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): February 8, 1996
------------------------------------------------------------------
FLEET FINANCIAL GROUP, INC.
---------------------------------------------------------
(Exact name of registrant as specified in its charter)
RHODE ISLAND
--------------------------------------------------
(State or other jurisdiction of incorporation)
1-6366 05-0341324
-------------------------------------------------
(Commission File Number) (IRS Employer
Identification No.)
One Federal Street, Boston, Massachusetts 02211
----------------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 617-292-2000
------------
<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 its Unaudited Pro Forma Combined Financial Statements
and Notes thereto in connection with the Merger. Fleet also hereby files (a)
the Consolidated Statements of Condition of Bancorp at December 31, 1994 and
1993 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, 1994 and (b) the Consolidated Statements of Condition of Bancorp
as of September 30, 1995 and the related Consolidated Statements of Operations,
of Changes in Equity Capital and Cash Flows for the nine-month periods ending
September 30, 1995 and 1994 (unaudited).
For additional information regarding the Merger, see the Registrant's
Current Report on Form 8-K dated December 19, 1995.
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) Unaudited Pro Forma Combined Financial Statements and
Notes Thereto
99(b) Consolidated Statements of Condition of Bancorp as of
December 31, 1994 and 1993; 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, 1994, 1993
and 1992.
Consolidated Statements of Condition of Bancorp as of
September 30, 1995 and December 31, 1994; Bancorp's
Consolidated Statements of Operations, Consolidated
Statements of Changes in Equity Capital and Consolidated
Statements of Cash Flows for the nine-month periods ended
September 30, 1995 and 1994 (unaudited).
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: February 8, 1996
<PAGE>
EXHIBIT INDEX
Filing
Exhibit No. Description Method
- ----------- ----------- ------
23 Consent of KPMG Peat Marwick LLP
99(a) Unaudited Pro Forma Combined Financial Statements and
Notes Thereto
99(b) Consolidated Statements of Condition of Bancorp as of
December 31, 1994 and 1993; 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, 1994, 1993
and 1992.
Consolidated Statements of Condition of Bancorp as of
September 30, 1995 and December 31, 1994; Bancorp's
Consolidated Statements of Operations, Consolidated
Statements of Changes in Equity Capital and Consolidated
Statements of Cash Flows for the nine-month periods ended
September 30, 1995 and 1994 (unaudited).
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, 33-63631, 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 12, 1995
relating to the consolidated statement of condition of National Westminster
Bancorp Inc. and Subsidiaries as of December 31, 1994 and 1993 and the
related consolidated statement of operations, statement of changes in
equity capital and statement of cash flows for each of the years in the
three-year period ended December 31, 1994, which report appears in the
Current Report on Form 8-K of Fleet Financial Group, Inc. dated February 8,
1996. Our report refers to a change in the method of accounting for
investments and postretirement benefits other than pensions.
/s/ KPMG Peat Marwick LLP
New York, New York
February 8, 1996
Exhibit 99(a)
UNAUDITED PRO FORMA COMBINED FINANCIAL STATEMENTS
On December 19, 1995, Fleet Financial Group, Inc. ("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"), a wholly-owned indirect subsidiary of NatWest Plc, which
shall continue as the surviving bank under the name "Fleet Bank of New
York, National Association" (the "Surviving Bank"). The following
Unaudited Pro Forma Combined Balance Sheet as of September 30, 1995, and
the Unaudited Pro Forma Combined Statements of Income for the nine months
ended September 30, 1995, and the year ended December 31, 1994, of Fleet
give effect to the Merger accounted for by the purchase method of
accounting as if such transaction had occurred on January 1, 1994.
