAL BANKS [6021] IRS NUMBER: 050341324 STATE OF INCORPORATION: RI FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-Q SEC ACT: SEC FILE NUMBER: 001-06366 FILM NUMBER: 1640551 BUSINESS ADDRESS: STREET 1: 100 FEDERAL STREET CITY: BOSTON STATE: MA ZIP: 02110 BUSINESS PHONE: 6173464000 MAIL ADDRESS: STREET 1: 100 FEDERAL STREET CITY: BOSTON STATE: MA ZIP: 02210 FORMER COMPANY: FORMER CONFORMED NAME: FLEET BOSTON CORP DATE OF NAME CHANGE: 19991001 FORMER COMPANY: FORMER CONFORMED NAME: FLEET NORSTAR FINANCIAL GROUP INC DATE OF NAME CHANGE: 19920525 FORMER COMPANY: FORMER CONFORMED NAME: FLEET FINANCIAL GROUP INC DATE OF NAME CHANGE: 19880110 10-Q 1 b39442fbe10-q.txt FLEETBOSTON FINANCIAL CORPORATION 1 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, 2001 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 FOR THE TRANSITION PERIOD _________ TO __________ COMMISSION FILE NUMBER 1-6366 FLEETBOSTON FINANCIAL CORPORATION (Exact name of registrant as specified in its charter) RHODE ISLAND 05-0341324 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 100 FEDERAL STREET BOSTON, MASSACHUSETTS 02110 (Address of principal executive office) (Zip Code) (617) 434-2200 (Registrant's telephone number, including area code) (Former name, if changed since last report) Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file reports), and (2) has been subject to such filing requirements for the past 90 days. YES X NO ----- ----- The number of shares of common stock of the Registrant outstanding as of April 30, 2001 was 1,083,077,317. 2 FLEETBOSTON FINANCIAL CORPORATION FORM 10-Q FOR QUARTER ENDED MARCH 31, 2001 TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT
PAGE PART I. FINANCIAL INFORMATION Management's Discussion and Analysis of Financial Condition and Results of Operations 3 Consolidated Statements of Income Three months ended March 31, 2001 and 2000 19 Consolidated Balance Sheets March 31, 2001 and December 31, 2000 20 Consolidated Statements of Changes in Stockholders' Equity Three months ended March 31, 2001 and 2000 21 Consolidated Statements of Cash Flows Three months ended March 31, 2001 and 2000 22 Condensed Notes to Consolidated Financial Statements 23 PART II. OTHER INFORMATION 29 SIGNATURES 31
2 3 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS FleetBoston Financial Corporation (FleetBoston or the Corporation), a diversified financial services company with $200 billion in assets headquartered in Boston, Massachusetts, is currently the seventh-largest financial holding company in the United States based on total assets. Among its key lines of business are commercial banking; consumer banking; investment banking and investment services; principal investing; securities brokerage, market-making and clearing services; credit cards; and full service banking in Latin America. On March 1, 2001, FleetBoston completed its acquisition of Summit Bancorp. (Summit). Additional information concerning the Summit acquisition is included in Note 3 to the Financial Statements. The acquisition was accounted for as a pooling of interests and, accordingly, the information included in this discussion and analysis presents the combined results of FleetBoston and Summit as though the two companies had operated as a combined entity for all periods presented. This discussion and analysis updates, and should be read in conjunction with, FleetBoston's 2000 Annual Report on Form 10-K and its Current Report on Form 8-K dated May 4, 2001. FINANCIAL SUMMARY
=================================================================== Three months ended March 31 2001 2000 Dollars in millions, except per share amounts - ------------------------------------------------------------------- EARNINGS Net interest income (FTE)(a) $ 1,936 $ 2,066 Noninterest income 1,524 2,820 Noninterest expense 2,853 2,745 Provision for credit losses 315 320 Net income 142 1,076 - ------------------------------------------------------------------- PER COMMON SHARE Basic earnings $ .12 $ .99 Diluted earnings .12 .97 Cash dividends declared .33 .30 Book value 17.38 15.97 - ------------------------------------------------------------------- RATIOS Return on average assets .27% 1.84% Return on average common equity 2.80 25.20 Total equity to assets (period-end) 9.15 7.91 Tangible common equity to assets 6.93 5.72 Tier 1 risk-based capital ratio 7.96 7.02 Total risk-based capital ratio 11.74 11.03 Leverage ratio 7.89 6.75 - ------------------------------------------------------------------- AT MARCH 31 Total assets $211,741 $225,762 Loans and leases 131,640 141,373 Deposits 127,989 134,785 Stockholders' equity 19,378 17,864 Nonperforming assets 1,245 1,039 ===================================================================
(a) The fully taxable equivalent (FTE) adjustment included in net interest income was $17 million and $18 million, respectively, for the three months ended March 31, 2001 and 2000. Earnings for the first quarter of 2001 included approximately $718 million ($453 million after-tax) of charges incurred in connection with the Summit acquisition. These charges consisted of $408 million ($268 million after-tax) of merger and restructuring charges, $45 million ($27 million after-tax) of merger integration costs and a $265 million ($158 million after-tax) loss from the sale of approximately $8 billion of low-margin securities in connection with a repositioning of the combined balance sheet. First quarter results also reflected an estimated loss of $327 million ($225 million after-tax) from the sale of the mortgage banking business. Additionally, FleetBoston recorded $79 million ($50 million after-tax) of restructuring charges related to a reorganization of its capital markets-related businesses. The 2000 period included $366 million ($209 million after-tax) of gains from divestitures, and $100 million ($60 million after-tax) of merger integration costs. Excluding the nonrecurring items discussed above, net income for the first quarter of 2001 was $870 million, or $.79 per diluted share, a 6% decrease from net income of $927 million and $.84 per diluted share in the first quarter of 2000. This decrease was due mainly to a significant drop in capital markets revenue associated with the slowdown experienced in U.S. capital markets in the second half of 2000 and the first three months of 2001, partly offset by a drop in revenue-related compensation costs. The decline in capital markets-related earnings was partly offset by improved results in International Banking, Commercial Finance, Consumer Lending, Credit Card and Fleet Meehan Specialist. RESULTS OF OPERATIONS NET INTEREST INCOME ====================================================== Three months ended March 31 2001 2000 FTE basis In millions - ------------------------------------------------------ Interest income $3,918 $4,116 Tax-equivalent adjustment 17 18 Interest expense 1,999 2,068 - ------------------------------------------------------ Net interest income $1,936 $2,066 ======================================================
Net interest income decreased $130 million in the first quarter of 2001 compared to the same period a year ago, primarily due to the impact of the divestiture of $9 billion of loans and $13 billion of low-cost deposits throughout 2000 in connection with the previously disclosed BankBoston merger. 3 4 NET INTEREST MARGIN AND INTEREST RATE SPREAD
=========================================================================== Three months ended March 31 2001 2000 FTE basis Average Average Dollars in millions Balance Rate Balance Rate - --------------------------------------------------------------------------- Securities $ 32,480 6.93% $ 35,542 6.47% Loans and leases: Domestic 115,507 8.76 128,239 8.55 International 18,260 11.91 14,805 13.99 Due from brokers/dealers 3,389 5.32 3,924 5.26 Mortgages held for sale 2,765 7.25 1,259 8.06 Other 10,955 8.37 16,760 5.74 - --------------------------------------------------------------------------- Total interest earning assets 183,356 8.64 200,529 8.28 - --------------------------------------------------------------------------- Deposits 98,670 4.41 108,355 4.03 Short-term borrowings 22,915 6.37 31,076 5.64 Due to brokers/dealers 3,672 6.24 5,066 5.39 Long-term debt 31,021 6.61 29,475 6.50 - --------------------------------------------------------------------------- Interest bearing liabilities 156,278 5.18 173,972 4.78 - --------------------------------------------------------------------------- Interest rate spread 3.46 3.50 Interest-free sources of funds 27,078 26,557 - --------------------------------------------------------------------------- Total sources of funds $183,356 4.41% $200,529 4.14% - --------------------------------------------------------------------------- Net interest margin 4.23% 4.14% ===========================================================================
The 9 basis point increase in net interest margin from the prior year quarter was primarily attributable to a strategic repositioning of the balance sheet for a lower interest rate environment, as well as the elimination of low-yielding earning assets that were previously necessary to support the higher level of activities in FleetBoston's investment banking operation. Partially offsetting this improvement was the impact of divestitures. Average securities decreased $3.1 billion to $32.5 billion for the three months ended March 31, 2001, primarily due to the sale of $8 billion of low-margin securities subsequent to the Summit merger. Average domestic loans and leases decreased $12.7 billion to $115.5 billion for the first quarter of 2001, compared with $128.2 billion for the first quarter of 2000, primarily driven by the divestiture of $9 billion of loans throughout 2000, commercial loan sales and securitizations in the fourth quarter of 2000, and lower domestic commercial loan levels. These declines were offset, in part, by strong growth in lease financing receivables. Average international loans and leases increased $3.5 billion to $18.3 billion due to commercial loan growth, primarily in Brazil. The $1.5 billion increase in average mortgages held for sale compared to the first quarter of 2000 resulted from higher mortgage production in the second half of 2000 and first quarter of 2001, caused by a decline in mortgage interest rates. The decrease in mortgage rates caused average yields on mortgages held for sale to decrease 81 basis points. Average other interest earning assets decreased $5.8 billion to $11 billion for the first quarter of 2001, primarily as a result of the previously mentioned elimination of low-yielding earning assets used to support investment banking operations. The $9.7 billion decrease in average interest bearing deposits compared to the first quarter of 2000 mainly reflects the impact of the $13 billion divestiture during the course of 2000, offset, in part, by an increase in international interest bearing deposits. The $8.2 billion decrease in average short-term borrowings is mainly attributable to the elimination of low-yielding liabilities that were previously necessary to support investment banking operations, and a change in funding mix, which resulted in a $1.5 billion increase in average long-term debt. Also contributing to the decrease in average short-term borrowings was a decrease in the availability and use of treasury, tax and loan borrowings. NONINTEREST INCOME
======================================================= Three months ended March 31 2001 2000 In millions - ------------------------------------------------------- Banking fees and commissions $ 390 $ 405 Investment services revenue 388 526 Processing-related revenue 188 160 Credit card revenue 164 166 Capital markets revenue 94 1,060 Other noninterest income 300 503 - ------------------------------------------------------- Total noninterest income $1,524 $2,820 =======================================================
The 46% decrease in noninterest income for the first quarter of 2001 compared to the same period in 2000 primarily reflects the effect of the capital markets slowdown on FleetBoston's capital markets and investment services businesses, as well as the absence of 2000 divestiture gains. In addition, first quarter 2001 capital markets revenue includes the previously mentioned $265 million loss on the sale of low-margin securities related to balance sheet repositioning subsequent to the Summit acquisition. These decreases were offset, in part, by $146 million of gains related to additional consideration received on the 2000 branch divestitures and the sales of several small businesses. BANKING FEES AND COMMISSIONS Banking fees and commissions, which include fees received for cash management, deposit accounts, electronic banking and other service fees, decreased $15 million, or 4%, to $390 million for the first quarter of 2001, primarily the result of lower deposit fees following the divestitures of $13 billion of deposits throughout 2000. Partially offsetting this decrease was a rise in cash management fees related to a higher volume of business. INVESTMENT SERVICES REVENUE
======================================================== Three months ended March 31 2001 2000 In millions - -------------------------------------------------------- Investment management revenue $247 $260 Brokerage fees and commissions 141 266 - -------------------------------------------------------- Total investment services revenue $388 $526 ========================================================
Investment services revenue decreased $138 million, or 26%, to $388 million for the three months ended 4 5 March 31, 2001. Changes in the components of investment management revenue are discussed below. The $125 million, or 47%, decline in brokerage fees and commissions was driven by the adverse market conditions experienced at both Quick & Reilly and Robertson Stephens in the first quarter of 2001, compared to the exceptionally strong markets in the prior year period. Investment Management Revenue
================================================== Three months ended March 31 2001 2000 In millions - -------------------------------------------------- Private Clients Group $ 98 $101 Institutional businesses 43 44 International 38 41 Columbia Management Company 27 27 Quick & Reilly 22 29 Mutual Fund & Investment 16 16 Other 3 2 - -------------------------------------------------- Total $247 $260 ==================================================
The 5% decline in investment management revenue in the first quarter of 2001, compared to the same period in 2000, was largely driven by adverse market conditions experienced during the quarter, which resulted in a decline in the market value of assets under management. At March 31, 2001, assets under management amounted to $128 billion, compared to $138 billion at March 31, 2000. PROCESSING-RELATED REVENUE
======================================================= Three months ended March 31 2001 2000 In millions - ------------------------------------------------------- Mortgage banking revenue, net $107 $ 90 Student loan servicing fees 42 39 Other 39 31 - ------------------------------------------------------- Total processing-related revenue $188 $160 =======================================================
Processing-related revenue increased $28 million, or 17.5%, in the first quarter of 2001 compared to the first quarter of 2000, reflecting increases in all categories, most notably mortgage banking revenue, which is more fully discussed below. Student loan servicing fees increased at AFSA Data Corporation (AFSA), FleetBoston's student loan servicing subsidiary, as accounts serviced increased approximately 6% from the first quarter of 2000. AFSA is the largest student loan servicer in the United States, with 7.7 million accounts and over $76 billion of loans serviced. Other processing-related revenue increased $8 million, or 26%, to $39 million for the three months ended March 31, 2001, due to the acquisition of Curtis & Associates, Inc. in the third quarter of 2000. Mortgage Banking Revenue, Net
================================================================ Three months ended March 31 2001 2000 In millions - ---------------------------------------------------------------- Net loan servicing revenue $ 169 $ 161 Mortgage production revenue 17 26 Gains on trading derivatives 43 -- Mortgage servicing rights amortization (122) (97) - ---------------------------------------------------------------- Total mortgage banking revenue, net $ 107 $ 90 ================================================================
Net mortgage banking revenue increased $17 million in the first quarter of 2001 compared to the first quarter of 2000, due mainly to gains from trading derivatives that were previously accounted for as hedges. As part of FleetBoston's adoption of SFAS No. 133, these positions were designated as trading as of January 1, 2001. This gain was offset, in part, by an increase in mortgage servicing rights (MSR) amortization recorded in the first quarter of 2001, primarily related to the declining rate environment, which reduces the value of MSRs. On April 2, 2001, FleetBoston announced a definitive agreement to sell its mortgage banking business. The sale is expected to close during the second quarter of 2001, and an estimated pre-tax loss on the sale of approximately $327 million ($225 million after-tax) was recorded in other noninterest expense in the first quarter of 2001. FleetBoston will continue to originate mortgage loans through its retail banking branches. CAPITAL MARKETS REVENUE
=========================================================== Three months ended March 31 2001 2000 In millions - ----------------------------------------------------------- Market-making revenue $ 197 $ 221 Foreign exchange revenue 43 46 Advisory fees 41 162 Underwriting revenue 40 256 Syndication/agency fees 40 40 Trading profits and commissions 3 80 Principal investing (57) 313 Securities losses (213) (58) - ----------------------------------------------------------- Total capital markets revenue $ 94 $ 1,060 ===========================================================
Excluding the previously mentioned securities losses of $265 million from balance sheet repositioning, more fully described below, capital markets revenue showed a significant decrease, falling $701 million, or 66%, compared to the first quarter of 2000. Nearly all categories of capital markets revenue declined from the extraordinary levels recorded in the first quarter of 2000. Revenues from capital markets activities are impacted by a variety of factors, including the condition of the economy, interest rates and equity markets. The significant slowdown in capital markets activities experienced in the first quarter is expected to continue in the foreseeable future. As such, future levels of capital markets revenue cannot be predicted with certainty. The $24 million, or 11%, decrease in market-making revenue resulted from decreased transaction volumes at Quick & Reilly and Robertson Stephens, offset, in part, 5 6 by increased activity at Fleet Meehan Specialist, where average daily trading volumes increased 58% over the first quarter of 2000. Average trading volume on the New York Stock Exchange (NYSE) increased in 2001 compared to 2000 levels for the same period. Included in Fleet Meehan Specialist is the former M.J. Meehan & Co., the NYSE specialist firm acquired by FleetBoston in October 2000. Advisory fees decreased $121 million from the first quarter of 2000. This decrease reflects a lower level of merger and acquisition (M&A) advisory activities at Robertson Stephens during the 2001 period compared to the 2000 period. Underwriting revenue declined $216 million, or 84%, in the first quarter of 2001 to $40 million. Underwriting revenues are affected by the volume and timing of public offerings and other transactions. As a result of the economic slowdown, transaction volume at Robertson Stephens decreased 87% compared to the first quarter of 2000. Trading profits and commissions declined $77 million compared to the quarter ended March 31, 2000, primarily due to the effect of adverse market conditions. The $370 million decline in principal investing revenues from the first quarter of 2000 resulted primarily from investment write-downs of $132 million recorded during the 2001 quarter as a result of the weakened market environment, as well as a significant decrease in gains from sales of direct investments. During the first quarter of 2001, the Corporation made new investments of $215 million, a level reflective of current market conditions. During the first quarter of 2000, new investments totaled $544 million. As of March 31, 2001, the Principal Investing portfolio had an aggregate carrying value of approximately $4.4 billion, composed of indirect investments in primary or secondary funds, direct investments in privately held companies and direct investments in companies whose stocks are publicly traded. Securities losses for the quarter ended March 31, 2001 included the previously mentioned $265 million loss on the sale of low-margin securities following a repositioning of FleetBoston's balance sheet subsequent to the Summit merger. Excluding this loss, FleetBoston realized gains of $52 million during the quarter, primarily attributable to sales of bonds, compared to losses of $58 million in the 2000 period. OTHER Other noninterest income decreased $203 million to $300 million for the first quarter of 2001, compared to $503 million for the first quarter of 2000. The 2000 period included $366 million of divestiture gains. The 2001 period included additional gains associated with 2000 branch divestitures, and gains from the sale of several small businesses, all of which combined totaled $146 million. NONINTEREST EXPENSE
==================================================================== Three months ended March 31 2001 2000 In millions - -------------------------------------------------------------------- Employee compensation and benefits $1,044 $1,544 Occupancy and equipment 300 310 Intangible asset amortization 100 97 Legal and other professional 69 88 Marketing and public relations 63 79 Merger- and restructuring-related charges 487 37 Loss on sale of mortgage banking business 327 -- Other 463 590 - -------------------------------------------------------------------- Total noninterest expense $2,853 $2,745 ====================================================================
Noninterest expense for the first quarter of 2001 increased $108 million, or 4%, compared to the same period in 2000. The 2001 quarter included $487 million of costs, composed of $408 million of charges recorded in connection with the Summit merger, to accrue for merger-related costs and a restructuring plan, and $79 million of restructuring charges related to a reorganization of capital markets businesses. Summit merger integration costs of $45 million, included in the table above by type of expense, were also incurred during the quarter. Finally, FleetBoston recorded a $327 million loss on the sale of its mortgage banking business. Noninterest expense for the same period a year ago included $100 million of integration costs incurred in connection with the BankBoston merger, including $37 million of incremental depreciation on certain assets that were used in the merger integration and were then disposed. Excluding nonrecurring charges, noninterest expense totaled $2 billion for the three months ended March 31, 2001, a decrease of $651 million, or 25%, from noninterest expense of $2.6 billion a year ago. This decrease primarily reflects lower incentive compensation directly related to lower levels of revenues in the capital markets businesses, and the effect of expense reductions realized from BankBoston merger integration activities and branch divestitures. Employee compensation and benefits costs decreased $500 million compared to the first quarter of 2000, principally due to revenue-related decreases in incentive compensation, primarily at Robertson Stephens and Quick & Reilly, a lower level of merger integration costs, and expense reductions achieved from merger integration activities during 2000. FleetBoston incurred $3 million and $18 million of merger integration costs in the first quarters of 2001 and 2000 related to the Summit and BankBoston mergers, respectively. Legal and other professional costs decreased $19 million, or 22%, due partly to merger integration costs of $4 million incurred in the first quarter of 2001 versus $10 million in the first quarter of 2000, and a decline in consulting fees, partly the result of a corporate-wide program to contain expenses in light of the slower economic environment. Marketing and public relations costs declined $16 million, or 20%, also as a result of corporate-wide 6 7 expense reduction efforts. Other noninterest expense decreased $127 million, or 22%, reflecting expense reductions realized in 2000 from BankBoston merger and divestiture activities. Included in other noninterest expense were integration costs of $32 million and $30 million for the first quarter of 2001 and 2000, respectively. The Summit merger, which was completed on March 1, 2001, produced $6 million of incremental first quarter cost savings. FleetBoston expects to achieve $300 million in annualized cost savings related to its merger with Summit. INCOME TAXES Income tax expense totaled $133 million for the first quarter of 2001, compared with $727 million for the same period a year ago, with an effective tax rate of 48.4% and 40.3% for the first quarters of 2001 and 2000, respectively. The increase in the effective tax rate was generally attributable to a portion of the merger and restructuring-related charges that were nondeductible. LINE OF BUSINESS INFORMATION FleetBoston is organized and managed along three principal lines of business: Corporate and Global Banking, Consumer and Investment Services and Capital Markets. This newly created, customer focused organizational structure was implemented on January 1, 2001. For additional information about the products and services offered by each line of business, refer to the "Line of Business Information" section of Management's Discussion and Analysis, included in the Corporation's Current Report on Form 8-K dated May 4, 2001. The financial performance of business lines is monitored by an internal profitability measurement system, which provides business line results and key performance measures. Information for both the first quarter of 2001 and the first quarter of 2000 presented below reflects the merger with Summit. The information is presented on a fully taxable equivalent basis. LINE OF BUSINESS EARNINGS SUMMARY
============================================================================================ Three months ended March 31 2001 2000 2001 2000 2001 2000 Dollars in millions Net Income Total Revenue Return on Equity - -------------------------------------------------------------------------------------------- Corporate and Global Banking $373 $ 347 $1,378 $1,386 20% 19% Consumer and Investment Services 313 372 1,810 2,095 17 20 Capital Markets (42) 296 166 1,000 -- 54 All Other (502) 61 106 405 -- -- - -------------------------------------------------------------------------------------------- Total $142 $1,076 $3,460 $4,886 3% 25% ============================================================================================
The following discussion focuses on the components and results of each of the three major business lines. CORPORATE AND GLOBAL BANKING
========================================================================== Three months ended March 31 2001 2000 Dollars in millions - -------------------------------------------------------------------------- Income statement data: Net interest income $ 934 $ 943 Noninterest income 444 443 Provision 167 144 Noninterest expense 591 657 Taxes 247 238 - -------------------------------------------------------------------------- Net income $ 373 $ 347 - -------------------------------------------------------------------------- Balance sheet data: Average assets $117,311 $129,744 Average loans 97,830 96,490 Average deposits 31,800 31,728 - -------------------------------------------------------------------------- Return on equity 20% 19% ==========================================================================
Corporate and Global Banking earned $373 million in the first quarter of 2001, a 7% increase over the $347 million earned in the first quarter of 2000. Increased earnings were driven by strong results in Commercial Finance and International Banking, partly offset by declines in Corporate Banking and Middle Market. 7 8 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS A more detailed analysis of the supporting business units follows.
