SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 8-K
CURRENT REPORT
Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
Date of Report (Date of earliest event reported): March 25, 1996
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FLEET FINANCIAL GROUP, INC.
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(Exact name of registrant as specified in its charter)
RHODE ISLAND
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(State or other jurisdiction of incorporation)
1-6366 05-0341324
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(Commission File Number) (IRS Employer
Identification No.)
One Federal Street, Boston, Massachusetts 02110
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 617-292-2000
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<PAGE>
Item 5. Other Events.
------------
On December 19, 1995, Fleet entered into an Agreement and Plan of
Merger (the "Merger Agreement") with National Westminster Bank Plc
("NatWest Plc") providing for the merger (the "Merger") of Fleet Bank of
New York, National Association ("FBNY"), a wholly-owned subsidiary of
Fleet, with and into NatWest Bank N.A. ("Natwest") which shall continue its
existence as the surviving bank under the name "Fleet Bank of New York,
National Association". Pursuant to the terms of the Merger Agreement, Fleet
will purchase from NatWest Plc the three main operating entities of NatWest
Bancorp (Bancorp), a wholly-owned, indirect subsidiary of NatWest Plc: NatWest
Bank N.A., NatWest (Delaware) and NatWest Services Inc. The Merger Agreement
also requires that certain assets and liabilities of NatWest will be retained
by Bancorp or transferred to other affiliates of NatWest Plc. NatWest is a
wholly-owned, direct subsidiary of National Westminster Bancorp NJ, a New
Jersey corporation, which is a wholly-owned, direct subsidiary of National
Westminster Bancorp, Inc., a Delaware corporation ("Bancorp"). Bancorp is a
wholly-owned, indirect subsidiary of NatWest Plc.
Fleet hereby files the Consolidated Statements of Condition of Bancorp at
December 31, 1995 and 1994 and the related Consolidated Statements of
Operations, Changes in Equity Capital and Cash Flows for each of the three
years in the period ending December 31, 1995 and Notes thereto.
For additional information regarding the Merger, see the Registrant's
Current Report on Form 8-K dated December 19, 1995, February 8, 1996 and
March 15, 1996.
Item 7. Financial Statements and Exhibits.
---------------------------------
The following exhibits are filed as part of this report:
23 Consent of KPMG Peat Marwick LLP
99(a) Consolidated Statements of Condition of Bancorp as of
December 31, 1995 and 1994; Bancorp's Consolidated
Statements of Operations, Consolidated Statements of
Changes in Equity Capital and Consolidated Statements of
Cash Flows for the years ended December 31, 1995, 1994
and 1993 and Notes thereto.
2
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, as amended, the Registrant has duly caused this report to be signed in
its behalf by the undersigned hereunto duly authorized.
FLEET FINANCIAL GROUP, INC.
Registrant
By /s/ Robert C. Lamb, Jr.
---------------------------
Robert C. Lamb, Jr.
Chief Accounting Officer
and Controller
Dated: March 25, 1996
<PAGE>
EXHIBIT INDEX
Filing
Exhibit No. Description Method
- ----------- ----------- ------
23 Consent of KPMG Peat Marwick LLP
99(a) Consolidated Statements of Condition of Bancorp as of
December 31, 1995 and 1994; Bancorp's Consolidated
Statements of Operations, Consolidated Statements of
Changes in Equity Capital and Consolidated Statements of
Cash Flows for the years ended December 31, 1995, 1994
and 1993.
Exhibit 23
INDEPENDENT AUDITORS' CONSENT
The Board of Directors
National Westminster Bancorp Inc.
We consent to incorporation by reference in the registration statements
(Nos. 33-19425, 33-22045, 33-48818, 33-56061, 33-57501, 33-57677, 33-62367,
33-58933, 33-64635 and 33-59139) on Form S-8, the registration statements
(Nos. 33-36707, 33-55555, 33-58933, and 333-00701)on Form S-3, and the
registration statements (Nos. 33-55579, 33-58573, and 33-58933) on Form S-4
of Fleet Financial Group, Inc. of our report dated January 18, 1996 relating
to the consolidated statement of condition of National Westminster Bancorp
Inc. and Subsidiaries as of December 31, 1995 and 1994 and the related
consolidated statements of operations, changes in equity capital and cash flows
for each of the years in the three-year period ended December 31, 1995, which
report appears in the Current Report on Form 8-K of Fleet Financial Group, Inc.
dated March 25, 1996. Our report refers to changes in the methods of accounting
for investments and accounting for postretirement benefits other than pensions.
/s/ KPMG Peat Marwick LLP
- -------------------------
KPMG Peat Marwick LLP
New York, New York
March 25, 1996
EXHIBIT 99(a)
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Consolidated Financial Statements
December 31, 1995, 1994 and 1993
(With Independent Auditors' Report Thereon)
<PAGE>
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Index
Page
----
Independent Auditors' Report
National Westminster Bancorp Inc. and Subsidiaries
Consolidated Statement of Condition -
December 31, 1995 and 1994 . . . . . . . . . . . . . . . . . . . . . 1
Consolidated Statement of Operations -
Years Ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . 2
Consolidated Statement of Changes in Equity Capital
Years Ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . 3
Consolidated Statement of Cash Flows -
Years Ended December 31, 1995, 1994 and 1993 . . . . . . . . . . . . 4
Notes to Consolidated Financial Statements . . . . . . . . . . . . . 6
<PAGE>
Independent Auditors' Report
----------------------------
To the Stockholder and Board of Directors of
National Westminster Bancorp Inc.
We have audited the accompanying consolidated statement of condition of National
Westminster Bancorp Inc. and Subsidiaries (the Company) as of December 31, 1995
and 1994, and the related consolidated statements of operations, changes in
equity capital, and cash flows for each of the years in the three-year period
ended December 31, 1995. These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express
an opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards 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. An audit also includes
assessing the accounting principles used and the significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of National Westminster
Bancorp Inc. and Subsidiaries as of December 31, 1995 and 1994, and the results
of their operations and their cash flows for each of the years in the three-year
period ended December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Notes A and E to the consolidated financial statements, the
Company changed its method of accounting for investments to adopt the provisions
of the Financial Accounting Standards Board's Statement of Financial Accounting
Standards (SFAS) No. 115, "Accounting for Certain Investments in Debt and Equity
Securities" in 1994. In addition, as discussed in Note L to the consolidated
financial statements, the Company adopted the provisions of the Financial
Accounting Standards Board's (SFAS) No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" in 1993.
/s/ KPMG Peat Marwick LLP
- -------------------------
KPMG Peat Marwick LLP
January 18, 1996
New York, New York
<PAGE>
Page 1
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Consolidated Statement of Condition
December 31, 1995 and 1994
(Amounts in Thousands except Share Amounts)
________________________________________________________________________________
1995 1994
- --------------------------------------------------------------------------------
Assets
Cash and due from banks (Note D) $ 1,519,565 $1,327,644
Interest bearing deposits with banks 502,173 1,140,676
Securities (Notes E, M and N)
Held to maturity (at amortized cost) - 2,877,357
Available for sale (at fair value) 3,036,185 1,759,177
Trading account (Note N) 1,279,523 745,692
Federal funds sold and securities purchased under
agreements to resell 2,965,211 1,887,013
Loans, net of unearned income
of $112,039 and $266,789 14,427,823 15,298,063
Allowance for loan losses (258,235) (289,002)
- --------------------------------------------------------------------------------
Loans, net (Notes F, M and N) 14,169,588 15,009,061
Mortgages available for sale 3,784,082 -
(Notes B, F, M and N)
Goodwill (Note C) 982,371 849,368
Premises and equipment, net (Note G) 542,658 452,784
Due from customers on acceptances 174,902 127,639
Other assets (Note L) 659,103 912,956
- --------------------------------------------------------------------------------
Total assets $29,615,361 $27,089,367
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================================================================================
LIABILITIES AND EQUITY CAPITAL
Deposits
Domestic offices
Demand $ 4,866,178 $ 4,570,954
Retail savings and time 11,471,533 11,156,970
Other domestic time 2,456,860 1,366,856
Foreign offices 2,211,052 1,917,927
- --------------------------------------------------------------------------------
Total 21,005,623 19,012,707
Short-term borrowed funds (Note H) 3,914,930 4,157,644
Long-term debt (Note I) 653,516 597,828
Acceptances outstanding 178,467 139,927
Accounts payable and accrued
liabilities (Note J) 627,383 494,845
- --------------------------------------------------------------------------------
Total liabilities 26,379,919 24,402,951
- --------------------------------------------------------------------------------
Equity Capital (Note K)
Common stock, no par value; (1,500 shares
authorized; 1,000 shares issued
and outstanding)
500,000 500,000
Surplus 2,478,128 2,265,065
Retained earnings/(accumulated deficit) 255,295 (50,327)
Unrealized gains (losses) on available for sale
securities (Note E) 2,019 (28,322)
- --------------------------------------------------------------------------------
Total equity capital 3,235,442 2,686,416
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Total liabilities and equity capital $29,615,361 $27,089,367
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Notes to consolidated financial statements appear on pages 6 through 43.
<PAGE>
Page 2
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Consolidated Statement of Operations
Years Ended December 31, 1995, 1994 and 1993
<TABLE><CAPTION>
(Amounts in Thousands)
_____________________________________________________________________________________________________
1995 1994 1993
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
INTEREST INCOME:
Loans (Note F) $1,508,337 $1,182,219 $1,054,117
Securities 309,847 212,145 187,399
Trading account 76,088 72,866 37,621
Deposits with banks, Federal funds sold and
securities purchased under agreements to resell 255,811 137,236 80,084
- -----------------------------------------------------------------------------------------------------
Total interest income 2,150,083 1,604,466 1,359,221
- -----------------------------------------------------------------------------------------------------
INTEREST EXPENSE:
Deposits 619,296 375,198 373,943
Short-term borrowed funds (Note H) 420,403 226,089 123,993
Long-term debt (Note I) 60,861 59,928 63,128
- -----------------------------------------------------------------------------------------------------
Total interest expense 1,100,560 661,215 561,064
- -----------------------------------------------------------------------------------------------------
Net interest income 1,049,523 943,251 798,157
Provision for loan losses (Note F) 95,000 81,467 135,298
- -----------------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 954,523 861,784 662,859
- -----------------------------------------------------------------------------------------------------
NON-INTEREST INCOME:
Service charges on deposit accounts 139,723 119,873 113,986
Credit card fees 40,732 34,989 27,473
Syndication and other loan related fees 36,470 35,386 52,511
Gain on sale of credit card loans 22,264 - -
Letter of credit and acceptance fees 20,368 21,126 21,953
Securities trading and foreign exchange (Note P) 18,351 19,342 16,000
Trust and custody fees 15,723 13,834 14,707
Gain on sale of mortgage loans 15,417 - -
Insurance and investment products 15,332 14,050 12,403
Gain on sale of mortgage-backed securities (Note E) 30,007 - -
Other securities gains (Note E) 60,344 7,657 63,510
Other 102,947 76,662 81,507
- -----------------------------------------------------------------------------------------------------
Total non-interest income 517,678 342,919 404,050
- -----------------------------------------------------------------------------------------------------
OPERATING EXPENSES:
Salaries and benefits (Note L) 458,629 448,250 405,010
Supplies and services 168,752 141,498 135,356
Net occupancy (Notes G and M) 83,187 74,233 71,429
Business development 56,273 49,102 41,186
Equipment (Note G) 53,790 42,512 39,256
FDIC Insurance 21,176 34,384 36,623
Restructuring (Note Q) 9,921 10,000 -
Foreclosed assets (Note F) 5,666 4,875 30,305
Amortization of goodwill (Note C) 72,053 42,670 36,992
Other 35,676 30,461 18,226
- -----------------------------------------------------------------------------------------------------
Total operating expenses 965,123 877,985 814,383
- -----------------------------------------------------------------------------------------------------
Income before income taxes 507,078 326,718 252,526
Provision (benefit) for income taxes (Note J) 201,456 28,120 (45,566)
- -----------------------------------------------------------------------------------------------------
Net income $ 305,622 298,598 298,092
- -----------------------------------------------------------------------------------------------------
</TABLE>
Notes to consolidated financial statements appear on pages 6 through 43.
