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SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, DC 20549
----------------------------
FORM 10-K
[ X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
FOR THE FISCAL YEAR ENDED DECEMBER 31, 2000
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
COMMISSION FILE NUMBER 1-6366
FLEETBOSTON FINANCIAL CORPORATION
(Exact name of Registrant as specified in its charter)
RHODE ISLAND 05-0341324
(State of incorporation) (I.R.S. Employer 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)
SECURITIES REGISTERED PURSUANT TO SECTION 12(b) OF THE ACT:
TITLE OF EACH CLASS NAME OF EACH EXCHANGE ON WHICH REGISTERED
------------------- -----------------------------------------
Common Stock, $.01 Par Value New York Stock Exchange
Boston Stock Exchange
Depositary Shares each representing a one-tenth interest in a share of
Series V 7.25% Perpetual Preferred Stock, $1 Par Value New York Stock Exchange
Depositary Shares each representing a one-fifth interest in a share of
Series VI 6.75% Perpetual Preferred Stock, $1 Par Value New York Stock Exchange
8.00% Trust Originated Preferred Securities issued by Fleet Capital Trust
I, Guaranteed by FleetBoston Financial Corporation New York Stock Exchange
7.05% Trust Originated Preferred Securities issued by Fleet Capital Trust
III, Guaranteed by FleetBoston Financial Corporation New York Stock Exchange
7.17% Trust Originated Preferred Securities issued by Fleet Capital Trust
IV, Guaranteed by FleetBoston Financial Corporation New York Stock Exchange
8.80% Trust Originated Preferred Securities issued by Fleet Capital Trust
VI, Guaranteed by FleetBoston Financial Corporation New York Stock Exchange
Preferred Share Purchase Rights New York Stock Exchange
Boston Stock Exchange
----------------------------------------------------
SECURITIES REGISTERED PURSUANT TO SECTION 12(g) OF THE ACT: NONE
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months, and (2) has been subject to such filing
requirements for the past 90 days. YES XX NO
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
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As of January 31, 2001, the aggregate market value of the voting stock held
by nonaffiliates of the Registrant was $38.7 billion.
The number of shares of common stock of the Registrant outstanding as of
January 31, 2001 was 904,554,470.
===============================================================================
DOCUMENTS INCORPORATED BY REFERENCE
Pertinent extracts from Registrant's Proxy Statement for its 2001 Annual
Meeting of Stockholders to be filed with the Securities and Exchange
Commission are incorporated into Part III.
Such information incorporated by reference shall not be deemed to
specifically incorporate by reference the information referred to in Item
402(a)(8) of Regulation S-K.
TABLE OF CONTENTS AND CROSS-REFERENCE INDEX
DESCRIPTION PAGE NUMBER
----------- -----------
Part 1. Item 1. Business................................................... 2-7
- Line of Business Information............................ 16-21, 60-62
- Management's Discussion and Analysis of Financial
Condition and Results of Operations..................... 11-39
- Mergers, Acquisitions and Divestitures.................. 48-49
- Capital................................................. 37-38, 55-56
- Dividends............................................... 36-37, 55-56
- Statistical Disclosure by Bank Holding Companies ....... 6-7, 10, 21-28, 37,
46-48, 50, 52,
68-70
Item 2. Properties................................................. 7
Item 3. Legal Proceedings.......................................... 7, 59
Item 3A. Executive Officers of the Corporation...................... 8-9
Item 4. Submission of Matters to a Vote of Security Holders........ 9
Part II. Item 5. Market for the Registrant's Common Stock and Related
Stockholder Matters........................................ 9, 69
Item 6. Selected Financial Data.................................... 10
Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations........................ 11-39
Item 7A. Quantitative and Qualitative Disclosures about Market Risk 28-36, 40
Item 8. Financial Statements and Supplementary Data................ 40-67, 69
Item 9. Changes in and Disagreements with Accountants on
Accounting and Financial Disclosure........................ 71
Part III. Item 10. Directors and Executive Officers of the Registrant......... 8-9, 71*
Item 11. Executive Compensation..................................... 71*
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................. 71*
Item 13. Certain Relationships and Related Transactions............. 72*
Part IV. Item 14. Exhibits, Financial Statement Schedules and Reports on
Form 8-K................................................... 42-45, 72-76
Signatures.......................................................... 77
* The information required by this Item is incorporated herein by reference
to the Corporation's Proxy Statement for its 2001 Annual Meeting of
Stockholders.
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PART I.
ITEM 1. BUSINESS
GENERAL
FleetBoston Financial Corporation (the Corporation) is a diversified
financial services company organized under the laws of the State of Rhode
Island. The Corporation is a legal entity separate and distinct from its
subsidiaries, assisting those subsidiaries by providing financial resources and
management. At December 31, 2000, the Corporation had total assets of $179.5
billion, total deposits of $101.3 billion, total stockholders' equity of $16.2
billion and approximately 53,000 employees. In terms of total assets, the
Corporation is the seventh largest financial holding company in the United
States. The Corporation's aggregate market capitalization of approximately $34
billion ranks seventh in the country among financial holding companies. The
executive office of the Corporation is located at 100 Federal Street, Boston,
Massachusetts, 02110 (telephone (617) 434-2200).
On October 1, 2000, the Corporation announced a definitive agreement to
acquire Summit Bancorp. (Summit), a New Jersey-based financial services company
with approximately $40 billion of assets and approximately $3 billion of
stockholders' equity at December 31, 2000. The Corporation expects to complete
the acquisition, which has received the required stockholder and regulatory
approvals, before the end of the first quarter of 2001, and plans to account for
the acquisition as a pooling of interests. Additional information with respect
to this pending acquisition is included in Note 2 of the "Notes to Consolidated
Financial Statements" included under Item 8 of this Report.
The Corporation, through its subsidiaries, offers a comprehensive array of
financial solutions to approximately 20 million customers, primarily in the
United States and Latin America. Its key businesses include consumer and small
business banking; commercial banking, including middle-market lending,
asset-based lending, leasing, cash management, trade finance and government
banking; international banking; corporate banking; principal investing;
investment banking; securities brokerage, market-making and clearing services;
investment services, including asset management, mutual funds and retirement
planning; credit card services; commercial real estate lending; mortgage
banking, and student loan and other processing. The Corporation owns three
national banking subsidiaries, including its principal banking subsidiary, Fleet
National Bank ("FNB"). FNB is a member of the Federal Reserve System, and its
domestic deposits are insured by the Federal Deposit Insurance Corporation (the
"FDIC") to the extent provided by law.
The Corporation's principal business lines, including their operating
results and other key financial measures, are more fully discussed in
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included in this Report under Item 7, and in Note 17 of the "Notes
to Consolidated Financial Statements" included under Item 8 of this Report. For
discussions of the Corporation's business activities, including its lending
activities, its cross-border outstandings and its management of off-balance
sheet exposure and the risks inherent in its businesses, refer to "Management's
Discussion and Analysis of Financial Condition and Results of Operations,"
included under Item 7 of this Report.
This Report, as well as other written or oral communications made from time
to time by the Corporation (including, without limitation, the Corporation's
2000 Summary Annual Report to Stockholders), may contain statements relating to
the future results of the Corporation (including certain projections and
business trends) that are considered "forward-looking statements" as defined in
the Private Securities Litigation Reform Act of 1995. Actual results may differ
materially from those projected as a result of the following risks and
uncertainties, as well as any other risks and uncertainties detailed from time
to time in the filings of the Corporation with the Securities and Exchange
Commission (the "SEC"):
- general political and economic conditions, either domestically or
internationally or in the states in which the Corporation conducts its
business, may be less favorable than expected;
- interest rate and currency fluctuations, equity and bond market
fluctuations, the level of nonperforming assets and inflation may be
greater than expected;
- competitive product and pricing pressures among financial institutions
within the Corporation's markets may increase significantly;
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- legislative or regulatory developments, including regulations adopted
under the Gramm-Leach-Bliley Act and other changes in laws concerning
taxes, banking, securities, insurance and other aspects of the
financial services industry, may adversely affect the businesses in
which the Corporation is engaged;
- technological changes, including the impact of the Internet on the
Corporation's businesses, may be more difficult or expensive than
anticipated;
- expected cost savings and revenue enhancements from mergers,
acquisitions and integrations of acquired businesses may not be fully
realized or realized within the expected timeframes;
- costs or difficulties related to the integration of acquired
businesses may be greater than expected; and
- the negative impact of any divestitures required by regulatory
authorities in connection with mergers or acquisitions may be greater
than expected.
COMPETITION
The Corporation's banking and non-banking subsidiaries compete with other
major financial institutions, including commercial banks, investment banks,
mutual savings banks, savings and loan associations, credit unions, consumer
finance companies and other non-bank institutions, such as insurance companies,
major retailers, brokerage firms, and investment companies in the Northeast,
throughout the United States and internationally. The principal methods of
competing effectively in the financial services industry include improving
customer service through the quality and range of services provided, improving
efficiencies and pricing services competitively.
One outgrowth of the competitive environment discussed above has been
significant consolidation within the financial services industry on a global,
national and regional level. The Corporation continues to implement strategic
initiatives focused on expanding its core businesses and to explore, on an
ongoing basis, acquisition, divestiture and joint venture opportunities. The
Corporation analyzes each of its businesses in the context of customer demands,
competitive advantages, industry dynamics and growth potential.
For additional information with regard to the Corporation's acquisition and
divestiture activities, refer to Note 2 of the "Notes to Consolidated Financial
Statements" included under Item 8 of this Report.
SUPERVISION AND REGULATION
The business in which the Corporation and its subsidiaries are engaged is
subject to extensive supervision, regulation and examination by various bank
regulatory authorities and other governmental agencies in the states and
countries where the Corporation and its subsidiaries operate. The supervision,
regulation and examination to which the Corporation and its subsidiaries are
subject are intended primarily for the protection of depositors and the deposit
insurance funds that insure the deposits of banks, rather than for the
protection of security holders.
Several of the more significant regulatory provisions applicable to banks
and financial holding companies to which the Corporation and its subsidiaries
are subject are discussed below, along with certain regulatory matters
concerning the Corporation and its subsidiaries. To the extent that the
following information describes statutory or regulatory provisions, it is
qualified in its entirety by reference to the particular statutory provisions.