================================================================================ Three months ended March 31 2001 2000 % 2001 2000 % Dollars in millions Net Income Change Total Revenue Change - -------------------------------------------------------------------------------- Commercial Finance $130 $105 24% $ 369 $ 339 9% International 102 82 24 451 431 5 Banking Corporate Banking 87 96 (9) 314 341 (8) Middle Market 54 64 (16) 244 275 (11) - -------------------------------------------------------------------------------- Total $373 $347 7% $1,378 $1,386 (1)% ================================================================================
Commercial Finance Commercial Finance earned $130 million in the first quarter of 2001, compared to $105 million a year ago, an increase of 24%. Increased earnings were driven primarily by higher leasing revenues and lower operating expenses. International Banking Compared to the first quarter of 2000, International Banking earnings increased $20 million, or 24%, mainly due to strong loan growth in key Latin American markets, primarily Brazil, and effective control of operating expenses. Average deposit balances grew $1.2 billion during the quarter, while average loan balances grew $3 billion over the first quarter of 2000. At March 31, 2001, international mutual fund assets under management totaled $8 billion. Corporate Banking Corporate Banking recorded earnings of $87 million in the first quarter of 2001, a decrease of $9 million, or 9%, compared to the first quarter of 2000. This decline was driven by decreases in capital markets revenues and investment banking fees associated with the adverse conditions in the financial markets, as well as increased credit costs, partially offset by a corresponding decrease in operating expenses. Middle Market For the first quarter of 2001, Middle Market earned $54 million, a decrease of $10 million, or 16%, from the prior year quarter. Lower earnings were the result of a $2.9 billion decline in the loan portfolio, a portion of which was attributable to divestitures resulting from the BankBoston merger, partially offset by lower credit costs and operating expense levels. Average loan and deposit balances were $16.1 billion and $11 billion, respectively, for the first quarter of 2001, compared to $18.9 billion and $10.8 billion, respectively, for the 2000 period. CONSUMER AND INVESTMENT SERVICES
===================================================== Three months ended March 31 2001 2000 Dollars in millions - ----------------------------------------------------- Income statement data: Net interest income $ 878 $ 1,049 Noninterest income 932 1,046 Provision 97 133 Noninterest expense 1,191 1,333 Taxes 209 257 - ----------------------------------------------------- Net income $ 313 $ 372 - ----------------------------------------------------- Balance sheet data: Average assets $53,035 $56,491 Average loans 33,499 36,147 Average deposits 85,241 94,328 - ----------------------------------------------------- Return on equity 17% 20% =====================================================
Consumer and Investment Services, which includes domestic banking to consumer and small business customers, investment management and retail brokerage services, and the domestic credit card business, earned $313 million in the first quarter of 2001, down from $372 million in the first quarter of 2000. Results reflect the impact of divestitures--primarily affecting the Consumer and Small Business units--as well as lower earnings in the Wealth Management and Brokerage units stemming from declines in the equity markets.
================================================================================ Three months ended March 31 2001 2000 % 2001 2000 % Dollars in millions Net Income Change Total Revenue Change - -------------------------------------------------------------------------------- Consumer Businesses $172 $168 2% $ 892 $ 991 (10)% Wealth Management and Brokerage 65 111 (41) 436 547 (20) Small Business 41 64 (36) 246 294 (16) Credit Card 35 29 21 236 263 (10) - -------------------------------------------------------------------------------- Total $313 $372 (16)% $1,810 $2,095 (14)% ================================================================================
Consumer Businesses The Consumer Businesses unit is composed of the retail distribution network, community banking, consumer lending, student lending and mortgage banking. The sale of the mortgage banking unit was announced in April 2001, and the estimated loss on the sale is included in All Other. The Consumer Businesses unit earned $172 million in the first quarter of 2001, a slight increase over the prior year, despite the significant impact of divestitures. Increased earnings were primarily driven by lower operating expenses as a result of expense reductions realized from merger integration activities. Wealth Management and Brokerage Wealth Management and Brokerage includes the Investment Services units: the Private Clients Group, Columbia Management, the Mutual Funds & Investments Group and several businesses offering retirement planning, large institutional asset management and not-for-profit investment services, as well as the Quick & Reilly retail brokerage and clearing units. Wealth Management and Brokerage earned $65 million in the first quarter of 8 9 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 2001, compared to $111 million in the first quarter of 2000, a decrease of $46 million. These lower results were due to the significant decline in performance levels at Quick & Reilly, as brokerage-related revenues declined along with the overall activity in the equity markets. In addition, the market value of domestic assets under management declined $9.6 billion from March 31, 2000 to approximately $120 billion at March 31, 2001. Small Business Earnings for this unit were $41 million in the first quarter of 2001, $23 million, or 36%, lower than the first quarter of 2000, largely the result of divestitures. For the first quarter of 2001, average loans were $4.3 billion while average deposits were $12.6 billion, reflecting decreases of $1 billion and $1.9 billion, respectively, from a year ago, again due to divestitures. Credit Card FleetBoston's credit card subsidiary is the tenth largest bank credit card issuer in the nation in terms of managed credit card receivables. This unit earned $35 million for the first quarter of 2001, an increase of 21%, as improvements in credit quality and the associated decrease in provision for credit losses offset declines in revenues. CAPITAL MARKETS
===================================================== Three months ended March 31 2001 2000 Dollars in millions - ----------------------------------------------------- Income statement data: Net interest income $ (16) $ 6 Noninterest income 182 994 Provision -- -- Noninterest expense 233 512 Taxes (25) 192 - ----------------------------------------------------- Net income $ (42) $ 296 - ----------------------------------------------------- Balance sheet data: Average assets $ 9,164 $10,244 Average loans 286 444 Average deposits 63 23 - ----------------------------------------------------- Return on equity --% 54% =====================================================
Capital Markets includes Fleet Meehan Specialist, Robertson Stephens and Principal Investing. This group incurred a loss of $42 million for the first quarter of 2001, compared to net income of $296 million in the same quarter a year ago. A more detailed analysis of these business units follows.
=========================================================================== Three months ended March 31 2001 2000 % 2001 2000 % Dollars in millions Net Income Change Total Revenue Change - --------------------------------------------------------------------------- Fleet Meehan Specialist $ 32 $ 20 60% $ 97 $ 60 62% Robertson Stephens (9) 121 (107) 158 647 (76) Principal Investing (65) 155 (142) (89) 293 (130) - --------------------------------------------------------------------------- Total $(42) $296 (114)% $ 166 $1,000 (83)% ===========================================================================
Fleet Meehan Specialist Fleet Meehan Specialist is one of the largest specialist firms on the NYSE, representing the common stocks of more than 500 companies. This unit includes the former M.J. Meehan & Co., which FleetBoston acquired in October 2000. This unit earned $32 million for the first quarter of 2001, an increase of $12 million, or 60%, over the first quarter of 2000. Increased brokerage market-making revenues, reflecting higher volumes and volatility in the stock market, drove the increased earnings. This unit's average daily trading volumes increased 58% over the first quarter of 2000. Robertson Stephens Robertson Stephens is a full-service investment banking firm focused on providing growth companies with a comprehensive set of investment banking products and services, including equity underwriting, sales and trading, research, advisory services, convertible securities and equity derivatives. Robertson Stephens channels capital to companies by providing investment banking, brokerage services and research to investors. This unit incurred a net loss of $9 million in the first quarter of 2001, compared to net income of $121 million in the first quarter of 2000. Lower earnings were mainly a result of declining underwriting and M&A activities compared to the extraordinary levels of the first quarter of 2000. The number of underwriting transactions that went to market in the 2001 period decreased 87%, while the level of announced M&A transactions declined 64%. Principal Investing Principal Investing provides capital and debt financing to business ventures that are predominantly privately or closely held companies. The Principal Investing business recorded a loss of $65 million in the first quarter of 2001, a decrease of $220 million from the same quarter last year. Principal Investing's earnings were affected by the sharp decline in gains realized on sales of direct investments, coupled with $132 million of investment write-downs during the 2001 quarter. Principal Investing earnings are sensitive to changes in the condition of equity markets and the overall state of the economy. Accordingly, earnings for this unit can fluctuate significantly. At March 31, 2001, the aggregate carrying value of the Principal Investing portfolio was $4.4 billion. 9 10 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS ALL OTHER All Other includes transactions not allocated to the principal business lines and the residual impact of methodology allocations, such as the provision for credit losses, credit loss reserves and equity allocations, combined with transfer pricing offsets. The business activities of FleetBoston's Treasury unit are also included in All Other. The Treasury unit is responsible for managing the Corporation's securities and residential mortgage portfolios, the balance sheet management function and wholesale funding needs. Earnings in All Other can fluctuate with changes affecting the consolidated provision for credit losses, one-time charges, gains and other actions not driven by specific business units. All Other had a net loss of $502 million in the first quarter of 2001, compared to net income of $61 million in the first quarter of 2000. The first quarter of 2001 included after-tax charges of $728 million related to the Summit merger, the sale of the mortgage banking unit and the restructuring of certain capital markets businesses, as well as $146 million of additional gains from 2000 divestitures and the sale of several small businesses. The first quarter of 2000 benefited from $149 million of after-tax divestiture gains, net of merger integration expenses, related to the BankBoston merger. FINANCIAL CONDITION Total assets were $211.7 billion as of March 31, 2001. The decrease of $7.3 billion from December 31, 2000 reflected a $9.4 billion decrease in securities, resulting from the sale of $8 billion of low-margin securities in connection with a repositioning of the balance sheet for asset and liability management purposes following the Summit merger, and a decrease of $3.2 billion in loans and leases as a result of runoff and a decline in business volume. These decreases were offset in part by a rise in federal funds sold and securities purchased under agreements to resell, due primarily to excess capital following the securities sales. Short-term borrowings decreased $4.5 billion from December 31, 2000 to March 31, 2001, attributable to decreased use of federal funds purchased and securities sold under agreements to repurchase. The $1.6 billion decrease in long-term debt was primarily the result of maturities during the quarter. SECURITIES
================================================================================================================= March 31, 2001 December 31, 2000 March 31, 2000 Amortized Market Amortized Market Amortized Market In millions Cost Value Cost Value Cost Value - ----------------------------------------------------------------------------------------------------------------- Securities available for sale: U.S. Treasury and government agencies $ 815 $ 827 $ 1,770 $ 1,769 $ 2,050 $ 1,981 Mortgage-backed securities 15,256 15,484 19,327 19,411 18,347 17,572 Foreign debt securities 2,840 2,810 2,734 2,754 2,668 2,720 Other debt securities 2,997 3,017 2,843 2,832 2,046 1,988 - ----------------------------------------------------------------------------------------------------------------- Total debt securities 21,908 22,138 26,674 26,766 25,111 24,261 - ----------------------------------------------------------------------------------------------------------------- Marketable equity securities 846 757 1,099 1,072 1,356 2,180 Other equity securities 2,129 2,129 2,067 2,067 1,743 1,743 - ----------------------------------------------------------------------------------------------------------------- Total securities available for sale 24,883 25,024 29,840 29,905 28,210 28,184 - ----------------------------------------------------------------------------------------------------------------- Total securities held to maturity 585 588 5,059 5,027 6,429 6,196 - ----------------------------------------------------------------------------------------------------------------- Total securities $25,468 $25,612 $34,899 $34,932 $34,639 $34,380 =================================================================================================================
The amortized cost of securities available for sale decreased to $24.9 billion at March 31, 2001 compared to $29.8 billion at December 31, 2000. This decrease was due to the above-mentioned securities sales. The overall valuation of securities available for sale increased to a net unrealized (pre-tax) gain position of $141 million at March 31, 2001, primarily related to mortgage-backed securities, as well as the balance sheet repositioning initiative. The $4.5 billion decrease in the amortized cost of securities held to maturity resulted from a one-time reclassification of securities held to maturity to securities available for sale in connection with the adoption of SFAS No. 133. LOANS AND LEASES
============================================================================= March 31, Dec. 31, March 31, In millions 2001 2000 2000 - ----------------------------------------------------------------------------- Domestic: Commercial and industrial $ 54,249 $ 56,147 $ 62,945 Commercial real estate 11,336 11,641 11,164 Consumer 34,424 36,323 41,175 Lease financing 13,296 13,567 11,267 - ----------------------------------------------------------------------------- Total domestic loans and leases 113,305 117,678 126,551 - ----------------------------------------------------------------------------- International: Commercial 15,415 14,221 11,760 Consumer 2,920 2,935 3,062 - ----------------------------------------------------------------------------- Total international loans and leases 18,335 17,156 14,822 - ----------------------------------------------------------------------------- Total loans and leases $131,640 $134,834 $141,373 =============================================================================
10 11 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The loan and lease portfolio inherently includes credit risk, which is the risk of loss arising from a counterparty's failure or inability to meet payment or performance terms of a contract with the Corporation. FleetBoston attempts to control such risk through analysis of credit applications, portfolio diversification and ongoing examinations of outstandings and delinquencies. FleetBoston strives to identify potential classified assets as early as possible, to take charge-offs promptly based on realistic assessments of probable losses and to maintain an adequate reserve for credit losses. Total loans and leases at March 31, 2001 decreased $3.2 billion from December 31, 2000. This decrease was due to declines of $1.9 billion in domestic commercial and industrial (C&I) loans, resulting from loan run-off and lower business volume, as well as a $1.9 billion decline in consumer loans, attributable to lower consumer margin loans and a new credit card securitization. These decreases were offset, in part, by a $1.2 billion increase in the international loan portfolio, principally in Brazil. CONSUMER LOANS
============================================================== March 31, Dec. 31, March 31, In millions 2001 2000 2000 - -------------------------------------------------------------- Domestic: Home equity $12,375 $12,507 $11,403 Residential real estate 11,051 11,425 15,384 Credit card 4,587 5,126 5,130 Student loans 1,202 1,109 1,613 Installment/other 5,209 6,156 7,645 - -------------------------------------------------------------- Total domestic loans 34,424 36,323 41,175 - -------------------------------------------------------------- International 2,920 2,935 3,062 - -------------------------------------------------------------- Total consumer loans $37,344 $39,258 $44,237 ==============================================================
Compared to December 31, 2000, domestic consumer loans decreased $1.9 billion, or 5%, to $34.4 billion at March 31, 2001. The $374 million decrease in residential real estate loans from year-end was primarily the result of loan run-off during the first quarter of 2001. Credit card loans declined $539 million to $4.6 billion at March 31, 2001, mainly due to a new securitization of $950 million of credit card receivables during the first three months of 2001, offset, in part, by growth in the owned portfolio. The $947 million decrease in installment/other consumer loans was primarily attributable to lower margin lending at Quick & Reilly. Cross-Border Outstandings In accordance with bank regulatory rules, cross-border outstandings are amounts payable to FleetBoston by residents of foreign countries, regardless of the currency in which the claim is denominated, and local country claims in excess of local country obligations. At March 31, 2001, total cross-border outstandings were $13.5 billion, compared with $13.2 billion at December 31, 2000, which included $6.9 billion and $6.5 billion, respectively, of cross-border outstandings to Latin America. Further information with respect to FleetBoston's cross-border outstandings is included in the "Cross-Border Outstandings" section of Management's Discussion and Analysis, contained in its Current Report on Form 8-K dated May 4, 2001. In addition to credit risk, cross-border outstandings have the risk that, as a result of political or economic conditions in a country, borrowers may be unable to meet their contractual repayment obligations of principal and/ or interest when due because of the unavailability of, or restrictions on, foreign exchange needed by borrowers to repay their obligations. FleetBoston manages its cross-border outstandings using country exposure limits established by its Country Exposure Committee. The following table details by country FleetBoston's approximate cross-border outstandings that individually amounted to 1% or more of its consolidated total assets at March 31, 2001 and December 31, 2000. 11 12 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS Significant Cross-Border Outstandings(a)(b)
March 31, Dec. 31, Dollars in millions 2001(c)(d) 2000(c)(d) ==================================================================== Argentina: Banks $ 140 $ 115 Government entities and agencies 855 835 Other 1,375 1,425 - -------------------------------------------------------------------- Total $2,370 $2,375 - -------------------------------------------------------------------- Percentage of total assets 1.1% 1.1% - -------------------------------------------------------------------- Commitments(e) $ 96 $ 13 - -------------------------------------------------------------------- Brazil: Banks $ 20 -- Government entities and agencies 1,130 -- Other 1,120 -- - -------------------------------------------------------------------- Total $2,270 -- - -------------------------------------------------------------------- Percentage of total assets 1.1% -- - -------------------------------------------------------------------- Commitments(e) $ 90 -- ====================================================================
(a) Cross-border outstandings include deposits in other banks, resale agreements, trading securities, securities available for sale and held to maturity, loans and leases, amounts due from customers on acceptances, accrued interest receivable and revaluation gains on trading derivatives. Excluded from cross-border outstandings are claims reallocated as a result of external guarantees, cash collateral and insurance contracts primarily issued by U.S. government agencies. (b) Cross-border outstandings in countries which totaled between .75% and 1% of consolidated total assets were approximately as follows: March 31, 2001-none; December 31, 2000-Brazil-$2 billion. (c) Local country assets and local country liabilities for Argentina and Brazil are summarized below. Local country assets in excess of local country liabilities are included in cross-border outstandings.