<PAGE>
Page 3
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Consolidated Statement of Changes in Equity Capital
Years Ended December 31, 1995, 1994 and 1993
<TABLE><CAPTION>
(Amounts in Thousands except Share Amounts)
- -----------------------------------------------------------------------------------------------------
Retained
Earnings/ Unrealized
Common (Accumulated Gains and
Stock Surplus Deficit) (Losses) Total
- -----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1993 $500,000 $1,998,287 $(647,017) $1,851,270
Net income 298,092 298,092
- -----------------------------------------------------------------------------------------------------
Balance, December 31, 1993 500,000 1,998,287 (348,925) 2,149,362
Net income 298,598 298,598
Cash dividends paid (Notes C and K) (240,000) (240,000)
Capital contributions (Notes C and K) 506,778 506,778
Adjustment to beginning balance for
change in accounting principle, net
of related tax effect of $4,379 (Note E) $ 6,005 6,005
Change in unrealized gains and (losses)
on available for sale securities,
net of related tax effect of $25,493
(Note E) (34,737) (34,737)
- -----------------------------------------------------------------------------------------------------
Balance, December 31, 1994 500,000 2,265,065 (50,327) (28,322) 2,686,416
Net income 305,622 305,622
Cash dividends paid (Notes C and K) (91,500) (91,500)
Capital contributions (Notes C and K) 304,563 304,563
Change in unrealized gains and (losses)
on available for sale securities,
net of related tax effect of $22,633
(Note E) 30,341 30,341
- -----------------------------------------------------------------------------------------------------
Balance, December 31, 1995
(1,500 shares authorized; 1,000
shares issued and outstanding) $500,000 $2,478,128 $255,295 $ 2,019 $3,235,442
- -----------------------------------------------------------------------------------------------------
</TABLE>
Notes to consolidated financial statements appear on pages 6 through 43.
<PAGE>
Page 4
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows
Years Ended December 31, 1995, 1994 and 1993
(Amounts in Thousands)
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
Operating Activities:
Net income $ 305,622 $298,598 $298,092
Adjustments to reconcile net income to net
cash provided by operating activities:
Amortization of goodwill 72,053 42,670 36,992
Depreciation of premises and equipment 52,041 41,271 38,569
Provision for loan losses 95,000 81,467 135,298
Provision and charge-offs for foreclosed
assets 3,382 2,915 20,364
Amortization of discount on securities (6,444) (16,729) (3,082)
Amortization of unearned income on loans (74,596) (143,376) (154,414)
Provision (benefit) for deferred income
taxes 101,061 2,508 (62,309)
Securities gains (90,351) (7,657) (63,510)
Gain on sale of credit card loans (22,264) - -
Gain on sale of mortgage loans (15,417) - -
Premises and equipment (gains) losses 516 (7,044) (366)
(Increase) decrease in interest and other
income receivables 182,737 (158,885) (1,372)
Increase (decrease) in interest and other
expenses payables (7,717) 157,491 73,061
Net (increase) decrease in trading account (533,831) 80,370 (253,789)
Other, net 99,967 (21,332) 32,967
- --------------------------------------------------------------------------------
Net cash provided by operating activities 161,759 352,267 96,501
- --------------------------------------------------------------------------------
Investing Activities:
Net (increase) decrease in interest bearing
deposits with banks 638,503 (76,371) 100,466
Net increase in Federal funds sold and
securities purchased under agreements to
resell (1,060,898) (264,592) (77,755)
Purchases of securities held to maturity (1,757,923)(1,397,947) (1,565,427)
Proceeds from maturities of securities
held to maturity 733,429 786,261 956,374
Purchases of securities available for sale (7,644,803)(4,692,923) (7,612,732)
Proceeds from maturities of securities
available for sale 1,303,615 3,628,971 981,620
Proceeds from the sale of securities 9,926,612 1,510,434 6,559,203
Purchase of credit card loans - - (5,923)
Proceeds from the sale of credit card loans 479,181 - -
Purchase of residential mortgages (2,200,574) - -
Proceeds from the sale of residential
mortgages 462,806 - -
Net principal received (disbursed) on loans (917,459) 358,578 (39,099)
Net (increase) decrease in acceptances (8,723) 3,271 1,352
Capital expenditures on premises and
equipment (69,098) (65,725) (49,811)
Proceeds from the sale of premises and
equipment 2,598 13,354 1,235
Cash received from the purchase of Citizens
First - 161,302 -
Cash received from the purchase of Central
Jersey 104,438 - -
- --------------------------------------------------------------------------------
Net cash used in investing activities (8,296)(35,387)(750,497)
- --------------------------------------------------------------------------------
(continued)
<PAGE>
(continued)
Page 5
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Consolidated Statement of Cash Flows (Continued)
Years Ended December 31, 1995, 1994 and 1993
(Amounts in Thousands)
________________________________________________________________________________
1995 1994 1993
- --------------------------------------------------------------------------------
Financing Activities:
Net increase (decrease) in demand deposits $ 16,879 $ (9,485) $ 284,373
Net decrease in retail savings and time
deposits (1,005,482) (454,316) (180,649)
Net increase (decrease) in other domestic
time deposits 1,090,004 673,412 (367,686)
Net increase (decrease) in foreign office
deposits 293,125 (307,890) 383,466
Net increase (decrease) in short-term
borrowed funds (291,211) 378,999 517,847
Repayment of long-term debt (3,357) (13,397) (25,073)
Dividends paid to NatWest Holdings (91,500) (240,000) -
Proceeds of capital contribution from
NatWest Holdings 30,000 - -
- --------------------------------------------------------------------------------
Net cash provided by financing activities 38,458 27,323 612,278
- --------------------------------------------------------------------------------
Increase (decrease) in cash and due from
banks 191,921 344,203 (41,718)
Cash and due from banks at January 1 1,327,644 983,441 1,025,159
- --------------------------------------------------------------------------------
Cash and due from banks at December 31 $1,519,565 $1,327,644 $ 983,441
================================================================================
For the years ended December 31, 1995, 1994 and 1993, income tax payments
totaled $93,918,000, $12,800,000 and $19,818,000, respectively, and interest
payments totaled $1,051,574,000, $570,205,000 and $566,037,000, respectively.
Notes to consolidated financial statements appear on pages 6 through 43.
<PAGE>
Page 6
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
National Westminster Bancorp, Inc. (NatWest Bancorp), headquartered in Jersey
City, is a holding company whose major operating affiliates, NatWest Bank N.A.,
NatWest Bank (Delaware) and NatWest Services Inc. serve the financial needs of
individuals, small businesses and mid-size and large corporations. NatWest
Bancorp, is a wholly owned subsidiary of NatWest Holdings Inc. (NatWest
Holdings) which is a wholly owned subsidiary of the U.K.-based National
Westminster Bank Plc (NatWest Plc) of London. As a wholly owned subsidiary of
NatWest Plc, NatWest Bancorp is a member of one of the world's largest financial
services organizations.
NatWest Bank N.A. operates branches and automated teller machines in New York
City, Long Island, Westchester County and New Jersey. NatWest Bank N.A. offers
an extensive line of consumer products, mortgages, investment products, and
private banking services. NatWest Bank N.A. provides banking services to
businesses located in New Jersey, New York City, Long Island, Westchester
County, Connecticut and eastern Pennsylvania.
NatWest Bank N.A. was formed on January 1, 1995 as a result of the merger of
National Westminster Bank USA (NatWest USA) into National Westminster Bank NJ
(NatWest NJ).
NatWest Bank (Delaware) is headquartered in Wilmington, Delaware and was formed
in February 1995. It engages principally in consumer lending on a nationwide
basis and offers a full range of services including credit cards, lines of
credit, installment loans, student loans and home equity loans.
NatWest Services Inc. is the operations and servicing facility for NatWest Bank
N.A. and NatWest Bank (Delaware).
On December 19, 1995, NatWest Plc announced a definitive agreement to sell these
three main operating affiliates of NatWest Bancorp to Fleet Financial Group.
(See Note B).
(A)Summary of Significant Accounting Policies
------------------------------------------
The following are the significant accounting policies of NatWest Bancorp.
These policies conform with generally accepted accounting principles and with
general practice in the banking industry. The preparation of financial
statements in conformity with generally accepted accounting principles
requires management to make estimates and assumptions that affect the reported
amounts of assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements and the reported amounts
of revenues during the reporting period. Actual results could differ from
those estimates. All significant intercompany accounts and transactions have
been eliminated. Prior period financial statements have been restated where
necessary to conform with current year classifications.
Statement of Cash Flows
-----------------------
For the purpose of calculating cash flows, all accounts classified as Cash and
Due from Banks on the Statement of Condition are considered cash and cash
equivalents.
<PAGE>
Page 7
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(A) Continued
Securities
----------
NatWest Bancorp adopted the provisions of Financial Accounting Standards Board
(FASB) Statement No. 115 - "Accounting for Certain Investments in Debt and
Equity Securities" (SFAS 115) on January 1, 1994. SFAS 115 requires that debt
and equity securities be classified as either held to maturity, available for
sale or trading account assets. The classification of securities is
determined by management at acquisition, and is subsequently reassessed at
each reporting date.
Debt securities purchased with both positive intent and ability to hold to
maturity are classified as held to maturity. These securities are stated at
cost, adjusted for amortization of premium and accretion of discount, computed
using the level yield method. Such amortization or accretion is included
within interest income from securities.
Debt and equity securities purchased for interest rate sensitivity and
liquidity purposes that might be sold prior to maturity are classified as
available for sale. In compliance with SFAS 115 such securities are stated at
fair value with any unrealized gains or losses included as a separate
component of equity capital, net of the effect of applicable income taxes.
Realized gains and losses on sales and declines in value which are judged to
be other than temporary are included in Securities Gains in the Consolidated
Statement of Operations.
The cost of all securities sold is determined on a specific identification
basis.
Trading Account
---------------
Trading account assets are comprised of securities and certain loans. Trading
account assets are carried at fair value, with gains and losses, both realized
and unrealized, reflected currently in non-interest income. Interest is
recorded as interest income.
Derivatives Carried at Fair Value
---------------------------------
Derivatives are financial instruments whose value is derived from the value of
an underlying asset, reference rate or index. Derivative contracts that do
not qualify for hedge accounting are carried at fair value. At December 31,
1995, these included NatWest Bancorp's offset swap portfolio with NatWest Plc
(see Note P), as well as derivative contracts entered into on behalf of
customers and, to a lesser extent, to trade for NatWest Bancorp's own account.
These derivatives are marked to market and adjustments to value are included
in the Consolidated Statement of Operations. The resulting gross fair value
amounts are included within the other assets and accounts payable and accrued
liabilities in the Consolidated Statement of Condition.
Derivatives carried at fair value include interest rate swap agreements,
forward and futures contracts, options and cap and floor agreements.
