Exhibit 99.4
FLEETBOSTON FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF INCOME
(unaudited)
Three months ended March 31 | 2004 | 2003 | |||||
Interest income: | |||||||
Interest and fees on loans and leases | $ | 1,970 | $ | 1,856 | |||
Interest on securities and trading assets | 334 | 361 | |||||
Other | 96 | 126 | |||||
Total interest income | 2,400 | 2,343 | |||||
Interest expense: | |||||||
Deposits | 342 | 369 | |||||
Short-term borrowings and other | 97 | 96 | |||||
Long-term debt | 256 | 268 | |||||
Total interest expense | 695 | 733 | |||||
Net interest income | 1,705 | 1,610 | |||||
Provision for credit losses | — | 280 | |||||
Net interest income after provision for credit losses | 1,705 | 1,330 | |||||
Noninterest income: | |||||||
Banking fees and commissions | 385 | 378 | |||||
Investment services revenue | 413 | 354 | |||||
Credit card revenue | 152 | 156 | |||||
Capital markets-related revenue | 272 | 111 | |||||
Other | 235 | 139 | |||||
Total noninterest income | 1,457 | 1,138 | |||||
Noninterest expense: | |||||||
Employee compensation and benefits | 899 | 826 | |||||
Occupancy and equipment | 237 | 248 | |||||
Marketing and public relations | 80 | 44 | |||||
Legal and other professional | 80 | 32 | |||||
Other | 668 | 423 | |||||
Total noninterest expense | 1,964 | 1,573 | |||||
Income from continuing operations before income taxes | 1,198 | 895 | |||||
Applicable income tax expense | 425 | 318 | |||||
Income from continuing operations | 773 | 577 | |||||
Discontinued operations: | |||||||
Loss from discontinued operations | — | (15 | ) | ||||
Applicable income tax benefit | — | (5 | ) | ||||
Net income | $ | 773 | $ | 567 | |||
Basic weighted average common shares outstanding (in millions) | 1,071.1 | 1,046.8 | |||||
Diluted weighted average common shares outstanding (in millions) | 1,086.6 | 1,048.4 | |||||
Basic earnings per share – continuing operations | $ | .72 | $ | .55 | |||
Diluted earnings per share – continuing operations | .71 | .55 | |||||
Basic earnings per share – net income | $ | .72 | $ | .54 | |||
Diluted earnings per share – net income | .71 | .54 | |||||
Dividends declared | .35 | .35 | |||||
See accompanying Notes to Condensed Consolidated Financial Statements.
1
FLEETBOSTON FINANCIAL CORPORATION
CONDENSED CONSOLIDATED BALANCE SHEETS
(unaudited)
Dollars in millions, except per share amounts | March 31, 2004 | December 31, 2003 | ||||||
Assets | ||||||||
Cash and cash equivalents | $ | 8,786 | $ | 10,233 | ||||
Federal funds sold and securities purchased under agreements to resell | 10,988 | 3,910 | ||||||
Securities (including pledges of $11,707 in 2004 and $10,959 in 2003) | 31,151 | 31,370 | ||||||
Loans and leases | 127,596 | 128,949 | ||||||
Reserve for credit losses | (2,848 | ) | (3,074 | ) | ||||
Net loans and leases | 124,748 | 125,875 | ||||||
Due from brokers/dealers | 1,081 | 5,437 | ||||||
Goodwill and intangible assets | 4,709 | 4,571 | ||||||
Other assets | 18,204 | 18,839 | ||||||
Total assets | $ | 199,667 | $ | 200,235 | ||||
Liabilities | ||||||||
Deposits: | ||||||||
Noninterest bearing | $ | 34,862 | $ | 38,253 | ||||
Interest bearing | 104,859 | 99,511 | ||||||
Total deposits | 139,721 | 137,764 | ||||||
Short-term borrowings | 12,124 | 11,178 | ||||||
Due to brokers/dealers | 1,090 | 5,476 | ||||||
Long-term debt | 16,905 | 17,557 | ||||||
Accrued expenses and other liabilities | 10,498 | 9,980 | ||||||
Total liabilities | 180,338 | 181,955 | ||||||
Commitments and contingencies (Note 7) | ||||||||
Stockholders’ equity | ||||||||
Preferred stock, par value $1.00 | 271 | 271 | ||||||
Common stock and other common equity, common stock par value $.01 (1,086.7 million shares issued in 2004 and 2003; 1,083.2 million shares and 1,063.1 million shares outstanding in 2004 and 2003, respectively) | 19,058 | 18,009 | ||||||
Total stockholders’ equity | 19,329 | 18,280 | ||||||
Total liabilities and stockholders’ equity | $ | 199,667 | $ | 200,235 | ||||
See accompanying Notes to Condensed Consolidated Financial Statements.