---------------------------------------------------------- March 31, 2001 December 31, 2000 Local Country Local Country In billions Assets Liabilities Assets Liabilities ---------------------------------------------------------- Argentina $ 6.4 $ 5.6 $ 6.2 $ 5.5 Brazil 7.3 5.7 6.5 5.2 ----------------------------------------------------------
Included in local country liabilities are liabilities where the provider of funds assumes the risk of nonpayment due to currency exchange restrictions in a given country. Such liabilities were $3.5 billion at March 31, 2001 and December 31, 2000. (d) Excluding net local country outstandings, cross-border outstandings with a remaining maturity of less than one year, as a percentage of total outstandings, were approximately 50% for Argentina and 90% for Brazil at March 31, 2001 and 55% for Argentina and 70% for Brazil at December 31, 2000. (e) Commitments include legally binding cross-border letters of credit, guarantees and other commitments defined by the FFIEC guidelines. The Argentine economy continues to be impacted by the recession that began in 1999. Political discussions regarding a plan to improve the economy continue. A new finance minister was appointed in March of this year and was given broad powers to implement specific measures to improve the economy. The Argentine financial markets continue to experience periods of significant volatility. To date, Argentine cross-border outstandings and securities portfolios have not been significantly impacted by the economic and political situation described above. In management's judgment, the Argentine situation has not significantly impacted other Latin American countries where FleetBoston has operations. The Corporation will continue to closely monitor the Argentine economic and political situation and its potential impact on Argentine and other Latin American operations. However, it is not possible to predict what effect, if any, the economic and political events in Argentina will ultimately have on that country's economic growth or on FleetBoston's operations in Argentina or in other Latin American countries. The Argentine government recently announced plans to enter into a voluntary swap of existing government securities held by bondholders. Existing securities with principal and interest payments due between 2001-2006 will be swapped for new securities with longer maturities. The government has agreed in principle with seven investment banks to execute the swap. Current estimates are that approximately $20 billion of existing government securities will be included in the swap program. The specific conditions of the swap program are not yet available. 12 13 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS NONPERFORMING ASSETS(a)
=========================================================================================================================== March 31, 2001 December 31, 2000 March 31, 2000 - --------------------------------------------------------------------------------------------------------------------------- Current or Current or Current or less than less than less than 90 days 90 days 90 days In millions past due Noncurrent Total past due Noncurrent Total past due Noncurrent Total - --------------------------------------------------------------------------------------------------------------------------- Domestic: C&I $614 $255 $ 869 $578 $187 $ 765 $382 $231 $ 613 CRE 27 21 48 3 25 28 4 31 35 Consumer 5 68 73 4 83 87 10 111 121 OREO -- 29 29 -- 30 30 -- 35 35 - --------------------------------------------------------------------------------------------------------------------------- Total Domestic $646 $373 $1,019 $585 $325 $ 910 $396 $408 $ 804 - --------------------------------------------------------------------------------------------------------------------------- International: C&I $ -- $ 75 $ 75 $ 3 $ 78 $ 81 $ -- $ 94 $ 94 CRE 4 73 77 2 64 66 2 42 44 Consumer -- 59 59 -- 55 55 -- 81 81 OREO -- 15 15 -- 18 18 -- 16 16 - --------------------------------------------------------------------------------------------------------------------------- Total International $ 4 $222 $ 226 $ 5 $215 $ 220 $ 2 $233 $ 235 - --------------------------------------------------------------------------------------------------------------------------- Total NPAs $650 $595 $1,245 $590 $540 $1,130 $398 $641 $1,039 ===========================================================================================================================
(a) Throughout this Report, NPAs and related ratios do not include loans greater than 90 days past due and still accruing interest ($352 million, $361 million, and $293 million at March 31, 2001, December 31, 2000, and March 31, 2000, respectively). Included in these 90 days past due and still accruing amounts were $264 million, $276 million, and $213 million of consumer loans at March 31, 2001, December 31, 2000, and March 31, 2000, respectively. Nonperforming assets (NPAs) at March 31, 2001 increased $115 million to $1.2 billion when compared with December 31, 2000, and increased $206 million compared to March 31, 2000. The three month rise in NPAs was due primarily to additions to domestic C&I nonperforming loans (NPLs), offset, in part, by $61 million of NPLs which were reclassified during the first quarter of 2001 to assets held for sale by accelerated disposition (AHAD). NPAs at March 31, 2001, as a percentage of total loans, leases and OREO, and as a percentage of total assets, were .95% and .59%, respectively, compared to .84% and .52%, respectively, at December 31, 2000. As noted in previous public comments and prior filings with the Securities and Exchange Commission (the SEC), FleetBoston anticipates increases in NPAs during 2001, primarily related to domestic C&I loans. Future levels of NPAs will be influenced by the economic environment, interest rates and other internal and external factors existing at the time. As such, no assurance can be given as to future levels of NPAs. The following table sets forth the status of impaired loans, which are primarily commercial and commercial real estate loans on nonaccrual status. Impaired Loans
================================================================== March 31, Dec. 31, In millions 2001 2000 - ------------------------------------------------------------------ Impaired loans with a reserve $ 801 $ 722 Impaired loans without a reserve 220 164 - ------------------------------------------------------------------ Total impaired loans $1,021 $ 886 - ------------------------------------------------------------------ Reserve for impaired loans(a) $ 328 $ 268 - ------------------------------------------------------------------ Quarterly average balance of impaired loans $ 956 $1,007 ==================================================================
(a) The reserve for impaired loans is part of the Corporation's overall reserve for credit losses. Substantially all of the impaired loans presented above were on nonaccrual status and the amount of interest income recognized on impaired loans was not significant. FleetBoston had no significant outstanding commitments to lend additional funds to customers whose loans have been placed on nonaccrual status or the terms of which have been modified. At March 31, 2001, FleetBoston had AHAD with a net carrying value of $177 million, all of which were not accruing interest. At December 31, 2000 and March 31, 2000, the net carrying value of AHAD was $138 million and $498 million respectively, of which approximately $136 million and $320 million, respectively, were not accruing interest. Transfers to this category are made in accordance with management's intention to focus appropriate resources on the disposition of these assets. Such assets are classified as other assets in the consolidated balance sheet, and the portions not accruing interest are excluded from the preceding NPA table. RESERVE FOR CREDIT LOSSES ACTIVITY
===================================================================== Three months ended March 31 2001 2000 Dollars in millions - --------------------------------------------------------------------- Balance at beginning of year $ 2,709 $ 2,816 Loans charged off (330) (351) Recoveries of loans charged off 60 56 - --------------------------------------------------------------------- Net charge-offs (270) (295) Provision for credit losses 315 320 Divestitures/Acquisitions/Other -- (31) - --------------------------------------------------------------------- Balance at end of period $ 2,754 $ 2,810 - --------------------------------------------------------------------- Ratios of net charge-offs to average loans .82% .83% - --------------------------------------------------------------------- Ratios of reserve for credit losses to period-end loans 2.09 1.99 - --------------------------------------------------------------------- Ratios of reserve for credit losses to period-end NPLs 229 284 =====================================================================
The reserve for credit losses at March 31, 2001 decreased $56 million from March 31, 2000. This decrease 13 14 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS was the result of transfers of reserves throughout 2000 related to divestitures of loans. The drop in net charge-offs in the quarterly comparison resulted from lower levels of credit card and other consumer charge-offs, partly offset by increased charge-offs of domestic C&I loans. The increase in the reserve for credit losses from December 31, 2000 to March 31, 2001 was the result of the provision for credit losses exceeding net charge-offs by $45 million. Further information with respect to the reserve for credit losses is included in the "Reserve for Credit Losses" section of Management's Discussion and Analysis contained in FleetBoston's Current Report on Form 8-K dated May 4, 2001. ASSET AND LIABILITY MANAGEMENT The goal of asset and liability management is the prudent control of market risk, liquidity risk and use of capital. Asset and liability management is governed by policies reviewed and approved annually by the FleetBoston Board of Directors (the Board), which delegates responsibility for asset and liability management to the Asset, Liability and Capital Committee (ALCCO). Further information with respect to asset and liability management, including related policies, is included in the "Asset and Liability Management" section of Management's Discussion and Analysis contained in FleetBoston's Current Report on Form 8-K dated May 4, 2001. MARKET RISK MANAGEMENT Market risk is the sensitivity of income and capital to variations in interest rates, foreign exchange rates, equity prices, commodity prices and other market-driven rates or prices. FleetBoston is exposed to market risk both in its balance sheet management activities and in its trading activities. The market risk management process for these activities applies to both balance sheet and off-balance sheet exposures. Balance Sheet Management - U.S. Dollar Denominated Risk U.S. dollar denominated assets and liabilities comprise the majority of the consolidated balance sheet. Interest rate risk, which is the sensitivity of income or financial condition to variations in interest rates, is by far the most significant non-trading market risk to which the U.S. dollar denominated positions are exposed. Interest rate risk arises directly from core banking activities - lending and deposit gathering. The interest rate risk exposure of U.S. dollar denominated positions results almost entirely from domestic operations. Such exposure of U.S. dollar denominated assets and liabilities in overseas operations is not significant. Board-approved limits on interest rate risk specify that if interest rates in the base forecast scenario were to shift immediately up or down 200 basis points, estimated net interest income for the subsequent 12 months should decline by less than 7.5%. The base scenario for March 31, 2001, intended to reflect current market consensus, envisioned approximately 100 basis points of further interest rate easing by the Federal Reserve Board, half of which occurred in April 2001. The limit relates to the impact of an immediate increase or decrease in forecasted interest rates relative to the base scenario. FleetBoston was in compliance with the limit at March 31, 2001. The following table reflects the estimated exposure of net interest income for the next 12 months due to an immediate shift in forecasted interest rates. This analysis reflects the balance sheet as of March 31, 2001, adjusted for the anticipated sale of the mortgage banking business, which was announced in April 2001. The analysis does not reflect the impact of balance sheet management transactions executed subsequent to quarter-end to offset the expected impact of the sale on net interest income.
Estimated Exposure to Rate Change Net Interest Income (Basis Points) (In millions) - ----------------------------------------------------- March 31, Dec. 31, 2001 2000 - ----------------------------------------------------- +200 $ 68 $(121) -200 (137) 97 =====================================================
As indicated, an immediate 200 basis point decrease in interest rates relative to the base scenario would tend to reduce net interest income but by an amount that is well within Board-approved limits. An immediate 200 basis point increase in interest rates would tend to enhance net interest income. The change in position during the quarter ended March 31, 2001 reflects a number of events, including the termination of $6 billion of receive-fixed/pay-variable interest rate swaps in January 2001; the completion of the Summit acquisition; and the announcement of the sale of the mortgage banking business. While the balance sheet position as of March 31, 2001 appears modestly asset-sensitive, subsequent balance sheet management transactions related to the sale of the mortgage banking business have reduced this exposure. Furthermore, while an immediate and severe shift in interest rates is used in this analysis to provide an estimate of exposure under an extremely adverse scenario, management believes that the exposure of net interest income to gradual and modest changes in interest rates is relatively insignificant. Given a gradual (1-year) 200 basis point increase or decrease in interest rates relative to the base scenario, there is currently no material exposure to annual net interest income. Net interest income would tend to benefit from a steepening of the yield curve. FleetBoston also performs valuation analysis, which involves projecting future cash flows from assets, liabilities and derivative positions over a very long-term horizon, discounting those cash flows at appropriate interest rates, and then aggregating the discounted cash flows. The "Economic Value of Equity" (EVE) is the estimated net present value of these discounted cash flows. Board-approved limits on interest rate risk specify that if interest rates in the base forecast scenario were to shift immediately up or down 200 basis points, the estimated EVE should decline by less than 10%. FleetBoston was in compliance with this limit at March 31, 2001. 14 15 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS The following table reflects estimated EVE exposures assuming an immediate shift in interest rates. Exposures are reported for shifts of +/- 100 basis points as well as +/- 200 basis points because the sensitivity of EVE to changes in interest rates can be very nonlinear.
