FLEET FINANCIAL GROUP REPORTS RECORD SECOND QUARTER EARNINGS OF $119 MILLION
PROVIDENCE, R.I., July 21 /PRNewswire/ -- Fleet Financial Group (NYSE: FLT) today reported record net income of $119 million, or 72 cents per fully diluted share, for the quarter ended June 30, up 68 percent from the $71 million, or 45 cents per fully diluted share, earned in the second quarter of 1992. For the first six months of 1993, net income was $225 million, or $1.38 per fully diluted share, compared to $121 million, or 76 cents per fully diluted share, for the first half of 1992. Terrence Murray, chairman and chief executive officer, described Fleet's record performance as "extremely gratifying. We continue to be pleased with our earnings momentum and continued reduction of nonperforming assets." Murray said Fleet's net interest margin remains strong despite continuing sluggishness of the regional economy which has hampered loan growth. Murray also noted that the securities portfolio continued to perform well, with unrealized appreciation of approximately $600 million at June 30, 1993.
Two significant items occurred during the quarter that were a result of the decreasing interest-rate environment. Fleet recognized $114 million in gains on the sale of securities, and it incurred a charge of $100 million within Fleet Mortgage Group related to the accelerated amortization of purchased mortgage servicing rights (PMSRs). This charge results from a higher consensus prediction for loan prepayments and a refinement to a more conservative basis of evaluating the PMSRs on a disaggregated basis as compared to a total portfolio basis. It also reflects management's expectations of the effect that a continued high level of prepayments will have on the valuation of PMSRs. The charge consisted of a $40 million writedown of servicing that had become impaired, and a $60 million provision against the risk of future impairment of this asset. Murray said, "While there is tremendous value in the $68 billion servicing portfolio of Fleet Mortgage Group, we believe that this provision is prudent in light of the current downward movement of long- term interest rates and resultant high level of refinancing activity. We also believe that this action further enhances our already strong balance sheet." Eugene M. McQuade, executive vice president and chief financial officer, noted that the corporation's large fixed income securities portfolio serves as a natural hedge of its servicing portfolio in times of declining interest rates. McQuade said, "Both portfolios reacted as we expected. The growth in the value of our securities portfolio more than offset our exposure in the mortgage servicing portfolio." Net interest income, on a fully taxable equivalent basis, was $518 million in the second quarter, compared to $490 million in the second quarter of 1992. The net interest margin for the second quarter was 5.06 percent, vs. 4.82 percent in the second quarter of 1992. On a year-to-date basis, net interest income for the first six months of 1993 was $1,031 million vs. $961 million for the comparable period in 1992. The net interest margin for the first half of 1993 was 5.05 percent, compared to 4.72 percent in the same period of 1992. The margin ha steadily increased each quarter during the past year as decreases in the cost of liabilities have outpaced decreases in the yield on assets. In addition to the favorable interest-rate environment, the improved margin has been aided by lower levels of wholesale liabilities and reduced nonperforming assets. The second quarter 1993 provision for credit losses was $70 million, which was $59 million less than the prior year's second quarter provision of $129 million. Expenses related to real estate owned (OREO) were $16 million this quarter vs. $43 million last year. Total provision and OREO expenses for the first six months of 1993 were $191 million vs. $324 million in the same period of 1992. Murray added that, "We are pleased with the progress that has been made in reducing asset quality costs, but believe we can continue to make strides in this area." As previously noted, the corporation sold $2 billion of mortgage- backed securities during the quarter in order to reduce prepayment risk and shorten the maturity of the portfolio. The sales resulted in $114 million in securities gains compared to $55 million during the second quarter of 1992. Excluding the charge relating to PMSRs, noninterest expense in the second quarter totaled $551 million, compared to the $544 million reported for the second quarter of 1992. An increase in compensation in the second quarter was due in part to continued high costs at Fleet Mortgage Group in light of record levels of refinance activity, and the effect of acquisitions completed in late 1992, but was offset by a $27 million decrease in OREO expense on a quarter-to-quarter basis.