2
FLEETBOSTON FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS’ EQUITY
(unaudited)
Three months ended March 31 | Preferred Stock | Common Stock | Common Surplus | Retained Earnings | Accumulated Other Comprehensive Income | Treasury Stock | Total | |||||||||||||||||||
2003 | ||||||||||||||||||||||||||
Balance at December 31, 2002 | $ | 271 | $ | 11 | $ | 4,011 | $ | 13,748 | $ | 175 | $ | (1,383 | ) | $ | 16,833 | |||||||||||
Net income | 567 | 567 | ||||||||||||||||||||||||
Other comprehensive income, net of taxes: | ||||||||||||||||||||||||||
Change in unrealized gain on securities available for sale, net of reclassification adjustment | 63 | |||||||||||||||||||||||||
Change in translation adjustment | (10 | ) | ||||||||||||||||||||||||
Change in derivative instruments | 32 | |||||||||||||||||||||||||
Other comprehensive income, net of taxes | 85 | 85 | ||||||||||||||||||||||||
Total comprehensive income | 652 | |||||||||||||||||||||||||
Cash dividends declared on common stock ($.35 per share) | (368 | ) | (368 | ) | ||||||||||||||||||||||
Cash dividends declared on preferred stock | (5 | ) | (5 | ) | ||||||||||||||||||||||
Common stock issued in connection with dividend reinvestment and employee benefit plans | (3 | ) | (16 | ) | 36 | �� | 17 | |||||||||||||||||||
Stock option expense | 3 | 3 | ||||||||||||||||||||||||
Balance at March 31, 2003 | $ | 271 | $ | 11 | $ | 4,011 | $ | 13,926 | $ | 260 | $ | (1,347 | ) | $ | 17,132 | |||||||||||
2004 | ||||||||||||||||||||||||||
Balance at December 31, 2003 | $ | 271 | $ | 11 | $ | 4,021 | $ | 14,876 | $ | 50 | $ | (949 | ) | $ | 18,280 | |||||||||||
Net income | 773 | 773 | ||||||||||||||||||||||||
Other comprehensive loss, net of taxes: | ||||||||||||||||||||||||||
Change in unrealized gain on securities available for sale, net of reclassification adjustment | 79 | |||||||||||||||||||||||||
Change in translation adjustment | (2 | ) | ||||||||||||||||||||||||
Change in derivative instruments | (121 | ) | ||||||||||||||||||||||||
Other comprehensive loss, net of taxes | (44 | ) | (44 | ) | ||||||||||||||||||||||
Total comprehensive income | 729 | |||||||||||||||||||||||||
Cash dividends declared on common stock ($.35 per share) | (379 | ) | (379 | ) | ||||||||||||||||||||||
Cash dividends declared on preferred stock | (5 | ) | (5 | ) | ||||||||||||||||||||||
Common stock issued in connection with: | ||||||||||||||||||||||||||
Dividend reinvestment and employee benefit plans | (6 | ) | 18 | 473 | 485 | |||||||||||||||||||||
Business combination | 211 | 211 | ||||||||||||||||||||||||
Stock option expense | 4 | 4 | ||||||||||||||||||||||||
Other, net | 4 | 4 | ||||||||||||||||||||||||
Balance at March 31, 2004 | $ | 271 | $ | 11 | $ | 4,023 | $ | 15,283 | $ | 6 | $ | (265 | ) | $ | 19,329 | |||||||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
3
FLEETBOSTON FINANCIAL CORPORATION
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(unaudited)
Three months ended March 31 | 2004 | 2003 | ||||||
Net cash flow provided by operating activities | $ | 2,497 | $ | 1,130 | ||||
Cash Flows from Investing Activities | ||||||||
Net (increase)/decrease in federal funds sold and securities purchased under agreements to resell | (7,078 | ) | 614 | |||||
Purchases of securities available for sale | (2,593 | ) | (10,986 | ) | ||||
Proceeds from sales of securities available for sale | 1,237 | 2,317 | ||||||
Proceeds from maturities of securities available for sale | 1,818 | 3,342 | ||||||
Purchases of securities held to maturity | (115 | ) | (148 | ) | ||||
Proceeds from maturities of securities held to maturity | 146 | 132 | ||||||
Purchases of residential mortgage loans | (586 | ) | (4,764 | ) | ||||
Net decrease in loans and leases | 1,514 | 440 | ||||||
Purchases of premises and equipment | (65 | ) | (67 | ) | ||||
Net cash flow used in investing activities | (5,722 | ) | (9,120 | ) | ||||
Cash Flows from Financing Activities | ||||||||
Net increase in deposits | 1,957 | 3,761 | ||||||
Increase in short-term borrowings | 946 | 4,638 | ||||||
Proceeds from issuance of long-term debt | 558 | 569 | ||||||
Repayments of long-term debt | (1,392 | ) | (1,687 | ) | ||||
Proceeds from issuance of common stock | 476 | 11 | ||||||
Cash dividends paid | (753 | ) | (360 | ) | ||||
Net cash flow provided by financing activities | 1,792 | 6,932 | ||||||
Change in net assets/liabilities of discontinued operations | (12 | ) | 118 | |||||
Effect of foreign currency translation on cash | (2 | ) | (4 | ) | ||||
Net decrease in cash and cash equivalents | (1,447 | ) | (944 | ) | ||||
Cash and cash equivalents at beginning of period | 10,233 | 11,574 | ||||||
Cash and cash equivalents at end of period | $ | 8,786 | $ | 10,630 | ||||
Supplemental Disclosures – continuing operations | ||||||||
Interest paid | $ | 721 | $ | 782 | ||||
Income taxes paid | 95 | 126 | ||||||
See accompanying Notes to Condensed Consolidated Financial Statements.
