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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, DC 20549




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Form 10-K

[X] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2002


OR

[   ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission File Number 1-6366



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FleetBoston Financial Corporation

(Exact name of Registrant as specified in its charter)


|                                                                                 |  |                                               
|-------------------------------------------------------------------------------- |  | ----------------------------------------------
|Rhode Island(State of incorporation)                                             |  | 05-0341324(I.R.S. Employer Identification No.)
|                                                                                 |  |                                               
|100 Federal Street, Boston, Massachusetts(Address of principal executive office) |  | 02110(Zip Code)                               

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

Securities registered pursuant to Section 12(b) of the Act:

|                                                                                                                                |  |                                              
|------------------------------------------------------------------------------------------------------------------------------- |  | ---------------------------------------------
|Title of each class                                                                                                             |  | Name of each exchange on which registered    
|                                                                                                                                |  |                                              
|Common Stock, $.01 Par Value                                                                                                    |  | New York Stock Exchange
Boston Stock Exchange
|Depositary Shares each representing a one-fifth interest in a share of
Series VI 6.75% Perpetual Preferred Stock, $1 Par Value  |  | New York Stock Exchange                      
|8.00% Trust Originated Preferred Securities issued by Fleet Capital Trust I,
Guaranteed by FleetBoston Financial Corporation    |  | New York Stock Exchange                      
|7.05% Trust Originated Preferred Securities issued by Fleet Capital Trust III,
Guaranteed by FleetBoston Financial Corporation  |  | New York Stock Exchange                      
|7.17% Trust Originated Preferred Securities issued by Fleet Capital Trust IV,
Guaranteed by FleetBoston Financial Corporation   |  | New York Stock Exchange                      
|8.80% Trust Originated Preferred Securities issued by Fleet Capital Trust VI,
Guaranteed by FleetBoston Financial Corporation   |  | New York Stock Exchange                      
|7.20% Capital Securities issued by Fleet Capital Trust VII,
Guaranteed by FleetBoston Financial Corporation                     |  | New York Stock Exchange                      
|7.20% Trust Originated Preferred Securities issued by Fleet Capital Trust VIII,
Guaranteed by FleetBoston Financial Corporation |  | New York Stock Exchange                      
|Preferred Share Purchase Rights                                                                                                 |  | New York Stock Exchange
Boston Stock Exchange



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Securities registered pursuant to Section 12(g) of the Act: None

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, and (2) has been subject to such filing
requirements for the past 90 days. YES [X] NO [   ]

Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to
the best of Registrants knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [X]

Indicate by check mark whether the Registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). YES [X] NO [   ]

As of June 30, 2002, the aggregate market value of the voting stock held by
nonaffiliates of the Registrant was $33.6 billion.

The number of shares of common stock of the Registrant outstanding as of
January 31, 2003 was 1,050,029,774.



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TABLE OF CONTENTS



|                                                   |                                                                                                         |  |  |  |  |  |  | 
|-------------------------------------------------- | ------------------------------------------------------------------------------------------------------- |  |  |  |  |  |  | 
|PART I.                                           
|                                                   | Item 1. Business                                                                                       
|                                                   | Item 2. Properties                                                                                     
|                                                   | Item 3. Legal Proceedings                                                                              
|                                                   | Item 3A. Executive Officers of the Corporation                                                         
|                                                   | Item 4. Submission of Matters to a Vote of Security Holders                                            
|PART II.                                          
|                                                   | Item 5. Market for the Registrants Common Stock and Related Stockholder Matters                       
|                                                   | Item 6. Selected Financial Data                                                                        
|                                                   | Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations          
|                                                   | Item 7A. Quantitative and Qualitative Disclosures About Market Risk                                    
|                                                   | Item 8. Financial Statements and Supplementary Data                                                    
|                                                   | Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure           
|PART III.                                         
|                                                   | Item 10. Directors and Executive Officers of the Registrant                                            
|                                                   | Item 11. Executive Compensation                                                                        
|                                                   | Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters
|                                                   | Item 13. Certain Relationships and Related Transactions                                                
|                                                   | Item 14. Controls and Procedures                                                                       
|PART IV.                                          
|                                                   | Item 15. Exhibits, Financial Statement Schedules and Reports on Form 8-K                               
|SIGNATURES                                        
|Ex-10(b) Revised Schedule of Executive Officers   
|Ex-10(d) Amendment Eight to Supplemental Exec Plan
|Ex-10(l) Amendment Four to Exec Deferred Comp.    
|Ex-10(t) Second Amendment to Directors Deferred   
|Ex-10(kk) Second Amendment to Agreement w/ Gifford
|Ex-10(ll) Third Amendment to Agreement - Gifford  
|Ex-10(nn) Second Amendment to Agreement-Meirelles 
|Ex-10(pp) Second Amendment to Agreement - Hogan   
|Ex-10(rr) Second Amendment to Agreement - Warner  
|Ex-10(ss) Third Amendment to Agreement - Warner   
|Ex-10(aaa) Employment Letter 10-31-02 Lamb        
|Ex-10(bbb) Change in Control Agreement - Lamb     
|Ex-10(ddd) Amendment One to Emp Stock Purchase Pln
|Ex-12 Computation of Consolidated Ratios          
|Ex-21 Subsidiaries of the Corporation             
|Ex-23 Consent of PricewaterhouseCoopers LLP       
|Ex-99(a) Certification of Charles K. Gifford      
|Ex-99(b) Certification of Robert C. Lamb, Jr.     



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DOCUMENTS INCORPORATED BY REFERENCE

Pertinent extracts from Registrants Proxy Statement for its 2003 Annual
Meeting of Stockholders to be filed with the Securities and Exchange
Commission are incorporated into Part III.

Such information incorporated by reference shall not be deemed to
specifically incorporate by reference the information referred to in Item
402(a)(8) of Regulation S-K.

Table of Contents and Cross-Reference Index

|          |  |                |  |                                                                                                |  |                                                                                       |  |                                     
|--------- |  | -------------- |  | ---------------------------------------------------------------------------------------------- |  | ------------------------------------------------------------------------------------- |  | ------------------------------------
|          |  | Description    |  |                                                                                                |  |                                                                                       |  | Page Number                         
|          |  |                |  |                                                                                                |  |                                                                                       |  |                                     
|Part I.   |  | Item 1.        |  | Business                                                                                       |  | 2-6                                                                                  
|          |  |                |  | -                                                                                              |  | Line of Business Information                                                          |  | 12-15, 75-77                        
|          |  |                |  | -                                                                                              |  | Managements Discussion and Analysis of Financial
Condition and Results of Operations |  | 10-46                               
|          |  |                |  | -                                                                                              |  | Acquisitions and Divestitures                                                         |  | 60                                  
|          |  |                |  | -                                                                                              |  | Capital                                                                               |  | 44, 67-68                           
|          |  |                |  | -                                                                                              |  | Dividends                                                                             |  | 44, 67-68                           
|          |  |                |  | -                                                                                              |  | Statistical Disclosure by Bank Holding Companies                                      |  | 6, 10, 24-35, 37
54-55, 61-63, 80-81
|          |  | Item 2.        |  | Properties                                                                                     |  | 6                                                                                    
|          |  | Item 3.        |  | Legal Proceedings                                                                              |  | 7, 65                                                                                
|          |  | Item 3A.       |  | Executive Officers of the Corporation                                                          |  | 8-9                                                                                  
|          |  | Item 4.        |  | Submission of Matters to a Vote of Security Holders                                            |  | 9                                                                                    
|Part II.  |  | Item 5.        |  | Market for the Registrants Common Stock and Related Stockholder Matters                       |  | 9, 81                                                                                
|          |  | Item 6.        |  | Selected Financial Data                                                                        |  | 10                                                                                   
|          |  | Item 7.        |  | Managements Discussion and Analysis of Financial Condition and Results of Operations          |  | 10-46                                                                                
|          |  | Item 7A.       |  | Quantitative and Qualitative Disclosures about Market Risk                                     |  | 39-43, 46                                                                            
|          |  | Item 8.        |  | Financial Statements and Supplementary Data                                                    |  | 48-79, 81                                                                            
|          |  | Item 9.        |  | Changes in and Disagreements with Accountants on Accounting and Financial
Disclosure           |  | 82                                                                                   
|Part III. |  | Item 10.       |  | Directors and Executive Officers of the Registrant                                             |  | 8-9, 82*                                                                             
|          |  | Item 11.       |  | Executive Compensation                                                                         |  | 82*                                                                                  
|          |  | Item 12.       |  | Security Ownership of Certain Beneficial Owners and Management and Related
Stockholder Matters |  | 82-83*                                                                               
|          |  | Item 13.       |  | Certain Relationships and Related Transactions                                                 |  | 83*                                                                                  
|          |  | Item 14.       |  | Controls and Procedures                                                                        |  | 84                                                                                   
|Part IV.  |  | Item 15.       |  | Exhibits, Financial Statement Schedules and Reports on Form 8-K                                |  | 49-52, 84-87                                                                         
|          |  | Signatures     |  | 88-89                                                                                         
|          |  | Certifications |  | 90-91                                                                                         

*The information required by this Item is incorporated herein by reference, in
whole or in part, to the Corporations Proxy Statement for its 2003 Annual
Meeting of Stockholders.

1



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PART I.




Item 1.Business

General

FleetBoston Financial Corporation is a diversified financial services company
organized under the laws of the State of Rhode Island. Unless otherwise
indicated or unless the context requires otherwise, all references in this
Report to FleetBoston, Corporation, we, us, our or similar references
mean FleetBoston Financial Corporation. We are a legal entity separate and
distinct from our subsidiaries, assisting those subsidiaries by providing
financial resources and management. At December 31, 2002, we had total assets
of $190.5 billion, total deposits of $125.8 billion, total stockholders equity
of $16.8 billion and approximately 50,000 employees. In terms of total assets,
FleetBoston is the seventh largest financial holding company in the United
States. Our executive office is located at 100 Federal Street, Boston,
Massachusetts, 02110 (telephone (617) 434-2200).

We make available free of charge through our website at www.fleet.com all
reports we electronically file with, or furnish to, the Securities and Exchange
Commission, or SEC, including our Annual Report on Form 10-K, Quarterly
Reports on Form 10-Q and Current Reports on Form 8-K, as well as any amendments
to those reports, as soon as reasonably practicable after those documents are
filed with, or furnished to, the SEC. These filings are also accessible on the
SECs website at www.sec.gov.

Our businesses include consumer and small business banking; commercial
banking, including middle-market lending, asset-based lending, leasing, cash
management, trade finance and government banking; commercial real estate
lending; international banking; principal investing; securities brokerage,
market-making and clearing services; investment services, including asset
management, mutual funds and retirement planning; and credit card services. We
own three national banking subsidiaries, including our principal banking
subsidiary, Fleet National Bank, or FNB. FNB is a member of the Federal
Reserve System, and its domestic deposits are insured by the Federal Deposit
Insurance Corporation, or FDIC, to the extent provided by law.

Our business lines, including their operating results and other key
financial measures, are more fully discussed in Managements Discussion and
Analysis of Financial Condition and Results of Operations, included in this
Report under Item 7, and in Note 18 of the Notes to Consolidated Financial
Statements included under Item 8 of this Report. For discussions of our
business activities, including our lending activities, our cross-border
outstandings and our management of credit risk, liquidity risk and other risks
inherent in our businesses, refer to Managements Discussion and Analysis of
Financial Condition and Results of Operations, included under Item 7 of this
Report.

This Report contains statements (including, without limitation, statements
in Managements Discussion and Analysis of Financial Condition and Results of
Operations, included in this Report under Item 7), that are considered
forward-looking statements as defined in the Private Securities Litigation
Reform Act of 1995. In addition, FleetBoston 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, and are often identified by
words or phrases such as anticipate, believe, expect, intend, seek,
plan, objective, trend and goal. Forward looking statements are
subject to various assumptions, risks and uncertainties, which change over
time, and speak only as of the date they are made.

FleetBoston undertakes no obligation to update any forward-looking
statements. Actual results could differ materially from those anticipated in
forward-looking statements and future results could differ materially from
historical performance. In addition to factors mentioned elsewhere in this
Report or previously disclosed in our SEC reports (accessible on the SECs
website at www.sec.gov or on our website at www.fleet.com), the following
factors, among others, could cause actual results to differ materially from
forward-looking statements and future results could differ materially from
historical performance:



| |  |  | general political and economic conditions, either domestically or
internationally, may be less favorable than expected;                                                                                                                                                                                                                          
| | - |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Latin America may continue to experience economic, political and
social uncertainties;                                                                                                                                                                                                                                                           
|
| |  |  | developments concerning credit quality in various corporate lending
industry sectors, particularly airlines and merchant energy, as well as
consumer and other types of credit, may result in an increase in the
level of our provision for credit losses, nonperforming assets, net
charge-offs and reserve for credit losses;                  
|
| |  |  | domestic demand for commercial loan and capital markets-related
products may continue to be weak; customer borrowing, repayment,
investment and deposit practices generally may be less favorable than
anticipated; and interest rate and currency fluctuations, equity and
bond market fluctuations, and inflation may be greater than expected;
|
| |  |  | the mix of interest rates and maturities of our interest earning
assets and interest bearing liabilities (primarily loans and deposits)
may be less favorable than expected;                                                                                                                                                                     
|
| |  |  | global capital markets in general, and the technology and
telecommunications industries in particular, may continue to exhibit
weakness, adversely affecting our principal investing and other capital
markets-related businesses, as well                                                                                                       

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| |   |  | as our wealth management and brokerage business line, and the availability
and terms of funding necessary to meet our liquidity needs;                                                                                                                                                                                                                              
| | - |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | competitive product and pricing pressures among financial
institutions within our markets may increase;                                                                                                                                                                                                                                                             
|
| |  |  | legislative or regulatory developments, including changes in laws or
regulations concerning taxes, banking, securities, capital requirements
and risk-based capital guidelines, reserve methodologies, deposit
insurance and other aspects of the financial services industry, may
adversely affect the businesses in which we are engaged or our financial
results;
|
| |  |  | legal and regulatory proceedings and related matters with respect to
the financial services industry, including those directly involving
FleetBoston and its subsidiaries, could adversely affect FleetBoston or
the financial services industry generally;                                                                                                         
|
| |  |  | pending and proposed changes in accounting rules, policies, practices
and procedures could adversely affect our
financial results;                                                                                                                                                                                                                                  
|
| |  |  | instruments and strategies used to hedge or otherwise manage exposure
to various types of market and credit risk could be less effective than
anticipated, and we may not be able to effectively mitigate our risk
exposures in particular market environments or against particular types
of risk;                                                                 
|
| |  |  | terrorist activities or other hostilities, including the situation
surrounding Iraq, may adversely affect the general economy, financial
and capital markets, specific industries, and FleetBoston; and                                                                                                                                                             
|
| |  |  | technological changes, including the impact of the Internet on our
businesses, may be more difficult or expensive than anticipated.                                                                                                                                                                                                                                 

Competition

Our banking and non-banking subsidiaries compete with other major financial
institutions, including commercial banks, investment banks, mutual savings
banks, savings and loan associations, credit unions, consumer finance companies
and other non-bank institutions, such as insurance companies, major retailers,
brokerage firms, and investment companies in the Northeast, throughout the
United States and internationally. The principal methods of competing
effectively in the financial services industry include improving customer
service through the quality and range of services provided, improving
efficiencies and pricing services competitively.

One outgrowth of the competitive environment discussed above has been
significant consolidation within the financial services industry on a global,
national and regional level. We continue to implement strategic initiatives
focused on expanding our core businesses and to explore, on an ongoing basis,
acquisition, divestiture and joint venture opportunities. We analyze each of
our businesses in the context of customer demands, competitive advantages,
industry dynamics and growth potential.

For additional information regarding our acquisition and divestiture
activities, refer to Notes 2 and 3 of the Notes to Consolidated Financial
Statements included under Item 8 of this Report.

Supervision and Regulation

The business in which FleetBoston and its subsidiaries are engaged is subject
to extensive supervision, regulation and examination by various bank regulatory
authorities and other governmental agencies in the states and countries where
FleetBoston and its subsidiaries operate. The supervision, regulation and
examination to which FleetBoston and its subsidiaries are subject are intended
primarily for the protection of depositors and the deposit insurance funds that
insure the deposits of banks, rather than for the protection of security
holders.

Several of the more significant regulatory provisions applicable to banks
and financial holding companies to which FleetBoston and its subsidiaries are
subject are discussed below, along with certain regulatory matters concerning
FleetBoston and its subsidiaries. To the extent that the following information
describes statutory or regulatory provisions, it is qualified in its entirety
by reference to the particular statutory provisions. Any change in applicable
law or regulation may have a material effect on the business and prospects of
FleetBoston and its subsidiaries.

Regulatory Agencies

Financial Holding Company. As a registered bank holding company and
financial holding company, we are subject to regulation under the Bank Holding
Company Act of 1956, or Bank Holding Company Act, and to inspection,
examination and supervision by the Board of Governors of the Federal Reserve
System, or Federal Reserve Board.

Subsidiary Banks. FNB and FleetBostons other national banking
subsidiaries are subject to regulation, supervision and examination primarily
by the Office of the Comptroller of the Currency, or OCC, and secondarily by
the Federal Reserve Board and the FDIC. FNBs and FleetBostons operations in
other countries are also subject to various restrictions imposed by the laws of
those countries.

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Non-bank Subsidiaries.Many of our non-banking subsidiaries also are
subject to regulation by the Federal Reserve Board and other applicable federal
and state agencies. Our brokerage subsidiaries are regulated by the SEC, the
New York Stock Exchange, the National Association of Securities Dealers, Inc.,
or NASD, and state securities regulators. Our insurance subsidiaries are
subject to regulation by applicable state insurance regulatory agencies. Other
non-banking subsidiaries of FleetBoston are subject to the laws and regulations
of both the federal government and the various states and countries in which
they conduct business.

Other Requirements and Regulations.FleetBoston and its subsidiaries are
also affected by the fiscal and monetary policies of the U.S. federal
government and the Federal Reserve Board, and by various other governmental
requirements and regulations in the states and countries where FleetBoston and
its subsidiaries operate.

Financial and Bank Holding Company Activities

Financial in Nature Requirement. As a financial holding company, we may
engage in, and acquire companies engaged in, activities that are considered
financial in nature, as defined by the Gramm-Leach-Bliley Act and Federal
Reserve Board interpretations. These activities include, among other things,
securities underwriting, dealing and market-making, sponsoring mutual funds and
investment companies, insurance underwriting and agency activities, and
merchant banking. If any banking subsidiary of FleetBoston ceases to be well
capitalized or well managed under applicable regulatory standards, the
Federal Reserve Board may: (1) place limitations on FleetBostons ability to
conduct the broader financial activities permissible for financial holding
companies; or (2) impose any limitations or conditions on the conduct or
activities of FleetBoston or any of its affiliates as the Federal Reserve Board
finds to be appropriate and consistent with the purposes of the Bank Holding
Company Act. If the deficiencies persist, the Federal Reserve Board may
require us to divest any banking subsidiary or cease to engage in any
activities permissible for financial holding companies that are not permissible
for bank holding companies. In addition, if any banking subsidiary of
FleetBoston receives a Community Reinvestment Act rating of less than
satisfactory, FleetBoston would be prohibited from engaging in any additional
activities, other than those permissible for bank holding companies that are
not financial holding companies. We may engage directly or indirectly in
activities considered financial in nature, either de novoor by acquisition, as
long as it gives the Federal Reserve board after-the-fact notice of the new
activities. The Gramm-Leach-Bliley Act also permits national banks, such as
FNB, to engage in activities considered financial in nature through a financial
subsidiary, subject to certain conditions and limitations and with the approval
of the OCC.

Interstate Banking and Branching. As a bank holding company, we are
required to obtain prior Federal Reserve Board approval before acquiring more
than 5% of the voting shares, or substantially all of the assets, of a bank
holding company, bank or savings association. Under the Riegle-Neal Interstate
Banking and Branching Efficiency Act, or Riegle-Neal, subject to certain
concentration limits and other requirements, bank holding companies such as
FleetBoston may acquire banks and bank holding companies located in any state
without regard to state law. Riegle-Neal also permits banks to acquire branch
offices outside their home states by merging with out-of-state banks,
purchasing branches in other states and establishing de novobranch offices in
other states. The ability of banks to acquire branch offices is contingent,
however, on the host state having adopted legislation opting in to those
provisions of Riegle-Neal. In addition, the ability of a bank to merge with a
bank located in another state is contingent on the host state not having
adopted legislation opting out of that provision of Riegle-Neal.

Control Acquisitions. The Change in Bank Control Act prohibits a person
or group of persons from acquiring control of a bank holding company, unless
the Federal Reserve Board has been notified and has not objected to the
transaction. Under a rebuttable presumption established by the Federal Reserve
Board, the acquisition of 10% or more of a class of voting stock of a bank
holding company with a class of securities registered under Section 12 of the
Exchange Act, such as FleetBoston, would, under the circumstances set forth in
the presumption, constitute acquisition of control of the bank holding company.
In addition, a company is required to obtain the approval of the Federal
Reserve Board under the Bank Holding Company Act before acquiring 25% (5% in
the case of an acquirer that is a bank holding company) or more of any class of
outstanding voting stock of a bank holding company, or otherwise obtaining
control or a controlling influence over that bank holding company.

Liability for Banking Subsidiaries

Under Federal Reserve Board policy, a bank holding company is expected to
act as a source of financial and managerial strength to each of its subsidiary
banks and to commit resources to their support. This support may be required
at times when the bank holding company may not have the resources to provide
it. Similarly, under the cross-guarantee provisions of the Federal Deposit
Insurance Act, the FDIC can hold any FDIC-insured depository institution liable
for any loss suffered or anticipated by the FDIC in connection with (1) the
default of a commonly controlled FDIC-insured depository institution; or (2)
any assistance provided by the FDIC to a commonly controlled FDIC-insured
depository institution in danger of default. All of our subsidiary banks are
FDIC-insured depository institutions.

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Capital Requirements

Information concerning FleetBoston and its subsidiaries with respect to
capital requirements is incorporated by reference from Note 12 of the Notes to
Consolidated Financial Statements included under Item 8 of this Report, and
from the Capital Management section of Managements Discussion and Analysis
of Financial Condition and Results of Operations, included under Item 7 of
this Report.

FDICIA

The Federal Deposit Insurance Corporation Improvement Act of 1991, or
FDICIA, and the regulations promulgated under FDICIA, among other things,
established five capital categories for insured depository institutionswell
capitalized, adequately capitalized, undercapitalized, significantly
undercapitalized and critically undercapitalizedand requires federal bank
regulatory agencies to implement systems for prompt corrective action for
insured depository institutions that do not meet minimum capital requirements
based on these categories. Unless a bank is well capitalized, it is subject to
restrictions on its ability to offer brokered deposits and on certain other
aspects of its operations. An undercapitalized bank must develop a capital
restoration plan and its parent bank holding company must guarantee the banks
compliance with the plan up to the lesser of 5% of the banks assets at the
time it became undercapitalized and the amount needed to comply with the plan.
As of December 31, 2002, each of our banking subsidiaries was considered well
capitalized based on the guidelines implemented by the bank regulatory
agencies.

Dividend Restrictions

FleetBostons funds for cash distributions to its stockholders are derived
from a variety of sources, including cash and temporary investments. One of
the principal sources of those funds and funds used to pay principal and
interest on our indebtedness is dividends received from our subsidiary banks.
Various federal laws limit the amount of dividends our banking subsidiaries can
pay to us without regulatory approval. In addition, federal bank regulatory
agencies have authority to prohibit our banking subsidiaries from engaging in
an unsafe or unsound practice in conducting their business. The payment of
dividends, depending upon the financial condition of the bank in question,
could be deemed to constitute an unsafe or unsound practice. The ability of
our banking subsidiaries to pay dividends in the future is currently, and could
be further, influenced by bank regulatory policies and capital guidelines.
Also, bank regulatory authorities have the authority to prohibit bank holding
companies from paying dividends if they deem such payment to be an unsafe or
unsound practice. Additional information concerning FleetBoston and its
banking subsidiaries with respect to dividends is incorporated by reference
from Note 12 of the Notes to Consolidated Financial Statements included under
Item 8 of this Report, and the Liquidity Risk Management and Capital
Management sections of Managements Discussion and Analysis of Financial
Condition and Results of Operations, included under Item 7 of this Report.

Deposit Insurance Assessments

The deposits of our banking subsidiaries are insured up to regulatory
limits by the FDIC, and, accordingly, are subject to deposit insurance
assessments to maintain the Bank Insurance Fund, or BIF, and/or the Savings
Association Insurance Fund, or SAIF, administered by the FDIC. As of
December 31, 2002, our banking subsidiaries held approximately $100 billion and
$10 billion, respectively, of BIF- and SAIF-assessable deposits. We currently
pay no insurance assessments on these deposits under the FDICs risk-related
assessment system. However, it is possible that we could be required to pay
insurance assessments in 2003.

Depositor Preference Statute

In the liquidation or other resolution of an institution by any
receiver, U.S. federal legislation provides that deposits and certain claims
for administrative expenses and employee compensation against the insured
depository institution would be afforded a priority over other general
unsecured claims against that institution, including federal funds and letters
of credit.

Future Legislation

Changes to the laws and regulations in the states and countries where
FleetBoston and its subsidiaries do business can affect the operating
environment of financial holding companies and their subsidiaries in
substantial and unpredictable ways. We cannot accurately predict whether those
changes in laws and regulations will occur, and, if those changes occur, the
ultimate effect they would have upon the financial condition or results of
operations of FleetBoston.

5



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Statistical Disclosure by Bank Holding Companies

The following information, included under Items 6, 7 and 8 of this Report, is
incorporated by reference herein:



| |  | Consolidated Average Balances/Interest Earned-Paid/Rates 2000-2002 table -
presents average balance sheet amounts, related taxable equivalent interest
earned or paid, and related average yields and rates paid.                                                                                                                                                                     
| |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| |  | Rate/Volume Analysis table  presents changes in the taxable equivalent
interest income and expense for each major category of interest earning
assets and interest bearing liabilities.                                                                                                                                                                                              
|
| |  | Note 4, Securities, of the Notes to Consolidated Financial Statements -
discloses information regarding book values, market values, maturities, and
weighted average yields of securities (by category).                                                                                                                                                                            
|
| |  | Note 5, Loans and Leases, of the Notes to Consolidated Financial
Statements and Loans and Leases table included in Managements
Discussion and Analysis of Financial Condition and Results of Operations -
discloses distribution of loans of FleetBoston.                                                                                                                      
|
| |  | Loans and Leases Maturity table and Interest Sensitivity of Loans and
Leases Over One Year table  presents maturities and sensitivities of loans
to changes in interest rates.                                                                                                                                                                                                     
|
| |  | Note 1, Summary of Significant Accounting Policies  Nonperforming Assets
of the Notes to Consolidated Financial Statements and Nonperforming
Assets section of Managements Discussion and Analysis of Financial
Condition and Results of Operations  discloses information on nonaccrual
and past due loans and leases and our policy for placing loans on nonaccrual
status.
|
| |  | Loans and Leases and Country Risk sections of Managements Discussion
and Analysis of Financial Condition and Results of Operations  discloses
information regarding cross-border outstandings and other loan
concentrations of FleetBoston.                                                                                                                                     
|
| |  | Reserve for Credit Losses section of Managements Discussion and Analysis
of Financial Condition and Results of Operations  presents an analysis of
loss experience, the allocation of the reserve for credit losses, and a
description of factors which influenced managements judgment in determining
the amount of additions to the reserve charged to operating expense.      
|
| |  | Consolidated Average Balances/Interest Earned-Paid/Rates 2000-2002 table
and the Components of Funding Sources table included in Managements
Discussion and Analysis of Financial Condition and Results of Operations -
discloses deposit information.                                                                                                                           
|
| |  | Selected Financial Highlights  presents return on average assets, return
on average common equity, common dividend payout and equity-to-assets ratio.                                                                                                                                                                                                                                
|
| |  | Note 8, Short-Term Borrowings, of the Notes to Consolidated Financial
Statements  discloses information on short-term borrowings of FleetBoston.                                                                                                                                                                                                                                   




Item 2.Properties

FleetBoston maintains its corporate headquarters at 100 Federal Street, Boston,
Massachusetts. FleetBoston or its domestic subsidiaries also maintain
principal offices at One Federal Street, Boston, Massachusetts; 111 Westminster
Street and One Financial Plaza, Providence, Rhode Island; 777 Main Street,
Hartford, Connecticut; 1185 Avenue of the Americas and 26 Broadway, New York,
New York; and 301 Carnegie Center, Princeton, New Jersey. FleetBoston or its
domestic subsidiaries also maintain administration and operations centers
located in New York, Massachusetts, Pennsylvania, Rhode Island, Connecticut,
Colorado, Illinois, Delaware and New Jersey.

In Latin America, where FNB operates under the corporate name BankBoston,
N.A., BankBoston, N.A. maintains banking headquarters in Buenos Aires,
Argentina, and Sao Paulo, Brazil.

None of these properties are subject to any material encumbrance. Our
subsidiaries also own or lease numerous other premises used in their domestic
and foreign operations.

6



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Item 3.Legal Proceedings

We are involved in various legal proceedings arising out of, and incidental to,
our respective businesses, including the following matters:

Robertson Stephens Securities Law Actions and Investigations.During 2001,
Robertson Stephens, our investment banking subsidiary which ceased operations
during 2002, and many other underwriters, as well as various issuers and their
officers and directors, were named as defendants in approximately 230 class
action lawsuits alleging violations of federal securities laws in connection
with the underwriting of initial public offerings, or IPOs. The plaintiffs
contend that the defendants violated the securities laws by failing to make
certain required disclosures in prospectuses, by manipulating the prices of IPO
securities in the aftermarkets through, among other things, alleged agreements
with companies receiving allocations to purchase additional shares in the
aftermarket, and by false and misleading analyst reports. Robertson Stephens
and other leading underwriters have also been named as defendants in class
action lawsuits under the antitrust laws alleging that the underwriters
conspired to manipulate the aftermarkets for the IPO securities and to extract
anticompetitive fees in connection with the IPOs. Robertson Stephens believes
that it acted lawfully in respect to the foregoing allegations and is
contesting these suits. Robertson Stephens was also involved in various
governmental reviews and investigations concerning the foregoing. As
previously reported in our Current Report on Form 8-K filed on January 10,
2003, Robertson Stephens settled these investigations with the SEC and NASD on
January 9, 2003.

Robertson Stephens Employee-Related Claims.In connection with our decision
during 2002 to wind down the operations of Robertson Stephens, numerous former
employees of Robertson Stephens have filed or threatened to file actions or
claims regarding their entitlement to additional compensation and benefits from
Robertson Stephens and FleetBoston. Robertson Stephens and FleetBoston believe
that they acted lawfully in respect to the foregoing claims and intend to
defend such actions and claims vigorously.

Argentina Corralito Litigation and Related Matters.Information regarding this
matter is incorporated by reference from the discussion of the Argentine
corralito litigation and related matters, under the caption Argentine Balance
Sheet,in the Country Risk section of Managements Discussion and Analysis
of Financial Condition and Results of Operations included under Item 7 of this
Report. Separately, in November 2002, customers of our Argentine operation
filed a class action suit in the U.S. District Court for the Southern District
of Florida against FNB, Citibank and HSBC, seeking to collect from the U.S.
head offices of those banks the deposits frozen in their Argentine offices. In
February 2003, plaintiffs in that action filed a Notice of Voluntary Dismissal
Without Prejudice, thereby dismissing the lawsuit.

Summit Bancorp Shareholders Litigation.Four class action lawsuits have been
filed and consolidated in the U.S. District Court for the District of New
Jersey against FleetBoston and certain of its current and former directors and
officers on behalf of former shareholders of Summit Bancorp. The lawsuits
allege violations of the federal securities laws in connection with our January
25, 2001 registration statement and merger proxy/prospectus (and incorporated
prior SEC filings) for our acquisition of Summit. In particular, the
complaints allege that we made false or misleading statements or omitted
material facts regarding operations in Argentina and our loan loss provisioning
regarding Argentina. FleetBoston and the defendant directors and officers deny
the allegations of the complaint and intend to defend the action vigorously.

Management of FleetBoston, based on its review with counsel of all actions
and proceedings pending against FleetBoston and its subsidiaries, considers
that the aggregate loss, if any, resulting from the final outcome of these
proceedings should not be material to FleetBostons financial condition or
annual results of operations. However, the outcome of a particular proceeding
may be material to FleetBostons results of operations for any particular
quarterly period depending on the size of the loss or liability relative to
FleetBostons earnings for that quarterly period.

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Item 3A.Executive Officers of the Corporation

The names, positions, ages and business experience during the past five years
of the executive officers of FleetBoston, as defined in the Securities
Exchange Act of 1934, as of February 24, 2003 are set forth below. The term of
office of each executive officer extends until the meeting of the Board of
Directors immediately following the Annual Meeting of Stockholders, and until a
successor is chosen and qualified, unless they sooner resign, retire, die or
are removed.

|                     |  |                                                         |  |                   |    | 
|-------------------- |  | ------------------------------------------------------- |  | ----------------- | -- | 
|                     |  |                                                         |  | Age as of        
|Name                 |  | Positions with the Corporation                          |  | February 24, 2003
|                     |  |                                                         |  |                  
|Charles K. Gifford   |  | Chairman and Chief Executive Officer                    |  |                   | 60 | 
|Eugene M. McQuade    |  | President and Chief Operating Officer                   |  |                   | 54 | 
|H. Jay Sarles        |  | Vice Chairman and Chief Administrative Officer          |  |                   | 57 | 
|Anne M. Finucane     |  | Executive Vice President                                |  |                   | 50 | 
|Paul F. Hogan        |  | Chief Risk Officer                                      |  |                   | 57 | 
|Robert C. Lamb, Jr.  |  | Executive Vice President and Chief Financial Officer    |  |                   | 47 | 
|Brian T. Moynihan    |  | Executive Vice President                                |  |                   | 43 | 
|Joseph A. Smialowski |  | Executive Vice President                                |  |                   | 54 | 
|M. Anne Szostak      |  | Executive Vice President                                |  |                   | 52 | 
|Bradford H. Warner   |  | Executive Vice President                                |  |                   | 51 | 
|Douglas L. Jacobs    |  | Executive Vice President and Treasurer                  |  |                   | 55 | 
|Gary A. Spiess       |  | Executive Vice President, General Counsel and Secretary |  |                   | 62 | 
|Terrence P. Laughlin |  | Senior Vice President                                   |  |                   | 48 | 
|Ernest L. Puschaver  |  | Chief Accounting Officer                                |  |                   | 55 | 
|Kenneth Sax          |  | Chief Credit Officer                                    |  |                   | 45 | 

Charles K. Gifford became President and Chief Operating Officer of the
Corporation following the merger of BankBoston Corporation, or BankBoston,
with Fleet Financial Group, Inc. in 1999 (the BankBoston merger), President and
Chief Executive Officer in 2001, and Chairman and Chief Executive Officer in
December 2002. Prior to the BankBoston merger, Mr. Gifford had served as
Chairman, President and Chief Executive Officer of BankBoston from 1995 to
1996, Chief Executive Officer from 1996 to 1997 and Chairman and Chief
Executive Officer from 1997 to 1999. Mr. Gifford has been a Director of the
Corporation since 1999.

Eugene M. McQuade was named Executive Vice President and Chief Financial
Officer of the Corporation in 1993, Vice Chairman and Chief Financial Officer
in 1997, and President and Chief Operating Officer effective December 31, 2002.

H. Jay Sarles became Vice Chairman of the Corporation in 1993 and was
named Chief Administrative Officer in December 2002, a capacity in which he
also served from 1997 to 2001. From 2001 to December 2002, Mr. Sarles served
as Vice Chairman, Wholesale Banking, of the Corporation.

Anne M. Finucane has served as Senior Vice President and Director of
Corporate Marketing and Corporate Communications of the Corporation from 1995
to 1999 and Executive Vice President since 1999.

Paul F. Hogan became Vice Chairman, Corporate and Investment Banking, of
the Corporation following the BankBoston merger and was named Vice Chairman and
Chief Risk Officer in 2000, and Chief Risk Officer in December 2002. Prior to
the BankBoston merger, Mr. Hogan had served as Vice Chairman, Wholesale
Banking, of BankBoston from 1997 to 1999.

Robert C. Lamb, Jr. rejoined the Corporation in December 2002 as Executive
Vice President and Chief Financial Officer, after having served as Executive
Vice President and Chief Financial Officer of BearingPoint, Inc. (formerly KPMG
Consulting) from 2000 until December 2002. From 1993 to 2000, Mr. Lamb served
as Controller of the Corporation.

Brian T. Moynihan was named Managing Director, Corporate Strategy and
Development, of the Corporation in 1994, Senior Vice President in 1998 and
Executive Vice President in 1999 with responsibility for Wealth Management and
Brokerage since 2000.

Joseph A. Smialowski became Vice Chairman, Technology and Operations, of
the Corporation following the BankBoston merger and Executive Vice President in
December 2002. Prior to the BankBoston merger, Mr. Smialowski had served as
Executive Vice President, Technology and Operations, of BankBoston from 1998 to
1999. Before joining BankBoston, Mr. Smialowski served as Senior Vice
President and Chief Information Officer of Sears, Roebuck & Co. from 1993 to
1998.

8



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M. Anne Szostak was named Senior Vice President, Human Resources, of the
Corporation in 1994 and has served as Executive Vice President since 1998.

Bradford H. Warner became Vice Chairman, Investment Services, of the
Corporation following the BankBoston merger, Vice Chairman, Consumer Business
Group, in 2000, Vice Chairman, Consumer Financial Services, in January 2002 and
Executive Vice President in December 2002. Prior to the BankBoston merger, Mr.
Warner had served as Executive Vice President, Global Capital Markets, of
BankBoston from 1996 to 1998 and Vice Chairman, Regional Banking, from 1998 to
1999.

Douglas L. Jacobs became Treasurer of the Corporation in 1995, Senior Vice
President in 1998 and Executive Vice President in 2001.

Gary A. Spiess was named Senior Vice President, Senior Deputy General
Counsel and Assistant Secretary of the Corporation following the BankBoston
merger and became Executive Vice President, General Counsel and Secretary in
January 2002. Prior to the BankBoston merger, Mr. Spiess had served as General
Counsel and Clerk of BankBoston from 1987 to 1999 and as Executive Vice
President from 1998 to 1999.

Terrence P. Laughlin was named Director of Corporate Development of the
Corporation in 1993, Managing Director of Strategic Planning in 2000 and Senior
Vice President in 2001.

Ernest L. Puschaver was named Chief Accounting Officer of the Corporation
in 2000. Prior to joining the Corporation, Mr. Puschaver had been a partner at
PricewaterhouseCoopers LLP since 1983.

Kenneth Sax became Vice President, Operational Assurance, of the
Corporation following the BankBoston merger and was named Chief Credit Officer
in April 2002. Prior to the BankBoston merger, Mr. Sax had served as General
Auditor of BankBoston from 1998 to 1999, and previously had been the OCCs
Examiner-in-Charge at BankBoston from 1996 to 1998.




Item 4.Submission of Matters to a Vote of Security Holders

There were no matters submitted to a vote of security holders in the fourth
quarter of 2002.




PART II.




Item 5.Market for the Registrants Common Stock and Related Stockholder Matters

Our common stock is listed on the New York and Boston Stock Exchanges. At
December 31, 2002, we had 83,191 stockholders of record. For information
regarding high and low quarterly sales prices, and quarterly dividends declared
and paid, in each case on our common stock, see the Quarterly Summarized
Financial Information table included under Item 8 of this Report, which is
incorporated by reference herein.

9



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##### Table of Contents






Item 6.Selected Financial Data

SELECTED FINANCIAL HIGHLIGHTS

|                                              |                                 |      |         |      |   |      |         |      |   |      |         |       |   |   |         |       |   |   |         |       |  
|--------------------------------------------- | ------------------------------- | ---- | ------- | ---- | - | ---- | ------- | ---- | - | ---- | ------- | ----- | - | - | ------- | ----- | - | - | ------- | ----- | -
|                                             
|Dollars in millions, except per share amounts |                                 |      |         |      |   |      |         |      |   |      |         |       |   |   |         |       |   |   |         |      
|Prepared on a fully taxable equivalent basis  |                                 | 2002 |         | 2001 |   | 2000 |         | 1999 |   | 1998
|                                             
|For the Year                                  |                                 |      |         |      |   |      |         |      |   |      |         |       |   |   |         |       |   |   |         |      
|Net interest income                           |                                 | $    | 6,483   |      |   | $    | 7,344   |      |   | $    | 7,826   |       |   | $ | 8,041   |       |   | $ | 7,626   |      
|Noninterest income                            |                                 |      | 5,036   |      |   |      | 4,555   |      |   |      | 7,559   |       |   |   | 6,091   |       |   |   | 5,303   |      
|Total revenue                                 |                                 |      | 11,519  |      |   |      | 11,899  |      |   |      | 15,385  |       |   |   | 14,132  |       |   |   | 12,929  |      
|Noninterest expense                           |                                 |      | 6,404   |      |   |      | 7,977   |      |   |      | 8,100   |       |   |   | 9,089   |       |   |   | 7,454   |      
|Provision for credit losses                   |                                 |      | 2,760   |      |   |      | 2,324   |      |   |      | 1,290   |       |   |   | 1,056   |       |   |   | 907     |      
|Income from continuing operations             |                                 |      | 1,524   |      |   |      | 968     |      |   |      | 3,572   |       |   |   | 2,381   |       |   |   | 2,805   |      
|(Loss)/income from discontinued operations    |                                 |      | (336    | )    |   |      | (37     | )    |   |      | 338     |       |   |   | 95      |       |   |   | (34     | )    
|Net income                                    |                                 |      | 1,188   |      |   |      | 931     |      |   |      | 3,910   |       |   |   | 2,476   |       |   |   | 2,771   |      
|                                             
|Per Common Share                              |                                 |      |         |      |   |      |         |      |   |      |         |       |   |   |         |       |   |   |         |      
|Basic earnings:                               |                                 |      |         |      |   |      |         |      |   |      |         |       |   |   |         |       |   |   |         |      
|                                              | Continuing operations           |      | $       | 1.44 |   |      | $       | .88  |   |      | $       | 3.27  |   |   | $       | 2.12  |   |   | $       | 2.51  |  
|                                              | Net income                      |      |         | 1.12 |   |      |         | .84  |   |      |         | 3.58  |   |   |         | 2.21  |   |   |         | 2.48  |  
|Diluted earnings:                             |                                 |      |         |      |   |      |         |      |   |      |         |       |   |   |         |       |   |   |         |      
|                                              | Continuing operations           |      |         | 1.44 |   |      |         | .87  |   |      |         | 3.22  |   |   |         | 2.07  |   |   |         | 2.45  |  
|                                              | Net income                      |      |         | 1.12 |   |      |         | .83  |   |      |         | 3.52  |   |   |         | 2.16  |   |   |         | 2.42  |  
|Market price (year-end)                       |                                 |      | 24.30   |      |   |      | 36.50   |      |   |      | 37.56   |       |   |   | 34.81   |       |   |   | 44.69   |      
|Cash dividends declared                       |                                 |      | 1.40    |      |   |      | 1.34    |      |   |      | 1.23    |       |   |   | 1.11    |       |   |   | 1.00    |      
|Book value (year-end)                         |                                 |      | 15.78   |      |   |      | 16.61   |      |   |      | 17.31   |       |   |   | 15.92   |       |   |   | 14.78   |      
|                                             
|At Year-End                                   |                                 |      |         |      |   |      |         |      |   |      |         |       |   |   |         |       |   |   |         |      
|Assets                                        |                                 | $    | 190,453 |      |   | $    | 203,744 |      |   | $    | 219,095 |       |   | $ | 226,817 |       |   | $ | 210,834 |      
|Securities                                    |                                 |      | 30,425  |      |   |      | 26,604  |      |   |      | 34,937  |       |   |   | 35,919  |       |   |   | 33,283  |      
|Loans                                         |                                 |      | 120,380 |      |   |      | 126,988 |      |   |      | 133,831 |       |   |   | 142,204 |       |   |   | 132,426 |      
|Reserve for credit losses                     |                                 |      | 3,864   |      |   |      | 3,634   |      |   |      | 2,709   |       |   |   | 2,816   |       |   |   | 2,628   |      
|Assets of discontinued operations             |                                 |      | 654     |      |   |      | 5,034   |      |   |      | 6,463   |       |   |   | 5,997   |       |   |   | 3,222   |      
|Deposits                                      |                                 |      | 125,814 |      |   |      | 127,730 |      |   |      | 126,911 |       |   |   | 139,177 |       |   |   | 140,695 |      
|Short-term borrowings                         |                                 |      | 11,310  |      |   |      | 14,579  |      |   |      | 21,694  |       |   |   | 19,932  |       |   |   | 21,416  |      
|Long-term debt                                |                                 |      | 20,581  |      |   |      | 25,530  |      |   |      | 31,683  |       |   |   | 29,214  |       |   |   | 17,878  |      
|Liabilities of discontinued operations        |                                 |      | 548     |      |   |      | 2,993   |      |   |      | 4,483   |       |   |   | 4,383   |       |   |   | 2,230   |      
|Total stockholders equity                    |                                 |      | 16,833  |      |   |      | 17,608  |      |   |      | 19,361  |       |   |   | 18,074  |       |   |   | 16,896  |      
|                                             
|Ratios                                        |                                 |      |         |      |   |      |         |      |   |      |         |       |   |   |         |       |   |   |         |      
|Continuing operations:                        |                                 |      |         |      |   |      |         |      |   |      |         |       |   |   |         |       |   |   |         |      
|                                              | Return on average assets(a)     |      |         | .82  | % |      |         | .48  | % |      |         | 1.66  | % |   |         | 1.12  | % |   |         | 1.41  | %
|                                              | Return on average common equity |      |         | 8.84 |   |      |         | 4.96 |   |      |         | 20.12 |   |   |         | 13.88 |   |   |         | 17.73 |  
|Net income:                                   |                                 |      |         |      |   |      |         |      |   |      |         |       |   |   |         |       |   |   |         |      
|                                              | Return on average assets        |      |         | .63  |   |      |         | .45  |   |      |         | 1.75  |   |   |         | 1.11  |   |   |         | 1.38  |  
|                                              | Return on average common equity |      |         | 6.87 |   |      |         | 4.77 |   |      |         | 22.04 |   |   |         | 14.45 |   |   |         | 17.51 |  
|Common dividend payout ratio                  |                                 |      | 125.00  |      |   |      | 159.52  |      |   |      | 34.36   |       |   |   | 50.23   |       |   |   | 40.32   |      
|Net interest margin                           |                                 |      | 4.01    |      |   |      | 4.18    |      |   |      | 4.26    |       |   |   | 4.35    |       |   |   | 4.39    |      
|Common equity-to-assets (year-end)            |                                 |      | 8.70    |      |   |      | 8.51    |      |   |      | 8.58    |       |   |   | 7.66    |       |   |   | 7.69    |      
|Average total equity-to-assets                |                                 |      | 9.12    |      |   |      | 9.25    |      |   |      | 8.10    |       |   |   | 7.83    |       |   |   | 8.12    |      
|                                             

|(a) |  | Net income from continuing operations divided by total average assets less average assets of discontinued operations.
|--- |  | ---------------------------------------------------------------------------------------------------------------------



Item 7.Managements Discussion and Analysis of Financial Condition and Results of Operations OVERVIEW The following discussion and analysis of our financial condition and results of
operations is part of our Annual Report on Form 10-K to the Securities and
Exchange Commission, or SEC, and should be read in conjunction with our
Consolidated Financial Statements and Notes to Consolidated Financial
Statements included under Item 8 of this Report. Certain prior period amounts
presented in this discussion and analysis have been reclassified to conform to
current period classifications. This discussion and analysis may contain statements with respect to our
financial condition, results of operations, future performance and business
that are considered forward-looking statements as defined in the Private
Securities Litigation Reform Act of 1995. Actual results may differ materially
from those anticipated as a


result of certain risks, uncertainties and other factors, which are more fully discussed
under Item 1 of this Report. 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, which are based on
information available as of the date of the financial statements, 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. The accounting
policies considered relatively more significant in this respect are the
determination of the reserve for credit losses, the valuation of principal
investing securities, accounting for goodwill and accounting for income taxes.
These accounting policies are discussed in the Significant Accounting Policies
section of this discussion and analy-




10



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sis, as well as in Note 1 of the Notes to Consolidated Financial Statements
included under Item 8 of this
Report. 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 $190.5 billion in assets. Our lines of business include
Commercial Financial Services, which includes commercial banking and small
business services, corporate banking and specialized finance; Personal
Financial Services, which includes consumer and community banking, credit card
lending, wealth management and brokerage; Capital Markets, which includes
brokerage market-making and principal investing; and International Banking.
You can read more about these business lines and their supporting business
units in the Line of Business Information section of this discussion and
analysis. Net income for 2002 was $1.2 billion, or $1.12 per diluted share, compared
to $931 million, or $.83 per diluted share, for 2001. Return on average assets
and return on average common equity were .63% and 6.87%, respectively, in 2002
compared to .45% and 4.77%, respectively, in 2001. Included in 2002 results was a net loss of $336 million from discontinued
operations, related to winding down the operations of Robertson Stephens, the
disposal of our fixed income business in Asia, the discontinuance of Fleet
Trading, our NASDAQ market-making business, and the sale of our student loan
processing subsidiary, AFSA Data Corporation, or AFSA. We completed the sale of AFSA in June 2002, and recorded a related
after-tax gain of $173 million in the second quarter. We ceased operations and
substantially completed the winding down of Robertson Stephens during 2002, and
expect to substantially complete the disposal of the Asia fixed income business
in early 2003. In the fourth quarter of 2002, Fleet Trading ceased its
operations by formally withdrawing from the NASDAQ market-making business. The
remaining assets of Robertson Stephens, Fleet Trading and the Asia fixed income
business are held for sale as of December 31, 2002, 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. The
remaining liabilities, including related exit costs, are presented separately
in the consolidated balance sheet.


The operating results of these businesses for 2002, as well as the AFSA
sale gain and estimated after-tax losses related to the exits of Robertson
Stephens, Asia and Fleet Trading recorded in 2002, are included in results from
discontinued operations in our 2002 income statement. We have presented all
prior period information on the same basis. For more financial information
with respect to these businesses, refer to Note 2 of the Notes to Consolidated
Financial Statements included under Item 8 of this Report. The remainder of this discussion and analysis reflects results from
continuing operations, unless otherwise noted. On this basis, income from
continuing operations for 2002 was $1.5 billion, or $1.44 per diluted share,
compared to $968 million, or $.87 per diluted share, for 2001. Return on
average assets and return on average common equity were .82% and 8.84%,
respectively, in 2002, compared to .48% and 4.96%, respectively, in 2001. Overall higher earnings and earnings per share in 2002 were driven by
improvements in revenues from our investment services business, primarily due
to the fourth quarter 2001 Liberty Asset Management, or Liberty, acquisition,
and our principal investing business, the result of a lower level of investment
portfolio writedowns (approximately $360 million in 2002 compared to $1.1
billion in 2001). In addition, 2002 results were positively impacted by lower
operating expenses from the corporate-wide cost containment program we
implemented in 2001, a decline in merger and restructuring costs of $478
million, the absence of the $428 million loss from the sale of our mortgage
banking business in 2001 and the discontinuance of goodwill amortization
beginning January 1, 2002. Partially offsetting these improvements was a
$436 million increase in the provision for credit losses, a decline in net
interest income, and declines in other capital markets-related revenues,
reflecting the impact of continued weakness in the U.S. economy on commercial
credit as well as the impact of Argentine government measures on Argentinas
financial system and the continued economic deterioration in that country.
Results for 2001 included $430 million of branch divestiture gains and a $146
million gain from the sale of our investment in the NYCE Corporation. These
current and prior year items are discussed in more detail later in this
discussion and analysis.




11



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LINE OF BUSINESS INFORMATION We are managed along a customer-focused organizational structure that includes
four lines of business: Commercial Financial Services; Personal Financial
Services; Capital Markets and International Banking. Business line results are
subject to periodic restatements based on modifications to management
accounting methodology, profitability measurement enhancements and
organizational changes. Accordingly, information presented in this sec-


tion for the year ended December 31, 2001 has been restated for comparative purposes to
reflect the implementation of management reporting modifications and changes in
organizational structure in 2002. The table below highlights our segment
results and is presented on a fully taxable equivalent, or FTE, and
continuing operations basis. For more financial information about these
business lines, refer to Note 18 of the Notes to Consolidated Financial
Statements included under Item 8 of this Report.




Line of Business Earnings Summary

|                              |  |                   |       |               |  |                  |       |      |  |      |        |      |  |   |        |   |  |  |    |   |  |  |    |  
|----------------------------- |  | ----------------- | ----- | ------------- |  | ---------------- | ----- | ---- |  | ---- | ------ | ---- |  | - | ------ | - |  |  | -- | - |  |  | -- | -
|                             
|Year ended December 31        |  | 2002              |       | 2001          |  | 2002             |       | 2001 |  | 2002 |        | 2001
|Dollars in millions           |  | Net Income/(Loss) |       | Total Revenue |  | Return on Equity
|                             
|Commercial Financial Services |  | $                 | 1,209 |               |  | $                | 1,268 |      |  | $    | 4,547  |      |  | $ | 4,696  |   |  |  | 17 | % |  |  | 18 | %
|Personal Financial Services   |  |                   | 1,080 |               |  |                  | 1,141 |      |  |      | 6,227  |      |  |   | 6,231  |   |  |  | 17 |   |  |  | 20 |  
|Capital Markets               |  |                   | (76   | )             |  |                  | (568  | )    |  |      | 71     |      |  |   | (718   | ) |  |  | nm |   |  |  | nm |  
|International Banking         |  |                   | (392  | )             |  |                  | (220  | )    |  |      | 548    |      |  |   | 1,407  |   |  |  | nm |   |  |  | nm |  
|All Other                     |  |                   | (297  | )             |  |                  | (653  | )    |  |      | 126    |      |  |   | 283    |   |  |  | nm |   |  |  | nm |  
|                             
|Total                         |  | $                 | 1,524 |               |  | $                | 968   |      |  | $    | 11,519 |      |  | $ | 11,899 |   |  |  | 9  | % |  |  | 5  | %
|                             

nm  not meaningful




The following discussion focuses on the components of each of our four business
lines, and explains results in terms of their underlying businesses. Commercial Financial Services Year ended December 31
    
    2002
    
    2001Dollars in millionsIncome statement data:Net interest income
    
    $
    3,041
    
    
    $
    3,254Noninterest income
    
    
    1,506
    
    
    
    1,442Total revenue
    
    
    4,547
    
    
    
    4,696Provision for credit losses
    
    
    720
    
    
    
    700Noninterest expense
    
    
    1,814
    
    
    
    1,895Tax expense
    
    
    804
    
    
    
    833Net income
    
    $
    1,209
    
    
    $
    1,268Balance sheet data:Average assets
    
    $
    85,060
    
    
    $
    93,815Average loans and leases
    
    
    74,424
    
    
    
    83,205Average deposits
    
    
    36,269
    
    
    
    32,691Return on equity
    
    
    17
    %
    
    
    18
    % Our Commercial Financial Services unit provides financial solutions to support
the growth of large corporations, middle market corporations, small businesses,
and multinational corporations, as well as institutional and public sector
clients. While we provide expertise in industry specialties, commercial real
estate, leasing, asset-based lending, and debt capital, our extensive range of
products and services allows us to have a much broader role in our customers
financial strategies. Our products and services include cash management, loan
syndications, global trade services, foreign exchange, interest rate risk
management, mergers and acquisitions, and retirement plan services. Cash
management services continues to be an area of strength and growth for us. We
are the fifth-largest provider of cash management services in the U.S. and
provide our customers with tools necessary to manage their treasury operations.


Commercial Financial Services earned $1.2 billion in 2002, a decrease of
$59 million from the prior year. Earnings from the underlying business units
reflected reduced demand for commercial loans and capital markets products as
the economic environment remained weak. In addition, Commercial Financial
Services results reflected the impact of our ongoing risk reduction strategy,
under which targeted, non-strategic exposures, composed of both funded loans
and unfunded commitments to extend credit, have been reduced by $25 billion, or
14%, over the past two years. This includes the impact of the $10 billion
exposure reduction program announced in April 2002 that was completed in the
fourth quarter of 2002. We anticipate further reductions in exposure in 2003.
Higher cash management fees and deposit balances, resulting from higher sales
and cross-selling activities, combined with the impact of cost saving
initiatives initially implemented in 2001, helped to moderate the negative
impact of the weak economic climate. Expense management continues to be a
focus in 2003. Commercial Financial Services operating expenses declined $81
million, or 4%, compared to 2001 and reflected the impact of incentive
compensation reductions that corresponded with lower revenue levels in the
group. As we more fully explain in the All Other portion of this Line of Business
Information section, provisions for credit losses are generally allocated to
Commercial Financial Services and our other lines of business 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.




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##### Table of Contents





In accordance with this methodology, in the second and fourth quarters of
2002, we recorded, in All Other, consolidated pre-tax provisions totaling $907
million, primarily reflecting the impact of U.S. economic conditions on
commercial credit, specifically the ongoing deterioration within Commercial
Financial Services lending portfolios. Including the after-tax impact of
these provisions currently, instead of prospectively over the economic cycle,
earnings of Commercial Financial Services would have been $648 million, a
reduction of 49% from the prior year level, and the related return on equity
would have been 9%. Year ended December 31
    
    2002
    
    2001
    
    2002
    
    2001
    
    2002
    
    2001Dollars in millions
    
    Net Income
    
    Total Revenue
    
    Return on EquityCorporate Banking
    
    $
    717
    
    
    $
    799
    
    
    $
    2,579
    
    
    $
    2,677
    
    
    
    15
    %
    
    
    16
    %Commercial Banking
and Financial
Services
    
    
    492
    
    
    
    469
    
    
    
    1,968
    
    
    
    2,019
    
    
    
    23
    
    
    
    21Total
    
    $
    1,209
    
    
    $
    1,268
    
    
    $
    4,547
    
    
    $
    4,696
    
    
    
    17
    %
    
    
    18
    % Corporate Banking, which includes our commercial finance, commercial real
estate, leasing, asset-based lending, industry banking and acquisition finance
businesses, earned $717 million in the current year compared to
$799 million in 2001, a decrease of 10%. This decline was driven by decreases
in loan volumes resulting, in part, from repositioning of the portfolio to
reduce credit exposure, and by lower trading revenues due to market conditions.
This decline was partially offset by higher cash management fees and lower
compensation levels. Average loans and leases were $56.1 billion in 2002,
compared to $62.8 billion in 2001, a decline of $6.7 billion, or 11%. Commercial Banking and Financial Services, which is composed of our middle
market lending, small business and government banking businesses, earned $492
million in 2002, an increase of $23 million, or 5%, from the prior year. The
increase in net income was driven by increased deposit balances, higher tax
processing revenues, a higher level of cash management fees and derivative
sales. These earnings, combined with lower operating expenses resulting from
cost saving initiatives implemented in 2001, more than offset the impact of
reduced loan demand. Average loan balances decreased $2.1 billion to $18.3
billion, while deposits grew approximately $3.5 billion to $28.8 billion, when
compared to the prior year. Personal Financial Services Year ended December 31
    
    2002
    
    2001Dollars in millionsIncome statement data:Net interest income
    
    $
    3,713
    
    
    $
    3,693Noninterest income
    
    
    2,514
    
    
    
    2,538Total revenue
    
    
    6,227
    
    
    
    6,231Provision for credit losses
    
    
    911
    
    
    
    967Noninterest expense
    
    
    3,655
    
    
    
    3,466Tax expense
    
    
    581
    
    
    
    657Net income
    
    $
    1,080
    
    
    $
    1,141Balance sheet data:Average assets
    
    $
    52,365
    
    
    $
    48,829Average loans and leases
    
    
    41,526
    
    
    
    38,333Average low-cost core deposits
    
    
    53,836
    
    
    
    49,052Return on equity
    
    
    17
    %
    
    
    20
    %


Personal Financial Services is composed of two main segments, Consumer
Financial Services and Wealth Management and Brokerage. Consumer Financial
Services provides consumer retail banking and investment services to more than
5.5 million households. Customers can access products and services through a
variety of distribution channels including a network of approximately 1,460
branches and 3,500 ATMs, electronic banking products, Internet banking
(HomeLink), and customer call centers that provide our customers with
convenience. HomeLink continues to grow at a rapid pace with 3.1 million
customers, up from 2.3 million customers last year. Wealth Management and Brokerage offers a wide range of services, including
specialized asset management, estate settlement, and deposit and credit
products to high-net-worth customers. We sell proprietary and third-party
mutual funds as well as an array of investment products to retail and
institutional customers. We offer retirement planning, large institutional
asset management, and not-for-profit investment services. Retail brokerage
services and securities and clearing activities are provided through Quick &
Reilly, a leading provider of these services. We now operate more than 100
Quick & Reilly Investor Centers with 1,000 financial consultants. Personal Financial Services earned $1.1 billion in 2002, a decline of $61
million, or 5%, from the prior year. Included in 2001 results were gains from
the sale of our equity interest in the NYCE ATM network and gains from the sale
of non-strategic branches. Excluding these prior year one-time transactions,
the segment had a 7% increase in earnings. This improvement in earnings was
driven by solid loan growth, particularly in home equity products and credit
card receivables, and strong growth in low-cost core deposits, partially offset
by the impact of lower deposit spreads and a decline in the market value of
assets under management. Year ended December 31
    
    2002
    
    2001
    
    2002
    
    2001
    
    2002
    
    2001Dollars in millions
    
    Net Income
    
    Total Revenue
    
    Return on EquityConsumer Financial
Services
    
    $
    863
    
    
    $
    964
    
    
    $
    4,489
    
    
    $
    4,706
    
    
    
    22
    %
    
    
    25
    %Wealth Management
and Brokerage
    
    
    217
    
    
    
    177
    
    
    
    1,738
    
    
    
    1,525
    
    
    
    8
    
    
    
    10Total
    
    $
    1,080
    
    
    $
    1,141
    
    
    $
    6,227
    
    
    $
    6,231
    
    
    
    17
    %
    
    
    20
    % Consumer Financial Services earned $863 million in 2002, an increase of $27
million, or 3%, over the prior year, excluding the aforementioned gains. This
increase in earnings resulted from higher loan volumes and a beneficial change
in deposit mix, as low-cost core deposit balances increased approximately $4.6
billion, or 10%, over the prior year. Low-cost core deposits have grown as
improved customer experience has resulted in higher sales and lower attrition
during a period when our customers are seeking liquidity due to the unstable
equity markets. The declining interest rate environment, which drove down loan
yields and put pressure on spreads in the deposit-taking businesses, partially
offset these improvements.




