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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 July 31, 2003 was 1,052,277,307.

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FLEETBOSTON FINANCIAL CORPORATION
FORM 10-Q FOR QUARTER ENDED JUNE 30, 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

(a)	The fully taxable equivalent, or “FTE,” adjustment included in net interest income was $13 million and $14 million for the three months ended June 30, 2003 and 2002, respectively, and $25 million and $36 million for the six months ended June 30, 2003 and 2002, respectively.
(b)	Net income from continuing operations divided by total average assets less average assets of discontinued operations.
nm —	not meaningful

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 and our Quarterly Report on Form 10-Q for the quarter ended March 31, 2003, both of which we previously filed with the SEC. You should read this information together with the financial information contained in those filings. 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 $197 billion in total assets as of June 30, 2003.

          Our operations are focused along three principal domestic lines of business: Personal Financial Services, Regional Commercial Financial Services and Investment Management, and National Commercial Financial Services. Personal Financial Services provides consumer retail banking, small business banking, and retail brokerage and credit card services. Regional Commercial Financial Services and Investment Management provides financial services to middle market corporations, including credit, cash management and trade services; specialized asset management and personal financial planning services to high-net-worth customers, including estate settlement, deposit and credit products; proprietary and third party mutual funds to retail and institutional customers; and retirement planning, large institutional asset management and not-for-profit investment services. National Commercial Financial Services provides cash management, leasing, commercial real estate, asset-based lending, debt capital markets, foreign exchange, interest rate risk management, and credit and deposit products to large corporations.

          Our other business lines include Capital Markets, composed of brokerage market-making, execution and clearing, as well as 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 accounting policies that involve significant estimates and assumptions about 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 revised estimates and assumptions in the application of these accounting policies.

          Information about accounting policies considered relatively more significant in this respect, specifically 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 material changes in these accounting policies during the first six months of 2003.

          This discussion and analysis contains statements that are considered “forward-looking statements” as defined in

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

the Private Securities Litigation Reform Act of 1995. In addition, we may make other written and oral 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 asset management and brokerage businesses, as well as the availability and terms of funding necessary to meet our liquidity needs;
•		changes in customer borrowing, repayment, investment and deposit practices;
•		interest rate and currency fluctuations, equity and bond market fluctuations and inflation;
•		changes in the mix of interest rates and maturities of our interest earning assets and interest bearing liabilities;
•		changes in 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 $624 million, or $.59 per diluted share, for the three months ended June 30, 2003, compared to a net loss of $386 million, or $.37 per diluted share, for the three months ended June 30, 2002. Included in these results was net income from discontinued operations of $53 million for the 2003 quarter compared to a net loss from discontinued operations of $280 million for the 2002 quarter.

          For the six months ended June 30, 2003, net income was $1.2 billion, or $1.13 per diluted share, compared to $349 million, or $.32 per diluted share, for the six months ended June 30, 2002. Included in the results for the six months ended June 30, 2003 and 2002 was net income from discontinued operations of $43 million and a net loss from discontinued operations of $281 million, respectively. The 2003 results from discontinued operations included an after-tax gain of $57 million from the April 2003 sale of Interpay, Inc., or “Interpay,” our payroll and human resource services business, while the 2002 results included an after-tax gain of $173 million from the sale of AFSA and aggregate after-tax losses related to Robertson Stephens and Asia of $451 million.

          For more information concerning discontinued businesses, refer to Note 2 to the Consolidated Financial Statements in this 10-Q.

          Results for the three and six months ended June 30, 2003 reflected improvements over the prior year periods in credit costs and certain capital markets-related revenues, specifically securities gains. Partially offsetting these improvements were lower levels of net interest income and investment services revenue and higher levels of investment writedowns in our principal investing portfolio.

          The decrease in credit costs in the 2003 periods reflected a relatively improved domestic economic outlook and lower levels of nonperforming assets; credit costs for the 2002 periods reflected the impact of weakness in the U.S. economy on domestic commercial credit and deteriorating Argentine economic conditions at that time. The increase in capital markets-related revenues resulted mainly from net securities gains recorded in the 2003 periods compared to net securities losses in 2002, the latter mainly the result of securities losses and writedowns in the Argentine and Brazilian portfolios.

          Lower net interest income in the 2003 periods was a result of the lower interest rate environment and related pressure on spreads, as well as weak commercial credit demand. The decline in investment services revenues in the 2003 periods was the result of weakened equity markets and the resultant impact on the valuation of assets under management.

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

LINE OF BUSINESS INFORMATION

Our customer-focused organizational structure includes three principal domestic lines of business: Personal Financial Services, Regional Commercial Financial Services and Investment Management, and National Commercial Financial Services. Our other business lines include International Banking and Capital Markets. You can obtain additional information about our lines of business in the Line of Business Information section of Management’s Discussion and Analysis included 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 June 30, 2002 and the six months ended June 30, 2003 and 2002 presented throughout this section to reflect the revised organizational structure implemented during the second quarter of this year. The information appearing throughout this section is presented on a fully taxable equivalent basis and, unless otherwise noted, a continuing operations basis.

Line of Business Earnings Summary

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

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

Personal Financial Services

Personal Financial Services earned $258 million in the current year quarter, relatively flat with the prior year quarter. Growth in consumer banking fees and home equity loans, combined with a higher level of low-cost core deposits and a beneficial change in deposit mix, drove the increase in revenues. Higher marketing and credit costs combined with the impact of declining interest rates, which put pressure on spreads, offset this improvement. Average low-cost core deposit balances increased 12%, or $6.9 billion, while higher-cost time deposits decreased $4.4 billion, when compared to the prior year quarter, reflecting the impact of our pricing strategy for time deposits. In addition, average loan balances increased $9.6 billion, or 27%, due to a higher level of home equity loans, reflective of our increased emphasis on cross-selling this product coupled with favorable market conditions.

National Commercial Financial Services

National Commercial Financial Services earned $199 million in the second quarter of 2003, an increase of $11 million from the prior year quarter. Earnings were marked by reduced net interest income and provision for credit losses, resulting from lower loan and lease volumes due to our strategic reduction of certain credit exposures and continued weak demand for lending products. The weak demand also resulted in lower revenue levels from capital markets-related products. However, higher deposit balances and increased cash management fees helped to offset the impact of reduced loan volumes. Average loan and lease balances decreased $7.3 billion to $48.4 billion, while average deposits grew approximately $1.4 billion to $8.3 billion, when compared to the prior year quarter.

          As more fully explained in the All Other portion of this Line of Business Information section, provisions for credit losses are generally allocated to our lines of business on an “expected loss” basis over an economic cycle. This methodology is designed to match credit losses and provision expense over an economic cycle for all businesses. The methodology also has the effect of reducing period-to-period volatility in reported results for the lines of business, and differs from the method used to determine our consolidated provision for credit losses for any given period.