Fleet Financial Group Earnings Rise 15% to $450 Million

Business Wire, July 14, 1999

BOSTON--(BUSINESS WIRE)--July 14, 1999--

Fleet Financial Group, Inc. (NYSE:FLT) today reported record net income of $450 million, or $.74 per diluted share, for the second quarter of 1999, a 15% increase compared with net income of $393 million, or $.65 per diluted share, earned in the second quarter of 1998. The corporation earned $888 million, or $1.45 per diluted share, for the six month period ending June 30, 1999, up 24% compared to $716 million, or $1.18 per diluted share, for the same period of 1998.

"Fleet demonstrated across the board strength," commented Terrence Murray, Fleet's chairman and chief executive officer. "In addition to record net income, Fleet also reached a major strategic goal recording a 50/50 split between fee and spread revenue. This achievement provides tangible evidence of the success of Fleet's business diversification strategy. Both our core franchise and recent acquisitions continue to perform well, giving us strong momentum as we approach our merger with BankBoston."

"Capital market related businesses had another outstanding quarter as revenues increased 72%" said Robert J. Higgins, Fleet's president and chief operating officer. "Quick & Reilly saw profits double from last year to almost $50 million, while total fee revenue for the corporation rose by 28%. This performance underlines the strength of our recently acquired businesses."

Commenting on Fleet's continuing improvement in profitability, Eugene M. McQuade, vice chairman and Fleet's chief financial officer, said "Fleet's profitability ranks among the highest performing banks in the country. Return on assets reached 1.65% while return on equity hit 19.4%. This level of performance is particularly satisfying in that it was achieved within the context of continuing investments in our business lines and product and geographic diversification. With proposed changes to accounting rules, cash basis measurements take on increasing importance. At Fleet, our second quarter 1999 performance ratios on a cash basis were exceptionally strong: EPS of $.81, return on assets of 1.86%, and return on common equity of 29.7%."

Financial Highlights

Net interest income totaled $1.03 billion during the second quarter of 1999, up $50 million from the second quarter of 1998. The increase was principally attributable to the inclusion of Sanwa Business Credit for a full quarter and strong growth in the corporation's commercial loan portfolio. The corporation's net interest margin was 4.42%. Net interest income and net interest margin were $2.08 billion and 4.50%, respectively, for the six month period ending June 30, 1999 and $1.92 billion and 4.67%, respectively, for the same period of 1998.

Noninterest income in the second quarter totaled $1.04 billion, up 28%, or $227 million from the same period in 1998, due primarily to strong gains in virtually all revenue categories. Fee revenue now represents 50% of total revenue. Investment services revenue increased 20% to $264 million driven by a strong equity market, which benefited the corporation's brokerage and clearing units of Quick & Reilly. Processing-related revenues increased $33 million, or 26%, to $159 million due primarily to increased mortgage revenue bolstered by mortgage production of nearly $10 billion. Capital markets revenue increased 72% to $184 million as a result of robust gains in market-making revenue from our equity specialists business, as well as strong venture capital revenue and investment banking fees. Credit card revenue increased $66 million over the prior year's second quarter which was attributable to the acquisition of various credit card portfolios during 1998 and a decline in charge-offs within the securitized credit card portfolio. For the six month period ending June 30, 1999, noninterest income jumped 33% to $2.0 billion when compared to $1.5 billion for the same period of 1998 as the corporation experienced robust growth in all major business lines as well as the benefit of a number of acquisitions.

Noninterest expense in the second quarter of 1999 totaled $1.18 billion, up $161 million from the second quarter of 1998. The increase was due primarily to the impact of various acquisitions, including Sanwa and the Merrill Lynch Specialist business, in addition to incentive and volume-related increases in compensation at many of Fleet's businesses that delivered strong revenue growth. Noninterest expense increased $355 million to $2.3 billion for the first six months of 1999 when compared to $1.94 billion for the same period of 1998 as a result of various acquisitions made throughout 1998 and 1999 as well as an increase in process-related expenses. Despite the increases in expenses, the efficiency ratio declined from 56.7% in 1998 to 56.4% for the six months ended June 30, 1999.

Fleet is Year 2000 ready. All of Fleet's internal systems have been successfully remediated, tested and placed back into production. Year 2000 expenses for the second quarter were $8 million and $109 million since the inception of the project. Focus areas for the remainder of 1999 include: vendor management, contingency planning, borrower readiness and communications with customers.