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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

FORM 10-Q

OR

Commission File Number 1-6366

FLEETBOSTON FINANCIAL CORPORATION

(617) 434-2200
(Registrant’s telephone number, including area code)

(Former name, if changed since last report)

Indicate by check mark whether the Registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the Registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

  YES           x                        NO           o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of the Exchange Act).

  YES           x                        NO           o

The number of shares of common stock of the Registrant outstanding as of April 30, 2003 was 1,051,525,912.

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FLEETBOSTON FINANCIAL CORPORATION
FORM 10-Q FOR QUARTER ENDED MARCH 31, 2003
TABLE OF CONTENTS OF INFORMATION REQUIRED IN REPORT

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MANAGEMENT’S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS

PART I. FINANCIAL INFORMATION

FINANCIAL SUMMARY

OVERVIEW

This discussion and analysis is part of our Quarterly Report on Form 10-Q to the Securities and Exchange Commission, or “SEC,” and updates our Annual Report on Form 10-K for the year ended December 31, 2002, which we previously filed with the SEC. You should read this information together with the financial information contained in the 10-K. Certain prior period amounts presented in this discussion and analysis have been reclassified to conform to current period classifications.

          Unless otherwise indicated or unless the context requires otherwise, all references in this discussion and analysis to “FleetBoston,” “we,” “us,” “our” or similar references mean FleetBoston Financial Corporation. Headquartered in Boston, Massachusetts, we are a diversified financial services company with approximately $199 billion in total assets as of March 31, 2003.

          Our operations are focused along two principal lines of business: Personal Financial Services and Commercial Financial Services. Personal Financial Services provides consumer retail banking, small business banking, and wealth management and brokerage services. Commercial Financial Services provides financial services to large, middle market and multinational corporations, as well as institutional and public sector clients, including leasing and commercial real estate, asset-based and industry lending. Products include cash management, loan syndications, global trade services, foreign exchange, interest rate risk management, mergers and acquisitions, and retirement plan services. Our other business lines include Capital Markets, composed of brokerage market-making and principal investing, and International Banking. Our lines of business and their supporting business units are more fully discussed in the Line of Business Information section of this discussion and analysis.

          The preparation of consolidated financial statements requires management to make judgments in the application of certain of its accounting policies that involve significant estimates and assumptions about the effect of matters that are inherently uncertain. These estimates and assumptions are based on information available as of the date of the financial statements, and may materially impact the reported amounts of certain assets, liabilities, revenues and expenses as the information changes over time. Accordingly, different amounts could be reported as a result of the use of revised estimates and assumptions in the application of these accounting policies.

          Information about accounting policies considered relatively more significant in this respect, which are the determination of the reserve for credit losses, the valuation of principal investing securities, accounting for goodwill and accounting for income taxes, is included in the Significant Accounting Policies section of Management’s Discussion and Analysis in our 2002 10-K. There were no significant changes in these accounting policies during the first quarter of 2003.

          This discussion and analysis contains statements that are considered “forward-looking statements” as defined in the Private Securities Litigation Reform Act of 1995. In addition, we may make other written and oral

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communications from time to time that contain such statements. Forward-looking statements, including statements as to industry trends, future expectations of FleetBoston and other matters that do not relate strictly to historical facts, are based on certain assumptions by management. 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 our filings with the SEC:

•		general political and economic conditions, either domestically or internationally, as well as continued economic, political and social uncertainties in Latin America;
•		developments concerning credit quality, including the resultant effect on the levels of our provision for credit losses, nonperforming assets, net charge-offs and reserve for credit losses;
•		continued weakness in domestic commercial loan demand, and the impact of that weakness on our corporate lending activities;
•		continued weakness in the global capital markets and the impact of that weakness on our principal investing and other capital markets-related businesses and our wealth management and brokerage businesses, as well as the availability and terms of funding necessary to meet our liquidity needs;
•		customer borrowing, repayment, investment and deposit practices;
•		interest rate and currency fluctuations, equity and bond market fluctuations and inflation;
•		the mix of interest rates and maturities of our interest earning assets and interest bearing liabilities;
•		competitive product and pricing pressures within our markets;
•		legislative or regulatory developments, including changes in laws or regulations concerning taxes, banking, securities, reserve methodologies, deposit insurance, capital requirements and risk-based capital guidelines and other aspects of the financial services industry;
•		changes in accounting rules, policies, practices and procedures;
•		legal and regulatory proceedings and related matters with respect to the financial services industry, including those directly involving us and/or our subsidiaries;
•		the effectiveness of instruments and strategies used to hedge or otherwise manage exposure to various types of market and credit risk; and
•		the effects of terrorist activities or other hostilities, including geopolitical stresses in the Middle East and other areas.