4
FLEETBOSTON FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(unaudited)
NOTE 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of Presentation. Unless otherwise indicated or unless the context requires otherwise, all references in these notes to condensed consolidated financial statements to “FleetBoston,” “we,” “us,” “our” or similar references mean FleetBoston Financial Corporation. As of March 31, 2004, we were organized along five principal lines of business: Personal Financial Services; Regional Commercial Financial Services and Investment Management; National Commercial Financial Services; International Banking; and Capital Markets, and had approximately $200 billion in assets.
The interim condensed consolidated financial statements accompanying these notes are unaudited. In the opinion of management, all adjustments (consisting only of normal recurring adjustments) necessary for a fair statement of the results of operations in these financial statements have been made. The preparation of consolidated financial statements requires management to make estimates and assumptions in the application of certain accounting policies that materially affect the reported amounts of assets, liabilities, revenues and expenses. You should read these condensed consolidated financial statements and related notes together with the financial information in our 2003 10-K, which we previously filed with the Securities and Exchange Commission, or “SEC.” We have reclassified certain amounts reported in prior periods to conform to current period classifications. Information provided in these notes to condensed consolidated financial statements reflects continuing operations, unless otherwise noted.
Stock-Based Compensation.During 2002, effective for stock options granted subsequent to January 1, 2002, we adopted the fair value accounting provisions of Statement of Financial Accounting Standards, or “SFAS,” No. 123, “Accounting for Stock-Based Compensation,” and elected to account for this adoption prospectively. We continue to account for stock options granted prior to January 1, 2002 using the intrinsic value method under previously issued accounting standards, under which no compensation expense is recorded.
The following table presents net income and earnings per share, as reported, and on a pro forma basis as if the fair value accounting provisions of SFAS No. 123 had been applied to all stock-based awards granted since the standard’s effective date.
Three months ended March 31 | 2004 | 2003 | ||||
Net income, as reported | $ | 773 | $ | 567 | ||
Add: stock-based compensation expense included in reported net income, net of taxes | 12 | 11 | ||||
Deduct: total stock-based compensation expense determined using fair value accounting for all stock options and awards, net of taxes | 17 | 26 | ||||
Pro forma net income | $ | 768 | $ | 552 | ||
Earnings per share: | ||||||
Basic-as reported | $ | .72 | $ | .54 | ||
Basic-pro forma | .71 | .52 | ||||
Diluted-as reported | $ | .71 | $ | .54 | ||
Diluted-pro forma | .70 | .52 | ||||
5
FLEETBOSTON FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(unaudited)
Recent Accounting Developments. As we disclosed in Note 1 to the Consolidated Financial Statements in our 2003 10-K, in December 2003, the Financial Accounting Standards Board, or “FASB,” issued a revision to its Interpretation No. 46, entitled “Consolidation of Variable Interest Entities,” or “Interpretation 46R,” which provided additional accounting guidance with respect to variable interest entities, or “VIEs.” During the first quarter of 2004, we fully adopted the provisions of Interpretation 46R for all of our VIEs. This adoption did not result in the consolidation of any additional VIEs. In addition, the deconsolidation of our statutory business trusts and related trust preferred securities was deemed appropriate.