Estimated Exposure to Rate Change Economic Value (Basis Points) (In millions) - ------------------------------------------------------- March 31, Dec. 31, 2001 2000 - ------------------------------------------------------- +200 $(399) $(611) +100 (372) (155) -100 150 (315) -200 (343) (451) =======================================================
As indicated, an immediate 200 basis point change in interest rates in either direction would reduce EVE, but by an amount that is well within Board-approved limits. Estimated EVE exposures at March 31, 2001 were similar but smaller than at December 31, 2000. These changes were a result of the balance sheet management transactions executed in the period as well as the acquisition of Summit; however, the major factor impacting estimated exposures was the anticipated sale of MSRs in connection with the sale of the mortgage banking business. SFAS No. 133, "Accounting for Derivative Instruments and Hedging Activities," was adopted as of January 1, 2001. For additional information on this new Standard, refer to Notes 2 and 11 to the Financial Statements. Balance Sheet Management - Non-U.S. Dollar Denominated Risk Non-U.S. dollar denominated assets and liabilities are exposed to interest rate and foreign exchange rate risks. The majority of the non-U.S. dollar denominated interest rate and foreign exchange rate risk exposure stems from operations in Latin America, primarily Argentina and Brazil. At March 31, 2001, exposure to non-trading interest rate risk in Latin American operations was not significant. Exposure to non-trading foreign exchange rate risk in Latin American operations is managed using a Value-at-Risk (VAR) methodology, which is discussed in the Trading Activities section of this discussion and analysis. 15 16 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
Risk Management Instruments ================================================================================================================================== Weighted Assets- Average Weighted Average March 31, 2001 Notional Liabilities Maturity Fair Rate Dollars in millions Value Hedged (Years) Value Receive Pay - ---------------------------------------------------------------------------------------------------------------------------------- DOMESTIC INTEREST RATE RISK MANAGEMENT INSTRUMENTS Interest rate swaps: Receive fixed/pay variable $ 13,318 Variable-rate loans 340 Fixed-rate deposits 485 Short-term debt 5,835 Long-term debt --------- 19,978 3.2 $680 6.93 % 5.79 % --------- Pay fixed/receive variable 100 Short-term debt --------- 100 4.1 (7) 4.93 6.87 --------- Options 1,500 Securities 450 Fixed-rate deposits 855 Long-term debt --------- 2,805 4.2 (45) --- --- - ---------------------------------------------------------------------------------------------------------------------------------- Total domestic interest rate risk management instruments 22,883 3.4 $628 6.92 % 5.80 % - ---------------------------------------------------------------------------------------------------------------------------------- INTERNATIONAL INTEREST RATE RISK MANAGEMENT INSTRUMENTS Interest rate swaps 135 Foreign currency 2.1 (2) 5.34 % 5.52 % denominated variable-rate deposits - ---------------------------------------------------------------------------------------------------------------------------------- Total international interest rate risk management instruments 135 2.1 (2) 5.34 % 5.52 % - ---------------------------------------------------------------------------------------------------------------------------------- Total hedges of net interest income $ 23,018 3.3 $626 6.91 % 5.79 % - ---------------------------------------------------------------------------------------------------------------------------------- MORTGAGE BANKING RISK MANAGEMENT INSTRUMENTS Swaps: Interest rate, P.O., and MBS swaps $ 15,498 MSRs 3.2 $ 4 6.00 % 4.93 % Options: Interest rate floors and options on swaps 56,882 MSRs 2.7 566 --- (a) --- (a) Interest rate caps 11,634 MSRs 3.7 49 --- (a) --- (a) Other options 477 MSRs .2 4 --- --- - ---------------------------------------------------------------------------------------------------------------------------------- Total options 68,993 2.9 619 --- --- - ---------------------------------------------------------------------------------------------------------------------------------- Total hedges of mortgage servicing rights $ 84,491 2.9 $623 6.00 % 4.93 % - ---------------------------------------------------------------------------------------------------------------------------------- FOREIGN EXCHANGE RISK MANAGEMENT INSTRUMENTS Swaps $ 1,225 Foreign currency 1.1 $ 89 --- --- denominated resale agreements Forward contracts 461 Foreign currency 1.0 5 --- --- denominated fixed-rate loans; fixed-rate deposits Futures 1,041 Foreign currency 1.1 --- --- --- denominated resale agreements - ---------------------------------------------------------------------------------------------------------------------------------- Total hedges of foreign exchange $ 2,727 1.1 $ 94 --- --- - ---------------------------------------------------------------------------------------------------------------------------------- Total risk management instruments $110,236 3.0 $1,343 6.51 % 5.42 % ==================================================================================================================================
(a)The mortgage banking risk management interest rate floors and options on swaps, and interest rate caps, have weighted average strike rates of 5.46% and 7.39%, respectively. Trading Activities The Corporation's trading activities create exposure to price risk, or the risk of loss in earnings arising from adverse changes in the value of trading portfolios of financial instruments. Price risk arises from market-making, dealing and position-taking in interest rate, equity, currency exchange rate and precious metals markets. Trading-related revenues include certain components of capital markets revenue (trading profits and commissions, foreign exchange revenue and market-making revenue), as well as net interest income from these trading positions. For the three months ended March 31, 2001, daily trading-related revenues ranged from a loss of $19.7 million to a profit of $22.6 million. For the 2000 period, such revenues ranged from a loss of $.3 million to a profit of $18.3 million. The Corporation uses a VAR methodology, based on industry-standard risk measurement techniques, to measure the overall price risk inherent in its activities. This methodology is more fully described on page 21 of the Current Report on Form 8-K dated May 4, 2001. Under this methodology, aggregate VAR averaged $40 million daily for the three months ended March 31, 2001, essentially unchanged from the daily average for all of 2000. At March 31, 2001, total VAR usage measured $46 million. In no instance during the current year quarter did FleetBoston's daily VAR measure exceed the approved limit. For the three months ended March 31, 2001, most of the price risk in the Corporation's trading activities arose from interest rate risk, which includes directional and spread components, and averaged $23 million, or 58%, of aggregate VAR. Interest rate risk arises primarily from trading activity in various domestic fixed-income markets, and in the Argentine and Brazilian sovereign and high-end corporate bond markets. The contribution to FleetBoston's VAR from equity trading activities for the first quarter of 2001 decreased somewhat, to an average of $10 million, or 25%, of aggregate VAR. The individual activities that generate most of these risks include the Corporation's large NYSE specialist firm, as well as NASDAQ market-making, equity 16 17 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS trading and a convertible bond trading and underwriting business. Risk from foreign exchange trading activities for the three months ended March 31, 2001 remained moderate at an average of $7 million, or 17%, of aggregate VAR. The majority of foreign exchange risk arises from the Corporation's Argentine and Brazilian operations, which establish positions with the intention of taking advantage of expected movements in currency exchange rates and/or interest rates. During the first quarter of 2001, the Corporation primarily maintained local currency assets funded with U.S. dollars. The daily average for the Argentine exposure measured $342 million, while the daily average for the Brazilian exposure measured $24 million. This compares with $294 million and $26 million, respectively, for the fourth quarter of 2000. Average VAR for commodity risk remained insignificant during the three months ended March 31, 2001. FleetBoston's independent Market Risk Management function routinely validates FleetBoston's measurement framework by conducting backtests, which compare the actual daily trading-related results against the estimated VAR with a one-day holding period. In no instance during the current year quarter did a daily aggregate trading loss exceed the one-day aggregate VAR measure associated with that date. [GRAPHIC OMITTED - LINE GRAPH REPRESENTATION OF DAILY TRADING-RELATED REVENUES AND VAR MEASURE WITH A ONE-DAY HOLDING PERIOD FOR THE THREE MONTHS ENDED MARCH 31, 2001] During the three months ended March 31, 2001, the daily trading-related revenues ranged from a loss of $19.7 million to a profit of $22.6 million. Over the same period, VAR with a one-day holding period ranged from $22 million to $36 million. In addition to the VAR framework, FleetBoston employs other risk measurement tools to evaluate and control price risk. These tools include cumulative loss limits and overall portfolio size limits, as well as regular stress tests and scenario analyses. While the VAR framework and the additional risk measurement tools effectively ensure exposures remain within the Corporation's expressed tolerance for price risk, they do not guarantee the avoidance of trading losses during periods of extreme volatility. LIQUIDITY RISK MANAGEMENT The objective of liquidity risk management is to assure the ability of FleetBoston and its subsidiaries to meet their financial obligations. These obligations are the payment of deposits on demand or at their contractual maturity, the repayment of borrowings as they mature, the ability to fund new and existing loan commitments and the ability to take advantage of new business opportunities. Liquidity is achieved by the maintenance of a strong base of core customer funds; maturing short-term assets; the ability to sell marketable securities; committed lines of credit and access to capital markets. Liquidity may also be enhanced through the securitization of commercial and consumer receivables. Further information with respect to liquidity risk management, including sources of liquidity for FleetBoston and its banking and nonbanking subsidiaries, is included in the "Liquidity Risk Management" section of Management's Discussion and Analysis contained in FleetBoston's Current Report on Form 8-K dated May 4, 2001. At March 31, 2001, the parent company had excess funds of $1.3 billion, compared to $1.7 billion at December 31, 2000, and commercial paper outstanding of $1 billion at March 31, 2001 and December 31, 2000. In addition, the parent company has backup lines of credit totaling $1 billion to provide funding should commercial paper not be available. At March 31, 2001 and December 31, 2000, the parent company had no outstanding balances under these lines of credit. At March 31, 2001, the parent company had $1.6 billion available for the issuance of senior or subordinated debt securities and other debt securities, common stock, preferred stock or trust preferred securities under a shelf registration statement filed with the SEC. Management believes the Corporation has sufficient liquidity to meet its liabilities to customers and debt holders. CAPITAL MANAGEMENT CAPITAL RATIOS
============================================================== March 31, Dec. 31, March 31, 2001 2000 2000 - -------------------------------------------------------------- Risk-adjusted assets (in millions) $209,399 $212,438 $222,216 Tier 1 risk-based capital (4% minimum) 7.96 % 8.08 % 7.02 % Total risk-based capital (8% minimum) 11.74 11.87 11.03 Leverage (3% minimum) 7.89 8.01 6.75 Common equity to assets 8.88 8.58 7.66 Total equity to assets 9.15 8.84 7.91 Tangible common equity to assets 6.93 6.64 5.72 Tangible common equity to managed assets 6.44 6.18 5.37 Tangible total equity to assets 7.20 6.90 5.97 ==============================================================
At March 31, 2001, FleetBoston exceeded all regulatory required minimum capital ratios, as its Tier 1 and Total risk-based capital ratios were 7.96% and 11.74%, respectively, compared with 8.08% and 11.87%, respectively, at December 31, 2000. The leverage ratio, a 17 18 MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS measure of Tier 1 capital to average quarterly assets, was 7.89% at March 31, 2001 compared with 8.01% at December 31, 2000. On April 15, 2001, the Corporation redeemed all of the outstanding shares of its 7.25% Series V perpetual preferred stock at its aggregate liquidation value of $191 million. On April 25, 2001, FleetBoston repurchased 189,420 of the 600,000 outstanding shares of its 6.75% Series VI perpetual preferred stock, having an aggregate liquidation value of $47.4 million. The Corporation may repurchase additional shares of its preferred stock from time to time, subject to market conditions, capital requirements and other factors. FORWARD-LOOKING STATEMENTS This Quarterly Report on Form 10-Q contains statements relating to future results of FleetBoston (including certain projections and business trends) that are considered "forward-looking statements" as defined in the Private Securities Litigation Reform Act of 1995. Actual results may differ materially from those contemplated as a result of certain risks and uncertainties, including, but not limited to, changes in general political and economic conditions, either domestically or internationally; interest rate and currency fluctuations; competitive product and pricing pressures within FleetBoston's market; equity and bond market fluctuations and perceptions; the level of nonperforming assets; inflation; technological changes, including the impact of the Internet; lower than expected cost savings or higher than expected costs associated with acquisitions and integrations of acquired businesses; greater than expected negative impact of required divestitures; adverse legislation or regulatory developments affecting the businesses in which FleetBoston is engaged; as well as other risks and uncertainties detailed from time to time in the filings of FleetBoston with the SEC. RECENT ACCOUNTING DEVELOPMENTS In September 2000, the FASB issued SFAS No. 140, "Accounting for Transfers and Servicing of Financial Assets and Extinguishments of Liabilities." The Standard provides consistent accounting standards for transfers of financial assets, and requires disclosure of information about securitized assets. The accounting requirements of the Standard are effective for transfers and servicing of financial assets and extinguishments of liabilities occurring after March 31, 2001, and must be applied prospectively. The required disclosures related to securitization transactions were provided in Note 18 to the Consolidated Financial Statements included in the Corporation's Current Report on Form 8-K dated May 4, 2001, and the impact of the accounting requirements of the Standard, which FleetBoston adopted as of April 1, 2001, is not expected to be material to its financial position or results of operations in future periods. 18 19 FLEETBOSTON FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF INCOME (unaudited)
======================================================================================== Three months ended March 31 2001 2000 Dollars in millions, except per share amounts ---------------------------------------------------------------------------------------- Interest income: Interest and fees on loans and leases $3,080 $3,268 Interest on securities and trading assets 613 616 Other 225 232 ---------------------------------------------------------------------------------------- Total interest income 3,918 4,116 ---------------------------------------------------------------------------------------- Interest expense: Deposits of domestic offices 772 790 Deposits of international offices 300 297 Short-term borrowings 361 435 Long-term debt 510 478 Other 56 68 ---------------------------------------------------------------------------------------- Total interest expense 1,999 2,068 ---------------------------------------------------------------------------------------- Net interest income 1,919 2,048 ---------------------------------------------------------------------------------------- Provision for credit losses 315 320 ---------------------------------------------------------------------------------------- Net interest income after provision for credit losses 1,604 1,728 ---------------------------------------------------------------------------------------- Noninterest income: Banking fees and commissions 390 405 Investment services revenue 388 526 Processing-related revenue 188 160 Credit card revenue 164 166 Capital markets revenue 94 1,060 Other 300 503 ---------------------------------------------------------------------------------------- Total noninterest income 1,524 2,820 ---------------------------------------------------------------------------------------- Noninterest expense: Employee compensation and benefits 1,044 1,544 Occupancy 154 182 Equipment 146 128 Intangible asset amortization 100 97 Legal and other professional 69 88 Marketing and public relations 63 79 Merger- and restructuring-related charges 487 37 Other 790 590 ---------------------------------------------------------------------------------------- Total noninterest expense 2,853 2,745 ---------------------------------------------------------------------------------------- Income before income taxes 275 1,803 Applicable income taxes 133 727 ---------------------------------------------------------------------------------------- Net income $ 142 $1,076 ======================================================================================== Diluted weighted average common shares outstanding (in millions) 1,095.9 1,097.4 Net income applicable to common shares $ 132 $1,066 Basic earnings per share .12 .99 Diluted earnings per share .12 .97 Dividends declared .33 .30 ========================================================================================
See accompanying Condensed Notes to Consolidated Financial Statements. 19 20 FLEETBOSTON FINANCIAL CORPORATION CONSOLIDATED BALANCE SHEETS (unaudited)
=================================================================================================================== March 31, December 31, Dollars in millions, except per share amounts 2001 2000 - ------------------------------------------------------------------------------------------------------------------- ASSETS Cash, due from banks and interest-bearing deposits $ 11,497 $ 12,826 Federal funds sold and securities purchased under agreements to resell 6,615 1,959 Trading assets 6,523 7,108 Mortgages held for sale 3,574 2,138 Securities (market value: $25,612 and $34,932) 25,609 34,964 Loans and leases 131,640 134,834 Reserve for credit losses (2,754) (2,709) - ------------------------------------------------------------------------------------------------------------------- Net loans and leases 128,886 132,125 - ------------------------------------------------------------------------------------------------------------------- Due from brokers/dealers 3,448 2,987 Premises and equipment 2,865 2,867 Mortgage servicing rights 2,735 2,695 Intangible assets 4,448 4,557 Other assets 15,541 14,859 - ------------------------------------------------------------------------------------------------------------------- Total assets $211,741 $219,085 =================================================================================================================== LIABILITIES Deposits: Domestic: Noninterest bearing $ 27,462 $ 29,707 Interest bearing 80,973 80,073 International: Noninterest bearing 1,595 1,628 Interest bearing 17,959 17,331 - ------------------------------------------------------------------------------------------------------------------- Total deposits 127,989 128,739 - ------------------------------------------------------------------------------------------------------------------- Federal funds purchased and securities sold under agreements to repurchase 8,428 12,955 Other short-term borrowings 10,134 10,151 Trading liabilities 2,195 2,540 Due to brokers/dealers 3,700 4,122 Long-term debt 30,134 31,684 Accrued expenses and other liabilities 9,783 9,533 - ------------------------------------------------------------------------------------------------------------------- Total liabilities 192,363 199,724 - ------------------------------------------------------------------------------------------------------------------- Commitments and contingencies (Note 10) STOCKHOLDERS' EQUITY Preferred stock 566 566 Common stock, par value $.01 (1,085.8 million shares issued in 2001 and 1,100.1 million shares issued in 2000) 11 11 Common surplus 4,013 4,814 Retained earnings 14,392 14,561 Accumulated other comprehensive income 539 40 Treasury stock, at cost (3.5 million shares in 2001 and 14.6 million shares in 2000) (143) (631) - ------------------------------------------------------------------------------------------------------------------- Total stockholders' equity 19,378 19,361 - ------------------------------------------------------------------------------------------------------------------- Total liabilities and stockholders' equity $211,741 $219,085 ===================================================================================================================
See accompanying Condensed Notes to Consolidated Financial Statements. 20 21 FLEETBOSTON FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
============================================================================================================================= Accumulated Other Three months ended March 31 Preferred Common Common Retained Comprehensive Treasury Dollars in millions, except per share amounts Stock Stock Surplus Earnings Income/(Loss) Stock Total - ----------------------------------------------------------------------------------------------------------------------------- 2000 - ---- Balance at December 31, 1999 $691 $11 $5,273 $12,020 $301 $(222) $18,074 Net income 1,076 1,076 Other comprehensive income, net of taxes: Change in unrealized gain on securities available for sale, net of taxes and reclassification adjustment (347) Change in translation adjustment, net of taxes --- -------------- Other comprehensive income (347) (347) --------- Total comprehensive income 729 Cash dividends declared on common stock ($.30 per share) (271) (271) Cash dividends declared by pooled company prior to merger (58) (58) Cash dividends declared on preferred stock (10) (10) Common stock issued in connection with dividend reinvestment and employee benefit plans (12) (12) 38 14 Business combinations (26) 130 104 Redemption of preferred stock (125) (125) Treasury stock purchased (9) (9) Settlement of forward purchase contracts (585) (585) Other, net 1 1 - ----------------------------------------------------------------------------------------------------------------------------- Balance at March 31, 2000 $566 $11 $5,235 $12,745 $(46) $(647) $17,864 - ----------------------------------------------------------------------------------------------------------------------------- 2001 - ---- Balance at December 31, 2000 $566 $11 $4,814 $14,561 $ 40 $(631) $19,361 Net income 142 142 Other comprehensive income, net of taxes: Change in unrealized gain on securities available for sale, net of taxes and reclassification adjustment 68 Change in translation adjustment, net of taxes 5 Change in derivative instruments, net of taxes: Cumulative effect of adopting SFAS No. 133 204 Changes in fair values of derivatives 88 Net losses reclassified to noninterest income 134 -------------- Other comprehensive income 499 499 --------- Total comprehensive income 641 Cash dividends declared on common stock ($.33 per share) (358) (358) Cash dividends declared on preferred stock (10) (10) Common stock issued in connection with dividend reinvestment and employee benefit plans 154 57 37 248 Exercise of common stock warrants 77 77 Treasury stock purchased (581) (581) Retirement of treasury stock (1,033) 1,033 --- Other, net 1 (1) --- - ----------------------------------------------------------------------------------------------------------------------------- Balance at March 31, 2001 $566 $11 $4,013 $14,392 $539 $(143) $19,378 =============================================================================================================================
See accompanying Condensed Notes to Consolidated Financial Statements. 21 22 FLEETBOSTON FINANCIAL CORPORATION CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
===================================================================================================================== Three months ended March 31 2001 2000 In millions - --------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM OPERATING ACTIVITIES Net income $ 142 $ 1,076 Adjustments for noncash items: Depreciation and amortization of premises and equipment 135 156 Amortization of mortgage servicing rights 122 97 Amortization of other intangible assets 100 97 Provision for credit losses 315 320 Deferred income tax (benefit)/expense (125) 61 Securities losses 213 58 Merger- and restructuring-related charges 487 37 Gains on branch divestitures --- (366) Originations and purchases of mortgages held for sale (9,211) (3,589) Proceeds from sales of mortgages held for sale 7,775 3,947 Decrease/(increase) in trading assets 585 (173) Decrease in trading liabilities (345) (478) Increase in due from brokers/dealers (461) (1,248) Decrease/(increase) in accrued receivables, net 715 (31) (Decrease)/increase in due to brokers/dealers (422) 1,094 (Decrease)/increase in accrued liabilities, net (241) 1,430 Other, net (537) (2,297) - --------------------------------------------------------------------------------------------------------------------- Net cash flow (used in)/provided by operating activities (753) 191 - --------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM INVESTING ACTIVITIES Net increase in federal funds sold and securities purchased under agreements to resell (4,656) (825) Purchases of securities available for sale (2,741) (3,747) Proceeds from sales of securities available for sale 9,828 3,775 Proceeds from maturities of securities available for sale 1,773 595 Purchases of securities held to maturity (155) (165) Proceeds from maturities of securities held to maturity 197 463 Net cash and cash equivalents received from businesses acquired --- 15 Proceeds from sale of loan portfolio by banking subsidiary 950 750 Net decrease/(increase) in loans and leases 1,936 (2,921) Net cash and cash equivalents received from branch divestitures --- 55 Purchases of premises and equipment (196) (171) Purchases of mortgage servicing rights (33) (35) - --------------------------------------------------------------------------------------------------------------------- Net cash flow provided by/(used in) investing activities 6,903 (2,211) - --------------------------------------------------------------------------------------------------------------------- CASH FLOWS FROM FINANCING ACTIVITIES Net decrease in deposits (750) (901) Net (decrease)/increase in short-term borrowings (4,544) 1,325 Proceeds from issuance of long-term debt 976 2,403 Repayments of long-term debt (2,526) (1,447) Proceeds from issuance of common stock 325 14 Repurchases of common stock (581) (9) Settlement of forward purchase contracts --- (585) Redemption of preferred stock --- (125) Cash dividends paid (342) (339) - --------------------------------------------------------------------------------------------------------------------- Net cash flow (used in)/provided by financing activities (7,442) 336 - --------------------------------------------------------------------------------------------------------------------- Effect of foreign currency translation on cash (37) 7 - --------------------------------------------------------------------------------------------------------------------- Net decrease in cash and cash equivalents (1,329) (1,677) - --------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at beginning of period 12,826 11,860 - --------------------------------------------------------------------------------------------------------------------- Cash and cash equivalents at end of period $11,497 $10,183 ===================================================================================================================== SUPPLEMENTAL DISCLOSURES Interest paid $ 1,936 $ 2,054 Income taxes paid 150 88 =====================================================================================================================