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Wealth Management and Brokerage earned $217 million, which represented an
increase of 23% over the prior year level despite difficult market conditions.
The increase in earnings was largely the result of effective expense management
and improved sales mix within the Quick & Reilly brokerage group. The market
value of assets under management, which reflected the overall lower valuation
of the stock market, was approximately $143 billion as of December 31, 2002
versus $167 billion as of December 31, 2001. Capital Markets Year ended December 31
    
    2002
    
    2001Dollars in millionsIncome statement data:Net interest income
    
    $
    (87
    )
    
    $
    (127
    )Noninterest income
    
    
    158
    
    
    
    (591
    )Total revenue
    
    
    71
    
    
    
    (718
    )Noninterest expense
    
    
    190
    
    
    
    207Tax benefit
    
    
    (43
    )
    
    
    (357
    )Net loss
    
    $
    (76
    )
    
    $
    (568
    )Return on equity
    
    nm
    
    nm nm  not meaningful
 Year endedDecember 31
    
    2002
    
    2001
    
    2002
    
    2001
    
    2002
    
    2001Dollars in millions
    
    Net Income/(Loss)
    
    Total Revenue
    
    Return on EquityFleet Specialist
    
    $
    110
    
    
    $
    106
    
    
    $
    325
    
    
    $
    328
    
    
    
    32
    %
    
    
    29
    %Principal Investing
    
    
    (186
    )
    
    
    (674
    )
    
    
    (254
    )
    
    
    (1,046
    )
    
    nm
    
    nmTotal
    
    $
    (76
    )
    
    $
    (568
    )
    
    $
    71
    
    
    $
    (718
    )
    
    nm
    
    nm nm  not meaningful
 Fleet Specialist is one of the largest specialist firms on the New York Stock
Exchange, or NYSE, making markets in common and preferred stocks of more than
425 listed companies and accounting for roughly 20% of the volume on the Big
Board. The unit earned $110 million in 2002, an increase of $4 million from
2001. Although transaction volume increased in 2002, average trade size and
average price per share decreased as a result of market conditions, which in
turn resulted in lower revenues per trade. Principal Investing provides start-up capital and debt financing to
business ventures that are predominantly privately or closely held companies,
and also invests in investment fund partnerships. Principal Investing
recorded a net loss of $186 million in 2002, compared to a net loss of $674
million in 2001. These results were affected by after-tax investment
writedowns of $228 million in 2002, reflecting the impairment of value that
resulted from the continued weakness in the U.S. economy, versus $679 million
in 2001. At December 31, 2002, the aggregate carrying value of the Principal
Investing portfolio was $3.4 billion, a decline of 6% from the prior year, due
primarily to writedowns.


International Banking Year ended December 31
    
    2002
    
    2001Dollars in millionsIncome statement data:Net interest income
    
    $
    715
    
    
    $
    1,181Noninterest income
    
    
    (167
    )
    
    
    226Total revenue
    
    
    548
    
    
    
    1,407Provision for credit losses
    
    
    432
    
    
    
    859Noninterest expense
    
    
    694
    
    
    
    943Tax benefit
    
    
    (186
    )
    
    
    (175
    )Net loss
    
    $
    (392
    )
    
    $
    (220
    )Balance sheet data:Average assets
    
    $
    20,694
    
    
    $
    25,327Average loans and leases
    
    
    13,966
    
    
    
    16,283Average deposits
    
    
    7,881
    
    
    
    10,946Return on equity
    
    nm
    
    nm nm  not meaningful
 Year endedDecember 31
    
    2002
    
    2001
    
    2002
    
    2001
    
    2002
    
    2001Dollars in millions
    
    Net Income/(Loss)
    
    Total Revenue
    
    Return on EquityBrazil
    
    $
    120
    
    
    $
    225
    
    
    $
    553
    
    
    $
    729
    
    
    
    24
    %
    
    
    53
    %Argentina
    
    
    (559
    )
    
    
    (513
    )
    
    
    (302
    )
    
    
    350
    
    
    nm
    
    nmAll other
international
    
    
    47
    
    
    
    68
    
    
    
    297
    
    
    
    328
    
    
    
    13
    
    
    
    21Total
    
    $
    (392
    )
    
    $
    (220
    )
    
    $
    548
    
    
    $
    1,407
    
    
    nm
    
    nm nm  not meaningful
 International Banking includes our international operations, the largest of
which are in Brazil and Argentina, where we have been in business since 1947
and 1917, respectively. This business line also includes operations in other
Latin American countries. We have 66 branch banking locations in Brazil and
total average assets were $10.3 billion for 2002, down from $10.9 billion for
2001. Period-end assets at December 31, 2002 were $9.1 billion compared to $12
billion at December 31, 2001. In Argentina, we currently operate 109 branches
and had total average assets of $5 billion for 2002, down 47% from $9.4 billion
for 2001. Period-end assets were $3.7 billion at December 31, 2002, down $5.6
billion from December 31, 2001. International Banking recorded a net loss of
$392 million for 2002, compared to a net loss of $220 million for 2001. These
losses were directly related to the social, political and economic situation in
Argentina and our decision in April 2002 to reduce our Brazilian exposure. Argentinas net loss for 2002 was $559 million, compared to a net loss of
$513 million for 2001, and reflected the deterioration in the local economy as
well as the impact of dramatic changes in the Argentine governments monetary
and fiscal policies. These government-mandated policies included 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. Brazil reported earnings of $120 million for 2002,
a decrease of $105 million, or 47%, compared to 2001. Brazils results
reflected our decision, which we announced in April 2002, to reposition the
balance sheet and reduce risk in that country due to the economic uncertainty
that existed in the country for much of 2002. You can read more detailed
information




14



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##### Table of Contents





about Argentina and Brazil in the Country Risk section of this discussion and
analysis. All Other All Other includes transactions not allocated to our principal business lines,
the residual impact of methodology allocations, such as the provision for
credit losses, reserve for credit losses and equity, combined with funds
transfer pricing offsets. Funds transfer pricing is used to assign interest income and interest
expense to each line of business on a matched funding concept based on each
businesss net asset or liability position. The provision for credit losses is
generally allocated to business lines on an expected loss basis. Expected
loss is an estimate of the average loss rate that individual credit portfolios
will experience over an economic cycle, based on our historical loss experience
and various market data. This economic cycle methodology differs from the
methodology used to determine our consolidated provision for credit losses for
any given period, which is based on an evaluation of the adequacy of the
reserve for credit losses considering the risk characteristics in the portfolio
at a point in time. The difference between the sum of the provisions for each
line of business determined using the expected loss methodology and the
consolidated provision is included in All Other. You can find more information about our consolidated reserve methodology
in the Reserve for Credit Losses section of this discussion and analysis and in
Note 1 of the Notes to Consolidated Financial Statements included under Item
8 of this Report. The business activities of our Treasury unit are also included in All
Other. The Treasury unit is responsible for the balance sheet management
function, which consists of managing our wholesale funding needs, the
structural non-trading interest rate risk inherent in our banking franchise and
our capital levels. To manage interest rate risk, Treasury utilizes the
residential mortgage portfolio, along with other financial instruments such as
securities and derivatives. While the Treasury unit utilizes the mortgage
portfolio as an interest rate risk management tool and earning asset, other
business units manage and have responsibility for credit risk management,
accounting and general operations. For the year ended December 31, 2002, All Other incurred a net loss of
$297 million, compared to a net loss of $653 million for the prior year. Net
income for our Treasury unit was $549 million in 2002 compared to $353 million
in 2001, with the increase resulting from net securities gains. In 2002, All
Other also included consolidated provisions for credit losses recorded in the
second and fourth quarters ($982 million or $653 million after-tax), primarily
to acknowledge the poor environment surrounding telecommunications and other
large corporate credits, and the residual impact of the consolidated provision
for credit loss methodology discussed earlier ($196 million after-tax).


In the 2001 period, All Other included $250 million of after-tax provision
for credit losses in excess of that allocated to our various business lines and
$137 million of after-tax income related to transfer pricing offsets. In
addition, All Other in 2001 included an after-tax loss of $285 million from the
sale of our mortgage banking business, after-tax merger-, restructuring- and
integration-related costs of $604 million, and after-tax gains of $235 million,
principally related to divestitures associated with the BankBoston merger. The
2001 period also included $255 million of after-tax goodwill amortization. In
connection with the adoption of SFAS No. 142, which is more fully discussed in
Note 1 of the Notes to Consolidated Financial Statements included under Item
8 of this Report, goodwill amortization recorded in previous years was
reclassified from the business units to All Other for comparative purposes. SIGNIFICANT ACCOUNTING POLICIES FleetBostons consolidated financial statements are prepared in accordance with
accounting principles generally accepted in the United States of America, or
GAAP, including prevailing practices within the financial services industry.
The preparation of consolidated financial statements requires management to
make judgments, involving significant estimates and assumptions, in the
application of certain of its accounting policies about the effects of matters
that are inherently uncertain. These estimates and assumptions, which may
materially affect the reported amounts of certain assets, liabilities, revenues
and expenses, are based on information available as of the date of the
financial statements, and changes in this information over time could
materially impact amounts reported in the financial statements as a result of
the use of different estimates and assumptions. Certain accounting policies,
by their nature, have a greater reliance on the use of estimates and
assumptions, and could produce results materially different from those
originally reported. Based on the sensitivity of financial statement amounts to the methods,
estimates and assumptions underlying reported amounts, the relatively more
significant accounting policies followed by FleetBoston have been identified by
management as the determination of the reserve for credit losses; the valuation
of principal investing securities; accounting for goodwill; and accounting for
income taxes. These policies require the most subjective or complex judgments,
and as such could be most subject to revision as new information becomes
available. The following is a brief discussion of these significant accounting
policies. An understanding of the judgments, estimates and assumptions
underlying these accounting policies is essential in order to understand our
reported financial condition and results of operations. These accounting
policies are described in more detail in Note 1 of the Notes to Consolidated
Financial Statements included under Item 8 of this Report.




15



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Reserve for Credit Losses The reserve for credit losses represents the amount available for estimated
probable credit losses existing in our lending portfolio. The methodology used
to provide the appropriate level of reserve is inherently subjective, and
involves many complex estimates and assumptions. We perform periodic, systematic reviews of our credit portfolios to
identify inherent losses and assess the overall probability of collection.
These reviews include an analysis of historical default and loss experience
which results in the identification and quantification of loss factors. These
loss factors are used in determining the appropriate level of reserve to cover
the estimated probable losses existing in each lending category. Management
judgment involving the estimates of loss factors can be impacted by many
variables, such as the number of years of actual default and loss history
included in the evaluation, the volatility of forecasted net credit losses, and
the financial models used in the forecasting process. The methodology used to determine the appropriate level of the reserve for
credit losses and related provisions differs for commercial versus consumer
loans, and involves other overall evaluations, such as a sovereign risk
analysis, which is performed as part of our review of our international
commercial and consumer loan portfolios, and assesses the cross-border risk of
credit loss. In addition, significant estimates are involved in the
determination of the appropriate level of reserve related to impaired loans,
which are commercial and industrial and commercial real estate loans on
nonaccrual status and troubled debt restructurings. The portion of the reserve
related to impaired loans is based on discounted cash flows using the loans
effective interest rate, or the fair value of the collateral for
collateral-dependent loans, or the observable market price of the impaired
loan. Each of these variables involves judgment and the use of estimates. For
instance, discounted cash flows are based on estimates of the amount and timing
of expected future cash flows. In addition to periodic estimation and testing of loss factors, we
periodically evaluate prevailing economic, business and, in some cases,
political conditions, including emerging markets risks and the impact of
currency devaluation on cross-border exposures, industry concentrations,
changes in the size and characteristics of the portfolio, recent loss
experience and other pertinent factors. Management judgment is involved at
many levels of these evaluations. An integral aspect of our risk management process is allocating the
reserve for credit losses to various components of the lending portfolio based
upon an analysis of risk characteristics, demonstrated losses, industry and
other segmentations, and other factors, as well as providing an appropriate
unallocated component. The unallocated component represents managements view
that, given the complexities of the lending portfolio and the assessment
process, including the inherent imprecision in the financial models used in the
loss forecasting process, there are estimable losses that have been incurred
but not


yet specifically identified, and as a result not fully provided for in
the allocated portion of the reserve. The unallocated component may change periodically after evaluating factors
impacting assumptions utilized in the allocated reserve calculation, such as
recent loss experience, industry concentrations, and the impact of current
economic conditions on historical or forecasted net credit losses. Although
the unallocated portion of the reserve is provided to absorb losses in excess
of the amounts allocated to specific lending categories, both allocated and
unallocated components are available to absorb losses in any lending category. For more information about the methodology used in the determination of
the reserve for credit losses, refer to the Financial Condition  Reserve for
Credit Losses section of this discussion and analysis. Principal Investing Securities Investments in private companies are generally accounted for using the cost
method and are carried in the consolidated balance sheet at cost less declines
in value deemed other than temporary. These investments do not trade on
established exchanges and, accordingly, their fair value is not readily
determinable. Gains and losses related to these investments are recorded in
capital markets revenue when they are sold or otherwise exchanged, or when
declines in value are deemed other than temporary. Certain equity investments
in private companies are accounted for using the equity method, with changes in
carrying value recognized currently in capital markets revenue. A
determination to use the equity method is generally based on the level of our
ownership interest and whether we have the ability to influence the operating
or financial decisions of the investee. Investments in public companies are carried at fair value, based on quoted
market prices, with unrealized gains and losses recorded, net of tax, as a
component of stockholders equity. When such investments are liquidated or
deemed impaired, gains and losses are recorded in capital markets revenue.
Investments in investment fund partnerships are accounted for under the equity
method of accounting, using financial information for the partnerships provided
by the respective investment fund managers, with changes in carrying value
recognized currently in capital markets revenue. Significant management judgment is involved in the evaluation of declines
in value of individual investments. Declines that are deemed other than
temporary are recognized currently in the income statement through write-downs
of the investments. The estimates and assumptions used by management to
evaluate declines in value can be impacted by many factors, such as the
financial condition, earnings capacity and near-term prospects of the company
in which we have invested and, for publicly-traded securities, the length of
time and the extent to which fair value has been less than cost. The
evaluation of these investments is also subject to the overall condition of the
economy and its impact on the capital markets. If sufficient evidence does not
exist to support a realizable value equal




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to or greater than the carrying value of the investment, an impairment loss is
recorded. For more information about our principal investing portfolio, refer to the
Capital Markets Revenue section of this discussion and analysis. Goodwill Goodwill, which arises from the purchase price exceeding the assigned value of
net assets of acquired businesses, represents the value attributable to
unidentifiable intangible elements being acquired. The majority of our
goodwill resulted from business acquisitions, and its value is inherent
primarily in our banking, credit card and asset management businesses. Of the
total goodwill included in our consolidated balance sheet, about 65% is
recorded in our Personal Financial Services business line; 26% in Commercial
Financial Services; 7% in Capital Markets; and 2% in International Banking. The value of this goodwill is supported ultimately by revenue from our
banking and credit card businesses and the market value of the assets under
management. A decline in earnings as a result of a lack of growth, or our
inability to deliver cost-effective services over sustained periods, could lead
to impairment of goodwill, which would be recorded as a writedown in our income
statement. On an annual basis, or as circumstances dictate, management reviews
goodwill and evaluates events or other developments that may indicate
impairment in the carrying amount. The evaluation methodology for potential
impairment is inherently complex, and involves significant management judgment
in the use of estimates and assumptions. We evaluate impairment using a two-step process. First, we compare the
aggregate fair value of the reporting unit to its carrying amount, including
goodwill. If the fair value exceeds the carrying amount, no impairment exists.
If the carrying amount of the reporting unit exceeds the fair value, then we
compare the implied fair value, defined below, of the reporting units
goodwill with its carrying amount. If the carrying amount of the goodwill
exceeds the implied fair value, then goodwill impairment is recognized by
writing the goodwill down to the implied fair value. We use quoted market prices where available to value the reporting unit
being evaluated for goodwill impairment. If not available, we estimate future
cash flows using present value techniques. These estimates involve many
assumptions, including expected results of the reporting unit, an assumed
discount rate and an assumed growth rate for the reporting unit. In some
cases, expected results are normalized to adjust for material nonrecurring
transactions if considered necessary for a more meaningful estimate. The
discount rate used is the rate used by FleetBoston in evaluating external
acquisitions. The implied fair value is determined by allocating the fair
value of the reporting unit to all of the assets and liabilities of that unit,
as if the unit had been acquired in a busi-


ness combination and the fair value
of the unit was the purchase price. Events that may indicate goodwill impairment include significant or
adverse changes in the business, economic or political climate; an adverse
action or assessment by a regulator; unanticipated competition; and a
more-likely-than-not expectation that a business of FleetBoston will be sold or
otherwise disposed of. More information about goodwill is included in Note 7 of the Notes to
Consolidated Financial Statements included under Item 8 of this Report. Income Taxes Our overall tax position is fundamentally complex, and management judgment is
involved in the analysis of income tax assets and liabilities. An integral
aspect of this analysis involves estimating the expected realization of
deferred tax assets and liabilities. Managements determination of the
likelihood that deferred tax assets can be realized is subjective, and involves
estimates and assumptions about matters that are inherently uncertain. The
realization of deferred tax assets, including foreign tax credits, arises from
carrybacks to prior taxable periods, levels of future taxable income, including
net foreign source income in certain periods, and the achievement of tax
planning strategies. Underlying estimates and assumptions can change over
time, influencing our overall tax positions, as a result of unanticipated
events or circumstances, in particular the level of foreign source earnings. Management continually monitors and evaluates the worldwide impact of tax
decisions, rulings and current developments on the estimates and assumptions
underlying our analysis of the expected realization of deferred tax assets and
valuation reserves. More information about our income taxes is included in
Note 16 of the Notes to Consolidated Financial Statements included under Item
8 of this Report. CONSOLIDATED RESULTS OF OPERATIONS Net Interest Income Year ended December 31
    
    2002
    
    2001
    
    2000FTE basisIn millionsInterest income
    
    $
    10,102
    
    
    $
    13,604
    
    
    $
    16,080Tax-equivalent
adjustment
    
    
    63
    
    
    
    57
    
    
    
    70Interest expense
    
    
    3,682
    
    
    
    6,317
    
    
    
    8,324Net interest income
    
    $
    6,483
    
    
    $
    7,344
    
    
    $
    7,826 Net interest income decreased $861 million, or 12%, compared to 2001, with $413
million of this decrease related to Argentina and $47 million related to
Brazil. The decrease in Argentina resulted mainly from a higher level of
nonperforming assets and changes in government policies which resulted in
higher funding costs. Such government policies included the
government-mandated rule change subjecting all deposits to inflation-related
indexation adjustments, which is more fully dis-




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cussed in the Country Risk section of this discussion and analysis. The
decline in Brazil was primarily due to our previously discussed risk reduction
actions. The remaining decrease in net interest income was primarily due to higher
levels of nonperforming assets and narrower spreads, continued weak loan
demand, our previously disclosed efforts to reduce non-strategic domestic
corporate exposures and the sale of our mortgage banking business in the second
quarter of 2001. Partially offsetting these declines was an increase in home
equity loans and domestic low-cost core deposits. Net Interest Margin and Interest Rate Spread Year ended December 31
    
    2002
    
    2001FTE basis
    
    Average
    
    
    
    
    
    AverageDollars in millions
    
    Balance
    
    Rate
    
    Balance
    
    RateSecurities
    
    $
    28,199
    
    
    
    5.10
    %
    
    $
    26,178
    
    
    
    6.66
    %Loans and leases:Domestic
    
    
    101,448
    
    
    
    6.63
    
    
    
    108,288
    
    
    
    7.87International
    
    
    18,484
    
    
    
    7.93
    
    
    
    20,504
    
    
    
    10.95Due from brokers/dealers
    
    
    3,937
    
    
    
    1.46
    
    
    
    4,099
    
    
    
    3.54Mortgages held for sale
    
    
    342
    
    
    
    6.31
    
    
    
    1,788
    
    
    
    7.26Other
    
    
    9,090
    
    
    
    5.01
    
    
    
    14,881
    
    
    
    5.85Total interest earning assets
    
    
    161,500
    
    
    
    6.29
    
    
    
    175,738
    
    
    
    7.77Deposits
    
    
    91,928
    
    
    
    2.25
    
    
    
    96,717
    
    
    
    3.62Short-term borrowings
    
    
    13,949
    
    
    
    2.99
    
    
    
    19,845
    
    
    
    5.25Due to brokers/dealers
    
    
    3,896
    
    
    
    1.18
    
    
    
    3,849
    
    
    
    3.84Long-term debt
    
    
    22,658
    
    
    
    5.06
    
    
    
    27,945
    
    
    
    5.81Interest bearing liabilities
    
    
    132,431
    
    
    
    2.78
    
    
    
    148,356
    
    
    
    4.26Interest rate spread
    
    
    
    
    
    
    3.51
    
    
    
    
    
    
    
    3.51Interest-free sources of funds
    
    
    29,069
    
    
    
    
    
    
    
    27,382Total sources of funds
    
    $
    161,500
    
    
    
    2.28
    %
    
    $
    175,738
    
    
    
    3.59
    %Net interest margin
    
    
    
    
    
    
    4.01
    %
    
    
    
    
    
    
    4.18
    % Net interest margin represents the relationship between net interest income and
average earning assets. Changes in the components of interest earning assets,
as well as interest bearing liabilities, are discussed in more detail below.
Net interest margin for 2002 declined 17 basis points to 4.01%, compared to
4.18% in 2001, with 16 basis points of this decrease related to Latin America,
primarily Argentina. Excluding Argentina, net interest margin was fairly flat
compared to 2001, as an increase in the level of nonperforming loans and a
change in asset mix were offset by the favorable impact of growth in low-cost
core deposits. Net interest margin is affected by several factors, including fluctuations
in the overall interest rate environment, funding strategies, and the mix of
interest earning assets, interest bearing liabilities and noninterest bearing
liabilities, as well as the use of derivative instruments in managing interest
rate risk. We utilize derivative instruments which qualify for hedge
accounting as an interest rate risk management tool. These derivatives serve
to stabilize net interest income and net interest margin when interest rates
fluctuate. Accordingly, the impact of derivatives on net interest income and
net interest margin should be viewed in the overall context of our risk
management strategy. For 2002 and 2001, net interest margin would have been
approximately 3.45% and 4.13%, respectively, if hedges were not entered into to
mitigate interest rate fluctuations. More information about our use of
derivative instruments to manage interest rate risk is


included in the Market
Risk Management section of this discussion and analysis, and in Note 13 of the
Notes to Consolidated Financial Statements included under Item 8 of this
Report. Average securities increased $2 billion to $28.2 billion due to net
purchases of domestic debt securities throughout 2002. Average domestic loans and leases decreased $6.8 billion to $101.4 billion
in 2002, as a result of lower average commercial and industrial, or C&I, loan
levels resulting from weaker loan demand combined with our targeted reduction
of non-strategic domestic corporate exposures. Also contributing to this
decline were higher charge-offs and a decrease in average residential loans due
to loan run-off. Partially offsetting these declines were increases in average
home equity loans, due to the low interest rate environment, and credit card
receivables. Average international loans and leases decreased
$2 billion, primarily due to the devaluation of the Argentine peso, as well as
our continuing efforts to reduce risk exposures in Latin America. Average other interest earning assets decreased
$5.8 billion to $9.1 billion in 2002, primarily due to a decrease in average
federal funds sold and securities purchased under agreements to resell, partly
the result of a shift in our earning asset mix resulting from an increase in
home equity loans. The $4.8 billion decrease in average interest bearing deposits from 2001
was primarily the result of the pesofication and devaluation of the local
currency in Argentina, coupled with maturities of domestic time deposits.
These declines were partially offset by growth in average domestic low-cost
core deposits. Average short-term borrowings decreased $5.9 billion to $13.9 billion in
2002, due to lower short-term borrowing needs resulting from the overall
reduction in average loans and growth in domestic low-cost core deposits. Average long-term debt decreased $5.3 billion to $22.7 billion in 2002,
primarily due to net maturities of senior notes throughout 2002, partially
offset by the issuance of trust preferred securities. Provision for Credit Losses The provision for credit losses for 2002 amounted to $2.8 billion compared to
$2.3 billion for 2001. The 2002 provision primarily reflected the impact of
continued weakness in the U.S. economy on domestic commercial credit, as well
as economic conditions in Latin America. The provision for credit losses reflects managements assessment of the
adequacy of the reserve for credit losses, considering the current risk
characteristics of the lending portfolio and economic conditions. Levels of
future provisions will continue to be a function of managements assessment of
credit risk based upon periodic reviews of the reserve for credit losses,
including assessments of the potential impact of domestic economic conditions
and the difficult operating environment in Latin America.




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As a result of our lending to corporate borrowers, we are significantly
impacted by the depressed portions of the economic cycle. The domestic
commercial credit environment remains stressed, and therefore the level of
future provisions cannot be determined with certainty. In April 2002, we
announced that we would reduce our credit exposure to targeted, non-strategic
areas of corporate lending by approximately $10 billion, of which 30% consisted
of funded credits. We completed that reduction effort during the fourth
quarter of 2002, and we anticipate further reductions in exposure in 2003.
Additional information about commercial credit and the reserve for credit
losses can be found in the Loans and Leases and Reserve for Credit Losses
sections of this discussion and analysis, respectively. Information about
Latin America is included in the Country Risk section of this discussion and
analysis.
 Noninterest Income Year ended December 31
    
    2002
    
    2001
    
    2000In millionsInvestment services revenue
    
    $
    1,559
    
    
    $
    1,349
    
    
    $
    1,534Banking fees and commissions
    
    
    1,533
    
    
    
    1,577
    
    
    
    1,588Credit card revenue
    
    
    785
    
    
    
    757
    
    
    
    738Capital markets revenue
    
    
    462
    
    
    
    (148
    )
    
    
    1,791Gains from merger-related
branch divestitures
    
    
    
    
    
    
    430
    
    
    
    843Other
    
    
    697
    
    
    
    590
    
    
    
    1,065Total noninterest income
    
    $
    5,036
    
    
    $
    4,555
    
    
    $
    7,559 Noninterest income increased $481 million, or 11%, in 2002, reflecting
improvements in investment services revenues, mainly the result of the fourth
quarter 2001 Liberty acquisition, and capital markets revenues, the result of a
lower level of investment writedowns in our principal investing portfolio
(approximately $360 million in 2002 compared to $1.1 billion in 2001). In
addition, we recorded net securities gains of $6 million in 2002 compared to
net losses of $275 million in 2001. Partially offsetting these improvements
was the absence of $430 million of branch divestiture gains and a $146 million
gain from the sale of our investment in the NYCE Corporation, both recorded in
2001, as well as the absence of $107 million of revenue recorded in the first
half of 2001 from our mortgage banking business, which we sold in June 2001. Investment Services Revenue Year ended December 31
    
    2002
    
    2001
    
    2000In millionsInvestment management revenue
    
    $
    1,092
    
    
    $
    901
    
    
    $
    935Brokerage fees and commissions
    
    
    467
    
    
    
    448
    
    
    
    599Total investment services revenue
    
    $
    1,559
    
    
    $
    1,349
    
    
    $
    1,534 Investment Management Revenue Year ended December 31
    
    2002
    
    2001
    
    2000In millionsColumbia Management Group
    
    $
    671
    
    
    $
    380
    
    
    $
    356Private Clients Group
    
    
    322
    
    
    
    371
    
    
    
    406International
    
    
    85
    
    
    
    139
    
    
    
    161Other
    
    
    14
    
    
    
    11
    
    
    
    12Total investment management revenue
    
    $
    1,092
    
    
    $
    901
    
    
    $
    935


Investment management revenue increased $191 million, or 21%, primarily due to
the acquisition of Liberty in November 2001, included in Columbia Management
Group in the table above. Partially offsetting this increase was a decline in
fees from domestic assets under management, due to lower market valuations, and
lower international revenues due to the economic difficulties experienced in
Argentina and Brazil. At December 31, 2002, total domestic and international
assets under management were approximately $148 billion compared to $174
billion at December 31, 2001. Brokerage Fees and Commissions Brokerage fees and commissions increased $19 million, or 4%, compared to 2001,
due primarily to higher sales of specialty mutual fund and annuity products at
Quick & Reilly, which is transitioning into an advisory-based business. Growth
in these product sales helped offset lower retail brokerage fees and
commissions resulting from the continued weak market conditions. Banking Fees and Commissions Year ended December 31
    
    2002
    
    2001
    
    2000In millionsCash management fees
    
    $
    460
    
    
    $
    375
    
    
    $
    300Deposit account charges
    
    
    414
    
    
    
    483
    
    
    
    608Electronic banking fees
    
    
    267
    
    
    
    249
    
    
    
    223Other
    
    
    392
    
    
    
    470
    
    
    
    457Total banking fees and
commissions
    
    $
    1,533
    
    
    $
    1,577
    
    
    $
    1,588 Banking fees and commissions declined $44 million from 2001, and mainly
reflected declines in Argentina as the currency devaluation impacted deposit
account charges and other fees, as well as declines in Brazil. Excluding
decreases from Argentina and Brazil, banking fees and commissions increased $57
million from 2001. This increase was primarily due to higher cash management
fees reflecting growth in sales from cross-selling, and higher electronic
banking fees. These increases were partially offset by declines related to a
change in fee structure in line with our customer-focused strategy. Credit Card Revenue Credit card revenue increased $28 million from 2001 to $785 million in 2002,
mainly the result of higher interchange income driven by increased sales volume
and a pre-tax gain of $77 million in 2002 from the sale of credit card
receivables unrelated to securitization activities, compared to a pre-tax gain
of $39 million in 2001. These revenues were partially offset by amortization
of a higher level of deferred loan origination costs. We service approximately $16.3 billion of managed (both securitized and
owned) domestic credit card receivables. The primary components of credit card
revenue associated with the securitized portion of the portfolio include gains
on sale and servicing revenue. The primary components of credit card revenue
associated with the owned portion of the portfolio include net interest in-




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##### Table of Contents





come, interchange fees and complementary product revenues, offset by the
provision for credit losses and amortization of deferred loan origination
costs. The securitization of credit card receivables changes our status from that
of a lender to that of a loan servicer. Accordingly, there is a change in the
classification of revenue associated with the securitized receivables when
reported in the income statement. We do not record net interest income or
provisions for credit losses on securitized receivables, since we do not own
the balances. Instead, interest and fees earned on the receivables, net of
credit losses, are transferred to the securitization trust, which is
responsible for the payment of funding costs. We retain a contractual right to
residual cash flows and calculate a gain on sale based on the present value of
those cash flows over time. In future periods, the excess cash flows
transferred to FleetBoston are recorded as a reduction in the carrying value of
our retained residual interest. For 2002, as a result of the securitization of credit card receivables, we
recorded securitization income, primarily composed of gains on sale of $245
million and servicing income of $187 million, in credit card revenue. For
2001, as a result of the securitization of credit card receivables, we recorded
securitization income, primarily composed of gains on sale of $182 million and
servicing income of $177 million, in credit card revenue. The gains on sale
were recognized on new credit card securitizations and replenishment of
revolving credit card securitization pools. Future revenues from securitization activities may vary depending upon the
credit performance of the receivables supporting the securitization, because
credit losses are a component of the gain on sale calculation associated with
those securitized receivables. Additional information concerning our credit card securitization
activities is included in the Liquidity Risk Management section of this
discussion and analysis and in Note 17 of the Notes to Consolidated Financial
Statements included under Item 8 of this Report. Capital Markets Revenue Year ended December 31
    
    2002
    
    2001
    
    2000In millionsMarket-making revenue
    
    $
    271
    
    
    $
    291
    
    
    $
    261Syndication/agency fees
    
    
    138
    
    
    
    169
    
    
    
    185Trading profits and commissions
    
    
    127
    
    
    
    187
    
    
    
    196Foreign exchange revenue
    
    
    59
    
    
    
    239
    
    
    
    196Underwriting and advisory fees
    
    
    50
    
    
    
    41
    
    
    
    46Securities gains/(losses)
    
    
    6
    
    
    
    (275
    )
    
    
    13Principal investing
    
    
    (189
    )
    
    
    (800
    )
    
    
    894Total capital markets revenue
    
    $
    462
    
    
    $
    (148
    )
    
    $
    1,791 Capital markets revenue increased $610 million in 2002 compared to 2001. This
increase was driven by lower levels of investment writedowns in the principal
investing portfolio and an improvement in the level of securities gains/losses
in 2002. These improvements were offset by a decline in foreign exchange
revenue, partly due to the release of Argentine deposits previously frozen by
judicial decrees, as well as the absence of the previously men-


tioned $146
million gain from the sale of our investment in the NYCE Corporation. Revenues
from capital markets activities are impacted by a variety of factors, including
investor sentiment, the condition of the economy, interest rates and equity
markets. Market-making revenue decreased $20 million, or 7%, to $271 million in
2002. Although transaction volume increased at Fleet Specialist in 2002,
average trade size and average price per share decreased as a result of market
conditions, which in turn resulted in lower revenues per trade. Syndication/agency fees declined $31 million to
$138 million for 2002, as a result of lower syndication volume during 2002.
Such fees are a function of the timing and level of syndication transactions,
which were generally lower in 2002 due to market conditions. Trading profits and commissions declined $60 million, or 32%, mainly due
to a charge recorded in the fourth quarter of 2002 for an Enron-related
financing. Foreign exchange revenue decreased $180 million, or 75%, from 2001,
due, in part, to unfavorable Argentine government-related actions, as mentioned
above. Net securities gains of $6 million in 2002 resulted mainly from gains on
sales of domestic debt securities, offset mostly by losses attributable to
Argentina, as well as losses in the Brazilian securities portfolio resulting
from portfolio repositioning. The 2001 net securities loss of $275 million
included a $265 million loss on sale of securities following the Summit
acquisition as well as writedowns of the Argentine government bond portfolio,
partially offset by gains from sales of domestic corporate bonds. Principal investing losses were lower in 2002 compared to 2001, mainly due
to lower levels of investment portfolio writedowns (approximately $360 million
in 2002 compared to $1.1 billion in 2001), partially offset by the previously
mentioned $146 million gain from the sale of our investment in the NYCE
Corporation in 2001. Of the total investment writedowns recorded in 2002, 54% were related to
investments in private companies, 35% were related to investments in investment
fund partnerships and 11% were related to investments in public companies.
Approximately 54% of the aggregate public and private investment writedowns
related to the technology and telecommunications sectors. The carrying values
of these investments are subject to the overall condition of the economy and
its impact on the equity markets. Over the past two years, private equity investing has experienced
significant illiquidity and impairment in value as a result of deterioration in
financial markets and continued weakness in the U.S. economy. Certain industry
sectors have been particularly impacted by these conditions, including
technology and telecommunications. As a result of our investment in these
industry sectors, as well as the manufacturing and distribution, retailing, and
media and entertainment sectors, we expect the principal investing portfolio to
continue to experience stress. We will continue our previously disclosed
efforts to reduce our overall principal investing exposure.




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During 2002, we made new investments totaling $530 million ($37 million of
new investments and $493 million of previously committed investments), compared
to $775 million ($218 million of new investments and $557 million of previously
committed investments) in 2001. As of December 31, 2002, we had unfunded
commitments to invest in funds totaling approximately $1.6 billion. These
commitments are drawn down periodically throughout the life of the respective
investment fund partnership. The principal investing portfolio had an
aggregate carrying value of approximately $3.4 billion at December 31, 2002,
compared to $3.6 billion at December 31, 2001. The following table presents an industry breakdown of our investments in
public and private companies and primary investment fund partnerships, which
accounted for approximately $3.1 billion of the $3.4 billion aggregate carrying
value of the principal investing portfolio at December 31, 2002. The industry
breakdown for the investments in investment fund partnerships is based on
information for the individual investments provided by the various funds, and
is one to two quarters in arrears. Portfolio Diversification December 31, 2002
    
    
    
    
    
    Percentage ofPercentage of
    
    total investmentstotal investments
    
    in primaryin public and
    
    investment fundprivate companies
    
    partnershipsManufacturing and distribution
    
    
    26
    %
    
    
    21
    %Consumer/retail
    
    
    22
    
    
    
    10Communication
    
    
    12
    
    
    
    9Information technology
    
    
    11
    
    
    
    10Healthcare
    
    
    7
    
    
    
    9Media/entertainment
    
    
    7
    
    
    
    11Financial services
    
    
    6
    
    
    
    7General services
    
    
    5
    
    
    
    12Real estate
    
    
    3
    
    
    
    7Energy
    
    
    1
    
    
    
    2Other
    
    
    
    
    
    
    2Total
    
    
    100
    %
    
    
    100
    % Approximately 82% of our aggregate investment in public and private companies
is invested domestically, with the remainder invested overseas, primarily in
Europe. In addition, approximately 47% of the portfolio has been held for
three years or less, with an additional 33% held between four and five years. We utilize a variety of tools and processes to manage risk within our
principal investing portfolio. These tools include a stringent evaluation and
approval process for individual investments, portfolio diversification
guidelines, risk rating systems, and portfolio monitoring processes which
include procedures for identifying troubled investments and taking appropriate
action. With respect to diversification, we have established portfolio
guidelines for stage of investment (seed, early or later stage), geographic
concentration and industry concentration. These guidelines are reviewed for
compliance on a regular basis. An eight-level rating system is used to rate
investment quality, and valuations and investment ratings are changed as
company-specific facts and circumstances


dictate. In addition, all investments are reviewed at least quarterly. To further manage risk within the principal investing portfolio, we
utilize derivative contracts to offset foreign currency exposure resulting from
certain investments that are denominated in a foreign currency.
Publicly-traded investments are generally liquidated within a six-month period
after expiration of trading restrictions unless such action is not practical.
When publicly-traded securities are received as distributions from investment
fund partnerships, these securities are liquidated as soon as possible. Other Noninterest Income Gains on branch divestitures of $430 million were recorded in 2001 in
connection with the BankBoston merger. Other noninterest income of $697 million in 2002 was $107 million, or 18%,
higher than 2001. This increase resulted from the absence of a $200 million
charge recorded in the fourth quarter of 2001 related to the estimated impact
of Argentine government actions with respect to our Argentine operations,
partially offset by the absence of $107 million of revenues recorded in the
first half of 2001 from our mortgage banking business, which we sold in June
2001. Excluding these items in 2001, noninterest income increased $14 million
compared to 2001. Noninterest Expense Year ended December 31
    
    2002
    
    2001
    
    2000In millionsEmployee compensation and benefits
    
    $
    3,255
    
    
    $
    3,626
    
    
    $
    4,030Occupancy and equipment
    
    
    982
    
    
    
    1,040
    
    
    
    1,113Marketing and public relations
    
    
    225
    
    
    
    233
    
    
    
    281Legal and other professional
    
    
    175
    
    
    
    216
    
    
    
    321Intangible asset amortization
    
    
    93
    
    
    
    381
    
    
    
    377Merger- and restructuring-related charges
    
    
    71
    
    
    
    549
    
    
    
    89Other
    
    
    1,603
    
    
    
    1,932
    
    
    
    1,889Total noninterest expense
    
    $
    6,404
    
    
    $
    7,977
    
    
    $
    8,100 Noninterest expense decreased $1.6 billion, or 20%, compared to 2001. This
decrease was primarily due to a $478 million decline in merger and
restructuring costs; the absence of the $428 million loss from the 2001 sale of
our mortgage banking business; lower incentive compensation levels; the
discontinuance of goodwill amortization beginning January 1, 2002 in connection
with our adoption of the new goodwill accounting standard; and full-year cost
savings realized in 2002 from our corporate-wide expense containment program
implemented in 2001. In 2002, we recorded $71 million of restructuring charges, composed of
severance and outplacement costs, in connection with our plan for a modest
streamlining of operations. We expect this action to result in expense
reductions of approximately $100 million in 2003. 2001 merger- and
restructuring-related charges of $549 million related mainly to the Summit
acquisition and the reorganization of capital markets and other businesses.
Additional information concerning these charges is included in




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Note 15 of the Notes to Consolidated Financial Statements included under Item
8 of this Report. In 2002, we adopted the fair value accounting provisions of SFAS No. 123,
Accounting for Stock-Based Compensation, for stock options granted after
January 1, 2002. In accordance with the standard, options granted prior to
January 1, 2002 will continue to be accounted for under APB Opinion No. 25,
Accounting for Stock Issued to Employees, with no compensation expense
recognized. As a result of our adoption of fair value accounting, we recorded
approximately $6 million of employee compensation and benefits expense in 2002. Additional information concerning stock-based compensation is included in
Note 1 of the Notes to Consolidated Financial Statements included under Item
8 of this Report. As a result of our election to account for adoption of the
fair value accounting provisions of SFAS No. 123 under the prospective method,
employee compensation and benefits expense related to stock options is expected
to increase from $6 million for 2002 to approximately $16 million for 2003.
Beyond 2003, additional increases in expense, if any, cannot be reliably
estimated, as they will depend on the number and type of awards granted, as
well as future economic conditions related to our stock price and related
volatility, our dividend yield, risk free interest rates and other factors. Given the performance of investment markets over the past few years and
the related implications for long-term trends, for financial accounting
purposes we will reduce our assumption for expected long-term rate of return on
pension plan assets from 9.25%, used in 2002, to 8.00% for 2003. In addition,
based on market yields at December 31, 2002, the discount rate will be reduced
from 7.00%, used in 2002, to 6.50%. We anticipate that the combined impact of
these two assumption changes along with plan experience, including recent
investment losses, will result in additional noninterest expense of
$30 million to $50 million per year for the next three years. These
assumptions and projected expense levels are based on pension asset and
obligation levels as of
December 31, 2002. Notwithstanding these changes, for cash funding purposes,
the minimum required contribution for 2003 is expected to be zero. Additional
information about our pension plan, including funded status, is included in
Note 14 of the Notes to Consolidated Financial Statements included under Item
8 of this Report. Income Taxes We recorded income tax expense of $768 million for 2002 compared to $573
million for 2001, with respective effective tax rates of 33.5% in 2002 and
37.2% in 2001. The higher 2001 effective tax rate reflected the effect of
nondeductible merger- and restructuring-related charges recorded in connection
with the Summit acquisition. The effective tax rate for 2002 was reduced by
the impact of eliminating goodwill amortization in accordance with SFAS No.
142, as well as tax credits and other items, on a lower pre-tax income level.
More information about our income taxes is included in Note 16 of the


Notes
to Consolidated Financial Statements included under Item 8 of this Report. FINANCIAL CONDITION Risk Management Our business requires us to take risks while ensuring that we receive adequate
compensation for the risks undertaken. Management of the risks inherent in our
businesses is essential for financial performance and creating long-term value.
Risk management is governed by policies reviewed and approved annually by our
Board of Directors, or Board. The goal of risk management is the control of
our four primary risk factors  credit risk, market risk, operating risk and
liquidity risk  to support the prudent use of capital. These risks, if not
effectively managed, can result in current losses to FleetBoston as well as
erosion of our capital and damage to our reputation. We have a series of risk
processes to identify the extent of risk involved in a business activity, to
establish appropriate controls and to monitor compliance with our risk
mitigation strategies. Risk management techniques are structured around certain fundamental risk
principles, including commitment from senior level management; business unit
ownership; clearly defined policies and procedures; training; independent
oversight; established approval processes; management information systems,
measurement and analytical tools; and capital allocation and performance
evaluation processes. These processes assist us in managing our risk
exposures, but they cannot fully insulate us from losses. Despite best
efforts, losses will periodically occur, particularly with respect to credit
risk during any part of the credit cycle, and with respect to other risk
factors, when unanticipated events challenge the limits of risk management
processes. Consequently, we continue to seek improvements to our risk
management process to better balance risks and returns while operating in a
dynamic environment. In response to the risks inherent in the financial services industry, we
have organized our key areas of risk management into two control
infrastructures. Management of credit risk, market risk from trading
activities and operating risk is organized under the Chief Risk Officer, or
CRO, who is a member of the Office of the Chief Executive Officer, or OCEO.
The CRO has administrative oversight for our global assurance
functions 
Audit, Corporate Compliance and Risk Review  which monitor internal control,
credit risk rating integrity and compliance with regulatory requirements and
various operating risk policies. The Audit and Corporate Compliance functions
report directly to the Audit Committee of the Board, and Risk Review reports
directly to the Risk Management Committee of the Board. Management of
liquidity risk, market risk from non-trading activities and capital is
organized under our Treasurer, who reports directly to the Vice Chairman and
Chief Administrative Officer.




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We use a series of cross-functional committees to provide oversight of our
risk management processes. The Asset, Liability, Capital & Credit Committee, or ALCCCO, is the most senior
committee, and is chaired by our Treasurer, with membership including various
members of the OCEO and senior business and staff executives. ALCCCO is a
strategic business and risk management forum that directs utilization of our
balance sheet resources and assures consistency across tactical and technical
committees. ALCCCO reviews and approves all major market risk, liquidity risk,
and capital management programs. In addition, ALCCCO sets the balance sheet
utilization limits for credit exposure concentration across FleetBoston. Tactical and technical committees chaired by the CRO or various senior
executives within Risk Management include: the Credit Policy Committee, or
CPC, the Market Risk Committee, the Loan Loss Reserve Committee, the Country
Exposure Committee, the Consumer Risk Committee and the Operating Risk
Committee. There is also a joint Risk Management and line of business
committee called the Portfolio Management Committee, or PMC, which is
co-chaired by the CRO and the President and Chief Operating Officer. The PMC
is charged with implementing ALCCCOs strategic directives relating to credit
portfolio risk. Additional information on certain of our risk management
processes and certain of the above-mentioned committees is included in the
Credit Risk Management, Country Risk, Liquidity Risk Management, Market Risk
Management and Operating Risk Management sections of this discussion and
analysis. Information concerning our management of risk inherent in our
principal investing portfolio is included in the Capital Markets Revenue
section of this discussion and analysis. Credit Risk Management Credit risk is defined as the risk of loss arising from a counterpartys
failure or inability to meet payment or performance terms of a contract with
FleetBoston. Our credit risk management processes are intended to address the
management of all forms of credit risk, including balance sheet and off-balance
sheet exposures. The PMC oversees FleetBostons portfolio composition and
trends, determining adjustments to optimize risk and return in accordance with
strategies approved by ALCCCO. The CPC governs the credit risk process of
FleetBoston by ensuring that risk tolerances for specific lines of business and
market segments are consistent with corporate strategy and capital allocations
set by the PMC. The CPC establishes house, product, industry and geographic
limits and approves limit changes as required. In addition, the CPC reviews
all existing and proposed credit policies for consistency with corporate policy
and appropriateness of risks taken by the lines of business.


An independent credit function monitors compliance by individual units
with our credit policies, works to ensure that credit due diligence and credit
administration meet acceptable standards, and is jointly responsible, along
with the business units, for the effectiveness of the loan review process. The
credit function includes a staff of credit officers reporting directly to the
Chief Credit Officer, or CCO. These credit officers are assigned to work
with the various business units to ensure that each individual credit exposure
is appropriately risk rated, and to monitor and manage credit risks within
policy and portfolio guidelines. A risk review unit, which reports
independently of both the business and credit units, assesses the integrity of
risk ratings and the adequacy of the credit process for all units of
FleetBoston. Senior management oversees our worldwide credit activities, both
corporate and consumer. The level of management required to approve credit
exposures varies according to the size and level of perceived risk. An important aspect of our portfolio management process is the management
of large, individual credits, which are governed by relationship limits that
are set according to risk rating. Portfolio limits are approved by ALCCCO, and
underwriting standards are established by the CPC, for both commercial and
consumer credit exposures with common risk characteristics, such as industry or
product type. The CPC establishes target risk rating profiles for FleetBoston
in accordance with strategies and capital allocations set by ALCCCO and the
PMC. All limits are reviewed regularly and adjusted based on ALCCCOs
assessment of relevant conditions. In addition, the Country Exposure
Committee, chaired by the CCO, sets country limits on cross-border exposures to
borrowers and counterparties domiciled in other countries. These limits, which
are subject to approval of the President and Chief Operating Officer, are more
fully discussed in the Country Risk section of this discussion and analysis. Our Credit Capital Management unit, which reports to the CRO, plays an
integral role in portfolio management by enhancing the liquidity and diversity
of the loan portfolio while reducing and re-balancing risk exposure. Our Loan Syndications unit, which is part of Commercial Financial
Services, is also important to our portfolio management process. This unit,
which is responsible for arranging participations in loans where FleetBoston is
the lead bank, maintains contact with other institutional lenders and investors
in bank-structured loans, maintains information on credit structure and pricing
by risk category, evaluates the market liquidity of facilities,
and syndicates FleetBoston-agented facilities to attain desired hold levels. We employ a corporate-wide process to review individual credits and
identify emerging problems. Credits that deteriorate into certain defined risk
categories are managed by a separate managed asset unit composed of
professional asset recovery specialists who establish detailed asset management
plans designed to mitigate our risk of loss.




23



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##### Table of Contents





Consumer credit risk management uses sophisticated portfolio modeling,
credit scoring and decision support tools to project credit risk and therefore
to establish underwriting standards. Consumer


portfolios are monitored
closely to identify deviations from expected performance and shifts in consumers
patterns of behavior.




Loans and Leases

The following table presents a breakdown of the loan and lease portfolio for
the past five year-ends.

|                       |                           |                                      |         |        |         |      |         |        |         |      |         |        |         |   |         |        |         |   |         |        |         | 
|---------------------- | ------------------------- | ------------------------------------ | ------- | ------ | ------- | ---- | ------- | ------ | ------- | ---- | ------- | ------ | ------- | - | ------- | ------ | ------- | - | ------- | ------ | ------- | 
|                      
|December 31            |                           | 2002                                 |         | 2001   |         | 2000 |         | 1999   |         | 1998
|In millions            |                           |                                      |         |        |         |      |         |        |         |     
|                      
|Domestic:              |                           |                                      |         |        |         |      |         |        |         |      |         |        |         |   |         |        |         |   |         |       
|                       | Commercial and industrial |                                      | $       | 39,359 |         |      | $       | 48,486 |         |      | $       | 56,147 |         |   | $       | 63,035 |         |   | $       | 61,296 |        
|                       | Commercial real estate    |                                      |         | 11,001 |         |      |         | 11,517 |         |      |         | 11,641 |         |   |         | 11,119 |         |   |         | 11,064 |        
|                       | Consumer                  |                                      |         | 43,168 |         |      |         | 32,225 |         |      |         | 36,045 |         |   |         | 42,239 |         |   |         | 40,466 |        
|                       | Lease financing           |                                      |         | 11,199 |         |      |         | 12,370 |         |      |         | 11,813 |         |   |         | 9,933  |         |   |         | 5,092  |        
|                      
|                       |                           | Total domestic loans and leases      |         |        | 104,727 |      |         |        | 104,598 |      |         |        | 115,646 |   |         |        | 126,326 |   |         |        | 117,918 | 
|                      
|International:         |                           |                                      |         |        |         |      |         |        |         |      |         |        |         |   |         |        |         |   |         |       
|                       | Commercial(a)             |                                      |         | 11,469 |         |      |         | 16,640 |         |      |         | 13,090 |         |   |         | 10,933 |         |   |         | 10,095 |        
|                       | Consumer                  |                                      |         | 1,005  |         |      |         | 2,776  |         |      |         | 2,935  |         |   |         | 2,898  |         |   |         | 2,806  |        
|                       | Lease financing           |                                      |         | 3,179  |         |      |         | 2,974  |         |      |         | 2,160  |         |   |         | 2,047  |         |   |         | 1,607  |        
|                      
|                       |                           | Total international loans and leases |         |        | 15,653  |      |         |        | 22,390  |      |         |        | 18,185  |   |         |        | 15,878  |   |         |        | 14,508  | 
|                      
|Total loans and leases |                           | $                                    | 120,380 |        |         | $    | 126,988 |        |         | $    | 133,831 |        |         | $ | 142,204 |        |         | $ | 132,426 |       
|                      

|(a) |  | Includes commercial real estate loans, which are not significant.
|--- |  | -----------------------------------------------------------------



Commercial Loans Domestic C&I and commercial real estate, or CRE, loans approximated $50.4
billion at December 31, 2002 compared to $60.0 billion at December 31, 2001, a
decrease of $9.6 billion, or 16%. This decline was composed of a $9.1 billion
decrease in C&I loans and a
$.5 billion decrease in CRE loans. The decrease in C&I loans was mainly
attributable to lower business volume as a result of continued weak loan
demand, our previously disclosed targeted, non-strategic corporate exposure
reductions, $1.6 billion of charge-offs and a $1 billion commercial loan
securitization transaction. More information about the securitization
transaction is included in Note 17 of the Notes to Consolidated Financial
Statements included under Item 8 of this Report.


International commercial loans totaled $11.5 billion at December 31, 2002
compared to $16.6 billion at December 31, 2001, a decrease of $5.2 billion, or
31%. This decline was primarily due to the impact of the Argentine peso
devaluation on the U.S. dollar carrying value of Argentine loans and a decline
in Brazilian commercial loans, the latter mainly the result of loan maturities
that were not renewed, in connection with our Brazilian exposure reduction
efforts. The following tables present domestic and international C&I exposure, loan
outstandings and related nonperforming loans, or NPLs, at December 31, 2002
and December 31, 2001, to the ten most significant industry sectors based on
total consolidated exposure at December 31, 2002. These amounts are composed
of domestic C&I and international commercial loans presented in the Loans and
Leases table above, excluding $64 million and $363 million of international
commercial real estate loans at December 31, 2002 and 2001, respectively.




|                                           |                                          |                   |         |                   |  |             |       |             |  |         |        |             |  |   |         |       |  |   |       |     |  |   |        |       | 
|------------------------------------------ | ---------------------------------------- | ----------------- | ------- | ----------------- |  | ----------- | ----- | ----------- |  | ------- | ------ | ----------- |  | - | ------- | ----- |  | - | ----- | --- |  | - | ------ | ----- | 
|                                          
|Domestic                                   |                                          | December 31, 2002 |         | December 31, 2001
|                                           |                                          |                   |         |                  
|                                           |                                          | Total             |         |                   |  |             |       |             |  |         |        | Total       |  |   |         |       |  |   |       |    
|In millions                                |                                          | Exposure(a)       |         | NPLs(b)           |  | Outstanding |       | Exposure(a) |  | NPLs(b) |        | Outstanding
|                                          
|Retailing                                  |                                          | $                 | 9,181   |                   |  | $           | 13    |             |  | $       | 2,115  |             |  | $ | 9,688   |       |  | $ | 123   |     |  | $ | 2,656  |      
|Energy production and distribution:        |                                          |                   |         |                   |  |             |       |             |  |         |        |             |  |   |         |       |  |   |       |     |  |   |        |      
|                                           | Merchant energy                          |                   |         | 936               |  |             |       | 150         |  |         |        | 683         |  |   |         | 1,162 |  |   |       | 178 |  |   |        | 596   | 
|                                           | Other energy production and distribution |                   |         | 6,681             |  |             |       | 22          |  |         |        | 1,804       |  |   |         | 8,331 |  |   |       | 21  |  |   |        | 2,172 | 
|Media:                                     |                                          |                   |         |                   |  |             |       |             |  |         |        |             |  |   |         |       |  |   |       |     |  |   |        |      
|                                           | Cable television                         |                   |         | 2,164             |  |             |       | 159         |  |         |        | 1,354       |  |   |         | 2,266 |  |   |       | 10  |  |   |        | 1,202 | 
|                                           | Other media                              |                   |         | 5,481             |  |             |       | 37          |  |         |        | 2,216       |  |   |         | 5,649 |  |   |       | 59  |  |   |        | 2,381 | 
|Financial services                         |                                          |                   | 8,126   |                   |  |             | 12    |             |  |         | 1,253  |             |  |   | 12,148  |       |  |   | 14    |     |  |   | 1,702  |      
|Insurance                                  |                                          |                   | 6,473   |                   |  |             |      |             |  |         | 381    |             |  |   | 6,222   |       |  |   | 8     |     |  |   | 729    |      
|Technology                                 |                                          |                   | 5,536   |                   |  |             | 75    |             |  |         | 1,556  |             |  |   | 6,972   |       |  |   | 42    |     |  |   | 2,191  |      
|Business services                          |                                          |                   | 4,711   |                   |  |             | 134   |             |  |         | 2,088  |             |  |   | 5,341   |       |  |   | 213   |     |  |   | 2,427  |      
|Banking and finance                        |                                          |                   | 4,349   |                   |  |             | 26    |             |  |         | 1,002  |             |  |   | 5,555   |       |  |   | 4     |     |  |   | 1,726  |      
|Healthcare services                        |                                          |                   | 4,713   |                   |  |             | 16    |             |  |         | 1,836  |             |  |   | 4,608   |       |  |   | 29    |     |  |   | 2,022  |      
|Transportation and transportation services |                                          |                   | 4,172   |                   |  |             | 100   |             |  |         | 1,691  |             |  |   | 5,554   |       |  |   | 61    |     |  |   | 2,418  |      
|Other(c)                                   |                                          |                   | 49,421  |                   |  |             | 565   |             |  |         | 21,380 |             |  |   | 55,617  |       |  |   | 541   |     |  |   | 26,264 |      
|                                          
|Total                                      |                                          | $                 | 111,944 |                   |  | $           | 1,309 |             |  | $       | 39,359 |             |  | $ | 129,113 |       |  | $ | 1,303 |     |  | $ | 48,486 |      
|                                          

Refer to the following table for footnote information.


24



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##### Table of Contents



|                                           |                                          |                   |        |                   |  |             |       |             |  |         |        |             |  |   |        |       |  |   |     |   |  |   |        |       | 
|------------------------------------------ | ---------------------------------------- | ----------------- | ------ | ----------------- |  | ----------- | ----- | ----------- |  | ------- | ------ | ----------- |  | - | ------ | ----- |  | - | --- | - |  | - | ------ | ----- | 
|                                          
|International                              |                                          | December 31, 2002 |        | December 31, 2001
|                                           |                                          |                   |        |                  
|                                           |                                          | Total             |        |                   |  |             |       |             |  |         |        | Total       |  |   |        |       |  |   |     |  
|In millions                                |                                          | Exposure(a)       |        | NPLs(b)           |  | Outstanding |       | Exposure(a) |  | NPLs(b) |        | Outstanding
|                                          
|Retailing                                  |                                          | $                 | 550    |                   |  | $           | 22    |             |  | $       | 305    |             |  | $ | 818    |       |  | $ | 1   |   |  | $ | 579    |      
|Energy production and distribution:        |                                          |                   |        |                   |  |             |       |             |  |         |        |             |  |   |        |       |  |   |     |   |  |   |        |      
|                                           | Merchant energy                          |                   |        | 25                |  |             |       | 8           |  |         |        | 11          |  |   |        | 103   |  |   |     |  |  |   |        | 43    | 
|                                           | Other energy production and distribution |                   |        | 1,488             |  |             |       | 262         |  |         |        | 1,215       |  |   |        | 2,536 |  |   |     | 1 |  |   |        | 1,941 | 
|Media:                                     |                                          |                   |        |                   |  |             |       |             |  |         |        |             |  |   |        |       |  |   |     |   |  |   |        |      
|                                           | Cable television                         |                   |        | 181               |  |             |       | 33          |  |         |        | 176         |  |   |        | 227   |  |   |     |  |  |   |        | 198   | 
|                                           | Other media                              |                   |        | 781               |  |             |       | 96          |  |         |        | 570         |  |   |        | 936   |  |   |     |  |  |   |        | 705   | 
|Financial services                         |                                          |                   | 192    |                   |  |             |      |             |  |         | 123    |             |  |   | 319    |       |  |   |    |   |  |   | 212    |      
|Insurance                                  |                                          |                   | 63     |                   |  |             |      |             |  |         | 8      |             |  |   | 214    |       |  |   |    |   |  |   | 23     |      
|Technology                                 |                                          |                   | 584    |                   |  |             | 4     |             |  |         | 357    |             |  |   | 955    |       |  |   |    |   |  |   | 722    |      
|Business services                          |                                          |                   | 519    |                   |  |             | 8     |             |  |         | 330    |             |  |   | 713    |       |  |   | 10  |   |  |   | 590    |      
|Banking and finance                        |                                          |                   | 793    |                   |  |             | 179   |             |  |         | 510    |             |  |   | 846    |       |  |   |    |   |  |   | 498    |      
|Healthcare services                        |                                          |                   | 36     |                   |  |             | 1     |             |  |         | 27     |             |  |   | 48     |       |  |   |    |   |  |   | 30     |      
|Transportation and transportation services |                                          |                   | 364    |                   |  |             | 17    |             |  |         | 187    |             |  |   | 482    |       |  |   | 4   |   |  |   | 330    |      
|Other(d)                                   |                                          |                   | 8,923  |                   |  |             | 693   |             |  |         | 7,586  |             |  |   | 12,014 |       |  |   | 92  |   |  |   | 10,406 |      
|                                          
|Total                                      |                                          | $                 | 14,499 |                   |  | $           | 1,323 |             |  | $       | 11,405 |             |  | $ | 20,211 |       |  | $ | 108 |   |  | $ | 16,277 |      
|                                          

|(a) |  | Includes outstanding loans, unfunded commitments to extend credit and other
off-balance sheet financial instruments.                                                                                                                                                                                                                                                       
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|(b) |  | NPLs are included in outstanding amounts.                                                                                                                                                                                                                                                                                                                                  
|(c) |  | Includes exposure to the automotive industry of $1.7 billion ($.5 billion
outstanding) and $1.9 billion ($.7 billion outstanding) at December 31, 2002
and 2001,
respectively. Also includes exposure to the telecommunications industry
of $1.3 billion ($.7 billion outstanding) and $3.6 billion ($1.1 billion
outstanding) at
December 31, 2002 and 2001, respectively.
|(d) |  | Includes exposure to the automotive industry of $.6 billion ($.5 billion
outstanding) and $1.3 billion ($1.2 billion outstanding) at December 31, 2002
and 2001,
respectively. Also includes exposure to the telecommunications industry
of $1 billion ($.9 billion outstanding) and $1.4 billion ($1.3 billion
outstanding) at
December 31, 2002 and 2001, respectively.  