<PAGE>
Page 8
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(A) Continued
Derivatives Held for Asset and Liability Management
---------------------------------------------------
Derivatives used in the management of interest rate exposures, and that meet
the criteria for hedge accounting, are accounted for primarily on an accrual
basis. For contracts used to manage interest rate risk, income and expense
are accrued based upon expected settlement payments and are recorded as an
adjustment to interest income and expense. In December 1995, NatWest Bancorp
closed out its swap portfolio by entering into exactly offsetting contracts.
This portfolio is now carried at fair value. For derivatives that qualify as
hedges of existing assets and liabilities, unrealized gains and losses are
deferred and are ultimately recognized as income or expense over the life of
the hedged asset or liability. Gains and losses on early termination of
hedging contracts are deferred and recognized as an adjustment to yield over
the expected remaining life of the related hedging contracts.
Loans
-----
On January 1, 1995, NatWest Bancorp adopted FASB Statement No. 114 -
"Accounting by Creditors for Impairment of a Loan" (SFAS 114) as amended by
FASB Statement No. 118 - "Accounting by Creditors for Impairment of a Loan -
Income Recognition and Disclosure" (SFAS 118). SFAS 114, as amended,
prescribes the recognition criterion for loan impairment and the measurement
methods for certain impaired loans and loans whose terms are modified in a
troubled debt restructuring (a "restructured loan"). It does not apply to
groups of smaller-balance homogeneous loans that are collectively evaluated
for impairment (mostly consumer loans). Under this standard, a loan is
considered to be impaired when, based on current information and events,
management considers it probable that all amounts contractually due under the
terms of the loan agreement will not be recovered. For those loans subject to
SFAS 114, impairment is measured based on either the present value of future
cash flows discounted at the loan's effective interest rate or the observable
market price of the loan, or, for collateral dependent loans, at the market
value of the collateral. SFAS 114 does not affect the timing of charge-offs.
Generally, NatWest Bancorp defines impaired loans as non-accrual loans,
accruing loans with specific reserves and certain restructured loans,
excluding those consumer loans that are collectively evaluated for impairment.
In accordance with SFAS 114, prior periods have not been restated.
Loans are generally carried at the principal amount outstanding, net of any
unearned income. Loans are placed in non-accrual status when contractually
past due 90 days or more as to interest or principal payments, or sooner when,
in the judgment of management, they should be placed in non-accrual status.
Previously accrued and uncollected interest on such loans is reversed and
income is generally recorded only when payment is received. When full
collectibility of the loan balance is in doubt, interest payments received are
applied to the principal balance. Loans are returned to accrual status only
when the ultimate collectibility of contractual principal and interest is not
in doubt. Consumer loans not placed in non-accrual status when contractually
past due 90 days or more are charged off when ultimate collectibility is in
doubt. Depending upon the type of loan and corresponding collateral, charge-
offs take place when accounts are delinquent for 120 to 180 days.
<PAGE>
Page 9
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(A) Continued
Loan-related fees and costs are deferred and amortized to income over the
corresponding loan or commitment period or, alternatively, are recognized as
income when received in accordance with generally accepted accounting
principles.
Mortgage loans available for sale are carried at the lower of cost or market.
Premises and Equipment
----------------------
Buildings, equipment and leasehold improvements are stated at cost, less
accumulated depreciation and amortization. Land is reported at cost.
Depreciation and amortization are computed on a straight-line basis over the
estimated useful life of the asset.
In March 1995 FASB issued Statement No. 121 "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of" (SFAS 121).
SFAS 121 requires that long-lived assets and certain identifiable intangibles
to be held and used by an entity be reviewed for impairment whenever events or
changes in circumstances indicate that the carrying amount of an asset may not
be recoverable. In addition, the Statement requires long-lived assets and
certain identifiable intangibles to be disposed of to be reported at the lower
of carrying amount or fair value less cost to sell.
NatWest Bancorp adopted SFAS 121 effective January 1, 1996. The adoption of
the Statement is not expected to have a material impact on the financial
statements.
Intangibles
-----------
The excess of cost over fair value of net assets acquired in bank acquisitions
(goodwill) is amortized on a straight-line basis over the estimated benefit
periods, which range from 15 years to 25 years. Other intangibles are
amortized over the estimated benefit periods, which range from 5 years to 15
years.
Effective June 1, 1995 NatWest Bancorp adopted FASB Statement No. 122
"Accounting for Mortgage Servicing Rights" (SFAS 122). The Statement amends
SFAS 65 to require that a mortgage banking enterprise recognize as separate
assets the rights to service mortgage loans for others, however those
servicing rights are acquired. SFAS 122 also requires the assessment of
capitalized mortgage servicing rights for impairment to be based on the
current fair value of those rights. Mortgage servicing rights are amortized
in proportion to and over the period of the estimated net servicing income.
Foreclosed Assets
-----------------
Foreclosed assets are comprised of real estate and other assets acquired in
legal foreclosure. These assets are stated at the lower of cost or fair
value, less selling expenses. A valuation reserve is established for
temporary declines in fair value. Charge-offs are recorded when declines are
considered other than temporary. Net operating expenses on such assets are
charged to foreclosed asset expense in the Consolidated Statement of
Operations.
<PAGE>
Page 10
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(A) Continued
Provision for Loan Losses
-------------------------
Provision for loan losses represents the amount which, in management's
judgment, is necessary to maintain the allowance for loan losses at an
appropriate level. This judgment is based on the nature and characteristics
of the loan portfolio, current delinquencies, past charge-off experiences and
general economic conditions and trends. The provision includes the allowance
necessary to cover SFAS 114 impairment. Accounts are charged off when
probability of loss is established, taking into consideration such factors as
the customer's financial condition, underlying collateral and guarantees. The
adoption of SFAS 114 did not result in any increase in the level of the
provision for loan losses.
Retirement Benefits and Savings and Investment Plans
----------------------------------------------------
NatWest Bancorp funds a non-contributory defined benefit retirement plan
covering substantially all employees. The cost of the retirement benefit plan
is calculated in accordance with FASB Statement No. 87 - "Employers'
Accounting for Pensions".
NatWest Bancorp provides certain medical and life insurance benefits to its
retirees and their dependents. The cost of the retirement benefits plan is
calculated in accordance with FASB Statement No. 106 - "Employers' Accounting
for Postretirement Benefits Other Than Pensions".
NatWest Bancorp also offers a matched employee contribution savings and
investment plan covering substantially all employees. The cost of the savings
and investment plan is charged to expense and funded annually.
Foreign Exchange
----------------
Foreign exchange assets and liabilities are translated into U.S. dollars at
year-end exchange rates. Forward contracts are translated into U.S. dollars
at prevailing exchange rates. Gains and losses are reflected in income
currently.
Income Taxes
------------
The income tax provision and corresponding current and deferred tax assets and
liabilities are accounted for under provisions of FASB Statement No. 109 -
"Accounting for Income Taxes" (SFAS 109).
Under SFAS 109, deferred tax assets and liabilities are recognized for future
tax consequences attributable to differences between financial statement
carrying amounts of existing assets and liabilities and their respective tax
bases. A valuation allowance is established when necessary to adjust the net
deferred tax asset to a level that is likely to be recognized. Deferred tax
assets and liabilities are measured using enacted tax rates, which represent
the rates expected to be in effect when the temporary differences reverse.
Under SFAS 109, the effect of a change in tax rates on deferred tax assets and
liabilities is recognized in earnings in the period in which the change
occurs.
<PAGE>
Page 11
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(B)Sale of NatWest Bancorp
-----------------------
On December 19, 1995, NatWest Plc announced a definitive agreement to sell the
three main operating entities of NatWest Bancorp-NatWest Bank N.A., NatWest
(Delaware) and NatWest Services Inc.- and certain other assets and liabilities
to Fleet Financial Group (FFG). The sale, which is subject to regulatory
approval, is expected to close in the second quarter of 1996.
Terms of the transaction call for an initial payment, which will be dependent
on the tangible net asset value of the three main operating entities to be
sold, of approximately $2.7 billion. The agreement also calls for additional
deferred consideration of up to $560 million. The deferred consideration
involves annual payments from FFG to NatWest Plc equal to approximately 50
percent of the net income from the NatWest franchise over a maximum of eight
years.
The transaction excludes certain NatWest Bancorp subsidiaries with assets of
approximately $215 million, the parent company only assets and liabilities of
NatWest Bancorp and NatWest Bancorp NJ, a loan portfolio of approximately $315
million (net of the allowance for loan losses), and 175 Water Street-a
building in downtown Manhattan with a net book value of approximately $85
million.
As part of the sale agreement, NatWest Bancorp agreed to sell a substantial
portion of its residential mortgage portfolio. In conjunction with this
agreement, mortgage loans totaling approximately $3.8 billion were classified
as "mortgages available for sale" at December 31, 1995 and were carried at
historical cost which was less than market value.
Additionally, pursuant to the sale agreement NatWest Bancorp closed out its
asset and liability management swap portfolio by entering into interest rate
swaps with NatWest Plc that offset its existing swap hedge portfolio (see
footnote P). In consideration for entering the offsetting agreements, a
premium of $209 million was received by NatWest Bancorp. The premium was
deferred and is being amortized over the remaining life of the liquidated
swaps. Upon settlement of the sale of NatWest Bancorp, FFG will pay to
NatWest Plc an amount equal to the unamortized portion of the premium net of
applicable income taxes.
<PAGE>
Page 12
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(C)Acquisitions
------------
On June 30, 1994, NatWest Bancorp announced the execution of a definitive
merger agreement with Central Jersey Bancorp, Inc. (Central Jersey). The
acquisition was approved by the shareholders of Central Jersey and by the bank
regulatory agencies and was consummated on January 14, 1995. In consideration
of the merger, the holders of Central Jersey issued and outstanding common
stock, at their option, received $33.50 in cash or an equivalent value in
NatWest Plc American Depository Receipts (ADRs). The resultant aggregate
purchase price was $276,060,000. This included previously acquired stock in
the amount of $3,343,000.
In connection with the acquisition the ownership interest in Central Jersey
Bank & Trust Company was contributed from NatWest Holdings to NatWest Bancorp.
In connection with this transaction, NatWest Bancorp paid a $91,500,000
dividend to NatWest Holdings.
The acquisition was accounted for under the purchase method of accounting
whereby Central Jersey assets of approximately $1.8 billion and liabilities of
approximately $1.6 billion were recorded at their fair value. This
acquisition resulted in goodwill of $206,321,000 which is being amortized on a
straight-line basis over an estimated benefit period of 15 years.
On March 21, 1994, NatWest Bancorp announced the execution of a definitive
merger agreement with Citizens First Bancorp, Inc. (Citizens First). The
acquisition was approved by the shareholders of Citizens First and by the bank
regulatory agencies and was consummated on October 1, 1994. In consideration
of the merger, the holders of Citizens First issued and outstanding common
stock, at their option, received $9.75 per share in cash or 0.22034 NatWest
Plc American Depository Receipts (ADRs) per share. Each ADR represented six
ordinary shares of NatWest Plc. The resultant aggregate purchase price was
$506,778,000.
In connection with the acquisition, the ownership interest in Citizens First
National Bank of New Jersey was contributed from NatWest Holdings to NatWest
Bancorp. In connection with this transaction, NatWest Bancorp paid a
$240,000,000 dividend to NatWest Holdings.
The acquisition was accounted for under the purchase method of accounting
whereby Citizens First assets of approximately $2.5 billion and liabilities of
approximately $2.2 billion were recorded at their fair value. This
acquisition resulted in goodwill of $340,739,000 which is being amortized on a
straight-line basis over an estimated benefit period of 15 years.
(D)Cash and Due From Banks
-----------------------
Federal Reserve regulations require depository institutions to maintain cash
reserves with the Federal Reserve. The average amount of reserve balances was
$304,587,000 and $242,564,000 during 1995 and 1994, respectively.