See accompanying Condensed Notes to Consolidated Financial Statements. 22 23 FLEETBOSTON FINANCIAL CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE 1. BASIS OF PRESENTATION The accompanying interim consolidated financial statements of FleetBoston Financial Corporation (FleetBoston or the Corporation) are unaudited. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the results of operations contained herein have been made. Certain amounts reported in prior periods have been reclassified to conform to current period classifications. The financial statements reflect the acquisition of Summit Bancorp. (Summit), which was completed on March 1, 2001. The acquisition was accounted for as a pooling of interests and, accordingly, the information included in the accompanying consolidated financial statements and notes presents the combined financial position and results of operations of FleetBoston and Summit as if they had operated as a combined entity for all periods presented. This information should be read in conjunction with FleetBoston's 2000 Annual Report on Form 10-K and its Current Report on Form 8-K dated May 4, 2001. NOTE 2. ACCOUNTING FOR DERIVATIVE INSTRUMENTS FleetBoston adopted Statement of Financial Accounting Standards (SFAS) No. 133, "Accounting for Derivative Instruments and Hedging Activities," as of January 1, 2001. The transition adjustments related to adoption of the Standard resulted in an after-tax increase to other comprehensive income, a component of stockholders' equity, of approximately $200 million, and an increase of approximately $14 million to other noninterest income ($8 million after-tax). Concurrent with adoption of the Standard, and as permitted by its provisions, approximately $5 billion of securities held to maturity were reclassified as securities available for sale. As a result, these securities will be eligible as hedged items in future fair value and cash flow hedge transactions. This reclassification resulted in an after-tax loss of approximately $160 million, which was initially recorded in other comprehensive income. Significant accounting policies related to derivative instruments are described below, and other disclosures required by the Standard are included in Note 11. All derivatives are recognized in the consolidated balance sheet at their fair value. On the date a derivative contract is entered into, the derivative is designated as: (1) a hedge of the fair value of a recognized fixed-rate asset or liability or of an unrecognized firm commitment (a "fair value" hedge); (2) a hedge of a forecasted transaction or of the variability of cash flows to be received or paid related to a recognized variable-rate asset or liability (a "cash flow" hedge); (3) a foreign currency fair value or cash flow hedge (a "foreign currency" hedge); (4) a hedge of a net investment in a foreign operation, or (5) "held for trading" ("trading" instruments). Changes in the fair value of a derivative that is highly effective - and that is designated and qualifies - as a fair value hedge, along with changes in fair value of the hedged asset or liability that is attributable to the hedged risk (including losses or gains on firm commitments), are recorded in the current period in noninterest income. Changes in the fair value of a derivative that is highly effective - and that is designated and qualifies as - a cash flow hedge, to the extent that the hedge is effective, are recorded in other comprehensive income, until earnings are affected by the variability of the hedged cash flows (e.g., when periodic settlements on a variable-rate asset or liability are recorded in earnings). Cash flow hedge ineffectiveness, defined as the extent that the changes in fair value of the derivative exceed the variability of cash flows of the forecasted transaction, is recorded in the current period in noninterest income. Changes in the fair value of derivatives that are highly effective - and that are designated and qualify as - foreign currency hedges are recorded in either current period noninterest income or other comprehensive income, depending on whether the hedge transaction meets the criteria for a fair value or a cash flow hedge. If, however, a derivative is used as a hedge of a net investment in a foreign operation, its changes in fair value, to the extent effective as a hedge, are recorded in the cumulative translation adjustments component of other comprehensive income. Lastly, changes in the fair value of derivative trading instruments are reported in the current period in noninterest income. FleetBoston formally documents all relationships between hedging instruments and hedged items, as well as its risk management objectives and strategy for undertaking various hedge transactions. This process includes linking all derivatives that are designated as fair value, cash flow or foreign currency hedges to specific assets and liabilities on the balance sheet or to specific firm commitments or forecasted transactions. FleetBoston formally assesses, both at the hedge's inception and on an ongoing basis, whether the derivatives that are used in hedging transactions have been highly effective in offsetting changes in fair values or cash flows of hedged items and whether they are expected to continue to be highly effective in future periods. When it is determined that a derivative has ceased to be a highly effective hedge, hedge accounting is discontinued prospectively. Specifically, hedge accounting is discontinued prospectively when: (1) it is determined that the derivative is no longer effective in offsetting changes in the fair value or 23 24 FLEETBOSTON FINANCIAL CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 cash flows of a hedged item; (2) the derivative expires or is sold, terminated, or exercised; (3) the hedged firm commitment no longer meets the definition of a firm commitment; (4) it is probable that the forecasted transaction will not occur by the end of the specified time period; or (5) management determines that the fair value or cash flow hedge designation is no longer appropriate. When it is determined that the derivative no longer qualifies as an effective fair value or cash flow hedge or management removes the hedge designation, the derivative will continue to be carried on the balance sheet at its fair value, with changes in fair value recognized in current period noninterest income. The asset or liability under a fair value hedge will no longer be adjusted for changes in fair value. The component of other comprehensive income related to discontinued cash flow hedges is amortized to noninterest income over the original term of the hedge contract. When hedge accounting is discontinued because the hedged item no longer meets the definition of a firm commitment, or because it is probable that the forecasted transaction will not occur by the end of the specified time period, the derivative will continue to be carried on the balance sheet at its fair value, with changes in fair value recognized in current period noninterest income. Any asset or liability that was recorded pursuant to recognition of the firm commitment is removed from the balance sheet and recognized in current period noninterest income. Gains and losses that were accumulated in other comprehensive income pursuant to the hedge of a forecasted transaction are recognized immediately in current period noninterest income. NOTE 3. MERGER AND DIVESTITURE ACTIVITIES On March 1, 2001, FleetBoston completed its acquisition of Summit. Approximately 180.5 million shares of FleetBoston common stock were issued in exchange for substantially all of Summit's outstanding shares, through the exchange of 1.02 shares of FleetBoston stock for each outstanding Summit share. The transaction was accounted for as a pooling of interests. In connection with the Summit acquisition, aggregate charges totaling $718 million were recorded in the first quarter of 2001. These charges were composed of $453 million of merger- and restructuring-related charges and integration costs, and $265 million of losses on sales of securities available for sale, which were completed as part of a repositioning of the combined balance sheet. The merger- and restructuring-related charges and integration costs are more fully described in Note 6. The following table sets forth a reconciliation of revenue and net income previously reported by each of the companies, with the combined amounts presented in the accompanying consolidated statement of income for the quarter ended March 31, 2000. Information presented for Summit has been conformed to FleetBoston's accounting policies.
Quarter ended March 31, 2000 in millions FleetBoston Summit Combined - ------------------------------------------------------------- Net interest income $1,708 $340 $2,048 Noninterest income 2,722 98 2,820 Net income 957 119 1,076 - -------------------------------------------------------------
On April 2, 2001, FleetBoston announced a definitive agreement to sell its mortgage banking business. The sale is expected to close during the second quarter of 2001, and an estimated pre-tax loss on the sale of approximately $327 million ($225 million after-tax) was recorded in other noninterest expense in the first quarter of 2001. NOTE 4. LOANS AND LEASES The following table presents details of loan and lease financing balances:
====================================================== Three months ended March 31 2001 2000 In millions - ------------------------------------------------------ Domestic: Commercial and industrial $ 54,249 $ 62,945 Commercial real estate 11,336 11,164 Residential real estate 11,051 15,384 Credit card 4,587 5,130 Other consumer 18,786 20,661 Lease financing 13,296 11,267 - ------------------------------------------------------ Total domestic loans and leases 113,305 126,551 - ------------------------------------------------------ International loans and leases 18,335 14,822 - ------------------------------------------------------ Total loans and leases $131,640 $141,373 ======================================================
24 25 FLEETBOSTON FINANCIAL CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE 5. RESERVE FOR CREDIT LOSSES A summary of activity in the reserve for credit losses follows:
==================================================== Three months ended March 31 2001 2000 In millions - ---------------------------------------------------- Balance at beginning of year $2,709 $2,816 Gross charge-offs: Domestic: Commercial and industrial 190 176 Commercial real estate --- 2 Residential real estate 1 3 Credit card 67 92 Other consumer 26 35 Lease financing 12 5 International 34 38 - ---------------------------------------------------- Total gross charge-offs 330 351 - ---------------------------------------------------- Recoveries: Domestic: Commercial and industrial 24 20 Commercial real estate 2 3 Residential real estate 1 1 Credit card 9 9 Other consumer 7 11 Lease financing 3 1 International 14 11 - ---------------------------------------------------- Total recoveries 60 56 - ---------------------------------------------------- Net charge-offs 270 295 Provision for credit losses 315 320 Divestitures/Acquisitions/Other --- (31) - ---------------------------------------------------- Balance at end of period $2,754 $2,810 ====================================================
NOTE 6. MERGER- AND RESTRUCTURING-RELATED CHARGES In the first quarter of 2001, FleetBoston recorded aggregate merger- and restructuring-related charges of $487 million in connection with its merger with Summit and a restructuring of its capital markets-related businesses. Of the $487 million, $408 million related to the Summit acquisition and $79 million related to the capital markets restructuring. The $408 million charge was composed of $73 million of merger charges, $322 million of restructuring-related charges and $13 million of accelerated depreciation of assets to be disposed of at a later date. In addition to the merger- and restructuring-related charges, FleetBoston incurred $45 million of merger integration costs. These integration costs are being expensed as incurred, and include the costs of converting duplicate computer systems, training and relocation of employees and departments, consolidation of facilities and customer communications. The following table discloses information about the merger- and restructuring-related charges and integration costs. In millions
- ------------------------------------------------------------ Merger charges Personnel $ 25 Transaction costs/other 48 - ------------------------------------------------------------ Total merger charges $ 73 - ------------------------------------------------------------ Restructuring charges Personnel 202 Asset write-downs and contract cancellations 110 Facilities 69 Other 20 - ------------------------------------------------------------ Total restructuring charges 401 - ------------------------------------------------------------ Accelerated depreciation 13 - ------------------------------------------------------------ Total merger- and restructuring-related charges $487 - ------------------------------------------------------------ Integration costs 45 - ------------------------------------------------------------ Total $532 - ------------------------------------------------------------
In 1999, the Corporation recorded $850 million of merger- and restructuring-related charges in connection with the BankBoston merger, composed of $383 million of merger-related charges and $467 million of restructuring charges, and $28 million of restructuring charges related to a realignment of key business lines. Additional information concerning these 1999 charges is included in Note 14 to the Consolidated Financial Statements included in the Corporation's Current Report on Form 8-K dated May 4, 2001. MERGER-RELATED CHARGES Merger-related charges of $73 million related to costs incurred as a direct result of the merger, with $25 million related to personnel and $48 million related to transaction costs and other merger-related expenses. Personnel-related costs consisted of contractual arrangements for key executives. Transaction costs/other principally related to investment banking fees, legal and accounting fees and other costs related to regulatory filings necessary to obtain regulatory approvals of the merger. RESTRUCTURING-RELATED CHARGES The restructuring charge of $322 million resulted from a restructuring plan that management committed to and communicated to employees in the first quarter of 2001 in connection with its integration of FleetBoston and Summit. Of the $322 million charge, $150 million related to personnel, $96 million related to asset write-downs and contract cancellations, $60 million related to facilities and $16 million related to other restructuring expenses. 25 26 FLEETBOSTON FINANCIAL CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 Personnel-related costs of $150 million included severance, benefit program changes and outplacement services primarily associated with the elimination of duplicate functions within the combined company. The severance may be paid in a lump sum or over a defined period. These costs reflect FleetBoston's identification of approximately 2,700 positions to be eliminated in connection with the restructuring. Of the total positions to be eliminated, approximately 6% are in Corporate and Global Banking, 24% are in Consumer and Investment Services, and the remaining 70% are in support units. During the first quarter of 2001, approximately $1 million of personnel-related benefits were paid. Asset write-downs and contract cancellation costs of $96 million related to costs to dispose of duplicate or obsolete equipment and computer software, and penalties incurred to cancel leases and other contracts. During the first quarter of 2001, $4 million of costs were paid and $42 million of write-downs were recorded. Facilities charges of $60 million represented minimum lease payments related to duplicate branch and other facilities. Other costs of $16 million included expenses and various other costs incurred to merge the two companies. Accelerated depreciation expense of $13 million resulted from revisions to the estimated useful lives of assets currently in use that will be disposed of when the integration of Summit operations has been completed. The $79 million restructuring charge was composed of $52 million related to severance, benefit program changes and outplacement services; $23 million of costs related to future lease obligations and write-downs of capitalized assets; and $4 million of other restructuring expenses. Approximately 750 positions were identified in the first quarter for elimination in connection with this restructuring, and substantially all of the affected employees were notified by March 31, 2001. During the first quarter, 270 employees were terminated and left the Corporation, and $6 million of related benefits were paid. It is expected that the remaining affected employees will be leaving the company by the end of the second quarter of 2001. The following table presents activity in the 2001 and 1999 restructuring-related accruals during the three months ended March 31, 2001. The remaining accrual at March 31, 2001 is composed primarily of expected cash outlays related to severance and facilities obligations. Restructuring Accrual Activity
=============================================================== Summit & Capital Markets Businesses BankBoston - --------------------------------------------------------------- Balance at Dec. 31, 2000 $--- $146 Restructuring accrual 401 --- Cash payments (11) (58) Noncash write-downs (42) --- - --------------------------------------------------------------- Balance at March 31, 2001 $348 $ 88 ===============================================================
The $58 million of cash payments included in the table above related to the BankBoston merger consisted of $45 million of personnel benefits, bringing total personnel benefits paid through March 31, 2001 to $283 million, $12 million in facilities charges, with a total of $17 million paid to date, and $1 million of other restructuring expenses. NOTE 7. TRUST PREFERRED SECURITIES FleetBoston has eleven statutory business trusts, of which it owns all of the common securities. These trusts have no independent assets or operations, and exist for the sole purpose of issuing trust preferred securities and investing the proceeds thereof in an equivalent amount of junior subordinated debentures issued by the Corporation. The junior subordinated debentures, which are the sole assets of the trusts, are unsecured obligations of FleetBoston, and are subordinate and junior in right of payment to all present and future senior and subordinated indebtedness and certain other financial obligations of the Corporation. The principal amount of subordinated debentures held by each trust equals the aggregate liquidation amount of its trust preferred securities and its common securities. The subordinated debentures bear interest at the same rate, and will mature on the same date, as the corresponding trust preferred securities. FleetBoston fully and unconditionally guarantees each trust's obligations under the trust preferred securities. All of the trust preferred securities, which are included in long-term debt in the accompanying consolidated balance sheet, may be prepaid at the option of the trusts, in whole or in part, on or after their respective prepayment option dates. Further information with respect to trust preferred securities is included in Note 9 to the Consolidated Financial Statements included in FleetBoston's Current Report on Form 8-K dated May 4, 2001. NOTE 8. LINE OF BUSINESS INFORMATION Information about operating segments for the quarters ended March 31, 2001 and 2000 is included in the "Line of Business Information" section of Management's Discussion and Analysis included in this Report. 26 27 FLEETBOSTON FINANCIAL CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 NOTE 9. EARNINGS PER SHARE A summary of the calculation of earnings per common share follows:
=================================================================================================================================== Three months ended March 31 2001 2000 - ----------------------------------------------------------------------------------------------------------------------------------- Dollars in millions, except per share amounts BASIC DILUTED BASIC DILUTED - ----------------------------------------------------------------------------------------------------------------------------------- Average shares outstanding 1,083,498,054 1,083,498,054 1,080,551,702 1,080,551,702 Additional shares due to: Stock options -- 11,826,649 -- 6,320,618 Warrants -- 549,412 -- 10,539,820 - ----------------------------------------------------------------------------------------------------------------------------------- Total equivalent shares 1,083,498,054 1,095,874,115 1,080,551,702 1,097,412,140 =================================================================================================================================== Earnings per share: Net income $ 142 $ 142 $ 1,076 $ 1,076 Less preferred stock dividends (10) (10) (10) (10) - ----------------------------------------------------------------------------------------------------------------------------------- Net income available to common stockholders $ 132 $ 132 $ 1,066 $ 1,066 =================================================================================================================================== Total equivalent shares 1,083,498,054 1,095,874,115 1,080,551,702 1,097,412,140 =================================================================================================================================== Earnings per share $ .12 $ .12 $ .99 $ .97 ===================================================================================================================================
NOTE 10. COMMITMENTS AND CONTINGENCIES FleetBoston and its subsidiaries are involved in various legal proceedings arising out of, and incidental to, their respective businesses. Management, based on its review with counsel of the development of these matters to date, considers that the aggregate loss resulting from the final outcome, if any, of these proceedings should not be material to FleetBoston's financial condition or results of operations. NOTE 11. DERIVATIVE INSTRUMENTS AND HEDGING ACTIVITIES In the normal course of business, FleetBoston enters into a variety of interest rate and foreign exchange derivative contracts in connection with its balance sheet management activities, which involve the management of interest rate and foreign exchange rate risk, and its trading activities. These contracts involve, to varying degrees, credit (repayment) risk and market risk. Credit risk is the possibility that a loss may occur if a counterparty to a transaction fails to perform according to the terms of the contract. Market risk is the sensitivity of income and capital to variations in interest rates, foreign exchange rates, equity prices, commodity prices and other market-driven rates or prices. BALANCE SHEET MANAGEMENT ACTIVITIES Balance sheet management activities are governed by the Asset, Liability and Capital Committee (ALCCO), which is responsible for setting strategic directives that guide day-to-day market risk management activities. In connection with these activities, non-trading derivative financial instruments are used to manage market risk. Interest rate risk, including mortgage prepayment risk, is by far the most significant non-trading market risk to which U.S. dollar denominated positions are exposed. Interest rate risk is the sensitivity of income or financial condition to variations in interest rates, and arises directly from the Corporation's core banking activities - lending, deposit gathering and loan servicing. The Corporation controls interest rate risk by identifying, quantifying and hedging its exposures. The Corporation hedges the interest rate risk inherent in its core banking operations using both on-balance sheet instruments, mainly fixed-rate portfolio securities, and a variety of derivative instruments. The most frequently used derivative instruments are interest rate swaps and options (e.g., interest rate caps and floors). When appropriate, forward rate agreements, options on swaps, and exchange-traded futures and options are also used. A second major source of non-trading U.S. dollar denominated interest rate risk is the sensitivity of mortgage servicing rights (MSRs) to prepayments. A mortgage borrower has the option to prepay a mortgage loan at any time, without penalty. As a result, the Corporation's mortgage-based assets (not only MSRs but also mortgage loans and securities) are subject to prepayment risk. This risk tends to increase when interest rates fall due to the benefits of refinancing. To mitigate the risk of declining long-term interest rates, increased mortgage prepayments, and the potential impairment of MSRs, FleetBoston uses a variety of derivative instruments, including interest rate swaps, caps and floors, options on swaps, and exchange-traded options on Treasury bond and note futures, and swaps linked to mortgage assets such as "principal only" (P.O.) securities. These instruments gain value as interest rates decline, mitigating the impairment of MSRs. As more fully discussed in Note 3, the Corporation has agreed to sell its mortgage banking business. The sale is expected to close in the second quarter of 2001. 27 28 FLEETBOSTON FINANCIAL CORPORATION CONDENSED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS MARCH 31, 2001 FleetBoston's non-U.S. dollar denominated assets and liabilities are primarily exposed to foreign exchange rate risk. The majority of this exposure stems from operations in Latin America, primarily Argentina and Brazil, and is managed through the use of foreign currency spot, forward, futures, option and swap contracts. FAIR VALUE HEDGES. Derivatives categorized as fair value hedges are utilized to convert fixed-rate debt to floating-rate debt, as part of the Corporation's overall interest rate risk management process; to mitigate the impairment risk of MSRs; and to reduce the price risk resulting from the origination and sale of mortgage loans. For the quarter ended March 31, 2001, FleetBoston recognized a net pre-tax loss of approximately $16 million, which represented the ineffective portion of all fair value hedges, primarily hedges of MSRs, excluding the time value of option contracts and the interest rate differential on foreign currency forward contracts. The component of fair value excluded from the assessment of fair value hedge effectiveness was a loss of approximately $14 million. All components of each derivative's gain or loss are included in the assessment of hedge effectiveness, unless otherwise noted. CASH FLOW HEDGES. Derivatives categorized as cash flow hedges are utilized primarily to convert floating-rate loans to fixed-rate loans; and to convert floating-rate, non-functional currency denominated assets to fixed-rate, functional currency denominated assets. For the quarter ended March 31, 2001, FleetBoston recognized a net pre-tax gain of approximately $.4 million, which represented the total ineffectiveness of all cash flow hedges. Gains and losses on derivative contracts that are reclassified from accumulated other comprehensive income to current period earnings are included in the line item in which the hedged item is recorded. As of March 31, 2001, approximately $180 million of the deferred net after-tax gains on derivative instruments included in accumulated other comprehensive income is expected to be reclassified to earnings during the next twelve months. This expectation is based on the net discounted cash flows from derivative instruments hedging variable-rate assets, as well as the amortization of gains from the termination of cash flow hedge derivatives. HEDGES OF NET INVESTMENTS IN FOREIGN OPERATIONS. Derivatives categorized as hedges of net investments in foreign operations are utilized to protect the value of an investment against adverse exchange rate fluctuations. For the quarter ended March 31, 2001, net after-tax gains related to these derivatives, recorded in other comprehensive income, were approximately $6 million. TRADING ACTIVITIES Trading activities create exposure to price risk, or the risk of loss of income arising from adverse changes in the value of financial instrument trading portfolios. This exposure arises in the normal course of business as a financial intermediary. FleetBoston enters into interest rate, foreign exchange and precious metals derivative contracts primarily to satisfy the investment and risk management needs of its customers. Equity derivative contracts result mainly from market-making and underwriting activities. The price risk management process includes trading derivatives activities. This process identifies, measures, monitors and controls the effects of changes in interest rates, foreign exchange rates and equity prices on results of operations and financial condition. Price risk policies and limits are reviewed by ALCCO and the Market Risk Committee at least annually, or more often if warranted by current market, economic or business conditions. Line of business management has primary responsibility for the actual market risk profile, ensuring the appropriate measurement, monitoring and control of exposures within approved policies and limits. CREDIT RISK The use of non-trading and trading derivatives creates exposure to credit risk. This credit exposure relates to accounting losses that would be recognized if the counterparties completely failed to perform their obligations. The amount of credit exposure can be estimated by calculating the cost to replace all profitable derivative contracts, on a present value basis and at current market prices. To manage its level of credit exposure, FleetBoston deals only with counterparties of good credit standing, establishes counterparty credit limits, in certain cases has the ability to require securities collateral, and enters into master netting agreements whenever possible. Reserves related to credit exposure associated with non-trading derivative instruments are included in other liabilities in the Corporation's consolidated balance sheet. Non-trading derivative instruments, other than those used for mortgage banking and foreign exchange, had credit exposure of $690 million at March 31, 2001, versus $720 million at December 31, 2000. Mortgage banking derivative instruments had credit exposure of $137 million at March 31, 2001, versus $217 million at December 31, 2000. Foreign exchange derivative instruments had credit exposure of $103 million at March 31, 2001, versus $132 million at December 31, 2000. Trading derivatives had credit exposure of $2.7 billion at March 31, 2001, versus $2.8 billion at December 31, 2000. 28 29 PART II. OTHER INFORMATION ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS. (a) FleetBoston held its Annual Meeting of Stockholders on April 17, 2001. (b) Not applicable. (c) A brief description of each matter voted upon at the meeting, and the number of votes cast for, against or withheld, as well as the number of abstentions and broker non-votes as to each such matter, follows. A separate tabulation with respect to each nominee for office is also included. Four matters were voted on at the Annual Meeting. A fifth matter, a stockholder proposal to change the date of the Annual Stockholders' Meeting, was not voted upon by FleetBoston stockholders because neither the proponent nor the proponent's qualified personal representative attended the meeting and presented the proposal. 1. Election of Directors All seven nominees for election as directors were elected. There were no abstentions or broker non-votes for any of the nominees.