NOTE 2. SUBSEQUENT EVENT
On April 1, 2004, we merged with Bank of America, a global financial services company headquartered in Charlotte, North Carolina, with Bank of America the surviving company. Bank of America had consolidated total assets of approximately $816 billion at March 31, 2004. The merger was accounted for by Bank of America using the purchase method of accounting, and approximately 1,068 million shares of FleetBoston common stock were exchanged for approximately 593 million shares of Bank of America common stock, based on an exchange ratio of .5553 shares of Bank of America common stock for each share of FleetBoston common stock. In connection with the merger, we recorded $33 million of related costs during the first quarter of 2004, including $25 million of advisory fees, which we recorded in legal and other professional expense in the accompanying condensed consolidated statement of income.
NOTE 3. LOANS AND LEASES
The following table presents consolidated loan and lease financing balances:
In millions | March 31, 2004 | December 31, 2003 | ||||
Domestic: | ||||||
Commercial and industrial | $ | 30,422 | $ | 31,701 | ||
Commercial real estate | 9,860 | 9,668 | ||||
Home equity | 33,121 | 31,629 | ||||
Residential real estate | 19,791 | 20,097 | ||||
Consumer | 10,706 | 10,979 | ||||
Lease financing | 10,521 | 10,863 | ||||
Total domestic loans and leases, net of unearned income | 114,421 | 114,937 | ||||
Total international loans and leases, net of unearned income | 13,175 | 14,012 | ||||
Total loans and leases, net of unearned income(a) | $ | 127,596 | $ | 128,949 | ||
(a) | Net of unearned income of $3.4 billion and $3.6 billion at March 31, 2004 and December 31, 2003, respectively. |
Consolidated lease financing balances included aggregate investments in leveraged leases of approximately $4 billion at both March 31, 2004 and December 31, 2003, and aggregate operating leases to corporate customers of $1.1 billion and $1.2 billion at March 31, 2004 and December 31, 2003, respectively.
At March 31, 2004 and December 31, 2003, nonperforming assets, or “NPAs,” totaled $1.2 billion and $2 billion, respectively, including $1.1 billion of nonperforming loans, or “NPLs,” and $160 million of other NPAs at March 31, 2004, compared with $1.6 billion of NPLs and $378 million of other NPAs at December 31, 2003. Total NPAs at March 31, 2004 and December 31, 2003 included $498 million and $1 billion, respectively, related to Argentina. The decline in Argentine NPAs resulted primarily from sales of Argentine loans and compensation bonds, both of which are discussed in Note 6.
NPAs included impaired loans of $915 million and $1.4 billion at March 31, 2004 and December 31, 2003, respectively.
The following table presents information related to impaired loans, which we have defined as all commercial and commercial real estate loans on nonaccrual status and troubled debt restructurings.
In millions | March 31, 2004 | Dec. 31, 2003 | ||||
Impaired loans with a reserve | $ | 318 | $ | 665 | ||
Impaired loans without a reserve | 597 | 731 | ||||
Total impaired loans | $ | 915 | $ | 1,396 | ||
Reserve for impaired loans(a) | $ | 99 | $ | 224 | ||
Quarterly average balance of impaired loans | $ | 1,149 | $ | 1,517 | ||
(a) | The reserve for impaired loans is part of our consolidated reserve for credit losses. |
6
FLEETBOSTON FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(unaudited)
NOTE 4. RESERVE FOR CREDIT LOSSES
A summary of activity in the reserve for credit losses follows:
Three months ended March 31 | 2004 | 2003 | ||||||
Balance at beginning of year | $ | 3,074 | $ | 3,864 | ||||
Provision charged to income | — | 280 | ||||||
Loans and leases charged off(a) | (433 | ) | (698 | ) | ||||
Recoveries of loans and leases(a) | 200 | 72 | ||||||
Other(b) | 7 | (112 | ) | |||||
Balance at end of period(c) | $ | 2,848 | $ | 3,406 | ||||
(a) | 2004 amounts included charge-offs and recoveries related to our sale of certain Argentine loans, which is discussed in Note 6. |
(b) | Amount for 2003 primarily represented the transfer of reserves related to accrued interest associated with owned and securitized credit card receivables, in connection with our adoption of regulatory guidance related to credit card reserving practices. |
(c) | Amounts included $123 million and $117 million, respectively, related to unfunded commitments to extend credit and other off-balance sheet financial instruments, including $62 million and $53 million at March 31, 2004 and 2003, respectively, related to financial standby letters of credit. |
The reserve for credit losses as of March 31, 2004 and 2003 included $381 million and $681 million, respectively, specifically allocated to Argentina, including an allocated transfer risk reserve, or “ATRR,” required by banking regulators of $43 million and $296 million, respectively, at March 31, 2004 and 2003. The decline in the Argentine reserve allocation and ATRR was primarily due to the decline in loans throughout 2003 and our sale of certain Argentine loans in 2004, which is discussed in Note 6.