          Net income was $567 million, or $.54 per diluted share, for the first quarter of 2003 and included an aggregate net loss of $10 million from discontinued businesses. Net income for the first quarter of 2002 was $735 million, or $.70 per diluted share, and included an aggregate net loss of $1 million from discontinued businesses. Return on average assets and return on average common equity were 1.18% and 13.67%, respectively, for the first quarter of 2003, compared to 1.52% and 16.92%, respectively, for the same period in 2002.

          Remaining assets of discontinued businesses, specifically Robertson Stephens and Asia, are held for sale as of March 31, 2003 and are presented separately in the accompanying consolidated balance sheet at the lesser of their carrying value or estimated fair value less costs to dispose. Remaining liabilities, including related exit costs, are presented separately in the consolidated balance sheet. For more information concerning discontinued businesses, refer to Note 2 to the Consolidated Financial Statements in this 10-Q.

          The remainder of this discussion and analysis reflects results from continuing operations, unless otherwise noted. On this basis, for the three months ended March 31, 2003, income from continuing operations was $577 million, or $.55 per diluted share, compared to $736 million, or $.70 per diluted share, for the three months ended March 31, 2002. Return on average assets and return on average common equity were 1.20% and 13.91%, respectively, for the first quarter of 2003, compared to 1.56% and 16.96%, respectively, for the first quarter of 2002.

          Results for the first quarter of 2003 were impacted by continued weakness in both the equity markets and commercial credit demand, due to the sluggish economy, as well as government-mandated actions in Argentina, resulting in lower net interest income and capital markets-related and investment services revenues compared to the first quarter of 2002. In spite of this challenging environment, notable improvements during the 2003 quarter included growth in home equity and residential mortgage loans and low-cost core deposits, and a reduced level of credit costs.

          The above-mentioned decline in capital markets-related revenue was mainly due to losses in Argentina related to judicial decrees that released previously frozen deposits at pre-devaluation exchange rates; a decline in market-making revenue reflecting difficult market conditions; and investment writedowns against the principal investing portfolio due to the continued weakness in the financial markets. Investment services revenue declined due to poor market conditions which resulted in a lower level of assets under management and lower asset management fees. Partially offsetting these declines were improvements in trading profits and commissions and securities gains, and a lower level of credit costs.

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LINE OF BUSINESS INFORMATION

Our customer-focused organizational structure includes four lines of business: Personal Financial Services, Commercial Financial Services, International Banking and Capital Markets. You can obtain additional information about the products and services offered by each line of business, as well as information about supporting business units, in the Line of Business Information section of Management’s Discussion and Analysis and in Note 18 to the Consolidated Financial Statements in our 2002 10-K.

          We may periodically restate business line results based on modifications to our management reporting and profitability measurement methodologies and changes in organizational alignment. We have restated the information for the quarter ended March 31, 2002 presented throughout this section to reflect the implementation of management reporting modifications and changes in organizational structure implemented during the quarter ended March 31, 2003. The information appearing throughout this section is presented on both a fully taxable equivalent and a continuing operations basis.

Line of Business Earnings Summary

The following discussion focuses on the components of each of our four business lines, and explains results in terms of their underlying businesses.
 
Personal Financial Services

Personal Financial Services earned $263 million in the first quarter of 2003, a decline of $34 million, or 11%, from the 2002 quarter. The lower interest rate environment, as well as difficult conditions in the equity markets for the asset management business, were largely responsible for the decline in earnings, mitigated by growth in low-cost core deposits and home equity loans.