Authority Term Name of Director For Withheld Expiration ---------------- --- -------- ---------- Joel B. Alvord 664,527,170 46,580,820 2004 Daniel P. Burnham 665,232,627 45,875,363 2004 T.J. Dermot Dunphy 665,250,480 45,857,510 2004 Robert J. Higgins 635,236,720 75,871,270 2004 Henrique C. Meirelles 635,142,337 75,965,653 2004 T. Joseph Semrod 640,890,972 70,217,018 2004 Paul R. Tregurtha 665,170,701 45,937,289 2004
The following directors will continue in office and were not up for re-election.
Term Name of Director Expiration ---------------- ---------- Paul J. Choquette, Jr. 2002 Alice F. Emerson 2002 Robert M. Kavner 2002 Donald F. McHenry 2002 Michael B. Picotte 2002 Francene S. Rodgers 2002 John W. Rowe 2002 Thomas M. Ryan 2002 William Barnet, III 2003 John T. Collins 2003 William F. Connell 2003 Gary L. Countryman 2003 Charles K. Gifford 2003 Marian L. Heard 2003 Thomas J. May 2003 Terrence Murray 2003
29 30 2. Ratification of Selection of Independent Accountants The second proposal voted on by stockholders of the Corporation, to ratify the selection of PricewaterhouseCoopers LLP to serve as the Corporation's independent accountants for 2001, was approved with 658,872,537 votes cast for, 48,895,207 votes cast against and 3,340,246 abstentions. There were no broker non-votes on this proposal. 3. Stockholder Proposal A regarding Term Limits for Outside Directors The third proposal voted on by stockholders of the Corporation, to require term limits for outside directors, was rejected with 36,641,162 votes cast for, 566,608,989 votes cast against, 10,703,944 abstentions and 97,153,895 broker non-votes. 4. Stockholder Proposal B regarding the Establishment of an Executive Compensation Review The fourth proposal voted on by stockholders of the Corporation, to establish an executive compensation review, was rejected with 86,167,087 votes cast for, 511,698,575 votes cast against, 16,088,433 abstentions and 97,153,895 broker non-votes. (d) Not applicable. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K. (a) Exhibit Index
Exhibit Number 3 By-Laws of the Corporation, as amended. 12 Computation of Consolidated Ratios of Earnings to Fixed Charges.
(b) Current Reports on Form 8-K FleetBoston filed five Current Reports on Form 8-K during the period from January 1, 2001 to the date of the filing of this report. - Current Report on Form 8-K, dated January 17, 2001, announcing the Corporation's fourth quarter and fiscal 2000 earnings. - Two Current Reports on Form 8-K, each dated March 1, 2001, announcing the completion of the Corporation's acquisition of Summit Bancorp. - Current Report on Form 8-K, dated April 17, 2001, announcing the Corporation's first quarter earnings. - Current Report on Form 8-K, dated May 4, 2001, containing restated consolidated financial statements of the Corporation reflecting the merger with Summit, completed on March 1, 2001. 30 31 SIGNATURES Pursuant to the requirement of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. FleetBoston Financial Corporation --------------------------------- (Registrant) /s/ Eugene M. McQuade /s/ Ernest L. Puschaver --------------------- ----------------------- Eugene M. McQuade Ernest L. Puschaver Vice Chairman and Chief Accounting Officer Chief Financial Officer DATE: May 15, 2001 31 EX-3 2 b39442fbex3.txt BY LAWS, AS AMENDED 1 EXHIBIT 3 FLEETBOSTON FINANCIAL CORPORATION --------------------------------- BYLAWS ARTICLE 1. OFFICES. SECTION 1.01. Registered Office. The registered office of the Corporation in the State of Rhode Island shall be at 10 Weybosset Street, Providence, RI 02903. The name of the resident agent in charge thereof shall be CT Corporation System. SECTION 1.02. Other Offices. The Corporation may also have an office or offices in such other place or places either within or without the State of Rhode Island as the Board of Directors may from time to time determine or the business of the Corporation require. ARTICLE 2. MEETINGS OF STOCKHOLDERS. SECTION 2.01. Place of Meetings. All meetings of the stockholders of the Corporation shall be held at such place either within or without the State of Rhode Island as shall be fixed by the Board of Directors and specified in the respective notices or waivers of notice of said meetings. SECTION 2.02. Annual Meetings. (a) The annual meeting of the stockholders for the election of directors and for the transaction of such other business as may come before the meeting shall be held at the principal office of the Corporation in the State of Rhode Island or such place as shall be fixed by the Board of Directors, as eleven o'clock in the forenoon, local time, on the second Wednesday in April in each year, if not a legal holiday at the place where such meeting is to be held, and, if a legal holiday, then on the next succeeding business day not a legal holiday at the same hour. (b) In respect of the annual meeting for any particular year the Board of Directors may, by resolution fix a different day, time or place (either within or without the State of Rhode Island) for the annual meeting. (c) If the election of directors shall not be held on the day designated herein or the day fixed by the Board, as the case may be, for any annual meeting, or on the day of any adjourned session thereof, the Board of Directors shall cause the election to be held at a special meeting as soon thereafter as conveniently may be. At such special meeting the stockholders may elect the directors and transact other business with the same force and effect as at an annual meeting duly called and held. SECTION 2.03. Special Meetings. A special meeting of the stockholders for any purpose or purposes properly brought before such meeting may be called at any time by the Chairman of the Board or President or by order of the Board of Directors pursuant to a resolution adopted by a majority of the Board. SECTION 2.04. Notice of Meetings. (a) Except as otherwise required by statute, notice of each annual or special meeting of the stockholders shall be given to each stockholder of record entitled to vote at such meeting not less than 10 days or more than 50 days before the day on which the meeting is to be held by delivering written notice thereof to him personally or by mailing such notice, postage prepaid, addressed to him at his post-office address last shown in the records of the Corporation or by transmitting notice thereof to him at such address by telegraph, cable or any other available method. Every such notice shall state the time and place of the meeting and, in case of a special meeting, shall state briefly the 2 purposes thereof. (b) Notice of any meeting of stockholders shall not be required to be given to any stockholder who shall attend such meeting in person or by proxy or who shall, in person or by attorney thereunto authorized, waive such notice in writing or by telegraph, cable or any other available method either before or after such meeting. Notice of any adjourned meeting of the stockholders shall not be required to be given except when expressly required by law. SECTION 2.05. Quorum. (a) At each meeting of the stockholders, except where otherwise provided by statute, the Articles of Incorporation or these Bylaws, the holders of record of a majority of the issued and outstanding shares of stock of the Corporation entitled to vote at such meeting, present in person or represented by proxy, shall constitute a quorum for the transaction of business. (b) In the absence of a quorum a majority in interest of the stockholders of the Corporation entitled to vote, present in person or represented by proxy, or, in the absence of all such stockholders, any officer entitled to preside at, or act as secretary of, such meeting, shall have the power to adjourn the meeting from time to time, until stockholders holding the requisite amount of stock shall be present or represented. At any such adjourned meeting at which a quorum shall be present any business may by transacted which might have been transacted at the meeting as originally called. SECTION 2.06. Organization. At each meeting of the stockholders the Chairman of the Board, the President, any Vice President, or any other officer designated by the Board of Directors, shall act as chairman, and the Secretary or an Assistant Secretary of the Corporation, or in the absence of the Secretary and all Assistant Secretaries, a person whom the chairman of such meeting shall appoint shall act as secretary of the meeting and keep the minutes thereof. SECTION 2.07. Voting. (a) Except as otherwise provided by law or by the Articles of Incorporation or these Bylaws, at every meeting of the stockholders each stockholder shall be entitled to one vote, in person or by proxy, for each share of capital stock of the Corporation registered in his name on the books of the Corporation: (i) on the date fixed pursuant to Section 9.03 of these Bylaws as the record date for the determination of stockholders entitled to vote at such meeting; or (ii) if no record date shall have been fixed, then the record date shall be at the close of business on the day next preceding the day on which notice of such meeting is given. (b) Persons holding stock in a fiduciary capacity shall be entitled to vote the shares so held. In the case of stock held jointly by two or more executors, administrators, guardians, conservators, trustees or other fiduciaries, such fiduciaries may designate in writing one or more of their number to represent such stock and vote the shares so held, unless there is a provision to the contrary in the instrument, if any, defining their powers and duties. (c) Persons whose stock is pledged shall be entitled to vote thereon until such stock is transferred on the books of the Corporation to the pledgee, and thereafter only the pledgee shall be entitled to vote. (d) Any stockholder entitled to vote may do so in person or by his proxy appointed by an instrument in writing subscribed by such stockholder or by his attorney thereunto authorized, or by a telegram, cable or any other available method delivered to the secretary of the meeting; provided, however, that no proxy shall be voted after 11 months from its date, unless said proxy provides for a longer period. (e) At all meetings of the stockholders, all matters (except where other provision is made by law or by the Articles of Incorporation or these Bylaws) shall be decided by the vote of a majority in interest of the stockholders entitled to vote thereon, present in person or by proxy, at such meeting, a quorum being present. SECTION 2.08. Inspectors. The chairman of the meeting may at any time appoint two or more inspectors to serve at a meeting of the stockholders. Such inspectors shall decide upon the qualifications 2 3 of voters, accept and count the vote for and against the questions presented, report the results of such votes, and subscribe and deliver to the secretary of the meeting a certificate stating the number of shares of stock issued and outstanding and entitled to vote thereon and the number of shares voted for and against the questions presented. The inspectors need not be stockholders of the Corporation, and any director or officer of the Corporation may be an inspector on any question other than a vote for or against his election to any position with the Corporation or on any other question in which he may be directly interested. Before acting as herein provided each inspector shall subscribe an oath faithfully to execute the duties of an inspector with strict impartiality and according to the best of his ability. SECTION 2.09. List of Stockholders. (a) It shall be the duty of the Secretary or other officer of the Corporation who shall have charge of its stock ledger to prepare and make, or cause to be prepared and made, at least 10 days before every meeting of the stockholders, a complete list of stockholders entitled to vote thereat, arranged in alphabetical order and showing the address of each stockholder and the number of shares registered in the name of the stockholder. Such list shall be open during ordinary business hours to the examination of any stockholder for any purpose germane to the meeting for a period of at least 10 days prior to the election. (b) Such list shall be produced and kept at the time and place of the meeting during the whole time thereof and may be inspected by any stockholder who is present. (c) Upon the willful neglect or refusal of the directors to produce such list at any meeting for the election of directors, they shall be ineligible for election to any office at such meeting. (d) The stock ledger shall be conclusive evidence as to who are the stockholders entitled to examine the stock ledger and the list of stockholders required by this Section 2.09 on the books of the Corporation or to vote in person or by proxy at any meeting of stockholders. SECTION 2.10. Introduction of Business at a Meeting of Stockholders. (a) At an annual or special meeting of stockholders, only such business shall be conducted, and only such proposals shall be acted upon, as shall have been properly brought before an annual or special meeting of stockholders. To be properly brought before an annual or special meeting of stockholders, business must be (i) in the case of a special meeting, specified in the notice of the special meeting (or any supplement thereto) given by the officer of the Corporation calling such meeting or by or at the direction of the Board, or (ii) in the case of an annual meeting, properly brought before the meeting by or at the director of the Board, or otherwise properly brought before the annual meeting by a stockholder. For business to be properly brought before an annual meeting of stockholders by a stockholder, the stockholder must have given timely notice thereof in writing to the Secretary of the Corporation. To be timely, a stockholder's notice, must be delivered to the Secretary of the Corporation, or mailed to and received at the principal executive offices of the Corporation, by the Secretary of the Corporation, not less than 120 calendar days in advance of the date the Corporation's proxy statement was released to stockholders in connection with the previous year's annual meeting of stockholders, except that if no annual meeting was held in the previous year or the date of the annual meeting has been changed by more than 30 calendar days from the date contemplated at the time of the previous year's proxy statement, a proposal must be received by the Corporation a reasonable time before the Corporation's proxy statement is released to stockholders. (b) A stockholder's notice to the Secretary shall set forth as to each matter the stockholder proposes to bring before an annual meeting of stockholders (i) a brief description of the business desired to be brought before the annual meeting and the reasons for conducting such business at the annual meeting, (ii) the name and address, as they appear on the Corporation's books, of the stockholder proposing such business and any other stockholders known by such stockholder to be supporting such proposal, (iii) the class and number of shares of the Corporation which are beneficially owned by such stockholder on the date of such stockholder's notice and by any other stockholders known by such stockholder to be supporting such proposal on the date of such stockholder's notice, and (iv) any material interest of the stockholder in such proposal. 3 4 (c) Notwithstanding anything in the Bylaws to the contrary, no business shall be conducted at a meeting of stockholders except in accordance with the procedures set forth in this Section 2.10. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that the business was not properly brought before the meeting in accordance with the procedures prescribed by the Bylaws, and if he should so determine, he shall so declare to the meeting and any such business not properly brought before the meeting shall not be transacted. ARTICLE 3. BOARD OF DIRECTORS. SECTION 3.01. General Powers. The business, property and affairs of the Corporation shall be managed by the Board of Directors. SECTION 3.02. Number and Qualifications. (a) The number of directors of the Corporation, which shall constitute the whole Board of Directors, shall be determined in accordance with the provisions of Article SEVENTH of the Articles of Incorporation. (b) A director need not be a stockholder. (c) No person shall be elected a director who has attained the age of 68 and any director who has attained the age of 68 shall submit his or her resignation to the Chairman effective on the date of the first meeting of the stockholders of the Corporation held on or after the date on which such person attains the age of 68; and any person who makes a material change in his or her principal business or professional activity prior to attaining such age shall submit his or her resignation to the Chairman; PROVIDED, HOWEVER, any director serving on the Board as of April 17, 2001 who has attained the age of 68 on or prior to such date shall be permitted to continue to serve as a director but shall submit his or her resignation to the Chairman effective on the date of the first meeting of the stockholders of the Corporation held on or after the date on which such person attains the age of 70. SECTION 3.03. Classes, Elections and Term. The Board of Directors shall be divided into three classes, shall be nominated in accordance with the provisions of Section 3.15 of this Article 3, and shall be elected and shall serve terms in accordance with the provisions of Article SEVENTH of the Articles of Incorporation. SECTION 3.04. Quorum and Manner of Acting. (a) Except as otherwise provided by statute or by the Articles of Incorporation, a majority of the directors at the time in office shall constitute a quorum for the transaction of business at any meeting and the affirmative action of a majority of the directors present at any meeting at which a quorum is present shall be required for the taking of any action by the Board of Directors. (b) In the event the Secretary is informed that one or more of the directors shall be disqualified to vote at such meeting, then the required quorum shall be reduced by one for each such director so absent or disqualified; provided, however, that in no event shall the quorum as adjusted be less than one-third of the total number of directors. (c) In the absence of a quorum at any meeting of the Board such meeting need not be held; or a majority of the directors present thereat or, if no director be present, the Secretary may adjourn such meeting from time to time until a quorum shall be present. Notice of any adjourned meeting need not be given. SECTION 3.05. Offices, Place of Meetings and Records. The Board of Directors may hold meetings, have an office or offices and keep the books and records of the Corporation at such place or places within or without the State of Rhode Island as the Board may from time to time determine. The place of meeting shall be specified or fixed in the respective notices or waivers of notice thereof, except where otherwise provided by statute by the Articles of Incorporation or these Bylaws. Meetings of the Board of Directors or any committee of Directors, including without limitation the Executive Committee, 4 5 may be held by means of a telephone conference circuit and connection with such circuit shall constitute presence at such meetings. SECTION 3.06. Annual Meeting. The Board of Directors shall meet for the purpose of organization, the election of officers and the transaction of other business, as soon as practicable following each annual election of directors. Such meeting shall be called and held at the place and time specified in the notice or waiver of notice thereof as in the case of a special meeting of the Board of Directors. SECTION 3.07. Regular Meetings. Regular meetings of the Board of Directors shall be held at such places and at such times as the Board shall from time to time by resolution determine. If any day fixed for a regular meeting shall be a legal holiday at the place where the meeting is to be held, then the meeting which would otherwise be held on that day shall be held at said place at the same hour on the next succeeding business day. Notice of regular meetings need not be given. SECTION 3.08. Special Meetings; Notice. Special meetings of the Board of Directors shall be held whenever called by the Chairman of the Board or the President or by any five of the directors. Notice of each said meeting shall be mailed to each director, addressed to him at his residence or usual place of business, at least two days before the day on which the meeting is to be held, or shall be sent to him at his residence or at such place of business by telegraph, cable or other available means, or shall be delivered personally or by telephone, not later than one day before the day on which the meeting is to be held. Each such notice shall state the time and place of the meeting but need not state the purposes thereof except as otherwise herein expressly provided. Notice of any such meeting need not be given to any director, however, if waived by him in writing or by telegraph, cable or otherwise, whether before or after such meeting shall be held, or if he shall be present at such meeting. SECTION 3.09. Organization. At each meeting of the Board of Directors, the Chairman of the Board or, in his absence, the President, or in the absence of each of them, a director chosen by a majority of the directors present shall act as chairman. The Secretary or, in his absence, an Assistant Secretary or, in the absence of the Secretary and all Assistant Secretaries, a person whom the chairman of such meeting shall appoint shall act as secretary of such meeting and keep the minutes thereof. SECTION 3.10. Order of Business. At all meetings of the Board of Directors