<PAGE>
Page 13
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(E)Securities
----------
NatWest Bancorp adopted the provisions of FASB Statement No. 115 - "Accounting
for Certain Investments in Debt and Equity Securities" (SFAS 115) on January
1, 1994.
<TABLE><CAPTION>
(Amounts in Thousands)
- ---------------------------------------------------------------------------------------------------
Gross Gross
Amortized unrealized unrealized Approximate
December 31, 1995 cost gains losses market
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Available for Sale
U.S. Treasury securities and obliga-
tions of U.S. government agencies $2,477,775 $ 2,163 $1,078 $2,478,860
Obligations of states and
political subdivision 477,631 2,438 28 480,041
Foreign government securities 7,870 - 141 7,729
Equity securities 69,372 183 - 69,555
- ---------------------------------------------------------------------------------------------------
Total $3,032,648 $4,784 $ 1,247 $3,036,185
===================================================================================================
December 31, 1994
- ---------------------------------------------------------------------------------------------------
Held to Maturity
U.S. Treasury securities and obliga-
tions of U.S. government agencies $2,843,898 $ 81 $148,818 $2,695,161
Obligations of states and
political subdivisions 1,699 37 - 1,736
Foreign government securities 10,870 - - 10,870
Corporate debt securities 8,978 50 20 9,008
Mortgage-backed securities 11,912 51 3 11,960
- ---------------------------------------------------------------------------------------------------
Total $2,877,357 $ 219 $148,841 $2,728,735
===================================================================================================
Available for Sale
U.S. Treasury securities and obliga-
tions of U.S. government agencies $1,751,796 $ 32 $53,651 $1,698,177
Equity securities 56,818 4,182 - 61,000
- ---------------------------------------------------------------------------------------------------
Total $1,808,614 $4,214 $53,651 $1,759,177
===================================================================================================
</TABLE>
<PAGE>
Page 14
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(E)Continued
The amortized cost and approximate market value by contractual maturity of
debt securities held to maturity and available for sale are shown below.
Expected maturities will differ from contractual maturities because borrowers
may have the right to call or prepay obligations with or without call or
prepayment penalties.
<TABLE><CAPTION>
(Amounts in Thousands)
- ---------------------------------------------------------------------------------------------------
Amortized Approximate Amortized Approximate
cost fair value cost fair value
- ---------------------------------------------------------------------------------------------------
December 31 1995 1994
- ---------------------------------------------------------------------------------------------------
Held to Maturity
- ----------------
<S> <C> <C> <C> <C>
Due in one year or less $ - $ - $ 548,594 $ 540,844
Due after one year
through five years - - 2,015,357 1,894,564
Due after five years
through ten years - - 94,479 93,736
Due after ten years - - 22 21
- ---------------------------------------------------------------------------------------------------
- - 2,658,452 2,529,165
Mortgage-backed securities - - 218,905 199,570
- ---------------------------------------------------------------------------------------------------
Total $ - $ - $2,877,357 $2,728,735
===================================================================================================
Available for Sale
- ------------------
Due in one year or less $2,873,153 $2,874,826 $ 741,031 $ 736,630
Due after one year
through five years 67,843 68,185 986,100 939,734
Due after five years
through ten years 18,611 19,575 24,665 21,813
Due after ten years 3,669 4,044 - -
Total $2,963,276 $2,966,630 $1,751,796 $1,698,177
===================================================================================================
</TABLE>
Proceeds from the sale of securities during 1995 were $9,926,612,000. Gross
realized gains of $98,514,000 and gross realized losses of $8,163,000 were
recorded on these sales.
During the fourth quarter of 1995, NatWest Bancorp transferred $3,387,121,000
from securities held to maturity to securities available for sale as the FASB
permitted a one time opportunity for institutions to reassess the
appropriateness of the designation of all securities.
<PAGE>
Page 15
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(E)Continued
Proceeds from the sale of available for sale securities during 1994 were
$1,510,434,000. Gross realized gains of $8,370,000 and gross realized losses
of $2,805,000 were recorded on these sales. There were no sales of held to
maturity securities during 1994. There were no transfers of securities from
the available for sale category to the trading category during 1994.
Proceeds from sales of debt securities held as available for sale during 1993
were $6,559,203,000. Gross gains of $75,817,000 and gross losses of
$12,184,000 were realized on these sales. There were no sales of equity
securities or of debt securities held to maturity during 1993.
Net unrealized gains (losses) on available for sale securities included as a
separate component of equity capital, net of the effect of applicable income
taxes, totaled $30,341,000 in unrealized gains for the year ended December 31,
1995 and $34,327,000 in unrealized losses for the year ended December 31,
1994.
Total securities of any state (including all of its political subdivisions)
were less than 10% of equity capital at December 31, 1995 and 1994.
<PAGE>
Page 16
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(F) Loans and Allowance for Loan Losses
-----------------------------------
The following table is a summary by type of loan:
(Amounts in Thousands)
- ------------------------------------------------------------------------------
December 31 1995 1994
- ------------------------------------------------------------------------------
Domestic
Business
Commercial and financial $ 8,170,486 $ 8,009,779
Real estate construction 248,212 235,211
Commercial mortgage 2,540,489 2,431,877
Lease financing 225,395 218,829
- ------------------------------------------------------------------------------
Total Business 11,184,582 10,895,696
- ------------------------------------------------------------------------------
Consumer
Residential mortgage and home equity 1,449,180 2,424,394
Credit cards and cash reserve 777,301 1,206,588
Installment loans to individuals 887,298 875,708
- ------------------------------------------------------------------------------
Total consumer 3,113,779 4,506,690
- ------------------------------------------------------------------------------
Total domestic 14,298,361 15,402,386
- ------------------------------------------------------------------------------
Foreign 241,501 162,466
- ------------------------------------------------------------------------------
Gross loans 14,539,862 15,564,852
Unearned income (112,039) (266,789)
- ------------------------------------------------------------------------------
Total loans $14,427,823 $15,298,063
==============================================================================
Mortgages available for sale $ 3,784,082 $ -
==============================================================================
Non-accrual loans totaled $257,445,000 at December 31, 1995 and $318,277,000 at
December 31, 1994. Foreclosed assets amounted to $66,732,000 at December 31,
1995, compared with $84,872,000 at December 31, 1994. Troubled debt
restructurings amounted to $71,377,000 and $64,104,000 at December 31, 1995 and
1994, respectively. Loans considered to be impaired under SFAS 114 totaled
$259,898,000 at December 31, 1995. The average balance of impaired loans held
during the year was approximately $326,418,000.
The gross interest income that would have been recognized on non-accrual loans,
foreclosed assets and troubled debt restructurings, if interest on these assets
had been accrued in accordance with original terms, and interest income actually
recognized on these assets are as follows:
(Amounts in Thousands)
- -----------------------------------------------------------------------------
Year Ended December 31 1995 1994 1993
- -----------------------------------------------------------------------------
Gross interest under original terms $39,751 $44,107 $81,525
=============================================================================
Interest actually recognized $11,763 $14,875 $21,838
=============================================================================
Interest of $15,796,000 was recognized on impaired loans in 1995.
<PAGE>
Page 17
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(F) Continued
The following table presents an analysis of the allowance for loan losses for
the three years ended December 31, 1995:
(Dollar Amounts in Thousands)
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
Balance, January 1 $289,002 $373,281 $622,991
Add
Provision for loan losses 95,000 81,467 135,298
Additions due to acquisition 16,956 62,770 -
Deduct
Charge-offs 187,012 272,888 419,382
Less recoveries on accounts -
previously charged off 46,239 44,372 34,374
- --------------------------------------------------------------------------------
Net charge-offs 140,773 228,516 385,008
Sale of subsidiary 1,950 - -
- --------------------------------------------------------------------------------
Balance, December 31 $258,235 $289,002 $373,281
================================================================================
As a percentage of loans outstanding 1.79% 1.89% 2.67%
================================================================================
Included in the allowance for loan losses is an impairment reserve of
$83,108,000 determined in accordance with SFAS 114 relating to impaired loans
of $198,473,000. For impaired loans of $61,425,000, no impairment reserve is
considered necessary either as a result of previous charge offs and interest
applied to principal which have reduced the recorded investments in these
loans to not more than the values calculated under SFAS 114, or because
collateral values are sufficient for full recovery.
Foreclosed assets expense for the years ended December 31, 1995, 1994 and
1993, totaled $5,666,000, $4,875,000 and $30,305,000, respectively. Included
in foreclosed assets expense were asset valuation adjustments of $3,382,000,
$2,915,000, and $20,364,000 in 1995, 1994 and 1993, respectively. These asset
valuation adjustments represented both provisions to foreclosed asset reserves
and direct writedowns. Charge-offs against foreclosed asset reserves
established in prior periods totaled $369,000 and $2,068,000 in 1995 and 1993,
respectively. There were no charge offs against foreclosed asset reserves in
1994.
<PAGE>
Page 18
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(F) Continued
Mortgage Servicing Rights
- -------------------------
NatWest Bancorp's servicing activity for the years ended December 31, 1995 and
1994 resulted in the following movement in recorded mortgage servicing rights.
(Amounts in Thousands)
____________________________________________________________
1995 1994
- ------------------------------------------------------------
Balance, January 1 $10,437 $ 5,459
Add:
Originated 3,906 -
Purchased 1,274 6,482
Deduct:
Amortization (1,660) (1,504)
- ------------------------------------------------------------
Balance, December 31 $13,956 $10,437
============================================================
On June 1, 1995 NatWest Bancorp adopted the provisions of SFAS No. 122
"Accounting for Mortgage Servicing Rights". The incremental impact of
capitalizing originated mortgage servicing rights in accordance with SFAS No.
122 resulted in an increase of $3,906,000 in revenue for the year ended
December 31, 1995.
Bancorp measures impairment on a disaggregate basis and discounts the
estimated future cash flows using a current market rate. The fair value of
mortgage servicing rights at December 31, 1995 was in excess of book value and
did not require a valuation allowance to be established.
(G)Premises and Equipment
----------------------
(Amounts in Thousands)
____________________________________________________________
December 31 1995 1994
- ------------------------------------------------------------
Land $ 80,533 $ 72,565
Buildings 347,343 306,987
Equipment 309,776 261,862
Leasehold improvements 121,129 97,475
Property leased under capital leases (Note I)
Land and buildings 30,600 -
Equipment 14,244 -
- ------------------------------------------------------------
Total 903,625 738,889
- ------------------------------------------------------------
Accumulated depreciation and
amortization (360,967) (286,105)
- ------------------------------------------------------------
Net book value $ 542,658 $ 452,784
============================================================
Rental expense (net of rents received) for premises and equipment amounted to
$24,493,000 in 1995, $16,331,000 in 1994 and $13,228,000 in 1993. Depreciation
and amortization expense amounted to $52,041,000 in 1995, $41,271,000 in 1994,
and $38,569,000 in 1993.