The pro forma information is based on the historical consolidated
financial statements of Fleet and Bancorp and their subsidiaries under the
assumptions and adjustments set forth in the accompanying Notes to the
Unaudited Pro Forma Combined Financial Statements. 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. Pursuant to the
terms of the Merger Agreement, certain operating subsidiaries of Bancorp,
including its leasing subsidiary, and certain assets and liabilities of
NatWest, will be retained by Bancorp or transferred to other affiliates of
NatWest Plc. Such assets and liabilities are included as pro forma
adjustments in the Unaudited Pro Forma Combined Financial Statements. The
Unaudited Pro Forma Combined Financial Statements should be read in
conjunction with the supplemental consolidated financial statements of Fleet,
filed on Form 8-K dated January 19, 1996, and the consolidated historical
financial statements of Bancorp, including the respective notes thereto. The
pro forma information is presented for comparative purposes only and is not
necessarily indicative of the combined financial position or results of
operations in the future or of the combined financial position or results of
operations which would have been realized had the acquisition been consummated
during the period or as of the dates for which the pro forma information is
presented.
<PAGE>
<TABLE><CAPTION>
FLEET FINANCIAL GROUP, INC. AND NATWEST BANK N.A.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
September 30, 1995 (a)
Fleet/
Balance Sheet NatWest
Fleet NatWest Pro Forma Restructuring Pro Forma
(Dollars in millions) Historical Pro Forma Adjustments Adjustments (d) Combined
------------ ----------- ------------- -------------- ----------
<S> <C> <C> <C> <C> <C>
ASSETS:
Cash and cash equivalents $ 3,517 $ 2,089 $ - $ - $ 5,606
Federal funds sold and securities purchased
under agreements to resell 548 1,818 - (2,366) -
Securities 19,500 5,645 (1,700)(b) (16,134) 7,311
Loans and leases 52,435 18,754 - (3,500) 67,689
Reserve for credit losses (1,448) (263) - - (1,711)
Mortgages held for resale 2,252 5 - - 2,257
Premises and equipment 1,010 415 (88)(c) - 1,337
Mortgage servicing rights 1,263 13 5 (c) - 1,281
Excess cost over net assets of subsidiaries
acquired 947 999 (522)(c) - 1,424
Other intangibles 194 26 242 (c) - 462
Other assets 3,533 2,098 84 (c) - 5,715
------------ ----------- ------------ ------------ ------------
Total assets $ 83,751 $ 31,599 $ (1,979) $ (22,000) $ 91,371
============ =========== ============ ============ ============
LIABILITIES and STOCKHOLDER'S EQUITY:
Deposits:
Demand $ 10,658 $ 4,094 $ - $ - $ 14,752
Regular savings, NOW, money market 22,817 8,752 - - 31,569
Time 20,347 8,090 - (3,600) 24,837
------------ ----------- ------------ ------------ ------------
53,822 20,936 - (3,600) 71,158
------------ ----------- ------------ ------------ ------------
Federal funds purchased and securities sold
under agreements to repurchase 8,817 4,241 - (13,058) -
Other short-term borrowings 6,182 2,462 - (5,342) 3,302
Accrued expenses and other liabilities 1,498 706 251 (c) - 2,455
Long-term debt 6,734 24 400 (b) - 7,158
------------ ----------- ------------ ------------ ------------
Total liabilities 77,053 28,369 651 (22,000) 84,073
------------ ----------- ------------ ------------ ------------
Stockholders' equity:
Preferred equity 682 - 600 (b) - 1,282
Common equity 6,016 3,230 (3,230)(c) - 6,016
------------ ----------- ------------ ------------ ------------
Total stockholders' equity 6,698 3,230 (2,630) - 7,298
------------ ----------- ------------ ------------ ------------
Total liabilities and stockholders' equity $ 83,751 $ 31,599 $ (1,979) $ (22,000) $ 91,371
============ =========== ============ ============ ============
</TABLE>
See accompanying notes to the unaudited pro forma combined financial statements
<PAGE>
FLEET FINANCIAL GROUP, INC. AND NATWEST BANK N.A.