There was no provision for credit losses for the period ended March 31, 2004, as compared to $280 million for the period ended March 31, 2003. No provision was recorded in the current period as we sold a substantial portion of Argentine nonperforming loans, resulting in a net reduction in required reserves, and the portfolio experienced an overall improvement in credit quality due to improved economic conditions.
NOTE 5. GOODWILL AND INTANGIBLE ASSETS
The carrying value of goodwill was $4.4 billion at March 31, 2004 and $4.3 billion at December 31, 2003. During the first quarter of 2004, we recorded approximately $142 million of goodwill in connection with our acquisition of Progress Financial Corporation, or “Progress,” and no impairment losses were recognized. During the first quarter of 2003, no goodwill was acquired and no impairment losses were recognized.
At March 31, 2004, the carrying value of goodwill by major line of business was $1.9 billion for Personal Financial Services, $1.5 billion for Regional Commercial Financial Services and Investment Management, $.6 billion for National Commercial Financial Services, $.3 billion for Capital Markets and $.1 billion for International Banking.
The following table presents the gross carrying value and accumulated amortization for significant intangible assets subject to amortization at March 31, 2004 and December 31, 2003.
March 31, 2004 | December 31, 2003 | |||||||||||
In millions | Gross Carrying Value | Accumulated Amortization | Gross Carrying Value | Accumulated Amortization | ||||||||
Intangible assets subject to amortization: | ||||||||||||
Purchased credit card relationships | $ | 428 | $ | 378 | $ | 428 | $ | 362 | ||||
Customer relationships | 195 | 40 | 195 | 36 | ||||||||
The total net carrying value of all intangible assets subject to amortization, including core deposit intangibles, which are insignificant and are not included in the table above, at March 31, 2004 and December 31, 2003 was $229 million and $235 million, respectively. Related amortization expense for the three months ended March 31, 2004 and 2003 was $21 million and $20 million, respectively. In connection with the Progress acquisition, we recorded a core deposit intangible of approximately $14.7 million.
The carrying value of indefinite-lived intangible assets was $63 million at both March 31, 2004 and December 31, 2003.
NOTE 6. COUNTRY RISK – ARGENTINE OPERATIONS
This note provides information about significant developments during the first quarter of 2004 concerning our operations in Argentina. More detailed information about these operations, and the overall economic situation in Argentina, is provided in the Country Risk section of Management’s Discussion and Analysis in our 2003 10-K.
In December 2001, the Argentine government issued an order imposing limitations on the ability of bank customers in Argentina to withdraw funds from their deposit and mutual fund accounts in Argentine banks, known as the “corralito.” Since the corralito was issued, a large number of customers of our Argentine operation, or “BankBoston Argentina,” have filed complaints in the Argentine courts against BankBoston Argentina seeking to invalidate the corralito on constitutional grounds and withdraw their funds.
As a result of the judicial deposit claims, we have recorded approximately $363 million of cumulative pre-tax charges through March 31, 2004. These losses represented the impact of paying depositors
7
FLEETBOSTON FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(unaudited)
at the current exchange rate versus the 1.40 exchange rate originally used to convert U.S. dollar deposits into pesos as part of the Argentine government’s economic measures instituted in early 2002 to deal with that country’s economic crisis.
During the first quarter of 2004, the banking sector continued to incur losses from judicial claims that allowed depositors to claim from banks the original dollar value of their deposits that the government converted into pesos in 2002. In light of these continued claims and the absence of any action by the Argentine government or judicial system to halt these claims, we recorded an additional $30 million of reserve through a charge to foreign exchange revenue, a component of capital markets-related revenue, to accrue for expected future claims. As of March 31, 2004, the reserve balance of $116 million reflected management’s current estimate, after considering various possible outcomes based on current available information and their related consequences, of the aggregate impact of customer deposit claims.
During the first quarter of 2004, BankBoston Argentina received a reimbursement of $30 million from the Argentine Central Bank for the early 2002 pesofication of local branch deposits with the Central Bank in excess of required reserves. This reimbursement was recorded in other noninterest income.