Commercial Real Estate Loans December 31, 2002 domestic CRE loans outstanding, composed of loans secured by
real estate, totaled $11.0 billion, and total exposure (outstandings and
unfunded commitments to extend credit, including letters of credit and
financial guarantees) totaled $13.8 billion. Significant property types
included in outstandings and total exposure, respectively, were offices  $2.6
billion and $3.0 billion; apartments  $1.9 billion and $2.3 billion; and
retail  $1.7 billion and $1.9 billion. Total NPLs related to domestic CRE
loans were $73 million at December 31, 2002, with $39 million related to retail
properties. Consumer Loans December 31
    
    2002
    
    2001In millionsDomestic:Home equity
    
    $
    22,840
    
    
    $
    13,862Residential real estate
    
    
    11,092
    
    
    
    8,131Credit card
    
    
    5,894
    
    
    
    5,547Consumer margin loans
    
    
    1,166
    
    
    
    1,852Student loans
    
    
    849
    
    
    
    949Installment/other
    
    
    1,327
    
    
    
    1,884Total domestic loans
    
    
    43,168
    
    
    
    32,225International:Residential real estate
    
    
    498
    
    
    
    1,550Credit card
    
    
    142
    
    
    
    337Installment/other
    
    
    365
    
    
    
    889Total international loans
    
    
    1,005
    
    
    
    2,776Total consumer loans
    
    $
    44,173
    
    
    $
    35,001 Domestic consumer loans totaled $43.2 billion at December 31, 2002 compared to
$32.2 billion at December 31, 2001, an increase of $10.9 billion, or 34%. This
increase was primarily attributable to strong growth ($9 billion) in home
equity loans, mainly attributable to home equity loan promotions and high
demand due to low interest rates, as well as a $3 billion rise in residential
real estate


loans, the result of increased loan volume, both originated and
purchased. The $.3 billion increase in credit card receivables resulted from
growth in owned receivables and activity related to prior year securitizations,
offset, in part, by $2.3 billion of new securitizations in 2002 as well as
sales of receivables in the fourth quarter of 2002. More information about the
securitization transactions is included in Note 17 of the Notes to
Consolidated Financial Statements included under Item 8 of this Report. The decline in the remaining domestic consumer loan categories resulted
mainly from loan run-off and weaker loan demand. Approximately 79% of the domestic consumer portfolio at December 31, 2002
consisted of loans secured by residential real estate, including first and
second mortgages, home equity loans and home equity lines of credit. International consumer loans were approximately $1 billion at December 31,
2002 compared to $2.8 billion at December 31, 2001, a decrease of $1.8 billion,
or 64%. This decrease was mainly due to the impact of the Argentine peso
devaluation on the U.S. dollar carrying value of Argentine loans. Lease Financing Domestic lease financing totaled $11.2 billion at December 31, 2002 compared
with $12.4 billion at December 31, 2001. This $1.2 billion, or 9.5%, decrease
was a result of runoff and weaker demand. International lease financing
totaled $3.2 billion at December 31, 2002 compared with $3 billion at December
31, 2001, an increase of 7% resulting mainly from new business volume. Our consolidated leasing portfolio of $14.4 billion at December 31, 2002
primarily included full-payout, direct financing leases to corporate customers.
Included in the portfolio was $4 billion of investments in leveraged leases
and operating lease receivables of $1.2 billion. This portfolio was primarily
concentrated in the United States,




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Europe, Australia and Canada. The largest components of the consolidated
leasing portfolio in terms of exposure to industry sectors were air
transportation  $1.5 billion; railroad  $1.4 billion; energy production and
distribution  $1.4 billion; food and beverage  $900 million; and healthcare -
$900 million. Country Risk Non-U.S. Operations Our overseas activities are subject to economic and political conditions
related to, and economic and regulatory policies of, the governments of the
countries in which we conduct activities. These activities can also be
impacted by perceptions in local and international financial markets of these
economic and political conditions and related government policies. In
addition, local and regional economic conditions affect local economies and
governments in varying degrees of severity and, accordingly, may also affect
our Latin American and other overseas activities. The following tables present the total assets of, and cross-border
outstandings to, Latin American countries in which we do business at December
31, 2002 and 2001. The total assets in each country include the related
cross-border outstandings. Total Assets
    
    December 31,
    
    December 31,In billions
    
    2002
    
    2001Argentina
    
    $
    3.7
    
    
    $
    9.3Brazil
    
    
    9.1
    
    
    
    12.0Chile
    
    
    1.5
    
    
    
    1.7Colombia
    
    
    .3
    
    
    
    .3Mexico
    
    
    1.3
    
    
    
    1.4Panama
    
    
    .5
    
    
    
    .5Peru
    
    
    .5
    
    
    
    .6Uruguay
    
    
    .6
    
    
    
    .8Other Latin America
    
    
    .1
    
    
    
    .3Total Latin America
    
    $
    17.6
    
    
    $
    26.9 Cross-Border Outstandings(a)
    
    December 31,
    
    December 31,In billions
    
    2002
    
    2001Argentina
    
    $
    1.5
    
    
    $
    3.3Brazil
    
    
    2.2
    
    
    
    2.5Chile
    
    
    .7
    
    
    
    .8Colombia
    
    
    .2
    
    
    
    .1Mexico
    
    
    .8
    
    
    
    .8Panama
    
    
    .2
    
    
    
    .2Peru
    
    
    .1
    
    
    
    .3Uruguay
    
    
    .2
    
    
    
    .1Other Latin America
    
    
    .1
    
    
    
    .3Total Latin America
    
    $
    6.0
    
    
    $
    8.4  (a)
    
    Amounts are net of cross-border risk mitigation. The remainder of this section presents updated information about our operations
in Argentina and Brazil, including information concerning the effects of the
ongoing economic, political and social situation in Argentina on these
operations, as well as information concerning economic and political conditions
in Brazil and Uruguay.


In broad terms, the total assets of our overseas operations are subject to
a number of risks, collectively referred to as country risk. Country risk
includes the following:  
    
    the possibility of deteriorating economic conditions;
    
    political and social upheaval;
    
    nationalization and expropriation of assets;
    
    exchange controls/restrictions on the remittance of funds (transfer or cross-border risk); and
    
    currency depreciation or devaluation. We manage our overall country risk using geographic asset limits
established by our Country Exposure Committee. Within these limits, sublimits
are established for the following:  
    
    cross-border risk;
    
    nontrade-related lending;
    
    transactions with long-term tenors;
    
    sovereign government exposure; and
    
    assets for which a third party accepts transfer risk. In establishing these limits, we consider the economic and political
situation of individual countries using both internal and external analyses.
The Country Exposure Committee reviews these limits at least annually. Cross-border outstandings, which are included in the total assets of our
overseas operations, are subject to transfer, or cross-border risk in addition
to credit risk. Cross-border risk is the risk that customers will be unable to
meet their contractual repayment obligations of principal and/or interest as a
result of actions taken by foreign governments, such as exchange controls, debt
moratoria and restrictions on the remittance of funds. Cross-border
outstandings include claims on third parties, as well as investments in, and
funding of, our overseas operations. Total cross-border outstandings to Argentina and Brazil, as defined, each
amounted to 1% or more of our consolidated total assets at December 31, 2002,
2001 and 2000. There were no total cross-border outstandings to other
countries which exceeded .75% of consolidated total assets at December 31,
2002, 2001 and 2000. Argentina In early 2002, the Argentine government implemented measures to convert all
onshore U.S. dollar denominated loans and deposits into pesos, and additional
measures to deal with the economic crisis. Since the beginning of the
Argentine crisis, we have taken cumulative pre-tax charges of approximately
$2.4 billion. Of this amount, $1.1 billion of charges were recorded in 2001.
During 2002, we recorded pre-tax charges of $1.3 billion. This included a
pre-tax unrealized loss of $.6 billion ($.4 billion after-tax), which was
recorded, net of taxes, in the cumulative translation adjustments component of
other comprehensive income. The remaining charges in 2002 were recorded in the
second quarter, and related to an increase in our Argentine reserve for credit
losses of $.3




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billion and Argentine government security writedowns of $.4 billion. At the beginning of 2002, we had 135 branches in Argentina and 4,796
employees, compared to 109 branches and 3,551 employees at December 31, 2002.
In response to the Argentine crisis and reduced business volume, we scaled down
our Argentine operations by closing 26 branches and reducing staff levels. Argentine Balance Sheet We had Argentine total assets of approximately $3.7 billion and $9.3 billion at
December 31, 2002 and 2001, respectively. These assets, which are subject to
the country risk previously described, have the following components: Dec. 31,
    
    Dec. 31,In billions
    
    2002
    
    2001Loans
    
    $
    2.4
    
    
    $
    6.7Placements with central bank and other banks
    
    
    .3
    
    
    
    1.3Securities
    
    
    .4
    
    
    
    .3Fixed assets and other nonearning assets
    
    
    .6
    
    
    
    1.0Total assets
    
    $
    3.7
    
    
    $
    9.3Local funding from Argentine operations
    
    $
    1.4
    
    
    $
    4.5Cross-border outstandings  see separate
table
    
    $
    2.3
    
    
    $
    4.8 The table below presents the components of loans. Dec. 31,
    
    Dec. 31,In billions
    
    2002
    
    2001(a)Consumer
    
    $
    .3
    
    
    $
    1.8Corporate:Multinationals
    
    
    .2
    
    
    
    1.0Argentine corporations
    
    
    1.6
    
    
    
    2.5Middle market and financial institutions
    
    
    .1
    
    
    
    1.0Sovereign
    
    
    .2
    
    
    
    .4Total loans
    
    $
    2.4
    
    
    $
    6.7 (a)

Certain amounts at
December 31, 2001 have been reclassified for comparative
purposes. The decline in Argentine total assets from December 31, 2001 resulted from the
involuntary conversion of the majority of these assets into pesos and their
subsequent devaluation as the peso weakened versus the U.S. dollar, as well as
loan payments and the previously disclosed write-down of Argentine government
securities. The peso has devalued by approximately 70% from December 31, 2001.
The decline in loans from $6.7 billion at December 31, 2001 to $2.4 billion at
December 31, 2002, was mainly attributable to the peso devaluation and loan
payments. During the second quarter of 2002, we placed substantially all
sovereign-related loans and securities and a significant portion of private
sector loans on nonaccrual status. We believe that it was prudent to take this
action in light of the deteriorating situation in Argentina, even though many
of the relationships were current in their payments at that time. At December
31, 2002, total nonperforming assets, or NPAs, in Argentina were $1.7
billion, of which $1.3 billion were loans and $.4 billion were sovereign
securities. Of the $1.3 billion of loans,


approximately $575 million were less
than 90 days past due at December 31, 2002. Included in our consolidated
reserve for credit losses at December 31, 2002 was $870 million related to
Argentina. Net charge-offs for 2002 were $342 million, and we expect that net
charge-offs in 2003 will be higher than in 2002. In addition, since the second quarter of 2002, the Interagency Country
Exposure Review Committee, or ICERC, of U.S. banking regulators has required
the banking industry to maintain an Allocated Transfer Risk Reserve, or ATRR,
to cover certain Argentine cross-border exposure. Our ATRR requirement was
$474 million at December 31, 2002, and was covered by the aforementioned $870
million reserve for credit losses. We have $277 million on deposit with the Argentine central bank to meet
statutory reserve requirements related to our Argentine operations $1.3
billion of local deposits. We are required by local regulations to place the
required reserves with the central bank based on a fixed percentage of each
deposit received. The local deposits, and intercompany borrowings, primarily
fund the balance sheet of our Argentine operation. In December 2001, the Argentine government issued an order imposing
limitations on the ability of bank customers in Argentina to withdraw funds
from their accounts in Argentine banks (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 these claims, we recorded foreign exchange losses of $204
million during 2002. These losses represented the impact of the judicially
mandated payments to depositors at the current exchange rate versus the 1.40
exchange rate originally used to convert U.S. deposits into pesos as part of
the Argentine governments economic measures instituted in early 2002 to deal
with that countrys economic crisis. We cannot determine the total number of
claims pending in the judicial system at this time, which may result in
additional losses. Foreign exchange losses related to these deposits were
partially offset by foreign exchange gains on our long U.S. dollar currency
position and forward and spot trading transactions. Total net foreign exchange
losses from Argentina, including losses related to the deposits as described
above, were $89 million for 2002. Separately, in November 2002, customers of
BankBoston Argentina commenced legal action in the United States, seeking to
collect from Fleet National Bank in the United States the deposits frozen at
BankBoston Argentina. This lawsuit was dismissed in February 2003. More
information about this legal action is included under Item 3, Legal
Proceedings, in Part I of this Report. In November 2002, a judge in Argentina issued criminal indictments against
the President of the BankBoston Argentina branch in Buenos Aires, Argentina,
and seventeen other senior employees of the branch, alleging fraudulent
administration of business. These indictments resulted from the purported
failure of the branch to




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honor time deposits and other payment instruments presented at various offices
of the branch after November 30, 2001, the date on which deposits were frozen
by actions of the Argentine government. In not honoring the presentations, the
branch and its employees were following Argentine law and Central Bank
Regulations. The branch has appealed these indictments on a number of legal
bases available under Argentine law. Management believes that the indictments
are without merit and the branch will vigorously pursue the appeal. Also during the second quarter of 2002, the Argentine government reversed
a measure that had allowed banks to charge customers an inflation adjustment on
consumer loans. However, deposit liabilities have continued to accrue the
inflation adjustment. This situation has created a mismatch between
inflation-adjusted assets and liabilities. This measure resulted in a
reduction of net interest income of approximately $109 million in 2002. These situations, as well as other Argentine government economic measures,
may continue to significantly impact interest rate and liquidity risk related
to the balance sheet of our Argentine operation. To date, we have not
experienced significant liquidity issues, but we continue to closely monitor
the impact of these measures, including the corralito-related claims, on our
liquidity position. The future rate of inflation may increase the negative
impact from the mismatch between inflation-adjusted assets and liabilities. Included in Argentine total assets of $3.7 billion and $9.3 billion at
December 31, 2002 and 2001 are cross-border outstandings, as follows. The
cross-border outstandings have not been reduced by reserves for credit losses
specifically allocated to Argentina. December 31In billions
    
    2002
    
    2001(e)
    
    2000(e)Argentina:(a)(b)(c)Trade-related claims
    
    $
    .4
    
    
    $
    1.0
    
    
    $
    1.0Other claims on third parties
    
    
    1.3
    
    
    
    2.1
    
    
    
    1.3Investment in and funding of local
operation(d)
    
    
    .6
    
    
    
    1.7
    
    
    
    2.2Total cross-border outstandings
    
    $
    2.3
    
    
    $
    4.8
    
    
    $
    4.5Cross-border risk mitigation:Insurance contracts
    
    
    .5
    
    
    
    .8
    
    
    
    .2Guarantees, including trade-related
of $.03, $.2 and $.2
    
    
    .3
    
    
    
    .7
    
    
    
    1.2Total cross-border outstandings, net of
cross-border risk mitigation
    
    $
    1.5
    
    
    $
    3.3
    
    
    $
    3.1 (a)
    
    Total cross-border outstandings to Argentina as a percentage of total
consolidated assets were 1.2%, 2.3% and 2.1% at December 31, 2002,
2001 and 2000, respectively.(b)
    
    The sector percentage allocations for banks, public and private cross-
border claims on third parties under FFIEC guidelines for Argentina
were 2.5%, 7.8% and 89.7% at December 31, 2002, 1.7%, 10.9% and
87.4% at December 31, 2001 and 2.5%, 23.5% and 74.0% at
December 31, 2000, respectively.(c)
    
    Cross-border commitments for Argentina at December 31, 2002,
2001 and 2000 were $84 million, $160 million and $13 million,
respectively.(d)
    
    Represents contributed capital and funding from FleetBoston head
office and/or offshore affiliates to local operations.(e)
    
    Certain amounts at December 31, 2001 and 2000 have been reclassified for
comparative purposes.


The following table presents the components of our total cross-border
outstandings, net of cross-border risk mitigation. December 31
    
    2002
    
    2001
    
    2000In billionsArgentina:Trade-related claims
    
    $
    .4
    
    
    $
    .8
    
    
    $
    .8Other claims on third parties
    
    
    .9
    
    
    
    1.2
    
    
    
    .9Investment in and funding of local
operation
    
    
    .2
    
    
    
    1.3
    
    
    
    1.4Total cross-border outstandings, net of
cross-border risk mitigation
    
    $
    1.5
    
    
    $
    3.3
    
    
    $
    3.1 The decrease in cross-border outstandings from December 31, 2001 was primarily
due to losses recorded by the Argentine operation, including loan charge-offs
and translation losses, the latter of which were recorded, net of tax, in other
comprehensive income as discussed earlier in this section, and loan payments. The $2.3 billion of cross-border outstandings at December 31, 2002 have
the following cross-border risk mitigation:  
    
    $450 million were covered by insurance, which included $380 million of
investment in and funding of local operation and $70 million of third
party loans. The insurance coverage is purchased from U.S. and foreign
government, multilateral and private insurers. This coverage protects us
from situations where repayment of the investment in and funding of local
operation and third party loans is not permitted due to the inability to
transfer funds or convert the necessary funds into the obligation currency
due to government actions.With respect to the coverage of $70 million of third party loans, we are
required to provide evidence that the customers nonpayment is not
credit-related. If the customers nonpayment is due to a credit issue, we
are unable to file a claim under the policy. In all cases, we are required
to follow specific procedures to ensure coverage if a cross-border event
occurs, including timely notification of such an event to the insurer.  
    
    Of the $440 million of trade-related outstandings, $270 million were
short-term, and $30 million were guaranteed and are included in the $330
million of guarantees presented in the preceding cross-border outstandings
table that cover credit and cross-border risk. The guarantees include a
combination of cash and securities used as collateral and placed offshore,
guarantees from non-Argentine domiciled companies and other third party
guarantees. The cross-border risk related to these claims represents the
country of the guarantor or the country in which the cash collateral is
held. Due to the current Argentine economic and political conditions, it is not
possible to predict the impact that future developments may have on this
cross-border risk mitigation, including our ability to file a claim under the




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insurance policies or to be reimbursed under the guarantee if such a
situation arises. The following table presents changes in aggregate cross-border
outstandings to Argentina from December 31, 2001 to December 31, 2002. In billions
    ArgentinaAggregate outstandings at January 1, 2002
    
    $
    4.8Net change in short-term trade-related outstandings
    
    
    (.7
    )Reduction in nontrade-related loans and leases
    
    
    (1.3
    )Net reduction in other assets
    
    
    (.5
    )Aggregate outstandings at December 31, 2002
    
    $
    2.3 The Argentine government enacted exchange controls in December 2001 that
limited the transfer of funds outside of that country. These regulations
continue to be modified. As of December 31, 2002, our cross-border
outstandings continued to be impacted by these regulations, and this has
resulted in delays in the transfer of U.S. dollars outside of Argentina. We
are unable to determine at the present time the ultimate impact those measures
will have on our cross-border outstandings. Argentine Mutual Funds Our Argentine operation managed approximately $84 million of mutual funds at
December 31, 2002. Certain of the Argentine governments economic measures,
which restricted withdrawals of bank deposits, also applied to mutual fund
investments. Therefore, mutual fund investors could not receive redemptions of
their funds, and this has resulted in litigation, which we discussed earlier in
the Argentine Balance Sheet section as the corralito-related litigation. Argentine Currency Position Currency positions expose us to gains or losses that depend on the relationship
between currency price movements and interest rate differentials. The
following table presents our Argentine long U.S. dollar currency position, for
which related foreign exchange gains or losses are recorded in our income
statement. The increase in the long position in U.S. dollars is mainly due to
the U.S. dollar denominated compensation bond, the majority of which was
received in 2002. The continued evolution of the Argentine governments
economic measures may impact the size and direction of our currency position in
future periods. At Year-End
    
    Daily AverageIn millions
    
    2002
    
    2001
    
    2002
    
    2001Argentina(a)(b)
    
    $
    147
    
    
    $
    52
    
    
    $
    188
    
    
    $
    (141
    )  (a)
    
    Positive values reflect U.S. dollar assets funded by local currency
liabilities (i.e., a long position in U.S. dollars).(b)
    
    Negative values reflect local currency assets funded by U.S. dollars
(i.e., a short position in U.S. dollars). In addition to the currency exposure discussed above, our investment in and
funding of local operations creates translation exposure, which arises from
changes in the local currency exchange rate versus the U.S. dollar. As a


result of the change in Argentinas financial system from U.S. dollars to
pesos, we changed the functional currency of the Argentine unit from the U.S.
dollar to the peso, in accordance with SFAS No. 52, Foreign Currency
Translation, at the beginning of 2002. Translation gains and losses that
result from this exposure, along with any offsetting hedge gains or losses
related to covering this exposure, are recorded directly to other comprehensive
income, net of tax, as discussed earlier in this section. The government measures created a situation where our translation exposure
could not be fully hedged against currency rate changes, and at December 31,
2002, our translation exposure was approximately $.4 billion, which is included
in our investment in and funding of local operation presented in the table of
cross-border outstandings on the previous page. The cumulative impact recorded
in other comprehensive income since implementing this accounting change, and
the impact of foreign exchange forward contracts hedging translation exposure
on a portion of the investment in and funding of local operation, was a $594
million pre-tax unrealized loss, or $358 million after-tax. Recent Events As previously mentioned, the Argentine government implemented measures in early
2002 to convert all onshore U.S. dollar denominated loans and deposits into
pesos. The Argentine government is now considering the implementation of
measures to convert these deposits back into U.S. dollars. To date, however,
the courts in Argentina have not ruled on such a change. Until such action is
completed and the Argentine government decrees how such a change will be
implemented, we cannot determine the ultimate impact such a measure may have on
our deposits and results of operations in Argentina. The Argentine government continues to implement measures to manage the
economic crisis and to reach a long-term agreement with the International
Monetary Fund, or IMF, on a refinancing package. In January 2003, the IMF
agreed to a short-term rollover of the maturities of $16.1 billion of debt owed
to the IMF and multilateral lending organizations until August 31, 2003. Also
in January, the Argentine government made past due payments to the IMF and
other multilateral lending organizations. Negotiations continue on a long-term
financing package with the IMF. During the fourth quarter of 2002, the Argentine peso strengthened versus
the U.S. dollar by approximately 10% from September 30, 2002. During the same
period, the monthly rate of inflation declined to a modest level. The
Argentine governments economic policy and the low level of economic activity
have led to a lack of demand for U.S. dollars. Recently, the Argentine
government relaxed some restrictions on the remittance of U.S. dollars outside
of Argentina. We will continue to monitor the impact of the exchange rate and
inflation on our currency position and Argentine operations. During the first quarter of 2003, a number of banks announced to
depositors an offering to repay, in advance,




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certain deposits that were subject to the corralito. Our Argentine operation
made this offer to all holders of certificates of rescheduled deposits. We
have approximately $500 million to $600 million of certificates of rescheduled
deposits. We estimate that approximately $100 million to $200 million of
certificates of rescheduled deposits will be prepaid under the offering. We do
not expect this program to have a material adverse impact on our liquidity
position. The presidential election is currently scheduled for April 2003. The
outcome of this election may result in a change to the Argentine governments
economic policies, which may impact the countrys financial situation. We continue to monitor and evaluate the Argentine economic situation and
related economic measures discussed above, and will adjust our strategy as
deemed appropriate. However, in light of the changing economic measures and
continuing economic, political, including the outcome of the presidential
elections, and social uncertainty in the country, it is not possible to predict
the impact that future developments may have on our operations in Argentina or
the necessity to take future charges. Brazil We operate 66 branches in Brazil and had total assets of approximately $9.1
billion and $12 billion at December 31, 2002 and 2001, respectively. These
assets are subject to country risk as previously described and have the
following components: Dec. 31,
    
    Dec. 31,In billions
    
    2002(a)
    
    2001Loans
    
    $
    5.3
    
    
    $
    7.3Securities:Available for sale
    
    
    .7
    
    
    
    1.5Trading
    
    
    .1
    
    
    
    .4Resale agreements
    
    
    1.3
    
    
    
    1.5Other monetary assets
    
    
    1.0
    
    
    
    .6Fixed assets and other nonearning
assets
    
    
    .7
    
    
    
    .7Total assets
    
    $
    9.1
    
    
    $
    12.0Local funding from Brazilian operations
    
    $
    2.8
    
    
    $
    3.6Cross-border outstandings  see
separate table
    
    $
    6.3
    
    
    $
    8.4  (a)
    
    Total assets at December 31, 2002 presented in the table above were
not reduced by $193 million of cumulative pre-tax unrealized mark-
to-market losses recorded net of tax in other comprehensive income as of
December 31, 2002, of which $79 million was related to securities
available for sale and $114 million was related to cash flow hedges of
local currency denominated resale and repurchase agreements.


The table below presents the components of loans. Dec. 31,
    
    Dec. 31,In billions
    
    2002
    
    2001Consumer
    
    $
    .2
    
    
    $
    .4Corporate:Multinationals
    
    
    2.2
    
    
    
    3.1Brazilian corporations
    
    
    2.7
    
    
    
    3.3Middle market and financial
institutions
    
    
    .2
    
    
    
    .5Total loans
    
    $
    5.3
    
    
    $
    7.3 The decline in total assets mainly reflects our previously discussed intent to
reduce risk exposure in Brazil by decreasing lending activities and
repositioning the securities portfolio toward shorter maturities, as well as
the impact of the devaluation of the Brazilian currency, or real, against the
U.S. dollar (34% from December 31, 2001). The decline in the loan portfolio was primarily due to not renewing loans
that matured and the impact of real devaluation. NPAs in the Brazilian
portfolio were $63 million at December 31, 2002 compared to $18 million at
December 31, 2001. The increase was primarily related to one
telecommunications borrower. Net charge-offs for 2002 were $25 million. We
expect NPAs and net charge-offs to increase in 2003. Our consolidated reserve
for credit losses at December 31, 2002 included approximately $350 million
related to Brazil. As part of our Brazilian operations balance sheet management, we held
approximately $3 billion of treasury assets (securities available for sale,
resale agreements and other monetary assets in the preceding balance sheet
table) at December 31, 2002, compared to $4 billion at December 31, 2001. Of
this total, securities available for sale were composed mainly of Brazilian
government bonds, which were $670 million at December 31, 2002 compared to $1.5
billion at December 31, 2001. The decline was due to securities sales in the
first quarter of 2002 and maturities. In the second quarter of 2002, we
recorded a pre-tax security loss of $62 million to swap existing Brazilian
government securities for government securities with shorter maturities. At
December 31, 2002, these government securities had an average duration of
approximately 1.2 years compared to 2 years at December 31, 2001. We also had
$1.3 billion of resale agreements with banks in Brazil, which were
collateralized by Brazilian government bonds. Our Brazilian balance sheet is partially funded by intercompany funding,
local liabilities and third party liabilities where the provider assumes the
transfer risk, which is discussed below.




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Included in Brazilian total assets of $9.1 billion and $12 billion at
December 31, 2002 and 2001, respectively, are cross-border outstandings, as
follows: December 31
    
    2002
    
    2001(f)
    
    2000(f)In billionsBrazil:(a)(b)(c)Trade-related claims
    
    $
    3.1
    
    
    $
    3.6
    
    
    $
    3.2Other claims on third parties
    
    
    1.5
    
    
    
    2.7
    
    
    
    1.9Investment in and funding of local
operation(d)(e)
    
    
    1.7
    
    
    
    2.1
    
    
    
    1.7Total cross-border outstandings
    
    $
    6.3
    
    
    $
    8.4
    
    
    $
    6.8Cross-border risk mitigation:Insurance contracts
    
    
    1.0
    
    
    
    1.1
    
    
    
    1.0Other trade-related transfer risk
mitigation
    
    
    1.3
    
    
    
    1.6
    
    
    
    .9Third party funding
    
    
    .8
    
    
    
    2.1
    
    
    
    2.4Guarantees, including trade-related
of $.6, $.6 and $.2
    
    
    1.0
    
    
    
    1.1
    
    
    
    .3Total cross-border outstandings, net of
cross-border risk mitigation
    
    $
    2.2
    
    
    $
    2.5
    
    
    $
    2.2 (a)
    
    Total cross-border outstandings to Brazil as a percentage of total
consolidated assets were 3.3%, 4.1% and 3.1% at December 31, 2002,
2001 and 2000, respectively.(b)
    
    The sector percentage allocations for banks, public and private cross-
border claims on third parties under FFIEC guidelines for Brazil were
15.8%, 10.4% and 73.8% at December 31, 2002, 1.1%, 16.6% and
82.3% at December 31, 2001 and .2%, 19.6% and 80.2% at
December 31, 2000, respectively.(c)
    
    Cross-border commitments for Brazil at December 31, 2002, 2001 and
2000 were $105 million, $50 million and $80 million, respectively.
Included in the $105 million were trade-related loan commitments of
$80 million.(d)
    
    Represents contributed capital and funding from FleetBoston head
office and/or offshore affiliates to local operations.(e)
    
    Investment in and funding of local operation excluded trade-related
claims of $.9 billion, $.8 billion and $1.1 billion at December 31,
2002, 2001 and 2000, respectively, which are reported separately
above.(f)
    
    Certain December 31, 2001 and 2000 amounts have been reclassified
for comparative purposes. Total cross-border outstandings decreased from December 31, 2001, mainly due to
reductions in loans and available-for-sale securities. The decrease in total
cross-border outstandings was mostly offset by the decline in third party
funding and other trade-related transfer risk mitigation due to maturities
which were not renewed. The following table presents the components of our total cross-border
outstandings, net of cross-border risk mitigation. December 31
    
    2002
    
    2001
    
    2000In billionsBrazil:Short-term trade-related claims
    
    $
    .8
    
    
    $
    .7
    
    
    $
    .7Nontrade-related claims
    
    
    .1
    
    
    
    .8
    
    
    
    .7Other(a)
    
    
    1.3
    
    
    
    1.0
    
    
    
    .8Total cross-border outstandings, net of
cross-border risk mitigation
    
    $
    2.2
    
    
    $
    2.5
    
    
    $
    2.2 (a)
    
    Other cross-border outstandings in 2002 were not reduced by
$.2 billion of cumulative pre-tax unrealized mark-to-market losses
recorded in other comprehensive income as of December 31, 2002.


Our Brazilian operation actively uses various products to mitigate the
cross-border risk related to its third party claims and intercompany funding.
Cross-border risk mitigation related to the $6.3 billion of cross-border
outstandings at December 31, 2002 amounted to $4.1 billion and is summarized
below.  
    
    $1 billion was covered by insurance contracts
(see discussion on page 28 for more information concerning these programs);
    
    $1.3 billion was related to transfer risk mitigation, all of which is
trade-related and included in the $3.1 billion of trade-related claims in
the preceding cross-border outstandings table. The cross-border risk
mitigation is designed so that payment of these claims and intercompany
funding is made outside of Brazil by third parties in the event of a
cross-border risk event. The repayment is tied to trade transactions
authorized and approved by the Brazilian Central Bank. In order to
maintain our cross-border risk protection, it is necessary that the
Brazilian export markets remain open;
    
    $.8 billion of assets funded by third party liabilities where the provider
assumes the transfer risk; these funds are typically raised from
correspondent banks. Of the $.8 billion, $370 million are trade-related.
In these cases, the provider of funds assumes the risk of nonpayment if,
at the time a payment is due on the funding, a cross-border risk event
occurs due to government action. The provider of funds is contractually
bound to either accept local currency in repayment or wait until the event
ceases to exist to receive payment; and
    
    $1 billion represents loans with guarantees that
cover credit and cross-border risk, of which $560 million are
trade-related. The guarantees include a combination of guarantees from
non-Brazilian domiciled companies, funded participations and other third
party guarantees. The cross-border risk related to these claims
represents the country of the guarantor or the country in which the cash
collateral is held. The third party funding and guarantees require us to perform certain actions to
ensure our coverage under the various cross-border risk mitigation products. In summary, our Brazilian trade-related exposure as of December 31, 2002,
2001 and 2000 was as follows: December 31
    
    2002
    
    2001
    
    2000In billionsAssets with transfer risk mitigation:Insurance contracts
    
    
    
    
    
    
    
    
    
    $
    .2Other trade-related transfer risk mitigation
    
    $
    1.3
    
    
    $
    1.6
    
    
    
    .9Third party funding
    
    
    .4
    
    
    
    .7
    
    
    
    1.2Guaranteed
    
    
    .6
    
    
    
    .6
    
    
    
    .2Assets with no transfer risk mitigation:Short-term trade
    
    
    .8
    
    
    
    .7
    
    
    
    .7Trade-related claims (refer to Brazil
cross-border outstandings table)
    
    $
    3.1
    
    
    $
    3.6
    
    
    $
    3.2 Mutual Funds We acted as manager for approximately $4.5 billion of mutual funds in Brazil at
December 31, 2002, which were invested primarily in Brazilian government
securities.




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Brazilian Currency Position Periodically, we establish currency positions in certain countries with the
intention of taking advantage of expected movements in currency exchange rates.
Currency positions expose us to gains or losses that depend on the
relationship between currency price movements and interest rate differentials.
The following table presents our Brazilian currency position. At Year-End
    
    Daily AverageIn millions
    
    2002
    
    2001
    
    2002
    
    2001Brazil(a)(b)
    
    $
    (8
    )
    
    $
    (4
    )
    
    $
    15
    
    
    $
    (10
    )  (a)
    
    Positive values reflect U.S. dollar assets funded by local currency
liabilities
(i.e., a long position in U.S. dollars).(b)
    
    Negative values reflect local currency assets funded by U.S. dollars
(i.e., a short position in U.S. dollars). Although the Brazilian real has devalued significantly versus the U.S. dollar
during 2002, our results of operations were not significantly impacted due to
the modest positions held during this time. The events in a country may have varying impacts on the different classes
of assets based on the nature of the country risk event. After a long and
substantial devaluation, the Brazilian real recovered in the fourth quarter of
2002, reflecting growing comfort from the financial community both inside and
outside of Brazil with the new presidential administration. The local currency
as well as local inflation, however, are currently under pressure due to the
uncertainties stemming from various geopolitical issues including the Iraq
situation and the recent significant increase in oil prices. This has led the
Central Bank to tighten the monetary policy and to raise the overnight
benchmark interest to 26.5%. Despite the tightening of monetary policy and the uncertain global
environment, domestic activity posted a positive performance. Exports, import
substitution and the agricultural-related businesses were the driving forces
behind this performance. The trade balance surplus reached $13.1 billion in
2002, a 404% annual increase from 2001. As a result, the current account
deficit also declined significantly to $7.8 billion in 2002 from $23.2 billion
in 2001. It mitigated the substantial decline in the foreign capital inflow
seen in 2002, resulting either from local (presidential election) or external
factors. The public sector primary surplus, defined as the difference between
public sector spending, excluding interest payments on the public debt, and
receipts, exceeded for the fourth consecutive year the targets agreed to with
the IMF, largely compensating for the negative effects of the 34% devaluation
on the public debt (as about 50% of the total public sector debt is indexed to
the change in the exchange rate). We will continue to monitor the political situation in Brazil to assess
what impact any new Brazilian government measures may have on our operations.
As discussed above, we consider the country risks when we establish internal
risk limits. To date, our Brazilian operations have not been significantly
impacted by the deterioration in economic conditions in Brazil, although the


increased risk has caused us to reduce our exposure to Brazil and increase the
portion of our reserve for credit losses allocated to Brazil. We continue to
closely monitor the situation in Brazil and the potential impact it could have
on our Brazilian operations. Uruguay The situations in Argentina and Brazil have also impacted the Uruguayan
economy. Our Uruguayan assets and deposits declined by $200 million and $340
million, respectively, since December 31, 2001 to $600 million and $300
million, respectively, at December 31, 2002. Total loans at December 31, 2002
were $360 million and we have approximately $30 million of sovereign
securities, of which approximately 50% are used to meet statutory reserve
requirements related to our local deposits. NPAs in the Uruguayan portfolio
were $33 million and net charge-offs for 2002 were $27 million. We expect
NPAs and net charge-offs to increase in 2003. The reduction in deposits has
been replaced, in part, by an increase in intercompany borrowings. In the
event that there is a further reduction in deposits, there may be additional
intercompany borrowings which could result in an increase in cross-border
outstandings. The IMF and other multilateral lending organizations agreed in August
2002 to advance funding of $1.5 billion from their financial support package.
Negotiations with the IMF on scheduled disbursements continue. During the
fourth quarter of 2002, the Uruguayan government passed legislation to
strengthen its supervision of the financial banking system. Since the
implementation of the new measures by the Uruguayan government during the
fourth quarter of 2002 and the IMF agreement, our deposit levels have been
stable. In the first quarter of 2003, Uruguays credit rating was reduced by
an international rating agency based on concerns that the country may default
on some of its obligations. It is not possible to predict what additional effect, if any, the new
economic measures, the rating agency action, or future developments in
Argentina and Brazil will ultimately have on Uruguay or on our Uruguayan
operation. We will continue to closely monitor developments in Uruguay and
the other Latin American countries in which we operate and their potential
impact on our Latin American operations. Nonperforming Assets NPAs include loans, lease financing receivables and debt securities for which
income recognition has ceased or is limited, as well as foreclosed assets.
NPAs also include impaired loans, which are commercial and commercial real
estate loans on nonaccrual status as well as troubled debt restructurings.
Loans which have undergone a troubled debt restructuring are returned to
accrual status after a seasoning period if the restructured loan bears a market
rate of interest and full collectibility is not in doubt. Such troubled debt
restructurings, although no longer considered to be NPAs, continue to be
reported as impaired




32



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loans through the end of the calendar year of restructuring. Credit card
receivables are charged off at 180 days past due or 60 days from notification
of bankruptcy, and are not placed on nonaccrual status. More information about
NPAs and impaired loans, including our related accounting policies, is included
in Notes 1 and 5 of the Notes to Consolidated Financial Statements included
under Item 8 of this Report. Nonperforming Assets December 31
    
    2002
    
    2001
    
    2000
    
    1999
    
    1998In millionsDomestic:C&I
    
    $
    1,309
    
    
    $
    1,303
    
    
    $
    729
    
    
    $
    488
    
    
    $
    317CRE
    
    
    73
    
    
    
    63
    
    
    
    28
    
    
    
    48
    
    
    
    101Consumer
    
    
    72
    
    
    
    70
    
    
    
    87
    
    
    
    129
    
    
    
    165Lease financing
    
    
    123
    
    
    
    60
    
    
    
    36
    
    
    
    29
    
    
    
    Securities and OREO
    
    
    41
    
    
    
    18
    
    
    
    30
    
    
    
    36
    
    
    
    40Total Domestic
    
    $
    1,618
    
    
    $
    1,514
    
    
    $
    910
    
    
    $
    730
    
    
    $
    623International:Commercial
    
    $
    1,323
    
    
    $
    108
    
    
    $
    81
    
    
    $
    96
    
    
    $
    86CRE
    
    
    50
    
    
    
    126
    
    
    
    66
    
    
    
    48
    
    
    
    Consumer
    
    
    54
    
    
    
    87
    
    
    
    55
    
    
    
    99
    
    
    
    103Securities and OREO
    
    
    414
    
    
    
    14
    
    
    
    18
    
    
    
    17
    
    
    
    7Total International
    
    $
    1,841
    
    
    $
    335
    
    
    $
    220
    
    
    $
    260
    
    
    $
    196Total NPAs(a)
    
    $
    3,459
    
    
    $
    1,849
    
    
    $
    1,130
    
    
    $
    990
    
    
    $
    819 (a)
    
    2002 and 2001 totals included $1,680 million and $263 million,
respectively, related to Argentina. Throughout this Report, including the table above, NPAs and related ratios do
not include loans greater than 90 days past due and still accruing interest,
and assets held for sale or accelerated disposition, or AHAD. The following table presents the components of loans greater than 90 days
past due and still accruing interest: December 31
    
    2002
    
    2001
    
    2000
    
    1999
    
    1998In millionsDomestic:C&I
    
    $
    35
    
    
    $
    51
    
    
    $
    45
    
    
    $
    43
    
    
    $
    26CRE
    
    
    2
    
    
    
    4
    
    
    
    6
    
    
    
    
    
    
    
    Consumer
    
    
    191
    
    
    
    183
    
    
    
    229
    
    
    
    216
    
    
    
    248Lease financing
    
    
    24
    
    
    
    53
    
    
    
    28
    
    
    
    18
    
    
    
    International:Commercial
    
    
    4
    
    
    
    21
    
    
    
    2
    
    
    
    5
    
    
    
    CRE
    
    
    1
    
    
    
    13
    
    
    
    4
    
    
    
    3
    
    
    
    Consumer
    
    
    25
    
    
    
    99
    
    
    
    47
    
    
    
    35
    
    
    
    1Total
    
    $
    282
    
    
    $
    424
    
    
    $
    361
    
    
    $
    320
    
    
    $
    275 At December 31, 2002 and 2001, we had AHAD, which we included in other assets
in the consolidated balance sheet at their net carrying amount of $138 million
and $270 million, respectively, none of which was accruing interest. We make
transfers to this category in accordance with our intention to focus
appropriate resources on the quick disposition of these assets. NPAs at December 31, 2002 increased $1.6 billion, or 87%, over the prior
year, with the majority of the increase related to managements placing of
Argentine loans and other assets, specifically Argentine sovereign bonds, on
nonaccrual status in the second quarter of 2002. This action was taken in
light of the deteriorating Argentine situation. Of the aggregate Argentine
loans placed on nonaccrual status, approximately one-third were less than


90
days past due at December 31, 2002. Excluding NPAs related to Argentina of
$1.7 billion at December 31, 2002 and $263 million at December 31, 2001, NPAs
increased $193 million from December 31, 2001. Total NPAs at December 31, 2002, as a percentage of related assets and as
a percentage of total assets, were 2.86% and 1.82%, respectively, compared to
1.46% and .91%, respectively, at December 31, 2001. Excluding NPAs related to
Argentina, NPAs as a percentage of related assets were 1.51% and 1.32% at
December 31, 2002 and December 31, 2001, respectively. Activity in Nonperforming Assets Year ended December 31
    
    2002
    
    2001In millionsBalance at beginning of year
    
    $
    1,849
    
    
    $
    1,130Additions
    
    
    5,017
    
    
    
    2,531Reductions:Payments/interest applied
    
    
    (1,201
    )
    
    
    (783
    )Returned to accrual
    
    
    (70
    )
    
    
    (48
    )Charge-offs/writedowns
    
    
    (1,604
    )
    
    
    (730
    )Sales/other
    
    
    (273
    )
    
    
    (34
    )Total reductions
    
    
    (3,148
    )
    
    
    (1,595
    )Subtotal
    
    
    3,718
    
    
    
    2,066Assets reclassified as held for sale
or accelerated disposition
    
    
    (259
    )
    
    
    (217
    )Balance at end of year
    
    $
    3,459
    
    
    $
    1,849 During 2002, we placed $5 billion of assets on nonaccrual status compared to
$2.5 billion during 2001. These additions included approximately $2.2 billion
related to Argentina and approximately $2.6 billion related to domestic problem
credits. We have experienced deterioration in credit quality in a number of
industry sectors in our domestic C&I portfolio. We have a continuous review
process to identify potential problem areas of the portfolio, which currently
include the aviation, telecommunications, and merchant energy sectors, as well
as certain regional energy distribution sectors. We will continue to monitor
and evaluate these potential risks. Future levels of NPAs will be influenced by economic conditions, including
the impact of those conditions on our customers, interest rates and other
internal and external factors existing at the time. We currently expect NPAs
to decrease as we progress through 2003. Additional information on Argentine
NPAs is included in the Country Risk section of this discussion and analysis. Reserve For Credit Losses The reserve for credit losses represents the amount available for estimated
probable credit losses which management determines exist in our lending
portfolio as of the balance sheet date. Loans are charged off when they are
deemed uncollectible, after giving consideration to factors such as the
customers financial condition, underlying collateral and guarantees, as well
as general and specific industry economic conditions. We perform periodic, systematic reviews of our portfolios to identify
inherent losses and assess the overall




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probability of collection. These reviews include an analysis of historical
default and loss experience which results in the identification and
quantification of loss factors. These loss factors are used in determining the
appropriate level of the reserve for credit losses. In addition, we
periodically evaluate prevailing economic and business conditions, industry
concentrations, including emerging markets risks and cross-border outstandings,
changes in the size and characteristics of the portfolio, recent loss
experience and other pertinent factors. Portions of the reserve for credit
losses are provided to cover the probable losses inherent in each lending
category based on the results of this detailed review process. The results of
these ongoing analyses are reviewed and discussed by our Loan Loss Reserve
Committee, the respective lines of business and the Collections group. Commercial loans and leases and related unfunded commitments to extend
credit are individually reviewed and assigned a credit risk rating from 1
(low risk of loss) to 10 (high risk of loss). Loans with a credit risk
rating of 8 and above and a principal balance greater than $250,000 are
subject to further individual review to determine the need for a specific loan
loss allocation. Additionally, derived or calculated loan loss allocations are
provided for loans not specifically reviewed. For loans with a credit risk
rating of 1 to 7, loss factors are assigned using actual default and loss
history based on their specific credit risk rating classification. The
combination of these analyses is the basis for determining the commercial loan
and lease portion of the reserve for credit losses. Consumer loans, which include credit card receivables, residential
mortgages, home equity loans/lines, direct/indirect loans, consumer finance and
international consumer loans, are generally evaluated for credit risk as a
group based on product type. The determination of the consumer loan portion of
the reserve for credit losses is primarily based on one year of forecasted net
credit losses. This forecast is determined using several modeling tools,
including a delinquency roll rate model, a vintage model and a regression
model. Credit risk for small business loans is analyzed in a similar manner,
but a risk rating migration analysis, rather than delinquency and one year of
forecasted net losses, serves as the basis for the reserve. A sovereign risk analysis, which assesses the cross-border risk of
credit loss, is performed as part of our re-


view of our international commercial
and consumer loan portfolios. Testing of forecasted net credit losses and specific allocations of the
reserve is performed quarterly. As a result, adjustments to reserve
allocations for specific segments of the lending portfolio may be made,
depending on the accuracy of forecasted net credit losses and other credit- or
policy-related issues. The process we use to determine the appropriate level of the overall
reserve for credit losses is based on this analysis, augmented by managements
judgment as to the uncertainties involved. This reserving methodology is
reviewed on a periodic basis and modified as appropriate. Based on this
analysis, including the aforementioned assumptions, management believes that
the reserve for credit losses is adequate as of December 31, 2002. An integral component of our risk management process is allocating the
reserve for credit losses to components of the lending portfolio based upon an
analysis of risk characteristics, demonstrated losses, loan segmentations and
other factors. The unallocated component of the reserve for credit losses
represents managements view that, given the complexities of the lending
portfolio, there are estimable probable losses that have been incurred within
the lending portfolio but not yet specifically identified and, as a result, are
not fully captured in the allocated portions of the reserve. This unallocated
reserve may change periodically after evaluating factors impacting assumptions
utilized in the allocated reserve calculations, such as industry
concentrations, recent loss experience and the impact of current economic
conditions on historical or forecasted net credit losses. Although the
unallocated portion of the reserve is provided to absorb losses in excess of
the amounts allocated to specific lending categories, both allocated and
unallocated components are available to absorb losses in any lending category.
At December 31, 2002, the allocated reserve for credit losses amounted to 94%
of the total reserve for credit losses, compared to 96% at December 31, 2001. For more information about the estimates and assumptions used in the
determination of the reserve for credit losses, refer to the Significant
Accounting Policies section of this discussion and analysis.




Reserve for Credit Losses Allocation

|                        |                   |        |       |             |  |        |              |             |  |        |       |             |              |        |        |             |  |        |              |             |  |  |        |      |              |   |       |    |  |  |              |      |  |   |       |     |  |  |        |      | 
|----------------------- | ----------------- | ------ | ----- | ----------- |  | ------ | ------------ | ----------- |  | ------ | ----- | ----------- | ------------ | ------ | ------ | ----------- |  | ------ | ------------ | ----------- |  |  | ------ | ---- | ------------ | - | ----- | -- |  |  | ------------ | ---- |  | - | ----- | --- |  |  | ------ | ---- | 
|                       
|December 31             |                   | 2002   |       | 2001        |  | 2000   |              | 1999        |  | 1998  
|                       
|                        |                   |        |       |             |  |        | Percent of   |             |  |        |       |             | Percent of   |        |        |             |  |        | Percent of   |             |  |  |        |      | Percent of   |   |       |    |  |  | Percent of  
|                        |                   |        |       |             |  |        | Loan Type to |             |  |        |       |             | Loan Type to |        |        |             |  |        | Loan Type to |             |  |  |        |      | Loan Type to |   |       |    |  |  | Loan Type to
|Dollars in millions     |                   | Amount |       | Total Loans |  | Amount |              | Total Loans |  | Amount |       | Total Loans |              | Amount |        | Total Loans |  | Amount |              | Total Loans
|                       
|C&I                     |                   | $      | 1,448 |             |  |        | 32.70        | %           |  | $      | 1,563 |             |              |        | 38.19  | %           |  | $      | 1,500        |             |  |  | 41.95  | %    |              | $ | 1,577 |    |  |  | 44.32        | %    |  | $ | 1,065 |     |  |  | 46.28  | %   
|CRE:                    |                   |        |       |             |  |        |              |             |  |        |       |             |              |        |        |             |  |        |              |             |  |  |        |      |              |   |       |    |  |  |              |      |  |   |       |     |  |  |        |     
|                        | Construction      |        |       | 25          |  |        |              | 1.67        |  |        |       | 33          |              |        |        | 2.14        |  |        |              | 20          |  |  |        | 1.44 |              |   |       | 16 |  |  |              | 1.17 |  |   |       | 19  |  |  |        | .98  | 
|                        | Interim/permanent |        |       | 69          |  |        |              | 7.47        |  |        |       | 45          |              |        |        | 6.93        |  |        |              | 72          |  |  |        | 7.26 |              |   |       | 72 |  |  |              | 6.65 |  |   |       | 106 |  |  |        | 7.37 | 
|Residential real estate |                   |        | 28    |             |  |        | 9.21         |             |  |        | 40    |             |              |        | 6.40   |             |  |        | 26           |             |  |  | 8.54   |      |              |   | 40    |    |  |  | 11.65        |      |  |   | 50    |     |  |  | 12.67  |     
|Consumer                |                   |        | 398   |             |  |        | 26.65        |             |  |        | 407   |             |              |        | 18.97  |             |  |        | 357          |             |  |  | 18.39  |      |              |   | 413   |    |  |  | 18.05        |      |  |   | 718   |     |  |  | 17.89  |     
|Lease financing         |                   |        | 301   |             |  |        | 9.30         |             |  |        | 223   |             |              |        | 9.74   |             |  |        | 152          |             |  |  | 8.83   |      |              |   | 112   |    |  |  | 6.99         |      |  |   | 31    |     |  |  | 3.85   |     
|International           |                   |        | 1,349 |             |  |        | 13.00        |             |  |        | 1,179 |             |              |        | 17.63  |             |  |        | 329          |             |  |  | 13.59  |      |              |   | 353   |    |  |  | 11.17        |      |  |   | 242   |     |  |  | 10.96  |     
|Unallocated             |                   |        | 246   |             |  |        |             |             |  |        | 144   |             |              |        |       |             |  |        | 253          |             |  |  |       |      |              |   | 233   |    |  |  |             |      |  |   | 397   |     |  |  |       |     
|                       
|Total                   |                   | $      | 3,864 |             |  |        | 100.00       | %           |  | $      | 3,634 |             |              |        | 100.00 | %           |  | $      | 2,709        |             |  |  | 100.00 | %    |              | $ | 2,816 |    |  |  | 100.00       | %    |  | $ | 2,628 |     |  |  | 100.00 | %   
|                       

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During 2002, we experienced a decline in consolidated loans and lease financing
of $6.6 billion, or 5.2%. Our reserve for credit losses increased $230 million
from December 31, 2001 to $3.9 billion at December 31, 2002. The ratio of the
consolidated reserve for credit losses to period-end loans and leases was 3.21%
at December 31, 2002, compared to 2.86% at December 31, 2001. The 6% increase
in the level of the reserve for credit losses was primarily the result of
provisions related to domestic commercial credit and the economic conditions in
Latin America. While we remain concerned with continued weakness in the U.S.
economy, continuing economic instability in Argentina, and other uncertainties,
we anticipate a lower level of credit costs in 2003 compared to 2002 due to the
current level of the reserve for credit losses and managements efforts to
reduce risk exposures. To the degree that the economic environment improves,
credit costs in 2003 could further decline. Additional information concerning
the provision for credit losses is included in the Provision for Credit Losses
section of this discussion and analysis. Reserve for Credit Losses Activity Domestic Year ended December 31
    
    2002
    
    2001
    
    2000
    
    1999
    
    1998In millionsBalance at beginning of year
    
    $
    2,455
    
    
    $
    2,380
    
    
    $
    2,463
    
    
    $
    2,386
    
    
    $
    2,251Gross charge-offs:C&I
    
    
    1,604
    
    
    
    944
    
    
    
    877
    
    
    
    521
    
    
    
    265CRE
    
    
    12
    
    
    
    4
    
    
    
    7
    
    
    
    19
    
    
    
    28Residential real estate
    
    
    2
    
    
    
    2
    
    
    
    7
    
    
    
    17
    
    
    
    30Other consumer
    
    
    113
    
    
    
    135
    
    
    
    137
    
    
    
    173
    
    
    
    196Credit card
    
    
    279
    
    
    
    279
    
    
    
    273
    
    
    
    373
    
    
    
    372Lease financing
    
    
    158
    
    
    
    76
    
    
    
    44
    
    
    
    47
    
    
    
    1Total gross charge-offs
    
    
    2,168
    
    
    
    1,440
    
    
    
    1,345
    
    
    
    1,150
    
    
    
    892Recoveries:C&I
    
    
    122
    
    
    
    97
    
    
    
    118
    
    
    
    90
    
    
    
    84CRE
    
    
    3
    
    
    
    7
    
    
    
    11
    
    
    
    20
    
    
    
    36Residential real estate
    
    
    2
    
    
    
    1
    
    
    
    6
    
    
    
    5
    
    
    
    6Other consumer
    
    
    34
    
    
    
    29
    
    
    
    41
    
    
    
    45
    
    
    
    50Credit card
    
    
    21
    
    
    
    32
    
    
    
    33
    
    
    
    38
    
    
    
    32Lease financing
    
    
    22
    
    
    
    12
    
    
    
    7
    
    
    
    8
    
    
    
    2Total recoveries
    
    
    204
    
    
    
    178
    
    
    
    216
    
    
    
    206
    
    
    
    210Net charge-offs
    
    
    1,964
    
    
    
    1,262
    
    
    
    1,129
    
    
    
    944
    
    
    
    682Provision for credit losses
    
    
    2,042
    
    
    
    1,350
    
    
    
    1,206
    
    
    
    865
    
    
    
    692Acquired/divestitures/other
    
    
    (18
    )
    
    
    (13
    )
    
    
    (160
    )
    
    
    156
    
    
    
    125Balance at end of year
    
    $
    2,515
    
    
    $
    2,455
    
    
    $
    2,380
    
    
    $
    2,463
    
    
    $
    2,386 Domestic net charge-offs were $2 billion in 2002 compared to $1.3 billion in
2001, an increase of $702 million, or 56%. This increase was mainly in C&I,
attributable to weakness in certain industry sectors and in various
well-publicized individual corporate and telecommunication credits. These same
factors were primarily responsible for the domestic provision for credit losses
increasing from 2001.


International Year ended December 31
    
    2002
    
    2001
    
    2000
    
    1999
    
    1998In millionsBalance at beginning of year
    
    $
    1,179
    
    
    $
    329
    
    
    $
    353
    
    
    $
    242
    
    
    $
    189Gross charge-offs:Commercial
    
    
    446
    
    
    
    55
    
    
    
    41
    
    
    
    66
    
    
    
    132Consumer
    
    
    81
    
    
    
    119
    
    
    
    123
    
    
    
    121
    
    
    
    91Total gross charge-offs
    
    
    527
    
    
    
    174
    
    
    
    164
    
    
    
    187
    
    
    
    223Recoveries:Commercial
    
    
    10
    
    
    
    12
    
    
    
    16
    
    
    
    77
    
    
    
    12Consumer
    
    
    21
    
    
    
    38
    
    
    
    40
    
    
    
    30
    
    
    
    23Total recoveries
    
    
    31
    
    
    
    50
    
    
    
    56
    
    
    
    107
    
    
    
    35Net charge-offs
    
    
    496
    
    
    
    124
    
    
    
    108
    
    
    
    80
    
    
    
    188Provision for credit losses
    
    
    718
    
    
    
    974
    
    
    
    84
    
    
    
    191
    
    
    
    215Acquired/divestitures/other
    
    
    (52
    )
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    26Balance at end of year
    
    $
    1,349
    
    
    $
    1,179
    
    
    $
    329
    
    
    $
    353
    
    
    $
    242 International net charge-offs were $496 million in 2002 compared to $124
million in 2001, an increase of $372 million, or 300%. Argentina represented
$342 million of the 2002 net charge-offs compared to $101 million in 2001. In
addition, in the fourth quarter of 2002 we recorded a $60 million charge-off
related to the U.K.-based subsidiary of a U.S. energy company. As discussed in the Provision for Credit Losses section of this discussion
and analysis, in 2002 we recorded provisions for credit losses to reflect
economic conditions in Latin America. Reserves for credit losses allocated to
Argentina amounted to $870 million at December 31, 2002 compared to $927
million at December 31, 2001, and the year-end 2002 reserve included an ATRR
required by banking regulators. Reserves allocated to Brazil were $350 million
and $90 million at December 31, 2002 and 2001, respectively. You can read more
detailed information about the Argentine ATRR in the Country Risk section of
this discussion and analysis. Liquidity Risk Management General Liquidity risk is defined as the risk of loss arising from our inability to
meet known near-term and projected long-term funding commitments. A related
liquidity risk is not having sufficient funds to meet financial commitments
under sudden and unexpected adverse conditions. The objective of liquidity risk management is to ensure our ability to
meet our financial obligations. These obligations are the payment of deposits
on demand or at their contractual maturity; the repayment of borrowings as they
mature; the payment of lease obligations as they become due; the ability to
fund new and existing loan and other funding commitments; and the ability to
take advantage of new business opportunities. ALCCCO is responsible for
implementing the policies and guidelines of the Board governing liquidity.
U.S. dollar liquidity management is centralized in our Treasury unit in Boston,
with overseas operations managing their own local currency liquidity
requirements. Liquidity is achieved by the maintenance of a strong base of core customer
funds; maturing short-term assets; the ability to sell marketable securities;
and access to




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capital markets. Liquidity may also be enhanced through the securitization of
commercial and consumer receivables. Liquidity is measured and monitored
daily, allowing management to better understand and react to balance sheet
trends. On a monthly basis, a comprehensive liquidity analysis is reviewed by
ALCCCO. The analysis provides a summary of the current liquidity measurements,
projections and future liquidity positions given various levels of liquidity
stress. Management also maintains a detailed liquidity contingency plan
designed to respond to an overall decline in the condition of the banking
industry or a problem specific to FleetBoston. Parent company and bank liquidity are managed separately. The primary
sources of liquidity for the parent company are interest and dividends from
subsidiaries, access to the money and debt capital markets and short-term
liquid assets. Dividends from banking subsidiaries are limited by various
regulatory requirements related to capital adequacy and retained earnings.
More information about these restrictions is included in Note 12 of the Notes
to Consolidated Financial Statements included under Item 8 of this Report. The primary sources of liquidity for our banking subsidiaries are cash
flows from operations, core deposits, borrowings and short-term high-quality
liquid assets. Liquidity at the bank level is managed through the monitoring
of anticipated changes in loans, core deposits and wholesale funds.
Diversification of liquidity sources by maturity, market, product and funds
provider are mandated through ALCCCO guidelines. The strength of the banking
subsidiaries liquidity position is their base of core customer deposits.
These core deposits are supplemented by wholesale funding sources in the
capital markets, as well as from direct customer contacts. Wholesale funding
sources include large certificates of deposit, foreign branch deposits, federal
funds, collateralized borrowings and a $10 billion domestic bank note program.
Non-banking subsidiaries rely primarily on cash flows from operations,
short-term liquid assets and funds from the parent company. At December 31, 2002, the parent company had commercial paper outstanding
of $938 million, compared with $895 million at December 31, 2001. The parent
company had short-term liquid assets of $4 billion at December 31, 2002 and
$3.2 billion at December 31, 2001. Short-term liquid assets include deposits
placed by the parent company with its banking subsidiaries. It is the parent
companys policy to maintain short-term assets at an amount sufficient to meet
payment of its short- and long-term debt maturities and net cash operating
shortfall over a 12-month period. The parent company had $1.9 billion available for the issuance of common
stock, preferred stock or trust preferred securities, senior or subordinated
securities and other debt securities at December 31, 2002 under an effective
shelf registration statement filed with the SEC. Availability under this shelf
registration was $1.4 billion at February 28, 2003.