UNAUDITED PRO FORMA COMBINED BALANCE SHEET
September 30, 1995 (a)
<TABLE><CAPTION>
NatWest
Bancorp Pro Forma NatWest
(Dollars in millions) Historical Adjustments (e) Pro Forma
-------------- ------------- ------------
<S> <C> <C> <C>
ASSETS:
Cash and cash equivalents $ 2,090 $ (1) $ 2,089
Federal funds sold and securities purchased
under agreements to resell 1,818 - 1,818
Securities 5,648 (3) 5,645
Loans and leases 19,264 (510) 18,754
Reserve for credit losses (266) 3 (263)
Mortgages held for resale 5 - 5
Premises and equipment 546 (131) 415
Mortgage servicing rights 13 - 13
Excess cost over net assets of subsidiaries
acquired 1,000 (1) 999
Other intangibles 27 (1) 26
Other assets 2,164 (66) 2,098
------------- -------------- -------------
Total assets $ 32,309 $ ($710) $ 31,599
============= ============== =============
LIABILITIES and STOCKHOLDER'S EQUITY:
Deposits:
Demand $ 4,094 $ - $ 4,094
Regular savings, NOW, money market 8,752 - 8,752
Time 8,090 - 8,090
------------- -------------- -------------
20,936 - 20,936
------------- -------------- -------------
Federal funds purchased and securities sold
under agreements to repurchase 4,241 - 4,241
Other short-term borrowings 2,614 (152) 2,462
Accrued expenses and other liabilities 787 (81) 706
Long-term debt 622 (598) 24
------------- -------------- -------------
Total liabilities 29,200 (831) 28,369
------------- -------------- -------------
Stockholder's equity:
Common equity 3,109 121 3,230
------------- -------------- -------------
Total stockholder's equity 3,109 121 3,230
------------- -------------- -------------
Total liabilities and stockholder's equity $ 32,309 $ (710) $ 31,599
============= ============== =============
</TABLE>
See accompanying notes to the unaudited pro forma combined financial statements
<PAGE>
<TABLE><CAPTION>
FLEET FINANCIAL GROUP, INC. AND NATWEST BANK N.A.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
For the Nine Months Ended September 30, 1995 (a)
Fleet /
Balance Sheet NatWest
Fleet NatWest Pro Forma Restructuring Pro Forma
(Dollars in millions, except per share data) Pro Forma Pro Forma Adjustments Adjustments (d) Combined
------------ ------------ ------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Interest and fees on loans and leases $ 3,589 $ 1,104 $ - $ (210) $ 4,483
Interest on securities 1,062 487 (79)(b) (864) 606
------------ ------------ ------------- -------------- -----------
Total interest income 4,651 1,591 (79) (1,074) 5,089
Interest expense:
Deposits 1,328 444 - (161) 1,611
Short-term borrowings 648 341 - (799) 190
Long-term debt 359 0 23 (b) - 382
------------ ------------ ------------- -------------- -----------
Total interest expense 2,335 785 23 (960) 2,183
------------ ------------ ------------- -------------- -----------
Net interest income 2,316 806 (102) (114) 2,906
Provision for credit losses 76 60 - - 136
------------ ------------ ------------- -------------- -----------
Net interest income after provision for
credit losses 2,240 746 (102) (114) 2,770
------------ ------------ ------------- -------------- -----------
Mortgage banking 381 18 - - 399
Investment services revenue 238 11 - - 249
Service charges, fees and commissions 400 174 - - 574
Securities available for sale gains (losses) 18 40 - - 58
Other noninterest income 303 82 - - 385
------------ ------------ ------------- -------------- -----------
Total noninterest income 1,340 325 - - 1,665
------------ ------------ ------------- -------------- -----------
Employee compensation and benefits 1,112 278 (2)(c) - 1,388
Occupancy and equipment 349 97 (3)(c) - 443
Mortgage servicing rights amortization 107 1 1 (c) - 109
FDIC assessment 63 19 - - 82
Marketing 71 33 - - 104
Core deposit and goodwill amortization 84 59 (18)(c) - 125
OREO expense 14 4 - - 18
Merger-related charges 50 0 - - 50
Other noninterest expense 519 227 - - 746
------------ ------------ ------------- -------------- -----------