During 2002, we received U.S. dollar-denominated bonds from the Argentine government as compensation for the impact of their asymmetric pesofication of the balance sheet in 2001. During the fourth quarter of 2003, these compensation bonds, which were nonperforming, were reclassified from securities held to maturity to securities available for sale, and we subsequently sold $52 million of the bonds and recorded aggregate pre-tax gains of $22 million. During the first quarter of 2004, we sold an additional $200 million of the bonds and recorded aggregate pre-tax gains of $100 million in securities gains/losses, a component of capital markets-related revenue. At March 31, 2004, the remaining compensation bonds were carried at an aggregate fair value of $83 million, with a related $25 unrealized gain recorded, net of tax, in other comprehensive income, a component of stockholders’ equity.
During the first quarter of 2004, the Argentine Central Bank issued a new regulation which modified the previous calculation for determining the denomination of the above-mentioned compensation bonds. This regulation would require BankBoston Argentina to return to the Central Bank a portion of the compensation bonds received during 2002 in exchange for an equivalent amount of peso-denominated bonds. In light of this situation, management assessed the potential impact that the new regulation could have on our Argentine operations and determined that a reserve of $50 million was appropriate as of March 31, 2004. This reserve was recorded through a charge to securities gains/losses.
During the first quarter of 2004, we completed the previously disclosed sale of certain Argentine loans with an aggregate carrying value of approximately $390 million, of which two-thirds were nonperforming. The sale resulted in net charge-offs of approximately $25 million.
NOTE 7. COMMITMENTS AND CONTINGENCIES
In the normal course of business, we enter into numerous agreements that contain features which meet the definition of a guarantee under current accounting standards. A guarantee is defined as a contract that contingently requires us to make payments (either in cash, financial instruments, other assets, shares of our stock or provision of services) to a third party based on specified changes in an underlying variable that is related to an asset, a liability or an equity security of the related party. Significant guarantees provided by FleetBoston to third parties include standby financial and performance letters of credit and financial guarantees, as well as credit derivatives, market value guarantees for customers, and earn-out agreements associated with business combinations. More information about guarantees is provided in Note 10 to the Consolidated Financial Statements in our 2003 10-K.
We are involved in various legal and regulatory proceedings arising out of, and incidental to, our respective businesses. More information concerning certain of these matters is provided in Note 10 to the Consolidated Financial Statements in our 2003 10-K and in Note 7 to the Consolidated Financial Statements in Bank of America’s first quarter 2004 report on Form 10-Q.
In the normal course of business, we are subject to challenges from U.S. and non-U.S. tax authorities regarding amounts of tax due. These challenges may alter the timing or amount of taxable income or deductions, or the allocation of income among tax jurisdictions. The Internal Revenue Service, or “IRS,” is conducting an examination of our federal income tax returns for the years ended December 31, 1998, 1999, and 2000. During 2003, the IRS completed its examination of our federal income tax returns for the years ended December 31, 1995, 1996, and 1997, and has issued Notices of Proposed Adjustment with respect to our tax treatment of certain leveraged lease investments that were entered into during the examination years. Management believes that the proposed IRS adjustments are inconsistent with existing law and intends to defend our position.
8
FLEETBOSTON FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(unaudited)
NOTE 8. EARNINGS PER SHARE
A summary of the calculation of earnings per common share follows:
Three months ended March 31 | 2004 | 2003 | ||||||||||||||
BASIC | DILUTED | BASIC | DILUTED | |||||||||||||
Average shares outstanding | 1,071,103,599 | 1,071,103,599 | 1,046,758,852 | 1,046,758,852 | ||||||||||||
Additional shares due to: | ||||||||||||||||
Stock options and awards | — | 15,531,948 | — | 1,689,248 | ||||||||||||
Total equivalent shares | 1,071,103,599 | 1,086,635,547 | 1,046,758,852 | 1,048,448,100 | ||||||||||||
Earnings per share: | ||||||||||||||||
Income from continuing operations | $ | 773 | $ | 773 | $ | 577 | $ | 577 | ||||||||
Less preferred stock dividends | (5 | ) | (5 | ) | (5 | ) | (5 | ) | ||||||||
Income from continuing operations available to common stockholders | $ | 768 | $ | 768 | $ | 572 | $ | 572 | ||||||||
Total equivalent shares | 1,071,103,599 | 1,086,635,547 | 1,046,758,852 | 1,048,448,100 | ||||||||||||
Earnings per share - continuing operations | $ | .72 | $ | .71 | $ | .55 | $ | .55 | ||||||||
Loss from discontinued operations | — | — | $ | (10 | ) | $ | (10 | ) | ||||||||
Total equivalent shares | 1,071,103,599 | 1,086,635,547 | 1,046,758,852 | 1,048,448,100 | ||||||||||||
Loss per share - discontinued operations | — | — | $ | (.01 | ) | $ | (.01 | ) | ||||||||
Net income | $ | 773 | $ | 773 | $ | 567 | $ | 567 | ||||||||
Less preferred stock dividends | (5 | ) | (5 | ) | (5 | ) | (5 | ) | ||||||||
Net income available to common stockholders | $ | 768 | $ | 768 | $ | 562 | $ | 562 | ||||||||
Total equivalent shares | 1,071,103,599 | 1,086,635,547 | 1,046,758,852 | 1,048,448,100 | ||||||||||||
Earnings per share - net income | $ | .72 | $ | .71 | $ | .54 | $ | .54 | ||||||||
For the three months ended March 31, 2004 and 2003, outstanding common stock options and awards totaling 4.7 million and 83.7 million shares, respectively, were excluded from the calculation of diluted earnings per common share because the impact of such stock options and awards was antidilutive.