FleetBostons ability to maintain consistent access to liquidity is
fostered by strong debt ratings from the major credit rating agencies. Factors
essential to retaining high credit ratings include strong capital ratios and
credit quality, diverse and stable core earnings, diverse liquidity sources and
strong liquidity monitoring procedures. A downgrade or loss in credit ratings
could have an impact on our ability to access wholesale funding at favorable
interest rates. The following table presents the long- and short-term debt
ratings of the parent company and its principal banking subsidiary, Fleet
National Bank, or FNB, at December 31, 2002. Debt Ratings Moody's
    
    S&P
    
    FitchParent company short-term debt
    
    P-1
    
    A-1
    
    F1FNB short-term debt
    
    Aa3
    
    A-1
    
    F1Parent company long-term debt
    
    A1
    
    A
    
    AFNB long-term debt
    
    Aa3
    
    A+
    
    AParent company subordinated
debt
    
    A2
    
    A-
    
    A-FNB subordinated debt
    
    A1
    
    A
    
    A-Parent company trust preferred
    
    A2
    
    BBB+
    
    A- In January 2003, after we pre-announced our earnings for the fourth quarter of
2002, Fitch and Moodys affirmed their current ratings while maintaining their
current outlooks of stable and negative, respectively. While S&P placed us on
CreditWatch with negative implications in January 2003, they removed us from
CreditWatch after meeting with management in February 2003 to review their
concerns, and affirmed their current ratings with a negative outlook. We do
not anticipate that these actions will have a material impact on our financial
performance. Funding Sources We have established a number of statutory business trusts, the sole purpose of
which is to issue trust preferred securities and invest the proceeds in junior
subordinated debentures issued by the parent company. The parent company has
fully and unconditionally guaranteed each trusts obligations under the trust
securities. The trusts are included in our consolidated financial statements,
and the trust securities are included in long-term debt in the consolidated
balance sheet. Additional information concerning these trust preferred
securities is included in Note 9 of the Notes to Consolidated Financial
Statements included under Item 8 of this Report. Another important source of funding is the securitization market. During
2002, approximately $1 billion of commercial loans and $2.3 billion of credit
card receivables were securitized. In 2001, approximately $750 million of home
equity loans and $2.6 billion of credit card receivables were securitized.
Generally, in a securitization, we transfer financial assets, such as
commercial loans, credit card receivables or home equity loans, to qualifying
special purpose entities, or QSPEs, which




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are legally isolated from FleetBoston. The QSPEs, in turn, sell securities to
investors, which entitle them to receive specified cash flows during the term
of the security. The proceeds from the sale of securities are then distributed
by the QSPEs to FleetBoston as consideration for the loans transferred. At December 31, 2002, the QSPEs held aggregate assets of approximately
$18.2 billion, composed of approximately $12.2 billion of credit card
receivables, $5.6 billion of commercial loans and $443 million of home equity
loans, and the aggregate outstanding debt securities issued by the QSPEs were
$15.2 billion. Our retained interests in the QSPEs which are not subordinated
to the claims of investors are included in loans in our consolidated balance
sheet. At December 31, 2001, the QSPEs held aggregate assets of $17.9 billion
and had aggregate outstanding debt securities totaling $14.6 billion. We hold subordinated interests in the net assets of the QSPEs, which
provide credit enhancement to the investors in the outstanding debt securities.
At December 31, 2002 and 2001, these subordinated interests included residual
positions such as interest-only strips and certain subordinated principal
balances of $280 million and $278 million, respectively; accrued interest and
fees receivable of $320 million and $334 million, respectively; and other
interests, including subordinated debt securities, overcollateralization
positions and cash collateral accounts of $317 million and $329 million,
respectively. The subordinated interests, which are included in our
consolidated balance sheets, represent our maximum exposure related to the debt
securities issued by the QSPEs. Investors in the securities have no further
recourse against us if cash flows generated by the securitized assets are
inadequate to service the obligations of the QSPEs. We also securitize certain lease financing receivables, which totaled
approximately $682 million and $748 million at December 31, 2002 and 2001,
respectively, through third party conduits. The lease financing receivables
are first sold to a bankruptcy-remote subsidiary of FleetBoston, which then
sells an interest in the receivables to third party conduits. The conduits, in
turn, sell commercial paper to investors to fund the purchase of the
receivables from FleetBoston. At FleetBostons option, cash proceeds received
from lessees can be reinvested by the conduits in additional lease receivables
originated by FleetBoston. We hold retained subordinated interests in the lease receivables,
primarily in the form of overcollateralization positions, which provide credit
enhancement to the third party conduits. These retained interests, which
totaled $36 million and $38 million at December 31, 2002 and 2001,
respectively, are included in our consolidated balance sheet and represent our
maximum risk exposure associated with the securitized lease receivables. The
assets sold to the conduits are not included in our consolidated balance sheet. Additional information concerning securitizations is included in Note 17
of the Notes to Consolidated Financial Statements included under Item 8 of
this Report.


The following table presents
consolidated information related to our funding sources for the last two years. Components of Funding Sources December 31
    
    2002
    
    2001In millionsDeposits:Domestic:Demand
    
    $
    18,909
    
    
    $
    20,566Regular savings and NOW
    
    
    14,971
    
    
    
    9,047Money market
    
    
    63,784
    
    
    
    57,745Time
    
    
    17,029
    
    
    
    22,627International
    
    
    11,121
    
    
    
    17,745Total deposits
    
    
    125,814
    
    
    
    127,730Short-term borrowings:Federal funds purchased
    
    
    1,440
    
    
    
    1,341Securities sold under agreements
to repurchase
    
    
    5,920
    
    
    
    7,895Commercial paper
    
    
    1,109
    
    
    
    1,245Other
    
    
    2,841
    
    
    
    4,098Total short-term borrowings
    
    
    11,310
    
    
    
    14,579Due to brokers/dealers
    
    
    4,297
    
    
    
    4,772Long-term debt
    
    
    20,581
    
    
    
    25,530Total
    
    $
    162,002
    
    
    $
    172,611 Certificates of deposit and other time deposits issued by domestic offices in
amounts of $100,000 or more as of December 31, 2002 will mature as presented in
the following table. Maturity of Time Deposits  Domestic(a) December 31, 2002
    
    
    
    
    
    OtherIn millions
    
    Certificates
    
    TimeRemaining maturity
    
    of Deposit
    
    Deposits3 months or less
    
    $
    2,445
    
    
    $
    3,6783 to 6 months
    
    
    561
    
    
    
    116 to 12 months
    
    
    589
    
    
    
    2Over 12 months
    
    
    1,226
    
    
    
    Total
    
    $
    4,821
    
    
    $
    3,691(a)     The majority of foreign office deposits are in denominations of $100,000
or more. Contractual Obligations and Commitments The following table presents our contractual cash obligations at December 31,
2002, which, except for long-term debt, are not included in our consolidated
balance sheet. Contractual Cash Obligations Payments Due by PeriodUnder 1
    
    1-3
    
    4-5In millions
    
    Total
    
    year
    
    years
    
    years
    
    After 5 yearsLong-term debt(a)
    
    $
    20,581
    
    
    $
    4,704
    
    
    $
    8,229
    
    
    $
    2,317
    
    
    $
    5,331Operating
leases(b)
    
    
    1,774
    
    
    
    304
    
    
    
    741
    
    
    
    330
    
    
    
    399Total contractual
cash obligations
    
    $
    22,355
    
    
    $
    5,008
    
    
    $
    8,970
    
    
    $
    2,647
    
    
    $
    5,730 (a)
    
    Includes capital lease obligations.(b)
    
    Represents minimum annual rental commitments exclusive of taxes and other
charges. Certain operating leases contain escalation clauses, which correspond with
increased real estate taxes and other operating expenses, and renewal options
calling for increased rents as the leases are renewed. No restrictions are
imposed by any lease agreement regarding the pay-




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ment of dividends, additional debt financing, or entering into further lease
agreements. Additional information concerning contractual cash obligations is included
in Notes 9 and 10 of the Notes to Consolidated Financial Statements included
under Item 8 of this Report. The following table presents our other commercial commitments at December
31, 2002. These commitments are not included in our consolidated balance
sheet. Commercial Commitments Amount of Commitment Expiration Per PeriodTotal
    
    Under
    
    1-3
    
    4-5In millions
    
    Committed
    
    1 year
    
    years
    
    years
    
    After 5 yearsCommitments to extend
credit, including backup
liquidity lines
    
    $
    65,285
    
    
    $
    32,726
    
    
    $
    27,140
    
    
    $
    4,158
    
    
    $
    1,261Letters of credit,
financial
guarantees and foreign
office guarantees (net of
participations)
    
    
    13,813
    
    
    
    9,459
    
    
    
    3,254
    
    
    
    791
    
    
    
    309Other commercial
commitments
    
    
    1,610
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    n/aTotal commercial
commitments
    
    $
    80,708
    
    
    $
    42,185
    
    
    $
    30,394
    
    
    $
    4,949
    
    
    $
    1,570 n/a  not applicable
 Commitments to extend credit are agreements to lend to customers in accordance
with contractual provisions. These commitments usually are for specific
periods or contain termination clauses and may require the payment of a fee.
The total amounts of unused commitments do not necessarily represent future
cash requirements, in that commitments often expire without being drawn upon. Letters of credit and financial guarantees are agreements whereby we
guarantee the performance of a customer to a third party. Collateral may be
required to support letters of credit in accordance with managements
evaluation of the creditworthiness of each customer. The credit exposure
assumed in issuing letters of credit is essentially equal to that assumed in
other lending activities. Management does not anticipate any significant
losses as a result of these transactions. Other commercial commitments represent unfunded commitments of our
Principal Investing business. Such commitments relate to investment fund
partnerships and are drawn down periodically throughout the life of the fund. We may also have liabilities under certain contractual agreements
contingent upon the occurrence of certain events. Information concerning
significant contractual arrangements under which FleetBoston may be held
contingently liable, including guarantee arrangements, as well as additional
information about the commercial commitments disclosed in this section, is
included in Note 10 of the Notes to Consolidated Financial Statements
included under Item 8 of this Report.


Off-Balance Sheet Arrangements We are also exposed to liquidity risk as a provider of financial services to
our corporate customers by our Corporate Banking business unit. We provide
access to liquidity for such customers through asset-backed commercial paper
programs. These programs utilize special purpose entities which, at the
request, or on behalf, of customers, may purchase financial assets directly
from those customers or from third parties, or make loans or invest in debt
securities secured by the financial assets of customers. The special purpose
entities, or conduits, finance this activity through the issuance of rated
commercial paper to third party investors. We do not sell our own assets to
these conduits, and the assets and obligations of the conduits are not included
in our consolidated balance sheet. We receive fees for structuring financial
transactions for our customers, and for the provision of administrative
services, backup liquidity lines and direct credit support to the conduits. In
2002 and 2001, these fees totaled approximately $56 million and $51 million,
respectively. At both December 31, 2002 and 2001, these conduits had aggregate assets of
approximately $6.2 billion, primarily loans and debt securities, and aggregate
liabilities outstanding, primarily commercial paper, of $6.2 billion. The
assets of the conduits are generally of investment grade quality and are
typically secured by other financial assets, such as leases, trade receivables,
or cash held as collateral. Based on commitments of the conduits to their
customers at December 31, 2002, the conduits could be required to provide
additional funding totaling $2.1 billion. The commercial paper outstandings and commitments of the conduits to
provide additional funding are supported by backup liquidity lines of credit
provided by FleetBoston and third parties. We have provided backup liquidity
lines totaling $3.7 billion at December 31, 2002. No amounts were outstanding
under these liquidity lines at December 31, 2002. We also provide direct
credit support to the conduits in the form of credit derivative contracts,
which had a notional amount of $2.2 billion at December 31, 2002, or financial
standby letters of credit, which totaled approximately $281 million at December
31, 2002. To mitigate risk, we have entered into offsetting credit derivative
contracts with third parties, and held cash collateral totaling $734 million at
December 31, 2002. The backup liquidity lines and financial standby letters of
credit are included in the preceding commercial commitments table. More
information about our use of credit derivative contracts is included in Note 13
of the Notes to Consolidated Financial Statements included under Item 8 of
this Report. The overall potential impact of the risk to liquidity of these commercial
paper programs is included in the monthly liquidity analysis more fully
discussed earlier in this section.




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We also provide asset management and related services to other special
purpose vehicles unrelated to the conduits utilized by the commercial paper
programs. These vehicles invest in financial assets such as loans and bonds on
behalf of third parties. Assets under management totaled approximately $3.6
billion and $3.1 billion at December 31, 2002 and 2001, respectively. We
generally do not sell our own assets to these asset management vehicles, nor do
we guarantee the obligations or otherwise provide credit enhancements to them.
At December 31, 2002 and 2001, FleetBoston held equity investments in these
vehicles of approximately $18 million and $12 million, respectively.
FleetBoston provides backup liquidity lines, which totaled $95 million at
December 31, 2002, to two of these vehicles. At December 31, 2002, no amounts
were outstanding under these liquidity lines. FleetBoston has no other
exposure to loss associated with these asset management vehicles, and their
assets and liabilities are not included in our consolidated balance sheet. In
2002 and 2001, we received aggregate management fees from these asset
management vehicles totaling approximately $12 million and $11 million,
respectively. Summary Material risks to the sources of short-term liquidity would include, among
other things, rating agency downgrades of our deposits and debt securities
below investment grade, and unanticipated funding requirements, such as
guarantees of third party debt. As of December 31, 2002, there were no
circumstances that management considered reasonably likely to occur that would
affect our sources of short-term liquidity. Based upon our level of short- and long-term liquid assets and our ability
to access the capital markets for additional funding when necessary, including
our ability to issue debt and equity securities under our current shelf
registration, management considers overall liquidity at December 31, 2002
sufficient to meet FleetBostons current obligations to customers and debt
holders, support expectations for future changes in asset and liability levels
and carry on normal operations. Market Risk Management Market risk is defined as the sensitivity of income and capital to variations
in interest rates, foreign exchange rates, equity prices, commodity prices and
other market-driven rates or prices. We are exposed to market risk both in our
trading activities and in our non-trading, or balance sheet management,
activities. The market risk management processes for these activities apply to
both balance sheet and off-balance sheet exposures. Additional information
concerning our management of the equity price risk associated with our
principal investing portfolio is included in the Capital Markets Revenue
section of this discussion and analysis.


Trading Activities The financial information included in this Trading Activities section includes
discontinued operations, unless otherwise noted. Our market risk management process for our trading activities applies to
all forms of price risk, or the risk of loss in earnings arising from adverse
changes in the value of financial instrument trading portfolios. The Board
approves policies concerning our tolerance for these risks, and ALCCCO issues
overall strategic direction to specify the extent to which we can utilize any
of the Board-approved limits. The Market Risk Committee, or MRC, chaired by
the Executive Director, Market Risk Management, allocates the overall risk
limits for trading portfolios to individual lines of business. Senior
management from these lines of business evaluates risk-taking activities, and
ensures that actual exposures remain consistent with approved policies and
limits. Market Risk Management provides an independent view of the
identification, measurement, monitoring and control of price risk in trading
activities. Market Risk Management has a group of Risk Managers that develop
specialized expertise and in-depth knowledge of our trading lines of business,
and work with business managers to set policies that reflect an appropriate
framework for risk measurement, risk monitoring and reporting processes, and
risk control structures. These Risk Managers ensure compliance with
established policies and risk limit structures on a daily basis, and evaluate
relevant market conditions and business initiatives as part of the monitoring
process. As warranted, the Risk Managers review and assess proposals to alter
the existing risk profile through both new products and services or significant
modifications to existing products and services, thereby ensuring that the
appropriate risk management oversight and infrastructure exists prior to
commencement of the activity. In addition, Market Risk Management contains a Capital Markets Analytics
group that develops market risk measurement methodologies and models, estimates
risk factors and analyzes dynamic market data for use within these models, and
conducts all model validations that include ascertaining model appropriateness
and testing actual model performance. Both of Market Risk Managements above-described groups rely on a separate
risk information department that provides reports on trading exposures on a
corporate-wide basis. Our exposure to price risk arises in the normal course of our business as
a financial intermediary. We enter into interest rate, currency exchange,
equity and precious metals contracts primarily to satisfy the investment and
risk management needs of our customers. In addition, we take certain proprietary trading positions, including
positions in investment grade and high yield fixed-income securities, local
currency debt and equity securities, and related derivative instruments. We
expect these positions to benefit from short-term move-




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ments in the prices of securities and from perceived inefficiencies among the
prices of various securities issued by the same country or entity. Domestic
fixed-income trading activities also include position-taking in U.S. Treasury
and U.S. government agency securities. We evaluate the overall profitability of our trading positions by
measuring trading-related revenues, which include the daily change in the
mark-to-market value of these portfolios, net interest income and other related
revenues. The following histogram presents the distribution of aggregate daily
trading-related revenues, in millions of dollars, that resulted from our
combined trading activities during 2002. Trading-related revenues include
trading profits and commissions, foreign exchange revenue and market-making
revenue, which are all components of capital markets revenue, as well as net
interest income from these trading positions. (BAR CHART) 2002 presented a unique set of challenges that stemmed from our organizational
re-alignments as well as from market conditions in 2001 that continued into
2002. As a year of challenges and transitions, 2002 included Latin American
political turmoil, a re-emphasis of our corporate strategy, and U.S. economic
concerns. These considerations had a direct and immediate impact on our risk
profile and our risk management processes. With our decisions to exit certain
markets in order to re-deploy capital to our core businesses and reduce
earnings volatility, we scaled back outstanding positions and curtailed further
risk-taking during the latter part of the year. As would be expected, a
difficult market environment and a lower tolerance for risk-taking clearly
impacted our revenue performance. Nevertheless, as shown in the chart above,
our risk management discipline effectively controlled the size and extent of
negative trading results. To measure the overall price risk inherent in our trading activities, we
use a Value-at-Risk, or VAR, methodology, based on industry-standard risk
measurement techniques. We draw on historical and current market data to
estimate potential market volatility, and measure the risk to earnings at a 99%
confidence level, which


means that we expect daily results to exceed the
potential loss as calculated by VAR only occasionally (i.e., no more than one
time for at least 100 trading days). Our VAR methodology includes holding periods for each position based upon
an assessment of relative trading market liquidity for each instrument, and a
conservative view of cross-product correlations that does not reflect the full
diversification benefits of positions taken across different trading
businesses. In light of the challenging set of trading conditions during 2002,
we actively enhanced our processes for price risk measurement and monitoring
against approved limits. These enhancements included more frequent reviews of
holding period assumptions and risk limits, as well as refinements of our
exposure measurement techniques to assess complex financial instruments. The table below presents the exposure of our combined trading portfolios. Value-at-Risk (VAR) In millions
    
    Average
    
    High
    
    LowYear ended December 31, 2002
    
    $
    72
    
    
    $
    135
    
    
    $
    28Year ended December 31, 2001
    
    
    38
    
    
    
    54
    
    
    
    28 At December 31, 2002, total VAR usage measured $57 million. In no instance did
our daily VAR measure exceed the Boards approved limit. The following table summarizes our aggregate average VAR by risk type for
the periods presented. Average VAR for commodity risk remained insignificant
for the periods shown. VAR by Risk Type 2002
    
    2001In millions
    
    Average
    
    AverageInterest rate risk
    
    $
    16
    
    
    $
    22Equity risk
    
    
    5
    
    
    
    9Foreign exchange
risk
    
    
    51
    
    
    
    7Aggregate price risk
    
    $
    72
    
    
    $
    38 During 2002, most of the price risk in our trading activities arose from
foreign exchange trading. The majority of foreign exchange risk related to our
Argentine currency position, which reflected prevailing economic conditions and
Argentine government measures implemented during the year. These local
government actions led to a significant reduction in market liquidity and the
imposition of legal impediments to our ability to reduce our exposure, which
resulted in an overall increase in our price risk during the year. Additional
information concerning this currency position is included in the Country Risk
section of this discussion and analysis. Risk from interest rate activities, which includes directional and spread
components, arose primarily from trading activity in various domestic
fixed-income markets, the Brazilian sovereign and high-end corporate bond
markets, and some exposure to fixed-income markets in the Asia-Pacific region. The contribution to VAR from equity trading activities during 2002
declined significantly, as we discontin-




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ued some of our equity-oriented lines of business. Our leading NYSE specialist
firm generated most of these risks, with some contribution from the convertible
bond trading and underwriting business, as well as our NASDAQ market-making
activities. On a continuing operations basis, aggregate VAR averaged $67 million daily
and ranged from a high of $131 million to a low of $21 million. At December
31, 2002, total VAR usage measured $57 million. Foreign exchange activities
generated about 76% of the aggregate VAR, while smaller portions of the
combined risk arose from interest rate (20%) and equities (4%) activities. Our independent Market Risk Management function routinely validates our
measurement framework by conducting backtests, which compare the actual daily
trading-related results against the estimated VAR with a one-day holding
period. The following graph presents this comparison for the twelve months
ended December 31, 2002. In no instance did a daily aggregate trading loss
exceed the one-day aggregate VAR measure associated with that date, which
compares very favorably with our expectation for less than three such breaches. (LINE GRAPH) On March 27, 2002, we suffered our largest single day trading loss in over
three years, primarily due to Argentine exposures. On the strength of our
diversified set of trading businesses, we more than recovered the loss during
the following trading days, and the loss did not cause an overall breach of our
risk measurement model. In addition to the VAR framework, we employ other risk measurement tools
to evaluate and control price risk. These tools include cumulative loss limits
and overall portfolio size limits, as well as regular stress tests and scenario
analyses. Stress testing involves modifying the VAR models assumptions to
reflect rare events that have the potential for high impact. Scenario analyses
involve calculating the impact of a pre-determined set of events, irrespective
of their statistical likelihood of occurrence. Such analyses may reflect
historically observed market changes, incorporate specific scenarios that
reflect some judgment about potential market conditions or identify the


kind of
scenario that would cause the most harm to existing positions. During 2002, we
regularly evaluated and revised, as appropriate, these tests and analyses in
light of ongoing market developments and conditions. While the VAR framework and the additional risk measurement tools
effectively ensure exposures remain within our expressed tolerance for price
risk, they do not guarantee the avoidance of trading losses during periods of
extreme volatility. Balance Sheet Management Activities U.S. Dollar Denominated Risk Management U.S. dollar denominated assets and liabilities comprise the majority of our
balance sheet. Interest rate risk, defined as the exposure of net income and
financial condition to adverse movements in interest rates, is by far the most
significant non-trading market risk to which our U.S. dollar denominated
positions are exposed, and this risk results almost entirely from domestic
operations. The primary goal of interest rate risk management is to control exposure
to interest rate risk, both within limits approved by the Board and within
narrower guidelines approved by ALCCCO. These limits and guidelines reflect
our tolerance for interest rate risk over both short-term and long-term time
horizons. The major source of our non-trading interest rate risk is the difference
in the maturity and repricing characteristics between core banking assets and
liabilities  loans and deposits. This difference, or mismatch, poses a risk
to net interest income. We control this risk by identifying and quantifying
exposures through the use of sophisticated simulation and valuation models, as
well as simpler gap analyses, reflecting the known or assumed maturity,
repricing, and other cash flow characteristics of assets and liabilities.
These exposures are hedged using mainly fixed-rate portfolio securities,
interest rate swaps and options, and, when appropriate, forward rate
agreements, options on swaps, and exchange-traded futures and options. Simulation analysisinvolves dynamically modeling interest income and
expense from current assets, liabilities and derivative positions over a
specified time period under various interest rate scenarios and balance sheet
structures, primarily to measure the sensitivity of net interest income over
relatively short (e.g., <3-year) time horizons. Key assumptions in these
simulation analyses (and in the valuation analyses discussed below) relate to
the behavior of interest rates and spreads, the growth or shrinkage of product
balances and the behavior of deposit and loan customers, with the most material
assumptions relating to repricing and/or runoff of noncontractual deposits as
well as the prepayment of mortgage assets. As the future path of interest rates cannot be known in advance,
management uses simulation analysis to project earnings under various interest
rate scenarios including reasonable or most likely, as well as deliberately
extreme and perhaps unlikely, scenarios. Thus, the analy-




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ses may include immediate interest rate shocks, gradual interest rate
ramps, spread narrowings/widenings, and yield curve twists. Usually, each
analysis incorporates what management believes to be the most appropriate
assumptions about customer and competitor behavior in the specified interest
rate scenario, but in some analyses, assumptions are deliberately manipulated
to test our exposure to assumption risk. In these analyses, we use the markets implied forecast for future
interest rates as the base case. As of December 31, 2002, the market assumed
that the Federal Reserve Board would keep short-term interest rates steady for
most of 2003. Estimated exposures relate to variances in the future path of
interest rates from this base case. While we analyze a wide variety of interest rate scenarios, management
believes that an immediate +/- 200 basis point shift is appropriately extreme
to provide a robust measure of exposure. In the current low rate environment,
however, a decline of that magnitude would imply negative interest rates for
some maturities and instruments. In our - 200 basis point scenario, we do
not permit any interest rate to drop below 0%. The following table reflects the estimated exposure of net interest income
for the next twelve months, calculated as of December 31, 2002 and 2001, due to
an immediate +/- 200 basis point shift in forecasted interest rates. Estimated
exposures set forth below are dependent on material assumptions such as those
previously discussed. Estimated Exposure toRate Change
    
    Net Interest Income(Basis Points)
    
    (In millions)As of December 31,
    
    2002
    
    2001+200
    
    $
    (113
    )
    
    $
    51-200
    
    
    (107
    )
    
    
    (252
    ) As indicated, either an immediate 200 basis point increase or an immediate 200
basis point decrease in interest rates would tend to reduce net interest
income, but by an amount that is well within our internal limits. Thus, the
balance sheet position as of December 31, 2002 is symmetrical in its twelve
month net interest income exposures. While an immediate and severe shift in
interest rates is used in this analysis to provide an estimate of exposure
under an extremely adverse scenario, management believes that the exposure of
net interest income to gradual and modest changes in interest rates is
relatively insignificant. Furthermore, it is important to note that, given the
current low level of interest rates, this standard
- 200 basis points scenario may be especially extreme as it implies a federal
funds target interest rate at 0% and long-term rates at unprecedented lows. Estimated net interest income exposures at December 31, 2002 differ
modestly from those at year-end 2001, mainly reflecting changes in the
composition of the balance sheet. Early in 2002, interest rate swaps were
added to reduce exposure to declining interest rates, and throughout 2002,
residential mortgage assets were also added. Despite these actions, there is
exposure related to the very low level of interest rates. Our overall interest


rate risk position is approximately balanced. The exposure to both sharp
increases and decreases in interest rates as noted in the table above reflects
the asymmetric maturity/repricing of certain consumer assets and liabilities,
specifically residential mortgages and consumer deposits. For example, a
further immediate 200 basis point decline in interest rates would adversely
impact net interest income by reducing the profitability of customer deposits
and increasing prepayments of residential mortgages. The exposure of annual net interest income to an immediate change in
interest rates is reduced, or even reversed, under a gradual change. For
example, under a gradual + 200 basis point shift over one year, the estimated
impact on annual net interest income is ($102) million; under a gradual -200
basis point shift over one year, the estimated impact is +$44 million. Results
for an immediate shock and a gradual ramp vary mainly because in the ramp, the
impact of changes in interest rates on such factors as reinvestment yields,
mortgage prepayment speeds and deposit rates is either diminished or delayed. We also perform valuation analysis, which involves projecting future cash
flows from current assets, liabilities and derivative positions over a very
long-term horizon, discounting those cash flows at appropriate interest rates,
and then aggregating the discounted cash flows. The Economic Value of Equity
or EVE, is the estimated net present value of these discounted cash flows.
The sensitivity of EVE to changes in the level of interest rates is a measure
of the sensitivity of long-term earnings to changes in interest rates, and is
used primarily to measure the exposure of earnings and equity to changes in
interest rates over a relatively long (e.g., >3-year) time horizon. The following table reflects estimated EVE exposures, calculated as of
December 31, 2002 and 2001, assuming an immediate shift in interest rates.
Exposures are reported for shifts of +/- 100 basis points as well as +/- 200
basis points because the sensitivity of EVE to changes in interest rates can be
very nonlinear. Estimated Exposure toRate Change
    
    Economic Value(Basis Points)
    
    (In millions)As of December 31,
    
    2002
    
    2001+200
    
    $
    (176
    )
    
    $
    860+100
    
    
    267
    
    
    
    696-100
    
    
    (697
    )
    
    
    (738
    )-200
    
    
    (1,867
    )
    
    
    (1,673
    ) As indicated, an immediate 200 basis point decrease in interest rates would
reduce EVE, but by an amount that is within our internal limits. While an
immediate and severe shift in interest rates is used in this analysis to
provide an estimate of exposure under an extremely adverse scenario, management
believes that a gradual shift in interest rates would have a much more modest
impact. Estimated EVE exposures at December 31, 2002 are slightly larger and
somewhat more asymmetrical than at year-end 2001. Additions of interest rate
swaps and residential mortgage assets in 2002 eliminated the earlier benefit
under a sharp increase in interest rates but, given




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prepayment risk, did not reduce exposure to a sharp decline in interest rates.
The very low level of interest rates continues to boost exposures, as any
further immediate sharp decline in rates would reduce the profitability of
customer deposits and increase the prepayment of residential mortgages. Non-U.S. Dollar Denominated Risk Management Our non-U.S. dollar denominated assets and liabilities are exposed to interest
rate and foreign exchange rate risks. The majority of the non-U.S. dollar
denominated interest rate and foreign exchange rate risk exposure stems from
operations in Latin America, primarily Argentina and Brazil. Historically, our
exposure to non-trading interest rate risk in our Latin American operations has
not been significant, and at December 31, 2002, such risk continued to be
insignificant outside of Argentina. Within Argentina, the ongoing political
and economic instability has introduced several risks, including sovereign,
cross-border, credit, currency, and interest rate risks, which have become
highly interrelated. Until the Argentine crisis is resolved, the ultimate
balances, currency denomination, repricing characteristics and maturity
structure of certain assets and liabilities will remain uncertain, making it
difficult to estimate precisely the amount of interest rate risk in that
country. Exposure to foreign exchange rate risk in Latin American operations
is managed using currency limits as well as a VAR methodology, which is
discussed in the Trading Activities section of this discussion and analysis.
Additional information concerning our interest rate and foreign exchange rate
risks associated with our operations in Argentina is included in the Country
Risk section of this discussion and analysis.


Risk Management Instruments WeightedAverage
    
    
    
    
    
    Weighted AverageDecember 31, 2002
    
    Notional
    
    Maturity
    
    Fair
    
    RateDollars in millions
    
    Value
    
    (Years)
    
    Value
    
    Receive
    
    PayDomestic interest rate risk
management instrumentsInterest rate swaps:Receive fixed/ pay variable hedging:variable-rate loans
    
    $
    17,660fixed-rate deposits
    
    
    205long-term debt
    
    
    1,66919,534
    
    
    
    3.1
    
    
    $
    917
    
    
    
    4.98
    %
    
    
    1.62
    %Pay fixed/ receive variable hedging:fixed-rate deposits
    
    
    3,474long-term debt
    
    
    2,8606,334
    
    
    
    5.0
    
    
    
    (269
    )
    
    
    1.39
    
    
    
    4.95Options hedging variable-rate loans
    
    
    3,000
    
    
    
    .1
    
    
    
    11
    
    
    
    
    
    
    
    Total domestic interest rate risk
management instruments
    
    $
    28,868
    
    
    
    3.2
    
    
    $
    659
    
    
    
    4.10
    %
    
    
    2.44
    %International interest rate risk
management instrumentsInterest rate futures hedging foreign
currency denominated variable-rate
repurchase and resale agreements and
fixed-rate deposits
    
    
    272
    
    
    
    .7
    
    
    
    
    
    
    
    
    
    
    
    Total hedges of net interest income
    
    $
    29,140
    
    
    
    3.2
    
    
    $
    659
    
    
    
    4.10
    %
    
    
    2.44
    %Domestic credit risk management
instrumentsCredit derivatives hedging loans
    
    
    24
    
    
    
    1.6
    
    
    
    1
    
    
    
    
    
    
    
    International credit risk management
instrumentsCredit derivatives hedging variable-
rate loans
    
    
    392
    
    
    
    2.0
    
    
    
    4
    
    
    
    
    
    
    
    Total hedges of credit risk
    
    $
    416
    
    
    
    2.0
    
    
    $
    5
    
    
    
    
    
    
    
    Foreign exchange risk
management instrumentsSwaps hedging:foreign currency denominated variable-
rate repurchase and resale agreements
    
    $
    313
    
    
    
    1.7
    
    
    $
    39
    
    
    
    
    
    
    
    foreign currency denominated
long-term debt
    
    
    67
    
    
    
    5.6
    
    
    
    (7
    )
    
    
    
    
    
    
    Options hedging foreign currency
denominated long-term debt
    
    
    25
    
    
    
    5.6
    
    
    
    
    
    
    
    
    
    
    
    Forward and spot contracts hedging:foreign currency denominated debt
securities, fixed-rate deposits and net
investment in foreign operations
    
    
    1,310
    
    
    
    .7
    
    
    
    (4
    )
    
    
    
    
    
    
    foreign currency denominated loans
    
    
    1,079
    
    
    
    .1
    
    
    
    (38
    )
    
    
    
    
    
    
    Futures hedging foreign currency
denominated variable-rate repurchase
and resale agreements; forecasted
purchase of resale agreements
    
    
    2,942
    
    
    
    1.5
    
    
    
    
    
    
    
    
    
    
    
    Total hedges of foreign exchange
    
    $
    5,736
    
    
    
    1.1
    
    
    $
    (10
    )
    
    
    
    
    
    
    Total risk management instruments
    
    $
    35,292
    
    
    
    2.9
    
    
    $
    654
    
    
    
    4.10
    %
    
    
    2.44
    % Operating Risk Management Operating risk is defined as the risk of loss resulting from inadequate or
failed internal processes or systems, errors by employees or from external
events. Business line management is responsible for managing operating risk.
Various internal audit, compliance and operating risk activities measure and
assess the control environment on an ongoing basis. A continuous audit process
is in place to monitor high-risk activities throughout FleetBoston. Quarterly,
the current status of our internal controls is evaluated and reported to
executive management and the Audit Committee of the Board. A similar process
exists to monitor and report significant compliance activities. We have
targeted programs for monitoring privacy, money laundering deterrence, fraud
prevention and operating losses. The Operating Risk and Compliance Committees,
comprised of senior managers, provide additional oversight.




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Capital Management A financial institutions capital serves to support asset growth and provide
protection against loss to depositors and creditors. We strive to maintain an
optimal level of capital, commensurate with our risk profile, on which an
attractive return to stockholders will be realized over both the short and long
term, while serving depositors, creditors and regulatory needs. In
determining optimal capital levels, we also consider the capital levels of our
peers and the evaluations of the major rating agencies that assign ratings to
our public debt. Common equity represents the stockholders investment in
FleetBoston. In addition to common equity, regulatory capital includes, within
certain limits, preferred stock, trust preferred securities, subordinated debt
and the reserve for credit losses. In blending the requirements of each of these constituencies, we have
established target capital ranges that we believe will provide for management
flexibility and the deployment of capital in an optimally efficient and
profitable manner. These targets are reviewed periodically relative to our
risk profile and prevailing economic conditions. We strive to maintain regulatory capital at approximately .75%-1.25% above
the minimum regulatory requirements for a well-capitalized institution, as
defined in the Federal Deposit Insurance Corporation Improvement Act of 1991,
or FDICIA. To be categorized as well capitalized, we must maintain a
risk-based total capital ratio of at least 10%, a risk-based tier 1 capital
ratio of at least 6%, and a tier 1 leverage ratio of at least 5% and not be
subject to a written agreement, order or capital directive with any of our
regulators. At December 31, 2002, we exceeded all regulatory required minimum
capital ratios, and satisfied the requirements of the well capitalized category
established by FDICIA. We also strive to maintain a tangible common equity to
assets ratio of at least 5.75%-6.25%. Capital Ratios(a) December 31
    
    2002
    
    2001Risk-adjusted assets (in millions)
    
    $
    182,533
    
    
    $
    201,589Tier 1 risk-based capital
(4% minimum)
    
    
    8.24
    %
    
    
    7.37
    %Total risk-based capital
(8% minimum)
    
    
    11.72
    
    
    
    10.95Leverage (3% minimum)
    
    
    8.27
    
    
    
    7.50Common equity to assets
    
    
    8.70
    
    
    
    8.51Total equity to assets
    
    
    8.84
    
    
    
    8.64Tangible common equity to assets
    
    
    6.40
    
    
    
    6.18Tangible common equity to
managed assets
    
    
    5.89
    
    
    
    5.73Tangible total equity to assets
    
    
    6.54
    
    
    
    6.31 (a)
    
    All ratios include discontinued operations. Our risk-based capital ratios increased compared with December 31, 2001,
primarily due to a lower level of risk-adjusted assets, mainly attributable to
credit, particularly C&I loans. Excess capital, defined as common equity above
the capital target, is available for core business investments and
acquisitions.


Funds for cash distributions to our stockholders by our parent company are
derived from a variety of sources. The level of dividends paid to stockholders
on our common stock, which currently approximates $1.5 billion annually, is
reviewed regularly and determined by the Board considering our liquidity, asset
quality profile, capital adequacy and recent earnings history and prospects, as
well as economic conditions and other factors deemed relevant. In addition,
bank regulatory authorities have the authority to prohibit bank holding
companies from paying dividends if they deem such payment to be an unsafe or
unsound practice. At December 31, 2002, the parent company had $4 billion of short-term
liquid assets with which to meet dividend declaration and other payment
obligations. Information about restrictions concerning dividends from our
subsidiary banks is included in Note 12 of the Notes to Consolidated Financial
Statements included under Item 8 of this Report. As registered brokers/dealers and member firms of the NYSE, certain of our
subsidiaries are subject to rules of both the SEC and the NYSE. These rules
require members to maintain minimum levels of net capital, as defined, and may
restrict a member from expanding its business and declaring dividends as its
net capital approaches specified levels. At December 31, 2002, these
subsidiaries had aggregate net capital of approximately $832 million, which
exceeded aggregate minimum net capital requirements by approximately $804
million. Comparison of 2001 and 2000 Net income in 2001 was $931 million, or $.83 per diluted share, compared with
$3.9 billion, or $3.52 per diluted share, in 2000. Return on assets and return
on average common equity were .45% and 4.77%, respectively, in 2001 compared
with 1.75% and 22.04%, respectively, in 2000. Included in 2001 and 2000 results was a net loss of $37 million and net
income of $338 million, respectively, from discontinued operations. Income
from continuing operations in 2001 was $968 million, or $.87 per diluted share,
compared to $3.6 billion, or $3.22 per diluted share, in 2000. Corresponding
returns on assets and common equity were .48% and 4.96%, respectively, in 2001
compared to 1.66% and 20.12%, respectively, in 2000. The 2001 results from continuing operations included charges related to
our Argentine operations; writedowns of our principal investing portfolio;
charges related to the Summit acquisition and business unit restructurings; and
domestic-related charges attributable to the weakened U.S. economy. Also
included in 2001 were gains from branch divestitures, partially offset by a
loss from the sale of our mortgage banking business. The 2000 results included
BankBoston merger-related branch divestiture gains partially offset by merger
and integration costs. Net interest income on an FTE basis totaled $7.3 billion in 2001, compared
to $7.8 billion in 2000. The de-




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crease was due to the lower interest rate environment, lower domestic loan
volume, the impact of retail deposit pricing strategies, designed to maintain
retail interest rates, and 2000 BankBoston merger-related branch divestitures,
as well as the transfer of escrow deposits attributable to the sale of the
mortgage banking business in the second quarter of 2001. These decreases were
partially offset by an increase in Latin American units, primarily Brazil, from
higher loan volumes and wider spreads. Net interest margin for 2001 was 4.18%,
compared with 4.26% in 2000. The provision for credit losses was $2.3 billion in 2001 compared with
$1.3 billion in 2000. The increase in the provision was mainly due to
incremental provisions of $175 million and $725 million related to domestic
problem loans and Argentine loans, respectively, as well as $150 million
associated with the transfer of problem loans to accelerated disposition
status. Noninterest income totaled $4.6 billion in 2001 compared to $7.6 billion
in 2000, a decrease of $3 billion, or 40%. The decline was due to the impact
of continued weakness in the U.S. economy on our capital markets and investment
services businesses, lower processing revenues due to the sale of our mortgage
banking business and a lower level of branch divestiture gains. Partially
offsetting these declines was a gain of $146 million from the sale of our
investment in the NYCE Corporation. Noninterest expense totaled $8 billion in 2001 compared to $8.1 billion in
2000. This decline was primarily due to lower compensation and benefit costs
directly attributable to lower levels of revenue, as well as lower operating
expenses resulting from merger integration activities and the corporate-wide
cost containment program, partially offset by merger- and restructuring-related
charges from the Summit acquisition and the loss on the sale of our mortgage
banking business. Total loans and leases at December 31, 2001 were $127 billion compared to
$133.8 billion at December 31, 2000. This decline was primarily composed of
C&I and consumer loans offset by an increase in international loans. C&I loans
declined due to loan runoff and lower business volume in this portfolio, a
result of weakened demand for loans in light of the economic slowdown. The
consumer loan decline was mainly related to the residential loan portfolio due
to loan runoff and lower business volume in a refinancing environment. These
declines were partially offset by an increase in international loans due to
continued growth in the Brazilian portfolio, mainly trade-related financing, as
well as growth in Europe and other Latin American countries. Total deposits increased $819 million to $127.7 billion at December 31,
2001 due to an increase in domestic money market deposit accounts, partially
offset by declines in time deposits, savings and NOW accounts and international
deposits. Long-term debt decreased $6.2 billion to $25.5 billion at December 31,
2001 due to net maturities of senior notes, partially offset by the issuance of
trust preferred securities.


RECENT ACCOUNTING AND REGULATORY DEVELOPMENTS In January 2003, in an effort to expand upon and strengthen existing accounting
guidance that addresses when a company should include in its financial
statements the assets, liabilities and activities of another entity, the
Financial Accounting Standards Board, or FASB, issued Interpretation No. 46,
Consolidation of Variable Interest Entities. The Interpretation applies to
variable interest entities, or VIEs, many of which have been referred to as
special purpose entities, or SPEs. Until now, a company generally included another entity in its consolidated
financial statements only if it controlled the entity through voting interests.
The FASB determined that this approach was not effective in identifying
controlling financial interests in entities that are not controlled through
voting interests, or in which the equity investors do not bear the residual
economic risks and rewards. The Interpretation requires a variable interest
entity to be consolidated by a company if that company is the primary
beneficiary of that entity. The primary beneficiary is subject to a majority
of the risk of loss from the VIEs activities, or is entitled to receive a
majority of the VIEs residual returns, or both. The consolidation requirements of the Interpretation apply immediately to
VIEs created after January 31, 2003 and apply to previously established
entities in the first interim period beginning after June 15, 2003. Certain of
the disclosure requirements apply to all financial statements issued after
January 31, 2003, regardless of when the VIE was established. We are currently evaluating the significant SPEs with which we do business
to determine whether they meet the definition of a VIE and whether
consolidation might be required by the Interpretation. As described in the
Liquidity Risk Management section of this discussion and analysis, as well as
in Note 17 of the Notes to Consolidated Financial Statements included under
Item 8 of this Report, these SPEs include securitization trusts, commercial
paper conduits, and asset management vehicles. The scope of the Interpretation
does not extend to securitization trusts that utilize QSPEs, which are defined
by
SFAS No. 140, Accounting for Transfers and Servicing of Financial Assets and
Extinguishments of Liabilities, and are not required to be consolidated by the
transferor. We believe it is reasonably possible that the commercial paper
conduits and asset management vehicles meet the definition of a VIE. In
addition, we may be required to consolidate the conduits, which held aggregate
assets of $6.2 billion at December 31, 2002. However, we are currently
evaluating alternative structures that would permit some or all of the conduits
to remain unconsolidated. We are also evaluating each of our asset management
vehicles to determine whether consolidation will be required. In January 2003, the Federal Financial Institutions Examination Council,
or FFIEC, established new guidance concerning a variety of credit card
lending issues related to account management, income recognition and




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loss allowance practices. This guidance is not expected to have a material
impact on FleetBoston. Our past practices for estimating the credit loss
reserves required relative to our overall credit card activities will be
refined in 2003 to more specifically address uncollectible accrued interest and
fees and our recent experience with the credit card receivable liquidation
cycle. In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. The Interpretation, which clarifies
previously issued accounting guidance and disclosure requirements for
guarantees, expands the disclosures to be made by a guarantor in its financial
statements about its obligations under certain guarantees, and requires the
guarantor to recognize a liability for the fair value of an obligation assumed
under a guarantee. In general, the Interpretation applies to contracts or indemnification
agreements that contingently require the guarantor to make payments to the
guaranteed party based on specified changes in an underlying variable that is
related to an asset, liability, or equity security of the guaranteed party.
Guarantee contracts excluded from both the disclosure and recognition
requirements of the Interpretation include, among others, guarantees relating
to employee compensation, residual value guarantees under capital lease
arrangements, commercial letters of credit, commitments to
extend credit, subordinated interests in an SPE, and guarantees of a companys
own future performance. Other guarantees subject to the disclosure
requirements of the Interpretation, but not to the recognition provisions,
include, among others, a guarantee accounted for as a derivative instrument
under SFAS No. 133, a parents guarantee of debt owed to a third party by its
subsidiary or vice versa, and a guarantee which is based on performance but not
price.


The disclosure requirements of the Interpretation are effective for
FleetBoston as of December 31, 2002, and require disclosure of the nature of
the guarantee, the maximum potential amount of future payments that the
guarantor could be required to make under the guarantee, and the current amount
of the liability, if any, for the guarantors obligations under the guarantee.
The recognition requirements of the Interpretation are to be applied
prospectively to guarantees issued or modified after December 31, 2002.
Significant guarantees that have been entered into by FleetBoston are disclosed
in Note 10 of the Notes to Consolidated Financial Statements included under
Item 8 of this Report. We do not expect the requirements of the Interpretation
to have a material impact on our financial position, results of operations or
liquidity. In July 2002, the FASB issued SFAS No. 146,
Accounting for Costs Associated with Exit or Disposal Activities. This
standard is effective for exit or disposal activities initiated after December
31, 2002, and generally requires costs associated with exit or disposal
activities (including costs related to involuntary terminations and contract
termination costs) to be recognized when they are incurred rather than at the
date of a commitment to an exit or disposal plan. Specifically, costs
associated with involuntary terminations are to be accrued on the date the
employees are notified, assuming the period of time between the notification
date and termination date is the lesser of 60 days or the legally required
notification period. Otherwise, these costs are to be recognized evenly over
the period from notification to termination. Contract termination costs are to
be recognized when the contract is legally terminated or when the economic
benefits of the contract are no longer being realized.







Item 7A.Quantitative and Qualitative Disclosures About Market Risk



The information set forth in the Market Risk Management section of
Managements Discussion and Analysis of Financial Condition and Results of
Operations, in-


cluded under Item 7 of this Report, is incorporated by reference
herein.




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Item 8.Financial Statements and Supplementary Data

Managements Report on Financial Statements

The accompanying consolidated financial statements and related notes of
FleetBoston were prepared by management in conformity with accounting
principles generally accepted in the United States of America, or GAAP, and
accordingly reflect the judgment and estimates of management. Management is
responsible for the preparation, integrity, and fair presentation of these
financial statements.

Management has in place an internal accounting control system designed to
safeguard corporate assets from material loss or misuse, and to ensure that all
transactions are first properly authorized and then recorded in our records.
The internal control system includes an organizational structure that provides
appropriate delegation of authority and segregation of duties, established
policies and procedures, and comprehensive internal audit and loan review
programs. Management believes that this system provides assurance that our
assets are adequately safeguarded and that our records, which are the basis for
the preparation of all financial statements, are reliable. There are inherent
limitations in the effectiveness of any system of internal control, including
the possibility of human error and the overriding of controls. Accordingly,
even effective internal controls can provide only reasonable assurance with
respect to financial statement preparation. In addition, because of changes in
conditions, the effectiveness of internal controls may vary over time.

The Audit and Risk Management Committees of the Board of Directors consist
solely of directors who are not employees of FleetBoston or its subsidiaries.
During 2002, the Audit Committee met nine times, and the Risk Management
Committee met six times. Also attending these meetings were internal auditors,
credit review management, the independent accountants, and representatives of
senior management to discuss the results of examinations and to review their
activities to ensure that each is properly discharging its responsibilities.
The independent accountants, internal auditors, and credit review management
have direct and unrestricted access to these committees at all times.

Our consolidated financial statements have been audited by
PricewaterhouseCoopers LLP, independent certified public accountants. Their
report, which is based on an audit made in accordance with auditing standards
generally accepted in the United States of America, expresses an opinion as to
the fair presentation of the consolidated financial statements in accordance
with GAAP. In performing their audit, PricewaterhouseCoopers LLP considers our
internal control structure to the extent it deems necessary in order to issue
its opinion on the consolidated financial statements.

|                                                        |  |                                                                         
|------------------------------------------------------- |  | ------------------------------------------------------------------------
|/s/ Charles K. Gifford                                  |  | /s/ Robert C. Lamb, Jr.                                                 
|                                                        |  |                                                                         
|Charles K. Gifford
Chairman and
Chief Executive Officer |  | Robert C. Lamb, Jr.
Executive Vice President and
Chief Financial Officer

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PRICEWATERHOUSECOOPERS LOGO

---

Report of Independent Accountants

To the Board of Directors and Stockholders of
FleetBoston Financial Corporation:

In our opinion, the accompanying consolidated balance sheets and the related
consolidated statements of income, of changes in stockholders equity and of
cash flows present fairly, in all material respects, the financial position of
FleetBoston Financial Corporation and its subsidiaries at December 31, 2002 and
2001, and the results of their operations and their cash flows for each of the
three years in the period ended December 31, 2002, in conformity with
accounting principles generally accepted in the United States of America.
These financial statements are the responsibility of the Corporations
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management,
and evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

As discussed in Note 1 to the consolidated financial statements, on January 1,
2002 the Corporation adopted Statement of Financial Accounting Standards No.
142, Goodwill and Other Intangible Assets, and No. 144, Accounting for the
Impairment or Disposal of Long-Lived Assets.

/s/ PricewaterhouseCoopers LLP

Boston, Massachusetts
January 16, 2003

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FLEETBOSTON FINANCIAL CORPORATION

Consolidated Statements of Income

|                                                                 |                                                                                                               |                           |                        |       |       |        |         |        |       |        |         |        |       |        | 
|---------------------------------------------------------------- | ------------------------------------------------------------------------------------------------------------- | ------------------------- | ---------------------- | ----- | ----- | ------ | ------- | ------ | ----- | ------ | ------- | ------ | ----- | ------ | 
|                                                                
|Year ended December 31                                           |                                                                                                               | 2002                      |                        | 2001  |       | 2000  
|Dollars in millions, except per share amounts                    |                                                                                                               |                           |                        |       |       |        |         |        |       |        |         |       
|                                                                
|Interest income:                                                 |                                                                                                               |                           |                        |       |       |        |         |        |       |        |         |       
|                                                                 | Interest and fees on loans and leases                                                                         |                           | $                      | 8,168 |       |        | $       | 10,876 |       |        | $       | 13,072 |      
|                                                                 | Interest on securities and trading assets                                                                     |                           |                        | 1,471 |       |        |         | 1,813  |       |        |         | 2,409  |      
|                                                                 | Other                                                                                                         |                           |                        | 463   |       |        |         | 915    |       |        |         | 599    |      
|                                                                
|                                                                 |                                                                                                               |                           | Total interest income  |       |       | 10,102 |         |        |       | 13,604 |         |        |       | 16,080 | 
|                                                                
|Interest expense:                                                |                                                                                                               |                           |                        |       |       |        |         |        |       |        |         |       
|                                                                 | Deposits of domestic offices                                                                                  |                           |                        | 1,438 |       |        |         | 2,501  |       |        |         | 3,243  |      
|                                                                 | Deposits of international offices                                                                             |                           |                        | 634   |       |        |         | 1,000  |       |        |         | 1,169  |      
|                                                                 | Short-term borrowings                                                                                         |                           |                        | 417   |       |        |         | 1,044  |       |        |         | 1,550  |      
|                                                                 | Long-term debt                                                                                                |                           |                        | 1,148 |       |        |         | 1,623  |       |        |         | 2,088  |      
|                                                                 | Other                                                                                                         |                           |                        | 45    |       |        |         | 149    |       |        |         | 274    |      
|                                                                
|                                                                 |                                                                                                               |                           | Total interest expense |       |       | 3,682  |         |        |       | 6,317  |         |        |       | 8,324  | 
|                                                                
|Net interest income                                              |                                                                                                               |                           | 6,420                  |       |       |        | 7,287   |        |       |        | 7,756   |       
|                                                                
|Provision for credit losses                                      |                                                                                                               |                           | 2,760                  |       |       |        | 2,324   |        |       |        | 1,290   |       
|                                                                
|Net interest income after provision for credit losses            |                                                                                                               |                           | 3,660                  |       |       |        | 4,963   |        |       |        | 6,466   |       
|                                                                
|Noninterest income:                                              |                                                                                                               |                           |                        |       |       |        |         |        |       |        |         |       
|                                                                 | Investment services revenue                                                                                   |                           |                        | 1,559 |       |        |         | 1,349  |       |        |         | 1,534  |      
|                                                                 | Banking fees and commissions                                                                                  |                           |                        | 1,533 |       |        |         | 1,577  |       |        |         | 1,588  |      
|                                                                 | Credit card revenue                                                                                           |                           |                        | 785   |       |        |         | 757    |       |        |         | 738    |      
|                                                                 | Capital markets revenue                                                                                       |                           |                        | 462   |       |        |         | (148   | )     |        |         | 1,791  |      
|                                                                 | Gains from merger-related branch divestitures                                                                 |                           |                        |      |       |        |         | 430    |       |        |         | 843    |      
|                                                                 | Other                                                                                                         |                           |                        | 697   |       |        |         | 590    |       |        |         | 1,065  |      
|                                                                
|                                                                 |                                                                                                               | Total noninterest income  |                        |       | 5,036 |        |         |        | 4,555 |        |         |        | 7,559 |       
|                                                                
|Noninterest expense:                                             |                                                                                                               |                           |                        |       |       |        |         |        |       |        |         |       
|                                                                 | Employee compensation and benefits                                                                            |                           |                        | 3,255 |       |        |         | 3,626  |       |        |         | 4,030  |      
|                                                                 | Occupancy and equipment                                                                                       |                           |                        | 982   |       |        |         | 1,040  |       |        |         | 1,113  |      
|                                                                 | Marketing and public relations                                                                                |                           |                        | 225   |       |        |         | 233    |       |        |         | 281    |      
|                                                                 | Legal and other professional                                                                                  |                           |                        | 175   |       |        |         | 216    |       |        |         | 321    |      
|                                                                 | Intangible asset amortization                                                                                 |                           |                        | 93    |       |        |         | 381    |       |        |         | 377    |      
|                                                                 | Merger- and restructuring-related charges                                                                     |                           |                        | 71    |       |        |         | 549    |       |        |         | 89     |      
|                                                                 | Loss on sale of mortgage banking business                                                                     |                           |                        |      |       |        |         | 428    |       |        |         |       |      
|                                                                 | Other                                                                                                         |                           |                        | 1,603 |       |        |         | 1,504  |       |        |         | 1,889  |      
|                                                                
|                                                                 |                                                                                                               | Total noninterest expense |                        |       | 6,404 |        |         |        | 7,977 |        |         |        | 8,100 |       
|                                                                
|Income from continuing operations before income taxes            |                                                                                                               |                           | 2,292                  |       |       |        | 1,541   |        |       |        | 5,925   |       
|Applicable income tax expense                                    |                                                                                                               |                           | 768                    |       |       |        | 573     |        |       |        | 2,353   |       
|                                                                
|Income from continuing operations                                |                                                                                                               |                           | 1,524                  |       |       |        | 968     |        |       |        | 3,572   |       
|                                                                
|Discontinued operations:                                         |                                                                                                               |                           |                        |       |       |        |         |        |       |        |         |       
|                                                                 | (Loss)/income from discontinued operations
(including aggregate net pre-tax loss on disposal of $415 million) |                           |                        | (476  | )     |        |         | (47    | )     |        |         | 537    |      
|                                                                 | Applicable income tax (benefit)/expense                                                                       |                           |                        | (140  | )     |        |         | (10    | )     |        |         | 199    |      
|                                                                
|Net income                                                       |                                                                                                               | $                         | 1,188                  |       |       | $      | 931     |        |       | $      | 3,910   |       
|                                                                
|Basic weighted average common shares outstanding (in millions)   |                                                                                                               |                           | 1,045.3                |       |       |        | 1,074.2 |        |       |        | 1,081.4 |       
|Diluted weighted average common shares outstanding (in millions) |                                                                                                               |                           | 1,048.7                |       |       |        | 1,083.7 |        |       |        | 1,098.7 |       
|Income from continuing operations applicable to common shares    |                                                                                                               | $                         | 1,506                  |       |       | $      | 941     |        |       | $      | 3,533   |       
|Basic earnings per share  continuing operations                 |                                                                                                               |                           | 1.44                   |       |       |        | .88     |        |       |        | 3.27    |       
|Diluted earnings per share  continuing operations               |                                                                                                               |                           | 1.44                   |       |       |        | .87     |        |       |        | 3.22    |       
|                                                                 |                                                                                                               |                           |                        |       |       |        |         |        |       |        |         |       
|Net income applicable to common shares                           |                                                                                                               | $                         | 1,170                  |       |       | $      | 904     |        |       | $      | 3,871   |       
|Basic earnings per share  net income                            |                                                                                                               |                           | 1.12                   |       |       |        | .84     |        |       |        | 3.58    |       
|Diluted earnings per share  net income                          |                                                                                                               |                           | 1.12                   |       |       |        | .83     |        |       |        | 3.52    |       
|                                                                

See accompanying Notes to Consolidated Financial Statements.

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FLEETBOSTON FINANCIAL CORPORATION

Consolidated Balance Sheets

|                                                                                                                                                                                                       |                                                                  |                     |                            |      |        |         |         |     |        |         | 
|------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------ | ---------------------------------------------------------------- | ------------------- | -------------------------- | ---- | ------ | ------- | ------- | --- | ------ | ------- | 
|                                                                                                                                                                                                      
|December 31                                                                                                                                                                                            |                                                                  | 2002                |                            | 2001
|Dollars in millions, except share and per share amounts                                                                                                                                                |                                                                  |                     |                            |      |        |         |         |    
|                                                                                                                                                                                                      
|Assets                                                                                                                                                                                                 |                                                                  |                     |                            |      |        |         |         |    
|Cash and cash equivalents                                                                                                                                                                              |                                                                  | $                   | 11,574                     |      |        | $       | 12,162  |    
|Federal funds sold and securities purchased under agreements to resell                                                                                                                                 |                                                                  |                     | 2,418                      |      |        |         | 6,443   |    
|Trading assets                                                                                                                                                                                         |                                                                  |                     | 4,486                      |      |        |         | 4,624   |    
|Securities (including pledges of $13,834 in 2002 and $12,472 in 2001)                                                                                                                                  |                                                                  |                     | 30,425                     |      |        |         | 26,604  |    
|Loans and leases                                                                                                                                                                                       |                                                                  |                     | 120,380                    |      |        |         | 126,988 |    
|Reserve for credit losses                                                                                                                                                                              |                                                                  |                     | (3,864                     | )    |        |         | (3,634  | )  
|                                                                                                                                                                                                      
|Net loans and leases                                                                                                                                                                                   |                                                                  |                     | 116,516                    |      |        |         | 123,354 |    
|                                                                                                                                                                                                      
|Due from brokers/dealers                                                                                                                                                                               |                                                                  |                     | 4,331                      |      |        |         | 4,953   |    
|Premises and equipment                                                                                                                                                                                 |                                                                  |                     | 2,562                      |      |        |         | 2,787   |    
|Goodwill                                                                                                                                                                                               |                                                                  |                     | 4,328                      |      |        |         | 4,385   |    
|Intangible assets                                                                                                                                                                                      |                                                                  |                     | 350                        |      |        |         | 385     |    
|Assets of discontinued operations                                                                                                                                                                      |                                                                  |                     | 654                        |      |        |         | 5,034   |    
|Other assets                                                                                                                                                                                           |                                                                  |                     | 12,809                     |      |        |         | 13,013  |    
|                                                                                                                                                                                                      
|Total assets                                                                                                                                                                                           |                                                                  | $                   | 190,453                    |      |        | $       | 203,744 |    
|                                                                                                                                                                                                      
|Liabilities                                                                                                                                                                                            |                                                                  |                     |                            |      |        |         |         |    
|Deposits:                                                                                                                                                                                              |                                                                  |                     |                            |      |        |         |         |    
|                                                                                                                                                                                                       | Domestic:                                                        |                     |                            |      |        |         |         |     |       
|                                                                                                                                                                                                       |                                                                  | Noninterest bearing |                            | $    | 32,412 |         |         | $   | 29,050 |        
|                                                                                                                                                                                                       |                                                                  | Interest bearing    |                            |      | 82,281 |         |         |     | 80,935 |        
|                                                                                                                                                                                                       | International:                                                   |                     |                            |      |        |         |         |     |       
|                                                                                                                                                                                                       |                                                                  | Noninterest bearing |                            |      | 1,658  |         |         |     | 2,469  |        
|                                                                                                                                                                                                       |                                                                  | Interest bearing    |                            |      | 9,463  |         |         |     | 15,276 |        
|                                                                                                                                                                                                      
|                                                                                                                                                                                                       |                                                                  |                     | Total deposits             |      |        | 125,814 |         |     |        | 127,730 | 
|                                                                                                                                                                                                      
|Federal funds purchased and securities sold under agreements to repurchase                                                                                                                             |                                                                  |                     | 7,360                      |      |        |         | 9,236   |    
|Other short-term borrowings                                                                                                                                                                            |                                                                  |                     | 3,950                      |      |        |         | 5,343   |    
|Trading liabilities                                                                                                                                                                                    |                                                                  |                     | 3,224                      |      |        |         | 2,136   |    
|Due to brokers/dealers                                                                                                                                                                                 |                                                                  |                     | 4,297                      |      |        |         | 4,772   |    
|Long-term debt                                                                                                                                                                                         |                                                                  |                     | 20,581                     |      |        |         | 25,530  |    
|Liabilities of discontinued operations                                                                                                                                                                 |                                                                  |                     | 548                        |      |        |         | 2,993   |    
|Accrued expenses and other liabilities                                                                                                                                                                 |                                                                  |                     | 7,846                      |      |        |         | 8,396   |    
|                                                                                                                                                                                                      
|                                                                                                                                                                                                       |                                                                  |                     | Total liabilities          |      |        | 173,620 |         |     |        | 186,136 | 
|                                                                                                                                                                                                      
|Commitments and contingencies (Note 10)                                                                                                                                                                |                                                                  |                     |                            |      |        |         |         |    
|Stockholders equity                                                                                                                                                                                   |                                                                  |                     |                            |      |        |         |         |    
|Preferred stock, $1.00 par value (16 million shares authorized, 1.1 million shares issued
and outstanding in 2002 and 16 million shares authorized, 1.1 million shares issued
and outstanding in 2001) |                                                                  |                     | 271                        |      |        |         | 271     |    
|Common stock, par value $.01 (2 billion shares authorized, 1,086.7 million shares
issued in 2002 and 2 billion shares authorized, 1,086.7 million shares issued in 2001)                               |                                                                  |                     | 11                         |      |        |         | 11      |    
|Common surplus                                                                                                                                                                                         |                                                                  |                     | 4,011                      |      |        |         | 4,055   |    
|Retained earnings                                                                                                                                                                                      |                                                                  |                     | 13,748                     |      |        |         | 14,078  |    
|Accumulated other comprehensive income:                                                                                                                                                                |                                                                  |                     |                            |      |        |         |         |    
|                                                                                                                                                                                                       | Net unrealized gain on securities available for sale, net of tax |                     |                            | 218  |        |         |         | 141 |       
|                                                                                                                                                                                                       | Net unrealized gain on derivative instruments, net of tax        |                     |                            | 360  |        |         |         | 636 |       
|                                                                                                                                                                                                       | Minimum pension liability, net of tax                            |                     |                            | (36  | )      |         |         |    |       
|                                                                                                                                                                                                       | Cumulative translation adjustments, net of tax                   |                     |                            | (367 | )      |         |         | (3  | )     
|Treasury stock, at cost (36.9 million shares in 2002 and 42.9 million shares in 2001)                                                                                                                  |                                                                  |                     | (1,383                     | )    |        |         | (1,581  | )  
|                                                                                                                                                                                                      
|                                                                                                                                                                                                       |                                                                  |                     | Total stockholders equity |      |        | 16,833  |         |     |        | 17,608  | 
|                                                                                                                                                                                                      
|Total liabilities and stockholders equity                                                                                                                                                             |                                                                  | $                   | 190,453                    |      |        | $       | 203,744 |    
|                                                                                                                                                                                                      

See accompanying Notes to Consolidated Financial Statements.