<PAGE>
Page 19
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(H) Short-Term Borrowed Funds
-------------------------
<TABLE><CAPTION>
(Dollar Amounts in Thousands)
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal Funds Purchased
Balance at year-end $ 612,265 $ 228,817 $ 472,298
Average interest rate on year-end balance 3.70% 4.03% 3.02%
Average outstanding during the year 1,239,445 756,967 1,159,894
Average interest rate for the year 5.72% 4.08% 3.08%
Maximum outstanding at any month-end 1,841,699 1,580,885 1,518,185
Securities Sold Under Agreements
to Repurchase
Balance at year-end 1,436,963 2,646,565 1,899,545
Average interest rate on year-end balance 5.48% 4.99% 2.64%
Average outstanding during the year 3,786,437 2,388,869 1,269,920
Average interest rate for the year 5.66% 4.06% 2.78%
Maximum outstanding at any month-end 5,165,292 3,069,002 2,401,834
Commercial Paper
Balance at year-end 411,165 602,012 244,718
Average interest rate on year-end balance 5.76% 5.59% 3.19%
Average outstanding during the year 557,586 440,113 223,128
Average interest rate for the year 6.01% 4.98% 3.15%
Maximum outstanding at any month-end 701,551 659,309 274,620
Other Borrowed Funds
Balance at year-end 1,454,537 680,250 1,158,416
Average interest rate on year-end balance 4.75% 5.22% 3.31%
Average outstanding during the year 1,799,706 1,535,605 1,097,367
Average interest rate for the year 5.72% 4.97% 4.18%
Maximum outstanding at any month-end 2,449,128 2,430,397 1,513,334
======================================= ========= ========= =========
</TABLE>
The average interest rate for the year is computed by dividing the interest
expense for each category of borrowings by the average daily outstandings during
the year. Federal funds purchased (including term Federal funds, which are
reported in other borrowed funds) and securities sold under agreements to
repurchase outstanding at December 31, 1995, 1994 and 1993, had a weighted
average maturity of approximately 12 days, 4 days and 9 days, respectively.
NatWest Bancorp had no lines of credit for short-term borrowing at December 31,
1995.
<PAGE>
Page 20
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(I)Long-Term Debt
--------------
(Amounts in Thousands)
- -------------------------------------------------------------------
December 31 1995 1994
- -------------------------------------------------------------------
NatWest Bancorp
12 1/8% Guaranteed Capital Notes,
Due November 15, 2002 $ 99,770 $ 99,749
9 3/8% Guaranteed Subordinated Capital Notes,
Due November 15, 2003 498,225 498,079
NatWest Bank N.A.
8.00% Subordinated Capital Note,
Due September 1, 2012 11,634 -
Capitalized lease obligations - equipment 11,409 -
NatWest Services Inc.
Capitalized lease obligations - premises 32,478 -
- -------------------------------------------------------------------
Total $653,516 $597,828
===================================================================
NatWest Bancorp
---------------
Interest on the $100,000,000 12 1/8% Guaranteed Capital Notes is payable
semiannually on May 15 and November 15 of each year. The Notes may be
redeemed after November 15, 1997, and prior to maturity, in whole or in part,
at the option of NatWest Bancorp or NatWest Plc, at a redemption price of 100%
of the principal amount thereof, together with accrued interest to the date
fixed for redemption, subject to certain conditions. Under certain other
conditions the Notes may be redeemed in whole prior to November 15, 1997.
The Notes are unsecured and guaranteed on a subordinated basis by NatWest Plc.
The guarantee is subordinated to the claims of NatWest Plc's depositors and
certain other creditors.
Unamortized debt discount at December 31, 1995, and 1994, amounted to $230,000
and $251,000, respectively.
Interest on the $500,000,000 9 3/8% Guaranteed Subordinated Capital Notes is
payable semiannually on May 15 and November 15 of each year. Under certain
conditions, the Notes may be redeemed in whole prior to maturity.
<PAGE>
Page 21
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(I) Continued
The Notes are unsecured and guaranteed on a subordinated basis by NatWest Plc
and are subordinated to all senior indebtedness of NatWest Bancorp. The
guarantee is subordinated to the claims of NatWest Plc's depositors and
certain other creditors.
Unamortized debt discount at December 31, 1995, and 1994, amounted to
$1,775,000 and $1,921,000, respectively.
NatWest Bank N.A.
-----------------
The 8.00% Subordinated Capital Note is payable to NatWest Holdings and was
assumed by NatWest Bank N.A. in connection with the acquisition of Central
Jersey.
Interest on the Note is payable semiannually on March 15 and September 15 of
each year. The Note may be redeemed prior to maturity, in whole or in part,
at the option of NatWest Bank N.A., at a current redemption price of 101.53%
of the principal amount thereof, together with accrued interest to the date
fixed for redemption, subject to certain conditions.
The Note is unsecured and is subordinated to the claims of NatWest Bank N.A.'s
depositors and general and secured creditors.
NatWest Bank N.A. entered into various equipment lease agreements which are
classified as capital leases. These leases expire over a period of six years.
NatWest Services Inc.
---------------------
NatWest Services Inc. entered into a lease agreement for premises which is
classified as a capital lease. The lease is for the NatWest Services Inc.
service center in northeastern Pennsylvania. These premises are leased for a
period of fifteen years at which time ownership of the premises will be
transferred to NatWest Services Inc.
A schedule showing the future minimum lease payments of equipment and premises
under capital leases is in Note M. NatWest Bancorp had no lines of credit for
long-term borrowing at December 31, 1995.
<PAGE>
Page 22
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(J)Income Taxes
------------
NatWest Bancorp accounts for income taxes in accordance with SFAS 109 which
was adopted in 1993.
The effective tax rates in each year varied from the statutory Federal income
tax rates. The reasons for the differences between these rates are as
follows:
(Amounts in Thousands)
- --------------------------------------------------------------------------------
Year Ended December 31 1995 1994 1993
- --------------------------------------------------------------------------------
Federal income tax provision at statutory rate $ 177,477 $ 114,351 $ 88,384
Increase (decrease) due to:
Changes in the valuation allowance - (118,000) (164,198)
Adjustments to deferred tax assets and liabilities
for enacted changes in tax laws and rates - - (1,994)
Tax-exempt interest (8,707) (4,573) (4,639)
State and local income taxes, net of Federal
income tax benefit 8,683 19,899 21,443
Amortization of goodwill 25,219 14,935 12,947
Other (1,216) 1,508 2,491
- --------------------------------------------------------------------------------
Income tax expense (benefits)
at effective rate $ 201,456 $ 28,120 $ (45,566)
================================================================================
Income tax expenses (benefits) for the years ended December 31, 1995, 1994 and
1993 consist of:
(Amounts in Thousands)
- --------------------------------------------------------------------------------
Current Deferred Total
- --------------------------------------------------------------------------------
Year Ended December 31, 1995
U.S. Federal $ 94,781 $ 93,316 $ 188,097
State and local 5,614 7,745 13,359
- --------------------------------------------------------------------------------
Total $ 100,395 $ 101,061 $ 201,456
================================================================================
Year Ended December 31, 1994
U.S. Federal $ 18,047$ (20,541)$ (2,494)
State and local 7,565 23,049 30,614
- --------------------------------------------------------------------------------
Total $ 25,612 $ 2,508 $ 28,120
================================================================================
Year Ended December 31, 1993
U.S. Federal $ 10,975$ (89,531) $ (78,556)
State and local 5,768 27,222 32,990
- --------------------------------------------------------------------------------
Total $ 16,743$ (62,309) $ (45,566)
================================================================================
<PAGE>
Page 23
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(J) Continued
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and deferred tax liabilities at December
31, 1995 and 1994 are as follows:
(Amounts in Thousands)
- -------------------------------------------------------------------
December 31 1995 1994
- -------------------------------------------------------------------
Deferred tax assets
Provision for loan losses $(110,551) $(115,385)
Accrued interest and deferred fees (94,260) (97,482)
Alternative minimum tax liability (30,641) (26,866)
Post employment benefit expense (10,183) (3,154)
Low income housing tax credits (4,076) -
Net operating loss carryforwards - (71,143)
Deferred compensation - (2,669)
Other (3,993) (2,409)
- -------------------------------------------------------------------
Deferred tax assets (253,704) (319,108)
- -------------------------------------------------------------------
Deferred tax liabilities
Lease transactions 114,683 99,954
Premises valuation and depreciation 26,662 28,300
SFAS 115 adjustment 6,605 5,990
State and local income taxes,
net of Federal income tax benefit 4,874 32,054
Other 3,597 2,059
- -------------------------------------------------------------------
Deferred tax liabilities 156,421 168,357
- -------------------------------------------------------------------
Net deferred tax asset $ (97,283) $(150,751)
- -------------------------------------------------------------------
The change in the net deferred tax asset for the year ended December 31, 1995
included net deferred tax assets from the acquisition of Central Jersey and
deferred tax assets associated with the net unrealized gains on available for
sale securities.
For tax return purposes, NatWest Bancorp had no net operating loss
carryforward at December 31, 1995. NatWest Bancorp has alternative minimum
tax credit carryforwards of $30,641,000 which are available to reduce future
Federal regular income taxes over an indefinite period.
Income tax expense related to investment securities gains amounted to
$37,647,000 in 1995, $3,202,000 in 1994, and $27,313,000 in 1993.
<PAGE>
Page 24
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(K)Parent Company Information
--------------------------
The following is the parent company only condensed Statement of Condition at
December 31, 1995, and 1994, and the Statement of Operations and Statement of
Cash Flows for each of the years in the three-year period ended December 31,
1995, for NatWest Bancorp. NatWest Bancorp currently has 1,000 shares of no
par common stock outstanding having a stated value of $500,000,000.
Statement of Condition
December 31, 1995 and 1994
(Amounts in Thousands)
- -------------------------------------------------------------------
1995 1994
- -------------------------------------------------------------------
Assets
Due from bank subsidiary $ 93,389 $ 34,613
Interest bearing deposit with bank
subsidiary 228,500 553,670
Commercial paper of bank holding company
subsidiary 46,000 46,000
Loans to subsidiaries 377,000 400,886
Investment in bank subsidiaries,
at underlying equity in net assets 3,408,776 2,750,382
Investment in non-bank subsidiaries,
at underlying equity in net assets 95,480 90,560
Premises and equipment, net 14,433 9,812
Other assets 7,154 13,321
- -------------------------------------------------------------------
Total assets $4,270,732 $3,899,244
===================================================================
Liabilities and Equity Capital
Long-term debt $ 597,995 $ 597,828
Commercial paper 411,165 602,012
Other liabilities 26,130 12,988
Total equity capital 3,235,442 2,686,416
- -------------------------------------------------------------------
Total liabilities and equity capital $4,270,732 $3,899,244
===================================================================
<PAGE>
Page 25
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(K) Continued
Statement of Operations
Years Ended December 31, 1995, 1994 and 1993
<TABLE><CAPTION>
(Amounts in Thousands)
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Interest on deposits with bank subsidiary $ 23,394 $ 18,206 $ 6,583
Interest on commercial paper of bank
holding company subsidiary 2,796 1,818 -
Interest on loans to subsidiaries 35,399 35,622 35,269
Dividends from bank subsidiary - 240,000 -
Management fees 120,940 115,990 86,571
Other interest income - 4 712
Other income 616 1,025 331
- --------------------------------------------------------------------------------
Total income 183,145 412,665 129,466
- --------------------------------------------------------------------------------
Expenses
Interest on long-term debt 59,562 59,509 59,462
Interest on commercial paper 33,535 19,960 5,641
Salaries and benefits 89,750 87,413 81,020
Supplies and services 14,150 14,734 9,402
Business development 16,111 14,936 6,629
Other expenses 3,502 2,680 706
- --------------------------------------------------------------------------------
Total expenses 216,610 199,232 162,860
- --------------------------------------------------------------------------------
Income (loss) before income tax and
equity in undistributed income of
subsidiaries (33,465) 213,433 (33,394)
(Benefit) provision for income taxes (11,031) (42,188) 1,663
- --------------------------------------------------------------------------------
Income (loss) before equity in undistributed
income of subsidiaries (22,434) 255,621 (35,057)
Equity in undistributed income of subsidiaries 328,056 42,977 333,149
- --------------------------------------------------------------------------------
Net income $305,622 $298,598 $298,092
================================================================================
</TABLE>
Effective January 1, 1993, certain employees of NatWest Bancorp were
identified as employees of the parent company. Personnel, and other costs
applicable to these employees, were allocated to the parent company. A
management fee representing reimbursement for services performed by those
employees for the banks was charged to and collected from the banks.