Any change in applicable law or regulation may have a material effect on the
business and prospects of the Corporation and its subsidiaries.
Regulatory Agencies
Financial Holding Company. The Corporation elected to become a financial
holding company on March 13, 2000, and continues to be subject to regulation
under the Bank Holding Company Act of 1956 and to inspection, examination and
supervision by the Board of Governors of the Federal Reserve System (the
"Federal Reserve Board").
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Subsidiary Banks. FNB and the Corporation's other national banking
subsidiaries are subject to regulation and examination primarily by the Office
of the Comptroller of the Currency (the "OCC") and secondarily by the Federal
Reserve Board and the FDIC. In connection with its international operations, the
Corporation is also subject to regulation by various foreign bank and securities
regulatory agencies in those countries in which it does business.
Nonbank Subsidiaries. Many of the Corporation's non-banking subsidiaries
also are subject to regulation by the Federal Reserve Board and other applicable
federal and state agencies. The Corporation's brokerage subsidiaries are
regulated by the SEC, the National Association of Securities Dealers, Inc. and
state securities regulators. The Corporation's insurance subsidiaries are
subject to regulation by applicable state insurance regulatory agencies. Other
non-banking subsidiaries of the Corporation are subject to the laws and
regulations of both the federal government and the various states in which they
conduct business.
Other Requirements and Regulations. The Corporation and its subsidiaries
are also affected by the fiscal and monetary policies of the U.S. federal
government and the Federal Reserve Board, and by various other governmental
requirements and regulations in the states and countries where the Corporation
and its subsidiaries operate.
Financial and Bank Holding Company Activities
"Financial in Nature" Requirement. As a bank holding company that has also
elected to become a financial holding company, the Corporation may affiliate
with securities firms and insurance companies and engage in other activities
that are financial in nature. Activities that are "financial in nature" include
securities underwriting, dealing and market-making, sponsoring mutual funds and
investment companies, insurance underwriting and agency, merchant banking, and
activities that the Federal Reserve Board has determined to be closely related
to banking. No Federal Reserve Board approval is required for the Corporation to
acquire a company, other than a bank holding company, bank or savings
association, engaged in activities that are financial in nature or incidental to
activities that are financial in nature, as determined by the Federal Reserve
Board. Prior Federal Reserve Board approval is required before the Corporation
may acquire the beneficial ownership or control of more than 5% of the voting
shares, or substantially all of the assets, of a bank holding company, bank or
savings association. If any subsidiary bank of the Corporation ceases to be
"well capitalized" or "well managed" under applicable regulatory standards, the
Federal Reserve Board may, among other actions, order the Corporation to divest
the subsidiary bank. Alternatively, the Corporation may elect to conform its
activities to those permissible for a bank holding company that is not also a
financial holding company. If any subsidiary bank of the Corporation receives a
rating under the Community Reinvestment Act of 1977 of less than satisfactory,
the Corporation will be prohibited from engaging in new activities or acquiring
companies other than bank holding companies, banks or savings associations.
Affiliate Transactions. Various governmental requirements, including
Sections 23A and 23B of the Federal Reserve Act, limit borrowings by the
Corporation and its non-bank subsidiaries from its affiliate insured depository
institutions, and also limit various other transactions between the Corporation
and its non-bank subsidiaries, on the one hand, and its affiliate insured
depository institutions on the other. Section 23A of the Federal Reserve Act
also generally requires that an insured depository institution's loans to its
non-bank affiliates be secured, and Section 23B of the Federal Reserve Act
generally requires that an insured depository institution's transactions with
its non-bank affiliates be on arms-length terms.
Interstate Banking and Branching. Under the Riegle-Neal Interstate Banking
and Branching Efficiency Act ("Riegle-Neal"), subject to certain concentration
limits and other requirements, bank holding companies such as the Corporation
are permitted to acquire banks and bank holding companies located in any state.
Any bank that is a subsidiary of a bank holding company is permitted to receive
deposits, renew time deposits, close loans, service loans and receive loan
payments as an agent for any other bank subsidiary of that bank holding company.
Banks are permitted to acquire branch offices outside their home states by
merging with out-of-state banks, purchasing branches in other states and
establishing de novo branch offices in other states. The ability of banks to
acquire branch offices is contingent, however, on the host state having adopted
legislation "opting in" to those provisions of Riegle-Neal. In addition, the
ability of a bank to merge with a bank located in another state is contingent on
the host state not having adopted legislation "opting out" of that provision of
Riegle-Neal. The Corporation may from time to time use Riegle-Neal to acquire
banks in additional states and to consolidate its bank subsidiaries.
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Control Acquisitions. The Change in Bank Control Act prohibits a person or
group of persons from acquiring "control" of a bank holding company, unless the
Federal Reserve Board has been notified and has not objected to the transaction.
Under a rebuttable presumption established by the Federal Reserve Board, the
acquisition of 10% or more of a class of voting stock of a bank holding company
with a class of securities registered under Section 12 of the Exchange Act, such
as the Corporation, would, under the circumstances set forth in the presumption,
constitute acquisition of control of the bank holding company. In addition, a
company is required to obtain the approval of the Federal Reserve Board under
the Bank Holding Company Act before acquiring 25% (5% in the case of an acquiror
that is a bank holding company) or more of any class of outstanding voting stock
of a bank holding company, or otherwise obtaining control or a "controlling
influence" over that bank holding company.
Liability for Banking Subsidiaries
Under current Federal Reserve Board policy, a bank holding company is
expected to act as a source of financial and managerial strength to each of its
subsidiary banks and to maintain resources adequate to support each subsidiary
bank. This support may be required at times when the bank holding company may
not have the resources to provide it. In the event of a bank holding company's
bankruptcy, any commitment by the bank holding company to a U.S. federal bank
regulatory agency to maintain the capital of a subsidiary bank would be assumed
by the bankruptcy trustee and entitled to priority of payment. Any depository
institution insured by the FDIC can be held liable for any loss incurred, or
reasonably expected to be incurred, by the FDIC in connection with (1) the
"default" of a commonly controlled FDIC-insured depository institution; or (2)
any assistance provided by the FDIC to a commonly controlled FDIC-insured
depository institution "in danger of default." All of the Corporation's
subsidiary banks are FDIC-insured depository institutions. If a default occurred
with respect to a bank, any capital loans to the bank from its parent holding
company would be subordinate in right of payment to payment of the bank's
depositors and certain of its other obligations.
Capital Requirements
Information concerning the Corporation and its subsidiaries with respect
to capital requirements is incorporated by reference from Note 12, "Regulatory
Matters," of the "Notes to Consolidated Financial Statements" included under
Item 8 of this Report, and from the "Capital Management" section of
"Management's Discussion and Analysis of Financial Condition and Results of
Operations," included under Item 7 of this Report.
FDICIA
The Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA"), and the regulations promulgated under FDICIA, among other things,
established five capital categories for insured depository institutions--well
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalized--and requires U.S. federal bank
regulatory agencies to implement systems for "prompt corrective action" for
insured depository institutions that do not meet minimum capital requirements
based on these categories. Unless a bank or thrift is well capitalized, it is
subject to restrictions on its ability to offer brokered deposits and on certain
other aspects of its operations. An undercapitalized bank or thrift must develop
a capital restoration plan and its parent bank holding company must guarantee
the bank's or thrift's compliance with the plan up to the lesser of 5% of the
bank's or thrift's assets at the time it became undercapitalized and the amount
needed to comply with the plan. As of December 31, 2000, each of the
Corporation's banking subsidiaries was well capitalized based on the prompt
corrective action guidelines.
Dividend Restrictions
Various U.S. federal and state statutory provisions limit the amount of
dividends the Corporation's banking subsidiaries can pay to the Corporation
without regulatory approval. Dividend payments by national banks are limited to
the lesser of (1) the level of undivided profits; (2) the amount in excess of
which the bank ceases to be at least adequately capitalized; and (3) absent
regulatory approval, an amount not in excess of net income for the current year
combined with retained net income for the preceding two years.
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In addition, U.S. federal bank regulatory authorities have authority to
prohibit the Corporation's banking subsidiaries from engaging in an unsafe or
unsound practice in conducting their business. The payment of dividends,
depending upon the financial condition of the bank in question, could be deemed
to constitute an unsafe or unsound practice. The ability of the Corporation's
banking subsidiaries to pay dividends in the future is currently, and could be
further, influenced by bank regulatory policies and capital guidelines.
At December 31, 2000, approximately $1.1 billion of the total
stockholders' equity of the Corporation's banking subsidiaries was available for
payment of dividends to the Corporation without approval by the applicable
regulatory authority. Additional information concerning the Corporation and its
banking subsidiaries with respect to dividends is incorporated by reference from
Note 12, "Regulatory Matters," of the "Notes to Consolidated Financial
Statements" included under Item 8 of this Report, and the "Liquidity Risk
Management" and "Capital Management" sections of "Management's Discussion and
Analysis of Financial Condition and Results of Operations," included under Item
7 of this Report.
Deposit Insurance Assessments
The deposits of the Corporation's banking subsidiaries are insured up to
regulatory limits by the FDIC, and, accordingly, are subject to deposit
insurance assessments to maintain the Bank Insurance Fund (the "BIF") and/or the
Savings Association Insurance Fund (the "SAIF") administered by the FDIC. As of
December 31, 2000, the Corporation's banking subsidiaries held approximately $81
billion and $3.4 billion, respectively, of BIF- and SAIF-assessable deposits.
Depositor Preference Statute
In the "liquidation or other resolution" of an institution by any
receiver, U.S. federal legislation provides that deposits and certain claims for
administrative expenses and employee compensation against the insured depository
institution would be afforded a priority over other general unsecured claims
against that institution, including federal funds and letters of credit.
Future Legislation
Changes to the laws and regulations in the states and countries where the
Corporation and its subsidiaries do business can affect the operating
environment of bank holding companies and their subsidiaries in substantial and
unpredictable ways. The Corporation cannot accurately predict whether those
changes in laws and regulations will occur, and, if those changes occur, the
ultimate effect they would have upon the financial condition or results of
operations of the Corporation or any of its subsidiaries.
STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES
The following information, included under Items 6, 7 and 8 of this Report,
is incorporated by reference herein:
"Consolidated Average Balances/Interest Earned-Paid/Rates 1998-2000"
table - presents average balance sheet amounts, related taxable equivalent
interest earned or paid, and related average yields and rates paid.
"Rate/Volume Analysis" table - presents changes in the taxable
equivalent interest income and expense for each major category of interest
earning assets and interest bearing liabilities.
Note 4, "Securities," of the "Notes to Consolidated Financial
Statements" and "Securities" table included in "Management's Discussion
and Analysis of Financial Condition and Results of Operations" - discloses
information regarding book values, market values, maturities, and weighted
average yields of securities (by category).
Note 5, "Loans and Leases," of the "Notes to Consolidated Financial
Statements" and "Loans and Leases" table included in "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
- discloses distribution of loans of the Corporation.
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"Loans and Leases Maturity" table and "Interest Sensitivity of Loans
and Leases Over One Year" table - presents maturities and sensitivities of
loans to changes in interest rates.
Note 1, "Summary of Significant Accounting Policies - Loans and
Leases" of the "Notes to Consolidated Financial Statements" and
"Nonperforming Assets" section of "Management's Discussion and Analysis of
Financial Condition and Results of Operations" - discloses information on
nonaccrual and past due loans and leases and the Corporation's policy for
placing loans on nonaccrual status.
"Loans and Leases" section of "Management's Discussion and Analysis of
Financial Condition and Results of Operations" - discloses information
regarding cross-border outstandings and other loan concentrations of the
Corporation.
"Reserve for Credit Losses" section of "Management's Discussion and
Analysis of Financial Condition and Results of Operations" - presents an
analysis of loss experience, the allocation of the reserve for credit
losses, and a description of factors which influenced management's
judgment in determining the amount of additions to the reserve charged to
operating expense.
"Consolidated Average Balances/Interest Earned-Paid/Rates 1998-2000"
table and the "Funding Sources" section of "Management's Discussion and
Analysis of Financial Condition and Results of Operations" - discloses
deposit information.
"Selected Financial Highlights" - presents return on assets, return on
equity, common dividend payout ratio, and equity-to-assets ratio.
Note 8, "Short-Term Borrowings," of the "Notes to Consolidated
Financial Statements" - discloses information on short-term borrowings of
the Corporation.
ITEM 2. PROPERTIES
The Corporation maintains its corporate headquarters at 100 Federal Street,
Boston, Massachusetts. The Corporation or its domestic subsidiaries also
maintain principal offices at One Federal Street, Boston, Massachusetts; 111
Westminster Street and One Financial Plaza, Providence, Rhode Island; 777 Main
Street, Hartford, Connecticut; 1185 Avenue of the Americas and 26 Broadway, New
York, New York; and 555 California Street, San Francisco, California. The
Corporation or its subsidiaries also maintain administration and operations
centers located in New York, Massachusetts, Pennsylvania, Wisconsin, Rhode
Island, Connecticut, New Jersey and California.
In Latin America, where FNB operates under the corporate name "BankBoston,
N.A.," BankBoston, N.A. maintains banking headquarters in Buenos Aires,
Argentina, and Sao Paulo, Brazil. In 1998, BankBoston, N.A. acquired an
undeveloped site in Sao Paulo, Brazil to construct a new corporate office
building. Construction commenced in July 1999 and is expected to be completed in
the first quarter of 2002.
None of these properties is subject to any material encumbrance. The
Corporation's subsidiaries also own or lease numerous other premises used in
their domestic and foreign operations.
ITEM 3. LEGAL PROCEEDINGS
Information regarding legal proceedings of the Corporation is incorporated
by reference herein from Note 15, "Commitments and Contingencies" of the "Notes
to Consolidated Financial Statements" included under Item 8 of this Report.
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ITEM 3A. EXECUTIVE OFFICERS OF THE CORPORATION
The names, positions, ages and business experience during the past five
years of the "executive officers" of the Corporation, as defined in the
Securities Exchange Act of 1934, as of February 1, 2001 are set forth below. The
term of office of each executive officer extends until the meeting of the Board
of Directors immediately following the Annual Meeting of Stockholders, and until
a successor is chosen and qualified, unless they sooner resign, retire, die or
are removed.
NAME AGE AS OF
POSITIONS WITH THE CORPORATION FEBRUARY 1, 2001
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Terrence Murray............ Chairman and Chief Executive Officer 61
Charles K. Gifford......... President and Chief Operating Officer 58
Robert J. Higgins ......... President of Consumer Banking and Investment Services 55
Henrique C. Meirelles...... President of Corporate and Global Banking 55
Eugene M. McQuade.......... Vice Chairman and Chief Financial Officer 52
H. Jay Sarles ............. Vice Chairman and Chief Administrative Officer 55
Paul F. Hogan ............. Vice Chairman and Chief Risk Officer 55
Peter J. Manning .......... Vice Chairman 61
Joseph Smialowski.......... Vice Chairman, Technology and Operations 52
Bradford H. Warner......... Vice Chairman, Consumer Business Group 49
Anne M. Finucane........... Executive Vice President 48
John L. Mastromarino....... Executive Vice President 47
Brian T. Moynihan.......... Executive Vice President 41
William C. Mutterperl...... Executive Vice President, General Counsel and Secretary 54
M. Anne Szostak............ Executive Vice President 50
Ernest L. Puschaver........ Chief Accounting Officer 53
Terrence Murray has served as Chairman, President and Chief Executive
Officer of the Corporation from 1989 to 1995, President and Chief Executive
Officer from 1995 to 1996 and Chairman and Chief Executive Officer since 1997.
Mr. Murray has been a Director of the Corporation since 1976.
Charles K. Gifford became President and Chief Operating Officer of the
Corporation following the merger of BankBoston Corporation ("BankBoston") with
Fleet Financial Group, Inc. (the "Merger"). Prior to the Merger, Mr. Gifford had
served as Chairman, President and Chief Executive Officer of BankBoston from
1995 to 1996, Chief Executive Officer from 1996 to 1997 and Chairman and Chief
Executive Officer from 1997 to 1999. Mr. Gifford has been a Director of the
Corporation since 1999.
Robert J. Higgins was named Vice Chairman of the Corporation in 1993,
President and Chief Operating Officer in 1997, President of Commercial and
Retail Banking in 1999 and President of Consumer Banking and Investment Services
in November 2000. Mr. Higgins has been a Director of the Corporation since 1999.
Henrique C. Meirelles became President of Global Banking and Financial
Services of the Corporation following the Merger and was named President of
Corporate and Global Banking in November 2000. Prior to the Merger, Mr.
Meirelles had served as BankBoston's President and Chief Operating Officer from
1996 to 1999. Mr. Meirelles has been a Director of the Corporation since 1999.
Eugene M. McQuade was named Executive Vice President and Chief Financial
Officer of the Corporation in 1993, and has served as Vice Chairman and Chief
Financial Officer since 1997.
H. Jay Sarles has served as Vice Chairman of the Corporation since 1993 and
Chief Administrative Officer since 1997.
Paul F. Hogan became Vice Chairman, Corporate and Investment Banking, of
the Corporation following the Merger and was named Vice Chairman and Chief Risk
Officer in November 2000. Prior to the Merger, Mr. Hogan had served as Vice
Chairman, Corporate Banking, of BankBoston from 1996 to 1997 and Vice Chairman,
Wholesale Banking, from 1997 to 1999.
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Peter J. Manning became Vice Chairman of the Corporation following the
Merger. Prior to the Merger, Mr. Manning had served as Executive Vice President,
Mergers and Acquisitions, of BankBoston from 1996 to 1999.
Joseph Smialowski became Vice Chairman, Technology and Operations, of the
Corporation following the Merger. Prior to the Merger, Mr. Smialowski had served
as Executive Vice President, Technology and Operations, of BankBoston from 1998
to 1999. Before joining BankBoston, Mr. Smialowski served as Senior Vice
President and Chief Information Officer of Sears, Roebuck & Co. from 1993 to
1998.
Bradford H. Warner became Vice Chairman, Investment Services, of the
Corporation following the Merger and was named Vice Chairman, Consumer Business
Group, in November 2000. Prior to the Merger, Mr. Warner had served as Executive
Vice President, Global Capital Markets, of BankBoston from 1996 to 1998 and Vice
Chairman, Regional Banking, from 1998 to 1999.
Anne M. Finucane has served as Senior Vice President and Director of
Corporate Marketing and Corporate Communications of the Corporation from 1995 to
1999 and Executive Vice President since 1999.
John L. Mastromarino became Executive Vice President of the Corporation
following the Merger. Prior to the Merger, Mr. Mastromarino had served as
Executive Vice President, Risk Management, of BankBoston from 1995 to 1999.
Brian T. Moynihan was named Managing Director, Corporate Strategy and
Development, of the Corporation in 1994, Senior Vice President in 1998 and
Executive Vice President in 1999.
William C. Mutterperl has served as General Counsel and Secretary of the
Corporation since 1985, Senior Vice President from 1989 to 1998 and Executive
Vice President since 1998.
M. Anne Szostak was named Senior Vice President, Human Resources, of the
Corporation in 1994 and has served as Executive Vice President since 1998.
Ernest L. Puschaver was named Chief Accounting Officer of the Corporation
in December 2000. Prior to joining the Corporation, Mr. Puschaver had been a
partner at PricewaterhouseCoopers LLP since 1983.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders in the fourth
quarter of 2000.
PART II.
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED STOCKHOLDER MATTERS
The Corporation's common stock is listed on the New York and Boston Stock
Exchanges. At December 31, 2000, the Corporation had 67,166 stockholders of
record. For information regarding high and low quarterly sales prices, and
quarterly dividends declared and paid, in each case on the Corporation's common
stock, see the "Quarterly Summarized Financial Information" table included under
Item 8 of this Report, which is incorporated by reference herein.