Consumer and Small Business Services, which includes the Consumer Banking, Small Business Services and Credit Card businesses, earned $222 million in the first quarter of 2003, a decrease of $21 million, or 9%, over the prior year quarter. This change in earnings primarily resulted from the declining interest rate environment, which put pressure on spreads. Partially offsetting this decline was a beneficial change in deposit mix, as low-cost deposit balances increased 9%, or $5.1 billion, while higher-cost time deposits decreased $4.5 billion when compared to the prior year quarter, reflecting the impact of our pricing strategy for time deposits. In addition, consumer loan balances, particularly home equity loans, increased $8.5 billion, or 24%, reflecting our increased emphasis on cross-selling this product coupled with market conditions.

          Wealth Management and Brokerage earned $41 million in the first quarter of 2003, which represented a decrease of $13 million versus the prior year quarter, as difficult market conditions continued to negatively impact this business. Expense management mitigated these declines. The market value of domestic assets under management, which primarily reflected the overall lower valuation of the stock market, was approximately

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$139 billion as of March 31, 2003 versus $167 billion as of March 31, 2002.

Commercial Financial Services

Commercial Financial Services earned $242 million in the first quarter of 2003, a decrease of $26 million from the prior year quarter. Earnings from the underlying business units reflected the impact of lower loan volumes which resulted from our strategic decision announced last year to reduce certain exposures, combined with continued weak commercial credit demand. Strong derivatives-related revenue from sales of derivative contracts to customers, and higher deposit balances resulting from increased sales and cross-selling activities, helped mitigate the negative impact of the weak economic climate.

          As more fully explained in the All Other portion of this Line of Business Information section, provisions for credit losses are generally allocated to Commercial Financial Services on an “expected loss” basis over an economic cycle. This method of allocating provisions for credit losses to the business lines differs from the method used to determine our consolidated provision for credit losses for any given period. In accordance with this methodology, after-tax credit-related costs (provision for credit losses and other credit-related costs) of approximately $36 million for the first quarter of 2003 and $41 million for the first quarter of 2002 were recorded in All Other and represented the excess of that charged to the Commercial Financial Services business line. If these costs were reflected currently, instead of prospectively over the economic cycle, the earnings of Commercial Financial Services would have been $206 million in the first quarter of 2003 and $227 million in the prior year quarter, and return on equity would have been 12% in both quarters.

Specialized Finance earned $186 million in the first quarter of 2003 compared to $194 million in the prior year quarter, a decrease of 4%, with the results impacted by the execution of our risk reduction program and by reduced demand for commercial loan products. Strong derivatives-related revenue partially offset the impact of slow market conditions. Average loans were $51.8 billion for the first quarter of 2003, compared to $59.8 billion for the prior year quarter, a decline of $8 billion, or 13%, reflecting reduced demand and the impact of our risk reduction efforts.

          Business Financial Services earned $56 million in the first quarter of 2003, a decrease of $18 million, or 24%, from the prior year quarter. The change in earnings reflected reduced credit demand, partially offset by strong deposit growth. Average loan balances decreased $3 billion to $15.3 billion, while average deposits grew approximately $7.7 billion to $25.4 billion, when compared to the prior year quarter, due in part to new account relationships, particularly new business with the federal government related to processing of income tax return payments. This deposit is temporary and will be significantly smaller in the second quarter of 2003.

International Banking

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FINANCIAL CONDITION AND RESULTS OF OPERATIONS

International Banking earned $25 million in the first quarter of 2003, a decrease of $52 million versus the prior year quarter. The majority of the decrease was directly related to the political and economic situation in Argentina.

          Argentina’s net loss for the first quarter of 2003 was $29 million, compared to a net profit of $8 million in the prior year quarter. This reflected the deterioration in the local economy as well as the impact of dramatic changes in government policies, including the pesofication of loans and deposits that had been denominated in U.S. dollars, the abolishment of the fixed currency exchange rate, the elimination of the inflation indexation on many consumer loans, the court-ordered payout of certain frozen deposits at pre-devaluation values, and valuation adjustments on foreign exchange contracts. In addition, management placed a significant portion of Argentina’s earning assets, including substantially all sovereign-related loans and securities and a significant portion of private sector loans, on nonaccrual status during the second quarter of 2002, resulting in lower levels of net interest income in the current year quarter relative to the prior year period.

          Brazil reported earnings of $45 million for the first quarter of 2003, down $7 million, or 13%, versus the prior year quarter. Brazil’s results reflected our decision, which we announced in April 2002, to reposition the balance sheet and reduce risk in that country.

Capital Markets