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FLEETBOSTON FINANCIAL CORPORATION

Consolidated Statements of Changes in Stockholders Equity

|                                                                                                                  |                                                                                         |                                                                     |                            |       |           |         |        |          |        |        |          |       |               |       |          |   |   |   |     |      |             |      |        |   |   |   |        |   |       |      |  
|----------------------------------------------------------------------------------------------------------------- | --------------------------------------------------------------------------------------- | ------------------------------------------------------------------- | -------------------------- | ----- | --------- | ------- | ------ | -------- | ------ | ------ | -------- | ----- | ------------- | ----- | -------- | - | - | - | --- | ---- | ----------- | ---- | ------ | - | - | - | ------ | - | ----- | ---- | -
|                                                                                                                 
|                                                                                                                  |                                                                                         |                                                                     |                            |       |           |         |        |          |        |        |          |       |               |       |          |   |   |   |     |      | Accumulated |      |        |   |   |   |        |   |      
|                                                                                                                  |                                                                                         |                                                                     |                            |       |           |         |        |          |        |        |          |       |               |       |          |   |   |   |     |      | Other       |      |        |   |   |   |        |   |      
|                                                                                                                  |                                                                                         |                                                                     |                            |       | Preferred |         | Common |          | Common |        | Retained |       | Comprehensive |       | Treasury |   |   |   |    
|Dollars in millions, except per share amounts                                                                     |                                                                                         | Stock                                                               |                            | Stock |           | Surplus |        | Earnings |        | Income |          | Stock |               | Total
|                                                                                                                 
|Balance at December 31, 1999                                                                                      |                                                                                         | $                                                                   | 691                        |       |           | $       | 11     |          |        | $      | 5,273    |       |               | $     | 12,020   |   |   | $ | 301 |      |             | $    | (222   | ) |   | $ | 18,074 |  
|Net income                                                                                                        |                                                                                         |                                                                     |                           |       |           |         |       |          |        |        |         |       |               |       | 3,910    |   |   |   |    |      |             |      |       |   |   |   | 3,910  |  
|Other comprehensive loss, net of taxes:                                                                           |                                                                                         |                                                                     |                            |       |           |         |        |          |        |        |          |       |               |       |          |   |   |   |     |      |             |      |        |   |   |   |        |  
|                                                                                                                  | Net unrealized securities losses arising during the period,
net of taxes of $127        |                                                                     |                            |      |           |         |        |         |        |        |          |      |               |       |          |  |   |   |     | (119 | )           |      |        |  |   |   |        |  |      
|                                                                                                                  | Reclassification adjustment for net gains included in net
income, net of taxes of $99   |                                                                     |                            |      |           |         |        |         |        |        |          |      |               |       |          |  |   |   |     | (147 | )           |      |        |  |   |   |        |  |      
|                                                                                                                  | Change in translation adjustment, net of taxes of $3                                    |                                                                     |                            |      |           |         |        |         |        |        |          |      |               |       |          |  |   |   |     | 5    |             |      |        |  |   |   |        |  |      
|                                                                                                                  |                                                                                         |                                                                     |                            |       |           |         |        |          |        |        |          |       |               |       |          |   |   |   |     |      |             |      |        |   |   |   |        |  
|                                                                                                                  |                                                                                         |                                                                     | Other comprehensive loss   |       |           |        |        |          |        |       |          |       |               |      |          |   |   |  |     |      |             | (261 | )      |   |   |  |        |   |       | (261 | )
|                                                                                                                  |                                                                                         |                                                                     |                            |       |           |         |        |          |        |        |          |       |               |       |          |   |   |   |     |      |             |      |        |   |   |   |        |  
|                                                                                                                  |                                                                                         | Total comprehensive income                                          |                            |       |          |         |        |          |       |        |          |       |              |       |          |   |  |   |     |      |            |      |        |   |  |   |        |   | 3,649 |     
|Cash dividends declared on common stock ($1.23 per share)                                                         |                                                                                         |                                                                     |                           |       |           |         |       |          |        |        |         |       |               |       | (1,111   | ) |   |   |    |      |             |      |       |   |   |   | (1,111 | )
|Cash dividends declared on preferred stock                                                                        |                                                                                         |                                                                     |                           |       |           |         |       |          |        |        |         |       |               |       | (39      | ) |   |   |    |      |             |      |       |   |   |   | (39    | )
|Cash dividends declared by pooled company prior to merger                                                         |                                                                                         |                                                                     |                           |       |           |         |       |          |        |        |         |       |               |       | (242     | ) |   |   |    |      |             |      |       |   |   |   | (242   | )
|Common stock issued in connection with dividend reinvestment
and employee benefit plans (8.6 million net shares)  |                                                                                         |                                                                     |                           |       |           |         |       |          |        |        | (3       | )     |               |       | 23       |   |   |   |    |      |             |      | 242    |   |   |   | 262    |  
|Exercise of common stock warrants (1.2 million shares)                                                            |                                                                                         |                                                                     |                           |       |           |         |       |          |        |        | 26       |       |               |       |         |   |   |   |    |      |             |      |       |   |   |   | 26     |  
|Treasury stock purchased (3.9 million shares)                                                                     |                                                                                         |                                                                     |                           |       |           |         |       |          |        |        |         |       |               |       |         |   |   |   |    |      |             |      | (104   | ) |   |   | (104   | )
|Redemption of preferred stock                                                                                     |                                                                                         |                                                                     | (125                       | )     |           |         |       |          |        |        |         |       |               |       |         |   |   |   |    |      |             |      |       |   |   |   | (125   | )
|Settlement of forward purchase contracts (16.2 million shares)                                                    |                                                                                         |                                                                     |                           |       |           |         |       |          |        |        |         |       |               |       |         |   |   |   |    |      |             |      | (679   | ) |   |   | (679   | )
|Settlement of common stock warrants                                                                               |                                                                                         |                                                                     |                           |       |           |         |       |          |        |        | (441     | )     |               |       |         |   |   |   |    |      |             |      |       |   |   |   | (441   | )
|Business combinations (4 million shares)                                                                          |                                                                                         |                                                                     |                           |       |           |         |       |          |        |        | (26      | )     |               |       |         |   |   |   |    |      |             |      | 130    |   |   |   | 104    |  
|Other, net                                                                                                        |                                                                                         |                                                                     |                           |       |           |         |       |          |        |        | (15      | )     |               |       |         |   |   |   |    |      |             |      | 2      |   |   |   | (13    | )
|                                                                                                                 
|Balance at December 31, 2000                                                                                      |                                                                                         | $                                                                   | 566                        |       |           | $       | 11     |          |        | $      | 4,814    |       |               | $     | 14,561   |   |   | $ | 40  |      |             | $    | (631   | ) |   | $ | 19,361 |  
|                                                                                                                 
|Net income                                                                                                        |                                                                                         |                                                                     |                           |       |           |         |       |          |        |        |         |       |               |       | 931      |   |   |   |    |      |             |      |       |   |   |   | 931    |  
|Other comprehensive income, net of taxes:                                                                         |                                                                                         |                                                                     |                            |       |           |         |        |          |        |        |          |       |               |       |          |   |   |   |     |      |             |      |        |   |   |   |        |  
|                                                                                                                  | Net unrealized securities losses arising during the period,
net of taxes of $56         |                                                                     |                            |      |           |         |        |         |        |        |          |      |               |       |          |  |   |   |     | (108 | )           |      |        |  |   |   |        |  |      
|                                                                                                                  | Reclassification adjustment for net losses included in net
income, net of taxes of $134 |                                                                     |                            |      |           |         |        |         |        |        |          |      |               |       |          |  |   |   |     | 208  |             |      |        |  |   |   |        |  |      
|                                                                                                                  | Change in translation adjustment, net of taxes of $1                                    |                                                                     |                            |      |           |         |        |         |        |        |          |      |               |       |          |  |   |   |     | (2   | )           |      |        |  |   |   |        |  |      
|                                                                                                                  | Change in derivative instruments:                                                       |                                                                     |                            |       |           |         |        |          |        |        |          |       |               |       |          |   |   |   |     |      |             |      |        |   |   |   |        |   |      
|                                                                                                                  |                                                                                         | Cumulative effect of adopting SFAS No. 133, net of taxes of $141    |                            |       |          |         |        |          |       |        |          |       |              |       |          |   |  |   |     |      | 204         |      |        |   |  |   |        |   |      |     
|                                                                                                                  |                                                                                         | Changes in fair values of derivatives, net of taxes of $236         |                            |       |          |         |        |          |       |        |          |       |              |       |          |   |  |   |     |      | 355         |      |        |   |  |   |        |   |      |     
|                                                                                                                  |                                                                                         | Net losses reclassified to statement of income, net of taxes of $48 |                            |       |          |         |        |          |       |        |          |       |              |       |          |   |  |   |     |      | 77          |      |        |   |  |   |        |   |      |     
|                                                                                                                  |                                                                                         |                                                                     |                            |       |           |         |        |          |        |        |          |       |               |       |          |   |   |   |     |      |             |      |        |   |   |   |        |  
|                                                                                                                  |                                                                                         |                                                                     | Other comprehensive income |       |           |        |        |          |        |       |          |       |               |      |          |   |   |  |     |      |             | 734  |        |   |   |  |        |   |       | 734  |  
|                                                                                                                  |                                                                                         |                                                                     |                            |       |           |         |        |          |        |        |          |       |               |       |          |   |   |   |     |      |             |      |        |   |   |   |        |  
|                                                                                                                  |                                                                                         | Total comprehensive income                                          |                            |       |          |         |        |          |       |        |          |       |              |       |          |   |  |   |     |      |            |      |        |   |  |   |        |   | 1,665 |     
|Cash dividends declared on common stock ($1.34 per share)                                                         |                                                                                         |                                                                     |                           |       |           |         |       |          |        |        |         |       |               |       | (1,440   | ) |   |   |    |      |             |      |       |   |   |   | (1,440 | )
|Cash dividends declared on preferred stock                                                                        |                                                                                         |                                                                     |                           |       |           |         |       |          |        |        |         |       |               |       | (27      | ) |   |   |    |      |             |      |       |   |   |   | (27    | )
|Common stock issued in connection with dividend reinvestment
and employee benefit plans (11.9 million net shares) |                                                                                         |                                                                     |                           |       |           |         |       |          |        |        | 179      |       |               |       | 53       |   |   |   |    |      |             |      | 132    |   |   |   | 364    |  
|Exercise of common stock warrants (3.5 million shares)                                                            |                                                                                         |                                                                     |                           |       |           |         |       |          |        |        | 77       |       |               |       |         |   |   |   |    |      |             |      |       |   |   |   | 77     |  
|Redemption and repurchase of preferred stock                                                                      |                                                                                         |                                                                     | (295                       | )     |           |         |       |          |        |        |         |       |               |       |         |   |   |   |    |      |             |      |       |   |   |   | (295   | )
|Treasury stock purchased (57.1 million shares)                                                                    |                                                                                         |                                                                     |                           |       |           |         |       |          |        |        | 33       |       |               |       |         |   |   |   |    |      |             |      | (2,114 | ) |   |   | (2,081 | )
|Retirement of treasury stock                                                                                      |                                                                                         |                                                                     |                           |       |           |         |       |          |        |        | (1,033   | )     |               |       |         |   |   |   |    |      |             |      | 1,033  |   |   |   |       |  
|Other, net                                                                                                        |                                                                                         |                                                                     |                           |       |           |         |       |          |        |        | (15      | )     |               |       |         |   |   |   |    |      |             |      | (1     | ) |   |   | (16    | )
|                                                                                                                 
|Balance at December 31, 2001                                                                                      |                                                                                         | $                                                                   | 271                        |       |           | $       | 11     |          |        | $      | 4,055    |       |               | $     | 14,078   |   |   | $ | 774 |      |             | $    | (1,581 | ) |   | $ | 17,608 |  
|                                                                                                                 
|Net income                                                                                                        |                                                                                         |                                                                     |                           |       |           |         |       |          |        |        |         |       |               |       | 1,188    |   |   |   |    |      |             |      |       |   |   |   | 1,188  |  
|Other comprehensive loss, net of taxes:                                                                           |                                                                                         |                                                                     |                            |       |           |         |        |          |        |        |          |       |               |       |          |   |   |   |     |      |             |      |        |   |   |   |        |  
|                                                                                                                  | Net unrealized securities gains arising during the period,
net of taxes of $230         |                                                                     |                            |      |           |         |        |         |        |        |          |      |               |       |          |  |   |   |     | 324  |             |      |        |  |   |   |        |  |      
|                                                                                                                  | Reclassification adjustment for net gains included in net
income, net of taxes of $143  |                                                                     |                            |      |           |         |        |         |        |        |          |      |               |       |          |  |   |   |     | (247 | )           |      |        |  |   |   |        |  |      
|                                                                                                                  | Change in translation adjustment, net of taxes of $251                                  |                                                                     |                            |      |           |         |        |         |        |        |          |      |               |       |          |  |   |   |     | (364 | )           |      |        |  |   |   |        |  |      
|                                                                                                                  | Change in derivative instruments:                                                       |                                                                     |                            |       |           |         |        |          |        |        |          |       |               |       |          |   |   |   |     |      |             |      |        |   |   |   |        |   |      
|                                                                                                                  |                                                                                         | Changes in fair values of derivatives, net of taxes of $13          |                            |       |          |         |        |          |       |        |          |       |              |       |          |   |  |   |     |      | (46         | )    |        |   |  |   |        |   |      |     
|                                                                                                                  |                                                                                         | Net gains reclassified to statement of income, net of taxes of $158 |                            |       |          |         |        |          |       |        |          |       |              |       |          |   |  |   |     |      | (230        | )    |        |   |  |   |        |   |      |     
|                                                                                                                  | Adjustment of minimum pension liability, net of taxes of $26                            |                                                                     |                            |      |           |         |        |         |        |        |          |      |               |       |          |  |   |   |     | (36  | )           |      |        |  |   |   |        |  |      
|                                                                                                                  |                                                                                         |                                                                     |                            |       |           |         |        |          |        |        |          |       |               |       |          |   |   |   |     |      |             |      |        |   |   |   |        |  
|                                                                                                                  |                                                                                         |                                                                     | Other comprehensive loss   |       |           |        |        |          |        |       |          |       |               |      |          |   |   |  |     |      |             | (599 | )      |   |   |  |        |   |       | (599 | )
|                                                                                                                  |                                                                                         |                                                                     |                            |       |           |         |        |          |        |        |          |       |               |       |          |   |   |   |     |      |             |      |        |   |   |   |        |  
|                                                                                                                  |                                                                                         | Total comprehensive income                                          |                            |       |          |         |        |          |       |        |          |       |              |       |          |   |  |   |     |      |            |      |        |   |  |   |        |   | 589   |     
|Cash dividends declared on common stock ($1.40 per share)                                                         |                                                                                         |                                                                     |                           |       |           |         |       |          |        |        |         |       |               |       | (1,467   | ) |   |   |    |      |             |      |       |   |   |   | (1,467 | )
|Cash dividends declared on preferred stock                                                                        |                                                                                         |                                                                     |                           |       |           |         |       |          |        |        |         |       |               |       | (18      | ) |   |   |    |      |             |      |       |   |   |   | (18    | )
|Common stock issued in connection with dividend reinvestment
and employee benefit plans (6 million net shares)    |                                                                                         |                                                                     |                           |       |           |         |       |          |        |        | (18      | )     |               |       | (33      | ) |   |   |    |      |             |      | 166    |   |   |   | 115    |  
|Other, net                                                                                                        |                                                                                         |                                                                     |                           |       |           |         |       |          |        |        | (26      | )     |               |       |         |   |   |   |    |      |             |      | 32     |   |   |   | 6      |  
|                                                                                                                 
|Balance at December 31, 2002                                                                                      |                                                                                         | $                                                                   | 271                        |       |           | $       | 11     |          |        | $      | 4,011    |       |               | $     | 13,748   |   |   | $ | 175 |      |             | $    | (1,383 | ) |   | $ | 16,833 |  
|                                                                                                                 

See accompanying Notes to Consolidated Financial Statements.

51



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##### Table of Contents



FLEETBOSTON FINANCIAL CORPORATION

Consolidated Statements of Cash Flows

|                                                                                                  |                                                            |                                                          |         |       |        |      |         |       |         |   |         |        |        |  
|------------------------------------------------------------------------------------------------- | ---------------------------------------------------------- | -------------------------------------------------------- | ------- | ----- | ------ | ---- | ------- | ----- | ------- | - | ------- | ------ | ------ | -
|                                                                                                 
|Year ended December 31                                                                            |                                                            | 2002                                                     |         | 2001  |        | 2000
|In millions                                                                                       |                                                            |                                                          |         |       |        |      |         |       |         |   |         |       
|                                                                                                 
|Cash Flows from Operating Activities                                                              |                                                            |                                                          |         |       |        |      |         |       |         |   |         |       
|Net income                                                                                        |                                                            | $                                                        | 1,188   |       |        | $    | 931     |       |         | $ | 3,910   |       
|(Loss)/income from discontinued operations                                                        |                                                            |                                                          | (336    | )     |        |      | (37     | )     |         |   | 338     |       
|                                                                                                 
|Net income from continuing operations                                                             |                                                            |                                                          | 1,524   |       |        |      | 968     |       |         |   | 3,572   |       
|Adjustments for noncash items:                                                                    |                                                            |                                                          |         |       |        |      |         |       |         |   |         |       
|                                                                                                  | Depreciation and amortization of premises and equipment    |                                                          |         | 459   |        |      |         | 454   |         |   |         | 462    |       
|                                                                                                  | Amortization of mortgage servicing rights                  |                                                          |         |      |        |      |         | 122   |         |   |         | 386    |       
|                                                                                                  | Amortization of intangible assets                          |                                                          |         | 93    |        |      |         | 381   |         |   |         | 377    |       
|                                                                                                  | Provision for credit losses                                |                                                          |         | 2,760 |        |      |         | 2,324 |         |   |         | 1,290  |       
|                                                                                                  | Deferred income tax (benefit)/expense                      |                                                          |         | (15   | )      |      |         | (829  | )       |   |         | 519    |       
|                                                                                                  | Securities (gains)/losses                                  |                                                          |         | (6    | )      |      |         | 275   |         |   |         | (13    | )     
|                                                                                                  | Charge related to Argentine government actions             |                                                          |         |      |        |      |         | 200   |         |   |         |       |       
|                                                                                                  | Gains from merger-related branch divestitures              |                                                          |         |      |        |      |         | (430  | )       |   |         | (843   | )     
|                                                                                                  | Gain on sale of investment in NYCE Corporation             |                                                          |         |      |        |      |         | (146  | )       |   |         |       |       
|                                                                                                  | Writedowns of principal investing investments              |                                                          |         | 362   |        |      |         | 1,125 |         |   |         |       |       
|                                                                                                  | Loss on sale of mortgage banking business                  |                                                          |         |      |        |      |         | 428   |         |   |         |       |       
|                                                                                                  | Merger- and restructuring-related charges                  |                                                          |         | 71    |        |      |         | 549   |         |   |         | 89     |       
|Net increase in mortgages held for sale                                                           |                                                            |                                                          | (64     | )     |        |      | (2,889  | )     |         |   | (829    | )     
|Decrease/(increase) in trading assets                                                             |                                                            |                                                          | 138     |       |        |      | (210    | )     |         |   | 281     |       
|Increase/(decrease) in trading liabilities                                                        |                                                            |                                                          | 1,088   |       |        |      | (402    | )     |         |   | (1,262  | )     
|Decrease/(increase) in due from brokers/dealers                                                   |                                                            |                                                          | 622     |       |        |      | (2,016  | )     |         |   | 49      |       
|Decrease/(increase) in accrued receivables, net                                                   |                                                            |                                                          | 374     |       |        |      | 1,417   |       |         |   | (475    | )     
|(Decrease)/increase in due to brokers/dealers                                                     |                                                            |                                                          | (475    | )     |        |      | 651     |       |         |   | (349    | )     
|(Decrease)/increase in accrued liabilities                                                        |                                                            |                                                          | (690    | )     |        |      | (348    | )     |         |   | 381     |       
|Other, net                                                                                        |                                                            |                                                          | (456    | )     |        |      | 1,185   |       |         |   | (2,400  | )     
|                                                                                                 
|                                                                                                  |                                                            | Net cash flow provided by operating activities           |         |       | 5,785  |      |         |       | 2,809   |   |         |        | 1,235  |  
|                                                                                                 
|Cash Flows from Investing Activities                                                              |                                                            |                                                          |         |       |        |      |         |       |         |   |         |       
|Net decrease/(increase) in federal funds sold and securities purchased under agreements to resell |                                                            |                                                          | 4,025   |       |        |      | (4,895  | )     |         |   | 368     |       
|Purchases of securities available for sale                                                        |                                                            |                                                          | (33,495 | )     |        |      | (23,918 | )     |         |   | (16,139 | )     
|Proceeds from sales of securities available for sale                                              |                                                            |                                                          | 21,036  |       |        |      | 24,182  |       |         |   | 11,145  |       
|Proceeds from maturities of securities available for sale                                         |                                                            |                                                          | 9,031   |       |        |      | 7,186   |       |         |   | 4,170   |       
|Purchases of securities held to maturity                                                          |                                                            |                                                          | (834    | )     |        |      | (885    | )     |         |   | (649    | )     
|Proceeds from maturities of securities held to maturity                                           |                                                            |                                                          | 886     |       |        |      | 899     |       |         |   | 2,311   |       
|Net cash and cash equivalents (paid for)/received from businesses acquired                        |                                                            |                                                          |        |       |        |      | (970    | )     |         |   | 15      |       
|Proceeds from sales of loan portfolios                                                            |                                                            |                                                          | 3,300   |       |        |      | 3,297   |       |         |   | 5,890   |       
|Net (increase)/decrease in loans and leases                                                       |                                                            |                                                          | (2,686  | )     |        |      | 2,075   |       |         |   | (7,662  | )     
|Net cash received/(paid) in conjunction with branch divestitures and sales of businesses          |                                                            |                                                          |        |       |        |      | 6,790   |       |         |   | (2,171  | )     
|Purchase of investment in corporate-owned life insurance                                          |                                                            |                                                          |        |       |        |      |        |       |         |   | (300    | )     
|Purchases of premises and equipment                                                               |                                                            |                                                          | (413    | )     |        |      | (645    | )     |         |   | (601    | )     
|Net sales of mortgage servicing rights                                                            |                                                            |                                                          |        |       |        |      | 10      |       |         |   | 327     |       
|                                                                                                 
|                                                                                                  |                                                            | Net cash flow provided by/(used in) investing activities |         |       | 850    |      |         |       | 13,126  |   |         |        | (3,296 | )
|                                                                                                 
|Cash Flows from Financing Activities                                                              |                                                            |                                                          |         |       |        |      |         |       |         |   |         |       
|Net increase in deposits                                                                          |                                                            |                                                          | 644     |       |        |      | 1,564   |       |         |   | 571     |       
|Net (decrease)/increase in short-term borrowings                                                  |                                                            |                                                          | (2,746  | )     |        |      | (7,218  | )     |         |   | 1,774   |       
|Proceeds from issuance of long-term debt                                                          |                                                            |                                                          | 1,706   |       |        |      | 3,511   |       |         |   | 10,787  |       
|Repayments of long-term debt                                                                      |                                                            |                                                          | (7,174  | )     |        |      | (9,673  | )     |         |   | (8,372  | )     
|Proceeds from issuance of common stock and exercise of warrants                                   |                                                            |                                                          | 115     |       |        |      | 441     |       |         |   | 288     |       
|Repurchase of common stock                                                                        |                                                            |                                                          |        |       |        |      | (2,081  | )     |         |   | (104    | )     
|Settlement of forward purchase contracts                                                          |                                                            |                                                          |        |       |        |      |        |       |         |   | (679    | )     
|Redemption and repurchase of preferred stock                                                      |                                                            |                                                          |        |       |        |      | (295    | )     |         |   | (125    | )     
|Settlement of common stock warrants                                                               |                                                            |                                                          |        |       |        |      |        |       |         |   | (441    | )     
|Cash dividends paid                                                                               |                                                            |                                                          | (1,482  | )     |        |      | (1,463  | )     |         |   | (1,362  | )     
|                                                                                                 
|                                                                                                  |                                                            | Net cash flow (used in)/provided by financing activities |         |       | (8,937 | )    |         |       | (15,214 | ) |         |        | 2,337  |  
|                                                                                                 
|Change in net assets of discontinued operations                                                   |                                                            |                                                          | 1,935   |       |        |      | (61     | )     |         |   | (367    | )     
|                                                                                                 
|Effect of foreign currency translation on cash                                                    |                                                            |                                                          | (221    | )     |        |      | (69     | )     |         |   | (25     | )     
|                                                                                                 
|Net (decrease)/increase in cash and cash equivalents                                              |                                                            |                                                          | (588    | )     |        |      | 591     |       |         |   | (116    | )     
|                                                                                                 
|Cash and cash equivalents at beginning of year                                                    |                                                            |                                                          | 12,162  |       |        |      | 11,571  |       |         |   | 11,687  |       
|                                                                                                 
|Cash and cash equivalents at end of year                                                          |                                                            | $                                                        | 11,574  |       |        | $    | 12,162  |       |         | $ | 11,571  |       
|                                                                                                 
|Supplemental Disclosures                                                                          |                                                            |                                                          |         |       |        |      |         |       |         |   |         |       
|Cash paid for:                                                                                    |                                                            |                                                          |         |       |        |      |         |       |         |   |         |       
|                                                                                                  | Interest                                                   |                                                          | $       | 4,122 |        |      | $       | 6,360 |         |   | $       | 8,319  |       
|                                                                                                  | Income taxes, net of refund                                |                                                          |         | 485   |        |      |         | 1,106 |         |   |         | 1,598  |       
|                                                                                                 
|Assets acquired and liabilities assumed in business combinations:                                 |                                                            |                                                          |         |       |        |      |         |       |         |   |         |       
|                                                                                                  | Assets acquired, net of cash and cash equivalents received |                                                          |         |      |        |      | $       | 1,193 |         |   | $       | 460    |       
|                                                                                                  | Net cash and cash equivalents (paid)/received              |                                                          |         |      |        |      |         | (970  | )       |   |         | 15     |       
|                                                                                                  | Liabilities assumed                                        |                                                          |         |      |        |      |         | 223   |         |   |         | 371    |       
|                                                                                                  | Treasury stock issued                                      |                                                          |         |      |        |      |         |      |         |   |         | 104    |       
|                                                                                                 
|Divestitures:                                                                                     |                                                            |                                                          |         |       |        |      |         |       |         |   |         |       
|                                                                                                  | Assets sold                                                |                                                          |         |      |        |      | $       | 8,410 |         |   | $       | 10,166 |       
|                                                                                                  | Net cash received/(paid)                                   |                                                          |         |      |        |      |         | 6,790 |         |   |         | (2,171 | )     
|                                                                                                  | Liabilities sold                                           |                                                          |         |      |        |      |         | 1,768 |         |   |         | 13,180 |       
|                                                                                                 
|Argentine devaluation:                                                                            |                                                            |                                                          |         |       |        |      |         |       |         |   |         |       
|                                                                                                  | Loans                                                      |                                                          | $       | 2,525 |        |      |         |      |         |   |         |       |       
|                                                                                                  | Deposits                                                   |                                                          |         | 2,560 |        |      |         |      |         |   |         |       |       
|                                                                                                 
|See accompanying Notes to Consolidated Financial Statements.                                     



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FLEETBOSTON FINANCIAL CORPORATION Notes to Consolidated Financial Statements Note 1. Summary of Significant Accounting Policies The accounting and financial reporting policies of FleetBoston Financial
Corporation conform to accounting principles generally accepted in the United
States of America, or GAAP, including prevailing practices within the
financial services industry. Unless otherwise indicated or unless the context
requires otherwise, all references in these notes to consolidated financial
statements to FleetBoston, we, us, our or similar references mean
FleetBoston Financial Corporation. We are a diversified financial services
company headquartered in Boston, Massachusetts, and are organized and managed
along four lines of business, which include Commercial Financial Services;
Personal Financial Services; Capital Markets and International Banking. The preparation of consolidated financial statements requires management
to make estimates and assumptions in the application of certain of its
accounting policies that materially affect the reported amounts of assets,
liabilities, revenues and expenses. As a result of unanticipated events or
circumstances, actual results could differ from those estimates. The following
is a summary of our significant accounting policies. Basis of Presentation.Our consolidated financial statements include the
accounts of FleetBoston and its
majority-owned subsidiaries, including its principal banking subsidiary, Fleet
National Bank, or FNB. All material intercompany transactions and balances
have been eliminated. Certain prior year amounts have been reclassified to
conform to current year presentation. Investments in unconsolidated subsidiaries are generally accounted for
using the equity method of accounting. Such investments are accounted for
using the cost method of accounting if we do not have the ability to exercise
significant influence over the operations of the investee and we hold less than
20% of the investees voting common stock or, in the case of partnerships, less
than 3% to 5% of partners equity. Investments in unconsolidated subsidiaries
are included in other assets, and our share of income or loss is recorded in
other noninterest income. On January 1, 2002, we adopted Statement of Financial Accounting
Standards, or SFAS, No. 144, Accounting for the Impairment or Disposal of
Long-Lived Assets. Accordingly, we have accounted for our disposal activities
related to Robertson Stephens; AFSA Data Corporation, or AFSA; our fixed
income business in Asia; and Fleet Trading as discontinued operations, and have
presented these discontinued operations separately in the accompanying
consolidated financial statements. Information provided in these notes to
consolidated financial statements reflects continuing operations, unless
otherwise noted.


Foreign Currency Translation.We translate the financial statements of our
foreign operations into U.S. dollars. A functional currency is designated for
each foreign unit, based on our annual assessment of the economic and operating
environment of the country in which the unit operates, as well as the nature of
the units operations. Where the functional currency is not the U.S. dollar, all monetary and
nonmonetary assets and liabilities are translated into U.S. dollars at
period-end exchange rates, while income and expenses are translated using
average rates for the period. The resulting translation adjustments and any
related hedge gains and losses are recorded, net of tax, in other comprehensive
income, a component of stockholders equity. For foreign units where the functional currency is the U.S. dollar, all
monetary assets and liabilities are translated into U.S. dollars at period-end
exchange rates. Nonmonetary assets and liabilities are translated at the rate
in effect at the date of acquisition. Income and expenses are translated using
average rates for the period. The resulting translation adjustments and related
hedge gains and losses for these units are recognized currently in foreign
exchange revenue. Cash and Cash Equivalents.For purposes of the consolidated statement of cash
flows, cash and cash equivalents are defined to include cash, due from banks
and interest-bearing deposits. Foreign currency cash flows are converted to
U.S. dollars using average rates for the period. Cash and cash equivalents at
December 31, 2002 and 2001 included interest-bearing deposits of $3.8 billion
and $3.3 billion, respectively. Securities Purchased Under Agreements to Resell and Securities Sold Under
Agreements to Repurchase.Securities purchased under resale agreements and
securities sold under repurchase agreements are treated as collateralized
financing transactions and are carried in the consolidated balance sheet at the
amounts at which the securities will be subsequently resold or repurchased,
plus accrued interest. Our policy is to take possession of securities
purchased under agreements to resell. The fair value of securities is
monitored, and additional collateral may be obtained when considered
appropriate to protect us against credit exposure. Where appropriate, resale
and repurchase agreements with the same counterparty are reported on a net
basis. Trading Assets and Liabilities.Trading assets include securities held in
anticipation of short-term market movements and for resale to customers.
Trading liabilities include obligations to deliver securities not yet
purchased. Trading assets and liabilities also include derivative financial
instruments, primarily interest rate derivatives, including futures and
forwards, interest rate swaps and interest rate options, as well as foreign
exchange products. Trading assets are carried at fair value. Trading securities and
derivative financial instruments are valued using quoted market prices, when
available. If quoted market prices are not available, the fair value is
estimated by




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using pricing models, quoted prices of instruments with similar characteristics
or discounted cash flows. Realized and unrealized gains and losses are
recorded in trading profits and commissions, a component of capital markets
revenue. Foreign exchange products are valued at prevailing market rates on a
present value basis, and the resulting realized and unrealized gains and losses
are recorded in foreign exchange revenue, a component of capital markets
revenue. Loans Held for Sale.Loans held for sale, including loans held for sale or
accelerated disposition, or AHAD, are recorded at the lower of cost or fair
value. The fair value of loans held for sale is based on quoted market prices,
if available, recent sales of similar loans, independent valuations, or the
present value of cash flows discounted at an appropriate interest rate. Loans
held for sale are included in other assets. Securities Available for Sale and Held to Maturity.This portfolio principally
includes debt securities that are purchased in connection with our balance
sheet management activities and debt and equity securities purchased by our
principal investing and capital markets-related businesses. These securities
are classified at the time of purchase, based on managements intentions, as
held to maturity or available for sale. Securities held to maturity are debt securities that management has the
positive intent and ability to hold to maturity. Securities held to maturity
are stated at cost, net of the amortization of any premium and the accretion of
any discount. Securities available for sale are those that management intends
to hold for an indefinite period of time, including securities used as part of
our balance sheet management strategy, that may be sold in response to changes
in interest rates, prepayment risk, liquidity needs or other similar factors.
Within the available for sale category, equity securities and debt securities
are reported at fair value, with unrealized gains and losses recorded, net of
tax, in other comprehensive income. Equity securities that do not have a
readily determinable fair value are reported at cost. Realized gains and
losses, which are computed using the specific identification method, and
unrealized losses on individual securities that are deemed to be other than
temporary are recorded in securities gains/(losses), a component of capital
markets revenue. Principal Investing Securities.Investments in private companies are generally
accounted for under the cost method and are carried in the consolidated balance
sheet at cost less declines in value deemed other than temporary. These
investments do not trade on established exchanges and, accordingly, their fair
value is not readily determinable. Gains and losses related to these
investments are recorded in capital markets revenue when they are sold or
otherwise exchanged, or when declines in value are deemed other than temporary.
Certain equity investments in private companies are accounted for under the
equity method, with changes in carrying value recognized currently in capital
markets revenue. A determina-


tion to use the equity method is generally based
on the level of our ownership interest and whether we have the ability to
influence the operating or financial decisions of the investee. Investments in public companies are carried at fair value, based on quoted
market prices, with unrealized gains and losses recorded, net of tax, as a
component of stockholders equity. When such investments are liquidated or
deemed impaired, gains and losses are recorded in capital markets revenue.
Investments in investment fund partnerships are accounted for under the equity
method of accounting, using financial information for the partnerships provided
by the respective investment fund managers, with changes in carrying value
recognized currently in capital markets revenue. Investments in private and
public companies are included in securities available for sale, and investments
in investment fund partnerships are included in other assets. Loans and Leases.Loans are stated at the principal amount outstanding, net of
unamortized deferred loan origination fees and costs and net of unearned
income, if any. Credit card receivables include billed and uncollected
interest and fees. Lease financing receivables, including leveraged leases,
are reported at the aggregate of lease payments receivable and estimated
residual values, net of unearned and deferred income, including unamortized
investment credits. Lease residual values are reviewed regularly for
other-than-temporary impairment, with valuation adjustments recognized
currently against noninterest income. Leveraged leases are reported net of
non-recourse debt. Unearned income is recognized to yield a level rate of
return on the net investment in the leases. Nonperforming Assets.Nonperforming assets include loans, lease financing
receivables and debt securities for which income recognition has ceased or is
limited, as well as foreclosed assets. Nonperforming assets also include
impaired loans, which are commercial and commercial real estate loans on
nonaccrual status as well as troubled debt restructurings. Loans and lease
financing receivables are placed on nonaccrual status as a result of past-due
status or a judgment by management that, although payments are current, such
action is prudent. Commercial loans and leases on which payments are past due
90 days or more are placed on nonaccrual status unless they are well-secured
and in the process of collection or renewal. Consumer loans, with the
exception of credit card receivables, are placed on nonaccrual status and
losses, if any, are charged off at no more than 180 days past due. Credit card
receivables are charged off at 180 days past due or 60 days from notification
of bankruptcy and are not placed on nonaccrual status. Related accrued
interest and fees are reversed against current period income. When a loan or lease is placed on nonaccrual status, interest accrued but
uncollected is generally reversed against interest income. Cash receipts on
nonaccruing commercial loans and leases are generally applied to reduce the
unpaid principal balance, and cash receipts on




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nonaccruing consumer loans are recognized in income on a cash basis. Our
policies for classification of impaired loans and recognition of interest
income on impaired loans are the same as those for nonaccrual loans. A loan is classified as a troubled debt restructuring in the year of
restructuring if a significant concession is granted to the borrower due to
deterioration in the borrowers financial condition. Foreclosed assets are
composed of property acquired through a foreclosure proceeding or when physical
possession of the collateral is taken regardless of when foreclosure
proceedings have taken place. Foreclosed assets are included in other assets. Loans and leases are generally returned to accrual status when they become
current as to principal and interest, demonstrate a period of performance under
the contractual terms and, in managements opinion, are fully collectible.
Loans that have undergone a troubled debt restructuring are returned to accrual
status after a seasoning period if the restructured loan bears a market rate of
interest and full collectibility is not in doubt. Reserve for Credit Losses.The reserve for credit losses is available for
future charge-offs of estimated probable credit losses existing in the lending
portfolio as of the balance sheet date. Loans and leases, or portions thereof,
deemed uncollectible are charged off against the reserve, while recoveries of
amounts previously charged off are credited to the reserve. Amounts are
charged off after giving consideration to such factors as the customers
financial condition, underlying collateral and guarantees, and general and
industry economic conditions. The reserve for credit losses reflects managements determination of
estimated probable credit losses existing in the lending portfolio. The
portion of the reserve related to loans that are identified as impaired, which
are commercial and commercial real estate loans on nonaccrual status and
troubled debt restructurings, is based on discounted cash flows using the
loans effective interest rate, or the fair value of the collateral for
collateral-dependent loans, or the observable market price of the impaired
loan. We perform periodic, systematic reviews of our lending portfolios to
identify inherent credit losses, and to assess the overall probability of
collection. In addition, we periodically evaluate prevailing economic,
business and, in some cases, political conditions, including emerging market
risks and the impact of currency devaluation on cross-border exposures,
industry concentrations, changes in the size and characteristics of the
portfolio and other pertinent factors. We also analyze historical default and
loss experience which results in the identification and quantification of loss
factors. These loss factors are used in determining the appropriate level of
reserve to cover the estimated probable credit losses inherent in each lending
category. An additional unallocated reserve is also provided to reflect the
complexity of the lending portfolio, and the degree of estimation involved in
assessing the overall adequacy of the reserve for credit losses. Commercial loans and leases and their related unfunded commitments to
extend credit are individually reviewed and assigned a credit risk rating from
1 (low risk of loss) to 10


(high risk of loss). Loans with a credit risk
rating of 8 and above and a principal balance greater than $250,000 are
subject to further individual review to determine the need for a specific loan
loss allocation. Additionally, derived or calculated loan loss allocations are
provided for loans not specifically reviewed. Loss factors are assigned using
actual FleetBoston default and loss history for loans with a credit risk rating
of 1 to 7. The combination of these analyses is the basis for determining
the commercial loan and lease portion of the reserve for credit losses. Consumer loans, which include credit card receivables, residential
mortgages, home equity loans/lines, direct/indirect loans, consumer finance and
international consumer loans, are generally evaluated as a group based on
product type. The determination of the consumer loan portion of the reserve
for credit losses is primarily based on one year of forecasted net credit
losses. This forecast is determined using several modeling tools, including a
delinquency roll rate model, a vintage model and a regression model. Credit
risk for small business loans is analyzed in a similar manner but a risk rating
migration analysis, rather than delinquency and one year of forecasted net
losses, serves as the basis for the reserve. A sovereign risk analysis, which assesses the cross-border risk of
credit loss, is performed as part of our review of our international commercial
and consumer loan portfolios. Testing of forecasted net credit losses and specific allocations of the
reserve is performed quarterly. Adjustments to reserve allocations for
specific segments of the loan and lease portfolio may be made as a result of
this testing, depending on the accuracy of forecasted net credit losses and
other credit- or policy-related issues. The collective results of the above-described analyses are reviewed and
discussed by our Loan Loss Reserve Committee, the respective lines of business
and the Collections group. Management further considers, on a quarterly basis,
the appropriate need for an unallocated component of the reserve for credit
losses. Based on these analyses, the aggregate reserve for credit losses,
which is available for losses sustained in any lending category, is maintained
at levels considered adequate by management to provide for probable credit
losses existing in the lending portfolios. Due from/Due to Brokers/Dealers.Receivables from brokers/dealers and clearing
organizations include amounts receivable for securities failed to deliver,
certain deposits for securities borrowed, amounts receivable from clearing
organizations relating to open transactions, good-faith and margin deposits,
and commissions and floor-brokerage receivables. Payables to brokers/dealers
and clearing organizations include amounts payable for securities failed to
receive, certain deposits received for securities loaned, amounts payable to
clearing organizations on open transactions, and floor-brokerage payables. In
addition, the net receivable or payable arising from unsettled trades is
reflected in these classifications.




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Premises and Equipment.Premises and equipment, including leasehold
improvements, are carried at cost less accumulated depreciation and
amortization. Depreciation and amortization are computed using the
straight-line method over the estimated useful lives of the assets. For
leasehold improvements, amortization is computed using the straight-line method
over the lesser of the remaining lease term or the estimated life of the
improvement. Goodwill and Intangible Assets.On January 1, 2002, we adopted SFAS No. 142,
Goodwill and Other Intangible Assets. Under the new standard, goodwill,
including that acquired before initial application of the standard, is no
longer amortized but is tested for impairment at least annually. Identified
finite-lived intangible assets are amortized over their estimated useful lives
and reviewed for impairment when circumstances warrant. Intangible assets that
have an indefinite useful life are not amortized until such useful life is
determined to be no longer indefinite. Evaluation of the remaining useful life
of an intangible asset that is not being amortized must be completed each
reporting period to determine whether events and circumstances continue to
support an indefinite useful life. Indefinite-lived intangible assets must be
tested for impairment at least annually, or more frequently if warranted. Intangible assets with finite lives are generally amortized on a
straight-line basis over the estimated period benefited. In certain
acquisitions, a core deposit intangible asset is recorded and amortized over a
period not to exceed ten years. Purchased credit card intangibles are
amortized over a period not to exceed six years. We review our intangible
assets for events or changes in circumstances that may indicate that the
carrying amount of the assets may not be recoverable, in which case an
impairment charge is recognized currently. Stock-Based Compensation.Prior to January 1, 2002, we accounted for
stock-based compensation using the intrinsic value method as prescribed by
Accounting Principles Board, or APB, Opinion No. 25, Accounting for Stock
Issued to Employees. During 2002, effective for stock options granted
subsequent to January 1, 2002, we adopted the fair value accounting provisions
of SFAS No. 123, Accounting for Stock-Based Compensation. In accordance with
SFAS No. 123, as amended by SFAS No. 148, Accounting for Stock-Based
Compensation  Transition and Disclosure  an amendment of FASB Statement No.
123, we elected to account for this adoption under the prospective method, and
will continue to account for stock options granted prior to January 1, 2002
using the intrinsic value method, under which no compensation expense is
recorded. Using the fair value accounting provisions of SFAS No. 123, compensation
expense equal to the estimated fair value of stock options at the grant date is
recognized over the options vesting period. We estimate the fair value of
stock options on the date of grant using the Black-Scholes option-pricing
model.


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 compensation granted since
the standards effective date: December 31
    
    2002
    
    2001
    
    2000In millionsNet income, as reported
    
    $
    1,188
    
    
    $
    931
    
    
    $
    3,910Add: stock-based compensation expense
included in reported net income, net of
taxes
    
    
    37
    
    
    
    22
    
    
    
    44Deduct: total stock-based compensation
expense determined using fair value
accounting for all stock options and
awards, net of taxes
    
    
    134
    
    
    
    116
    
    
    
    119Pro forma net income
    
    $
    1,091
    
    
    $
    837
    
    
    $
    3,835Earnings per share:Basic-as reported
    
    $
    1.12
    
    
    $
    .84
    
    
    $
    3.58Basic-pro forma
    
    
    1.03
    
    
    
    .75
    
    
    
    3.51Diluted-as reported
    
    $
    1.12
    
    
    $
    .83
    
    
    $
    3.52Diluted-pro forma
    
    
    1.02
    
    
    
    .75
    
    
    
    3.45 Fees on Loans.Loan origination fees are amortized into interest income as an
adjustment to the loans yield over the term of the loan. Loan commitment fees
are generally deferred and amortized into noninterest income on a straight-line
basis over the commitment period. Other credit-related fees, including letter
of credit fees, are recognized in noninterest income when earned. Brokerage Fees and Commissions.We recognize commission revenue and brokerage,
exchange and clearance fees on a trade date basis. Underwriting, Advisory and Other Investment Banking Fees.We record
underwriting fees, net of syndicate expenses, at the time the underwriting is
completed and the income is reasonably determinable. Advisory fees are
recorded on the offering date. Other investment banking fees are recognized in
accordance with the terms of the respective engagement letter, usually when the
services have been performed or the transaction has closed. Cash Management Fees.We record cash management fees when the service has been
performed for our customers and the amount of fees earned is reasonably
determinable. Employee Benefits Expense.Employee benefits expense includes prior and
current service costs of pension and other postretirement benefit plans, which
are accrued on a current basis, as well as contributions under defined
contribution savings plans, unrestricted awards under other employee plans, and
the amortization of restricted stock awards.




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Income Taxes.We record current tax liabilities or assets through charges or
credits to the current tax provision for the estimated taxes payable or
refundable for the current year. Deferred tax assets and liabilities are
recorded for future tax consequences attributable to differences between the
financial statement carrying amounts of assets and liabilities and their
respective tax bases. Deferred tax assets and liabilities are measured using
enacted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. A
deferred tax valuation allowance is established if it is considered more likely
than not that all or a portion of the deferred tax assets will not be realized. Earnings Per Common Share.Basic earnings per common share is calculated by
dividing net income applicable to common shares (net income less preferred
stock dividends declared) by the weighted average number of common shares
outstanding during the period, which excludes unvested shares of restricted
stock. Diluted earnings per common share is calculated by dividing net income
applicable to common shares by the weighted average number of common shares
outstanding during the period and the shares representing the dilutive effect
of common stock options, restricted stock and warrants outstanding. The effect
of common stock options, restricted stock and warrants outstanding is excluded
from the calculation of diluted earnings per common share in periods in which
the effect would be antidilutive. Special Purpose Entities.We use special purpose entities, or SPEs,
including securitization trusts, commercial paper conduits and asset management
vehicles, as a source of funding, to provide liquidity, and to provide
financial services to our corporate customers. We use securitization trusts as a source of funding and as a liquidity
management tool. These trusts are structured as qualifying SPEs, or QSPEs,
which are defined by SFAS No. 140, Accounting for Transfers and Servicing of
Financial Assets and Extinguishments of Liabilities, and are not required to
be consolidated by the transferor. Financial assets, including commercial
loans, credit card receivables and home equity loans, are transferred from our
balance sheet to the QSPEs, which are legally isolated from us. The assets and
liabilities of the QSPEs are not included in our consolidated balance sheet,
except for our retained interests in such assets. Subordinated retained
interests, which include residual positions such as interest-only strips and
certain subordinated principal balances, accrued interest and fees, debt
securities, overcollateralization positions and cash collateral accounts, are
initially recorded at their allocated carrying amounts based on the relative
fair value of assets sold and retained. Residual positions are subsequently
carried at fair value, which is generally estimated based on the present value
of expected future cash flows, calculated using managements best estimates of
key assumptions, including credit losses, loan repayment speeds and discount
rates commensurate with the risks involved. These interests represent our
maximum risk exposure with respect to QSPEs. The investors


in the debt
securities issued by the trusts have no further recourse against us if cash
flows generated by the securitized assets are inadequate to service the
obligations of the QSPEs. Gains on initial sale and subsequent servicing fees
are recorded in credit card revenue when earned. Other SPEs, including commercial paper conduits and asset management
vehicles which are not structured as QSPEs, acquire and manage pools of assets
on behalf of third parties. These SPEs obtain funding primarily through the
sale of debt securities and commercial paper. The assets and liabilities of
these SPEs are not included in our consolidated balance sheet. In determining
that consolidation of these SPEs is not required, we have historically
considered such factors as the amount of third party equity, our retention of
risks and rewards, and the extent of control available to third parties. We
are currently evaluating each of these SPEs to determine whether they meet the
definition of a variable interest entity and whether consolidation will be
required beginning in the third quarter of 2003 under recently promulgated
accounting standards. For more information, see the Recent Accounting and
Regulatory Developments section of this Note. We provide access to liquidity for our corporate customers through
asset-backed commercial paper conduits. These conduits, at the request, or on
behalf, of customers, may purchase financial assets directly from those
customers or from third parties, or make loans secured by the financial assets
of customers. The assets of the conduits are generally of investment grade
quality and are typically secured by other financial assets such as leases,
trade receivables, or cash held as collateral. We do not sell our own assets
to these conduits. Investors in commercial paper issued by the conduits receive direct credit
support from FleetBoston in the form of credit derivative contracts or
financial standby letters of credit. To mitigate risk, we have entered into
offsetting credit derivative contracts with third parties and hold cash
collateral provided by such third parties. Commercial paper investors also
benefit from backup liquidity lines of credit provided by FleetBoston and third
parties. Credit derivative contracts are included in our consolidated balance
sheet at fair value, with changes in fair value recorded currently in trading
profits and commissions. Financial standby letters of credit and unfunded
liquidity lines of credit are not included in our consolidated balance sheet
but are reported as commitments, which are disclosed in Note 10. We receive
fees for structuring transactions for customers and providing administrative
services to the conduits, which are recorded in noninterest income when earned. We provide asset management and related services to asset management
vehicles which acquire and manage pools of financial assets, primarily loans
and bonds, on behalf of third parties. We typically hold minority interests in
the equity issued by the vehicles, which are accounted for using the equity
method and are included in other assets. We generally do not sell our own
assets to these vehicles, nor do we guarantee the obligations or




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otherwise provide credit enhancements to them. We receive fees for asset
management services provided to these vehicles, which are recorded in
noninterest income when earned. Derivative Instruments.Derivative instruments are recorded in our
consolidated balance sheet at their fair value. On the date a derivative
contract is entered into, the derivative is designated as: (1) a hedge of the
fair value of a recognized fixed-rate asset or liability or of an unrecognized
firm commitment (a fair value hedge); (2) a hedge of a forecasted transaction
or of the variability of cash flows to be received or paid related to a
recognized variable-rate asset or liability (a cash flow hedge); (3) a
foreign currency fair value or cash flow hedge (a foreign currency hedge);
(4) a hedge of a net investment in a foreign operation; or (5) held for
trading (trading instruments). Changes in the fair value of a derivative that is highly effective  and
that is designated and qualifies  as a fair value hedge, along with changes in
fair value of the hedged asset or liability that is attributable to the hedged
risk (including losses or gains on firm commitments), are recorded currently in
trading profits and commissions. Changes in the fair value of a derivative
that is highly effective  and that is designated and qualifies as  a cash
flow hedge, to the extent that the hedge is effective, are recorded in other
comprehensive income, until earnings are affected by the variability of the
hedged cash flows (e.g., when periodic settlements on a variable-rate asset or
liability are recorded in earnings). Cash flow hedge ineffectiveness, defined
as the extent that the changes in fair value of the derivative exceed the
variability of cash flows of the forecasted transaction, is recorded currently
in trading profits and commissions. Changes in the fair value of derivatives
that are highly effective  and that are designated and qualify as  foreign
currency hedges are recorded in either current period foreign exchange revenue
or other comprehensive income, depending on whether the hedge transaction meets
the criteria for a fair value or a cash flow hedge. If, however, a derivative
is used as a hedge of a net investment in a foreign operation, its changes in
fair value, to the extent effective as a hedge, are recorded, net of tax, in
the cumulative translation adjustments component of other comprehensive income.
Lastly, changes in the fair value of derivative trading instruments are
recognized currently in trading profits and commissions. We formally document all relationships between hedging instruments and
hedged items, as well as our risk management objectives and strategy for
undertaking various hedge transactions. This process includes linking all
derivatives that are designated as fair value, cash flow or foreign currency
hedges to specific assets and liabilities on the balance sheet or to specific
firm commitments or forecasted transactions. We formally assess, both at the
hedges inception and on an ongoing basis, whether the derivatives that are
used in hedging transactions have been highly effective in offsetting changes
in fair values or cash flows of hedged items and whether they are expected to
continue to be highly effective in future


periods. When it is determined that
a derivative has ceased to be a highly effective hedge, hedge accounting is
discontinued prospectively. Specifically, hedge accounting is discontinued prospectively when: (1) it
is determined that the derivative is no longer effective in offsetting changes
in the fair value or cash flows of a hedged item; (2) the derivative expires or
is sold, terminated, or exercised; (3) the hedged firm commitment no longer
meets the definition of a firm commitment; (4) it is probable that the
forecasted transaction will not occur by the end of the specified time period;
or (5) management determines that the fair value or cash flow hedge designation
is no longer appropriate. When it is determined that the derivative no longer qualifies as an
effective fair value or cash flow hedge or management removes the hedge
designation, the derivative will continue to be carried on the balance sheet at
its fair value, with changes in fair value recognized currently in trading
profits and commissions. The asset or liability under a fair value hedge will
no longer be adjusted for changes in fair value and the existing basis
adjustment is amortized to net interest income. The component of other
comprehensive income related to discontinued cash flow hedges is amortized to
net interest income over the original term of the hedge contract. When hedge accounting is discontinued because the hedged item no longer
meets the definition of a firm commitment, or because it is probable that the
forecasted transaction will not occur by the end of the specified time period,
the derivative will continue to be carried on the balance sheet at its fair
value, with changes in fair value recognized currently in trading profits and
commissions. Any asset or liability that was recorded pursuant to recognition
of the firm commitment is removed from the balance sheet and recognized
currently in other noninterest income. Gains and losses that were accumulated
in other comprehensive income pursuant to the hedge of a forecasted transaction
are recognized immediately in other noninterest income. Recent Accounting and Regulatory Developments. In January 2003, in an effort to expand upon and strengthen existing accounting
guidance that addresses when a company should include in its financial
statements the assets, liabilities and activities of another entity, the
Financial Accounting Standards Board, or FASB, issued Interpretation No. 46,
Consolidation of Variable Interest Entities. The Interpretation applies to
variable interest entities, or VIEs, many of which have been referred to as
SPEs. Until now, a company generally included another entity in its consolidated
financial statements only if it controlled the entity through voting interests.
The FASB determined that this approach was not effective in identifying
controlling financial interests in entities that are not controlled through
voting interests, or in which the equity investors do not bear the residual
economic risks and rewards. The Interpretation requires a variable interest
entity to be consolidated by a company if that company is




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the primary beneficiary of that entity. The primary beneficiary is subject
to a majority of the risk of loss from the VIEs activities, or is entitled to
receive a majority of the VIEs residual returns, or both. The consolidation requirements of the Interpretation apply immediately to
VIEs created after January 31, 2003 and apply to previously established
entities in the first interim period beginning after June 15, 2003. Certain of
the disclosure requirements apply to all financial statements issued after
January 31, 2003, regardless of when the VIE was established. We are currently evaluating the significant SPEs with which we do business
to determine whether they meet the definition of a VIE and whether
consolidation might be required by the Interpretation. As described in Note
17, these SPEs include securitization trusts, commercial paper conduits, and
asset management vehicles. The scope of the Interpretation does not extend to
securitization trusts that utilize QSPEs, which are defined by SFAS No. 140,
Accounting for Transfers and Servicing of Financial Assets and Extinguishments
of Liabilities, and are not required to be consolidated by the transferor. We
believe it is reasonably possible that the commercial paper conduits and asset
management vehicles meet the definition of a VIE. In addition, we may be
required to consolidate the conduits, which held aggregate assets of $6.2
billion at December 31, 2002. However, we are currently evaluating alternative
structures that would permit some or all of the conduits to remain
unconsolidated. We are also evaluating each of our asset management vehicles
to determine whether consolidation will be required. In January 2003, the Federal Financial Institutions Examination Council,
or FFIEC, established new guidance concerning a variety of credit card
lending issues related to account management, income recognition and loss
allowance practices. This guidance is not expected to have a material impact
on FleetBoston. Our past practices for estimating the credit loss reserves
required relative to our overall credit card activities will be refined in 2003
to more specifically address uncollectible accrued interest and fees and our
recent experience with the credit card receivable liquidation cycle. In November 2002, the FASB issued Interpretation No. 45, Guarantors
Accounting and Disclosure Requirements for Guarantees, Including Indirect
Guarantees of Indebtedness of Others. The Interpretation, which clarifies
previously issued accounting guidance and disclosure requirements for
guarantees, expands the disclosures to be made by a guarantor in its financial
statements about its obligations under certain guarantees, and requires the
guarantor to recognize a liability for the fair value of an obligation assumed
under a guarantee. In general, the Interpretation applies to contracts or indemnification
agreements that contingently require the guarantor to make payments to the
guaranteed party based on specified changes in an underlying variable that is
related to an asset, liability, or equity security of the guaranteed party.
Guarantee contracts excluded from both the disclosure and recognition
requirements of the Interpretation include, among others, guarantees relating
to em-


ployee compensation, residual value guarantees under capital lease
arrangements, commercial letters of credit, commitments to extend credit,
subordinated interests in an SPE, and guarantees of a companys own future
performance. Other guarantees subject to the disclosure requirements of the
Interpretation, but not to the recognition provisions, include, among others, a
guarantee accounted for as a derivative instrument under SFAS No. 133, a
parents guarantee of debt owed to a third party by its subsidiary or vice
versa, and a guarantee which is based on performance but not price. The disclosure requirements of the Interpretation are effective for
FleetBoston as of December 31, 2002, and require disclosure of the nature of
the guarantee, the maximum potential amount of future payments that the
guarantor could be required to make under the guarantee, and the current amount
of the liability, if any, for the guarantors obligations under the guarantee.
The recognition requirements of the Interpretation are to be applied
prospectively to guarantees issued or modified after December 31, 2002.
Significant guarantees that have been entered into by FleetBoston are disclosed
in Note 10. We do not expect the requirements of the Interpretation to have a
material impact on our financial position, results of operations or liquidity. In July 2002, the FASB issued SFAS No. 146, Accounting for Costs
Associated with Exit or Disposal Activities. This standard is effective for
exit or disposal activities initiated after December 31, 2002, and generally
requires costs associated with exit or disposal activities (including costs
related to involuntary terminations and contract termination costs) to be
recognized when they are incurred rather than at the date of a commitment to an
exit or disposal plan. Specifically, costs associated with involuntary
terminations are to be accrued on the date the employees are notified, assuming
the period of time between the notification date and termination date is the
lesser of 60 days or the legally required notification period. Otherwise,
these costs are to be recognized evenly over the period from notification to
termination. Contract termination costs are to be recognized when the contract
is legally terminated or when the economic benefits of the contract are no
longer being realized. Note 2. Discontinued Operations In the second quarter of 2002, we announced our decision to divest Robertson
Stephens, AFSA Data Corporation, or AFSA, and our fixed income business in
Asia, in order to re-deploy capital to our core businesses and reduce earnings
volatility. In addition, in the fourth quarter of 2002, we approved a plan to
discontinue the operations of Fleet Trading, our NASDAQ market-making business,
based on similar strategies. We completed the sale of AFSA in June 2002 and recognized a gain of
approximately $300 million ($173 million after-tax). We ceased operations and
substantially completed the winding down of Robertson Stephens during 2002, and
expect to substantially complete the disposal of the Asia fixed income business
in early 2003. In




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the fourth quarter of 2002, Fleet Trading ceased its operations by formally
withdrawing from the NASDAQ market-making business. Financial information related to these businesses is presented separately
in our income statement as discontinued operations. The remaining assets of
these businesses are held for sale as of December 31, 2002, and are included on
a separate line item in the accompanying consolidated balance sheet at the
lower of carrying value or estimated fair value less costs to dispose. The
remaining liabilities, including related exit costs, are included on a separate
line item in the consolidated balance sheet. Prior period information has been
presented on the same basis. The following table presents condensed, combined results of operations for
Robertson Stephens, Asia, AFSA, and Fleet Trading. Included in noninterest
income is the above-mentioned AFSA gain on sale, and included in noninterest
expense are estimated losses of $638 million ($421 million after-tax), $50
million ($30 million after-tax) and $27 million ($17 million after-tax) related
to Robertson Stephens, the Asia fixed income business and Fleet Trading,
respectively. The gain on sale and the estimated losses were all recorded in
2002. December 31
    
    2002
    
    2001
    
    2000In millionsInterest income
    
    $
    85
    
    
    $
    189
    
    
    $
    323Interest expense
    
    
    35
    
    
    
    79
    
    
    
    173Net interest income
    
    
    50
    
    
    
    110
    
    
    
    150Provision for credit losses
    
    
    15
    
    
    
    6
    
    
    
    5Noninterest income
    
    
    645
    
    
    
    784
    
    
    
    1,902Noninterest expense
    
    
    1,156
    
    
    
    935
    
    
    
    1,510(Loss)/income before income taxes
    
    
    (476
    )
    
    
    (47
    )
    
    
    537Income tax (benefit)/expense
    
    
    (140
    )
    
    
    (10
    )
    
    
    199Net (loss)/income
    
    $
    (336
    )
    
    $
    (37
    )
    
    $
    338 The aggregate estimated pre-tax loss of $715 million related to the disposals
of Robertson Stephens, the Asia fixed income business and Fleet Trading,
itemized above, was composed of a goodwill write-off of $289 million related to
Robertson Stephens and exit costs of $426 million related to the three
businesses. These exit costs are discussed in more detail in Note 15. The following table presents the combined carrying amounts of the major
classes of assets and liabilities of Robertson Stephens, the Asia fixed income
business and Fleet Trading as of December 31, 2002, and AFSA, Robertson
Stephens, the Asia fixed income business and Fleet Trading as of December 31,
2001. These aggregate assets and liabilities are included in our consolidated
balance sheet under the captions Assets of Discontinued Operations and
Liabilities of Discontinued Operations.