9
11
ITEM 6. SELECTED FINANCIAL DATA
SELECTED FINANCIAL HIGHLIGHTS
Dollars in millions, except per share amounts
Prepared on a fully taxable equivalent basis 2000 1999 1998 1997 1996
- --------------------------------------------------------------------------------------------------------------------------
FOR THE YEAR
Net interest income $ 6,582 $ 6,799 $ 6,454 $ 6,192 $ 5,858
Noninterest income 9,024 6,974 5,281 4,206 3,658
Total revenue 15,606 13,773 11,735 10,398 9,516
Noninterest expense 8,633 9,357 7,050 6,050 5,831
Provision for credit losses 1,196 933 850 522 444
Net income 3,420 2,038 2,324 2,246 1,860
- --------------------------------------------------------------------------------------------------------------------------
PER COMMON SHARE
Basic earnings $ 3.74 $ 2.16 $ 2.47 $ 2.39 $ 1.88
Diluted earnings 3.68 2.10 2.41 2.33 1.84
Market price (year-end) 37.56 34.81 44.69 37.56 24.94
Cash dividends declared 1.23 1.11 1.00 .92 .87
Book value (year-end) 17.21 15.96 14.70 13.23 12.08
- --------------------------------------------------------------------------------------------------------------------------
AT YEAR-END
Assets $179,519 $190,692 $177,894 $160,314 $151,955
Securities 23,720 25,212 23,369 19,845 17,164
Loans 109,372 119,700 112,094 106,545 100,922
Reserve for credit losses 2,378 2,488 2,306 2,144 2,371
Deposits 101,290 114,896 118,178 109,497 109,902
Short-term borrowings 17,862 18,106 19,176 19,224 13,327
Long-term debt 28,357 25,349 14,411 8,191 8,460
Total stockholders' equity 16,172 15,307 14,204 13,041 12,702
- --------------------------------------------------------------------------------------------------------------------------
RATIOS
Return on average assets 1.84 % 1.08 % 1.37 % 1.48 % 1.27 %
Return on average common equity 23.11 14.12 17.64 19.71 16.31
Common dividend payout ratio 32.88 51.51 40.15 35.55 40.71
Net interest margin 4.24 4.23 4.40 4.68 4.57
Efficiency ratio(a) 56.9 60.0 58.2 57.2 59.9
Common equity-to-assets (year-end) 8.69 7.66 7.60 7.53 7.40
Average total equity-to-assets 8.19 7.82 8.03 8.02 8.31
- --------------------------------------------------------------------------------------------------------------------------
SUMMARY OF OPERATING RESULTS(a)
Dollars in millions, except per share amounts
Prepared on a fully taxable equivalent basis 2000 1999 1998
- ----------------------------------------------------------------------------------------
FOR THE YEAR
Net interest income $ 6,582 $ 6,799 $ 6,454
Noninterest income 8,181 6,974 5,281
Total revenue 14,763 13,773 11,735
Noninterest expense 8,406 8,255 6,832
Provision for credit losses 1,196 933 850
Net income 3,137 2,798 2,459
- ----------------------------------------------------------------------------------------
PER COMMON SHARE
Basic earnings $ 3.43 $ 2.98 $ 2.62
Diluted earnings 3.37 2.91 2.55
- ----------------------------------------------------------------------------------------
RATIOS
Return on average assets 1.69 % 1.48 % 1.44 %
Return on average common equity 21.17 19.52 18.69
- ----------------------------------------------------------------------------------------
(a) Operating results and efficiency ratio exclude the impact of divestiture
gains, merger and related costs and other special items.
10
12
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
OVERVIEW
The Corporation recorded net income of $3.4 billion, or $3.68 per diluted share,
for 2000, compared with $2 billion, or $2.10 per diluted share, for 1999. Return
on assets (ROA) and return on common equity (ROE) were 1.84% and 23.11%,
respectively, in 2000, compared to 1.08% and 14.12%, respectively, in 1999.
The 2000 results included branch divestiture gains of $843 million, or $420
million after-tax, resulting from divestitures of 312 branches, $9 billion of
loans and $13 billion of deposits to Sovereign Bancorp (Sovereign) and various
community banks.
The 2000 results also included merger integration costs of $227 million, or
$137 million after-tax. The 1999 results included $1.1 billion, or $760 million
after-tax, of merger and related charges and other special items recorded upon
completion of the Fleet/BankBoston merger.
Excluding these divestiture gains and integration costs, operating earnings
were $3.1 billion, or $3.37 per diluted share in 2000, a 12% increase over
operating earnings of $2.8 billion, and a 16% increase over diluted earnings per
share of $2.91 in 1999. These increases were largely the result of strong growth
in capital markets and investment services revenues from the Principal Investing
business, Robertson Stephens and Quick & Reilly. ROA and ROE, on an operating
basis, were 1.69% and 21.17%, respectively, in 2000 and 1.48% and 19.52%,
respectively, in 1999.
The Corporation expects to achieve total annual cost savings of $1 billion
in connection with the Fleet/BankBoston merger integration and branch
divestitures. As of December 31, 2000, approximately $970 million of aggregate
annualized reductions in expenses had been achieved. Because the divestitures
and merger integration process occurred throughout 2000, the actual calendar
year expense reductions were less than the annualized amount.
Net interest income on a fully taxable equivalent (FTE) basis totaled $6.6
billion for 2000, compared to $6.8 billion for 1999. Net interest margin for
2000 was 4.24%, compared to 4.23% in 1999.
The provision for credit losses was $1.2 billion in 2000, compared to $933
million in 1999. Net charge-offs totaled $1.1 billion in 2000, compared to $896
million in 1999. The increase in both provision and charge-offs was principally
the result of higher credit losses in domestic commercial and industrial (C&I)
loans, offset in part by lower levels of consumer credit losses, mainly related
to credit card receivables.
Noninterest income, excluding $843 million of pre-tax gains on branch
divestitures, increased $1.2 billion to $8.2 billion in 2000, reflecting strong
growth in the capital markets and investment services businesses, offset in part
by lower banking fees and commissions.
Noninterest expense, excluding the previously mentioned merger integration
costs in 2000 and the merger and related charges and other special items in
1999, totaled $8.4 billion for 2000, compared with $8.3 billion in 1999, the
increase resulting primarily from growth in existing businesses and a rise in
incentive compensation directly related to higher revenue levels, offset in part
by expense reductions realized from both merger integration activities and
branch divestitures.
On October 1, 2000, the Corporation announced an agreement to acquire
Summit Bancorp. (Summit), a New Jersey-based financial services company with
approximately $40 billion in assets and approximately $3 billion in
stockholders' equity at December 31, 2000. The Corporation plans to account for
the acquisition, which has received the required stockholder and regulatory
approvals and is expected to close before the end of the first quarter of 2001,
as a pooling of interests. Since the acquisition was not completed before
December 31, 2000, the financial information included in this Report does not
reflect Summit's results of operations or financial position. Additional
information with respect to this pending acquisition is included in Note 2 of
the "Notes to Consolidated Financial Statements" included under Item 8 of this
Report.
This discussion may contain statements relating to future results of the
Corporation (including certain projections and business trends) that are
considered "forward-looking statements" as defined in the Private Securities
Litigation Reform Act of 1995. Actual results may differ materially from those
projected as a result of certain risks and uncertainties, which are more fully
discussed under Item 1 of this Report.
RESULTS OF OPERATIONS
The following is a discussion and analysis of the Corporation's consolidated
results of operations. In order to understand this section in context, it should
be read in conjunction with the Consolidated Financial Statements and Notes to
Consolidated Financial Statements included under Item 8 of this Report. Certain
prior period amounts presented in this discussion and analysis have been
reclassified to conform to current period classifications.
11
13
NET INTEREST INCOME
Year ended December 31 2000 1999 1998
FTE basis
In millions
- ----------------------------------------------------------------------
Interest income $13,584 $13,052 $12,341
Tax-equivalent adjustment 61 57 59
Interest expense 7,063 6,310 5,946
- ----------------------------------------------------------------------
Net interest income $ 6,582 $ 6,799 $ 6,454
- ----------------------------------------------------------------------
The $217 million, or 3%, decrease in net interest income for 2000 compared to
1999 was due principally to the impact of the required divestiture of
approximately $13 billion of low-cost deposits and $9 billion of loans during
2000, as well as a higher cost of deposits, partially offset by increased income
earned on domestic loans and leases as a result of the higher interest rate
environment. Net interest income for 2000 was reduced by approximately $300
million as a result of the divestitures, which were completed in phases during
2000.
NET INTEREST MARGIN AND INTEREST RATE SPREAD
Year ended December 31 2000 1999
FTE basis Average Average
Dollars in millions Balance Rate Balance Rate
- --------------------------------------------------------------------------------------------
Securities $ 23,883 6.67% $ 24,518 6.48%
Loans and leases:
Domestic 99,044 8.88 103,511 8.21
International 15,857 13.98 14,017 13.47
Due from brokers/dealers 3,602 5.55 3,239 4.57
Mortgages held for resale 1,477 8.19 2,445 7.18
Other 11,346 6.35 12,906 6.28
- --------------------------------------------------------------------------------------------
Total interest earning assets 155,209 8.79 160,636 8.16
- --------------------------------------------------------------------------------------------
Deposits 81,357 4.48 90,687 3.88
Short-term borrowings 20,344 6.11 23,109 5.32
Due to brokers/dealers 4,825 5.66 4,145 4.65
Long-term debt 27,416 6.88 22,290 6.15
- --------------------------------------------------------------------------------------------
Interest bearing liabilities 133,942 5.26 140,231 4.50
- --------------------------------------------------------------------------------------------
Interest rate spread 3.53 3.66
Interest free sources of funds 21,267 20,405
- --------------------------------------------------------------------------------------------
Total sources of funds $155,209 4.55% $160,636 3.93%
- --------------------------------------------------------------------------------------------
Net interest margin 4.24% 4.23%
- --------------------------------------------------------------------------------------------
Net interest margin represents the relationship between net interest income and
average earning assets. Net interest margin is affected by several factors,
including fluctuations in the overall interest rate environment, funding
strategies, the mix of interest earning assets, interest bearing liabilities and
noninterest bearing liabilities, as well as the use of interest rate derivatives
that are used to manage interest rate risk.