NOTE 9. EMPLOYEE BENEFITS
We maintain both qualified and nonqualified noncontributory defined benefit pension plans. The qualified plans are funded in compliance with the Employee Retirement Income Security Act of 1974 and the Internal Revenue Code of 1986, as amended. We also provide certain postretirement health and life insurance benefits for eligible retired domestic employees. Postretirement benefits are accrued over the service lives of the employees. The measurement date for all of our benefit plans is December 31.
9
FLEETBOSTON FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(unaudited)
The following table presents the components of net periodic benefit expense for our pension and other postretirement benefit plans for the three months ended March 31, 2004 and 2003.
Pension and Postretirement Benefit Expense
Pension Benefits | Other Postretirement Benefits | |||||||||||||||
Three months ended March 31 | 2004 | 2003 | 2004 | 2003 | ||||||||||||
Components of net periodic benefit expense: | ||||||||||||||||
Service cost | $ | 18 | $ | 19 | — | — | ||||||||||
Interest cost | 34 | 35 | $ | 3 | $ | 3 | ||||||||||
Expected return on plan assets | (47 | ) | (50 | ) | (1 | ) | (1 | ) | ||||||||
Net amortization and recognized actuarial loss | 3 | 1 | 1 | 1 | ||||||||||||
Net periodic benefit expense | $ | 8 | $ | 5 | $ | 3 | $ | 3 | ||||||||
NOTE 10. LINE OF BUSINESS INFORMATION
As of March 31, 2004, we were organized via a customer-focused organizational structure that included five principal lines of business: Personal Financial Services; National Commercial Financial Services; Regional Commercial Financial Services and Investment Management; International Banking; and Capital Markets. Information about these business lines and their supporting business units is provided in Management’s Discussion and Analysis and in Note 18 to the Consolidated Financial Statements in our 2003 10-K.
The following tables present financial information for our lines of business for March 31, 2004 and 2003 on a fully taxable equivalent basis. Consolidated net interest income and income taxes include tax-equivalent adjustments of $13 million and $12 million for March 31, 2004 and 2003, respectively. We have reclassified certain information for the quarter ended March 31, 2003 presented in this note to reflect changes in our organizational structure and internal management reporting methodologies implemented subsequent to March 31, 2003.
Lines of Business
Three months ended | Personal Financial Services | National Commercial Financial Services | Regional Commercial Financial Services | International Banking | Capital Markets | All Other(a) | Discontinued Operations | FleetBoston Financial Corporation | ||||||||||||||||||||
Income statement data: | ||||||||||||||||||||||||||||
Net interest income | $ | 1,095 | $ | 384 | $ | 244 | $ | 152 | $ | 1 | $ | (158 | ) | na | $ | 1,718 | ||||||||||||
Noninterest income | 378 | 273 | 400 | 155 | 127 | 124 | na | 1,457 | ||||||||||||||||||||
Total revenue | 1,473 | 657 | 644 | 307 | 128 | (34 | ) | na | 3,175 | |||||||||||||||||||
Provision for credit losses | 319 | 55 | 29 | 12 | — | (415 | ) | na | — | |||||||||||||||||||
Noninterest expense | 754 | 223 | 549 | 230 | 119 | 89 | na | 1,964 | ||||||||||||||||||||
Income tax expense | 132 | 151 | 55 | 25 | 4 | 71 | na | 438 | ||||||||||||||||||||
Income from continuing operations | $ | 268 | $ | 228 | $ | 11 | $ | 40 | $ | 5 | $ | 221 | na | $ | 773 | |||||||||||||
Net income | $ | 268 | $ | 228 | $ | 11 | $ | 40 | $ | 5 | $ | 221 | — | $ | 773 | |||||||||||||
Balance sheet data: | ||||||||||||||||||||||||||||