<PAGE>
Page 26
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(K) Continued
Statement of Cash Flows
Years Ended December 31, 1995, 1994 and 1993
(Amounts in Thousands)
- --------------------------------------------------------------------------------
1995 1994 1993
- --------------------------------------------------------------------------------
Operating Activities:
Net income $ 305,622 $ 298,598 $ 298,092
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Equity in undistributed net (income) of
subsidiaries (328,056) (42,977) (333,149)
Depreciation of premises and equipment 1,298 553 154
Net (increase) decrease in interest and other
income receivable 1,201 (1,244) (221)
Net (increase) decrease in prepaid expenses 3,175 (2,958) 364
Net increase (decrease) in interest and
other expenses payable 10,637 (18,829) 16,033
Other, net 4,109 11,301 (11,377)
- --------------------------------------------------------------------------------
Net cash provided by (used in) operating
activities (2,014) 244,444 (30,104)
- --------------------------------------------------------------------------------
Investing Activities:
Net (increase) decrease in interest bearing deposits
with bank subsidiary 325,170 (333,505) (61,611)
Net increase in commercial paper of bank
holding company subsidiary - (46,000) -
Net (increase) decrease in loans to
subsidiaries 23,886 7,600 (16,986)
Net (increase) decrease in loans to others - - 258
Capital expenditures on premises and equipment (5,919) (4,905) (2,109)
Capital contribution to NatWest Bancorp NJ (30,000) - -
- --------------------------------------------------------------------------------
Net cash provided by (used in) investing
activities 313,137 (376,810) (80,448)
- --------------------------------------------------------------------------------
Financing Activities
Net increase (decrease) in commercial paper (190,847) 399,600 102,549
Capital contribution from NatWest Holdings 30,000 - -
Dividends paid to NatWest Holdings (91,500) (240,000) -
- --------------------------------------------------------------------------------
Net cash provided by (used in) financing
activities (252,347) 159,600 102,549
- --------------------------------------------------------------------------------
Net increase (decrease) in due from bank
subsidiary 58,776 27,234 (8,003)
Due from bank subsidiary at January 1 34,613 7,379 15,382
- --------------------------------------------------------------------------------
Due from bank subsidiary at December 31 $ 93,389 $ 34,613 $ 7,379
================================================================================
<PAGE>
Page 27
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(K) Continued
In 1995 and 1994, NatWest Bancorp paid dividends to NatWest Holdings in the
amount of $91,500,000 and $240,000,000 respectively.
During 1995, NatWest Bancorp received a capital contribution from NatWest
Holdings and made a capital contribution to NatWest Bancorp NJ of $276,060,000
which represented the transfer of the ownership of Central Jersey Bank & Trust
Company. NatWest Bancorp also received a capital contribution from NatWest
Holdings and made a capital contribution to NatWest Bancorp NJ of $30,000,000
in cash.
During 1995, NatWest Bancorp made a capital contribution to NatWest Bancorp NJ
of $1,178,654,000 which represented the transfer of the ownership of NatWest
USA in conjunction with the merger of NatWest USA and NatWest NJ.
During 1994, NatWest Bancorp received a capital contribution from NatWest
Holdings and made a capital contribution to NatWest Bancorp NJ of $506,788,000
which represented the transfer of the ownership of Citizens First National
Bank of New Jersey.
At December 31, 1995 and 1994, NatWest Bancorp had loans of $2,000,000 and
$25,886,000, respectively, to NatWest Leasing. NatWest Bancorp had loans on a
subordinated basis to NatWest Bank N.A. of $375,000,000 at December 31, 1995
and to NatWest USA and NatWest NJ of $325,000,000 and $50,000,000,
respectively, at December 31, 1994.
All transactions between NatWest Bancorp and its subsidiaries are conducted on
an arms-length basis. NatWest Bank N.A. and NatWest Bank Delaware have
business transactions with NatWest Plc and its subsidiaries, all of which are
conducted on an arms-length basis.
Federal law imposes a limitation providing that dividends declared by a bank
may not exceed undivided profits, after deducting bad debts, as defined. In
addition, Federal law requires regulatory approval if dividends declared by a
bank exceed net profits of that year, as defined, combined with the bank's
retained net profits of the two preceding years, also as defined. Under these
restrictions, at December 31, 1995, NatWest Bank N.A. could declare dividends
of $205,739,000.
The Federal Reserve Act places restrictions on loans by subsidiary banks to
their holding company and its affiliates. Such restrictions include
collateralization requirements and quantitative limitations. Other than loans
secured by U.S. Government securities or certain segregated deposits, the
maximum amount of loans to any single affiliate may not exceed 10% of a bank's
capital and surplus, and to all affiliates may not exceed 20% of the bank's
capital and surplus.
<PAGE>
Page 28
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(L)Retirement Benefit Plans and Other Post-Retirement Benefits
-----------------------------------------------------------
Retirement Benefit Plans
------------------------
The National Westminster Bancorp Retirement Plan (NatWest Bancorp Plan) covers
substantially all employees of NatWest Bancorp as well as some employees of
certain U.S. affiliates of NatWest Plc. The Employees' Retirement Plan of
Citizens First National Bank of New Jersey (Citizens Plan) covered
substantially all eligible full-time employees of Citizens First Bancorp and
was merged into the NatWest Bancorp Plan as of January 1, 1995. The Central
Jersey Bank and Trust Company Retirement Plan (Central Jersey) was merged into
the NatWest Bancorp Plan upon consummation of the merger on January 14, 1995.
The funding policy for the NatWest Bancorp Plan is to contribute annually the
maximum amount that can be deducted for Federal income tax purposes.
Contributions are intended to provide not only for benefits attributed to
service to date, but also for benefits expected to be earned in the future.
Generally, benefits are based on years of service and on the compensation
during the last five years of employment.
NatWest Bancorp also maintains certain non-qualified supplemental plans for
selected personnel. These plans provide benefits in addition to those
provided under the NatWest Bancorp Plan. NatWest Bancorp had accrued
liabilities under the supplemental plans of $22,919,000 at December 31, 1995
and $11,535,000 at December 31, 1994.
The combined cost in dollars and as a percentage of total salaries and
benefits of the retirement benefit plans to NatWest Bancorp for 1995, 1994 and
1993 was $13,622,000 or 3.0%, $9,340,000 or 2.1% and $6,724,000 or 1.7%,
respectively.
<PAGE>
Page 29
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(L)Continued
The following tables set forth the funded status for the NatWest Bancorp Plan
at December 31, 1995 and the NatWest Bancorp and Citizens Plans combined at
December 31, 1994. The tables set forth the components of net periodic
pension cost for the NatWest Bancorp Plan for the years ended December 31,
1995 and 1993, and for the NatWest Bancorp and Citizens Plan combined for the
year ended December 31, 1994.
(Amounts in Thousands)
- -------------------------------------------------------------------
December 31 1995 1994
- -------------------------------------------------------------------
Actuarial present value of benefit obligations:
Accumulated benefit obligation, including
vested benefits of $231,703 and $173,620
December 31, 1995 and 1994, respectively $ 250,281 $ 190,213
===================================================================
Projected benefit obligation for service
rendered to date $(325,703) $(244,495)
Plan assets at fair value, primarily listed
stocks and U.S. bonds 300,177 244,918
- -------------------------------------------------------------------
Plan assets in excess of (less than)
projected benefit obligation (25,526) 423
Prior service cost not yet recognized 2,417 (1,987)
Unrecognized net loss 26,157 16,983
Unrecognized asset being
recognized over 15 years (6,001) (7,157)
- -------------------------------------------------------------------
Prepaid (accrued) pension cost $ (2,953) $ 8,262
===================================================================
(Amounts in Thousands)
- --------------------------------------------------------------------------------
Year Ended December 31 1995 1994 1993
- --------------------------------------------------------------------------------
Net periodic pension cost included
the following components:
Service cost $ 14,025 $ 13,689 $ 11,479
Interest cost 21,918 15,766 15,453
Actual return on plan assets (71,942) (2,146) (23,266)
Net amortization and deferral 46,814 (19,387) 2,462
- --------------------------------------------------------------------------------
Net periodic pension cost-total plan 10,815 7,922 6,128
Expense attributed to other participants (1,124) (666) (593)
- --------------------------------------------------------------------------------
Net periodic pension cost $ 9,691 $ 7,256 $ 5,535
================================================================================
<PAGE>
Page 30
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(L)Continued
The projected unit cost method was used to determine net periodic pension
cost. The following table sets forth the assumptions used in measuring the
plan benefit obligation at December 31, 1995, 1994 and 1993:
- --------------------------------------------------------------------------------
December 31 1995 1994 1993
- --------------------------------------------------------------------------------
Discount Rate 7.25% 8.50% 7.25%
Expected long-term rate of return 10.00% 9.00% 9.00%
Rate of increase in future compensation 5.00% 5.50% 4.75%
================================================================================
The assumptions utilized at the end of each year are utilized in determining
pension expense in the following year.
Other Post-Retirement Benefits
------------------------------
NatWest Bancorp provides certain medical and life insurance benefits to its
retirees and their dependents. The liability for these post-retirement
benefits is unfunded. Effective January 1, 1993 NatWest Bancorp amended its
retiree benefit plan. For employees who retire after January 1, 1993 NatWest
Bancorp's contributions for medical coverage are based upon length of service
and will be capped. Retirees must have a minimum of 10 years of service to be
eligible for retiree medical coverage.
On January 1, 1993, NatWest Bancorp adopted FASB Statement No. 106 -
"Employers' Accounting for Postretirement Benefits Other Than Pensions" (SFAS
106) for its retiree benefit plan. Under SFAS 106, NatWest Bancorp recorded
estimated post-retirement benefits that must be accrued ratably from the date
of hire until the employee is eligible to receive the benefits, rather than as
costs are incurred. The unrecognized transition obligation is being amortized
over 20 years.
<PAGE>
Page 31
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(L) Continued
The tables below set forth the components of net periodic post-retirement
benefit obligations for NatWest Bancorp at December 31, 1995 and 1994 and the
net periodic post-retirement benefit cost for the years ended December 31,
1995, 1994 and 1993.
(Amounts in Thousands)
- -------------------------------------------------------------------
December 31 1995 1994
- -------------------------------------------------------------------
Accumulated post-retirement benefit obligation
Retirees $(50,214) $(41,771)
Fully eligible active plan participants (3,560) (3,345)
Other active plan participants (15,321) (14,191)
- -------------------------------------------- -------- -------
Accumulated post-retirement benefit obligation (69,095) (59,307)
Unrecognized
Transition obligation 44,426 47,039
Prior service cost (2,013)
Net loss 4,071 179
- -------------------------------------------------------------------
Accrued post-retirement benefit cost $(22,611) $(12,089)
===================================================================
(Amounts in Thousands)
Year Ended December 31 1995 1994 1993
- --------------------------------------------------------------------------------
Net periodic post-retirement benefit cost included
the following components:
Service cost $1,234 $1,115 $ 979
Interest cost 5,061 4,002 4,260
Amortization of unrecognized transition
obligation 2,613 2,613 2,613
- --------------------------------------------------------------------------------
Other post-retirement benefit cost $8,908 $7,730 $7,852
================================================================================
The assumptions used in determining post-retirement benefit expense for 1995
and 1994 were the same as those used in the pension plan.