Net interest margin for 2000 was 4.24%, compared to 4.23% for 1999. This
modest increase was primarily attributable to the absence of low-yield earning
assets necessary to support the Corporation's investment banking operation,
which resulted from banking reform legislation which became effective in March
2000, partially offset by the aforementioned branch divestitures.
Average domestic loans and leases decreased $4.5 billion to $99 billion in
2000, primarily from divestitures, and decreases as a result of securitizations,
offset in part by growth in average lease financing and consumer margin loans.
Average yields on domestic loans and leases increased over 1999 as a result of
increases in interest rates throughout 2000. Average international loans and
leases increased $1.8 billion as a result of increased lending activity,
primarily in Brazil, due to an improving economy.
Average mortgages held for resale decreased $968 million compared to 1999,
resulting from lower mortgage production volume at Fleet Mortgage due to a
higher interest rate environment.
Other interest earning assets decreased $1.6 billion to $11.3 billion
during 2000, as a result of the previously mentioned absence of low-yield
earning assets used to support investment banking. Partially offsetting this
decrease was an increase in trading assets.
Average interest bearing deposits decreased $9.3 billion to $81.4 billion
in 2000, reflecting the impact of divestitures, offset in part by increased
demand deposits and international deposits.
Average short-term borrowings decreased $2.8 billion to $20.3 billion
during 2000, reflecting the absence of low-rate liabilities used to support
investment banking, and a change in funding mix, which resulted in a $5.1
billion increase in average long-term debt. The rise in yields was a result of
Federal Reserve Board rate increases in the first half of 2000.
NONINTEREST INCOME
Year ended December 31 2000 1999 1998
In millions
- ------------------------------------------------------------------------------
Capital markets revenue $3,157 $2,104 $1,140
Investment services revenue 1,704 1,513 1,212
Banking fees and commissions 1,423 1,485 1,324
Credit card revenue 707 737 455
Processing-related revenue 609 609 452
Gains on branch divestitures and
sales of businesses 843 50 254
Other noninterest income 581 476 444
- ------------------------------------------------------------------------------
Total noninterest income $9,024 $6,974 $5,281
- ------------------------------------------------------------------------------
Noninterest income totaled $9 billion for 2000, up 29% compared to 1999. This
increase reflects growth in the capital markets and investment services
businesses, particularly at Quick & Reilly and Robertson Stephens, offset in
part by a decline in banking fees and commissions and credit card revenue. The
2000 results also included the previously mentioned $843 million gain from
branch divestitures.
12
14
CAPITAL MARKETS REVENUE
Year ended December 31 2000 1999 1998
In millions
- ----------------------------------------------------------------------------
Principal investing $ 891 $ 494 $ 381
Market-making revenue 808 426 162
Underwriting revenue 552 366 47
Advisory fees 340 230 71
Foreign exchange revenue 199 203 174
Syndication/agency fees 186 174 121
Trading profits and commissions 171 204 69
Securities gains 10 7 115
- ----------------------------------------------------------------------------
Total capital markets revenue $3,157 $2,104 $1,140
- ----------------------------------------------------------------------------
Capital markets revenue increased 50%, rising $1.1 billion to $3.2 billion for
2000. This increase reflects a rise in almost all categories within capital
markets revenue, most notably principal investing, market-making and
underwriting revenue. Much of the increase in these revenues resulted from the
unprecedented strength in the U.S. capital markets, particularly the technology
sector, during the first quarter. Despite much less favorable market conditions
in the latter part of 2000, transactional volumes for the year at both Quick &
Reilly and Robertson Stephens increased compared to the prior year. The
Corporation's revenues from its capital markets activities are impacted by a
variety of factors, including the condition of the economy, interest rates and
equity markets. These markets could be subject to additional volatility in the
future. While 2001 levels of capital markets revenues cannot be predicted with
certainty, they are not expected to reach those experienced in 2000.
Principal investing revenues rose $397 million, or 80%, to $891 million for
2000. The growth in revenue resulted primarily from liquidations of direct
investments in public companies and appreciation in the value of primary fund
investments. The Corporation has been in the principal investing business since
1959, and has one of the largest bank-owned businesses, with offices in Boston,
Providence, Palo Alto, London, Hong Kong, Buenos Aires and Sao Paulo. During
2000, the Corporation made new investments totaling approximately $2 billion.
The Principal Investing portfolio, 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, had an aggregate
carrying value of approximately $4.4 billion at December 31, 2000.
Market-making revenue increased $382 million, or 90%, to $808 million in
2000, reflecting increased transactional volumes at Robertson Stephens and Quick
& Reilly resulting from market volatility. Quick & Reilly is the second largest
New York Stock Exchange (NYSE) market maker and a leading market maker in NASDAQ
securities. In October 2000, the Corporation completed its acquisition of the
NYSE specialist firm, M.J. Meehan & Co., LLC (M.J. Meehan). With this
acquisition, Quick & Reilly now handles an estimated 18% of all order flow on
the NYSE.
Underwriting revenue increased $186 million, or 51%, to $552 million for
2000, compared to $366 million for 1999. Underwriting revenues are affected by
the volume and timing of public offerings and other transactions. Although
underwriting volume at Robertson Stephens was relatively consistent with 1999,
fees received per transaction resulted in higher revenues than the prior year.
Advisory fees increased $110 million to $340 million during 2000 as a
result of a higher level of fees at Robertson Stephens. Advisory fees include
fees received for providing financial advice on mergers and acquisitions,
private clients transactions and other transactions.
Syndication/agency fees increased $12 million to $186 million for 2000, as
a result of higher syndication volume during 2000.
Trading profits and commissions declined $33 million to $171 million in
2000, primarily due to the effect of NASDAQ market conditions on Robertson
Stephens.
INVESTMENT SERVICES REVENUE
Year ended December 31 2000 1999 1998
In millions
- -----------------------------------------------------------------------
Investment management revenue $ 955 $ 892 $ 849
Brokerage fees and commissions 749 621 363
- -----------------------------------------------------------------------
Total investment services revenue $1,704 $1,513 $1,212
- -----------------------------------------------------------------------
Investment services revenue increased $191 million, or 13%, in 2000 to $1.7
billion. Changes in these revenues are discussed in more detail below.
Investment Management Revenue
Year ended December 31 2000 1999 1998
In millions
- -----------------------------------------------------------------------
Private Clients Group $377 $374 $367
International 161 142 131
Institutional businesses 156 150 156
Mutual Fund & Investment 139 122 92
Columbia Management Company 113 98 98
Other 9 6 5
- -----------------------------------------------------------------------
Total $955 $892 $849
- -----------------------------------------------------------------------
Investment management revenue rose $63 million, or 7%, in 2000 to $955 million.
This improvement was attributable to a higher average level of domestic and
international assets under management during 2000 compared to 1999. Assets under
management were approximately $127 billion at December 31, 2000. The Corporation
is among the largest mutual fund providers in Argentina and Brazil, with
approximately $8 billion of assets under management.
13
15
Brokerage Fees and Commissions
Brokerage fees and commissions increased $128 million, or 21%, in 2000 to $749
million, reflecting strong results from both the retail brokerage and clearing
units of Quick & Reilly and the brokerage unit of Robertson Stephens, as average
trading volumes on the NASDAQ and NYSE were higher than volumes experienced by
these businesses in 1999. Average daily trading volumes, in terms of the number
of trades executed and the number of trades cleared, increased 37% and 15%,
respectively, at Quick & Reilly. Average daily trading volumes, in terms of the
number of shares traded, increased 126% at Robertson Stephens.
BANKING FEES AND COMMISSIONS
Banking fees and commissions, which include fees received for cash management,
deposit accounts, electronic banking and other service fees, decreased $62
million, or 4%, to $1.4 billion in 2000, primarily as a result of decreased
deposit and electronic banking fees following branch divestitures. Partially
offsetting this decrease was a rise in cash management fees resulting from a
higher volume of business, including new business that resulted from the merger
of the Fleet and BankBoston business units. Banking fees and commissions were
negatively impacted by approximately $100 million in 2000 as a result of
divestitures.
CREDIT CARD REVENUE
Credit card revenue decreased $30 million, or 4%, to $707 million in 2000,
primarily the result of lower securitization income and increased amortization
of deferred acquisition costs, offset in part by increased interchange fees.
These changes were the result of a narrower margin on assets securitized,
reflecting improving asset quality throughout 2000, and increased marketing
activities.
The Corporation services approximately $15 billion of managed (securitized
and owned) credit card receivables. The primary components of credit card
revenue are related to the Corporation's securitization activities. These
activities result in securitization income, servicing revenue, interchange fees,
and amortization of deferred acquisition costs. This revenue contributes to the
earnings of the Corporation's Credit Cards business unit. This unit's earnings
for 2000 increased $19 million, or 13%, over 1999. Additional information with
respect to this business unit is included in the Line of Business Information
section of this discussion and analysis.
The securitization of credit card receivables changes the Corporation's
status from that of a lender to that of a loan servicer. Accordingly, there is a
change in the classification of the revenue associated with the securitization
which is reported in the income statement. Revenue over the term of a
securitization transaction may vary depending upon the credit performance of the
securitized receivables, because credit losses become a component of the cash
flows arising from the securitized receivables.
The following table depicts the consolidated financial statement impact as
if the securitized credit card receivables had, in fact, been owned, as well as
additional financial information pertaining to credit card receivables.
Credit Card Securitization Summary
Year ended December 31, 2000 Credit Card
Dollars in millions Reported Securitization Managed
- -----------------------------------------------------------------------------------------
Net interest income (FTE) $ 6,582 $ 923 $ 7,505
Provision for credit losses 1,196 549 1,745
Noninterest income 9,024 (374) 8,650
Noninterest expense 8,633 -- 8,633
Net income 3,420 -- 3,420
Assets at year-end $179,519 $ 9,849 $189,368
Average assets 185,568 9,900 195,468
Net interest margin 4.24% 9.32% 4.55%
- -----------------------------------------------------------------------------------------
Additional information concerning the Corporation's credit card securitization
activities is included in Note 18 of the "Notes to Consolidated Financial
Statements" included under Item 8 of this Report.