Total noninterest expense 2,369 718 (22) - 3,065
------------ ------------ ------------- -------------- -----------
Income before income taxes 1,211 353 (80) (114) 1,370
Applicable income taxes 474 165 (50) (46) 543
------------ ------------ ------------- -------------- -----------
Net income $ 737 $ 188 $ (30) $ (68) $ 827
============ ============ ============= ============== ===========
Net income applicable to common shares: (f) $ 709 $ 188 $ (64)(b) $ (68) $ 765
============ ============ ============= ============== ===========
Weighted average common shares outstanding: (g)
Primary 266,681,634 266,681,634
Fully diluted 267,200,272 267,200,272
Earnings per share:
Primary $2.66 $2.87
Fully diluted $2.65 $2.86
</TABLE>
See accompanying notes to the unaudited pro forma combined financial statements
<PAGE>
FLEET FINANCIAL GROUP, INC. AND NATWEST BANK N.A.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
For the Nine Months Ended September 30, 1995 (a)
<TABLE><CAPTION>
Fleet Pro Forma Fleet
(Dollars in millions, except per share data) Historical Adjustments (h) Pro Forma
------------- ------------- ------------
<S> <C> <C> <C>
Interest and fees on loans and leases $ 3,525 $ 64 $ 3,589
Interest on securities 1,001 61 1,062
------------- ------------- ------------
Total interest income 4,526 125 4,651
Interest expense:
Deposits 1,272 56 1,328
Short-term borrowings 613 35 648
Long-term debt 359 - 359
------------- ------------- ------------
Total interest expense 2,244 91 2,335
------------- ------------- ------------
Net interest income 2,282 34 2,316
Provision for credit losses 75 1 76
------------- ------------- ------------
Net interest income after provision for
credit losses 2,207 33 2,240
------------- ------------- ------------
Mortgage banking 380 1 381
Investment services revenue 238 - 238
Service charges, fees and commissions 396 4 400
Securities available for sale gains (losses) 12 6 18
Other noninterest income 300 3 303
------------- ------------- ------------
Total noninterest income 1,326 14 1,340
------------- ------------- ------------
Employee compensation and benefits 1,086 26 1,112
Occupancy and equipment 340 9 349
Mortgage servicing rights amortization 101 6 107
FDIC assessment 60 3 63
Marketing 70 1 71
Core deposit and goodwill amortization 76 8 84
OREO expense 13 1 14
Merger-related charges 50 - 50
Other noninterest expense 511 8 519
------------- ------------- ------------
Total noninterest expense 2,307 62 2,369
------------- ------------- ------------
Income before income taxes 1,226 (15) 1,211
Applicable income taxes 478 (4) 474
------------- ------------- ------------
Net income $ 748 $ (11) $ 737
============= ============= ============
Net income applicable to common shares: (f) $ 721 $ (12) $ 709
============= ============= ============
Weighted average common shares outstanding: (g)
Primary 267,125,484 266,681,634
Fully diluted 267,644,122 267,200,272
Earnings per share:
Primary $2.70 $2.66
Fully diluted $2.69 $2.65
</TABLE>
See accompanying notes to the unaudited pro forma combined financial statements
<PAGE>
FLEET FINANCIAL GROUP, INC. AND NATWEST BANK N.A.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
For the Nine Months Ended September 30, 1995 (a)
<TABLE><CAPTION>
NatWest
Bancorp Pro Forma NatWest
(Dollars in millions, except per share data) Historical Adjustments (e) Pro Forma
-------------- ------------- -------------
<S> <C> <C> <C>
Interest and fees on loans and leases $ 1,111 $ (7) $ 1,104
Interest on securities 487 - 487
-------------- ------------- -------------
Total interest income 1,598 (7) 1,591
Interest expense:
Deposits 444 - 444
Short-term borrowings 321 20 341
Long-term debt 46 (46) -
-------------- ------------- -------------
Total interest expense 811 (26) 785
-------------- ------------- -------------
Net interest income 787 19 806
Provision for credit losses 60 - 60
-------------- ------------- -------------