December 31,
    
    December 31,In millions
    
    2002
    
    2001Cash and cash equivalents
    
    $
    109
    
    
    $
    546Trading assets
    
    
    29
    
    
    
    2,365Net loans
    
    
    215
    
    
    
    1,191Goodwill
    
    
    
    
    
    
    305Other assets(a)
    
    
    301
    
    
    
    627Total assets
    
    $
    654
    
    
    $
    5,034Deposits
    
    $
    150
    
    
    $
    1,607Short-term borrowings
    
    
    
    
    
    
    877Other liabilities(b)
    
    
    398
    
    
    
    509Total liabilities
    
    $
    548
    
    
    $
    2,993 (a)
    
    Includes securities, due from brokers/dealers, premises and equipment
and other assets.(b)
    
    Includes trading liabilities, due to brokers/dealers and accrued
expenses and other liabilities. Note 3. Acquisitions and Divestitures On November 1, 2001, we completed our acquisition of the asset management
businesses of Liberty Financial Companies, Inc. for approximately $970 million
in cash. Since this acquisition was accounted for under the purchase method of
accounting, the acquisition has been included in the accompanying consolidated
financial statements since the acquisition date. In connection with this acquisition, we recorded goodwill of $744 million,
which included $210 million of purchase accounting adjustments consisting of
exit costs of $48 million and fair value adjustments of $162 million. The
goodwill was recorded in our Wealth Management and Brokerage business, a
component of our Personal Financial Services line of business. In addition,
customer relationship intangibles aggregating $195 million were recorded. All
of the goodwill related to this acquisition is deductible for federal income
tax purposes. The customer relationship intangibles are being amortized on a
straight-line basis over ten and twelve years. For further discussion of the
exit costs, refer to Note 15. On June 1, 2001, we completed the sale of Fleet Mortgage Corporation, our
mortgage banking subsidiary with approximately $8 billion of assets. The sale
resulted in an aggregate loss of $428 million ($285 million after-tax).




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Note 4. Securities

|                               |                                       |                                     |        |           |        |            |     |            |     |        |     |           |     |            |        |            |        |        |        |        |        |       |     |     |     |   |     |    |     |   |        |        |        | 
|------------------------------ | ------------------------------------- | ----------------------------------- | ------ | --------- | ------ | ---------- | --- | ---------- | --- | ------ | --- | --------- | --- | ---------- | ------ | ---------- | ------ | ------ | ------ | ------ | ------ | ----- | --- | --- | --- | - | --- | -- | --- | - | ------ | ------ | ------ | 
|                              
|December 31                    |                                       | 2002                                |        | 2001     
|                               |                                       |                                     |        |           |        |            |     | Gross      |     | Gross  |     |           |     |            |        |            |        |        |        | Gross  |        | Gross |     |     |     |  
|                               |                                       |                                     |        | Amortized |        | Unrealized |     | Unrealized |     | Market |     | Amortized |     | Unrealized |        | Unrealized |        | Market
|In millions                    |                                       | Cost                                |        | Gains     |        | Losses     |     | Value      |     | Cost   |     | Gains     |     | Losses     |        | Value     
|                              
|Securities available for sale: |                                       |                                     |        |           |        |            |     |            |     |        |     |           |     |            |        |            |        |        |        |        |        |       |     |     |     |   |     |    |     |   |        |       
|                               | U.S. Treasury and government
agencies |                                     | $      | 2,017     |        |            | $   | 15         |     |        |     |          |     |            | $      | 2,032      |        |        | $      | 4,466  |        |       | $   | 8   |     |   | $   | 22 |     |   | $      | 4,452  |       
|                               | Mortgage-backed securities            |                                     |        | 21,295    |        |            |     | 455        |     |        | $   | 8         |     |            |        | 21,742     |        |        |        | 13,786 |        |       |     | 326 |     |   |     | 55 |     |   |        | 14,057 |       
|                               | Foreign debt securities               |                                     |        | 1,171     |        |            |     | 2          |     |        |     | 88        |     |            |        | 1,085      |        |        |        | 2,199  |        |       |     | 34  |     |   |     | 33 |     |   |        | 2,200  |       
|                               | Other debt securities                 |                                     |        | 2,431     |        |            |     | 26         |     |        |     | 11        |     |            |        | 2,446      |        |        |        | 2,854  |        |       |     | 25  |     |   |     | 30 |     |   |        | 2,849  |       
|                              
|                               |                                       | Total debt securities               |        |           | 26,914 |            |     |            | 498 |        |     |           | 107 |            |        |            | 27,305 |        |        |        | 23,305 |       |     |     | 393 |   |     |    | 140 |   |        |        | 23,558 | 
|                              
|                               | Marketable equity securities          |                                     |        | 411       |        |            |     | 20         |     |        |     | 6         |     |            |        | 425        |        |        |        | 492    |        |       |     | 22  |     |   |     | 32 |     |   |        | 482    |       
|                               | Other equity securities               |                                     |        | 1,815     |        |            |     |           |     |        |     |          |     |            |        | 1,815      |        |        |        | 1,951  |        |       |     |    |     |   |     |   |     |   |        | 1,951  |       
|                              
|                               |                                       | Total securities available for sale |        |           | 29,140 |            |     |            | 518 |        |     |           | 113 |            |        |            | 29,545 |        |        |        | 25,748 |       |     |     | 415 |   |     |    | 172 |   |        |        | 25,991 | 
|                              
|Securities held to maturity:   |                                       |                                     |        |           |        |            |     |            |     |        |     |           |     |            |        |            |        |        |        |        |        |       |     |     |     |   |     |    |     |   |        |       
|                               | State and municipal                   |                                     |        | 544       |        |            |     | 5          |     |        |     |          |     |            |        | 549        |        |        |        | 588    |        |       |     | 3   |     |   |     |   |     |   |        | 591    |       
|                               | U.S. Treasury and government
agencies |                                     |        | 11        |        |            |     |           |     |        |     |          |     |            |        | 11         |        |        |        | 24     |        |       |     |    |     |   |     |   |     |   |        | 24     |       
|                               | Foreign debt securities               |                                     |        | 319       |        |            |     |           |     |        |     |          |     |            |        | 319        |        |        |        |       |        |       |     |    |     |   |     |   |     |   |        |       |       
|                               | Other debt securities                 |                                     |        | 6         |        |            |     |           |     |        |     |          |     |            |        | 6          |        |        |        | 1      |        |       |     |    |     |   |     |   |     |   |        | 1      |       
|                              
|                               |                                       | Total securities held to maturity   |        |           | 880    |            |     |            | 5   |        |     |           |    |            |        |            | 885    |        |        |        | 613    |       |     |     | 3   |   |     |    |    |   |        |        | 616    | 
|                              
|Total securities               |                                       | $                                   | 30,020 |           |        | $          | 523 |            |     | $      | 113 |           |     | $          | 30,430 |            |        | $      | 26,361 |        |        | $     | 418 |     |     | $ | 172 |    |     | $ | 26,607 |       
|                              



At December 31, 2002, $13.8 billion of securities were pledged to secure public
deposits, securities sold under agreements to repurchase, and for other
purposes, compared with $12.5 billion at December 31, 2001. Proceeds from sales of securities available for sale during 2002, 2001,
and 2000 were $21 billion, $24 billion, and $11 billion, respectively. Gross
gains of $530 million and gross losses of $120 million were realized on those
sales in 2002, gross gains of $280 million and gross losses of $380 million
were realized on those sales in 2001, and gross gains of $120 million and gross
losses of $107 million were realized on those sales in 2000. In addition, we
recognized losses of approximately $64 million in 2002 and $175 million in 2001
in connection with writedowns of certain securities available for sale which
experienced a decline in value that was deemed other
than temporary. Also, in 2002, we had a $340 million writedown relating to an
Argentine government compensation bond, which is included in securities held to
maturity. The above amounts for each year exclude principal investing
revenues, which are included in capital markets revenue. The carrying values, by contractual maturity, of debt securities available
for sale and securities held to maturity are presented in the following tables.
Actual maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.


Maturities of Securities Available for Sale December 31, 2002
    
    Within
    
    1 to 5
    
    5 to 10
    
    After 10Dollars in millions
    
    1 Year
    
    Years
    
    Years
    
    Years
    
    TotalCarrying value:U.S. Treasury and
government agencies
    
    $
    155
    
    
    $
    1,872
    
    
    $
    5
    
    
    
    
    
    
    $
    2,032Mortgage-backed
securities
    
    
    8
    
    
    
    246
    
    
    
    1,277
    
    
    $
    20,211
    
    
    
    21,742Foreign debt
securities
    
    
    627
    
    
    
    421
    
    
    
    36
    
    
    
    1
    
    
    
    1,085Other debt securities
    
    
    900
    
    
    
    1,211
    
    
    
    221
    
    
    
    114
    
    
    
    2,446Total debt securities
    
    $
    1,690
    
    
    $
    3,750
    
    
    $
    1,539
    
    
    $
    20,326
    
    
    $
    27,305Percent of total debt
securities
    
    
    6.19
    %
    
    
    13.73
    %
    
    
    5.64
    %
    
    
    74.44
    %
    
    
    100.00
    %Weighted average
contractual yield(a)
    
    
    7.26
    
    
    
    4.36
    
    
    
    4.98
    
    
    
    4.76
    
    
    
    4.87Amortized cost
    
    $
    1,718
    
    
    $
    3,768
    
    
    $
    1,502
    
    
    $
    19,926
    
    
    $
    26,914 Maturities of Securities Held to Maturity December 31, 2002
    
    Within
    
    1 to 5
    
    5 to 10
    
    After 10Dollars in millions
    
    1 Year
    
    Years
    
    Years
    
    Years
    
    TotalCarrying value:State and municipal
    
    $
    525
    
    
    $
    15
    
    
    $
    3
    
    
    $
    1
    
    
    $
    544U.S. Treasury and
government agencies
    
    
    10
    
    
    
    1
    
    
    
    
    
    
    
    
    
    
    
    11Foreign debt
securities(b)
    
    
    
    
    
    
    80
    
    
    
    239
    
    
    
    
    
    
    
    319Other debt securities
    
    
    6
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6Total debt securities
    
    $
    541
    
    
    $
    96
    
    
    $
    242
    
    
    $
    1
    
    
    $
    880Percent of total debt
securities
    
    
    61.48
    %
    
    
    10.91
    %
    
    
    27.50
    %
    
    
    .11
    %
    
    
    100.00
    %Weighted average
contractual yield(a)
    
    
    2.55
    
    
    
    2.65
    
    
    
    1.93
    
    
    
    8.08
    
    
    
    2.40Market value
    
    $
    545
    
    
    $
    96
    
    
    $
    243
    
    
    $
    1
    
    
    $
    885 (a)
    
    A tax-equivalent adjustment has been included in the calculations of the
yields to
reflect this income as if it had been fully taxable. The tax-equivalent
adjustment
is based upon the applicable federal and state income tax rates.(b)
    
    Represents the net carrying value of an Argentine government compensation
bond issued to compensate FleetBoston for the difference between
converting
loans at a rate of 1 peso per U.S. dollar and deposits at 1.4 pesos per
U.S. dollar.
The bond is currently not accruing interest. Included in the weighted
average
contractual yield is the bonds contractual yield, which is based on the 6
month
LIBOR rate.




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Note 5. Loans and Leases December 31
    
    2002
    
    2001In millionsDomestic:Commercial and industrial
    
    $
    39,359
    
    
    $
    48,486Commercial real estate:Construction
    
    
    2,008
    
    
    
    2,717Interim/permanent
    
    
    8,993
    
    
    
    8,800Home equity
    
    
    22,840
    
    
    
    13,862Residential real estate
    
    
    11,092
    
    
    
    8,131Credit card
    
    
    5,894
    
    
    
    5,547Other consumer
    
    
    3,342
    
    
    
    4,685Lease financing
    
    
    11,199
    
    
    
    12,370Total domestic loans and leases,
net of unearned income
    
    
    104,727
    
    
    
    104,598International:Commercial
    
    
    11,469
    
    
    
    16,640Consumer
    
    
    1,005
    
    
    
    2,776Lease financing
    
    
    3,179
    
    
    
    2,974Total international loans and leases,
net of unearned income
    
    
    15,653
    
    
    
    22,390Total loans and leases, net of
unearned income(a)
    
    $
    120,380
    
    
    $
    126,988 (a)
    
    Net of unearned income of $3.7 billion at both December 31, 2002 and
2001. Domestic and international lease financing receivables primarily included
full-payout, direct financing leases to corporate customers. The receivables
also included leveraged and operating leases. Our consolidated investment in
leveraged leases totaled approximately $4 billion at December 31, 2002. For
federal income tax purposes, we retain the tax benefit of depreciation on the
entire leased unit and interest on the related long-term debt, which is
non-recourse to FleetBoston. Deferred taxes arising from leveraged leases
totaled approximately $3 billion at December 31, 2002. Future minimum lease
payments to be received are approximately $2.8 billion, 2003; $2.1 billion,
2004; $1.6 billion, 2005; $1.1 billion, 2006; $.8 billion, 2007; and $6.2
billion, 2008 and thereafter. Consolidated lease financing balances included
aggregate operating leases of $1.2 billion and $1.4 billion at December 31,
2002 and 2001, respectively. At December 31, 2002 and 2001, nonperforming assets, or NPAs, totaled
$3.5 billion and $1.8 billion, respectively, including $3 billion of
nonperforming loans, or NPLs, and $455 million of other NPAs at December 31,
2002, compared with $1.8 billion of NPLs and $32 million of other NPAs at
December 31, 2001. Total NPAs at December 31, 2002 and 2001, respectively,
included $1.7 billion and $263 million related to Argentina. NPAs as a
percentage of related assets were 2.86% and 1.46% at December 31, 2002 and
2001, respectively. For 2002 and 2001, the gross interest income that would have been recorded
if the NPLs had been current in accordance with their original contractual
terms, and had been outstanding throughout the period (or since origination if
held for part of the period), was $272 million and $149 million, respectively,
and actual interest income from those loans included in net income for the
period was $60 million and $31 million, respectively.
     NPAs included impaired loans of $2.7 billion and $1.5 billion at December
31, 2002 and 2001, respectively.


The following table presents information related to impaired loans. December 31
    
    2002
    
    2001In millionsImpaired loans with a reserve
    
    $
    1,884
    
    
    $
    1,132Impaired loans without a reserve
    
    
    768
    
    
    
    333Total impaired loans
    
    $
    2,652
    
    
    $
    1,465Reserve for impaired loans(a)
    
    $
    913
    
    
    $
    474Average balance of impaired loans
during the year ended December 31
    
    $
    2,366
    
    
    $
    1,186 (a)
    
    The reserve for impaired loans is included in the overall reserve
for credit losses. At December 31, 2002 and 2001, we had AHAD with a net carrying value of $138
million and $270 million, respectively, none of which was accruing interest.
Transfers to this category are made in accordance with managements intention
to focus appropriate resources on the quick disposition of these assets. Such
assets are included in other assets in our consolidated balance sheet. Note 6. Reserve for Credit Losses Year ended December 31
    
    2002
    
    2001
    
    2000In millionsBalance at beginning of year
    
    $
    3,634
    
    
    $
    2,709
    
    
    $
    2,816Provision charged to income
    
    
    2,760
    
    
    
    2,324
    
    
    
    1,290Loans and leases charged off
    
    
    (2,695
    )
    
    
    (1,614
    )
    
    
    (1,509
    )Recoveries of loans and
leases charged off
    
    
    235
    
    
    
    228
    
    
    
    272Other(a)
    
    
    (70
    )
    
    
    (13
    )
    
    
    (160
    )Balance at end of year(b)
    
    $
    3,864
    
    
    $
    3,634
    
    
    $
    2,709 (a)
    
    2002 primarily related to the devaluation of the peso in Argentina and
sales of credit card receivables in the fourth quarter of 2002. 2000 was
primarily composed of reserves related to divestitures of loans as well as
a reduction of $75 million related to the sale of troubled commercial
loans.(b)
    
    Amounts included $136 million, $175 million and $239 million at
December 31, 2002, 2001 and 2000, respectively, related to unfunded
commitments to extend credit and other off-balance sheet financial
instruments, including $59 million, $53 million and $53 million,
respectively, related to financial standby letters of credit. Note 7. Goodwill and Intangible Assets The carrying value of goodwill was $4.3 billion at December 31, 2002 and $4.4
billion at December 31, 2001. No goodwill was acquired, and no impairment was
recognized, in 2002, exclusive of the write-off of goodwill related to the
disposal of Robertson Stephens, which is discussed in Note 2. The carrying value of goodwill by line of business at December 31, 2002
was $2.8 billion for Personal Financial Services, $1.1 billion for Commercial
Financial Services, $.3 billion for Capital Markets and $.1 billion for
International Banking. These balances were unchanged from December 31, 2001
except for International Banking, which declined $.1 billion due primarily to
the devaluation of the Argentine peso.




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The following table presents the gross carrying value and accumulated
amortization for significant intangible assets subject to amortization at
December 31, 2002 and 2001. December 31, 2002
    
    December 31, 2001Gross
    
    
    
    
    
    GrossCarrying
    
    Accumulated
    
    Carrying
    
    AccumulatedIn millions
    
    Value
    
    Amortization
    
    Value
    
    AmortizationIntangible assets
subject
to amortization:Purchased credit card
    
    $
    398
    
    
    $
    302
    
    
    $
    398
    
    
    $
    230Customer relationship(a)
    
    
    195
    
    
    
    19
    
    
    
    195
    
    
    
    3 (a)
    
    Recorded in connection with the Liberty acquisition in November 2001. 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 December 31, 2002 and December 31, 2001 was
$284 million and $372 million, respectively. Related amortization expense
recorded for the years ended December 31, 2002 and 2001 was $93 million and $80
million, respectively. Estimated amortization for the years ended December 31,
2003, 2004, 2005, 2006 and 2007 is $81 million, $53 million, $18 million, $18
million and $17 million, respectively. The carrying value of indefinite-lived intangible assets was $66 million
and $13 million at December 31, 2002 and December 31, 2001, respectively. Note 8. Short-Term Borrowings SecuritiesFederal
    
    Sold Under
    
    OtherFunds
    
    Agreements to
    
    Short-TermDollars in millions
    
    Purchased
    
    Repurchase
    
    Borrowings2002Balance at December 31
    
    $
    1,440
    
    
    $
    5,920
    
    
    $
    3,950Highest balance at any month-end
    
    
    3,025
    
    
    
    7,370
    
    
    
    10,273Average balance for the year
    
    
    1,438
    
    
    
    6,323
    
    
    
    6,188Weighted average interest rate
as of December 31
    
    
    .90
    %
    
    
    2.71
    %
    
    
    5.46
    %Weighted average interest rate
paid for the year
    
    
    1.46
    
    
    
    3.28
    
    
    
    3.042001Balance at December 31
    
    $
    1,341
    
    
    $
    7,895
    
    
    $
    5,343Highest balance at any month-end
    
    
    4,513
    
    
    
    7,970
    
    
    
    19,725Average balance for the year
    
    
    2,115
    
    
    
    7,056
    
    
    
    10,674Weighted average interest rate
as of December 31
    
    
    1.46
    %
    
    
    4.33
    %
    
    
    7.59
    %Weighted average interest rate
paid for the year
    
    
    4.09
    
    
    
    5.00
    
    
    
    5.652000Balance at December 31
    
    $
    5,733
    
    
    $
    7,222
    
    
    $
    8,739Highest balance at any month-end
    
    
    5,733
    
    
    
    8,204
    
    
    
    21,300Average balance for the year
    
    
    3,500
    
    
    
    6,698
    
    
    
    11,929Weighted average interest rate
as of December 31
    
    
    4.71
    %
    
    
    5.81
    %
    
    
    8.47
    %Weighted average interest rate
paid for the year
    
    
    6.25
    
    
    
    6.41
    
    
    
    7.54 Federal funds purchased and securities sold under agreements to repurchase
generally mature within 30 days of the transaction date. We generally maintain
possession of the securities in repurchase transactions. Other short-term borrowings generally mature within 90 days, although
commercial paper may have a term of up to 270 days.


Note 9. Long-Term Debt December 31
    
    
    
    
    
    2002
    
    2001Dollars in millions
    
    Maturity DateSenior notes and debentures:Parent company:Floating-rate MTNs
    
    
    2002-2005
    
    
    $
    2,939
    
    
    $
    3,455Fixed-rate MTNs 4.20%-6.849%
    
    
    2002-2007
    
    
    
    360
    
    
    
    3257.95% notes
    
    
    2003
    
    
    
    20
    
    
    
    207.25% notes
    
    
    2005
    
    
    
    1,500
    
    
    
    1,5004.875% notes
    
    
    2006
    
    
    
    1,000
    
    
    
    1,000Other
    
    
    2013
    
    
    
    1
    
    
    
    1Total parent company
    
    
    
    
    
    
    5,820
    
    
    
    6,301Affiliates:FHLB borrowings
    
    
    2002-2020
    
    
    
    2,202
    
    
    
    2,266Floating-rate notes
    
    
    2002-2051
    
    
    
    3,220
    
    
    
    7,422Fixed-rate notes
    
    
    2002-2027
    
    
    
    264
    
    
    
    405Other
    
    
    2002-2026
    
    
    
    30
    
    
    
    114Total affiliates
    
    
    
    
    
    
    5,716
    
    
    
    10,207Total senior notes and debentures
    
    
    
    
    
    
    11,536
    
    
    
    16,508Subordinated notes and debentures:Parent company:8.625% subordinated notes
    
    
    2002
    
    
    
    
    
    
    
    1756.875%-7.20% subordinated notes
    
    
    2003
    
    
    
    400
    
    
    
    4006.625%-8.125% subordinated notes
    
    
    2004
    
    
    
    550
    
    
    
    5616.625% subordinated notes
    
    
    2005
    
    
    
    350
    
    
    
    3507.125% subordinated notes
    
    
    2006
    
    
    
    300
    
    
    
    3008.625% subordinated notes
    
    
    2007
    
    
    
    107
    
    
    
    1076.375%-6.50% subordinated notes
    
    
    2008
    
    
    
    500
    
    
    
    5007.375% subordinated notes
    
    
    2009
    
    
    
    500
    
    
    
    5007.00%-7.75% subordinated MTNs
    
    
    2012-2013
    
    
    
    
    
    
    
    1256.70%-6.875% subordinated notes
    
    
    2028
    
    
    
    750
    
    
    
    750Total parent company
    
    
    
    
    
    
    3,457
    
    
    
    3,768Affiliates:8.375% subordinated notes
    
    
    2002
    
    
    
    
    
    
    
    2006.75% subordinated notes
    
    
    2003
    
    
    
    50
    
    
    
    508.00% subordinated notes
    
    
    2004
    
    
    
    200
    
    
    
    2008.625% subordinated notes
    
    
    2005
    
    
    
    250
    
    
    
    2507.375% subordinated notes
    
    
    2006
    
    
    
    200
    
    
    
    2006.50%-7.00% subordinated notes
    
    
    2007
    
    
    
    400
    
    
    
    4006.375% subordinated notes
    
    
    2008
    
    
    
    750
    
    
    
    7505.75% subordinated notes
    
    
    2009
    
    
    
    400
    
    
    
    400Total affiliates
    
    
    
    
    
    
    2,250
    
    
    
    2,450Total subordinated notes and
debentures
    
    
    
    
    
    
    5,707
    
    
    
    6,218Company-obligated mandatorily redeemable
trust securities of capital trusts:BankBoston Capital Trust I, 8.25%
    
    
    2026
    
    
    
    250
    
    
    
    250Fleet Capital Trust I, 8.00%
    
    
    2027
    
    
    
    84
    
    
    
    84Summit Capital Trust I, 8.40%
    
    
    2027
    
    
    
    150
    
    
    
    150BankBoston Capital Trust II, 7.75%
    
    
    2026
    
    
    
    250
    
    
    
    250Fleet Capital Trust II, 7.92%
    
    
    2026
    
    
    
    250
    
    
    
    250BankBoston Capital Trust III, floating-rate
    
    
    2027
    
    
    
    250
    
    
    
    250Fleet Capital Trust III, 7.05%
    
    
    2028
    
    
    
    120
    
    
    
    120BankBoston Capital Trust IV, floating-rate
    
    
    2028
    
    
    
    250
    
    
    
    250Fleet Capital Trust IV, 7.17%
    
    
    2028
    
    
    
    150
    
    
    
    150Fleet Capital Trust V, floating-rate
    
    
    2028
    
    
    
    250
    
    
    
    250Fleet Capital Trust VI, 8.80%
    
    
    2030
    
    
    
    300
    
    
    
    300Fleet Capital Trust VII, 7.20%
    
    
    2031
    
    
    
    500
    
    
    
    500Fleet Capital Trust VIII, 7.20%
    
    
    2032
    
    
    
    534
    
    
    
    Total company-obligated mandatorily
redeemable trust securities of
capital trusts
    
    
    
    
    
    
    3,338
    
    
    
    2,804Total long-term debt
    
    
    
    
    
    $
    20,581
    
    
    $
    25,530 The subordinated notes all provide for single principal payments at maturity.
All of the parent company fixed-rate senior notes pay interest semiannually,
provide for single principal payments and are not redeemable prior to maturity.
The affiliate senior notes and debentures are not redeemable prior to maturity
except for $1.4 billion of Federal Home Loan Bank, or FHLB, borrowings which
are redeemable at the option of the FHLB of New York. Of the total redeemable
borrowings, $1.3 billion are currently redeemable and $40 million are
redeemable in 2003.




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During 2002, we issued $616 million of senior floating-rate MTNs due 2004
through 2005, $110 million of 4.39% senior fixed-rate notes due 2007 and $250
million of 4.20% senior fixed-rate notes due 2007. The senior floating-rate
MTNs pay interest at rates tied to the London Interbank Offered Rate, or
LIBOR, reset monthly or quarterly. Additionally, our statutory business
trust, Fleet Capital Trust VIII, issued $534 million of 7.20% fixed-rate trust
preferred securities due 2032. As part of our balance sheet management process, we use interest rate
swaps to modify the re-pricing and maturity characteristics of certain
long-term debt. These interest rate risk management activities are discussed
in greater detail in Note 13. The aggregate payments required to retire long-term debt are: $4.7 billion
in 2003; $3.2 billion in 2004; $3.2 billion in 2005; $1.8 billion in 2006; $967
million in 2007, $1.4 billion in 2008, $922 million in 2009 and $4.4 billion
thereafter. We have an effective shelf registration statement filed with the
Securities and Exchange Commission, or SEC, providing for the issuance of
common and preferred stock or trust preferred securities, senior or
subordinated debt securities and other debt securities, with a remaining
availability of $1.9 billion at December 31, 2002. Additionally, FleetBoston
and FNB have access to the Euro market under a $4.5 billion Euro MTN program.
Availability under this program was $2.8 billion at December 31, 2002. Trust Preferred Securities We have thirteen statutory business trusts, of which we own all of the common
securities. These trusts have no independent assets or operations, and exist
for the sole purpose of issuing trust preferred securities and investing the
proceeds thereof in an equivalent amount of junior subordinated debentures
issued by FleetBoston. The junior subordinated debentures, which are the sole assets of the
trusts, are unsecured obligations of FleetBoston, and are subordinate and
junior in right of payment to all present and future senior and subordinated
indebtedness and certain other financial obligations of FleetBoston. The
principal amount of subordinated debentures held by each trust equals the
aggregate liquidation amount of its trust preferred securities and its common
securities. Refer to Note 20 for the aggregate amount of subordinated
debentures currently outstanding. The subordinated debentures bear interest at
the same rate, and will mature on the same date, as the corresponding trust
securities. We fully and unconditionally guarantee each trusts obligations
under the trust securities. Additional information concerning restrictions on
our ability to obtain funds from our subsidiary banks is included in Note 12. All of the trust preferred securities may be prepaid at the option of the
trusts, in whole or in part, on or after their respective prepayment dates. At
December 31, 2002, the interest rates on the BankBoston Capital Trust III and
IV and Fleet Capital Trust V floating-rate trust preferred securities
were 2.16%, 2.02% and 2.41%, respectively.


Note 10. Commitments and Contingencies We have obligations under a number of noncancelable operating leases for
premises and equipment. The minimum annual rental commitments under these
leases at December 31, 2002, exclusive of taxes and other charges, were as
follows: $304 million in 2003; $279 million in 2004; $247 million in 2005; $215
million in 2006; $184 million in 2007; and $545 million in 2008 and thereafter.
Total rental expense for 2002, 2001 and 2000, including cancelable and
noncancelable leases, amounted to $312 million, $293 million, and $268 million,
respectively. Certain leases contain escalation clauses, which correspond with increased
real estate taxes and other operating expenses, and renewal options calling for
increased rents as the leases are renewed. No restrictions are imposed by any
lease agreement regarding the payment of dividends, additional debt financing,
or entering into further lease agreements. The following table presents our commitments at December 31, 2002 and
2001. These commitments are not included in our consolidated balance sheet. Commitments Contractual AmountDecember 31
    
    2002
    
    2001In millionsCommitments to extend credit:Commercial, including backup
liquidity lines
    
    $
    65,285
    
    
    $
    78,205Credit card
    
    
    67,599
    
    
    
    58,232Other consumer
    
    
    12,244
    
    
    
    9,586Financial standby and performance letters
of credit, financial guarantees and
foreign office guarantees (net of
participations)
    
    
    11,968
    (a)
    
    
    11,411Commercial letters of credit
    
    
    1,845
    
    
    
    1,881Securities lent under stock borrowing,
customer and non-customer agreements
    
    
    4,275
    
    
    
    4,827Other commercial commitments
    
    
    1,610
    
    
    
    2,011 (a)
    
    Included $7.7 billion, $3.2 billion and $1.1 billion expiring in under
one year, in one to three years and after three years, respectively. Commitments to extend credit are agreements to lend to customers in accordance
with contractual provisions. These commitments usually are for specific
periods or contain termination clauses and may require the payment of a fee.
The total amounts of unused commitments do not necessarily represent future
cash requirements, in that commitments often expire without being drawn upon.
In connection with asset-backed commercial paper programs that utilize SPEs, we
have unfunded commitments to provide liquidity to the related commercial paper
conduits in the event funding cannot be readily accessed in the commercial
paper market. These liquidity commitments totaled approximately $3.7 billion
at December 31, 2002, and no amounts were outstanding under such facilities.
More information about these conduits is included in
Note 17.




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Letters of credit and financial guarantees are agreements whereby
FleetBoston guarantees the performance of a customer to a third party.
Collateral may be required to support letters of credit in accordance with
managements evaluation of the creditworthiness of each customer. The credit
exposure assumed in issuing letters of credit and financial guarantees is
essentially equal to that assumed in other lending activities. We receive collateral under stock borrowing, customer and non-customer
agreements, which we have the ability to sell or repledge. As of December 31,
2002, we had received collateral, primarily in connection with securities
borrowed and customer margin loans, with a market value of $6.6 billion, which
we can sell or repledge. Of this amount, $4.3 billion, reflected in the
preceding table, had been pledged or sold as of December 31, 2002, in
connection with securities lent, bank borrowings and deposits with clearing
organizations. As of December 31, 2001, such amounts were $7.4 billion and
$4.8 billion, respectively. Other commercial commitments represent unfunded commitments of our
Principal Investing business. Such commitments relate to fund investments and
are drawn down periodically throughout the life of the fund. In the normal course of business, we enter into numerous agreements that
contain features which meet the definition of a guarantee under FASB
Interpretation No. 45, which is more fully described in Note 1. The
Interpretation defines a guarantee to be 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, which are discussed
above, as well as credit derivatives, market value guarantees for customers,
and earn-out agreements associated with business combinations, all of which are
discussed below. Credit derivatives and market value guarantees, collectively derivative
contracts, are entered into in the normal course of business to satisfy the
investment and risk management needs of our customers. Certain of these
contracts, which are more fully described in Note 13, contingently require us
to pay amounts based upon changes in market prices and interest rates and the
occurrence of specified credit events. These derivative contracts include
credit derivatives for the sale of credit protection, and written options, such
as interest rate options, foreign exchange rate options, precious metal options
and equity security options. With respect to credit derivatives, the maximum
potential amount that we could be required to pay equals the aggregate notional
value of the contracts, which totaled $3.6 billion at December 31, 2002,
including $2.2 billion related to commercial paper conduits, which are more
fully discussed in Note 17. Because of the nature of certain written options,
the maximum potential payment is not quantifiable. To minimize these
customer-driven risk exposures, we enter into offsetting derivative positions.


At December 31, 2002, the aggregate fair value of these written option
contracts of $1.6 billion was included in trading liabilities in the
consolidated balance sheet, and the remaining maturity of these contracts
ranged from overnight to fourteen years. Offsetting derivative positions are
included in trading assets in the consolidated balance sheet, and are carried
at fair value. In connection with a business combination, we may agree to pay
consideration contingent on specified events in the future, under an earn-out
agreement. At December 31, 2002, we were contingently liable to pay
approximately $270 million under such agreements, and had recorded a liability
in our consolidated balance sheet of approximately $75 million. The
measurement period for these earn-out agreements expires within three years. In addition to the specific guarantees discussed above, in the normal
course of business, we enter into various agreements that provide general
indemnifications. These indemnification agreements typically occur in
connection with sales of assets; merger, acquisition and divestiture
transactions; securities offerings; leasing activities and service contracts.
These indemnification agreements typically require us to compensate the
counterparty for various costs, including costs incurred as a result of changes
in laws and regulations (including tax legislation) or in the interpretations
of such laws and regulations, and as a result of litigation that may be
suffered by the counterparty as a consequence of the transaction. The
indemnification agreements normally extend over unspecified time periods, and
do not provide a limit for the maximum potential amount of payments.
Historically, any payments made by us under such indemnification agreements
have been insignificant; as a result, we have recorded no liability in our
consolidated financial statements for general indemnifications. We are involved in various legal proceedings arising out of, and
incidental to, our respective businesses. Management of FleetBoston, based on
its review with counsel of all actions and proceedings pending against
FleetBoston and its subsidiaries, considers that the aggregate loss, if any,
resulting from the final outcome of these proceedings should not be material to
our financial condition or annual results of operations. However, the outcome
of a particular proceeding may be material to our results of operations for any
particular quarterly period, depending on the size of the loss or liability
relative to our earnings for that quarterly period. For information about
contingencies related to income taxes, refer to Note 16.  Note 11.
    
    Preferred Stock, Common Stock and Earnings Per Common Share Preferred Stock As of December 31, 2002 and 2001, we had outstanding 382,450 shares (690,000
shares authorized) of Series VI 6.75% perpetual preferred stock, and 700,000
shares (805,000 shares authorized) of Series VII 6.60% cumula-




65



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##### Table of Contents





tive preferred stock, both series at a stated value of $250 per share.
Ownership in each series of preferred stock is held in the form of depositary
shares. Dividends on outstanding preferred stock issues are payable quarterly.
Holders of the Series VII preferred stock are entitled to receive dividends at
the rate of 6.60% per annum, payable quarterly, through April 1, 2006. After
April 1, 2006, the rate will adjust based on a U.S. Treasury security rate.
All of the preferred stock outstanding has preference over our common stock
with respect to the payment of dividends and distribution of our assets in the
event of a liquidation or dissolution. Except


in certain circumstances, the
holders of preferred stock have no voting rights. We may redeem the Series VI and Series VII preferred stock, in whole or in
part, at our option, at $250 per share, plus accrued and unpaid dividends, if
any, on or after April 15, 2006 for Series VI and on or after April 1, 2006 for
Series VII. Common Stock and Earnings Per Common Share The following table presents our calculation of earnings per common share for
2002, 2001 and 2000:




|                                                                   |                          |       |               |         |  |       |               |           |  |       |               |         |  |   |               |           |  |   |               |   |  |   |               |           | 
|------------------------------------------------------------------ | ------------------------ | ----- | ------------- | ------- |  | ----- | ------------- | --------- |  | ----- | ------------- | ------- |  | - | ------------- | --------- |  | - | ------------- | - |  | - | ------------- | --------- | 
|                                                                  
|Year ended December 31                                             |                          | 2002  |               | 2001    |  | 2000 
|                                                                  
|Dollars in millions, except share and per share amounts            |                          | Basic |               | Diluted |  | Basic |               | Diluted   |  | Basic |               | Diluted
|                                                                  
|Average shares outstanding                                         |                          |       | 1,045,336,201 |         |  |       | 1,045,336,201 |           |  |       | 1,074,203,742 |         |  |   | 1,074,203,742 |           |  |   | 1,081,376,752 |   |  |   | 1,081,376,752 |          
|Additional shares due to:                                          |                          |       |               |         |  |       |               |           |  |       |               |         |  |   |               |           |  |   |               |   |  |   |               |          
|                                                                   | Stock options and awards |       |               |        |  |       |               | 3,397,714 |  |       |               |        |  |   |               | 9,334,970 |  |   |               |  |  |   |               | 8,774,076 | 
|                                                                   | Warrants                 |       |               |        |  |       |               |          |  |       |               |        |  |   |               | 137,353   |  |   |               |  |  |   |               | 8,589,274 | 
|                                                                  
|Total equivalent shares                                            |                          |       | 1,045,336,201 |         |  |       | 1,048,733,915 |           |  |       | 1,074,203,742 |         |  |   | 1,083,676,065 |           |  |   | 1,081,376,752 |   |  |   | 1,098,740,102 |          
|                                                                  
|Earnings per share:                                                |                          |       |               |         |  |       |               |           |  |       |               |         |  |   |               |           |  |   |               |   |  |   |               |          
|Income from continuing operations                                  |                          | $     | 1,524         |         |  | $     | 1,524         |           |  | $     | 968           |         |  | $ | 968           |           |  | $ | 3,572         |   |  | $ | 3,572         |          
|Less preferred stock dividends                                     |                          |       | (18           | )       |  |       | (18           | )         |  |       | (27           | )       |  |   | (27           | )         |  |   | (39           | ) |  |   | (39           | )        
|                                                                  
|Income from continuing operations available to
common stockholders |                          | $     | 1,506         |         |  | $     | 1,506         |           |  | $     | 941           |         |  | $ | 941           |           |  | $ | 3,533         |   |  | $ | 3,533         |          
|                                                                  
|Total equivalent shares                                            |                          |       | 1,045,336,201 |         |  |       | 1,048,733,915 |           |  |       | 1,074,203,742 |         |  |   | 1,083,676,065 |           |  |   | 1,081,376,752 |   |  |   | 1,098,740,102 |          
|                                                                  
|Earnings per share  continuing operations                         |                          | $     | 1.44          |         |  | $     | 1.44          |           |  | $     | .88           |         |  | $ | .87           |           |  | $ | 3.27          |   |  | $ | 3.22          |          
|                                                                  
|(Loss)/income from discontinued operations                         |                          | $     | (336          | )       |  | $     | (336          | )         |  | $     | (37           | )       |  | $ | (37           | )         |  | $ | 338           |   |  | $ | 338           |          
|                                                                  
|Total equivalent shares                                            |                          |       | 1,045,336,201 |         |  |       | 1,048,733,915 |           |  |       | 1,074,203,742 |         |  |   | 1,083,676,065 |           |  |   | 1,081,376,752 |   |  |   | 1,098,740,102 |          
|                                                                  
|(Loss)/income per share  discontinued operations                  |                          | $     | (.32          | )       |  | $     | (.32          | )         |  | $     | (.04          | )       |  | $ | (.04          | )         |  | $ | .31           |   |  | $ | .30           |          
|                                                                  
|Net income                                                         |                          | $     | 1,188         |         |  | $     | 1,188         |           |  | $     | 931           |         |  | $ | 931           |           |  | $ | 3,910         |   |  | $ | 3,910         |          
|Less preferred stock dividends                                     |                          |       | (18           | )       |  |       | (18           | )         |  |       | (27           | )       |  |   | (27           | )         |  |   | (39           | ) |  |   | (39           | )        
|                                                                  
|Net income available to common stockholders                        |                          | $     | 1,170         |         |  | $     | 1,170         |           |  | $     | 904           |         |  | $ | 904           |           |  | $ | 3,871         |   |  | $ | 3,871         |          
|                                                                  
|Total equivalent shares                                            |                          |       | 1,045,336,201 |         |  |       | 1,048,733,915 |           |  |       | 1,074,203,742 |         |  |   | 1,083,676,065 |           |  |   | 1,081,376,752 |   |  |   | 1,098,740,102 |          
|                                                                  
|Earnings per share  net income                                    |                          | $     | 1.12          |         |  | $     | 1.12          |           |  | $     | .84           |         |  | $ | .83           |           |  | $ | 3.58          |   |  | $ | 3.52          |          
|                                                                  



Options to purchase 83,148,780 shares, 15,788,855 shares and 37,350,044 shares
of common stock which were outstanding at December 31, 2002, 2001, and 2000,
respectively, were not included in the calculation of diluted earnings per
common share because the impact of such options was antidilutive. In 2000, FleetBostons Board of Directors, or Board, declared a dividend
of one preferred share purchase right, or right, for each outstanding share
of our common stock. The purpose of the rights is to protect the interests of
FleetBoston and its stockholders by reducing the risk that a potential acquirer
will obtain complete or partial control of FleetBoston at an inadequate price
or through the use of coercive takeover techniques. Under certain conditions,
a right may be exercised to purchase one ten-thousandth of a share of our
cumulative participating junior preferred stock at an exercise price
of $175,


subject to certain adjustments. In general, the
rights would become exercisable if a party acquires 10% or more (in the case of
certain qualified investors, 15% or more) of the issued and outstanding shares
of our common stock, or after the commencement of a tender or exchange offer
for 10% or more of the issued and outstanding shares. When exercisable under
certain conditions, each right would entitle the holder (other than the
potential acquirer) to receive upon exercise of a right that number of shares
of our common stock (or, in certain cases, the common stock of an acquiring
company) having a market value of two times the exercise price of the right.
The rights will expire in 2010 and may be redeemed in whole, but not in part,
at a price of $.005 per share at any time prior to expiration or the
acquisition of 10% of our common stock.




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As more fully discussed in Note 1, in connection with our adoption of SFAS
No. 142, Goodwill and Other Intangible Assets, we discontinued the
amortization of goodwill beginning January 1, 2002. The following table
presents income and earnings per share on a continuing operations and net
income basis for 2001 and 2000, on the same basis. Adjusted Net Income and Earnings Per Share Year ended December 31
    
    2001
    
    2000Dollars in millions, except per share amountsContinuing operations:Reported income from continuing operations
available to common stockholders
    
    $
    941
    
    
    $
    3,533Add back goodwill amortization, net of applicable
tax benefit
    
    
    255
    
    
    
    251Adjusted income from continuing operations
    
    $
    1,196
    
    
    $
    3,784Basic earnings per share  continuing operations:Reported earnings per share
    
    $
    .88
    
    
    $
    3.27Add back impact of goodwill amortization
    
    
    .23
    
    
    
    .23Adjusted earnings per share
    
    $
    1.11
    
    
    $
    3.50Diluted earnings per share  continuing operations:Reported earnings per share
    
    $
    .87
    
    
    $
    3.22Add back impact of goodwill amortization
    
    
    .23
    
    
    
    .22Adjusted earnings per share
    
    $
    1.10
    
    
    $
    3.44Net income:Reported net income available to common stockholders
    
    $
    904
    
    
    $
    3,871Add back goodwill amortization, net of applicable
tax benefit
    
    
    265
    
    
    
    259Adjusted net income
    
    $
    1,169
    
    
    $
    4,130Basic earnings per share  net income:Reported earnings per share
    
    $
    .84
    
    
    $
    3.58Add back impact of goodwill amortization
    
    
    .25
    
    
    
    .24Adjusted earnings per share
    
    $
    1.09
    
    
    $
    3.82Diluted earnings per share  net income:Reported earnings per share
    
    $
    .83
    
    
    $
    3.52Add back impact of goodwill amortization
    
    
    .25
    
    
    
    .24Adjusted earnings per share
    
    $
    1.08
    
    
    $
    3.76 Note 12. Regulatory Matters Reserve Requirements.At December 31, 2002 and 2001, cash and cash equivalents
included $3.1 billion and $3.9 billion, respectively, to satisfy the reserve
requirements of the Federal Reserve System and various foreign central banks. Transaction and Dividend Restrictions.FleetBostons banking subsidiaries are
subject to restrictions under federal law that limit the transfer of funds by
its subsidiary banks to FleetBoston and its non-banking subsidiaries. Such
transfers by any subsidiary bank to FleetBoston or any non-banking subsidiary
are limited in amount to 10% of such banks capital and surplus.


Various federal and state banking statutes limit the amount of dividends
the subsidiary banks can pay to FleetBoston without regulatory approval. These
regulations require the approval of bank regulatory authorities if dividends
declared by banking subsidiaries exceed certain prescribed limits. Any
dividend declaration by FleetBoston or any of its subsidiaries must consider
additional factors such as the amount of current period net income, liquidity,
asset quality profile, capital adequacy and economic conditions. Also, bank
regulatory authorities have the authority to prohibit bank holding companies
from paying dividends if they deem such payment to be an unsafe or unsound
practice. Under the foregoing, except for certain loans and advances that are
subject to specific collateral requirements, substantially all of our
investments in banking subsidiaries are restricted from transfer to the parent
company without regulatory approval. At December 31, 2002, the parent company
had $4 billion of cash and cash equivalents with which to meet dividend
declaration and other payment obligations. For more financial information with
respect to the parent company, refer to Note 20. Regulatory Capital.As a bank holding company, we are subject to regulation by
the Federal Reserve Board, the Office of the Comptroller of the Currency, or
OCC, and the Federal Deposit Insurance Corporation, or FDIC, as well as
state regulators. Under the regulatory capital adequacy guidelines and the
Federal Deposit Insurance Corporation Improvement Act of 1991, or FDICIA,
FleetBoston and its banking subsidiaries must meet specific capital
requirements. These requirements are expressed in terms of the following
ratios: (1) risk-based total capital (total capital/risk-weighted on- and
off-balance sheet assets); (2) risk-based tier 1 capital (tier 1
capital/risk-weighted on- and off-balance sheet assets); and (3) leverage (tier
1 capital/adjusted average quarterly assets). To meet all minimum regulatory capital
requirements, FleetBoston and its banking subsidiaries must maintain a
risk-based total capital ratio of at least 8%, a risk-based tier 1 capital
ratio of at least 4%, and a leverage ratio of at least 3%. Failure to meet
minimum capital requirements can result in the initiation of certain actions
that, if undertaken, could have a material effect on our consolidated financial
statements. To be categorized as well capitalized under the prompt
corrective action provisions of FDICIA, FleetBoston and its banking
subsidiaries must maintain a risk-based total capital ratio of at least 10%, a
risk-based tier 1 capital ratio of at least 6%, and a leverage ratio of at
least 5%, and not be subject to a written agreement, order or capital directive
with any of its regulators. The following table presents our capital and capital ratio information as
of December 31, 2002 and 2001: Regulatory Capital Ratios(a) December 31
    
    2002
    
    2001Dollars in millionsActual:Tier 1 risk-based capital
    
    $
    15,049
    
    
    
    8.24
    %
    
    $
    14,864
    
    
    
    7.37
    %Total risk-based capital
    
    
    21,399
    
    
    
    11.72
    
    
    
    22,081
    
    
    
    10.95Leverage
    
    
    15,049
    
    
    
    8.27
    
    
    
    14,864
    
    
    
    7.50Minimum regulatory
capital standards:Tier 1 risk-based capital
    
    
    7,301
    
    
    
    4.00
    
    
    
    8,064
    
    
    
    4.00Total risk-based capital
    
    
    14,603
    
    
    
    8.00
    
    
    
    16,127
    
    
    
    8.00Leverage
    
    
    5,457
    
    
    
    3.00
    
    
    
    5,942
    
    
    
    3.00 (a)
    
    All ratios include discontinued operations. As of December 31, 2002, each of our banking subsidiaries satisfied the
requirements of the well capitalized category under the regulatory framework
established by FDICIA. There are no conditions or events since that date that
management believes have changed the capital category of




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these subsidiaries. The capital categories of each of our bank subsidiaries
are determined solely for purposes of applying FDICIAs provisions, and such
capital categories may not constitute an accurate representation of the overall
financial condition or prospects of any of our banking
subsidiaries. As registered broker/dealers and member firms of the NYSE, certain of our
subsidiaries are subject to rules of both the SEC and the NYSE. These rules
require these subsidiaries to maintain minimum levels of net capital, as
defined, and may restrict them from expanding their business and declaring
dividends if their net capital falls below specified levels. At December 31,
2002, these subsidiaries had aggregate net capital of approximately $832
million, which exceeded aggregate minimum net capital requirements by
approximately $804 million. Note 13. Derivative Instruments and Hedging Activities In the normal course of business, we enter into a variety of interest rate and
foreign exchange derivative contracts in connection with our balance sheet
management activities, which involve the management of interest rate and
foreign exchange rate risk, and our trading activities. These contracts
involve, to varying degrees, credit (repayment) risk and market risk. Credit
risk is the possibility that a loss may occur if a counterparty to a
transaction fails to perform according to the terms of the contract. Market
risk is the sensitivity of income and capital to variations in interest rates,
foreign exchange rates, equity prices, commodity prices and other market-driven
rates or prices. The following discussion includes derivative instruments and
hedging activities related to discontinued operations. Balance Sheet Management Activities
In connection with balance sheet management activities, non-trading derivative
financial instruments are used to manage market risk. Interest rate risk, defined as the sensitivity of income or financial
condition to variations in interest rates, is by far the most significant
non-trading market risk to which our U.S. dollar denominated positions are
exposed. We manage interest rate risk by identifying, quantifying and hedging
our exposures, using fixed-rate portfolio securities and a variety of
derivative instruments, most frequently interest rate swaps and options (e.g.,
interest rate caps and floors). When appropriate, forward rate agreements,
options on swaps, and exchange-traded futures and options are also used. Our non-U.S. dollar denominated assets and liabilities are primarily
exposed to foreign exchange rate risk. The majority of this exposure stems
from our operations in Latin America, primarily Argentina and Brazil, and is
managed through the use of foreign currency spot, forward, futures, option and
swap contracts. Fair Value Hedges.Derivatives categorized as fair value hedges are
utilized to convert fixed-rate debt to floating-rate debt, as part of the
overall interest rate risk man-


agement process, and to reduce foreign currency
risk related to foreign currency denominated assets. For the years ended December 31, 2002 and 2001, we recognized net pre-tax
gains of approximately $18 million and net pre-tax losses of approximately $131
million, respectively, which represented the ineffective portion of all fair
value hedges. For 2002, the ineffective portion was substantially related to
hedges of fixed-rate debt, and for 2001, the ineffective portion was
substantially related to hedges of mortgage servicing rights, with both
excluding the time value of option contracts and the interest rate differential
on foreign currency forward contracts. The components of fair value excluded
from the assessment of fair value hedge effectiveness for the years ended
December 31, 2002 and 2001, were net pre-tax losses of approximately $2.5
million and $18 million, respectively. All components of each derivatives
gain or loss are included in the assessment of hedge effectiveness, unless
otherwise noted. Cash Flow Hedges.Derivatives categorized as cash flow hedges are
utilized primarily to convert floating-rate loans to fixed-rate loans, and to
convert floating-rate, non-functional currency denominated assets to
fixed-rate, functional currency denominated assets. For the years ended December 31, 2002 and 2001, we recognized net pre-tax
gains of approximately $1.8 million and $.7 million, respectively, which
represented the total ineffectiveness of all cash flow hedges. Gains and losses on derivative contracts that are
reclassified from accumulated other comprehensive income to current period
earnings are included in the line item in which the hedged item is recorded.
As of December 31, 2002, approximately $226 million of the deferred net
after-tax gains on derivative instruments included in accumulated other
comprehensive income is expected to be reclassified to earnings during the next
twelve months. This expectation is based on the net discounted cash flows from
derivative instruments hedging variable-rate assets, as well as the
amortization of gains from the termination of cash flow hedge derivatives. Hedges of Net Investments in Foreign Operations.
Derivatives categorized as hedges of net investments in foreign operations are
utilized to protect the value of an investment against adverse exchange rate
fluctuations. For the years ended December 31, 2002 and 2001, net after-tax
losses related to these derivatives, recorded in the cumulative translation
adjustments component of other comprehensive income, were approximately $14
million and $1.3 million, respectively. Trading Activities
Trading activities create exposure to price risk, or the risk of loss of income
arising from adverse changes in the value of financial instrument trading
portfolios. This exposure arises in the normal course of our business as a
financial intermediary. We enter into interest rate, foreign exchange,
precious metals and credit derivative contracts, primarily to satisfy the
investment and risk management needs of our customers. Credit derivative
contracts are also provided to support commercial paper outstandings and
funding com-




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mitments of conduits in connection with asset-backed commercial paper programs.
Equity derivative contracts result mainly from market-making and underwriting
activities. With respect to credit derivatives, credit default swaps are used to
transfer default risk, and include a premium that is paid by the transferor of
credit risk to the investor. The contingent payment under the credit default
swap is tied to the performance of the reference entity. Typical credit events
include failure to pay obligations when due, bankruptcy and restructuring of
debt. If a credit event occurs, the investor typically makes a payment based
on either the physical settlement or the trading value of a loan, bond or
senior unsecured debt of the reference entity. Total rate of return swaps are
used to transfer credit risk by creating a synthetic credit asset. The
investor receives the total return related to a reference asset in exchange for
a funding charge. The majority of our credit derivative trading portfolios consist of
offsetting, or back-to-back, positions. Approximately half of these positions
relate to our asset-backed commercial paper programs. These programs, which
provide our customers access to liquidity, utilize SPEs that, at the request,
or on behalf, of customers, may purchase financial assets directly from those
customers or directly from third parties. We enter into back-to-back credit
derivatives to effectively transfer the credit risk of the reference assets of
the SPEs to our customers. The use of credit derivatives in connection with
these commercial paper programs is discussed in Note 17. Our price risk management process includes trading derivatives activities.
This process identifies, measures, monitors and controls the effects of
changes in interest rates, foreign exchange rates and equity prices on our
results of operations and financial condition.


Credit Risk
The use of non-trading and trading derivatives creates exposure to credit risk.
This credit exposure relates to accounting losses that would be recognized if
the counterparties completely failed to perform their obligations. The amount
of credit exposure can be estimated by calculating the cost to replace all
profitable derivative contracts, on a present value basis and at current market
prices. To manage our level of credit exposure, we deal only with
counterparties of good credit standing, we establish counterparty credit
limits, in certain cases we have the ability to require securities collateral,
and we enter into master netting agreements whenever possible. Reserves
related to credit exposure associated with derivative instruments, which are
not significant, are included in other liabilities in our consolidated balance
sheet. Non-trading derivative instruments, other than those used for foreign
exchange, had credit exposure of $1.1 billion at December 31, 2002, compared to
$696 million at December 31, 2001. Foreign exchange derivative instruments had
credit exposure of $63 million at December 31, 2002, compared to $52 million at
December 31, 2001. Trading derivatives had credit exposure of $4.6 billion at
December 31, 2002, compared to $3.6 billion at December 31, 2001. Note 14. Employee Benefits Stock Incentive Plans We maintain stock incentive plans for certain employees and for non-employee
directors. The plans provide for the granting of stock options, restricted
stock, stock appreciation rights and other stock awards. Stock Options Options to purchase common stock are granted at fair value on the grant date,
generally vest over one- to five-
year periods and expire at the end of six to ten years. Shares reserved for
future issuance in connection with our stock plans, stock options and
outstanding rights totaled 133 million at December 31, 2002.




Stock Options

|                                 |  |        |             |       |  |          |       |       |  |        |             |          |  |   |       |  |  |          |            |   |  |   |       | 
|-------------------------------- |  | ------ | ----------- | ----- |  | -------- | ----- | ----- |  | ------ | ----------- | -------- |  | - | ----- |  |  | -------- | ---------- | - |  | - | ----- | 
|                                
|December 31                      |  | 2002   |             | 2001  |  | 2000    
|                                
|                                 |  |        |             |       |  | Weighted |       |       |  |        |             | Weighted |  |   |       |  |  | Weighted
|                                 |  |        |             |       |  | Average  |       |       |  |        |             | Average  |  |   |       |  |  | Average 
|                                 |  |        |             |       |  | Exercise |       |       |  |        |             | Exercise |  |   |       |  |  | Exercise
|                                 |  | Shares |             | Price |  | Shares   |       | Price |  | Shares |             | Price   
|                                
|Outstanding at beginning of year |  |        | 105,461,385 |       |  | $        | 32.96 |       |  |        | 99,788,549  |          |  | $ | 31.97 |  |  |          | 87,182,518 |   |  | $ | 30.93 | 
|Granted                          |  |        | 14,870,692  |       |  |          | 23.18 |       |  |        | 21,350,337  |          |  |   | 34.26 |  |  |          | 23,958,628 |   |  |   | 33.08 | 
|Exercised                        |  |        | (3,406,586  | )     |  |          | 22.09 |       |  |        | (12,049,061 | )        |  |   | 25.65 |  |  |          | (8,367,424 | ) |  |   | 22.69 | 
|Expired/forfeited                |  |        | (10,073,339 | )     |  |          | 34.96 |       |  |        | (3,628,440  | )        |  |   | 36.56 |  |  |          | (2,985,173 | ) |  |   | 37.34 | 
|                                
|Outstanding at end of year       |  |        | 106,852,152 |       |  | $        | 31.74 |       |  |        | 105,461,385 |          |  | $ | 32.96 |  |  |          | 99,788,549 |   |  | $ | 31.97 | 
|                                
|Options exercisable at year-end  |  |        | 75,806,956  |       |  | $        | 32.83 |       |  |        | 67,165,949  |          |  | $ | 31.99 |  |  |          | 67,313,152 |   |  | $ | 30.18 | 
|                                

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##### Table of Contents



Stock Options Outstanding and Exercisable

|                         |  |                     |             |                     |  |                |  |             |       |                |  |  |            |          |  |   |       |  |  | 
|------------------------ |  | ------------------- | ----------- | ------------------- |  | -------------- |  | ----------- | ----- | -------------- |  |  | ---------- | -------- |  | - | ----- |  |  | 
|                        
|December 31, 2002        |  | Options Outstanding |             | Options Exercisable
|                        
|                         |  |                     |             |                     |  | Weighted       |  |             |       |                |  |  |            |          |  |   |       | 
|                         |  |                     |             |                     |  | Average        |  | Weighted    |       |                |  |  |            | Weighted
|                         |  | Number              |             | Remaining           |  | Average        |  | Number      |       | Average       
|Range of Exercise Prices |  | Outstanding         |             | Contractual Life    |  | Exercise Price |  | Outstanding |       | Exercise Price
|                        
|$3 - $20                 |  |                     | 6,072,217   |                     |  | 2.2years       |  | $           | 17.92 |                |  |  | 6,020,217  |          |  | $ | 17.91 | 
|$21 - $30                |  |                     | 33,861,380  |                     |  | 6.6years       |  |             | 26.09 |                |  |  | 21,358,169 |          |  |   | 28.83 | 
|$31 - $34                |  |                     | 35,730,413  |                     |  | 7.6years       |  |             | 33.68 |                |  |  | 19,979,917 |          |  |   | 33.84 | 
|$35 - $38                |  |                     | 19,656,950  |                     |  | 6.4years       |  |             | 36.99 |                |  |  | 18,365,130 |          |  |   | 36.99 | 
|$39 - $53                |  |                     | 11,531,192  |                     |  | 5.3years       |  |             | 40.62 |                |  |  | 10,083,523 |          |  |   | 40.62 | 
|                        
|                         |  |                     | 106,852,152 |                     |  | 6.5years       |  | $           | 31.74 |                |  |  | 75,806,956 |          |  | $ | 32.83 | 
|                        



Restricted Stock Awards We maintain stock plans under which key employees are awarded shares of our
common stock, subject to certain vesting requirements. Under the terms of our restricted stock awards, employees are generally
required to continue employment with us for a stated period after the award in
order to become fully vested in the shares awarded. For certain restricted
stock awards, vesting is contingent upon, or will be accelerated if, certain
pre-established performance goals are attained. The performance periods
generally range from two to five years. During 2002, 2001, and 2000, grants of
3,857,394 shares, 835,389 shares, and 1,688,861 shares, respectively, of
restricted stock were made. As of December 31, 2002, 2001, and 2000, unvested
outstanding restricted shares totaled 4,518,686, 2,939,710, and 3,732,729,
respectively, with average grant prices of $28.80, $37.14, and $36.06,
respectively. Compensation expense recognized for restricted stock during
2002, 2001, and 2000 was $50 million, $35 million and $73 million,
respectively. A plan was established in 2001 to grant restricted share units of
Robertson Stephens common stock to certain Robertson Stephens employees,
subject to vesting over three to five years. The plan allowed for share units
representing up to 30% of the authorized common shares of Robertson Stephens to
be granted to employees. During 2002, the plan was dissolved. Pro Forma Fair Value Information We adopted SFAS No. 123, Accounting for Stock-Based Compensation, in 1996.
As permitted by that standard at the time, we elected not to adopt the fair
value accounting provisions of the standard and to continue to apply the
provisions of APB No. 25, Accounting for Stock Issued to Employees. In 2002,
we adopted the fair value accounting provisions of SFAS No. 123, and, as
permitted by SFAS No. 148, Accounting for Stock-Based Compensation 
Transition and Disclosure, an amendment to FASB Statement No. 123, we elected
to apply the provisions under the prospective method to stock options granted,
modified or settled in fiscal year 2002 and future years. More information
about our adoption of the fair value accounting provisions of SFAS No. 123 is
included in Note 1.