PROCESSING-RELATED REVENUE
Year ended December 31 2000 1999 1998
In millions
- ----------------------------------------------------------------------------
Mortgage banking revenue, net $320 $364 $253
Student loan servicing fees 159 142 121
Other 130 103 78
- ----------------------------------------------------------------------------
Total processing-related revenue $609 $609 $452
- ----------------------------------------------------------------------------
Processing-related revenue remained unchanged compared to 1999. Increases in
student loan servicing fees and other processing-related revenue were offset by
a decrease in net mortgage banking revenue, which is discussed below. Student
loan servicing fees increased $17 million, or 12%, at AFSA Data Corporation
(AFSA), the Corporation's student loan servicing subsidiary, as accounts
serviced increased 6% to 7.6 million in 2000. Other processing-related revenue
increased $27 million, or 26%, due principally to the impact of the
Corporation's acquisition of Curtis & Associates, Inc., a company that
specializes in assisting individuals transitioning from the welfare rolls to the
workforce, as well as increases in the Corporation's tax processing and
information processing units.
14
16
Mortgage Banking Revenue, Net
Year ended December 31 2000 1999 1998
In millions
- ----------------------------------------------------------------------------------
Net loan servicing revenue $ 631 $ 548 $ 456
Mortgage production revenue 69 173 196
Gains on sales of mortgage servicing -- -- 34
Amortization/impairment charge (380) (357) (433)
- ----------------------------------------------------------------------------------
Total mortgage banking revenue, net $ 320 $ 364 $ 253
- ----------------------------------------------------------------------------------
Net mortgage banking revenue in 2000 decreased $44 million, or 12%, from $364
million in 1999. This decline was due principally to lower mortgage production
revenue and higher mortgage servicing rights (MSR) amortization, offset in part
by increased loan servicing revenue.
Net loan servicing revenue represents fees received for servicing
residential mortgage loans. The $83 million, or 15%, increase in net loan
servicing revenue was primarily attributable to a higher average servicing
portfolio during 2000 compared to a year ago. The average servicing portfolio
was $143 billion for 2000 compared to $134 billion for 1999. The Corporation
sold approximately $22 billion of mortgage servicing during the year at close to
carrying value. The Corporation's decision to sell MSRs depends on a variety of
factors, including the available markets and current market prices for such
servicing rights.
Mortgage production revenue includes income derived from the loan
origination process and gains on sales of mortgage originations. Mortgage
production revenue declined in 2000 as a result of lower mortgage production
volume compared to 1999, driven by the higher mortgage interest rate
environment.
MSR amortization increased $23 million to $380 million in 2000, due to the
above-mentioned rise in the average servicing portfolio. Since MSRs are an
interest rate-sensitive asset, the value of the Corporation's mortgage servicing
portfolio and related mortgage banking revenue may be adversely impacted if
mortgage interest rates decline and loan prepayments increase. The Corporation
hedges this interest rate risk with a variety of derivative instruments. For
additional information concerning the management of this risk, refer to the
Asset and Liability Management section of this discussion and analysis.
OTHER
Gains on branch divestitures and sales of businesses for 2000 consisted of an
$843 million gain on the Corporation's divestitures of 312 branches and
approximately $9 billion of loans and $13 billion of deposits to Sovereign and
various community banks. The $50 million gain in 1999 related to the sale of the
Corporation's minority interest in Partner's First, a credit card company.
Other noninterest income increased $105 million to $581 million in 2000,
due primarily to growth in existing businesses and a portion of the revenues
that resulted from acquisitions, as well as increases in the Corporation's
insurance and lease residual income.
NONINTEREST EXPENSE
Year ended December 31 2000 1999 1998
In millions
- ------------------------------------------------------------------------------
Employee compensation and benefits $4,523 $4,568 $3,556
Occupancy and equipment 1,088 1,114 1,003
Intangible asset amortization 352 349 274
Legal and other professional 331 307 254
Marketing and public relations 289 276 253
Merger- and restructuring-related
charges -- 850 138
Other 2,050 1,893 1,572
- ------------------------------------------------------------------------------
Total noninterest expense $8,633 $9,357 $7,050
- ------------------------------------------------------------------------------
In connection with the Fleet/BankBoston merger, the Corporation recorded merger-
and restructuring-related charges and other costs of $1.1 billion in the fourth
quarter of 1999. These costs were composed of $850 million of charges to accrue
for merger-related costs and a restructuring plan; $102 million of integration
costs incurred during the fourth quarter; and $150 million to establish a
defined contribution plan for retention incentives at Robertson Stephens. The
Corporation incurred an additional $227 million of integration costs in 2000.
Noninterest expense decreased $724 million, or 8%, to $8.6 billion in
2000, due to the absence of the merger- and restructuring-related charges
recorded in 1999. Excluding the 1999 charges and the 2000 integration costs,
noninterest expense increased $151 million from 1999, due primarily to higher
compensation and benefit costs directly attributable to higher levels of
revenue, offset in part by aggregate expense reductions of approximately $540
million from merger integration activities and branch divestitures.
15
17
Employee compensation and benefits decreased $45 million to $4.5 billion
during 2000 compared to 1999. Excluding merger integration costs of $26 million
and $25 million incurred in 2000 and 1999, respectively, and the $150 million
charge in 1999 related to retention incentives at Robertson Stephens, employee
compensation and benefits increased $104 million. This increase was a result of
incentive and volume-related increases at both Quick & Reilly and Robertson
Stephens, offset, in part, by expense reductions of approximately $350 million
from merger integration activities and branch divestitures.
Occupancy and equipment decreased $26 million during 2000. This decline was
a result of approximately $100 million of expense reductions, offset in part by
merger integration costs of $73 million incurred in 2000 compared to $39 million
in 1999.
Intangible asset amortization increased slightly to $352 million in 2000
due mainly to the acquisition of M.J. Meehan, as well as additional goodwill
recorded related to the NatWest Bancorp earnout agreement. These items were
offset, in part, by the impact of the write-off of goodwill related to branch
divestitures.
Legal and other professional expenses increased $24 million during 2000,
primarily the result of $28 million of merger integration costs incurred in 2000
compared to $17 million incurred in 1999.
Marketing and public relations increased $13 million to $289 million in
2000, the result of $23 million of integration costs incurred in 2000, offset,
in part, by a portion of the above-mentioned expense reductions.
Other noninterest expense rose $157 million, or 8%, primarily the result
of merger integration costs of $77 million incurred in 2000, compared to $21
million in 1999, as well as increases due to the aforementioned acquisitions and
growth in existing businesses.
The Corporation expects to achieve total annual cost savings of $1 billion
in connection with the Fleet/BankBoston merger integration and the branch
divestitures. As of the end of 2000, approximately $970 million of aggregate
annualized reductions in expenses had been achieved. Because the divestitures
and merger integration process occurred throughout 2000, the actual calendar
year expense reductions, which totaled approximately $540 million, were less
than the annualized amount.
INCOME TAXES
The Corporation recorded income tax expense of $2.3 billion for 2000 compared
with $1.4 billion for 1999. The effective tax rate was 40.2% in 2000 compared
with 40.5% in 1999.
LINE OF BUSINESS INFORMATION
In 2000, the Corporation was organized and managed along three principal lines
of business: Global Banking and Financial Services, Commercial and Retail
Banking and National Financial Services. The financial performance of business
lines is monitored by an internal profitability measurement system, which
provides business line results and key performance measures. The following table
presents selected line of business results on a reported basis. Information for
1999 has been restated for comparative purposes to reflect changes in business
units and management reporting methodologies implemented in 2000. The
information is presented on a fully taxable equivalent basis. Refer to Note 17
of the "Notes to Consolidated Financial Statements," included under Item 8 of
this Report, for additional information on these business lines.
In November 2000, the Corporation announced a realignment of senior
management, which resulted in a revised organizational structure. Effective
January 1, 2001, the Corporation will be organized and managed along the
following principal lines of business - Consumer and Investment Group; Corporate
and Global Banking; and Capital Markets Businesses. The information presented
below and in Note 17 does not reflect this realignment.
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LINE OF BUSINESS EARNINGS SUMMARY
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Year ended December 31 2000 1999 2000 1999 2000 1999
Dollars in millions Net Income Total Revenue Return on Equity
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Global Banking and Financial Services $1,777 $1,246 $ 7,458 $6,046 29 % 23 %
Commercial and Retail Banking 1,201 1,080 5,318 5,456 22 19
National Financial Services 424 393 1,991 2,115 15 14
All Other 18 (681) 839 156 -- --
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Total $3,420 $2,038 $15,606 $13,773 23 % 14 %
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During 2000, each of the three principal business lines posted increases in
earnings compared to 1999. Improved results were driven primarily by growth in
the capital markets units (Quick & Reilly, Robertson Stephens and Principal
Investing), as well as growth in the core banking businesses and cost savings
from merger integration efforts.
The following discussion focuses on the components and results of each of
the three major business lines.
GLOBAL BANKING AND FINANCIAL SERVICES
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Year ended December 31 2000 1999
Dollars in millions
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Income Statement Data:
Net interest income (FTE) $ 2,185 $ 2,019
Noninterest income 5,273 4,027
Provision for credit losses 314 294
Noninterest expense 4,183 3,681
Taxes/FTE adjustment 1,184 825
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Net Income $ 1,777 $ 1,246
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Balance Sheet Data:
Average assets $79,914 $74,489
Average loans and leases 47,245 43,829
Average deposits 21,449 19,589
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Return on Equity 29% 23%
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Global Banking and Financial Services includes International Banking, Corporate
Banking, Principal Investing, Robertson Stephens, Quick & Reilly and Investment
Services. This unit earned $1.8 billion in 2000, a 43% increase over 1999
earnings of $1.2 billion. Increased earnings for Global Banking and Financial
Services were driven by capital markets and investment services revenues, as the
Corporation benefited from the strength of world financial markets during the
first half of the year.
A more detailed analysis of the supporting business units follows.