Average total assets | $ | 58,267 | $ | 51,281 | $ | 23,342 | $ | 16,725 | $ | 8,804 | $ | 40,173 | $ | 145 | $ | 198,737 | ||||||||||||
�� | ||||||||||||||||||||||||||||
Three months ended | ||||||||||||||||||||||||||||
Income statement data: | ||||||||||||||||||||||||||||
Net interest income | $ | 963 | $ | 413 | $ | 248 | $ | 173 | $ | (14 | ) | $ | (161 | ) | na | $ | 1,622 | |||||||||||
Noninterest income | 367 | 209 | 348 | 43 | 35 | 136 | na | 1,138 | ||||||||||||||||||||
Total revenue | 1,330 | 622 | 596 | 216 | 21 | (25 | ) | na | 2,760 | |||||||||||||||||||
Provision for credit losses | 262 | 93 | 38 | 20 | — | (133 | ) | na | 280 | |||||||||||||||||||
Noninterest expense | 752 | 227 | 393 | 149 | 71 | (19 | ) | na | 1,573 | |||||||||||||||||||
Income tax expense/(benefit) | 99 | 121 | 66 | 18 | (18 | ) | 44 | na | 330 | |||||||||||||||||||
Income/(loss) from continuing operations | $ | 217 | $ | 181 | $ | 99 | $ | 29 | $ | (32 | ) | $ | 83 | na | $ | 577 | ||||||||||||
Loss from discontinued operations | na | na | na | na | na | na | $ | (10 | ) | (10 | ) | |||||||||||||||||
Net income/(loss) | $ | 217 | $ | 181 | $ | 99 | $ | 29 | $ | (32 | ) | $ | 83 | $ | (10 | ) | $ | 567 | ||||||||||
Balance sheet data: | ||||||||||||||||||||||||||||
Average total assets | $ | 49,068 | $ | 57,345 | $ | 25,521 | $ | 18,838 | $ | 9,413 | $ | 34,295 | $ | 544 | $ | 195,024 | ||||||||||||
(a) | Average total assets allocated to All Other primarily consisted of residential mortgage loans and securities managed by our Treasury unit. |
na – not applicable
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FLEETBOSTON FINANCIAL CORPORATION
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
MARCH 31, 2004
(unaudited)
The following table presents financial information for the supporting business units of each of our principal lines of business.
Three months ended March 31 | 2004 | 2003 | ||||||||||||||
Net Income/(Loss) | Total Revenue | Net Income/(Loss) | Total Revenue | |||||||||||||
Personal Financial Services | ||||||||||||||||
Consumer Banking | $ | 173 | $ | 786 | $ | 155 | $ | 769 | ||||||||
Small Business | 29 | 139 | 29 | 140 | ||||||||||||
Credit Card | 66 | 548 | 33 | 421 | ||||||||||||
Total Personal Financial Services | 268 | 1,473 | 217 | 1,330 | ||||||||||||
National Commercial Financial Services | ||||||||||||||||
Specialized Finance | 181 | 479 | 112 | 384 | ||||||||||||
National Banking | 47 | 178 | 69 | 238 | ||||||||||||
Total National Commercial Financial Services | 228 | 657 | 181 | 622 | ||||||||||||
Regional Commercial Financial Services and Investment Management | ||||||||||||||||
Regional Commercial Financial Services | 60 | 320 | 66 | 332 | ||||||||||||
Investment Management | (49 | ) | 324 | 33 | 264 | |||||||||||
Total Regional Commercial Financial Services and Investment Management | 11 | 644 | 99 | 596 | ||||||||||||
International Banking | ||||||||||||||||
Brazil | 18 | 124 | 45 | 150 | ||||||||||||
Argentina | 3 | 91 | (29 | ) | (10 | ) | ||||||||||
All Other International Banking | 19 | 92 | 13 | 76 | ||||||||||||
Total International Banking | 40 | 307 | 29 | 216 | ||||||||||||
Capital Markets | ||||||||||||||||
Fleet Specialist/Execution & Clearing | (29 | ) | 74 | 18 | 88 | |||||||||||
Principal Investing | 34 | 54 | (50 | ) | (67 | ) | ||||||||||
Total Capital Markets | 5 | 128 | (32 | ) | 21 | |||||||||||
Discontinued Operations | — | na | (10 | ) | na | |||||||||||
All Other | 221 | (34 | ) | 83 | (25 | ) | ||||||||||
FleetBoston Financial Corporation | $ | 773 | $ | 3,175 | $ | 567 | $ | 2,760 | ||||||||
na – not applicable
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