Earnings by Group
The New England Banking Group generated $94 million in second quarter earnings ($61 million before securities gains), compared to $35 million in 1992's second quarter. Fleet's Connecticut bank turned in the Group's best quarterly performance with earnings of $45 million, while the Massachusetts bank contributed $25 million to second quarter results. The Connecticut bank's results were enhanced by the recording of $30 million in security gains, as well as a lower provision for credit losses. The New York Banking Group earned $61 million in the second quarter ($28 million before securities gains), compared to $28 million in the second quarter of 1992. Fleet Bank of New York recognized $29 million in security gains during the second quarter of 1993, which, when coupled with an improvement in credit quality, helped the bank earn $52 million in the second quarter. The Long Island bank, which has been affected throughout the last two years by asset quality concerns, continued to reduce its level of nonperforming assets and earned $9 million in the second quarter (which included $5 million in securities gains), compared to a loss of $6 million in the second quarter of 1992. The Financial Services Group recorded a loss of $16 million in the second quarter, compared to earnings of $30 million in 1992's second quarter. Fleet Mortgage lost $29 million for the quarter compared to earnings of $28 million in the second quarter of 1992, as Fleet Mortgage recognized a $49 million (after-tax and minority interest) charge for the previously mentioned accelerated amortization of its PMSRs. Fleet Finance earned $3 million in the second quarter.
Nonperforming assets (NPAs) have been reduced for the sixth consecutive quarter. At June 30, 1993, nonperforming assets totaled $852 million, a reduction of $92 million from March 31, 1993, and a reduction of $662 million, or 44 percent, from June 30, 1992. The inflow to NPAs ($186 million) remained level with the prior quarter's additions and down substantially from last year's levels. Payments totaling $110 million, and sales of OREO property and NPAs of approximately $50 million, assisted in the quarter's $92 million decline in total NPAs. McQuade noted that this was the first quarter since Fleet's credit problems began (excluding the effect of the fourth quarter bulk sale of problem loans) that the reduction in nonperformers (other than charge-offs) outpaced the inflow. The reserve for credit losses remained relatively flat at $1,028 million at June 30, 1993, compared to $1,033 million at March 31, 1993. Net charge-offs for the quarter amounted to $72 million, compared to $98 million in the second quarter of 1992. Net charge-offs for the first half of 1993 were $151 million compared to $209 million for the same period in 1992. The corporation's ratio of nonperforming assets to total assets was 1.90 percent at June 30, 1993, compared to 2.10 percent at March 31, 1993. Murray added that, "The decrease in the ratio of nonperforming assets to total assets to a level below 2.00 percent is a significant accomplishment. The last time that this ratio did not exceed 2.00 percent was on Dec. 31, 1989."
Total assets at June 30, 1993 were $44.8 billion, while total loans and leases were $26.1 billion at the same date, compared with $44.9 billion of total assets and $26.1 billion of loans and leases at March 31, 1993. Modest increases in the commercial and industrial and the consumer loan portfolios were offset by continued contraction of commercial real estate loans. During the second quarter, the corporation repurchased approximately 50 percent, $104 million, of its Series III and IV preferred stock. The repurchase will save the corporation approximately $10 million in dividends annually. Stockholders' equity amounted to $3.4 billion at June 30, 1993, a decrease of $39 million from the previous quarter, but a $549 million increase from June 30, 1992. The decrease in stockholders' equity from the first quarter to the second quarter was due to the previously mentioned preferred stock repurchase. Fleet's senior debt ratings were upgraded during the first half of 1993 by Moody's Investors Service from Baa2 to A3, and by Standard & Poor's Corp. from BBB+ to A-. Murray noted that, "The upgrades are a reflection of Fleet's strong balance sheet, positive earnings trend and significant improvement in credit quality." Fleet