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Year ended December 31 2000 1999 % 2000 1999 %
Dollars in millions Net Income Change Total Revenue Change
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International Banking $ 383 $ 316 21 % $1,832 $1,739 5%
Corporate Banking 376 281 34 1,220 1,150 6
Principal Investing 373 215 73 740 460 61
Robertson Stephens 218 99 120 1,550 933 66
Quick & Reilly 217 172 26 1,178 876 34
Investment Services 210 163 29 938 888 6
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Total $1,777 $1,246 43% $7,458 $6,046 23%
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International Banking
The International Banking unit includes the Corporation's international
operations, the largest of which are in Brazil, where the Corporation has been
in business since 1947, and Argentina, where the Corporation has done business
since 1917. In both countries, the Corporation is a recognized leader among
financial institutions. This business unit also includes operations in other
Latin American countries, as well as Asia, and offers sophisticated foreign
exchange and derivative products and other services through the Global Markets
unit.
The Corporation has 64 branch banking locations in Brazil. The
Corporation's total average assets in Brazil amounted to approximately $8.4
billion for 2000, compared to approximately $6.4 billion for 1999. The
Corporation currently operates 137 branches in Argentina, and its total average
assets in that country amounted to approximately $9.5 billion for 2000, compared
to approximately $9.3 billion for 1999.
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Compared to 1999, International Banking earnings increased $67 million, or
21%, driven primarily by increased earnings in Argentina and Brazil, as well as
increased trading profits and foreign exchange revenues, primarily in the Global
Markets unit. Revenues increased as a result of higher loan volumes and lower
credit costs, primarily in Brazil, as well as increased mutual fund fees,
banking fees, credit card revenues, foreign exchange revenues and trading
profits. These higher revenues were partly offset by increased compensation and
equipment expenses.
For 2000, average deposit balances were $11 billion, compared to $9.6
billion for 1999. Average loan balances for 2000 were $2.1 billion higher than
1999 at $14.3 billion, due primarily to growth in commercial loans in Brazil.
Additional information relating to international cross-border outstandings and
currency positions and risks related to the Corporation's International Banking
unit is presented in the Cross-Border Outstandings and Asset and Liability
Management sections of this discussion and analysis.
Corporate Banking
This business unit includes national specialized industry lending, institutional
banking, investment banking, and certain capital markets activities. As a result
of its focus on the needs of large corporate customers and specialized
industries, this unit represents a diverse mix of corporate customers both by
geographic region and industry. These units provide business customers with
capital formation, acquisition finance and long-term financing strategies. The
specialized industry and institutional lending units provide financial services
to corporate customers across the nation in high growth industries such as
media, communications, high tech, energy, financial institutions and healthcare.
This unit also services international clients through the multinational and
European units.
Corporate Banking earnings increased $95 million, or 34%, compared to
1999, due primarily to increased capital markets revenue, higher cash management
fees, and lower operating costs due to merger-related cost savings, as well as
the absence of securities losses and other write-downs recorded in 1999. These
items were partially offset by decreased investment banking fees and higher
credit costs.
Principal Investing
This business unit provides start-up capital and debt financing to new ventures
and selected small business ventures that are predominantly privately or closely
held companies. At December 31, 2000, the aggregate carrying value of the
Principal Investing portfolio was approximately $4.4 billion. In 2000, earnings
increased $158 million, or 73%, to $373 million. Higher earnings were driven
primarily by realized gains on the sale of several equity investments. Principal
Investing earnings fluctuate with the condition of equity markets, the general
state of the economy and the timing of sales.
Robertson Stephens
Robertson Stephens conducts investment banking activities and provides brokerage
services, as well as some private client services for high-net-worth
individuals. Robertson Stephens, which is headquartered in San Francisco, has
both domestic and international operations. Robertson Stephens focuses on the
high-technology business sector, and is a leader in technology IPOs.
Robertson Stephens earned $218 million in 2000 on $1.6 billion in
revenues, representing increases over the prior year of 120% and 66%,
respectively. These increased earnings were driven by increased brokerage and
investment banking activity, partially offset by higher operating expenses,
primarily revenue-related incentive compensation and infrastructure expenses
necessary to support the unit's growth.
Quick & Reilly
Quick & Reilly, a leading provider of securities brokerage, market-making and
securities clearing services, and one of the nation's largest and most
successful brokerage firms, earned $217 million in 2000, a 26% increase over the
$172 million earned in 1999. Increased earnings were driven by higher brokerage
and market-making revenues which resulted from the large volume of transaction
activity in the financial markets, particularly during the early part of 2000.
Higher revenues were partially offset by higher revenue-related incentive
compensation, and increased expenses related to investment in the retail
brokerage infrastructure undertaken as part of a continuing program to integrate
Quick & Reilly's services into the Corporation's existing distribution channels.
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Investment Services
The Investment Services business unit is composed of several businesses
targeting the growing customer need for investment products and services. These
businesses include the Private Clients Group, which offers specialized asset
management, estate settlement and deposit and credit products to high-net-worth
customers; Columbia Management, which sells proprietary mutual funds and a wide
range of investment products to retail and institutional customers; and the
Mutual Fund & Investment Group, which markets the Corporation's proprietary
mutual fund family, as well as third party mutual funds and annuity products
through traditional retail distribution channels. In addition, the Investment
Services unit includes several businesses that offer retirement planning, large
institutional asset management and not-for-profit investment services.
The Investment Services unit earned $210 million in 2000, an increase of
$47 million, or 29%, compared to 1999. Higher revenues from a higher average
level of assets under management, as well as increased brokerage fees and
commissions and lower operating expenses due to merger-related cost savings,
drove increased earnings. Investment management revenue remained strong at $732
million versus $694 million in 1999. At December 31, 2000, domestic assets under
management totaled approximately $119 billion.
COMMERCIAL AND RETAIL BANKING
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Year ended December 31 2000 1999
Dollars in millions
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Income Statement Data:
Net interest income (FTE) $ 3,864 $ 3,989
Noninterest income 1,454 1,467
Provision for credit losses 334 352
Noninterest expense 2,958 3,265
Taxes/FTE adjustment 825 759
- ---------------------------------------------------------------------------------
Net Income $1,201 $1,080
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Balance Sheet Data:
Average assets $59,897 $63,811
Average loans and leases 51,290 52,661
Average deposits 71,273 77,726
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Return on Equity 22% 19%
- ---------------------------------------------------------------------------------
Commercial and Retail Banking includes domestic banking to consumer and small
business customers, as well as domestic commercial banking operations, which
includes middle-market lending, asset-based lending, leasing, cash management,
trade finance and government banking services. Results reflect year over year
declines in both the loan and deposit portfolios, reflecting the impact of the
divestitures of 312 branches in connection with the Fleet/BankBoston merger.
Earnings for this unit increased $121 million, or 11%, as expense reductions
from divestitures and merger integration efforts and a lower provision for
credit losses more than offset divestiture-related decreases in revenues.
Excluding the impact of the divestitures, total revenue increased 6% over 1999.
- ----------------------------------------------------------------------------------
Year ended December 31 2000 1999 % 2000 1999 %
Dollars in millions Net Income Change Total Revenue Change
- ----------------------------------------------------------------------------------
Retail Distribution $ 402 $ 354 14% $2,204 $2,341 (6)%
Commercial Finance 316 297 6 970 949 2
Commercial Banking 240 218 10 943 969 (3)
Small Business 194 170 14 888 855 4
Consumer Lending 49 41 20 313 342 (8)
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Total $1,201 $1,080 11 % $5,318 $5,456 (3)%
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Retail Distribution
Retail Distribution offers consumer retail services through various delivery
channels, and includes consumer deposit products and direct banking services.
Consumer retail products and services are distributed through a network of over
1,250 branches, including convenient in-store branches, 3,400 ATMs, electronic
banking products, Internet banking and 24-hour customer call centers. These
delivery channels provide customers with the convenience to manage their
finances in virtually any manner suited to their needs. The Corporation
continues to expand its electronic banking customer base, which has grown from
669,000 in 1999 to over 1,000,000 in 2000.
This unit also includes the Corporation's Community Banking group.
Community Banking includes 46 branches in select inner-city neighborhoods where
it serves the needs and reflects the linguistic and cultural diversity of its
customers. In addition to providing traditional banking products and services,
this group is a leading provider of equity and at-risk capital for low and
moderate and historically underserved minority and women-owned businesses.
In 2000, Retail Distribution earned $402 million, a 14% increase over 1999
earnings of $354 million, despite a divestiture-related revenue decline of 6%.
These increased earnings were driven by higher spreads on deposits during the
current year, and lower operating costs, as this unit realigned staffing
requirements to optimize merger-related cost savings. During 2000, Retail
Distribution's average core deposit balances declined to $49 billion from $55
billion during 1999, reflecting the impact of the aforementioned divestitures.
Commercial Finance
Commercial Finance focuses on the asset financing needs of corporate customers,
and offers asset-based lending and leasing products to corporate customers
located throughout the nation. Commercial Finance customers also have access to
commercial real estate lending, debt capital markets, cash management, trade
services, foreign exchange, international services, interest rate protection and
investment products.
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Commercial Finance earned $316 million in 2000, an increase of 6% compared
to 1999. This increase in earnings was primarily driven by improved results in
the leasing business, which experienced growth of $1.7 billion in lease
receivables and a significant increase in lease-related fees. Commercial Finance
had $22.7 billion in average loans and leases outstanding during 2000, compared
to $21.6 billion during 1999.
Commercial Banking
Commercial Banking represents middle-market commercial lending, government
banking services, trade services and cash management services. Commercial
Banking provides a wide range of credit and banking services to customers
generally ranging in size from $10 million to $500 million in annual sales, as
well as government banking customers. Commercial Banking provides its customers
with superior access to financial solutions, and supports its customers with
services such as foreign exchange, international services, interest rate
protection and investment products.
Commercial Banking earned $240 million in 2000, a 10% increase over $218
million recorded in 1999, resulting from increased levels of cash management
fees and trade services revenues in Middle Market, and higher processing fees in
Government Banking, as well as lower operating expenses attributable to merger
integration-related cost savings. Average loans declined $1 billion from the
prior year to $15.4 billion, due mainly to the impact of divestitures as well as
the strategic sale of other credits.