business shall be transacted in the order determined by the Board. SECTION 3.11. Removal of Directors. Any one or more directors of the Corporation may be removed at any time, but only in accordance with the provisions of Article SEVENTH of the Articles of Incorporation. SECTION 3.12. Resignation. Any director of the Corporation may resign at any time by giving written notice of his resignation to the Board of Directors, to the Chairman of the Board, the President, any Vice President or the Secretary of the Corporation. Such resignation shall take effect at the date of receipt of such notice or at any later time specified therein; and, unless otherwise specified therein, in acceptance of such resignation shall not be necessary to make it effective. SECTION 3.13. Vacancies and Newly Created Directorships. Vacancies and newly created directorships shall be filled only in accordance with the provisions of Article SEVENTH of the Articles of Incorporation. SECTION 3.14. Compensation. Each director, in consideration of his serving as such, shall be entitled to receive from the Corporation such amount per annum or such fees for attendance at directors' 5 6 meetings, or both, as the Board of Directors shall from time to time determine, together with reimbursement for the reasonable expenses incurred by him in connection with the performance of his duties; provided that nothing herein contained shall be construed to preclude any director from serving the Corporation or its subsidiaries in any other capacity and receiving proper compensation therefor. SECTION 3.15. Nomination of Directors. (a) Only persons nominated in accordance with the procedures set forth in this Section shall be eligible for election as directors. Nominations of persons for election to the Board may be made at a meeting of stockholders (i) by or at the direction of the Board or a committee thereof, or (ii) by any stockholder of the Corporation entitled to vote for the election of directors at such meeting who complies with the notice procedures set forth in this Section 3.15. Such nominations, other than those made by or at the direction of the Board or a committee thereof, shall be made pursuant to timely notice in writing to the Secretary of the Corporation. To be timely, a stockholder's notice must be delivered to the Secretary, or mailed to and received at the principal executive offices of the Corporation by the Secretary, not less than 30 days prior to the date of a meeting; provided, however, that if fewer than 40 days' notice or prior public disclosure of the date of the meeting is given or made to stockholders, notice by the stockholder to be timely must be so delivered or received not later than the close of business on the 7th day following the earlier of (i) the day on which such notice of the date of such meeting was mailed, or (ii) the day on which such public disclosure was made. (b) A stockholder's notice to the Secretary shall set forth (i) as to each person whom the stockholder proposes to nominate for election or reelection as a director (w) the name, age, business address and residence address of such person, (x) the principal occupation or employment of such person, (y) the class and number of shares of the Corporation which are beneficially owned by such person on the date of such stockholder's notice (z) any other information relating to such person that is required to be disclosed in solicitations of proxies for election of directors, or is otherwise required, in each case pursuant to Regulation 14A under the Securities Exchange Act of 1934, as amended (including without limitation such person's written consent to being named in the proxy statement as a nominee and to serving as a director if elected); and (ii) as to the stockholder giving the notice (x) the name and address, as they appear on the Corporation's books, of such stockholder and any other stockholders known by such stockholder to be supporting such nominees and (y) the class and number of shares of the Corporation which are beneficially owned by such stockholder on the date of such stockholder's notice and by any other stockholders known by such stockholder to be supporting such nominees on the date of such stockholder's notice. (c) No person shall be eligible for election as a director of the Corporation unless nominated in accordance with the procedures set forth in this Section 3.15. The Chairman of the meeting shall, if the facts warrant, determine and declare to the meeting that a nomination was not made in accordance with the procedures prescribed by the Bylaws, and if he should so determine, he shall so declare to the meeting and the defective nomination shall be disregarded. ARTICLE 4. COMMITTEES. SECTION 4.01. Executive Committee. The Board of Directors may, by resolution or resolutions passed by a majority of the whole Board, appoint an Executive Committee to consist of not less than three nor more than ten members of the Board of Directors, including the Chairman of the Board and the President, and shall designate one of the members as its chairman. Notwithstanding any limitation on the size of the Executive Committee, the Committee may invite members of the Board to attend one at a time at its meetings. For the purpose of the meeting he so attends, the invited director shall be entitled to vote on matters considered at such meeting and shall receive the Executive Committee fee for such attendance. 6 7 At any time one additional director may be invited to an Executive Committee meeting in addition to the rotational invitee and, in such case, such additional invitee shall also be entitled to vote on matters considered at such meeting and shall receive the Executive committee fee for such attendance. Each member of the Executive Committee shall hold office, so long as he shall remain director, until the first meeting of the Board of Directors held after the next annual election of directors and until his successor is duly appointed and qualified. The chairman of the Executive Committee or, in his absence, a member of the Committee chosen by a majority of the members present shall preside at meetings of the Executive Committee and the Secretary or an Assistant Secretary of the Corporation, or such other person as the Executive Committee shall from time to time determine, shall act as secretary of the Executive Committee. The Board of Directors, by action of the majority of the whole Board, shall fill vacancies in the Executive Committee. SECTION 4.02. Powers. During the intervals between the meetings of the Board of Directors, the Executive Committee shall have and may exercise all of the powers of the Board of Directors in all cases in which specific directions shall not have been given by the Board of Directors. SECTION 4.03. Procedure; Meetings; Quorum. The Executive Committee shall fix its own rules of procedure subject to the approval of the Board of Directors, and shall meet at such times and at such place or places as may be provided by such rules. At every meeting of the Executive Committee the presence of a majority of all the members shall be necessary to constitute a quorum and the affirmative vote of a majority of the members present shall be necessary for the adoption by it of any resolution. In the absence of a quorum at any meeting of the Executive Committee such meeting need not be held; or a majority of the members present thereat or, if no members be present, the secretary of the meeting may adjourn such meeting from time to time until a quorum be present. SECTION 4.04. Compensation. Each member of the Executive Committee shall be entitled to receive from the Corporation such fee, if any, as shall be fixed by the Board of Directors, together with reimbursement for the reasonable expenses incurred by him in connection with the performance of his duties. SECTION 4.05. Other Board Committees. The Board of Directors may, from time to time, by resolution passed by a majority of the whole Board, designate one or more committees in addition to the Executive Committee, each committee to consist of two or more of the directors of the Corporation. Any such committee, to the extent provided in the resolution or in the Bylaws of the Corporation, shall have and may exercise the powers of the Board of Directors in the management of the business and affairs of the Corporation. A majority of all the members of any such committee may determine its action and fix the time and place of its meetings, unless the Board of Directors shall otherwise provide. The Board of Directors shall have power to change the members of any committee at any time, to fill vacancies and to discharge any such committee, either with or without cause, at any time. SECTION 4.06. Alternates. The Chairman of the Board or the President may designate one or more directors as alternate members of any committee who may act in the place and stead of members who temporarily cannot attend any such meeting. SECTION 4.07. Additional Committees. The Board of Directors may from time to time create such additional committees of directors, officers, employees or other persons designated by it (or any 7 8 combination of such persons) for the purpose of advising the Board, the Executive Committee and the officers and employees of the Corporation in all such matters as the Board shall deem advisable and with such functions and duties as the Board shall by resolutions prescribe. A majority of all the members of any such committee may determine its action and fix the time and place of its meetings, unless the Board of Directors shall otherwise provide. The Board of Directors shall have power to change the members of any committee at any time, to fill vacancies and to discharge any such committee, either with or without cause, at any time. ARTICLE 5. ACTIONS BY CONSENT. SECTION 5.01. Consent by Directors. Any action required or permitted to be taken at any meeting of the Board of Directors or of any committee thereof may be taken without a meeting if prior to such action a written consent thereto is signed by all members of the Board or of such committee, as the case may be, and such written consent is filed with the minutes of the proceedings of the Board of such committee. SECTION 5.02. Consent by Stockholders. Any action required or permitted to be taken at any meeting of the stockholders may be taken without a meeting upon the written consent of the holders of shares of stock entitled to vote who hold the number of shares which in the aggregate are at least equal to the percentage of the total vote required by statute or the Articles of Incorporation or these Bylaws for the proposed corporate action, and provided that prompt notice of such action shall be given to all stockholders who would have been entitled to vote upon the action if such meeting were held. ARTICLE 6. OFFICERS. SECTION 6.01. Number. The principal officers of the Corporation shall be a Chairman of the Board, a President, one or more Vice Chairmen, one or more Vice Presidents (the number thereof and variations in title to be determined by the Board of Directors), a Treasurer and a Secretary. In addition, there may be such other or subordinate officers, agents and employees as may be appointed in accordance with the provision of Section 6.03. Any two or more offices, except those of President and Secretary, may be held by the same person. SECTION 6.02. Election, Qualifications and Term of Office. Each officer of the Corporation, except such officers as may be appointed in accordance with the provisions of Section 6.03, shall be elected annually by the Board of Directors and shall hold office until his successor shall have been duly elected and qualified, or until his death, or until he shall have resigned or shall have been removed in the manner herein provided. The Chairman of the Board and the President shall be and remain directors. SECTION 6.03. Other Officers. The Corporation may have such other officers, agents and employees as the Board of Directors may deem necessary, including a Corporate Controller, one or more Assistant Corporate Controllers, one or more Assistant Treasurers, and one or more Assistant Secretaries, each of whom shall hold office for such period, have such authority, and perform such duties as the Board of Directors or the President or other appointing officer may from time to time determine. The Board of Directors may delegate to any principal officer the power to appoint or remove any such subordinate officers, agents or employees. 8 9 SECTION 6.04. Mandatory Retirement. No officer of the Corporation shall continue to hold office beyond the first day of the month following or coinciding with his attaining age of 65, unless the Board of Directors specifically authorizes such continuance on a year-to-year basis. SECTION 6.05. Removal. Any officer may be removed, either with or without cause, by a vote of a majority of the whole Board of Directors or, except in case of any officer elected by the Board of Directors, by any committee or officer upon whom the power of removal may be conferred by the Board of Directors. SECTION 6.06. Resignation. Any officer may resign at any time by giving written notice to the Board of Directors, the Chairman of the Board or the President. Any such resignation shall take effect at the date of receipt of such notice or at any later time specified therein; and unless otherwise specified therein, the acceptance of such resignation shall not be necessary to make it effective. SECTION 6.07. Vacancies. A vacancy in any office because of death, resignation, removal, disqualification or any other cause shall be filed for the unexpired portion of the term in the manner prescribed in these Bylaws for regular election or appointment to such office. SECTION 6.08. Chairman of the Board. The Chairman of the Board shall preside at all meetings of the Board of Directors. Subject to definition by the Board of Directors, he shall have general executive powers and such specific powers and duties as from time to time may be conferred upon or assigned to him by the Board of Directors. SECTION 6.09. President. The President shall preside at all meetings of the Board of Directors if there be no Chairman or if the Chairman be absent. Subject to the definition by the Board of Directors, he shall have general executive powers and such specific powers and duties as from time to time may be conferred upon or assigned to him by the Board of Directors. SECTION 6.10. Vice Chairmen and Vice Presidents. Each Vice Chairman and each Vice President shall have such powers and perform such duties as the Board of Directors or the Executive Committee may from time to time prescribe or as shall be assigned to him by the President. SECTION 6.11. Treasurer. The Treasurer shall have charge and custody of, and be responsible for, all funds and securities of the Corporation, and shall deposit all such funds to the credit of the Corporation in such banks, trust companies or other depositaries as shall be selected in accordance with the provisions of these Bylaws; he shall disburse the funds of the Corporation as may be ordered by the Board of Directors or the Executive Committee, making proper vouchers for such disbursements, and shall render to the Board of Directors or the stockholders, whenever the Board may require him so to do, a statement of all his transactions as Treasurer or the financial condition of the Corporation; and, in general, he shall perform all the duties incident to the office of Treasurer and such other duties as from time to time may be assigned to him by the Board of Directors, any committee of the Board designated by it so to act or the President. The Treasurer may appoint, from time to time, one or more Assistant Treasurers to carry out any or all of his responsibilities. SECTION 6.12. Secretary. The Secretary shall record or cause to be recorded in books provided for the purpose the minutes of the meetings of the stockholders, the Board of Directors, and all committees of which a secretary shall not have been appointed; shall see that all notices are duly given in accordance with the provisions of these Bylaws and as required by law; shall be custodian of all corporate records (other than financial) and of the seal of the Corporation and see that the seal is affixed to all documents the execution of which on behalf of the Corporation under its seal is duly authorized in accordance with the provisions of these Bylaws; shall keep, or cause to be kept, the list of stockholders as 9 10 required by Section 2.09, which include post-office addresses of the stockholders and the number of shares held by them, respectively, and shall make or cause to be made, all proper changes therein, shall see that the books, reports, statements, certificates and all other documents and records required by law are properly kept and filed; and, in general, shall perform all duties incident to the office of Secretary and such other duties as may from time to time be assigned to him by the Board of Directors, the Executive Committee or the President. The Secretary may appoint, from time to time, one or more Assistant Secretaries to carry out any or all of his responsibilities. SECTION 6.13. Salaries. The salaries of the principal officers of the Corporation shall be fixed from time to time by the Board of Directors or a special committee thereof, and none of such officers shall be prevented from receiving a salary by reason of the fact that he is a director of the Corporation. SECTION 6.14. CEO and Chairman Succession; Board Composition. The Board of Directors has resolved that Mr. Charles K. Gifford shall be the successor to Mr. Terrence Murray as the Chief Executive Officer of the Corporation, with such succession to become effective on the CEO Succession Date (as defined below), and that Mr. Gifford shall be the successor to Mr. Murray as the Chairman of the Corporation, with such succession to become effective on the Chairman Succession Date (as defined below). Until immediately prior to the commencement of the first annual meeting of stockholders of the Corporation following the Chairman Succession Date, (i) the ratio of Continuing Fleet Directors to Continuing BankBoston Directors shall be maintained at 12 to 10 and all vacancies on the Board of Directors created by the cessation of service of a Continuing Fleet Director shall be filled by a nominee selected by a majority of the Continuing Fleet Directors and all vacancies on the Board created by the cessation of service of a Continuing BankBoston Director shall be filled by a nominee selected by a majority of the Continuing BankBoston Directors and (ii) the Continuing Fleet Directors and the Continuing BankBoston Directors shall be apportioned among the three classes of the Board of Directors such that the ratio of Continuing Fleet Directors to Continuing BankBoston Directors is 4 to 4 in one class, 5 to 4 in one class and 3 to 2 in the remaining class. The provisions of this Section 6.14 may be modified, amended or repealed, and any Bylaw provision inconsistent with the provisions of this Section 6.14 may only be adopted, by an affirmative vote of at least 75 percent of the entire Board of Directors then in office and any action taken by the Board of Directors with respect to the subject matter of this Section 6.14 may only be taken at a meeting at which 66-2/3% of the directors then in office are in attendance in person or by telephone. In the event of any inconsistency between any other provision of these Bylaws and any provision of this Section 6.14, the provisions of this Section 6.14 shall control. The resolutions adopted by the Board of Directors nominating any person for election to the Board of Directors in accordance with the prior sentences will designate such person as a "Continuing Director" for purposes of Article Seventh and Article Ninth of the Corporation's Restated Articles of Incorporation. Until the Chairman Succession Date, the removal of Mr. Gifford from any of the positions specifically provided for in this Section 6.14 and in the employment agreement between the Corporation and Mr. Gifford (the "Employment Agreement"), and any amendment to or termination of the Employment Agreement shall require the affirmative vote of at least 75 percent of the entire Board of Directors then in office. The "CEO Succession Date" shall mean December 31, 2001 or any such earlier date as of which Mr. Murray ceases for any reason to serve in the position of Chief Executive Officer of the Corporation. The "Chairman Succession Date" shall mean December 31, 2002 or any such earlier date as of which Mr. Murray ceases for any reason to serve in the position of Chairman of the Corporation. "Continuing Fleet Directors" shall mean the directors of Fleet as of October 1, 1999 who were selected to be directors of Fleet by the Board of Directors of Fleet prior to the Effective Time of the 10 11 Merger and any additional directors of the Corporation who take office after the Effective Time who are nominated by a majority of the Continuing Fleet Directors. "Continuing BankBoston Directors" shall mean the directors of Fleet as of October 1, 1999 who were selected to be directors of Fleet by the Board of Directors of BankBoston prior to the Effective Time of the Merger and any additional directors of the Corporation who take office after the Effective Time who are nominated by a majority of the Continuing BankBoston Directors. ARTICLE 7. INDEMNIFICATION. SECTION 7.01. Right to Indemnification. Each person who was or is made a party or is threatened to be made a party to or is involved in any action, suit or proceeding, whether civil, criminal, administrative or investigative (hereinafter, a "proceeding"), by reason of the fact that such person, or a person of whom such person is the legal representative, is or was a director, officer, employee