Had compensation expense for all of our stock options and stock awards
been determined in accordance with the fair value accounting provisions of SFAS
No. 123, our net income and diluted earnings per share would have been as
follows: Year ended December 31
    
    
    
    
    
    2002
    
    2001
    
    2000Net income (in millions)
    
    As reported
    
    $
    1,188
    
    
    $
    931
    
    
    $
    3,910Pro forma
    
    
    1,091
    
    
    
    837
    
    
    
    3,835Diluted earnings
    
    As reported
    
    $
    1.12
    
    
    $
    .83
    
    
    $
    3.52per share
    
    Pro forma
    
    
    1.02
    
    
    
    .75
    
    
    
    3.45 For determination of compensation expense and for the purpose of providing the
pro forma disclosures required by SFAS No. 123 and No. 148, the fair value of
each stock option and stock award was estimated on the date of grant using the
Black-Scholes option-pricing model, with the following weighted average
assumptions: Year ended December 31
    
    2002
    
    2001
    
    2000Dividend yield
    
    
    6.4
    %
    
    
    3.8
    %
    
    
    3.1
    %Volatility
    
    
    37
    
    
    
    35
    
    
    
    33Risk-free interest rate
    
    
    3
    
    
    
    4
    
    
    
    6Expected option life
    
    4years
    
    5years
    
    5years The estimated weighted average grant date fair values per share of stock
options granted and restricted stock granted were as follows: Year ended December 31
    
    2002
    
    2001
    
    2000Stock options
    
    $
    4.23
    
    
    $
    8.71
    
    
    $
    9.30Restricted stock
    
    
    26.55
    
    
    
    38.87
    
    
    
    32.12 Pension and Postretirement Benefit Plans We maintain qualified noncontributory defined benefit pension plans covering
substantially all domestic employees, as well as nonqualified noncontributory
defined benefit plans for certain executives. 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.




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The following tables summarize benefit obligation, asset activity, funded
status and expense for the plans: OtherPension
    
    PostretirementBenefits
    
    BenefitsDecember 31
    
    2002
    
    2001
    
    2002
    
    2001In millionsChange in benefit obligationBenefit obligation at beginning
of year
    
    $
    2,152
    
    
    $
    1,991
    
    
    $
    193
    
    
    $
    198Service cost
    
    
    78
    
    
    
    83
    
    
    
    1
    
    
    
    1Interest cost
    
    
    146
    
    
    
    144
    
    
    
    12
    
    
    
    15Participant contributions
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    11Curtailment gain
    
    
    
    
    
    
    (23
    )
    
    
    
    
    
    
    (13
    )Settlement loss
    
    
    
    
    
    
    13
    
    
    
    
    
    
    
    Special termination benefits
    
    
    
    
    
    
    7
    
    
    
    
    
    
    
    2Plan amendments
    
    
    1
    
    
    
    (14
    )
    
    
    (4
    )
    
    
    (5
    )Acquisitions
    
    
    7
    
    
    
    
    
    
    
    
    
    
    
    Benefits paid
    
    
    (166
    )
    
    
    (200
    )
    
    
    (39
    )
    
    
    (33
    )Actuarial (gain)/loss
    
    
    (1
    )
    
    
    151
    
    
    
    7
    
    
    
    17Benefit obligation at end of year
    
    $
    2,217
    
    
    $
    2,152
    
    
    $
    186
    
    
    $
    193Change in plan assetsFair value of plan assets at
beginning of year
    
    $
    2,304
    
    
    $
    2,576
    
    
    $
    42
    
    
    $
    43Actual return on plan assets
    
    
    (246
    )
    
    
    (107
    )
    
    
    (6
    )
    
    
    (1
    )Employer contributions
    
    
    40
    
    
    
    35
    
    
    
    23
    
    
    
    22Participant contributions
    
    
    
    
    
    
    
    
    
    
    16
    
    
    
    11Benefits paid
    
    
    (166
    )
    
    
    (200
    )
    
    
    (39
    )
    
    
    (33
    )Fair value of plan assets at
end of year
    
    $
    1,932
    
    
    $
    2,304
    
    
    $
    36
    
    
    $
    42Reconciliation of funded statusPlan assets in excess/(deficit) of
benefit obligation
    
    $
    (285
    )
    
    $
    152
    
    
    $
    (150
    )
    
    $
    (151
    )Unrecognized actuarial
loss/(gain)
    
    
    790
    
    
    
    309
    
    
    
    1
    
    
    
    (16
    )Unrecognized transition (asset)/
obligation
    
    
    
    
    
    
    (1
    )
    
    
    42
    
    
    
    46Unrecognized prior service cost
    
    
    7
    
    
    
    7
    
    
    
    (9
    )
    
    
    (6
    )Net amount recognized
    
    $
    512
    
    
    $
    467
    
    
    $
    (116
    )
    
    $
    (127
    )Prepaid pension cost
    
    $
    723
    
    
    $
    649
    
    
    $
    
    
    
    $
    Accrued benefit liability, net
    
    
    (307
    )
    
    
    (182
    )
    
    
    (116
    )
    
    
    (127
    )Intangible asset
    
    
    34
    
    
    
    
    
    
    
    
    
    
    
    Accumulated other
comprehensive income
    
    
    62
    
    
    
    
    
    
    
    
    
    
    
    Net amount recognized
    
    $
    512
    
    
    $
    467
    
    
    $
    (116
    )
    
    $
    (127
    )


The projected benefit obligation, accumulated benefit obligation, and fair
value of plan assets for pension plans with accumulated benefit obligations in
excess of plan assets were $330 million, $309 million, and $2 million,
respectively, as of December 31, 2002 and $315 million, $257 million, and $2
million, respectively, as of December 31, 2001.




Pension and Postretirement Benefit Expense

|                                                      |  |                  |      |                               |  |      |       |      |  |      |       |      |  |   |       |   |  |   |       |   |  |   |       |  
|----------------------------------------------------- |  | ---------------- | ---- | ----------------------------- |  | ---- | ----- | ---- |  | ---- | ----- | ---- |  | - | ----- | - |  | - | ----- | - |  | - | ----- | -
|                                                     
|                                                      |  | Pension Benefits |      | Other Postretirement Benefits
|                                                     
|Year ended December 31                                |  | 2002             |      | 2001                          |  | 2000 |       | 2002 |  | 2001 |       | 2000
|Dollars in millions                                   |  |                  |      |                               |  |      |       |      |  |      |       |     
|                                                     
|Components of net periodic benefit
(income)/expense   |  |                  |      |                               |  |      |       |      |  |      |       |      |  |   |       |   |  |   |       |   |  |   |       |  
|Service cost                                          |  | $                | 78   |                               |  | $    | 83    |      |  | $    | 82    |      |  | $ | 1     |   |  | $ | 1     |   |  | $ |      |  
|Interest cost                                         |  |                  | 146  |                               |  |      | 144   |      |  |      | 145   |      |  |   | 12    |   |  |   | 15    |   |  |   | 15    |  
|Expected return on plan assets                        |  |                  | (241 | )                             |  |      | (248  | )    |  |      | (232  | )    |  |   | (4    | ) |  |   | (4    | ) |  |   | (3    | )
|Net amortization and recognized actuarial
loss/(gain) |  |                  | 5    |                               |  |      | 6     |      |  |      | (3    | )    |  |   | 3     |   |  |   | 4     |   |  |   |      |  
|                                                     
|Net periodic benefit (income)/expense                 |  | $                | (12  | )                             |  | $    | (15   | )    |  | $    | (8    | )    |  | $ | 12    |   |  | $ | 16    |   |  | $ | 12    |  
|                                                     
|Assumptions as of December 31                         |  |                  |      |                               |  |      |       |      |  |      |       |      |  |   |       |   |  |   |       |   |  |   |       |  
|Discount rate                                         |  |                  | 6.50 | %                             |  |      | 7.00  | %    |  |      | 7.50  | %    |  |   | 6.50  | % |  |   | 7.00  | % |  |   | 7.50  | %
|Expected rate of return on plan assets                |  |                  | 9.25 |                               |  |      | 10.00 |      |  |      | 10.00 |      |  |   | 9.25  |   |  |   | 10.00 |   |  |   | 10.00 |  
|Rate of compensation increase                         |  |                  | 5.00 |                               |  |      | 5.00  |      |  |      | 5.00  |      |  |   |       |   |  |   |       |   |  |   |       |  
|Healthcare cost trend rate                            |  |                  |      |                               |  |      |       |      |  |      |       |      |  |   | 12.00 |   |  |   | 10.00 |   |  |   | 8.00  |  
|                                                     



The healthcare cost trend rate is projected to decrease gradually over the next
several years from 12% in 2003 to
approximately 5% in 2010, and remain level thereafter. A 1% increase or
decrease in the healthcare cost trend rate assumption does not have a
significant effect on postretirement benefit obligation or expense.


We maintain defined contribution savings plans covering substantially all
domestic employees. Our expense for these plans was $79 million, $81 million,
and $92 million for 2002, 2001 and 2000, respectively.




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Note 15. Exit and Restructuring-Related Charges 2002 Accruals During 2002, we recorded restructuring-related charges of $71 million in
connection with streamlining our operations and $426 million of exit-related
costs in connection with discontinued operations, specifically Robertson
Stephens, the Asia fixed income business and Fleet Trading. We classified the
exit-related costs in discontinued operations in our income statement. The $71 million charge related to severance, to be paid primarily over a
defined period, and outplacement services for approximately 1,900 positions
company-wide, which were identified in the fourth quarter of 2002 for
elimination. During the fourth quarter, approximately $.4 million in severance
was paid and approximately 350 people left FleetBoston. The $426 million of exit-related costs related to discontinued operations
was composed of personnel-related costs of $124 million for approximately 1,025
positions identified in the second quarter of 2002 and 89 positions identified
in the fourth quarter of 2002 for elimination; accruals for asset writedowns
and contract cancellations of $179 million; facilities-related costs of $62
million; and $61 million of other costs. During 2002, we paid $107 million in
personnel-related costs, $10 million of facilities costs, $7 million of lease
and contract cancellation costs, $3 million of other costs, and incurred asset
writedowns of $145 million. In addition, 1,040 employees left FleetBoston
during 2002. The following table presents aggregate restructuring and exit cost accrual
activity during the year ended
December 31, 2002. Exit and Restructuring Accrual Activity 2001
    
    2002
    
    2002Restructuring
    
    Restructuring
    
    Exit-RelatedIn millions
    
    Accruals
    
    Accrual
    
    AccrualsBalance at December 31, 2001
    
    $
    275
    
    
    
    
    
    
    
    Restructuring accruals
    
    
    
    
    
    $
    71
    
    
    
    Restructuring reversals
    
    
    (30
    )
    
    
    
    
    
    
    Exit-related accruals
    
    
    
    
    
    
    
    
    
    $
    426Cash payments
    
    
    (130
    )
    
    
    
    
    
    
    (127
    )Noncash writedowns
    
    
    (38
    )
    
    
    
    
    
    
    (145
    )Balance at December 31, 2002
    
    $
    77
    
    
    $
    71
    
    
    $
    154 2001 Restructuring Accruals The 2001 restructuring accruals consisted of remaining unpaid accruals at
December 31, 2001 of $102 million, $62 million and $111 million related to the
Summit and Liberty acquisitions and business unit restructurings, respectively.
During 2002, we utilized $168 million of these accruals by paying $108 million
of personnel benefits, $6 million of contract cancellation costs and $16
million of facilities-related costs and incurring $38 million of asset
writedowns. In addition, 997 employees corresponding to these accruals left
FleetBoston. During the year, we reversed $12 million of accruals for
personnel


benefits, $3 million of accruals for asset writedowns, $5 million of
accrued facilities costs, $4 million of accrued contract cancellation costs and
$6 million of other accrued costs, all which we did not expect to be fully
utilized. The remaining unpaid accrual of $77 million at December 31, 2002
consisted of unpaid accruals of $32 million, $32 million and $13 million
related to the Summit and Liberty acquisitions and business unit
restructurings, respectively. These accruals primarily consisted of expected
cash outlays related to severance and facilities obligations. Note 16. Income Taxes The components of income from continuing operations before income taxes, and
income tax expense, are summarized below: Income Before Income Taxes Year ended December 31
    
    2002
    
    2001
    
    2000In millionsIncome/(loss) before income taxes:Domestic
    
    $
    2,940
    
    
    $
    1,803
    
    
    $
    5,189Foreign
    
    
    (648
    )
    
    
    (262
    )
    
    
    736Total income before income taxes
    
    $
    2,292
    
    
    $
    1,541
    
    
    $
    5,925 Income Tax Expense Year ended December 31
    
    2002
    
    2001
    
    2000In millionsCurrent income taxes:Federal
    
    $
    529
    
    
    $
    1,050
    
    
    $
    1,331Foreign:Based on income
    
    
    134
    
    
    
    162
    
    
    
    151Withheld on interest
and dividends
    
    
    67
    
    
    
    84
    
    
    
    73State and local
    
    
    53
    
    
    
    106
    
    
    
    279Total current income taxes
    
    $
    783
    
    
    $
    1,402
    
    
    $
    1,834Deferred income tax/(benefit):Federal
    
    $
    (59
    )
    
    $
    (821
    )
    
    $
    426State and local
    
    
    44
    
    
    
    (8
    )
    
    
    93Total deferred income tax/(benefit)
    
    $
    (15
    )
    
    $
    (829
    )
    
    $
    519Total income tax expense:Federal
    
    $
    470
    
    
    $
    229
    
    
    $
    1,757Foreign
    
    
    201
    
    
    
    246
    
    
    
    224State and local
    
    
    97
    
    
    
    98
    
    
    
    372Applicable income tax expense
    
    $
    768
    
    
    $
    573
    
    
    $
    2,353 Income tax expense for the years ended December 31, 2002, 2001 and 2000 varied
from the amount computed by applying the statutory income tax rate to income
before income taxes. A reconciliation between the statutory and effective tax
rates follows: Statutory Rate Analysis Year ended December 31
    
    2002
    
    2001
    
    2000Tax at statutory rate
    
    
    35.0
    %
    
    
    35.0
    %
    
    
    35.0
    %Increases/(decreases) in
taxes resulting from:State and local income taxes,
net of federal income tax
benefit
    
    
    2.8
    
    
    
    4.1
    
    
    
    4.0Goodwill amortization
    
    
    
    
    
    
    4.5
    
    
    
    2.1Low income housing tax credit
    
    
    (3.6
    )
    
    
    (4.0
    )
    
    
    (0.7
    )Other, net
    
    
    (0.7
    )
    
    
    (2.4
    )
    
    
    (0.7
    )Effective tax rate
    
    
    33.5
    %
    
    
    37.2
    %
    
    
    39.7
    %




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Significant components of our net deferred tax liability as of December 31,
2002 and 2001 are presented in the following table: Net Deferred Tax Liability December 31
    
    2002
    
    2001In millionsDeferred tax assets:Reserve for credit losses
    
    $
    1,051
    
    
    $
    1,202Expenses not currently deductible
    
    
    685
    
    
    
    509Employee benefits
    
    
    162
    
    
    
    165Net unrealized available-for-sale
securities losses
    
    
    434
    
    
    
    408Other
    
    
    337
    
    
    
    491Total gross deferred tax assets
    
    
    2,669
    
    
    
    2,775Less: valuation allowance
    
    
    88
    
    
    
    65Total deferred tax assets
    
    $
    2,581
    
    
    $
    2,710Deferred tax liabilities:Lease financing
    
    $
    3,312
    
    
    $
    3,095Net unrealized gain on
derivative instruments
    
    
    253
    
    
    
    425Other
    
    
    365
    
    
    
    800Total gross deferred tax liabilities
    
    $
    3,930
    
    
    $
    4,320Net deferred tax liability
    
    $
    1,349
    
    
    $
    1,610 FleetBostons overall tax position is complex and requires careful analysis by
management to estimate the expected realization of income tax assets and
liabilities. Realization of deferred tax assets, including foreign tax
credits, arises from carrybacks to prior taxable periods, levels of future
taxable income, including net foreign source income in certain periods,
realization of deferred tax liabilities, and the achievement of tax planning
strategies. Management has determined that it is more likely than not that
the deferred tax assets at December 31, 2002 can be realized. However, this
determination involves estimates and assumptions about matters that are
inherently uncertain, and unanticipated events or circumstances could cause
actual results to differ from these estimates. Given the nature of state tax laws, we believe that uncertainty remains
concerning the realization of tax benefits in various state jurisdictions. We
recorded cumulative state tax benefits for state net operating losses, net of
federal taxes, of $39 million and $28 million as of December 31, 2002 and
2001, respectively. State valuation reserves of $88 million and $65 million
have been reflected as of December 31, 2002 and 2001, respectively.
Management continually monitors and evaluates the impact of current events and
circumstances on the estimates and assumptions used in the recognition of
deferred tax assets and the related tax positions. In the normal course of business, we are subject to challenges from U.S.
and non-U.S. tax authorities regarding amounts of taxes 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, 1995, 1996, and 1997. In 2002, the IRS issued Notices
of Proposed Adjustment for the tax year 1997 with respect to our tax treatment
of certain lever-


aged 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 vigorously defend our position.
Resolution of these issues is not expected to have a significant impact on our
financial condition or results of operations. Note 17. Securitization of Assets and Special Purpose Entities We use SPEs, including securitization trusts, commercial paper conduits and
asset management vehicles, as a source of funding, to provide liquidity, and to
provide financial services to our corporate customers. The securitization of credit card receivables, commercial loans and home
equity loans serves as a source of funding and as a liquidity management tool.
At December, 31, 2002 and 2001, securitization trusts sponsored by FleetBoston
held aggregate assets of $18.2 billion and $17.9 billion, respectively, and had
aggregate outstanding debt securities of $15.2 billion and $14.6 billion,
respectively. Our retained interests in the net assets of the securitization
trusts which are not subordinated to investor interests are included in loans
in our consolidated balance sheet. We also hold subordinated interests in
these assets which provide credit enhancement to the investors in the
outstanding debt securities. At December 31, 2002 and 2001, these subordinated
interests included residual positions such as interest-only strips and certain
subordinated principal balances of approximately $280 million and $278 million,
respectively; accrued interest and fees receivable of approximately $320
million and $334 million, respectively; and other interests, including
subordinated debt securities, overcollateralization positions and cash
collateral accounts of approximately $317 million and $329 million,
respectively. The subordinated interests, which are included in our
consolidated balance sheets, represent our maximum exposure related to the debt
securities issued by the securitization trusts. During 2002, we sold approximately $2.3 billion of credit card receivables
and approximately $1 billion of commercial loans in new securitization
transactions, compared to approximately $2.6 billion of credit card receivables
and approximately $750 million of home
equity loans in 2001. In 2000, we sold approximately
$3 billion of credit card receivables and $2 billion of commercial loans.
Gains recognized on new credit card securitizations and replenishment of
revolving credit card securitization pools totaled approximately $245 million
in 2002, $182 million in 2001 and $213 million in 2000. Gains recognized on
commercial loan and home equity securitizations were not significant.




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Key economic assumptions used in measuring the initial retained interests
resulting from the securitizations completed in 2002, 2001 and 2000 were as
follows: Commercial
    
    Credit Card
    
    Home Equity2002
    
Loans
    
    Receivables
    

LoansRepayment speed
(monthly rate)
    
    
    5.88
    %
    
    
    11-13
    %
    
    
    Weighted average life
    
    8 months
    
    5 months
    
    
    Expected credit losses
(annual rate)
    
    
    .49
    %
    
    
    6-7
    %
    
    
    Discount rate
    
    
    12.35
    %
    
    
    8-12
    %
    
    
    2001Repayment speed
(monthly rate)
    
    
    
    
    
    
    10-12
    %
    
    
    2.13
    %Weighted average life
    
    
    
    
    
    5 months
    
    18 monthsExpected credit losses
(annual rate)
    
    
    
    
    
    
    5-7
    %
    
    
    .15
    %Discount rate
    
    
    
    
    
    
    7-10
    %
    
    
    12.00
    %2000Repayment speed
(monthly rate)
    
    
    4.5
    %
    
    
    10-12
    %
    
    
    Weighted average life
    
    10 months
    
    5 months
    
    
    Expected credit losses
(annual rate)
    
    
    .47
    %
    
    
    5-7
    %
    
    
    Discount rate
    
    
    15.00
    %
    
    
    8-11
    %
    
    
     The monthly repayment speed assumptions are determined through a combination of
historical experience, and a forecast based on an assessment of the
characteristics of the loans in the securitized pool. The annual expected
credit loss assumptions are based on forecasts of expected credit losses of
loans in the securitized pool, using forecasting techniques similar to those
utilized in determining the reserve for credit losses. The discount rate
assumption is determined utilizing the current level of interest rates and a
premium based on a reasonable assessment of risk inherent in the future
performance of the securitized loans. The value of our retained subordinated interests is subject to credit,
prepayment and interest rate risks related to the transferred assets. At
December 31, 2002, key economic assumptions and the reduction in the carrying
amount of residual positions, including interest-only strips and certain
subordinated principal balances, caused by immediate adverse changes in those
assumptions are presented in the following table. Adverse changes in key
economic assumptions would not have a significant impact on the carrying value
of the other subordinated interests described earlier in this Note. Accordingly, these interests are not included in the sensitivity analysis
presented below. December 31, 2002
    
    Commercial
    
    Credit Card
    
    Home EquityDollars in millions
    
Loans
    
    Receivables
    
LoansCarrying amount of
residual positions
    
    $
    138.9
    
    
    $
    128.7
    
    
    $
    12.6Repayment speed
(monthly rate)
    
    
    5.88
    %
    
    
    11.10
    %
    
    
    2.78
    %Impact of 10% change
    
    $
    2.1
    
    
    $
    10.5
    
    
    $
    1.1Impact of 20% change
    
    
    2.3
    
    
    
    19.6
    
    
    
    2.1Expected credit losses
(annual rate)
    
    
    .41
    %
    
    
    6.75
    %
    
    
    .15
    %Impact of 10% change
    
    $
    1.8
    
    
    $
    23.0
    
    
    $
    .1Impact of 20% change
    
    
    3.6
    
    
    
    45.9
    
    
    
    .2Discount rate
    
    
    12.35
    %
    
    
    12.00
    %
    
    
    12.00
    %Impact of 10% change
    
    $
    2.1
    
    
    $
    .5
    
    
    $
    .2Impact of 20% change
    
    
    4.1
    
    
    
    1.0
    
    
    
    .4


The sensitivities presented above are hypothetical and are presented for
illustrative purposes only. Changes in carrying amount based on a change in
assumptions generally cannot be extrapolated because the relationship of the
change in assumption to the change in carrying amount may not be linear. The
changes in assumptions presented in the above table were calculated without
changing any other assumption; in reality, changes in one assumption may result
in changes in another, which may magnify or counteract the sensitivities. For
example, changes in market interest rates may simultaneously impact repayment
speed, credit losses and the discount rate. The table below summarizes certain cash flows received from and paid to
securitization trusts for the years ended December 31, 2002, 2001 and 2000. December 31, 2002
    
    Commercial
    
    Credit Card
    
    Home EquityIn millions
    
Loans
    
    Receivables
    
LoansProceeds from new securitizations
    
    $
    965
    
    
    $
    2,260
    
    
    
    Proceeds from replenishment of
revolving securitization pools
and reinvested collections
    
    
    2,258
    
    
    
    12,952
    
    
    $
    141Servicing fees received
    
    
    1
    
    
    
    187
    
    
    
    3Other cash flows received on
retained interests, including
excess spread, interchange and
interest on reserve accounts
    
    
    52
    
    
    
    603
    
    
    
    13Purchases of credit-impaired assets
    
    
    (117
    )
    
    
    
    
    
    
    December 31, 2001Proceeds from new securitizations
    
    
    
    
    
    $
    2,505
    
    
    $
    747Proceeds from replenishment of
revolving securitization pools
and reinvested collections
    
    $
    3,247
    
    
    
    12,708
    
    
    
    123Servicing fees received
    
    
    5
    
    
    
    177
    
    
    
    2Other cash flows received on
retained interests, including
excess spread, interchange and
interest on reserve accounts
    
    
    53
    
    
    
    490
    
    
    
    10Purchases of credit-impaired assets
    
    
    (237
    )
    
    
    
    
    
    
    December 31, 2000Proceeds from new securitizations
    
    $
    2,000
    
    
    $
    2,898
    
    
    
    Proceeds from replenishment of
revolving securitization pools
and reinvested collections
    
    
    1,281
    
    
    
    10,465
    
    
    
    Servicing fees received
    
    
    4
    
    
    
    177
    
    
    
    Other cash flows received on
retained interests, including
excess spread, interchange and
interest on reserve accounts
    
    
    19
    
    
    
    482
    
    
    
    Purchases of credit-impaired assets
    
    
    (127
    )
    
    
    
    
    
    
     The following table presents information about managed and securitized credit
card receivables as of and for the years ended December 31, 2002 and 2001. 30 days
    
    NetTotal
    
    or more
    
    CreditIn millions
    
    Receivables
    
    past due
    
    LossesDecember 31
    
    2002
    
    2001
    
    2002
    
    2001
    
    2002
    
    2001Total loans managed
    
    $
    16,332
    
    
    $
    15,724
    
    
    $
    673
    
    
    $
    637
    
    
    $
    845
    
    
    $
    859Less: loans
securitized
    
    
    10,438
    
    
    
    10,177
    
    
    
    439
    
    
    
    444
    
    
    
    587
    
    
    
    612Total loans owned
    
    $
    5,894
    
    
    $
    5,547
    
    
    $
    234
    
    
    $
    193
    
    
    $
    258
    
    
    $
    247 We also securitize certain lease financing receivables, which totaled
approximately $682 million and $748 million at December 31, 2002 and 2001,
respectively, through third party conduits. The lease financing receivables
are first sold to a bankruptcy-remote subsidiary of FleetBoston, which then
sells an interest in the receivables to third party conduits. The conduits, in
turn, sell




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commercial paper to investors to fund the purchase of the receivables from
FleetBoston. At FleetBostons option, cash proceeds received from lessees can
be reinvested by the conduits in additional lease receivables originated by
FleetBoston. We hold retained subordinated interests in the lease receivables,
primarily in the form of overcollateralization positions, which provide credit
enhancement to the third party conduits. These retained interests, which
totaled $36 million and $38 million at December 31, 2002 and 2001,
respectively, are included in our consolidated balance sheet and represent our
maximum risk exposure associated with the lease receivables. The assets sold
to the conduits are not included in our consolidated balance sheet. We provide access to liquidity for our corporate customers through
asset-backed commercial paper conduits. These conduits, at the request, or on
behalf, of customers, may purchase financial assets directly from those
customers or from third parties, or make loans secured by the financial assets
of customers. At December 31, 2002, the conduits had aggregate assets of
approximately $6.2 billion, primarily loans and debt securities, and aggregate
liabilities outstanding, composed primarily of commercial paper, of $6.2
billion. Based on commitments of the conduits to their customers at December
31, 2002, the conduits could be required to provide additional funding totaling
$2.1 billion. The assets of the conduits are generally of investment grade quality and
are typically secured by other financial assets such as leases, trade
receivables, or cash held as collateral. We do not sell our own assets to
these conduits. Investors in commercial paper issued by the conduits receive
direct credit support from FleetBoston in the form of credit derivative
contracts, which had a notional amount of $2.2 billion at December 31, 2002, or
financial standby letters of credit, which totaled approximately $281 million
at December 31, 2002. To mitigate risk, we have entered into offsetting credit
derivative contracts with third parties and we hold cash collateral which
totaled $734 million at December 31, 2002. Commercial paper investors also
benefit from backup liquidity lines of credit provided by FleetBoston, which
totaled $3.7 billion at December 31, 2002, and additional amounts provided by
third parties. No amounts were outstanding under these liquidity lines at
December 31, 2002. We provide asset management and related services to other SPEs which
invest in financial assets, such as loans and bonds on behalf of third parties.
Assets under management totaled approximately $3.6 billion and $3.1 billion at
December 31, 2002 and 2001, respectively. We generally do not sell our own
assets to these asset management vehicles, nor do we guarantee the obligations
or otherwise provide credit enhancements to them. At December 31, 2002,
FleetBoston held equity investments in these vehicles of approximately $18
million. FleetBoston provides backup liquidity lines, which totaled $95
million at December 31, 2002, to two of these vehicles. At December 31, 2002,
no amounts were outstanding under


these liquidity lines. FleetBoston has no
other exposure to loss associated with these vehicles. Note 18. Line of Business Information FleetBoston is organized via a customer-focused organizational structure that
includes four lines of business: Commercial Financial Services, Personal
Financial Services, Capital Markets and International Banking.
Commercial Financial Servicesincludes commercial finance, corporate banking,
commercial banking and small business. Personal Financial Servicesincludes
the retail distribution group, consumer lending and the credit card unit, as
well as wealth management and brokerage. Capital Marketsincludes Fleet
Specialist and Principal Investing. The International Bankingunit includes
our international operations, the largest of which are in Brazil and Argentina.
All Otherincludes transactions not allocated to the principal business lines,
the residual impact of methodology allocations, such as the provision for
credit losses, credit loss reserves and equity, combined with transfer pricing
offsets. The financial performance of our lines of business is monitored by an
internal profitability measurement system. Periodic financial statements are
produced and reviewed by senior management. Funds transfer pricing is used to
assign interest income and interest expense to each line of business on a
matched funding concept based on each businesss net asset or liability
position. Within business units, assets, liabilities and equity are
match-funded utilizing similar maturity, liquidity and repricing information.
We have developed a risk-adjusted methodology that quantifies risk types (e.g.,
credit and operating risk) within business units and assigns capital
accordingly. Management reporting methodologies are in place for assigning
expenses that are not directly incurred by businesses, such as overhead,
operations and technology expense. These methodologies are periodically
refined and results are restated to reflect methodological and/or management
organizational changes. The provision for credit losses is generally allocated to business lines
on an expected loss basis. Expected loss is an estimate of the average loss
rate that individual credit portfolios will experience over an economic cycle,
based on our historical loss experience and various market data. This economic
cycle methodology differs from the methodology used to determine our
consolidated provision for credit losses for any given period, which is based
on an evaluation of the adequacy of the reserve for credit losses considering
the risk characteristics in the portfolio at a point in time. The difference
between the sum of the provisions for each line of business determined using
this methodology and the consolidated provision is included in All Other. The business activities of our Treasury unit are also included in All
Other. The Treasury unit is responsible
for the balance sheet management function, which consists of managing our
wholesale funding needs, the struc-




75



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tural non-trading interest rate risk inherent in our banking franchise and our
capital levels. The following table presents financial information for our lines of business
for 2002, 2001 and 2000, on a fully taxable equivalent basis. Consolidated net
interest income and income taxes include tax-


equivalent adjustments of $63
million, $57 million, and $70 million for 2002, 2001 and 2000, respectively.
Information for 2001 and 2000 is presented on a basis consistent with 2002,
and, as such, has been restated for changes in our organizational structure and
internal management reporting methodologies implemented during 2002.




Lines of Business

|                                              |                      |                    |       |           |       |         |       |               |       |              |      |             |       |           |      |        |       |   |       |        |     |             |       |         |        | 
|--------------------------------------------- | -------------------- | ------------------ | ----- | --------- | ----- | ------- | ----- | ------------- | ----- | ------------ | ---- | ----------- | ----- | --------- | ---- | ------ | ----- | - | ----- | ------ | --- | ----------- | ----- | ------- | ------ | 
|                                             
|                                              |                      |                    |       |           |       |         |       | Personal      |       |              |      |             |       |           |      |        |       |   |       |        |     | FleetBoston
|Year ended December 31, 2002                  |                      | Commercial         |       | Financial |       | Capital |       | International |       |              |      |             |       | Financial
|In millions                                   |                      | Financial Services |       | Services  |       | Markets |       | Banking       |       | All Other(a) |      | Corporation
|                                             
|Income statement data:                        |                      |                    |       |           |       |         |       |               |       |              |      |             |       |           |      |        |       |   |       |        |     |             |       |        
|                                              | Net interest income  |                    | $     | 3,041     |       |         | $     | 3,713         |       |              | $    | (87         | )     |           | $    | 715    |       |   | $     | (899   | )   |             | $     | 6,483   |       
|                                              | Noninterest income   |                    |       | 1,506     |       |         |       | 2,514         |       |              |      | 158         |       |           |      | (167   | )     |   |       | 1,025  |     |             |       | 5,036   |       
|                                             
|                                              |                      | Total revenue      |       |           | 4,547 |         |       |               | 6,227 |              |      |             | 71    |           |      |        | 548   |   |       |        | 126 |             |       |         | 11,519 | 
|Provision for credit losses                   |                      |                    | 720   |           |       |         | 911   |               |       |              |     |             |       |           | 432  |        |       |   | 697   |        |     |             | 2,760 |        
|Noninterest expense                           |                      |                    | 1,814 |           |       |         | 3,655 |               |       |              | 190  |             |       |           | 694  |        |       |   | 51    |        |     |             | 6,404 |        
|Income tax expense/(benefit)                  |                      |                    | 804   |           |       |         | 581   |               |       |              | (43  | )           |       |           | (186 | )      |       |   | (325  | )      |     |             | 831   |        
|                                             
|Net income/(loss)                             |                      | $                  | 1,209 |           |       | $       | 1,080 |               |       | $            | (76  | )           |       | $         | (392 | )      |       | $ | (297  | )      |     | $           | 1,524 |        
|                                             
|Balance sheet data:                           |                      |                    |       |           |       |         |       |               |       |              |      |             |       |           |      |        |       |   |       |        |     |             |       |        
|                                              | Average total assets |                    | $     | 85,060    |       |         | $     | 52,365        |       |              | $    | 4,101       |       |           | $    | 20,694 |       |   | $     | 27,646 |     |             | $     | 189,866 |       
|                                             
|Other financial data (pre-tax):               |                      |                    |       |           |       |         |       |               |       |              |      |             |       |           |      |        |       |   |       |        |     |             |       |        
|Depreciation and amortization                 |                      | $                  | 31    |           |       | $       | 259   |               |       | $            | 1    |             |       | $         | 57   |        |       | $ | 204   |        |     | $           | 552   |        
|Restructuring-related charges                 |                      |                    |      |           |       |         |      |               |       |              |     |             |       |           |     |        |       |   | 71    |        |     |             | 71    |        
|                                             
|Year ended December 31, 2001In millions       |                      |                    |       |           |       |         |       |               |       |              |      |             |       |           |      |        |       |   |       |        |     |             |       |        
|                                             
|Income statement data:                        |                      |                    |       |           |       |         |       |               |       |              |      |             |       |           |      |        |       |   |       |        |     |             |       |        
|                                              | Net interest income  |                    | $     | 3,254     |       |         | $     | 3,693         |       |              | $    | (127        | )     |           | $    | 1,181  |       |   | $     | (657   | )   |             | $     | 7,344   |       
|                                              | Noninterest income   |                    |       | 1,442     |       |         |       | 2,538         |       |              |      | (591        | )     |           |      | 226    |       |   |       | 940    |     |             |       | 4,555   |       
|                                             
|                                              |                      | Total revenue      |       |           | 4,696 |         |       |               | 6,231 |              |      |             | (718  | )         |      |        | 1,407 |   |       |        | 283 |             |       |         | 11,899 | 
|Provision for credit losses                   |                      |                    | 700   |           |       |         | 967   |               |       |              |     |             |       |           | 859  |        |       |   | (202  | )      |     |             | 2,324 |        
|Noninterest expense                           |                      |                    | 1,895 |           |       |         | 3,466 |               |       |              | 207  |             |       |           | 943  |        |       |   | 1,466 |        |     |             | 7,977 |        
|Income tax expense/(benefit)                  |                      |                    | 833   |           |       |         | 657   |               |       |              | (357 | )           |       |           | (175 | )      |       |   | (328  | )      |     |             | 630   |        
|                                             
|Net income/(loss)                             |                      | $                  | 1,268 |           |       | $       | 1,141 |               |       | $            | (568 | )           |       | $         | (220 | )      |       | $ | (653  | )      |     | $           | 968   |        
|                                             
|Balance sheet data:                           |                      |                    |       |           |       |         |       |               |       |              |      |             |       |           |      |        |       |   |       |        |     |             |       |        
|                                              | Average total assets |                    | $     | 93,815    |       |         | $     | 48,829        |       |              | $    | 4,631       |       |           | $    | 25,327 |       |   | $     | 36,329 |     |             | $     | 208,931 |       
|                                             
|Other financial data (pre-tax):               |                      |                    |       |           |       |         |       |               |       |              |      |             |       |           |      |        |       |   |       |        |     |             |       |        
|Depreciation and amortization                 |                      | $                  | 33    |           |       | $       | 229   |               |       | $            | 2    |             |       | $         | 71   |        |       | $ | 622   |        |     | $           | 957   |        
|Merger- and restructuring-related charges     |                      |                    |      |           |       |         |      |               |       |              |     |             |       |           |     |        |       |   | 549   |        |     |             | 549   |        
|Gains from merger-related branch divestitures |                      |                    |      |           |       |         | 77    |               |       |              |     |             |       |           |     |        |       |   | 353   |        |     |             | 430   |        
|                                             
|Year ended December 31, 2000In millions       |                      |                    |       |           |       |         |       |               |       |              |      |             |       |           |      |        |       |   |       |        |     |             |       |        
|                                             
|Income statement data:                        |                      |                    |       |           |       |         |       |               |       |              |      |             |       |           |      |        |       |   |       |        |     |             |       |        
|                                              | Net interest income  |                    | $     | 3,557     |       |         | $     | 4,123         |       |              | $    | (95         | )     |           | $    | 1,060  |       |   | $     | (819   | )   |             | $     | 7,826   |       
|                                              | Noninterest income   |                    |       | 1,529     |       |         |       | 2,535         |       |              |      | 1,160       |       |           |      | 626    |       |   |       | 1,709  |     |             |       | 7,559   |       
|                                             
|                                              |                      | Total revenue      |       |           | 5,086 |         |       |               | 6,658 |              |      |             | 1,065 |           |      |        | 1,686 |   |       |        | 890 |             |       |         | 15,385 | 
|Provision for credit losses                   |                      |                    | 622   |           |       |         | 924   |               |       |              |     |             |       |           | 130  |        |       |   | (386  | )      |     |             | 1,290 |        
|Noninterest expense                           |                      |                    | 2,166 |           |       |         | 3,709 |               |       |              | 254  |             |       |           | 997  |        |       |   | 974   |        |     |             | 8,100 |        
|Income tax expense                            |                      |                    | 921   |           |       |         | 759   |               |       |              | 316  |             |       |           | 208  |        |       |   | 219   |        |     |             | 2,423 |        
|                                             
|Net income                                    |                      | $                  | 1,377 |           |       | $       | 1,266 |               |       | $            | 495  |             |       | $         | 351  |        |       | $ | 83    |        |     | $           | 3,572 |        
|                                             
|Balance sheet data:                           |                      |                    |       |           |       |         |       |               |       |              |      |             |       |           |      |        |       |   |       |        |     |             |       |        
|                                              | Average total assets |                    | $     | 103,292   |       |         | $     | 50,782        |       |              | $    | 5,516       |       |           | $    | 22,250 |       |   | $     | 42,055 |     |             | $     | 223,895 |       
|                                             
|Other financial data (pre-tax):               |                      |                    |       |           |       |         |       |               |       |              |      |             |       |           |      |        |       |   |       |        |     |             |       |        
|Depreciation and amortization                 |                      | $                  | 31    |           |       | $       | 235   |               |       | $            | 1    |             |       | $         | 63   |        |       | $ | 894   |        |     | $           | 1,224 |        
|Merger- and restructuring-related charges     |                      |                    |      |           |       |         |      |               |       |              |     |             |       |           |     |        |       |   | 89    |        |     |             | 89    |        
|Gains from merger-related branch divestitures |                      |                    |      |           |       |         |      |               |       |              |     |             |       |           |     |        |       |   | 843   |        |     |             | 843   |        
|                                             

|(a) |  | Average total assets allocated to All Other primarily consisted of
residential mortgage loans and securities managed by the Treasury unit.
Average total assets
also included assets of discontinued operations.
|--- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



All Other had net revenue of $126 million in 2002 and $283 million in 2001.
Revenue from our Treasury unit of $839 million in 2002 and $549 million in
2001, which was included in All Other, was offset by the residual impact of
credit card securitizations. We service approximately $16.3 billion of managed
(both securitized and owned) domestic credit card receivables. Since we
internally manage, and accordingly present, the domestic credit card business
on a managed or lender basis, the


difference in the classification of revenue
associated with securitizations compared to our consolidated financial
statements is included within All Other. The impact on revenue is offset
within the provision for credit losses, and was $(593) million in 2002 and
$(612) million in 2001. All Other net revenue also reflected the positive impact of funds transfer
pricing offsets of $218 million in 2001, as well as the impact of merger- and
restructuring-




76



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related costs of $265 million and gains of $384 million, principally related to
divestitures associated with the BankBoston merger, and the year-to-date
revenue associated with our mortgage banking business, which was sold that
year. Noninterest expense within All Other included operating expenses of the
Treasury unit of $57 million in 2002 and $75 million in 2001. In 2001, All
Other included a


$428 million loss from the sale of our mortgage banking business; merger-,
restructuring- and integration-related
charges of $697 million; the year-to-date expenses associated with the divested
mortgage banking business; and $301 million of goodwill amortization.  The following table presents financial information for the supporting
business units of each of our principal lines of business.




|                                  |                                           |                                     |       |               |       |                   |        |               |       |            |      |               |       |   |        |        |       |   |       |     |       |   |        |       |       | 
|--------------------------------- | ----------------------------------------- | ----------------------------------- | ----- | ------------- | ----- | ----------------- | ------ | ------------- | ----- | ---------- | ---- | ------------- | ----- | - | ------ | ------ | ----- | - | ----- | --- | ----- | - | ------ | ----- | ----- | 
|                                 
|                                  |                                           |                                     |       | 2002          |       | 2001              |        | 2000         
|In millions                       |                                           | Net Income/(Loss)                   |       | Total Revenue |       | Net Income/(Loss) |        | Total Revenue |       | Net Income |      | Total Revenue
|                                 
|Commercial Financial Services     |                                           |                                     |       |               |       |                   |        |               |       |            |      |               |       |   |        |        |       |   |       |     |       |   |        |      
|                                  | Corporate Banking                         |                                     | $     | 717           |       |                   | $      | 2,579         |       |            | $    | 799           |       |   | $      | 2,677  |       |   | $     | 871 |       |   | $      | 2,872 |      
|                                  | Commercial Banking and Financial Services |                                     |       | 492           |       |                   |        | 1,968         |       |            |      | 469           |       |   |        | 2,019  |       |   |       | 506 |       |   |        | 2,214 |      
|                                 
|                                  |                                           | Total Commercial Financial Services |       |               | 1,209 |                   |        |               | 4,547 |            |      |               | 1,268 |   |        |        | 4,696 |   |       |     | 1,377 |   |        |       | 5,086 | 
|Personal
Financial Services       |                                           |                                     |       |               |       |                   |        |               |       |            |      |               |       |   |        |        |       |   |       |     |       |   |        |      
|                                  | Consumer Financial Services               |                                     |       | 863           |       |                   |        | 4,489         |       |            |      | 964           |       |   |        | 4,706  |       |   |       | 919 |       |   |        | 4,904 |      
|                                  | Wealth Management and Brokerage           |                                     |       | 217           |       |                   |        | 1,738         |       |            |      | 177           |       |   |        | 1,525  |       |   |       | 347 |       |   |        | 1,754 |      
|                                 
|                                  |                                           | Total Personal Financial Services   |       |               | 1,080 |                   |        |               | 6,227 |            |      |               | 1,141 |   |        |        | 6,231 |   |       |     | 1,266 |   |        |       | 6,658 | 
|Capital Markets                   |                                           |                                     |       |               |       |                   |        |               |       |            |      |               |       |   |        |        |       |   |       |     |       |   |        |      
|                                  | Fleet Specialist                          |                                     |       | 110           |       |                   |        | 325           |       |            |      | 106           |       |   |        | 328    |       |   |       | 112 |       |   |        | 310   |      
|                                  | Principal Investing                       |                                     |       | (186          | )     |                   |        | (254          | )     |            |      | (674          | )     |   |        | (1,046 | )     |   |       | 383 |       |   |        | 755   |      
|                                 
|                                  |                                           | Total Capital Markets               |       |               | (76   | )                 |        |               | 71    |            |      |               | (568  | ) |        |        | (718  | ) |       |     | 495   |   |        |       | 1,065 | 
|International Banking             |                                           |                                     |       |               |       |                   |        |               |       |            |      |               |       |   |        |        |       |   |       |     |       |   |        |      
|                                  | Brazil                                    |                                     | 120   |               |       |                   | 553    |               |       |            | 225  |               |       |   | 729    |        |       |   | 178   |     |       |   | 671    |      
|                                  | Argentina                                 |                                     |       | (559          | )     |                   |        | (302          | )     |            |      | (513          | )     |   |        | 350    |       |   |       | 129 |       |   |        | 711   |      
|                                  | All Other International Banking           |                                     |       | 47            |       |                   |        | 297           |       |            |      | 68            |       |   |        | 328    |       |   |       | 44  |       |   |        | 304   |      
|                                 
|                                  |                                           | Total International Banking         |       |               | (392  | )                 |        |               | 548   |            |      |               | (220  | ) |        |        | 1,407 |   |       |     | 351   |   |        |       | 1,686 | 
|All Other                         |                                           |                                     | (297  | )             |       |                   | 126    |               |       |            | (653 | )             |       |   | 283    |        |       |   | 83    |     |       |   | 890    |      
|                                 
|FleetBoston Financial Corporation |                                           | $                                   | 1,524 |               |       | $                 | 11,519 |               |       | $          | 968  |               |       | $ | 11,899 |        |       | $ | 3,572 |     |       | $ | 15,385 |      
|                                 



Note 19. Fair Values of Financial Instruments Fair value estimates are generally subjective in nature, and are made as of a
specific point in time based on the characteristics of the financial
instruments and relevant market information. Where available, quoted market
prices are used. In other cases, fair values are based on estimates using
present value or other valuation techniques. These techniques involve
uncertainties and are significantly affected by the assumptions used and
judgments made regarding risk characteristics of various financial instruments,
discount rates, estimates of future cash flows, future expected loss experience
and other factors. Changes in assumptions could significantly affect these
estimates and the resulting fair values. Derived fair value estimates cannot
necessarily be substantiated by comparison to independent markets and, in many
cases, could not be realized in an immediate sale of the instrument. Fair value estimates are based on existing financial instruments without
attempting to estimate the value of anticipated future business and the value
of assets and liabilities that are not considered financial instruments.
Disclosure of fair values is not required for certain items, such as lease
financing, investments accounted for under the equity method of accounting,
obligations for pension and other postretirement benefits, premises and
equipment, other real estate owned, prepaid expenses, core deposit in-


tangibles
and the value of customer relationships associated with certain types of
consumer loans, particularly the credit card portfolio, other intangible assets
and income tax assets and liabilities. Accordingly, the aggregate fair value
amounts presented do not purport to represent, and should not be considered
representative of, our underlying market or franchise value. In addition,
because of differences in methodologies and assumptions used to estimate fair
values, our fair values should not be compared to those of other financial
institutions. The following describes the methods and assumptions used in estimating the
fair values of financial instruments. Cash and Cash Equivalents.The carrying amounts recorded in the balance sheet
approximate fair values because maturities are less than 90 days. Trading Assets and Liabilities.Trading assets and liabilities are carried at
fair value in the balance sheet. Values for trading securities are generally
based on quoted, or other independent, market prices. Values for interest rate
and foreign exchange products are based on quoted, or other independent, market
prices, or are estimated using pricing models or discounted cash flows. Securities Available for Sale and Held to Maturity.Fair values are based
primarily on quoted, or other independent,




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market prices. For certain debt and equity investments made in connection with
the Principal Investing business that do not trade on established exchanges,
and for which markets do not exist, estimates of fair value are based upon
managements review of the investees financial results, condition and
prospects. Loans.The fair values of certain commercial and consumer loans are estimated
by discounting the contractual cash flows using interest rates currently being
offered for loans with similar terms to borrowers of similar credit quality.
The carrying value of certain other loans approximates fair value due to the
short-term and/or frequent repricing characteristics of these loans. For
residential real estate loans, fair value is estimated by reference to quoted
market prices. For nonperforming loans and certain loans where the credit
quality of the borrower has deteriorated significantly, fair values are
estimated by discounting expected cash flows at a rate commensurate with the
risk associated with the estimated cash flows, based on recent appraisals of
the underlying collateral or by reference to recent loan sales. Deposits.The carrying amount of deposits with no stated maturity or a
maturity of less than 90 days is considered, by definition, to be equal to
their fair value. Fair value of fixed-rate time deposits is estimated by
discounting contractual cash flows using interest rates currently offered on
the deposit products. Fair value for variable-rate time deposits approximates
their carrying value. Fair value estimates for deposits do not include the
benefit that results from the low-cost funding provided by the deposit
liabilities compared to the cost of alternative forms of funding (core deposit
intangibles). Short-Term Borrowings.Short-term borrowings generally mature in 90 days or
less and, accordingly, the carrying amount recorded in the balance sheet
approximates fair value. Long-Term Debt.The fair value of our long-term debt is estimated based on
quoted market prices for the issues for which there is a market, or by
discounting cash flows based on current rates available to us for similar types
of borrowing arrangements. Off-Balance Sheet Instruments.Fair values for off-balance sheet instruments
are estimated based on the amount we would receive or pay to execute a new
agreement with identical terms, considering current interest rates and taking
into account the remaining terms of the agreements and counterparties credit
standing. Commitments to extend credit and letters of credit typically result
in loans with a market interest rate when funded. The fair value of these
instruments is based upon the estimated cost to terminate them or otherwise
settle them with the counterparties at the reporting date.


The fair value of interest rate risk and foreign exchange risk management
instruments is included within other assets and other liabilities. Fair Values of Financial Instruments December 31
    
    2002
    
    2001Carrying
    
    Fair
    
    Carrying
    
    FairIn millions
    
    Value
    
    Value
    
    Value
    
    ValueOn-balance sheet financial assets:Financial assets for which
carrying value approximates
fair value
    
    $
    13,992
    
    
    $
    13,992
    
    
    $
    18,605
    
    
    $
    18,605Trading assets
    
    
    4,486
    
    
    
    4,486
    
    
    
    4,624
    
    
    
    4,624Securities
    
    
    30,425
    
    
    
    30,622
    
    
    
    26,604
    
    
    
    26,830Loans(a)
    
    
    102,334
    
    
    
    103,674
    
    
    
    108,229
    
    
    
    109,871Financial instruments included
in other assets
    
    
    8,810
    
    
    
    8,810
    
    
    
    8,649
    
    
    
    8,649On-balance sheet financial
liabilities:Deposits
    
    
    125,814
    
    
    
    126,335
    
    
    
    127,730
    
    
    
    128,433Short-term borrowings
    
    
    11,310
    
    
    
    11,310
    
    
    
    14,579
    
    
    
    14,579Trading liabilities
    
    
    3,224
    
    
    
    3,224
    
    
    
    2,136
    
    
    
    2,136Long-term debt
    
    
    20,581
    
    
    
    21,345
    
    
    
    25,530
    
    
    
    25,831Financial instruments included
in other liabilities
    
    
    477
    
    
    
    477
    
    
    
    947
    
    
    
    947Off-balance sheet financial
instruments:Commitments to extend credit
and letters of credit
    
    
    (152
    )
    
    
    (152
    )
    
    
    (189
    )
    
    
    (189
    ) (a)
    
    Excludes net book value of leases of $14.4 billion and $15.3 billion at
December
31, 2002 and 2001, respectively. Note 20. Parent Company Financial Statements The following tables present the statements of income, balance sheets and
statements of cash flows of FleetBoston Financial Corporation, the parent
company, without consolidation of its subsidiaries. Statements of Income Year ended December 31
    
    2002
    
    2001
    
    2000In millionsDividends from subsidiaries:Banking subsidiaries
    
    $
    1,255
    
    
    $
    2,065
    
    
    $
    3,210Other subsidiaries
    
    
    122
    
    
    
    330
    
    
    
    105Interest income
    
    
    377
    
    
    
    579
    
    
    
    676Other
    
    
    13
    
    
    
    189
    
    
    
    51Total income
    
    
    1,767
    
    
    
    3,163
    
    
    
    4,042Interest expense
    
    
    658
    
    
    
    762
    
    
    
    884Noninterest expense
    
    
    (47
    )
    
    
    85
    
    
    
    2Total expense
    
    
    611
    
    
    
    847
    
    
    
    886Income before income taxes and equity in
undistributed income of subsidiaries
    
    
    1,156
    
    
    
    2,316
    
    
    
    3,156Applicable income tax benefit
    
    
    (105
    )
    
    
    (3
    )
    
    
    (63
    )Income before equity in undistributed
income of subsidiaries
    
    
    1,261
    
    
    
    2,319
    
    
    
    3,219Equity in undistributed (loss)/income of
subsidiaries
    
    
    (73
    )
    
    
    (1,388
    )
    
    
    691Net income
    
    $
    1,188
    
    
    $
    931
    
    
    $
    3,910




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Balance Sheets December 31
    
    2002
    
    2001In millionsAssets:Cash and cash equivalents
    
    $
    3,980
    
    
    $
    3,177Securities
    
    
    14
    
    
    
    20Loans receivable from:Banking subsidiaries
    
    
    1,350
    
    
    
    1,350Other subsidiaries
    
    
    4,953
    
    
    
    6,1246,303
    
    
    
    7,474Investment in subsidiaries:Banking subsidiaries
    
    
    19,181
    
    
    
    19,085Other subsidiaries
    
    
    1,055
    
    
    
    1,76520,236
    
    
    
    20,850Other
    
    
    1,452
    
    
    
    1,141Total assets
    
    $
    31,985
    
    
    $
    32,662Liabilities:Short-term borrowings
    
    $
    989
    
    
    $
    913Accrued liabilities
    
    
    1,445
    
    
    
    1,181Long-term debt(a)
    
    
    12,718
    
    
    
    12,960Total liabilities
    
    
    15,152
    
    
    
    15,054Stockholders equity
    
    
    16,833
    
    
    
    17,608Total liabilities and stockholders
equity
    
    $
    31,985
    
    
    $
    32,662 (a)
    
    Includes junior subordinated debentures payable to subsidiary trusts of
$3,441 million in 2002 and $2,890 million in 2001.