Small Business
The Small Business group provides a full range of financial services to
businesses with annual sales of up to $10 million and credit needs up to $2
million. Services offered include commercial lending, real estate lending,
deposit products and cash management. The Corporation is widely recognized as
the leading small business lender in the Northeast, and was recently ranked the
number one Small Business Administration (SBA) lender in the country during the
SBA's fiscal year ended September 30, 2000.
Earnings for this unit were $194 million in 2000, $24 million, or 14%,
higher than 1999 earnings of $170 million, despite the fact that the Small
Business unit was one of the groups most adversely impacted by the
aforementioned divestitures. Much of the current year earnings increase was
driven by improved spreads on deposits and lower operating costs due to
merger-related cost savings. Average loan balances were down slightly from 1999
to $3.5 billion for 2000, and average deposit balances decreased to $11.2
billion, as a result of the divestitures.
Consumer Lending
Consumer Lending offers a convenient and competitive selection of loan products
to consumers. Products and services are delivered through the many types of
retail distribution channels available to the Corporation's customers. Products
offered include home equity loans and student loans, as well as both direct and
indirect installment lending programs. The Consumer Lending business does not
include credit card and residential mortgage products, which are managed as part
of National Financial Services and Treasury, respectively.
The Consumer Lending business earned $49 million in 2000, an increase of
20% from 1999. Higher earnings were primarily the result of lower operating
costs and improved credit quality, as average loan portfolio balances continued
to decline to $9.1 billion, down from $9.8 billion last year, due primarily to
divestitures and the sale of certain student loan portfolios.
NATIONAL FINANCIAL SERVICES
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Year ended December 31 2000 1999
Dollars in millions
- ---------------------------------------------------------------------------------
Income Statement Data:
Net interest income (FTE) $ 667 $ 775
Noninterest income 1,324 1,340
Provision for credit losses 269 367
Noninterest expense 1,020 1,092
Taxes/FTE adjustment 278 263
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Net Income $ 424 $ 393
- ---------------------------------------------------------------------------------
Balance Sheet Data:
Average assets $23,114 $24,229
Average loans and leases 14,450 14,799
Average deposits 4,204 4,172
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Return on Equity 15% 14%
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National Financial Services includes credit card services, commercial real
estate lending, mortgage banking and student loan and other processing. A more
detailed analysis of these business units follows.
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Year ended December 31 2000 1999 % 2000 1999 %
Dollars in millions Net Income Change Total Revenue Change
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Credit Cards $171 $152 13% $1,038 $1,133 (8)%
Commercial Real Estate 159 140 14 401 389 3
Mortgage Banking 58 71 (18) 328 405 (19)
Student Loan and Other
Processing 36 30 20 224 188 19
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Total $424 $393 8% $1,991 $2,115 (6)%
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The Corporation's credit card subsidiary is the tenth largest bank credit card
issuer in the nation in terms of managed credit card receivables. Fleet
Mortgage, with offices
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located in 19 states, originated approximately $23 billion of loans in 2000 and
currently services a mortgage portfolio of $136 billion and 1.5 million loans.
The Corporation's AFSA subsidiary, included in Student Loan and Other
Processing, services approximately 7.6 million accounts nationwide and is the
largest student loan service provider in the nation, with approximately $72
billion of student loans serviced.
National Financial Services earnings increased $31 million compared to
1999. Increased earnings in the credit card business were driven by improvements
in credit quality and lower operating expenses, which more than offset lower
revenues. The commercial real estate unit earnings increase of $19 million
resulted from growth in investment banking fees and lower operating expenses.
Earnings and revenue in the mortgage unit decreased $13 million and $77 million,
respectively, the result of lower loan production reflecting the higher interest
rate environment in 2000, somewhat offset by lower operating expenses. Student
Loan and Other Processing had increased earnings, due largely to increases in
servicing volume.
ALL OTHER
All Other includes transactions not allocated to the principal business lines,
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 the Corporation'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 net income of $18 million in 2000 compared to a net loss of $681
million in 1999. All Other in 2000 included divestiture gains of $843 million
($420 million after-tax) resulting from the divestiture of 312 branches to
Sovereign and other community banks, as well as merger integration costs of $227
million ($137 million after-tax) incurred in conjunction with the
Fleet/BankBoston merger. In 1999, All Other included $1.1 billion ($760 million
after-tax) of merger- and restructuring-related charges and other costs. These
costs are more fully discussed in Note 14 of the "Notes to Consolidated
Financial Statements" included under Item 8 of this Report.
FINANCIAL CONDITION
Total assets were $179.5 billion as of December 31, 2000, a decrease of $11.2
billion from December 31, 1999, reflecting the aforementioned divestitures of
approximately $9 billion of loans in 2000, as well as a decrease of $1.5 billion
in securities, resulting partly from a decline in the fair value of securities
held by the Corporation's Principal Investing business and partly from a
repositioning of the Corporation's bond portfolio.
Total loans and leases at December 31, 2000 were $109.4 billion, a
decrease of $10.3 billion, or 9%, compared with $119.7 billion at December 31,
1999. This decline was due mainly to the above-mentioned divestitures, new
credit card and commercial loan securitizations completed during the year, lower
levels of domestic C&I loans, and the sale of approximately $940 million of
troubled commercial loans in December 2000. These declines were offset, in part,
by strong growth in the domestic lease financing portfolio and international
commercial loans, primarily in Brazil.
The decline in total deposits of $13.6 billion, to $101.3 billion at
December 31, 2000, was primarily the result of the aforementioned divestitures
of approximately $13 billion of deposits in 2000.
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Long-term debt increased $3 billion to $28.4 billion at December 31, 2000,
compared to $25.3 billion at December 31, 1999. This increase was due to the
issuance of approximately $6.9 billion of medium-term floating-rate notes
(including $5.5 billion of bank notes), $1.5 billion of fixed-rate senior notes
and $300 million of trust preferred securities. These issuances were offset, in
part, by maturities and the redemption of $186 million of floating-rate
subordinated notes.
The investment securities portfolio plays a significant role in the
management of the Corporation's balance sheet, as the liquid nature of the
securities portfolio enhances the efficiency of the balance sheet. The amortized
cost of securities available for sale decreased $400 million to $23 billion at
December 31, 2000, compared to $23.4 billion at December 31, 1999. The valuation
of securities available for sale decreased $638 million to a net unrealized
(pre-tax) gain position of $54 million at December 31, 2000, due primarily to
declines in the value of marketable equity securities, primarily investments
held by the Principal Investing business.
SECURITIES
December 31 2000 1999 1998
Amortized Market Amortized Market Amortized Market
In millions Cost Value Cost Value Cost Value
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Securities available for sale:
U.S. Treasury and government agencies $ 1,174 $ 1,166 $ 2,282 $ 2,196 $ 1,821 $ 1,845
Mortgage-backed securities 13,864 13,942 14,157 13,567 14,166 14,380
Foreign debt securities 2,734 2,754 2,906 2,936 2,190 2,119
Other debt securities 2,477 2,467 1,944 1,917 1,998 2,016
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Total debt securities 20,249 20,329 21,289 20,616 20,175 20,360
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Marketable equity securities 763 737 977 2,342 446 439
Other equity securities 2,027 2,027 1,173 1,173 1,043 1,043
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Total securities available for sale 23,039 23,093 23,439 24,131 21,664 21,842
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Total securities held to maturity 627 631 1,081 1,081 1,527 1,537
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Total securities $23,666 $23,724 $24,520 $25,212 $23,191 $23,379
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LOANS AND LEASES
December 31 2000 1999 1998 1997 1996
In millions
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Domestic:
Commercial and industrial $ 46,697 $ 55,184 $ 54,447 $ 48,239 $ 42,247
Commercial real estate 8,390 7,945 8,176 8,902 9,665
Consumer 24,170 30,885 29,789 31,616 34,645
Lease financing 12,959 10,933 5,750 5,013 4,140
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Total domestic loans and leases 92,216 104,947 98,162 93,770 90,697
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International:
Commercial 14,221 11,855 11,126 10,817 8,920
Consumer 2,935 2,898 2,806 1,958 1,305
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Total international loans and leases 17,156 14,753 13,932 12,775 10,225
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Total loans and leases $109,372 $119,700 $112,094 $106,545 $100,922
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The loan and lease portfolio inherently includes credit risk. The Corporation
controls such risk through analysis of credit applications, portfolio
diversification and ongoing examinations of outstandings and delinquencies.
Total loans and leases decreased $10.3 billion, or 9%, from December 31,
1999. Domestic loans and leases decreased $12.7 billion, or 12%, while
international loans and leases increased $2.4 billion, or 16%. The decrease in
domestic loans and leases was due primarily to the aforementioned divestiture of
$9 billion of C&I and consumer loans in 2000, new securitizations of
approximately $3 billion of credit card receivables and approximately $2 billion
of C&I loans during the year, and the sale of approximately $940 million of
troubled commercial loans
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in December 2000. Strong growth in the Corporation's domestic lease financing
portfolio partially offset the impact of these transactions. The increase in the
Corporation's international loan portfolio resulted from new business growth,
primarily in Brazil.
Commercial and Industrial Loans
Domestic C&I loans decreased $8.5 billion to $46.7 billion at December 31, 2000,
primarily the result of the divestiture of $3 billion of loans, a $2 billion
securitization transaction, the sale of $940 million of troubled commercial
loans and a decline in the level of domestic C&I loans.
Domestic C&I borrowers consist primarily of middle-market and large
corporate customers, and are well-diversified as to industry and companies
within each industry. International commercial borrower industry concentrations
consist primarily of banking and insurance, transportation, communications and
energy production and distribution.
Lease Financing
The Corporation is engaged in lease financing on both a domestic and
international basis. Domestic lease financing totaled $13 billion at December
31, 2000, compared with $10.9 billion at December 31, 1999. This $2 billion, or
18.5%, increase was primarily attributable to new business growth.
Consumer Loans
December 31 2000 1999
In millions
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Domestic:
Residential real estate $ 6,085 $10,881
Home equity 7,156 7,095
Credit card 5,020 5,455
Student loa