Net interest income after provision for
credit losses 727 19 746
-------------- ------------- -------------
Mortgage banking 18 - 18
Investment services revenue 11 - 11
Service charges, fees and commissions 174 - 174
Securities available for sale gains (losses) 40 - 40
Other noninterest income 83 (1) 82
-------------- -------------- -------------
Total noninterest income 326 (1) 325
-------------- ------------- -------------
Employee compensation and benefits 340 (62) 278
Occupancy and equipment 100 (3) 97
Mortgage servicing rights amortization 1 - 1
FDIC assessment 19 - 19
Marketing 45 (12) 33
Core deposit and goodwill amortization 59 - 59
OREO expense 4 - 4
Merger-related charges 0 - -
Other noninterest expense 148 79 227
-------------- ------------- -------------
Total noninterest expense 716 2 718
-------------- ------------- -------------
Income before income taxes 337 16 353
Applicable income taxes 152 13 165
-------------- ------------- -------------
Net income $ 185 $ 3 $ 188
============== ============= =============
Net income applicable to common shares: (f) $ 185 $ 3 $ 188
============== ============= ============
</TABLE>
See accompanying notes to the unaudited pro forma combined financial statements
<PAGE>
<TABLE><CAPTION>
FLEET FINANCIAL GROUP, INC. AND NATWEST BANK N.A.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
For the Twelve Months Ended December 31, 1994 (a)
Fleet /
Balance Sheet NatWest
Fleet NatWest Pro Forma Restructuring Pro Forma
(Dollars in millions, except per share data) Pro Forma Pro Forma Adjustments Adjustments (d) Combined
------------ ------------ ------------- ------------- -----------
<S> <C> <C> <C> <C> <C>
Interest and fees on loans and leases $ 4,084 $ 1,174 $ - $ (263) $ 4,995
Interest on securities 1,624 422 (101)(b) (1,073) 872
------------ ------------ ------------- ------------- -----------
Total interest income 5,708 1,596 (101) (1,336) 5,867
Interest expense:
Deposits 1,355 375 - (168) 1,562
Short-term borrowings 726 259 - (749) 236
Long-term debt 385 0 26 (b) - 411
------------ ------------ ------------- ------------- -----------
Total interest expense 2,466 634 26 (917) 2,209
------------ ------------ ------------- ------------- -----------
Net interest income 3,242 962 (127) (419) 3,658
Provision for credit losses 80 81 - - 161
------------ ------------ ------------- ------------- -----------
Net interest income after provision for
credit losses 3,162 881 (127) (419) 3,497
------------ ------------ ------------- ------------- -----------
Mortgage banking 438 8 - - 446
Investment services revenue 294 14 - - 308
Service charges, fees and commissions 450 211 - - 661
Securities available for sale gains (losses) 4 - - - 4
Other noninterest income 472 100 - - 572
------------ ------------ ------------- ------------- -----------
Total noninterest income 1,658 333 - - 1,991
------------ ------------ ------------- ------------- -----------
Employee compensation and benefits 1,544 361 (2)(c) - 1,903
Occupancy and equipment 499 115 (4)(c) - 610
Mortgage servicing rights amortization 128 2 1 (c) - 131
FDIC assessment 128 34 - - 162
Marketing 86 34 - - 120
Core deposit and goodwill amortization 110 49 2 (c) - 161
OREO expense 67 5 - - 72
Merger-related charges 101 - - - 101
Other noninterest expense 808 274 - - 1,082
------------ ------------ ------------- ------------- -----------
Total noninterest expense 3,471 874 (3) - 4,342
------------ ------------ ------------- ------------- -----------
Income before income taxes 1,349 340 (124) (419) 1,146
Applicable income taxes 520 71 (63) (168) 360
------------ ------------ ------------- ------------- -----------
Net income $ 829 $ 269 $ (61) $ (251) $ 786
============ =========== ============= ============= ===========
Net income applicable to common shares: (f) $ 786 $ 269 $ (106)(b) $ (251) $ 698
============ =========== ============= ============= ===========