Statements of Cash Flows Year ended December 31
    
    2002
    
    2001
    
    2000In millionsCash flows from operating activities:Net income
    
    $
    1,188
    
    
    $
    931
    
    
    $
    3,910Adjustments for noncash items:Equity in undistributed (income)/loss
of subsidiaries
    
    
    (73
    )
    
    
    1,388
    
    
    
    (691
    )Depreciation and amortization
    
    
    1
    
    
    
    16
    
    
    
    15Net securities gains
    
    
    
    
    
    
    
    
    
    
    (9
    )Increase/(decrease) in accrued liabilities
    
    
    264
    
    
    
    180
    
    
    
    (172
    )Other, net
    
    
    (165
    )
    
    
    293
    
    
    
    (163
    )Net cash flow provided by
operating activities
    
    
    1,215
    
    
    
    2,808
    
    
    
    2,890Cash flows from investing activities:Purchases of securities
    
    
    
    
    
    
    (33
    )
    
    
    Proceeds from sales and maturities
of securities
    
    
    6
    
    
    
    21
    
    
    
    12Net decrease/(increase) in loans made
to affiliates
    
    
    1,171
    
    
    
    947
    
    
    
    (1,550
    )Return of capital from subsidiaries
    
    
    
    
    
    
    250
    
    
    
    Repayment of note receivable from
subsidiary
    
    
    
    
    
    
    
    
    
    
    157Capital contributions to subsidiaries
    
    
    (56
    )
    
    
    (28
    )
    
    
    (719
    )Net cash flow provided by/(used in)
investing activities
    
    
    1,121
    
    
    
    1,157
    
    
    
    (2,100
    )Cash flows from financing activities:Net increase/(decrease) in short-term
borrowings
    
    
    76
    
    
    
    (439
    )
    
    
    (346
    )Proceeds from issuance of long-term
debt
    
    
    1,568
    
    
    
    2,847
    
    
    
    3,215Repayments of long-term debt
    
    
    (1,810
    )
    
    
    (1,440
    )
    
    
    (1,232
    )Proceeds from issuance of common stock
and exercise of warrants
    
    
    115
    
    
    
    441
    
    
    
    288Redemption and repurchase of
common and preferred stock
    
    
    
    
    
    
    (2,376
    )
    
    
    (908
    )Settlement of common stock warrants
    
    
    
    
    
    
    
    
    
    
    (441
    )Cash dividends paid
    
    
    (1,482
    )
    
    
    (1,463
    )
    
    
    (1,362
    )Net cash flow used in financing activities
    
    
    (1,533
    )
    
    
    (2,430
    )
    
    
    (786
    )Net increase in cash and cash equivalents
    
    
    803
    
    
    
    1,535
    
    
    
    4Cash and cash equivalents at
beginning of year
    
    
    3,177
    
    
    
    1,642
    
    
    
    1,638Cash and cash equivalents at end of year
    
    $
    3,980
    
    
    $
    3,177
    
    
    $
    1,642




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FLEETBOSTON FINANCIAL CORPORATION

STATISTICAL DISCLOSURE BY BANK HOLDING COMPANIES

Consolidated Average Balances/Interest Earned-Paid/Rates 2000-2002 (Unaudited)

|                                                                       |                                    |         |                                            |         |         |         |         |         |          |         |      |      |         |         |         |         |   |         |          |        |         |        |         |      |   |      |         |         |          |         |        |        |   |        |       |      |   |   | 
|---------------------------------------------------------------------- | ---------------------------------- | ------- | ------------------------------------------ | ------- | ------- | ------- | ------- | ------- | -------- | ------- | ---- | ---- | ------- | ------- | ------- | ------- | - | ------- | -------- | ------ | ------- | ------ | ------- | ---- | - | ---- | ------- | ------- | -------- | ------- | ------ | ------ | - | ------ | ----- | ---- | - | - | 
|                                                                      
|December 31                                                            |                                    |         |                                            |         |         | 2002    |         |         |          |         |      |      |         |         |         | 2001    |   |         |          |        |         |        |         |      |   | 2000 |         |         |          |        
|                                                                       |                                    |         |                                            |         |         |         |         |         | Interest |         |      |      |         |         |         |         |   |         | Interest |        |         |        |         |      |   |      |         |         | Interest |         |        |        |  
|                                                                       |                                    |         |                                            |         | Average |         | Earned/ |         |          |         |      |      | Average |         | Earned/ |         |   |         |          |        | Average |        | Earned/ |      |   |      |        
|Dollars in millions(a)                                                 |                                    | Balance |                                            | Paid(b) |         | Rate    |         | Balance |          | Paid(b) |      | Rate |         | Balance |         | Paid(b) |   | Rate   
|                                                                      
|Assets:                                                                |                                    |         |                                            |         |         |         |         |         |          |         |      |      |         |         |         |         |   |         |          |        |         |        |         |      |   |      |         |         |          |         |        |        |   |        |       |     
|Interest bearing deposits                                              |                                    | $       | 2,637                                      |         |         | $       | 112     |         |          |         | 4.26 | %    |         | $       | 2,777   |         |   | $       | 111      |        |         |        | 4.01    | %    |   | $    | 1,075   |         |          | $       | 103    |        |   |        | 9.55  | %   
|Federal funds sold and securities purchased
under agreements to resell |                                    |         | 5,120                                      |         |         |         | 292     |         |          |         | 5.70 |      |         |         | 10,672  |         |   |         | 658      |        |         |        | 6.16    |      |   |      | 2,217   |         |          |         | 300    |        |   |        | 13.51 |     
|Trading account securities                                             |                                    |         | 1,099                                      |         |         |         | 49      |         |          |         | 4.50 |      |         |         | 1,284   |         |   |         | 100      |        |         |        | 7.80    |      |   |      | 1,228   |         |          |         | 113    |        |   |        | 9.22  |     
|Securities                                                             |                                    |         | 28,199                                     |         |         |         | 1,438   |         |          |         | 5.10 |      |         |         | 26,178  |         |   |         | 1,744    |        |         |        | 6.66    |      |   |      | 35,269  |         |          |         | 2,339  |        |   |        | 6.63  |     
|Loans and leases  domestic(d)                                         |                                    |         | 101,448                                    |         |         |         | 6,728   |         |          |         | 6.63 |      |         |         | 108,288 |         |   |         | 8,527    |        |         |        | 7.87    |      |   |      | 121,682 |         |          |         | 10,718 |        |   |        | 8.81  |     
|Loans and leases  international(d)                                    |                                    |         | 18,484                                     |         |         |         | 1,465   |         |          |         | 7.93 |      |         |         | 20,504  |         |   |         | 2,245    |        |         |        | 10.95   |      |   |      | 16,927  |         |          |         | 2,240  |        |   |        | 13.24 |     
|Due from brokers/dealers                                               |                                    |         | 3,937                                      |         |         |         | 58      |         |          |         | 1.46 |      |         |         | 4,099   |         |   |         | 145      |        |         |        | 3.54    |      |   |      | 3,404   |         |          |         | 197    |        |   |        | 5.77  |     
|Mortgages held for sale                                                |                                    |         | 342                                        |         |         |         | 22      |         |          |         | 6.31 |      |         |         | 1,788   |         |   |         | 130      |        |         |        | 7.26    |      |   |      | 1,544   |         |          |         | 126    |        |   |        | 8.16  |     
|Other                                                                  |                                    |         | 234                                        |         |         |         | 1       |         |          |         | .62  |      |         |         | 148     |         |   |         | 1        |        |         |        | .96     |      |   |      | 420     |         |          |         | 14     |        |   |        | 3.21  |     
|                                                                      
|                                                                       | Total interest earning assets      |         |                                            | 161,500 |         |         |         | 10,165  |          |         |      | 6.29 |         |         |         | 175,738 |   |         |          | 13,661 |         |        |         | 7.77 |   |      |         | 183,766 |          |         |        | 16,150 |   |        |       | 8.79 |  
|                                                                      
|Accrued interest receivable                                            |                                    |         | 1,016                                      |         |         |         |        |         |          |         |     |      |         |         | 1,236   |         |   |         |         |        |         |        |        |      |   |      | 1,387   |         |          |         |       |        |   |        |      |     
|Reserve for credit losses                                              |                                    |         | (3,778                                     | )       |         |         |        |         |          |         |     |      |         |         | (2,807  | )       |   |         |         |        |         |        |        |      |   |      | (2,882  | )       |          |         |       |        |   |        |      |     
|Assets of discontinued operations                                      |                                    |         | 3,088                                      |         |         |         |        |         |          |         |     |      |         |         | 5,258   |         |   |         |         |        |         |        |        |      |   |      | 9,154   |         |          |         |       |        |   |        |      |     
|Other assets                                                           |                                    |         | 28,040                                     |         |         |         |        |         |          |         |     |      |         |         | 29,506  |         |   |         |         |        |         |        |        |      |   |      | 32,470  |         |          |         |       |        |   |        |      |     
|                                                                      
|                                                                       |                                    |         | Total assets(e)                            |         | $       | 189,866 |         |         | $        | 10,165  |      |      |         |        |         |         | $ | 208,931 |          |        | $       | 13,661 |         |      |   |     |         |         | $        | 223,895 |        |        | $ | 16,150 |       |      |   |  | 
|                                                                      
|Liabilities and stockholders equity:                                  |                                    |         |                                            |         |         |         |         |         |          |         |      |      |         |         |         |         |   |         |          |        |         |        |         |      |   |      |         |         |          |         |        |        |   |        |       |     
|Deposits:                                                              |                                    |         |                                            |         |         |         |         |         |          |         |      |      |         |         |         |         |   |         |          |        |         |        |         |      |   |      |         |         |          |         |        |        |   |        |       |     
|                                                                       | Savings  domestic                 |         | $                                          | 62,342  |         |         | $       | 829     |          |         |      | 1.33 | %       |         | $       | 54,091  |   |         | $        | 1,218  |         |        |         | 2.25 | % |      | $       | 53,339  |          |         | $      | 1,549  |   |        |       | 2.90 | %
|                                                                       | Time  domestic                    |         |                                            | 19,772  |         |         |         | 609     |          |         |      | 3.08 |         |         |         | 26,133  |   |         |          | 1,283  |         |        |         | 4.91 |   |      |         | 30,733  |          |         |        | 1,694  |   |        |       | 5.51 |  
|                                                                       | International                      |         |                                            | 9,814   |         |         |         | 634     |          |         |      | 6.46 |         |         |         | 16,493  |   |         |          | 1,000  |         |        |         | 6.06 |   |      |         | 16,639  |          |         |        | 1,169  |   |        |       | 7.03 |  
|                                                                      
|                                                                       | Total interest bearing deposits    |         |                                            | 91,928  |         |         |         | 2,072   |          |         |      | 2.25 |         |         |         | 96,717  |   |         |          | 3,501  |         |        |         | 3.62 |   |      |         | 100,711 |          |         |        | 4,412  |   |        |       | 4.38 |  
|                                                                      
|Short-term borrowings                                                  |                                    |         | 13,949                                     |         |         |         | 417     |         |          |         | 2.99 |      |         |         | 19,845  |         |   |         | 1,044    |        |         |        | 5.25    |      |   |      | 22,127  |         |          |         | 1,550  |        |   |        | 6.99  |     
|Due to brokers/dealers                                                 |                                    |         | 3,896                                      |         |         |         | 45      |         |          |         | 1.18 |      |         |         | 3,849   |         |   |         | 149      |        |         |        | 3.84    |      |   |      | 4,829   |         |          |         | 274    |        |   |        | 5.66  |     
|Long-term debt                                                         |                                    |         | 22,658                                     |         |         |         | 1,148   |         |          |         | 5.06 |      |         |         | 27,945  |         |   |         | 1,623    |        |         |        | 5.81    |      |   |      | 31,191  |         |          |         | 2,088  |        |   |        | 6.69  |     
|                                                                      
|                                                                       | Total interest bearing liabilities |         |                                            | 132,431 |         |         |         | 3,682   |          |         |      | 2.78 |         |         |         | 148,356 |   |         |          | 6,317  |         |        |         | 4.26 |   |      |         | 158,858 |          |         |        | 8,324  |   |        |       | 5.24 |  
|                                                                      
|Net interest spread                                                    |                                    |         |                                           |         |         |         | 6,483   |         |          |         | 3.51 |      |         |         |        |         |   |         | 7,344    |        |         |        | 3.51    |      |   |      |        |         |          |         | 7,826  |        |   |        | 3.55  |     
|                                                                      
|Demand deposits and other noninterest-bearing time deposits            |                                    |         | 28,560                                     |         |         |         |        |         |          |         |     |      |         |         | 27,772  |         |   |         |         |        |         |        |        |      |   |      | 29,670  |         |          |         |       |        |   |        |      |     
|Liabilities of discontinued operations                                 |                                    |         | 1,766                                      |         |         |         |        |         |          |         |     |      |         |         | 3,254   |         |   |         |         |        |         |        |        |      |   |      | 6,399   |         |          |         |       |        |   |        |      |     
|Other liabilities                                                      |                                    |         | 9,793                                      |         |         |         |        |         |          |         |     |      |         |         | 10,219  |         |   |         |         |        |         |        |        |      |   |      | 10,834  |         |          |         |       |        |   |        |      |     
|                                                                      
|                                                                       |                                    |         | Total liabilities                          |         |         | 172,550 |         |         |          | 3,682   |      |      |         |        |         |         |   | 189,601 |          |        |         | 6,317  |         |      |   |     |         |         |          | 205,761 |        |        |   | 8,324  |       |      |   |  | 
|                                                                      
|Stockholders equity and dual convertible preferred stock              |                                    |         | 17,316                                     |         |         |         |        |         |          |         |     |      |         |         | 19,330  |         |   |         |         |        |         |        |        |      |   |      | 18,134  |         |          |         |       |        |   |        |      |     
|                                                                      
|                                                                       |                                    |         | Total liabilities and stockholders equity |         | $       | 189,866 |         |         | $        | 3,682   |      |      |         |        |         |         | $ | 208,931 |          |        | $       | 6,317  |         |      |   |     |         |         | $        | 223,895 |        |        | $ | 8,324  |       |      |   |  | 
|                                                                      
|Net interest margin                                                    |                                    |         |                                            |         |         |         |         |         |          |         | 4.01 | %    |         |         |         |         |   |         |          |        |         |        | 4.18    | %    |   |      |         |         |          |         |        |        |   |        | 4.26  | %   
|                                                                      

Rate/Volume Analysis (Unaudited)

|                             |                                                                        |                    |                                    |      |                               |        |                               |        |      |        |      |        |      |        |    |        |      |      |      |        |      |        |      |        |      |        |  
|---------------------------- | ---------------------------------------------------------------------- | ------------------ | ---------------------------------- | ---- | ----------------------------- | ------ | ----------------------------- | ------ | ---- | ------ | ---- | ------ | ---- | ------ | -- | ------ | ---- | ---- | ---- | ------ | ---- | ------ | ---- | ------ | ---- | ------ | -
|                            
|                             |                                                                        |                    |                                    |      | 2002 Compared to 2001         |        | 2001 Compared to 2000        
|                             |                                                                        |                    |                                    |      | Increase (Decrease) Due to(c) |        | Increase (Decrease) Due to(c)
|                            
|In millions                  |                                                                        | Volume             |                                    | Rate |                               | Net    |                               | Volume |      | Rate   |      | Net   
|                            
|Interest earned on:(a)       |                                                                        |                    |                                    |      |                               |        |                               |        |      |        |      |        |      |        |    |        |      |      |      |        |      |        |      |       
|                             | Interest bearing deposits                                              |                    | $                                  | (6   | )                             |        | $                             | 7      |      |        | $    | 1      |      |        | $  | 94     |      |      | $    | (86    | )    |        | $    | 8      |     
|                             | Federal funds sold and securities purchased
under agreements to resell |                    |                                    | (320 | )                             |        |                               | (46    | )    |        |      | (366   | )    |        |    | 599    |      |      |      | (241   | )    |        |      | 358    |     
|                             | Trading account securities                                             |                    |                                    | (13  | )                             |        |                               | (38    | )    |        |      | (51    | )    |        |    | 5      |      |      |      | (18    | )    |        |      | (13    | )   
|                             | Securities                                                             |                    |                                    | 127  |                               |        |                               | (433   | )    |        |      | (306   | )    |        |    | (606   | )    |      |      | 11     |      |        |      | (595   | )   
|                             | Loans and leases  domestic                                            |                    |                                    | (515 | )                             |        |                               | (1,284 | )    |        |      | (1,799 | )    |        |    | (1,115 | )    |      |      | (1,075 | )    |        |      | (2,190 | )   
|                             | Loans and leases  international                                       |                    |                                    | (205 | )                             |        |                               | (575   | )    |        |      | (780   | )    |        |    | 428    |      |      |      | (423   | )    |        |      | 5      |     
|                             | Due from brokers/dealers                                               |                    |                                    | (6   | )                             |        |                               | (81    | )    |        |      | (87    | )    |        |    | 34     |      |      |      | (86    | )    |        |      | (52    | )   
|                             | Mortgages held for sale                                                |                    |                                    | (93  | )                             |        |                               | (15    | )    |        |      | (108   | )    |        |    | 19     |      |      |      | (15    | )    |        |      | 4      |     
|                             | Other                                                                  |                    |                                    |     |                               |        |                               |       |      |        |      |       |      |        |    | (7     | )    |      |      | (7     | )    |        |      | (14    | )   
|                            
|                             |                                                                        |                    | Total interest earning assets      |      |                               | (1,031 | )                             |        |      | (2,465 | )    |        |      | (3,496 | )  |        |      | (549 | )    |        |      | (1,940 | )    |        |      | (2,489 | )
|                            
|Interest paid on:            |                                                                        |                    |                                    |      |                               |        |                               |        |      |        |      |        |      |        |    |        |      |      |      |        |      |        |      |       
|                             | Deposits:                                                              |                    |                                    |      |                               |        |                               |        |      |        |      |        |      |        |    |        |      |      |      |        |      |        |      |        |     
|                             |                                                                        | Savings  domestic |                                    |      | 165                           |        |                               |        | (554 | )      |      |        | (389 | )      |    |        | 22   |      |      |        | (353 | )      |      |        | (331 | )     
|                             |                                                                        | Time  domestic    |                                    |      | (266                          | )      |                               |        | (408 | )      |      |        | (674 | )      |    |        | (238 | )    |      |        | (173 | )      |      |        | (411 | )     
|                             |                                                                        | International      |                                    |      | (427                          | )      |                               |        | 61   |        |      |        | (366 | )      |    |        | (10  | )    |      |        | (159 | )      |      |        | (169 | )     
|                            
|                             |                                                                        |                    | Total interest bearing deposits    |      |                               | (528   | )                             |        |      | (901   | )    |        |      | (1,429 | )  |        |      | (226 | )    |        |      | (685   | )    |        |      | (911   | )
|                            
|                             | Short-term borrowings                                                  |                    |                                    | (256 | )                             |        |                               | (371   | )    |        |      | (627   | )    |        |    | (149   | )    |      |      | (357   | )    |        |      | (506   | )   
|                             | Due to brokers/dealers                                                 |                    |                                    | 2    |                               |        |                               | (106   | )    |        |      | (104   | )    |        |    | (48    | )    |      |      | (77    | )    |        |      | (125   | )   
|                             | Long-term debt                                                         |                    |                                    | (283 | )                             |        |                               | (192   | )    |        |      | (475   | )    |        |    | (205   | )    |      |      | (260   | )    |        |      | (465   | )   
|                            
|                             |                                                                        |                    | Total interest bearing liabilities |      |                               | (1,065 | )                             |        |      | (1,570 | )    |        |      | (2,635 | )  |        |      | (628 | )    |        |      | (1,379 | )    |        |      | (2,007 | )
|                            
|Net interest differential(b) |                                                                        | $                  | 34                                 |      |                               | $      | (895                          | )      |      | $      | (861 | )      |      | $      | 79 |        |      | $    | (561 | )      |      | $      | (482 | )     
|                            

|(a) |  | Data is presented on a tax-equivalent basis. The tax-equivalent
adjustment is based upon the applicable federal and state statutory income
tax rates.                                                                                              
|--- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|   
|(b) |  | Includes fee income of $413 million, $442 million and $423 million for the
years ended December 31, 2002, 2001 and 2000, respectively.                                                                                                             
|   
|(c) |  | The change in interest due to both rate and volume has been allocated to
rate and volume changes in proportion to the relationship of the absolute
dollar amounts of the changes in each.                                                          
|   
|(d) |  | Nonperforming loans are included in average balances used to determine
rates.                                                                                                                                                                      
|   
|(e) |  | Average international assets and liabilities as a percentage of total
average consolidated assets and liabilities amounted to 14.5%, and 14.5%
at December 31, 2002, 15.3% and 15.1% at
December 31, 2001 and 12.1% and 11.9% at December 31, 2000.

80



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##### Table of Contents



Quarterly Summarized Financial Information (Unaudited)

|                                                             |                                            |                       |       |         |     |      |       |         |     |    |       |         |      |    |       |         |     |   |       |         |      |   |       |         |     |   |       |         |     |   |       |         |     | 
|------------------------------------------------------------ | ------------------------------------------ | --------------------- | ----- | ------- | --- | ---- | ----- | ------- | --- | -- | ----- | ------- | ---- | -- | ----- | ------- | --- | - | ----- | ------- | ---- | - | ----- | ------- | --- | - | ----- | ------- | --- | - | ----- | ------- | --- | 
|                                                            
|                                                             |                                            |                       |       | 2002    |     | 2001
|Dollars in millions, except per share amounts                |                                            | Q4                    |       | Q3      |     | Q2   |       | Q1      |     | Q4 |       | Q3      |      | Q2 |       | Q1     
|                                                            
|Interest income                                              |                                            | $                     | 2,352 |         |     | $    | 2,390 |         |     | $  | 2,673 |         |      | $  | 2,686 |         |     | $ | 2,924 |         |      | $ | 3,306 |         |     | $ | 3,515 |         |     | $ | 3,858 |        
|Interest expense                                             |                                            |                       | 802   |         |     |      | 873   |         |     |    | 1,031 |         |      |    | 976   |         |     |   | 1,216 |         |      |   | 1,485 |         |     |   | 1,643 |         |     |   | 1,973 |        
|                                                            
|Net interest income                                          |                                            |                       | 1,550 |         |     |      | 1,517 |         |     |    | 1,642 |         |      |    | 1,710 |         |     |   | 1,708 |         |      |   | 1,821 |         |     |   | 1,872 |         |     |   | 1,885 |        
|                                                            
|Provision for credit losses                                  |                                            |                       | 750   |         |     |      | 352   |         |     |    | 1,250 |         |      |    | 408   |         |     |   | 1,373 |         |      |   | 323   |         |     |   | 313   |         |     |   | 314   |        
|                                                            
|Net interest income after provision for
credit losses        |                                            |                       | 800   |         |     |      | 1,165 |         |     |    | 392   |         |      |    | 1,302 |         |     |   | 335   |         |      |   | 1,498 |         |     |   | 1,559 |         |     |   | 1,571 |        
|Securities gains/(losses)                                    |                                            |                       | 148   |         |     |      | 51    |         |     |    | (208  | )       |      |    | 15    |         |     |   | (109  | )       |      |   | 44    |         |     |   | 2     |         |     |   | (213  | )      
|Other noninterest income                                     |                                            |                       | 1,163 |         |     |      | 1,275 |         |     |    | 1,204 |         |      |    | 1,388 |         |     |   | 796   |         |      |   | 1,417 |         |     |   | 1,133 |         |     |   | 1,485 |        
|                                                            
|                                                             |                                            |                       | 2,111 |         |     |      | 2,491 |         |     |    | 1,388 |         |      |    | 2,705 |         |     |   | 1,022 |         |      |   | 2,959 |         |     |   | 2,694 |         |     |   | 2,843 |        
|Noninterest expense                                          |                                            |                       | 1,665 |         |     |      | 1,593 |         |     |    | 1,588 |         |      |    | 1,557 |         |     |   | 1,863 |         |      |   | 1,710 |         |     |   | 1,852 |         |     |   | 2,553 |        
|                                                            
|Income/(loss) from continuing operations
before income taxes |                                            |                       | 446   |         |     |      | 898   |         |     |    | (200  | )       |      |    | 1,148 |         |     |   | (841  | )       |      |   | 1,249 |         |     |   | 842   |         |     |   | 290   |        
|Applicable income tax expense/(benefit)                      |                                            |                       | 149   |         |     |      | 301   |         |     |    | (94   | )       |      |    | 412   |         |     |   | (355  | )       |      |   | 473   |         |     |   | 317   |         |     |   | 137   |        
|                                                            
|Income from continuing operations                            |                                            |                       | 297   |         |     |      | 597   |         |     |    | (106  | )       |      |    | 736   |         |     |   | (486  | )       |      |   | 776   |         |     |   | 525   |         |     |   | 153   |        
|                                                            
|Discontinued operations:                                     |                                            |                       |       |         |     |      |       |         |     |    |       |         |      |    |       |         |     |   |       |         |      |   |       |         |     |   |       |         |     |   |       |        
|                                                             | (Loss)/income from discontinued operations |                       |       | (60     | )   |      |       | (25     | )   |    |       | (390    | )    |    |       |        |     |   |       | (29     | )    |   |       | (14     | )   |   |       | 11      |     |   |       | (14     | )  
|                                                             | Applicable income tax (benefit)/expense    |                       |       | (24     | )   |      |       | (7      | )   |    |       | (110    | )    |    |       | 1       |     |   |       | (8      | )    |   |       | (4      | )   |   |       | 5       |     |   |       | (3      | )  
|                                                            
|Net income/(loss)                                            |                                            | $                     | 261   |         |     | $    | 579   |         |     | $  | (386  | )       |      | $  | 735   |         |     | $ | (507  | )       |      | $ | 766   |         |     | $ | 531   |         |     | $ | 142   |        
|                                                            
|Net income/(loss) applicable to common shares                |                                            | $                     | 256   |         |     | $    | 574   |         |     | $  | (391  | )       |      | $  | 730   |         |     | $ | (512  | )       |      | $ | 760   |         |     | $ | 523   |         |     | $ | 132   |        
|                                                            
|Per common share:                                            |                                            |                       |       |         |     |      |       |         |     |    |       |         |      |    |       |         |     |   |       |         |      |   |       |         |     |   |       |         |     |   |       |        
|                                                             | Basic earnings:                            |                       |       |         |     |      |       |         |     |    |       |         |      |    |       |         |     |   |       |         |      |   |       |         |     |   |       |         |     |   |       |         |    
|                                                             |                                            | Continuing operations |       | $       | .28 |      |       | $       | .57 |    |       | $       | (.11 | )  |       | $       | .70 |   |       | $       | (.47 | ) |       | $       | .71 |   |       | $       | .48 |   |       | $       | .13 | 
|                                                             |                                            | Net income            |       |         | .24 |      |       |         | .55 |    |       |         | (.37 | )  |       |         | .70 |   |       |         | (.49 | ) |       |         | .70 |   |       |         | .48 |   |       |         | .12 | 
|                                                             | Diluted earnings:                          |                       |       |         |     |      |       |         |     |    |       |         |      |    |       |         |     |   |       |         |      |   |       |         |     |   |       |         |     |   |       |         |    
|                                                             |                                            | Continuing operations |       |         | .28 |      |       |         | .57 |    |       |         | (.11 | )  |       |         | .70 |   |       |         | (.47 | ) |       |         | .71 |   |       |         | .47 |   |       |         | .13 | 
|                                                             |                                            | Net income            |       |         | .24 |      |       |         | .55 |    |       |         | (.37 | )  |       |         | .70 |   |       |         | (.49 | ) |       |         | .70 |   |       |         | .48 |   |       |         | .12 | 
|                                                             | Dividends declared                         |                       |       | .35     |     |      |       | .35     |     |    |       | .35     |      |    |       | .35     |     |   |       | .35     |      |   |       | .33     |     |   |       | .33     |     |   |       | .33     |    
|                                                             | Dividends paid                             |                       |       | .35     |     |      |       | .35     |     |    |       | .35     |      |    |       | .35     |     |   |       | .33     |      |   |       | .33     |     |   |       | .33     |     |   |       | .33     |    
|Stock Price:                                                 |                                            |                       |       |         |     |      |       |         |     |    |       |         |      |    |       |         |     |   |       |         |      |   |       |         |     |   |       |         |     |   |       |        
|                                                             | High                                       |                       | $     | 27.49   |     |      | $     | 31.75   |     |    | $     | 36.60   |      |    | $     | 37.21   |     |   | $     | 38.64   |      |   | $     | 39.73   |     |   | $     | 42.28   |     |   | $     | 43.64   |    
|                                                             | Low                                        |                       |       | 17.75   |     |      |       | 18.75   |     |    |       | 30.70   |      |    |       | 31.10   |     |   |       | 31.45   |      |   |       | 32.65   |     |   |       | 36.06   |     |   |       | 34.39   |    
|Average number of common shares
(in millions):               |                                            |                       |       |         |     |      |       |         |     |    |       |         |      |    |       |         |     |   |       |         |      |   |       |         |     |   |       |         |     |   |       |        
|                                                             | Basic                                      |                       |       | 1,046.1 |     |      |       | 1,045.9 |     |    |       | 1,045.5 |      |    |       | 1,043.9 |     |   |       | 1,045.6 |      |   |       | 1,084.3 |     |   |       | 1,083.8 |     |   |       | 1,083.5 |    
|                                                             | Diluted                                    |                       |       | 1,047.3 |     |      |       | 1,047.0 |     |    |       | 1,045.5 |      |    |       | 1,049.5 |     |   |       | 1,045.6 |      |   |       | 1,091.8 |     |   |       | 1,094.5 |     |   |       | 1,095.9 |    
|                                                            



Loans and Leases Maturity
(Unaudited) December 31, 2002
    
    Within
    
    1 to 5
    
    After 5In millions
    
    1 Year
    
    Years
    
    Years
    
    TotalDomestic:Commercial and industrial
    
    $
    15,681
    
    
    $
    20,655
    
    
    $
    3,023
    
    
    $
    39,359Commercial real estate:Construction
    
    
    937
    
    
    
    984
    
    
    
    87
    
    
    
    2,008Interim/permanent
    
    
    4,196
    
    
    
    4,408
    
    
    
    389
    
    
    
    8,993Home equity
    
    
    4,828
    
    
    
    12,516
    
    
    
    5,496
    
    
    
    22,840Residential real estate
    
    
    4,491
    
    
    
    4,728
    
    
    
    1,873
    
    
    
    11,092Credit card
    
    
    2,322
    
    
    
    3,572
    
    
    
    
    
    
    
    5,894Other consumer
    
    
    2,247
    
    
    
    1,090
    
    
    
    5
    
    
    
    3,342Lease financing
    
    
    2,884
    
    
    
    5,996
    
    
    
    2,319
    
    
    
    11,199Total domestic loans and
leases
    
    
    37,586
    
    
    
    53,949
    
    
    
    13,192
    
    
    
    104,727International:Commercial
    
    
    9,032
    
    
    
    2,377
    
    
    
    60
    
    
    
    11,469Consumer
    
    
    792
    
    
    
    208
    
    
    
    5
    
    
    
    1,005Lease financing
    
    
    927
    
    
    
    2,252
    
    
    
    
    
    
    
    3,179Total international loans
and leases
    
    
    10,751
    
    
    
    4,837
    
    
    
    65
    
    
    
    15,653Total
    
    $
    48,337
    
    
    $
    58,786
    
    
    $
    13,257
    
    
    $
    120,380


Interest Sensitivity of Loans and Leases Over One Year
(Unaudited) December 31, 2002
    
    Predetermined
    
    FloatingIn millions
    
    Interest Rates
    
    Interest Rates
    
    Total1 to 5 years
    
    $
    21,389
    
    
    $
    37,397
    
    
    $
    58,786After 5 years
    
    
    5,573
    
    
    
    7,684
    
    
    
    13,257Total
    
    $
    26,962
    
    
    $
    45,081
    
    
    $
    72,043




81



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##### Table of Contents






Item 9.Changes in and Disagreements with Accountants on Accounting and Financial Disclosure

There were no changes in or disagreements with accountants on accounting and
financial disclosure as defined by Item 304 of Regulation S-K.




PART III.




Item 10.Directors and Executive Officers of the Registrant

Information concerning executive officers of FleetBoston which responds to this
Item is incorporated by reference from Item 3A contained in Part I of this
Report. The information that responds to this Item with respect to directors
is incorporated by reference from the section entitled Election of Directors
in FleetBostons definitive proxy statement for its 2003 Annual Meeting of
Stockholders, which is required to be filed pursuant to Regulation 14A under
the Exchange Act and which will be filed with the SEC not later than 120 days
after the end of FleetBostons fiscal year (the Proxy Statement).
Information with respect to compliance by FleetBostons directors and executive
officers with Section 16(a) of the Exchange Act is incorporated by reference
from the subsection entitled SEC Beneficial Ownership Reporting Compliance in
the Proxy Statement.




Item 11.Executive Compensation

The information required in response to this Item is incorporated by reference
from the section entitled Compensation of Executive Officers in the Proxy
Statement.




Item 12.Security Ownership of Certain Beneficial Owners and Management and Related Stockholder Matters

The information required in response to this Item, except as provided below, is
incorporated by reference from the sections entitled Election of Directors,
Security Ownership of Directors and Executive Officers and Security
Ownership of Certain Beneficial Owners in the Proxy Statement.

The table below summarizes information about our common stock that may be
issued upon the exercise of options, warrants and rights under all of our
existing equity compensation plans as of December 31, 2002.

|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  |                   |            |                   |  |                                |       |                                    |  |  |            |    
|--------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- |  | ----------------- | ---------- | ----------------- |  | ------------------------------ | ----- | ---------------------------------- |  |  | ---------- | ---
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | (a)               |            | (b)               |  | (c)                           
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | Number of         |            |                   |  |                                |       |                                    |  | 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | securities to be  |            |                   |  |                                |       | Number of securities remaining and
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | issued upon       |            | Weighted average  |  | available for future issuance 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | exercise of       |            | exercise price of |  | under equity                  
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | outstanding       |            | outstanding       |  | compensation plans (excluding 
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    |  | options, warrants |            | options, warrants |  | securities reflected in column
|Plan Category                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       |  | and rights        |            | and rights        |  | (a))                          
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Equity compensation plans
approved by security holders                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              |  |                   | 50,222,857 |                   |  | $                              | 33.97 |                                    |  |  | 0          |    
|Equity compensation plans not
approved by security holders                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          |  |                   | 29,310,567 | 1                 |  |                                | 28.45 | 1                                  |  |  | 22,064,054 | 2,3
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|Total                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               |  |                   | 79,533,424 | 4                 |  | $                              | 31.95 |                                    |  |  | 22,064,054 |    
|                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|1 Under the Corporations Directors Deferred Compensation and Stock Unit Plan,
as of December 31, 2002, current and former non-employee directors of the
Corporation held stock units representing the right to receive 273,670 shares
of FleetBoston common stock following termination of service as a director.
The stock units are included in column (a), but because there is no exercise
price associated with the stock units, they are not reflected in column (b).                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|2 The number of shares of FleetBoston common stock available for future
issuance under the FleetBoston 1996 Long-Term Incentive Plan is determined
primarily pursuant to a formula that provides for annual share infusions equal
to 1.25% of FleetBostons outstanding common stock as of the first business day
of each year; also, shares available during any year and not utilized, shares
subject to awards that expire or are cancelled, forfeited or terminated, as
well as shares delivered to FleetBoston to pay the exercise price of options or
withholding taxes, are available for re-grant.                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|3 Of the 22,064,054 shares of FleetBoston common stock available for future
issuance: 10,512,540 shares were available under the FleetBoston 1996 Long-Term
Incentive Plan to be issued in the form of stock options, restricted stock
(annual grants of which may not exceed .5% of FleetBostons outstanding common
stock as of the first business day of each year), stock appreciation rights and
other stock awards; 5,777,478 shares were available under the stock incentive
plans of Summit Bancorp assumed by FleetBoston in the Summit acquisition (under
which no grants were made subsequent to December 31, 2002 and under which no
further grants may be made after February 7, 2003); 362,333 shares were
available under the FleetBoston 1995 Restricted Stock Plan to be issued in the
form of restricted stock; 3,739,447 shares were available under the FleetBoston
Employee Stock Purchase Plan for purchase by FleetBoston employees; and
1,672,256 shares were available under the Directors Deferred Compensation and
Stock Unit Plan upon the payment of stock units received by non-employee
directors as part of ordinary annual grants and upon optional and mandatory
deferrals of director retainer and meeting fees.
|4 In addition to the securities presented in the above table, there were (1)
outstanding options to purchase 27,577,530 shares of FleetBoston common stock
granted to employees and non-employee directors of predecessor companies and
(2) 62,549 outstanding stock units received by non-employee directors of
BankBoston, which were assumed in mergers. The weighted-average exercise price
of the assumed options was, in the aggregate, $31.18. 23,089,125 of the
29,310,567 shares presented in the above table as issuable upon the exercise of
outstanding options, warrants and rights as of December 31, 2002 under plans
not approved by security holders, and 10,512,540 of the 22,064,054 shares of
FleetBoston common stock presented in the above table as available for future
issuance under plans not approved by security holders, were granted or are
available, as the case may be, under the FleetBoston 1996 Long-Term Incentive
Plan, which was approved by the shareholders of BankBoston prior to the merger
of Fleet Financial Group, Inc. and BankBoston.                                                                                                                                                             

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Stock Incentive Plans

FleetBoston maintains stock incentive plans for certain key employees. The
plans provide for the grant of stock options (both incentive stock options
within the meaning of Section 422 of the Internal Revenue Code and
non-qualified stock options), restricted stock, stock appreciation rights and
other stock awards.

The plans are generally administered by the Human Resources Committee of
the FleetBoston Board of Directors, which has full authority to determine the
provisions of awards, including vesting schedules, price, performance
standards, length of any performance, restriction or option period, dividend
rights, post-retirement and termination rights and payment alternatives, as
well as to interpret the terms of the plans and of awards made under the plans.

Individual award agreements set forth the extent to which stock options,
restricted stock and other awards may continue to be exercisable and/or vest
following the employees death, retirement, disability or other termination of
employment. Such award agreements also set forth the applicable vesting
schedule and/or restricted period for such awards. In general, following a
change in control (as defined in the plans): (1) stock options and stock
appreciation rights become immediately exercisable, (2) restrictions on
restricted stock lapse and (3) the target payout opportunities attainable under
outstanding awards of restricted stock and performance shares will be deemed to
have been fully earned for the entire performance period, and the vesting of
all awards will be accelerated.

FleetBostons primary stock incentive plan is its 1996 Long-Term Incentive
Plan, which was assumed by FleetBoston following the merger of Fleet Financial
Group, Inc. and BankBoston, and which was approved prior to that merger by the
stockholders of BankBoston. FleetBoston also has on-going granting authority
under its 1995 Restricted Stock Plan (which the Corporation utilizes primarily
to grant restricted stock awards in connection with new hires).

Stock options are granted with an exercise price equal to the fair market
value of the underlying Corporation common stock on the date of grant. Stock
options are not exercisable more than ten years from the date of grant.

In addition to time-based vesting provisions, certain restricted stock
awards vest contingent upon, or are accelerated if, certain pre-established
performance goals are attained. Until the applicable restrictions have been
satisfied, the participant may not sell, assign, transfer, pledge or otherwise
encumber shares of restricted stock. Holders of restricted stock generally
have dividend and voting rights as to shares of restricted stock, including
shares that are subject to forfeiture.

Employee Stock Purchase Plan

Under the FleetBoston Employee Stock Purchase Plan or ESPP, participating
FleetBoston employees are permitted to designate up to the lesser of 15% of
their annual base compensation or $25,000 towards the purchase of FleetBoston
common stock. Employees with one year of service to FleetBoston are entitled
to purchase price contributions from FleetBoston, currently resulting in an
effective 5% discount to the market price of FleetBoston common stock at the
time of purchase. Under the ESPP, FleetBoston common stock is generally
purchased in the open market by the ESPP plan administrator.

Directors Deferred Compensation and Stock Unit Plan

FleetBoston maintains a Deferred Compensation and Stock Unit Plan for its
non-employee directors. Under this Directors Plan, each non-employee director
receives an annual award of stock units equal to $30,000. The Directors Plan
also provides for the mandatory deferral of 50% of each directors annual
retainer into stock units, and permits directors to elect to defer all or a
portion of their remaining annual retainer, committee retainers and meeting
fees into stock units or a fixed rate account, or a combination of the two.
The directors accounts under the Directors Plan are increased in connection
with the payment of dividends or other distributions paid on FleetBoston common
stock to reflect the number of additional shares of FleetBoston common stock
that could have been purchased had the dividends or other distributions been
paid on each share of common stock underlying the then outstanding stock units
in the directors accounts. Stock units are payable following termination of
service as a director out of shares of FleetBoston common stock held in
treasury.

For additional information regarding the FleetBoston equity compensation plans,
refer to Note 14 of the Notes to Consolidated Financial Statements included
in Part II, Item 8 of this Report.




Item 13.Certain Relationships and Related Transactions

The information required in response to this Item is incorporated by reference
from the subsection entitled Other Information Relating to Directors,
Nominees and Executive Officers  Indebtedness and Other Transactions in the
Proxy Statement.

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Item 14.Controls and Procedures

Management, including the Chairman and Chief Executive Officer and the
Executive Vice President and Chief Financial Officer, evaluated our disclosure
controls and procedures (as defined in Rules 13a14 and 15d14 under the
Securities Exchange Act of 1934, as amended) within 90 days prior to the filing
date of this annual report. Based on this evaluation, the Chairman and Chief
Executive Officer and the Executive Vice President and Chief Financial Officer
concluded that our disclosure controls and procedures are effective. There
were no significant changes in our internal controls or in other factors that
could significantly affect those controls since the date of the evaluation.




PART IV.




Item 15.Exhibits, Financial Statement Schedules and Reports on Form 8-K



|(a)(1). |  | The financial statements of FleetBoston required in response to this
Item are incorporated by reference from Item 8 of this Report.
|------- |  | -----------------------------------------------------------------------------------------------------------------------------------
|       
|(a)(2). |  | Not applicable.                                                                                                                    
|       
|(a)(3). |  | See the exhibits listed below under Item 14(c).                                                                                    
|       
|(b)     |  | Current Reports on Form 8-K                                                                                                        
|       
|        |  | We filed the following Current Reports on Form 8-K during the period from
October 1, 2002 to the date of the filing of this Report:



| |  |  | Current Report on Form 8-K, filed October 16, 2002, announcing earnings for the third quarter of 2002.                          
| | - |  | --------------------------------------------------------------------------------------------------------------------------------
|
| |  |  | Current Report on Form 8-K, filed January 10, 2003, pre-announcing summarized results for the fourth quarter
of 2002.           
|
| |  |  | Current Report on Form 8-K, filed January 16, 2003, announcing earnings for the fourth quarter and year
ended December 31, 2002.
|
| |  |  | Current Report on Form 8-K, filed February 18, 2003, reporting the sale of $500 million of 3.85% Senior
Notes due 2008.         



|(c) |  | Exhibit Index
|--- |  | -------------

|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|Number  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|3(a)    |  | Restated Articles of Incorporation of the Corporation, as amended through April 18, 2000 (incorporated by
reference to Exhibit 3 of the Corporations Quarterly Report on Form 10-Q for the quarter ended September
30, 1999 and Exhibit 3(b) of the Corporations Quarterly Report on Form 10-Q for the quarter ended March 31,
2000)                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|3(b)    |  | Certificate of Correction filed with the Rhode Island Secretary of State correcting a typographical error in
the Corporations Restated Articles of Incorporation (incorporated by reference to Exhibit 3(a) of the
Corporations Quarterly Report on Form 10-Q for the quarter ended June 30, 2001)                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|3(c)    |  | Certificate of Votes filed with the Rhode Island Secretary of State reducing the number of reserved shares
of the Corporations Cumulative Participating Junior Preferred Stock (incorporated by reference to Exhibit
3(b) of the Corporations Quarterly Report on Form 10-Q for the quarter ended June 30, 2001)                                                                                                                            
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|3(d)    |  | Statement of Resolutions establishing the Corporations Cumulative Participating Junior Preferred Stock
(Series 2000) as a Series of Preferred Stock, filed with the Rhode Island Secretary of State (incorporated
by reference to Exhibit 3(c) of the Corporations Quarterly Report on Form 10-Q for the quarter ended June
30, 2001)                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|3(e)    |  | By-Laws of the Corporation, as amended (incorporated by reference to Exhibit 3(g) for the Corporations
Annual Report on Form 10-K for the year ended December 31, 2001)                                                                                                                                                                                                                                                                      
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|4(a)    |  | Rights Agreement, dated as of August 16, 2000, between the Corporation and EquiServe, LP, as Rights Agent
(incorporated by reference to Exhibit 4 of the Corporations Registration Statement on Form 8-A dated
November 7, 2000)                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                               
|4(b)    |  | Instruments defining the rights of security holders, including indentures (The Corporation has no
instruments defining the rights of holders of its long-term debt where the amount of securities authorized
under any such instrument exceeds 10% of the total assets of the Corporation and its subsidiaries on a
consolidated basis. The Corporation hereby agrees to furnish a copy of any such instrument to the
Commission upon request)

84



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|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|------- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|Number  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(a)*  |  | Form of Change in Control Agreement for certain officers, together with Schedule of Persons who have entered
into such agreements (incorporated by reference to Exhibit 10(a) of the Corporations Annual Report on Form
10-K for the year ended December 31, 1997)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                   
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(b)*  |  | Revised Schedule of Executive Officers who have entered into certain Change in Control Agreements                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(c)*  |  | Supplemental Executive Retirement Plan, as amended by Amendment One thereto effective January 1, 1997,
Amendment Two thereto effective October 15, 1997, Amendment Three thereto effective July 1, 1998, Amendment
Four thereto effective August 15, 1999, Amendment Five thereto effective January 1, 2000, Amendment Six
thereto effective October 10, 2001 and Amendment Seven thereto effective February 19, 2002 (incorporated by
reference to Exhibit 10(d) of the Corporations Quarterly Report on Form 10-Q for the quarter ended June 30,
1996, Exhibit 10(c) of the Corporations Quarterly Report on Form 10-Q for the quarter ended June 30, 1997,
Exhibits 10(g), 10(h), 10(i) and 10(j) of the Corporations Annual Report on Form 10-K for the year ended
December 31, 1999, Exhibit 10(d) of the Corporations Annual Report on Form 10-K for the year ended December
31, 2001 and Exhibit 10 of the Corporations Quarterly Report on Form 10-Q for the quarter ended June 30,
2002)
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(d)*  |  | Amendment Eight to Supplemental Executive Retirement Plan effective October 15, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(e)*  |  | Amended and Restated 1994 Performance-Based Bonus Plan for the Named Executive Officers (incorporated by
reference to Exhibit 10(k) of the Corporations Annual Report on Form 10-K for the year ended December 31,
1999)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                             
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(f)*  |  | Amended and Restated 1992 Stock Option and Restricted Stock Plan (incorporated by reference to Exhibit 10(f)
of the Corporations Annual Report on Form 10-K for the year ended December 31, 2001)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(g)*  |  | Employment Agreement, dated as of February 20, 1995, between the Corporation and Joel B. Alvord
(incorporated by reference to Exhibit 10(j) of the Corporations Annual Report on Form 10-K for the year
ended December 31, 1995)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(h)*  |  | Shawmut National Corporation 1989 Nonemployee Directors Restricted Stock Plan (assumed by the Corporation on
November 30, 1995) (incorporated by reference to Shawmuts 1989 Proxy Statement dated March 31, 1989
(File No. 1-10102))                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(i)*  |  | 1995 Restricted Stock Plan (incorporated by reference to Exhibit 10(o) of the Corporations Annual Report on
Form 10-K for the year ended December 31, 1995)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(j)*  |  | Executive Deferred Compensation Plan No. 1, as amended by Amendment One thereto effective January 1, 2000
(incorporated by reference to Exhibits 10(p) and 10(q) of the Corporations Annual Report on Form 10-K for
the year ended December 31, 1999)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(k)*  |  | Executive Deferred Compensation Plan No. 2, as amended by Amendment One thereto effective February 1, 1999,
Amendment Two thereto effective January 1, 2000 and Amendment Three thereto effective January 1, 2002
(incorporated by reference to Exhibits 10(r), 10(s) and 10(t) of the Corporations Annual Report on Form
10-K for the year ended
December 31, 1999 and Exhibit 10(l) of the Corporations Annual Report on Form 10-K for the year ended
December 31, 2001)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(l)*  |  | Amendment Four to Executive Deferred Compensation Plan No. 2 effective October 15, 2002                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(m)*  |  | Executive Supplemental Plan, as amended by Amendment One thereto effective January 1, 2000 and Amendment Two
thereto effective January 1, 2002 (incorporated by reference to Exhibit 10(c) of the Corporations Quarterly
Report on
Form 10-Q for the quarter ended June 30, 1996, Exhibit 10(v) of the Corporations Annual Report on Form 10-K
for the year ended December 31, 1999 and Exhibit 10(n) of the Corporations Annual Report on Form 10-K for
the year ended December 31, 2001)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                         
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(n)*  |  | Retirement Income Assurance Plan, as amended by Amendment One thereto effective January 1, 1997, Amendment
Two thereto effective January 1, 2000 and Amendment Three thereto effective November 1, 2001 (incorporated
by reference to Exhibit 10(e) of the Corporations Quarterly Report on Form 10-Q for the quarter ended June
30, 1996, Exhibits 10(x) and 10(y) of the Corporations Annual Report on Form 10-K for the year ended
December 31, 1999 and Exhibit 10(p) of the Corporations Annual Report on Form 10-K for the year ended
December 31, 2001)                                                                                                                                                                                                                                                                                                                                                                                                                                     
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(o)*  |  | Trust Agreement for the Executive Deferred Compensation Plans No. 1 and 2 (incorporated by reference to
Exhibit 10(z) of the Corporations Annual Report on Form 10-K for the year ended December 31, 1999)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(p)*  |  | Trust Agreement for the Executive Supplemental Plan (incorporated by reference to Exhibit 10(g) of the
Corporations Quarterly Report on Form 10-Q for the quarter ended June 30, 1996)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(q)*  |  | Trust Agreement for the Retirement Income Assurance Plan and the Supplemental Executive Retirement Plan
(incorporated by reference to Exhibit 10(h) of the Corporations Quarterly Report on Form 10-Q for the
quarter ended June 30, 1996)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(r)*  |  | Stock Unit Contract, dated December 17, 1997, between the Corporation and Terrence Murray, as amended by an
amendment dated January 25, 2000 (incorporated by reference to Exhibit 10(z) of the Corporations Annual
Report on Form 10-K for the year ended December 31, 1997 and Exhibit 10(ee) of the Corporations Annual
Report on Form 10-K for the year ended December 31, 1999)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(s)*  |  | Directors Deferred Compensation and Stock Unit Plan, as amended effective as of July 1, 2000 (incorporated
by reference to Exhibit 10(bb) of the Corporations Annual Report on Form 10-K for the year ended December
31, 1998 and Exhibit 10(a) of the Corporations Quarterly Report on Form 10-Q for the quarter ended June 30,
2000)                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(t)*  |  | Second Amendment, dated as of December 17, 2002, to the Directors Deferred Compensation and Stock Unit Plan                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                                           

85



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|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|------- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|Number  |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10(u)*  |  | FleetBoston Financial 1996 Long-Term Incentive Plan (assumed by the Corporation on October 1, 1999)
(incorporated by reference to Exhibit 10(v) of the Corporations Annual Report on Form 10-K for the year
ended December 31, 2001)                                                                                                                                                                                                                                                  
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10(v)*  |  | BankBoston Corporation 1991 Long-Term Stock Incentive Plan (assumed by the Corporation on
October 1, 1999), as amended by an amendment thereto dated as of October 16, 2001 (incorporated by
reference to Exhibit 10(c) of BankBoston Corporations Annual Report on Form 10-K for the year ended
December 31, 1997 (File No. 1-6522) and Exhibit 10(x) of the Corporations Annual Report on Form 10-K for
the year ended December 31, 2001)                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10(w)*  |  | BankBoston Corporation Executive Deferred Compensation Plan (assumed by the Corporation on October 1, 1999)
(incorporated by reference to Exhibit 10(d) of BankBoston Corporations Annual Report on Form 10-K for the
year ended December 31, 1994 (File No. 1-6522))                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10(x)*  |  | Instrument providing for the cessation of accruals under the BankBoston Corporation Executive Deferred
Compensation Plan effective December 31, 2000 (incorporated by reference to Exhibit 10(z) of the
Corporations Annual Report on Form 10-K for the year ended December 31, 2001)                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10(y)   |  | Amendment, dated December 24, 2001, to the BankBoston Corporation Executive Deferred Compensation Plan
(incorporated by reference to Exhibit 10(aa) of the Corporations Annual Report on Form 10-K for the year
ended December 31, 2001)                                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10(z)*  |  | BankBoston, N.A. Bonus Supplemental Employee Retirement Plan, as amended by a First Amendment, a Second
Amendment, a Third Amendment and a Fourth Amendment thereto (assumed by the Corporation on October 1, 1999)
(incorporated by reference to Exhibit 10(e) of BankBoston Corporations Annual Report on Form 10-K for the
year ended December 31, 1994 (File No. 1-6522) and Exhibits 10(cc) and 10(dd) of the Corporations Annual                                               
|        |  | Report on Form 10-K for the year ended December 31, 2001)                                                                                                                                                                                                                                                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10(aa)* |  | Description of BankBoston Corporations Supplemental Life Insurance Plan (assumed by the Corporation on
October 1, 1999) (incorporated by reference to Exhibit 10(h) of BankBoston Corporations Annual Report on
Form 10-K for the year ended December 31, 1998 (File No. 1-6522))                                                                                                                                                                                                    
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10(bb)* |  | BankBoston, N.A. Excess Benefit Supplemental Employee Retirement Plan, as amended by a First Amendment, a
Second Amendment and a Third Amendment thereto (assumed by the Corporation on October 1, 1999)
(incorporated by reference to Exhibit 10(g) of BankBoston Corporations Annual Report on Form 10-K for the
year ended December 31, 1994
(File No. 1-6522) and Exhibits 10(gg) and 10(hh) of the Corporations Annual Report on Form 10-K for the
year ended December 31, 2001)
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10(cc)* |  | Description of BankBoston Corporations Supplemental Long-Term Disability Plan (assumed by the Corporation
on October 1, 1999) (incorporated by reference to Exhibit 10(l) of BankBoston Corporations Annual Report
on Form 10-K for the year ended December 31, 1993 (File No. 1-6522))                                                                                                                                                                                              
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10(dd)* |  | BankBoston Corporations Director Stock Award Plan (assumed by the Corporation on October 1, 1999)
(incorporated by reference to Exhibit 10(l) of BankBoston Corporations Annual Report on Form 10-K for the
year ended December 31, 1998 (File No. 1-6522))                                                                                                                                                                                                                          
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10(ee)* |  | BankBoston Corporation Directors Deferred Compensation Plan (assumed by the Corporation on October 1, 1999)
(incorporated by reference to Exhibit 10(q) of BankBoston Corporations Annual Report on Form 10-K for the
year ended December 31, 1994 (File No. 1-6522))                                                                                                                                                                                                                 
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10(ff)* |  | BankBoston, N.A. Directors Deferred Compensation Plan (assumed by the Corporation on October 1, 1999)
(incorporated by reference to Exhibit 10(r) of BankBoston Corporations Annual Report on Form 10-K for the
year ended December 31, 1994 (File No. 1-6522))                                                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10(gg)* |  | BankBoston Corporation 1997 Stock Option Plan for Non-Employee Directors, as amended by an amendment thereto
dated as of October 16, 2001 (assumed by the Corporation on October 1, 1999) (incorporated by reference to
Exhibit 10(q) of BankBoston Corporations Annual Report on Form 10-K for the year ended December 31, 1997
(File No. 1-6522) and Exhibit 10(nn) of the Corporations Annual Report on Form 10-K for the year ended
December 31, 2001)                           
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10(hh)* |  | Description of BankBoston Corporations Director Retirement Benefits Exchange Program (assumed by the
Corporation on October 1, 1999) (incorporated by reference to Exhibit 10(r) of BankBoston Corporations
Annual Report on Form 10-K for the year ended December 31, 1997 (File No. 1-6522))                                                                                                                                                                                       
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10(ii)* |  | Letter Agreement, dated as of May 24, 2000, between BankBoston Corporation and Henrique C. Meirelles
(incorporated by reference to Exhibit 10(b) of the Corporations Quarterly Report on Form 10-Q for the
quarter ended June 30, 2000)                                                                                                                                                                                                                                               
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10(jj)* |  | Employment Agreement, dated as of March 14, 1999, between the Corporation and Charles K. Gifford, as
amended by an amendment effective February 7, 2000 (incorporated by reference to Exhibit 10(a) of the
Corporations Registration Statement on Form S-4 (File No. 333-82433) and Exhibit 10(b) of the
Corporations Form 10-Q for the quarter ended March 31, 2000)                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10(kk)* |  | Second Amendment to Employment Agreement between the Corporation and Charles K. Gifford, effective as of
April 22, 2002                                                                                                                                                                                                                                                                                                                                                                
|        |  |                                                                                                                                                                                                                                                                                                                                                                                                                                                                                        
|10(ll)* |  | Third Amendment to Employment Agreement between the Corporation and Charles K. Gifford, effective as of
October 1, 2002                                                                                                                                                                                                                                                                                                                                                                

86



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##### Table of Contents



|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|-------- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|Exhibit  |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|Number   |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(mm)*  |  | Employment Agreement, dated as of March 14, 1999, between the Corporation and Henrique C. Meirelles, as amended
by an amendment effective March 14, 2000, with related side letter (incorporated by reference to Exhibit 10(b) of
the Corporations Registration Statement on Form S-4 (File No. 333-82433) and Exhibit 10(c) of the Corporations
Quarterly Report on Form 10-Q for the quarter ended March 31, 2000)
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(nn)*  |  | Second Amendment to Employment Agreement between the Corporation and Henrique C. Meirelles, effective as of
April 22, 2002                                                                                                                                                                                                                                                                                            
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(oo)*  |  | Employment Agreement, dated as of March 14, 1999, between the Corporation and Paul F. Hogan, as amended by an
amendment effective March 17, 2000, with related side letter (incorporated by reference to Exhibit 10(c) of the
Corporations Registration Statement on Form S-4 (File No. 333-82433) and Exhibit 10(d) of the Corporations
Quarterly Report on Form 10-Q for the quarter ended March 31, 2000)        
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(pp)*  |  | Second Amendment to Employment Agreement between the Corporation and Paul F. Hogan, effective as of April 22, 2002                                                                                                                                                                                                                                                                                                    
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(qq)*  |  | Employment Agreement, dated as of March 14, 1999, between the Corporation and Bradford H. Warner, as amended by
an amendment effective March 30, 2000, with related side letter (incorporated by reference to Exhibit 10(d) of
the Corporations Registration Statement on Form S-4 (File No. 333-82433) and Exhibit 10(e) of the Corporations
Quarterly Report on Form 10-Q for the quarter ended March 31, 2000)   
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(rr)*  |  | Second Amendment to Employment Agreement between the Corporation and Bradford H. Warner, effective as of
April 22, 2002                                                                                                                                                                                                                                                                                               
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(ss)*  |  | Third Amendment to Employment Agreement between the Corporation and Bradford H. Warner, effective as of
October 1, 2002                                                                                                                                                                                                                                                                                               
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(tt)*  |  | Form of Change in Control Agreement entered into with Charles K. Gifford, Paul F. Hogan and Bradford H. Warner
(incorporated by reference to Exhibit 10(bbb) of the Corporations Annual Report on Form 10-K for the year ended
December 31, 1999)                                                                                                                                                                    
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(uu)*  |  | Form of Change in Control Agreement entered into with Joseph Smialowski (incorporated by reference to Exhibit
10(ccc) of the Corporations Annual Report on Form 10-K for the year ended December 31, 1999)                                                                                                                                                                                                           
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(vv)*  |  | Employment Agreement, dated as of March 3, 2000, between the Corporation and M. Anne Szostak (incorporated by
reference to Exhibit 10(oo) of the Corporations Annual Report on Form 10-K for the year ended December 31, 2000)                                                                                                                                                                                       
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(ww)*  |  | Retirement Agreement, dated as of October 10, 2001, between the Corporation and Terrence Murray (incorporated by
reference to Exhibit 10(aaa) of the Corporations Annual Report on Form 10-K for the year ended December 31, 2001)                                                                                                                                                                                   
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(xx)*  |  | Form of Letter Agreement for certain officers, together with Schedule of Executive Officers who have entered into
such agreements (incorporated by reference to Exhibit 10(a) of the Corporations Quarterly Report on Form 10-Q
for the quarter ended March 31, 2000)                                                                                                                                                
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(yy)*  |  | Employment Agreement, dated as of October 1, 2000, between the Corporation and T. Joseph Semrod (incorporated by
reference to Exhibit 10(a) of the Corporations Registration Statement on Form S-4 (File No. 333-50346))                                                                                                                                                                                             
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(zz)*  |  | Retention and Deferred Compensation Agreement, dated December 29, 1999, between the Corporation and Gary A.
Spiess (incorporated by reference to Exhibit 10(eee) of the Corporations Annual Report on Form 10-K for the year
ended
December 31, 2001)                                                                                                                                                                
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(aaa)* |  | Employment Letter, dated October 31, 2002, between the Corporation and Robert C. Lamb, Jr.                                                                                                                                                                                                                                                                                                                            
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(bbb)* |  | Change in Control Agreement, dated as of December 16, 2002, between the Corporation and Robert C. Lamb, Jr.                                                                                                                                                                                                                                                                                                           
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(ccc)  |  | FleetBoston Financial Corporation Employee Stock Purchase Plan (July 1, 2000 Restatement) (incorporated by
reference to Exhibit 4 to the Corporations Registration Statement on Form S-8 (File No. 333-44517))                                                                                                                                                                                                       
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|10(ddd)  |  | Amendment One to FleetBoston Financial Corporation Employee Stock Purchase Plan (July 1, 2000 Restatement)
effective December 31, 2002                                                                                                                                                                                                                                                                                
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|12       |  | Computation of Consolidated Ratios of Earnings to Fixed Charges                                                                                                                                                                                                                                                                                                                                                       
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|21       |  | Subsidiaries of the Corporation                                                                                                                                                                                                                                                                                                                                                                                       
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|23       |  | Consent of Independent Accountants                                                                                                                                                                                                                                                                                                                                                                                    
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|99(a)    |  | Certification of Charles K. Gifford, Chairman and Chief Executive Officer, pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350)                                                                                                                                                                                                                                                               
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                       
|99(b)    |  | Certification of Robert C. Lamb, Jr., Executive Vice President and Chief Financial Officer, pursuant to Section
906 of the Sarbanes-Oxley Act of 2002 (18 U.S.C. § 1350)                                                                                                                                                                                                                                              
|         |  |                                                                                                                                                                                                                                                                                                                                                                                                                       



---

|*   | Management contract, or compensatory plan or arrangement
|--- | --------------------------------------------------------
|   
|(d) | Financial Statement Schedules  None.                   

87



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##### Table of Contents






SIGNATURES

Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized, on February 28, 2003.

| |  |                                   |  |                                                                          |  | 
| |  | --------------------------------- |  | ------------------------------------------------------------------------ |  | 
| |  | FLEETBOSTON FINANCIAL CORPORATION |  |                                                                         
| | 
| |  | By:                               |  | /S/ ROBERT C. LAMB, JR.                                                  |  | 
| |  |                                   |  |                                                                          |  | 
| |  |                                   |  | Robert C. Lamb, Jr.
Executive Vice President and Chief Financial Officer |  | 

Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on
behalf of the Registrant in the capacities indicated on February 28, 2003.

|                                                  |  |                                                     
|------------------------------------------------- |  | ----------------------------------------------------
|Signature                                         |  | Title                                               
|                                                  |  |                                                     
|                                                  | 
|/S/ CHARLES K. GIFFORD
Charles K. Gifford         |  | Chairman, Chief Executive Officer and Director      
|                                                  |  |                                                     
|/S/ ROBERT C. LAMB, JR.
Robert C. Lamb, Jr.       |  | Executive Vice President and Chief Financial Officer
|                                                  |  |                                                     
|/S/ ERNEST L. PUSCHAVER
Ernest L. Puschaver       |  | Chief Accounting Officer                            
|                                                  |  |                                                     
|/S/ JOEL B. ALVORD
Joel B. Alvord                 |  | Director                                            
|                                                  |  |                                                     
|/S/ WILLIAM BARNET, III
William Barnet, III       |  | Director                                            
|                                                  |  |                                                     
|/S/ DANIEL P. BURNHAM
Daniel P. Burnham           |  | Director                                            
|                                                  |  |                                                     
|/S/ PAUL J. CHOQUETTE, JR.
Paul J. Choquette, Jr. |  | Director                                            
|                                                  |  |                                                     
|/S/ KIM B. CLARK
Kim B. Clark                     |  | Director                                            
|                                                  |  |                                                     
|/S/ JOHN T. COLLINS
John T. Collins               |  | Director                                            
|                                                  |  |                                                     
|/S/ GARY L. COUNTRYMAN
Gary L. Countryman         |  | Director                                            
|                                                  |  |                                                     
|/S/ T.J. DERMOT DUNPHY
T.J. Dermot Dunphy         |  | Director                                            
|                                                  |  |                                                     
|/S/ MARIAN L. HEARD
Marian L. Heard               |  | Director                                            

88



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##### Table of Contents



|                                            |  |         
|------------------------------------------- |  | --------
|Signature                                   |  | Title   
|                                            |  |         
|                                            |  |         
|/S/ ROBERT M. KAVNER
Robert M. Kavner       |  | Director
|                                            |  |         
|/S/ THOMAS J. MAY
Thomas J. May             |  | Director
|                                            |  |         
|/S/ DONALD F. MCHENRY
Donald F. McHenry     |  | Director
|                                            |  |         
|/S/ TERRENCE MURRAY
Terrence Murray         |  | Director
|                                            |  |         
|/S/ MICHAEL B. PICOTTE
Michael B. Picotte   |  | Director
|                                            |  |         
|/S/ FRANCENE S. RODGERS
Francene S. Rodgers |  | Director
|                                            |  |         
|/S/ THOMAS M. RYAN
Thomas M. Ryan           |  | Director
|                                            |  |         
|/S/ T. JOSEPH SEMROD
T. Joseph Semrod       |  | Director
|                                            |  |         
|/S/ PAUL R. TREGURTHA
Paul R. Tregurtha     |  | Director

89



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##### Table of Contents



CERTIFICATIONS

I, Charles K. Gifford, certify that:



|1. |  | I have reviewed this annual report on Form 10-K of FleetBoston Financial
Corporation;                                                                                                                                                                                                                                   
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                    
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                   



| | a) |  | designed such disclosure controls and procedures to ensure that
material information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the
period in which this annual report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls
and procedures as of a date within 90 days prior to the filing date of
this annual report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions about the
effectiveness of the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the
registrants ability to record, process, summarize and report financial
data and have identified for the registrants auditors any material
weaknesses in internal controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in
the registrants internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officer and I have indicated in this
annual report whether or not there were significant
changes in internal controls or in other factors that could significantly
affect internal controls subsequent to the date of
our most recent evaluation, including any corrective actions with regard to
significant deficiencies and material weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                    |  |                                                         | 
|------------------- |  | ------------------------------------------------------- | 
|Date: March 5, 2003 |  |                                                        
|                    |  | /S/ CHARLES K. GIFFORD                                 
|                    |  |                                                        
|                    |  | Charles K. Gifford
Chairman and Chief Executive Officer

90



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##### Table of Contents



I, Robert C. Lamb, Jr., certify that:



|1. |  | I have reviewed this annual report on Form 10-K of FleetBoston Financial
Corporation;                                                                                                                                                                                                                                   
|-- |  | ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|  
|2. |  | Based on my knowledge, this annual report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to
make the statements made, in light of the circumstances under which such
statements were made, not misleading with respect to the period covered by
this annual report;
|  
|3. |  | Based on my knowledge, the financial statements and other financial
information included in this annual report, fairly present in all material
respects the financial condition, results of operations and cash flows of
the registrant as of, and for, the periods presented in this annual
report;                    
|  
|4. |  | The registrants other certifying officer and I are responsible for
establishing and maintaining disclosure controls and procedures (as
defined in Exchange Act Rules 13a-14 and 15d-14) for the registrant and
have:                                                                                                   



| | a) |  | designed such disclosure controls and procedures to ensure that material
information relating to the registrant,
including its consolidated subsidiaries, is made known to us by others
within those entities, particularly during the period in which this annual
report is being prepared;
| | -- |  | --------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | evaluated the effectiveness of the registrants disclosure controls and
procedures as of a date within 90 days prior to
the filing date of this annual report (the Evaluation Date); and                                                                                                  
|
| | c) |  | presented in this annual report our conclusions about the effectiveness of
the disclosure controls and procedures
based on our evaluation as of the Evaluation Date;                                                                                                                        



|5. |  | The registrants other certifying officer and I have disclosed, based on
our most recent evaluation, to the registrants auditors and the audit
committee of registrants board of directors (or persons performing the
equivalent function):
|-- |  | ---------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------



| | a) |  | all significant deficiencies in the design or operation of internal
controls which could adversely affect the registrants ability to
record, process, summarize and report financial data and have identified
for the registrants auditors any material weaknesses in internal
controls; and
| | -- |  | ----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
|
| | b) |  | any fraud, whether or not material, that involves management or other
employees who have a significant role in the
registrants internal controls; and                                                                                                                                        



|6. |  | The registrants other certifying officer and I have indicated in this
annual report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal
controls subsequent to the date of
our most recent evaluation, including any corrective actions with regard
to significant deficiencies and material
weaknesses.
|-- |  | -------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------

|                    |  |                                                                         
|------------------- |  | ------------------------------------------------------------------------
|Date: March 5, 2003 |  |                                                                         
|                    |  | /S/ ROBERT C. LAMB, JR.                                                 
|                    |  |                                                                         
|                    |  | Robert C. Lamb, Jr.
Executive Vice President and Chief Financial Officer

91