For measurement purposes, a 12.00% (pre-65 coverage) and 10.00% (post-65
coverage) annual rate of increase in the cost of covered healthcare benefits
was assumed for 1995; the rate was assumed to decrease gradually to 6.00%
(pre-65 coverage) and 5.50% (post-65 coverage) by the year 2001 and will
remain at that level thereafter. Increasing the assumed healthcare cost trend
rates by 1 percentage point in each year would increase the accumulated post-
retirement benefit obligation as of December 31, 1995, by $2,902,000 and the
aggregate of the service and interest cost components of net periodic post-
retirement benefit cost for the year then ended by $214,000.
<PAGE>
Page 32
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(M)Commitments, Contingencies and Pledged Assets
---------------------------------------------
Commitments
-----------
NatWest Bancorp is a party to financial instruments with off-balance-sheet
risk in the normal course of business to meet the financing needs of its
customers. These financial instruments include standby letters of credit,
commercial letters of credit and commitments to extend credit. When viewed in
terms of the maximum exposure, these instruments may involve, to varying
degrees, credit risk in excess of the amount recognized in the Consolidated
Statement of Condition. NatWest Bancorp uses the same credit policies in
making commitments and conditional obligations as it does for on-balance-sheet
instruments and periodically reassesses the customer's creditworthiness
through ongoing credit reviews. Since many commitments are expected to expire
without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements. Management does not anticipate any
material losses as a result of these transactions.
A summary of significant off-balance-sheet financial instruments follows:
(Amounts in Thousands)
- -------------------------------------------------------------
Contractual Amount
------------------
December 31 1995 1994
- -------------------------------------------------------------
Financial instruments whose contractual
amounts represent potential credit risk:
Standby letters of credit (net of
participations) $ 698,255 $ 578,513
Commercial letters of credit 246,637 289,819
Commitments to extend credit 8,320,632 8,129,279
============================ ========= =========
Standby and commercial letters of credit are written conditional instruments
issued by NatWest Bancorp to guarantee the financial performance of a customer
to a third party. Included in standby letters of credit are those payable on
default of certain Industrial Revenue Bonds, amounting to $286,849,000 at
December 31, 1995, and $198,733,000 at December 31, 1994. Maturities on these
obligations range from 1996 to 2005.
Commitments to extend credit are agreements to lend to a customer so long as
there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates or other termination
clauses.
<PAGE>
Page 33
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(M)Continued
Contingencies and Pledged Assets
--------------------------------
NatWest Bancorp is a lessee under both capital and operating lease agreements
covering premises and equipment.
The future minimum lease payments required under capital leases and the
present value of the net minimum lease payments at December 31, 1995 were as
follows:
(Amounts in Thousands)
- --------------------------------------------------------
1996 $ 6,125
1997 6,120
1998 6,114
1999 6,035
2000 5,132
2001 and thereafter 32,601
- --------------------------------------------------------
Total minimum lease payments 62,127
Less: Amount representing executory costs (402)
Less: Amount representing interest (17,838)
- --------------------------------------------------------
Total present value of minimum lease payments $ 43,887
========================================================
Operating leases had an average remaining term of approximately 5.6 years.
The minimum future rental commitments under operating leases at December 31,
1995, were as follows:
(Amounts in Thousands)
- --------------------------------------------------------
1996 $ 28,215
1997 26,891
1998 23,212
1999 21,762
2000 18,104
2001 and thereafter 165,490
- --------------------------------------------------------
Total $ 283,674
========================================================
Securities with a principal amount of $1,280,025,000 at December 31, 1995 and
$2,663,867,000 at December 31, 1994, and loans of $1,130,305,000 at December
31, 1995 and $390,564,000 at December 31, 1994, were pledged to secure public
and trust deposits, repurchase agreements and for other purposes.
<PAGE>
Page 34
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(M)Continued
The nature of the business of NatWest Bancorp generates a certain amount of
litigation involving matters arising in the ordinary course of business.
Among such proceedings, NatWest Bancorp, in the normal course of its business
in collecting outstanding obligations, is named as defendant in complaints or
counterclaims filed in various jurisdictions by borrowers or others who allege
that lending practices by NatWest Bancorp have damaged the borrowers or
others. Such claims, commonly referred to as lender liability claims,
frequently request not only relief from repayment of the debt obligation, but
also recovery of actual consequential and punitive damages. Management, after
reviewing the claims pending against NatWest Bancorp, considers that the
aggregate liability or loss, if any, resulting from the final outcome of these
proceedings will not be material to the consolidated financial position.
(N)Credit Concentrations and Collateral
------------------------------------
NatWest Bancorp maintains a wide customer diversification of its financial
instruments in regard to industry. Generally, financial instruments are
defined as cash, evidence of an ownership interest in an entity, or a contract
that imposes the obligation to deliver cash or another financial instrument.
Certain financial instruments, such as loans and accounts receivable, are
recognized on the Consolidated Statement of Condition and expose NatWest
Bancorp to a risk of accounting loss, while others, such as commitments to
extend credit and other letters of credit, are not recorded on the
Consolidated Statement of Condition but may also expose NatWest Bancorp to a
risk of accounting loss. A summary of significant concentrations of credit
follows:
(Amounts in Thousands)
- -------------------------------------------------------------------
December 31 1995 1994
- -------------------------------------------------------------------
Financial Depositories
- ----------------------
On balance sheet $2,520,624 $2,785,629
Off balance sheet 285,888 82,194
- -------------------------------------------------------------------
Total $2,806,512 $2,867,823
===================================================================
Real Estate
- -----------
On balance sheet $8,182,382 $5,238,015
Off balance sheet 1,321,484 797,237
- -------------------------------------------------------------------
Total $9,503,866 $6,035,252
===================================================================
U.S. Government
- ---------------
On balance sheet $4,079,476 $5,424,513
Off balance sheet - -
- -------------------------------------------------------------------
Total $4,079,476 $5,424,513
===================================================================
The concentration in financial depositories consisted primarily of cash and
due from banks, interest bearing deposits with banks and Federal funds sold.
<PAGE>
Page 35
NATIONAL WESTMINISTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(N)Continued
At December 31, 1995, and 1994, lending for business real estate, construction
and commercial mortgages in the amounts of $2,788,701,000 and $2,667,088,000,
and at December 31, 1994 for consumer residential mortgages in the amount of
$2,424,394,000, was primarily located in the Northeast (primarily the New York
metropolitan area).
At December 31, 1995, approximately seventy-five percent of lending for
consumer residential mortgages in the amount of $5,233,262,000 was located in
the New York metropolitan area with the remainder located throughout the
United States.
The U.S. government concentration consists of U.S. government and agencies
securities in the securities held to maturity, securities available for sale
and trading portfolios. The concentration also includes cash deposits held by
the Federal Reserve.
NatWest Bancorp is responsible for establishing and coordinating overall
credit policy for both NatWest Bank N.A. and NatWest Bank (Delaware) and
monitoring compliance with these policies. Although these policies and
procedures may differ slightly between the Banks as a result of tailoring to
the market in which each Bank operates, they are consistent with each other.
NatWest Bancorp requires collateral to support financial instruments when it
is deemed necessary. The collateral includes liens on personal and real
property, receivables, cash on deposit with the Bank, securities issued or
guaranteed by the U.S. government and other marketable securities. Each
customer's creditworthiness is evaluated individually. Based upon this
evaluation, the amount of collateral required is determined and obtained.
(O)Disclosure of Information about Fair Value of Financial Instruments
-------------------------------------------------------------------
FASB Statement No. 107 - "Disclosures about Fair Value of Financial
Instruments" (SFAS 107), requires the disclosure of an entity's estimated fair
value of certain of its financial instruments as set forth in the table below.
All other financial instruments and all non-financial instruments, are
specifically excluded from these requirements. Further, among financial
instruments, deposit liabilities with no stated maturity are reported only at
their carrying value. Since significant economic value exists in this funding
source, arriving at the fair value in this manner could have a material impact
on any conclusions reached using this information.
At NatWest Bancorp, most assets and liabilities are considered to be financial
instruments. Many of these do not trade regularly and no market for them
exists. Where quoted market prices are not available, fair values have been
estimated based on discounted cash flows and other valuation techniques.
<PAGE>
Page 36
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(O)Continued
Set forth in the table on page 37 are the estimated fair values of NatWest
Bancorp's financial instruments. In each instance, the assumptions used to
determine the values are detailed. These assumptions are subjective in
nature, involve uncertainty and may change significantly at future dates.
Changes in the assumptions could have a material impact on the fair values of
the respective financial instruments.
Securities
----------
The fair value of held to maturity, available for sale and trading securities
was based upon quoted market prices.
Loans
-----
The loan portfolio was segmented into pools of loans with similar
characteristics. The fair value for loans on which a current interest rate
could be determined was calculated by discounting contracted future cash flows
at current rates for similar loans. For non-accrual loans and other
criticized loans where a current interest rate could not be determined, cash
flows based on the amount and timing of expected recoveries were discounted at
rates for comparable loans of good credit quality.
Time Deposits
-------------
Time deposits were valued by using the current rates for similar deposits.
Long-Term Debt
--------------
Long-term debt was valued using available quoted market prices.
Derivatives
-----------
The estimated fair value of derivatives was based either on quoted market
prices where these exist or on pricing models. A detailed analysis of
derivatives is disclosed in Note P.
<PAGE>
Page 37
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(O) Continued
(Amounts in Thousands)
<TABLE><CAPTION>
- -------------------------------------------------------------------------------------------------
Fair Recorded Fair Recorded
value book balance value book balance
- -------------------------------------------------------------------------------------------------
December 31 1995 1994
- -------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets
- ----------------
Securities
Held to maturity $ - $ - $ 2,728,730 $ 2,877,357
Available for sale 3,036,185 3,036,185 1,759,177 1,759,177
Trading account 1,279,523 1,279,523 745,692 745,692
Loans, net of unearned income and
allowance for loan losses 14,262,971 14,169,588 15,194,297 15,009,061
Mortgages available for sale 3,829,030 3,784,082 - -
Derivatives carried at fair value 384,619 384,619 78,793 78,793
Derivatives held for asset and liability
management
Related to loans - assets - - 15,585 24,286
Related to loans - liabilities - - (387,665) (30,106)
Financial Liabilities
- ---------------------
Time deposits 7,759,082 7,733,827 6,508,360 6,577,945
Long-term debt (excluding capitalized
lease obligations) 718,534 609,629 633,105 597,828
Derivatives carried at fair value 383,701 383,701 76,466 76,466
Derivatives held for asset and liability
management
Related to deposits - assets (182) - (38,365) (12,665)
Related to deposits - liabilities 5,369 - 1,215 30,665
=================================================================================================
</TABLE>
Book value is considered the equivalent of fair value for cash and due from
banks, interest bearing deposits with banks, Federal funds sold and securities
purchased under agreements to resell, demand and retail savings deposits, short-
term borrowed funds, capitalized lease obligations, acceptances outstanding and
accounts payable and accrued liabilities.
There is no unrealized gain or loss on the estimated fair value of letters of
credit and commitments to extend credit, which are generally priced at market at
the time of funding.
The comparability of fair value disclosures among financial institutions will be
diminished due to the different assumptions and discount rates used by the
various institutions. This lack of uniformity could result in an inappropriate
degree of subjectivity being applied to these calculated values. Further, in
analyzing the information provided, the value of an individual financial
instrument should not be viewed in isolation, but rather in the context of the
overall asset/liability management position of the institution.
<PAGE>
Page 38
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(P)Disclosure of Information about Derivatives
-------------------------------------------
Derivatives Carried at Fair Value
---------------------------------
NatWest Bancorp enters into derivatives contracts that are carried at fair
value primarily on behalf of customers but also to trade for its own account.