Financial Group is a diversified financial services company listed on the New York Stock Exchange with approximately 1,200 offices nationwide. Its lines of business include commercial and consumer banking, mortgage banking, consumer finance, asset-based lending, investment management, and student loan processing. FLEET FINANCIAL GROUP Financial Highlights Three Months Ended Six Months Ended 6/30/93 6/30/92 6/30/93 6/30/92 For the Period ($ in millions): Net income $119 $71 $225 $121 Net interest income (a) 518 490 1,031 961 Provisions for credit losses 70 129 155 241 Per Common share: Fully diluted earnings 72 cents 45 cents $1.38 76 cents Market value (period-end) 33.750 29.625 33.75 Cash dividends declared 0.25 0.20 0.475 0.40 Book value (period-end) 21.50 18.69 21.50 18.69 For the Period ($ in millions): Assets $44,841 $44,624 $44,841 $44,624 Deposits 31,648 33,488 31,648 33,488 Total stockholders' equity 3,441 2,610 3,441 2,610 Asset Quality ($ in millions): Nonperforming assets $852 $1,515 $852 $1,515 Nonperforming assets as a pct. of loans, leases, ISF and OREO 3.24 pct 5.58 pct 3.24 pct 5.58 pct Nonperforming loans to period-end loans 2.43 3.76 2.43 3.76 Reserve for credit losses to period-end loans and leases 3.94 3.99 3.94 3.99 Reserve for Credit Losses (millions Beginning reserve for credit losses $1,033 $1,021 $1,029 $1,021 Provision for credit losses 70 129 155 241 Gross charge-offs 95 121 196 244 Recoveries 23 23 44 34 Acquisitions, other (3) 10 (4) 10 Ending reserve for credit losses 1,028 1,062 1,028 1,062 Operating and Capital Ratios: Return on average common equity 15.51 pct 11.30 pct 15.38 pct 9.64 pct Return on average assets 1.05 0.63 1.00 0.54 Net interest margin 5.06 4.82 5.05 4.72 Efficiency ratio (b) 67.28 67.81 66.65 69.76 Efficiency ratio excluding OREO (b) 65.37 62.50 64.43 64.33 Total equity/assets (period-end) 7.67 5.85 7.67 5.85 Tier 1 risk-based capital ratio (estimated) 11.40 10.22 11.40 10.22 Total risk-based captial ratio (estimated) 16.50 15.30 16.50 15.30 (a) Fully taxable equivalent (b) The June 30, 1993 efficiency ratios exclude $100 million of non- interest income and expense due to the effect of securities gains and accelerated amortization of PMSR. Fleet Financial Group Consolidated Income Statement (Dollars in thousands) Three months ended Six Months Ended 6/30/93 6/30/92 6/30/93 6/30/92 Interest income (FTE) $810,394 $872,140 $1,632,823 $1,748,953 Interest expense 292,239 382,632 601,595 787,507 Net interest income (FTE) 518,155 489,508 1,031,228 961,446 Total provision for credit losses 69,941 129,437 154,871 240,643 Net interest income after provision for credit losses 448,214 360,071 876,357 720,803 Noninterest Income: Mortgage banking (a) 101,992 87,923 206,413 172,244 Securities held for sale gains 113,660 54,672 132,698 64,964 Service charges on deposits 42,834 39,247 85,910 77,424 Investment services revenue 42,732 40,499 85,167 81,501 Student loan servicing fees 14,106 16,501 25,363 33,606 Service charges, fees and commissions 13,526 11,354 22,866 22,143 Merchant discount fees 8,049 5,195 13,795 10,509 Securities trading gains, net 5,299 5,395 10,229 10,142 Banking commissions 4,901 5,238 9,940 10,945 Brokerage fees and commissions 4,736 4,357 9,887 10,009 Insurance 3,880 4,389 9,215 9,058 Foreign exchange/ interest rate products 512 2,865 713 (1,134) Other 45,048 35,135 98,810 74,260 Total noninterest income 401,275 312,770 711,006 575,671 Noninterest Expense: Employee compensation and benefits 255,693 234,131 510,927 468,838 Occupancy 43,362 39,673 86,908 83,808 Equipment 32,488 29,260 64,152 59,983 FDIC assessment 20,591 19,584 41,207 39,175 Other professional fees 10,657 8,332 26,173 18,440 Marketing 12,808 13,099 25,570 25,960 Printing and mailing 10,603 9,205 21,512 20,080 Telephone 9,818 8,838 19,328 18,589 Charge card 9,998 5,246 18,746 10,204 Office supplies 8,951 8,342 16,897 16,613 Legal 6,169 7,829 15,526 15,100 Travel and entertainment 7,380 6,342 14,470 12,115 Other 63,977 74,311 113,459 126,925 Subtotal noninterest expense 492,495 464,192 974,875 915,830 Acquired servicing rights amortization 128,818 26,189 156,349 51,163
|Printer friendly Cite/link Email Feedback|
|Date:||Jul 21, 1993|
|Previous Article:||ECOLAB ANSWERS URGENT CALL FOR FLOOD CLEANUP|
|Next Article:||IPALCO ISSUES STATEMENT REGARDING CITIZENS ACTION COALITION OF INDIANA'S PROTEST FILING IN CG&E/PSI FERC PROCEEDING|