or agent of the Corporation or, while a director, officer, employee or agent of the Corporation, is or was serving at the request of the Corporation as a director, officer, employee or agent of any foreign or domestic corporation, partnership, joint venture, trust, other enterprise or employee benefit plan, whether the basis of such proceeding is alleged action (or failure to act) in an official capacity as a director, officer, employee or agent, or in any other capacity while serving as a director, officer, employee or agent shall be indemnified and held harmless by the Corporation to the fullest extent permitted by the Rhode Island General Laws, as the same shall exist from time to time (but, in the case of an amendment to said General Laws, only to the extent that such amendment permits the Corporation to provide broader indemnification rights than said General Laws permitted the Corporation to provide prior to such amendment) against all expenses, liability and loss (including judgments, penalties, fines, amounts paid in settlement and reasonable expenses, including attorney's fees) actually incurred by such person in connection therewith, and such indemnification shall continue as to a person who has ceased to be a director, officer, employee or agent and shall inure to the benefit of such person's heirs, executors and administrators; provided, however, that the Corporation shall indemnify any such person seeking indemnity in connection with a proceeding (or part thereof) initiated by such person only if such proceeding (or part thereof) was authorized by the Board of Directors of the Corporation. Such right shall be a contract right and shall include the right to be paid by the Corporation for expenses incurred in defending any such proceeding in advance of its final disposition; provided, however, that, if the Rhode Island General Laws so require, the payment of such expenses incurred by a director, officer, employee or agent in such person's capacity as a director, officer, employee or agent of the Corporation (and not in any other capacity in which service was or is rendered by such person while a director, officer, employee or agent, including, without limitation, service to an employee benefit plan) in advance of the final disposition of such proceeding, shall be made only upon delivery to the Corporation by the indemnified party of a written affirmation of such party's good faith belief that such party has met the applicable standards of conduct and of an undertaking, by or on behalf of such party, to repay all amounts so advanced if it shall ultimately be determined that such party is not entitled to be indemnified under this Section 7.01 or otherwise. Determinations and authorizations of payment under this Section 7.01 shall be made in the same manner as the determination that indemnification is permissible. SECTION 7.02. Right of Claimant to Bring Suit. If a claim under Section 7.01 is not paid in full by the Corporation within 90 days after a written claim has been received by the Corporation, the claimant may at any time thereafter bring suit against the Corporation to recover the unpaid amount of the claim and, if successful in whole or in part, the claimant shall be entitled to be paid also the expense of prosecuting such claim. It shall be a defense to any such action (other than an action brought to enforce 11 12 the claim for expenses incurred in defending any proceeding in advance of its final disposition where the required written affirmation and undertaking has been tendered to the Corporation) that the claimant has not met the standards of conduct which make it permissible under the Rhode Island General Laws for the Corporation to indemnify the claimant for the amount claimed, but the burden of proving such defense by clear and convincing evidence shall be on the Corporation. Neither the failure of the Corporation (including its Board of Directors, its stockholders or independent legal counsel) to have made a determination prior to the commencement of such action that indemnification of the claimant is proper in the circumstances, nor an actual determination by the Corporation (including its Board of Directors, its stockholders or independent legal counsel) that the claimant has not met such applicable standards of conduct, shall be a defense to the action or create a presumption that the claimant has not met the applicable standards of conduct. SECTION 7.03. Non-Exclusivity of Rights. The rights conferred on any person by Sections 7.01 and 7.02 of this Article 7 shall not be exclusive of any other right which such person may have or hereafter acquire under any statute, provisions of the Articles of Incorporation, Bylaws, agreement, vote of stockholders or disinterested directors or otherwise. SECTION 7.04. Insurance. The Corporation may purchase and maintain insurance, at its expense, to protect itself and any person who is or was a director, officer, employee or agent of the Corporation, or who, while a director, officer, employee or agent of the Corporation, is or was serving at the request of the Corporation as a director, officer, partner, trustee, employee or agent of any foreign or domestic corporation, partnership, joint venture, trust, other enterprise or employee benefit plan, against any such expenses, liability or loss, whether or not the Corporation would have the power to indemnify such a person against such expenses, liability or loss under the Rhode Island General Laws. ARTICLE 8. CONTRACTS, CHECKS, DRAFTS, BANK ACCOUNTS, ETC. SECTION 8.01. Execution of Contracts. Unless the Board of Directors or the Executive Committee shall otherwise determine, the Chairman of the Board, the President, any Vice President or Treasurer and the Secretary or any Assistant Secretary may enter into any contracts or execute any contract or other instrument, the execution of which is not otherwise specifically provided for, in the name and on behalf of the Corporation. The Board of Directors, or any committee designated thereby with power so to act, except as otherwise provided in these Bylaws, may authorize any other or additional officer or officers or agent or agents of the Corporation to enter into any contract or execute and deliver any instrument in the name and on behalf of the Corporation, and such authorized may be general or confined to specific instances. Unless authorized so to do by these Bylaws or by the Board of Directors or by any such committee, no officer, agent or employee shall have any power or authority to bind the Corporation by any contract or engagement or to pledge its credit or to render it liable pecuniary for any purpose or to any amount. SECTION 8.02. Loans. No loan shall be contracted on behalf of the Corporation, and no evidence of indebtedness shall be issued, endorsed or accepted by its name, unless authorized by the Board of Directors or Executive Committee or other committee designated by the Board so to act. Such authority may be general or confined to specific instances. When so authorized, the officer or officers thereunto authorized may effect loans and advances at any time for the Corporation from any bank, trust company or other institution, or from any firm, corporation or individual, and for such loans and advances may make, executive and deliver promissory notes or other evidences of indebtedness and liabilities of the Corporation, may mortgage, pledge, hypothecate or transfer any real or personal property at any time 12 13 owned or held by the Corporation, and to that end execute instruments of mortgage or pledge or otherwise transfer such property. SECTION 8.03. Checks, Drafts, Etc. All checks, drafts, bills of exchange or other orders for the payment of money, obligations, notes, or other evidence of indebtedness, bills of lading, warehouse receipts and insurance certificates of the Corporation, shall be signed or endorsed by such officer or officers, agent or agents, attorney or attorneys, employee or employees, of the Corporation as shall from time to time be determined by resolution of the Board of Directors or Executive Committee or other committee designated by the Board so to act. SECTION 8.04. Deposits. All funds of the Corporation not otherwise employed shall be deposited from time to time to the credit of the Corporation in such banks, trust companies or other depositaries as the Board of Directors or Executive Committee or other committee designated by the Board so to act may from time to time designate, or as may be designated by any officer or officers or agent or agents of the Corporation to whom such power may be delegated by the Board of Directors or Executive Committee or other committee designated by the Board so to act and, for the purpose of such deposit and for the purposes of collection for the account of the Corporation, all checks, drafts and other orders for the payment of money which are payable to the order of the Corporation may be endorsed, assigned and delivered by any officer, agent or employee of the Corporation or in such manner as may from time to time be designated or determined by resolution of the Board of Directors or Executive Committee or other committee designated by the Board so to act. SECTION 8.05. Proxies in Respect of Securities of Other Corporations. Unless otherwise provided by resolution adopted by the Board of Directors or the Executive Committee or other committee so designated to act by the Board, the Chairman of the Board or the President or any Vice President or the Secretary or any Assistant Secretary may from time to time appoint an attorney or attorneys or agent or agents of the Corporation, in the name and on behalf of the Corporation, to cast votes which the Corporation may be entitled to cast as the holder of stock or other securities in any other corporation, association or trust any of whose stock or other securities may be held by the Corporation, at meetings of the holders of the stock or other securities of such other corporation, association or trust, or to consent in writing, in the name of the Corporation as such holder to any action by such other corporation, association or trust, and may instruct the person or persons so appointed as to the manner of casting such votes or giving such consent, and may execute or cause to be executed in the name and on behalf of the Corporation and under its corporate seal, or otherwise, all such written proxies or other instruments as he may deem necessary or proper in the premises. ARTICLE 9. BOOKS AND RECORDS. SECTION 9.01. Place. The books and records of the Corporation may be kept at such places within or without the State of Rhode Island as the Board of Directors from time to time may determine. The stock record books and the blank stock certificate books shall be kept by the Secretary or by any other officer or agent designated by the Board of Directors. SECTION 9.02. Addresses of Stockholders. Each stockholder shall furnish to the Secretary of the Corporation or to the transfer agent of the Corporation an address at which notices of meetings and all other corporate notices may be served upon or mailed to him, and if any stockholder shall fail to designate such address, corporate notices may be served upon him by mail, postage prepaid, to him at his post-office address last known to the Secretary or to the transfer agent of the Corporation or by transmitting a notice thereof to him at such address by telegraph, cable or other available method. 13 14 SECTION 9.03. Record Dates. The Board of Directors may fix in advance a date, not exceeding 60 days preceding the date of any meeting of stockholders, or the date for the payment of any dividend, or the date for the allotment of any rights, or the date when any change or conversion or exchange of capital stock of the Corporation shall go into effect, or a date in connection with obtaining such consent, as a record date for the determination of the stockholders entitled to notice of, and to vote at, any such meeting or any adjournment thereof, or entitled to receive payment of any such dividend, or to any such allotment of rights, or to exercise the rights in respect to any change, conversion or exchange of capital stock of the Corporation, or to give such consent, and in each case such stockholders of record on the date so fixed shall be entitled to notice of, or to vote at, such meeting and any adjournment thereof, or to receive payment of such dividend, or to receive such allotment of rights, or to exercise such rights or to give such consent, as the case may be, notwithstanding any transfer of any stock on the books of the Corporation after any such record date fixed as aforesaid. SECTION 9.04. Audit of Books and Accounts. The books and accounts of the Corporation shall be audited at least once in each fiscal year by certified public accountants of good standing selected by the Board of Directors. ARTICLE 10. SHARES AND THEIR TRANSFER. SECTION 10.01. Certificates of Stock. Every owner of stock of the Corporation shall be entitled to have a certificate certifying the number of shares owned by him in the Corporation and designating the class of stock to which such shares belong, which shall otherwise be in such form as the Board of Directors shall prescribe. Each such certificate shall be signed by the Chairman of the Board or the President or a Vice President and the Treasurer or any Assistant Treasurer or the Secretary or any Assistant Secretary of the Corporation; signed or countersigned by a transfer agent or registrar and sealed with the seal of the Corporation. Any or all of the signatures on such certificate and the seal of the Corporation may be in facsimile form. In case any officer or officers, transfer agent or registrar who shall have signed, or whose facsimile signature or signatures shall have been used on, any such certificate or certificates shall cease to be such officer or officers, transfer agent or registrar of the Corporation, whether because of death, resignation or otherwise, before such certificate or certificates shall have been delivered by the Corporation, such certificate or certificates may nevertheless be issued and delivered by the Corporation as though the person or persons who signed such certificate or whose facsimile signature or signatures shall have been used thereon had not ceased to be such officer or officers, transfer agent or registrar of the Corporation. SECTION 10.02. Record. A record shall be kept of the name of the person, firm or corporation owning the stock represented by each certificate for stock of the Corporation issued, the number of shares represented by each such certificate, the date thereof, and, in the case of cancellation, the date of cancellation. The person in whose name shares of stock stand on the books of the Corporation shall be deemed the owner thereof for all purposes as regards to the Corporation. SECTION 10.03. Transfer of Stock. Transfer of shares of stock of the Corporation shall be made on the books of the Corporation only by the registered holder thereof, or by his attorney thereunto authorized, and on the surrender of the certificate or certificates for such shares properly endorsed. SECTION 10.04. Transfer Agent and Registrar; Regulations. The Corporation shall, if and whenever the Board of Directors or Executive Committee shall so determine, maintain one or more transfer offices or agencies, each in charge of a transfer agent designated by the Board of Directors, where 14 15 the shares of the capital stock of the Corporation shall be directly transferable, and also if and whenever the Board of Directors shall so determine, maintain one or more registry offices, each in charge of a registrar designated by the Board of Directors, where such shares of stock shall be registered. The Board of Directors may make such rules and regulations as it may deem expedient, not inconsistent with these Bylaws, concerning the issue, transfer and registration of certificate for shares of the capital stock of the Corporation. SECTION 10.05. Lost, Destroyed or Mutilated Certificates. In case of the alleged loss or destruction or the mutilation of a certificate representing capital stock of the Corporation, a new certificate may be issued in place thereof, in the manner and upon such terms as the Board of Directors may prescribe. ARTICLE 11. SEAL. The Board of Directors shall provide a corporate seal, which shall be in the form of a circle and shall bear the name of the Corporation and the words and figures "Incorporated 1970, Rhode Island". ARTICLE 12. FISCAL YEAR. The fiscal year of the Corporation shall be the calendar year. ARTICLE 13. WAIVER OF NOTICE. Whenever any notice whatever is required to be given by statute, these Bylaws or the Articles of Incorporation, a waiver thereof in writing, signed by the person or persons entitled to said notice, whether before or after the time state therein, shall be deemed equivalent thereto. ARTICLE 14. AMENDMENTS. These Bylaws may be altered, amended or repeated in whole or in part, and new Bylaws may be adopted in whole or in part, only by the affirmative vote of 80% of the Board of Directors and a majority of the Continuing Directors (as defined in Article SEVENTH of the Articles of Incorporation) or by the stockholders as provided in the Articles of Incorporation and applicable law. No amendment may be made unless the Bylaw, as amended, is consistent with the requirements of law and the Articles of Incorporation. 15 EX-12 3 b39442fbex12.txt COMPUTATION OF CONSOLIDATED RATIOS OF EARNINGS 1 EXHIBIT 12 FLEETBOSTON FINANCIAL CORPORATION COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES AND PREFERRED DIVIDENDS EXCLUDING INTEREST ON DEPOSITS (DOLLARS IN MILLIONS)
Three months ended March 31, Year ended December 31, - --------------------------------------------------------------------------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- Earnings: Income before income taxes $ 275 $1,803 $ 6,461 $4,075 $4,444 $4,314 $3,619 Adjustments: Fixed charges: Interest on borrowed funds 927 981 3,985 3,198 2,569 2,026 1,881 1/3 of rent 28 28 108 127 119 118 114 Preferred dividends 19 16 64 83 96 155 185 ------ ------ ------- ------ ------ ------ ------ Adjusted earnings $1,249 $2,828 $10,618 $7,483 $7,228 $6,613 $5,799 ====== ====== ======= ====== ====== ====== ====== Fixed charges and preferred dividends $ 974 $1,025 $ 4,157 $3,408 $2,784 $2,299 $2,180 ====== ====== ======= ====== ====== ====== ====== Adjusted earnings/fixed charges 1.28x 2.76x 2.55x 2.20x 2.60x 2.88x 2.66x ====== ====== ======= ====== ====== ====== ======
INCLUDING INTEREST ON DEPOSITS (DOLLARS IN MILLIONS)
Three months ended March 31, Year ended December 31, - --------------------------------------------------------------------------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 - ------------------------------------------------------------------------------------------------------------------------------ Earnings: Income before income taxes $ 275 $1,803 $ 6,461 $ 4,075 $ 4,444 $ 4,314 $3,619 Adjustments: Fixed charges: Interest on borrowed funds 927 981 3,985 3,198 2,569 2,026 1,881 1/3 of rent 28 28 108 127 119 118 114 Interest on deposits 1,072 1,087 4,512 4,202 4,379 4,021 4,092 Preferred dividends 19 16 64 83 96 155 185 ------ ------ ------- ------- ------- ------- ------ Adjusted earnings $2,321 $3,915 $15,130 $11,685 $11,607 $10,634 $9,891 ====== ====== ======= ======= ======= ======= ====== Fixed charges and preferred dividends $2,046 $2,112 $ 8,669 $ 7,610 $ 7,163 $ 6,320 $6,272 ====== ====== ======= ======= ======= ======= ====== Adjusted earnings/fixed charges 1.13x 1.85x 1.75x 1.54x 1.62x 1.68x 1.58x ====== ====== ======= ======= ======= ======= ======
2 EXHIBIT 12 (CONTINUED) FLEETBOSTON FINANCIAL CORPORATION COMPUTATION OF CONSOLIDATED RATIO OF EARNINGS TO FIXED CHARGES EXCLUDING INTEREST ON DEPOSITS (DOLLARS IN MILLIONS)
Three months ended March 31, Year ended December 31, - --------------------------------------------------------------------------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- Earnings: Income before income taxes $ 275 $1,803 $ 6,461 $4,075 $4,444 $4,314 $3,619 Adjustments: Fixed charges: Interest on borrowed funds 927 981 3,985 3,198 2,569 2,026 1,881 1/3 of rent 28 28 108 127 119 118 114 ------ ------ ------- ------ ------ ------ ------ Adjusted earnings $1,230 $2,812 $10,554 $7,400 $7,132 $6,458 $5,614 ====== ====== ======= ====== ====== ====== ====== Fixed charges $ 955 $1,009 $ 4,093 $3,325 $2,688 $2,144 $1,995 ====== ====== ======= ====== ====== ====== ====== Adjusted earnings/fixed charges 1.29x 2.79x 2.58x 2.23x 2.65x 3.01x 2.81x ====== ====== ======= ====== ====== ====== ======
INCLUDING INTEREST ON DEPOSITS (DOLLARS IN MILLIONS)
Three months ended March 31, Year ended December 31, - --------------------------------------------------------------------------------------------------------------------------------- 2001 2000 2000 1999 1998 1997 1996 - --------------------------------------------------------------------------------------------------------------------------------- Earnings: Income before income taxes $ 275 $1,803 $ 6,461 $ 4,075 $ 4,444 $ 4,314 $3,619 Adjustments: Fixed charges: Interest on borrowed funds 927 981 3,985 3,198 2,569 2,026 1,881 1/3 of rent 28 28 108 127 119 118 114 Interest on deposits 1,072 1,087 4,512 4,202 4,379 4,021 4,092 ------ ------ ------- ------- ------- ------- ------ Adjusted earnings $2,302 $3,899 $15,066 $11,602 $11,511 $10,479 $9,706 ====== ====== ======= ======= ======= ======= ====== Fixed charges $2,027 $2,096 $ 8,605 $ 7,527 $ 7,067 $ 6,165 $6,087 ====== ====== ======= ======= ======= ======= ====== Adjusted earnings/fixed charges 1.14x 1.86x 1.75x 1.54x 1.63x 1.70x 1.59x ====== ====== ======= ======= ======= ======= ======
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