Additionally, in December 1995, following the announcement of its merger with
Fleet Financial Group, NatWest Bancorp closed out its entire swap portfolio by
entering into exactly offsetting contracts with NatWest Plc and received a
premium of $209,152,000 for the market value of these transactions. The
portfolio is now being carried at fair value. As of December 31, 1995, gains
of $224,225,000 (inclusive of the premium received) and losses of $20,281,000
on these swap contracts have been deferred and are being amortized over the
life of the portfolio. At December 31, 1995 derivatives with notional values
of $22,764,100,000 represent the closed out swap portfolio, derivatives with
notional values of $2,571,369,000 (1994 $7,871,049,000) were entered into
either on behalf of customers, or to offset customer positions, and the
remaining positions carried at fair value, with notional values of
$3,672,432,000 (1994 $3,322,389,000) were entered into for proprietary
trading.
Derivatives are subject to both credit and market risk. The notional amounts
of derivatives do not represent the amounts at risk, which are the much
smaller amounts payable under the terms of the contracts. NatWest Bancorp's
credit exposure on these instruments arises from the possible nonperformance
of counterparties and is measured by the current replacement cost represented
by the positive fair value of these contracts. Market risk is the risk that
future changes in market conditions may make the instrument less valuable, or
liabilities attaching to it more onerous. For derivatives carried at fair
value, NatWest Bancorp often minimizes its exposure to market risks by
entering into offsetting positions.
<PAGE>
Page 39
NATIONAL WESTMINSTER BANCORP INC, AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(P)Continued
The following table sets forth the notional and gross fair value amounts of
derivatives carried at fair value.
(Amounts in Thousands)
- --------------------------------------------------------------------------------
Positive Negative
Notional fair value fair value
December 31, 1995 amount (assets) (liabilities)
- --------------------------------------------------------------------------------
Forwards and futures contracts $ 717,500 $ 416 $ 4,613
Options purchased 401,690 188 -
Options sold 231,690 - 96
Foreign exchange contracts 3,270,852 42,219 38,588
Interest rate swaps 22,764,100 340,166 339,266
Interest rate caps and floors
Purchased 852,853 1,630 -
Sold 769,216 - 1,138
- --------------------------------------------------------------------------------
Total $29,007,901 $384,619 $383,701
================================================================================
Average fair value for the year $129,389 $122,602
================================================================================
(Amounts in Thousands)
- --------------------------------------------------------------------------------
Positive Negative
Notional fair value fair value
December 31, 1994 amount (assets) (liabilities)
- --------------------------------------------------------------------------------
Forwards and futures contracts $ 446,600 $ 72 $ 169
Options purchased 418,366 168 -
Options sold 1,087,423 - 282
Foreign exchange contracts 4,405,913 46,743 45,799
Interest rate swaps 2,668,514 18,498 18,560
Interest rate caps and floors
Purchased 1,049,443 13,312 -
Sold 1,117,179 - 11,656
- --------------------------------------------------------------------------------
Total $11,193,438 $78,793 $76,466
================================================================================
Average fair value for the year $82,424 $79,720
================================================================================
Off-balance-sheet credit risk for each counterparty is closely monitored.
Credit risk is minimized by obtaining collateral where considered appropriate.
The methods used to determine counterparties and credit lines are established
with NatWest Bancorp's Risk Management Group and are regularly reviewed and
approved by them.
Forward and futures contracts are contracts for the delayed delivery of
securities or money market instruments or their cash equivalents in which the
seller agrees to make delivery at a specified future date of a specified
instrument at a specified price or yield.
<PAGE>
Page 40
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(P)Continued
Interest rate option contracts grant the purchaser, for a premium, the right
to either receive from or pay to the writer an amount based on the difference
between the contract rate and the settlement or market rate. An interest rate
cap is an option that protects the buyer against any increases in interest
rates that are beyond an agreed cap or strike rate. An interest rate floor is
the reverse of a cap, and is an option that allows the buyer to lock in a
minimum rate. By writing these contracts, NatWest Bancorp receives a premium
and then is subject to the movements in the market price of the instruments.
Interest rate swap agreements are agreements to exchange, at specified
intervals, the difference between fixed rate and floating rate amounts, or
between two floating rates, based on a notional principal amount.
Net Gains and Losses from Trading Activities
--------------------------------------------
Net gains and losses from trading activities are included in the Consolidated
Statement of Operations as part of non-interest income under the heading,
Securities trading and foreign exchange.
(Amounts in Thousands)
- -------------------------------------------------------------------------------
Net gains/(losses) Net gains
- -------------------------------------------------------------------------------
1995 1994
- -------------------------------------------------------------------------------
Trading account assets $16,399 $ 6,745
Interest rate contracts (6,840) 3,055
Foreign exchange rate contracts
(spot and forward) 8,792 9,542
- -------------------------------------------------------------------------------
Total $18,351 $19,342
===============================================================================
Trading account assets comprise primarily U.S. Treasury and government agency
securities, securities of states and their political subdivisions, and
certificates of deposit. Interest rate and foreign exchange rate contracts
include swaps, futures, forwards, options, caps and floors.
Derivatives Held for Asset and Liability Management
---------------------------------------------------
Prior to December 1995, NatWest Bancorp entered into interest rate derivative
contracts to manage its interest rate risk. Interest rate risk arises to the
extent that interest earning assets and interest bearing and non-interest
bearing liabilities mature or reprice at different times or in differing
amounts. As of December 1995, NatWest Bancorp closed out its asset and
liability management swap portfolio by entering into interest rate swaps that
exactly offset its existing portfolio. The entire swap portfolio has been
marked to market and is disclosed under the heading 'Derivatives Carried at
Fair Value'. The premium received on writing the offsetting swaps is being
amortized over the remaining life of the swap portfolio.
<PAGE>
Page 41
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(P)Continued
NatWest Bancorp has short-term liabilities such as certificates of deposit,
which are highly correlated to LIBOR, and which expose NatWest Bancorp to risk
of increasing costs in a rising rate environment. To manage this risk,
NatWest Bancorp uses a combination of forward rate agreements, Eurodollar
futures and options on Eurodollar futures contracts which allows the Bank to
lock in rates on these liabilities and so protect against rises in interest
rates.
The use of derivatives (decreased) / increased net interest income by
$(19,408,000), $113,577,000 and $104,199,000 in 1995, 1994 and 1993,
respectively.
(Amounts in Thousands)
- -------------------------------------------------------------------------------
Notional Positive Negative
December 31, 1995 amount fair value fair value
- -------------------------------------------------------------------------------
Forwards and futures contracts $ 2,500,000 $ - $ 4,269
Options purchased 2,402,000 182 -
Options sold 2,000,000 - 1,100
- -------------------------------------------------------------------------------
Total $ 6,902,000 $ 182 $ 5,369
===============================================================================
(Amounts in Thousands)
- -------------------------------------------------------------------------------
Notional Positive Negative
December 31, 1994 amount fair value fair value
- -------------------------------------------------------------------------------
Forwards and futures contracts $ 8,605,000 $10,373 $ 225
Options purchased 31,700,000 27,992 -
Options sold 2,000,000 - 250
Interest rate swaps 10,764,786 15,585 388,405
- -------------------------------------------------------------------------------
Total $53,069,786 $53,950 $388,880
===============================================================================
As of December 31, 1995 gains of $11,684,000 and losses of $43,003,000 on
matured or terminated interest rate contracts used in asset and liability
management were being deferred and amortized over periods not exceeding one
year.
<PAGE>
Page 42
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
(P)Continued
Derivatives used for asset and liability management are subject to off-
balance-sheet credit and market risk. The notional amounts of derivatives do
not represent the amounts at risk, which are the much smaller amounts payable
under the terms of the contracts. NatWest Bancorp's credit exposure to
derivatives is the current replacement cost of the instruments which is
represented by the fair value of contracts with a positive fair value. The
gross credit exposure amounts disclosed above disregard the value of any
collateral held.
(Q)Restructuring Charge
--------------------
On January 23, 1995, as part of a previously announced goal to improve its
efficiency ratio, NatWest Bancorp announced its intention to eliminate
approximately 500 jobs during the year. This reduced the workforce by 5.8%.
NatWest Bancorp recorded a charge of $9,921,000 in the first quarter of 1995
to cover the cost of the layoffs. At December 31, 1995, $8,771,000 of these
costs had been paid and charged against the accrual.
For the year ended December 31, 1994, NatWest Bancorp incurred a $10,000,000
restructuring charge for the establishment of a servicing facility in
Scranton, Pennsylvania, and the outsourcing of certain processing operations
in the consumer and indirect lending areas. Approximately 1,300 full-time,
part-time and peak-time back-office jobs are being moved from several New York
metropolitan area locations to Scranton. In addition, 275 positions in the
consumer and indirect lending operations areas have been outsourced. The
charge included an accrual for anticipated expenditures for property
abandonment, personnel relocation, severance, moving and related legal and
consulting fees. During 1995 and 1994, expenditures paid and charged against
the accrual were $7,186,000 and $2,814,000, respectively.
<PAGE>
Page 43
NATIONAL WESTMINSTER BANCORP INC. AND SUBSIDIARIES
Notes to Consolidated Financial Statements
R.Selected Quarterly Financial Data (Unaudited)
---------------------------------------------
<TABLE><CAPTION>
(Amounts in Thousands)
- ---------------------------------------------------------------------------------------------------
1995 Quarter
Fourth Third Second First
- ---------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
For the Quarter
- ---------------
Net interest income $262,365 $258,384 $256,382 $272,392
Provision for loan losses 35,000 20,000 20,000 20,000
Non-interest income 191,573 110,818 124,636 90,651
Operating expenses 249,083 229,474 245,966 240,600
Provision for income taxes 48,957 53,529 52,027 46,943
- ---------------------------------------------------------------------------------------------------
Net income $120,898 $ 66,199 $ 63,025 $ 55,500
- ---------------------------------------------------------------------------------------------------
At Quarter End
- --------------
Total assets 29,615,361 32,308,645 31,076,814 30,803,523
Loans, net of unearned income 18,211,905 19,269,012 18,159,649 16,284,488
Deposits
Demand, retail savings and time 16,337,711 15,840,340 16,413,200 16,457,281
Other 4,667,912 5,095,754 3,748,049 3,365,975
Long-term debt 653,516 621,541 609,544 609,503
Equity capital 3,235,442 3,109,040 3,048,015 2,968,511
- ---------------------------------------------------------------------------------------------------
(Amounts in Thousands)
- ---------------------------------------------------------------------------------------------------
1994 Quarter
Fourth Third Second First
- ---------------------------------------------------------------------------------------------------
For the Quarter
- ---------------
Net interest income $255,749 $230,601 $235,607 $221,294
Provision for loan losses 20,000 20,000 20,199 21,268
Non-interest income 94,757 89,427 78,961 79,774
Operating expenses 243,443 213,381 211,163 209,998
Provision for income taxes 3,553 10,373 6,990 7,204
- ---------------------------------------------------------------------------------------------------
Net income $ 83,510 $ 76,274 $ 76,216 $ 62,598
===================================================================================================
At Quarter End
- --------------
Total assets 27,089,367 24,647,357 25,393,614 25,418,422
Loans, net of unearned income 15,298,063 13,461,508 13,773,732 14,160,631
Deposits
Demand, retail savings and time 15,727,924 13,537,025 13,525,663 13,534,093
Other 3,284,78 32,968,559 2,785,797 2,847,293
Long-term debt 597,828 598,020 597,992 611,033
Equity capital 2,686,416 2,105,476 2,273,476 2,205,558
===================================================================================================
</TABLE>