Weighted average common shares outstanding: (g)
Primary 266,614,990 266,614,990
Fully diluted 266,614,990 266,614,990
Earnings per share:
Primary $2.95 $2.62
Fully diluted $2.95 $2.62
</TABLE>
See accompanying notes to the unaudited pro forma combined financial statements
<PAGE>
FLEET FINANCIAL GROUP, INC. AND NATWEST BANK N.A.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
For the Twelve Months Ended December 31, 1994 (a)
<TABLE><CAPTION>
Fleet Pro Forma Fleet
(Dollars in millions, except per share data) Historical Adjustments (h) Pro Forma
------------- ------------- -----------
<S> <C> <C> <C>
Interest and fees on loans and leases $ 3,694 $ 390 $ 4,084
Interest on securities 1,514 110 1,624
------------- ------------- -----------
Total interest income 5,208 500 5,708
Interest expense:
Deposits 1,171 184 1,355
Short-term borrowings 628 98 726
Long-term debt 362 23 385
------------- ------------- -----------
Total interest expense 2,161 305 2,466
------------- ------------- -----------
Net interest income 3,047 195 3,242
Provision for credit losses 65 15 80
------------- ------------- -----------
Net interest income after provision for
credit losses 2,982 180 3,162
------------- ------------- -----------
Mortgage banking 391 47 438
Investment services revenue 294 - 294
Service charges, fees and commissions 438 12 450
Securities available for sale gains (losses) (1) 5 4
Other noninterest income 421 51 472
------------- ------------- -----------
Total noninterest income 1,543 115 1,658
------------- ------------- -----------
Employee compensation and benefits 1,428 116 1,544
Occupancy and equipment 453 46 499
Mortgage servicing rights amortization 90 38 128
FDIC assessment 114 14 128
Marketing 84 2 86
Core deposit and goodwill amortization 65 45 110
OREO expense 51 16 67
Merger-related charges 101 0 101
Other noninterest expense 759 49 808
------------- ------------- -----------
Total noninterest expense 3,145 326 3,471
------------- ------------- -----------
Income before income taxes 1,380 (31) 1,349
Applicable income taxes 531 (11) 520
------------- ------------- -----------
Net income $ 849 $ (20) $ 829
============= ============= ===========
Net income applicable to common shares: (f) $ 818 $ (32) $ 786
============= ============= ===========
Weighted average common shares outstanding: (g)
Primary 264,828,469 266,614,990
Fully diluted 264,828,469 266,614,990
Earnings per share:
Primary $3.09 $2.95
Fully diluted $3.09 $2.95
</TABLE>
See accompanying notes to the unaudited pro forma combined financial statements
<PAGE>
FLEET FINANCIAL GROUP, INC. AND NATWEST BANK N.A.
UNAUDITED PRO FORMA COMBINED STATEMENT OF INCOME
For the Twelve Months Ended December 31, 1994 (a)
<TABLE><CAPTION>
NatWest
Bancorp Pro Forma NatWest
(Dollars in millions, except per share data) Historical Adjustments (e) Pro Forma
------------ ------------- -------------
<S> <C> <C> <C>
Interest and fees on loans and leases $ 1,182 $ (8) $ 1,174
Interest on securities 422 - 422
------------ ------------- -------------
Total interest income 1,604 (8) 1,596
Interest expense:
Deposits 375 - 375
Short-term borrowings 226 33 259
Long-term debt 60 (60) -
------------ ------------- -------------
Total interest expense 661 (27) 634
------------ ------------- -------------
Net interest income 943 19 962
Provision for credit losses 81 - 81
------------ ------------- -------------
Net interest income after provision for
credit losses 862 19 881
------------ ------------- -------------
Mortgage banking 8 - 8
Investment services revenue 14 - 14
Service charges, fees and commissions 211 - 211
Securities available for sale gains (losses) 6 (6) -
Other noninterest income 104 (4) 100
------------ ------------- -------------
Total noninterest income 343 (10) 333
------------ ------------- -------------
Employee compensation and benefits 448 (87) 361
Occupancy and equipment 117 (2) 115
Mortgage servicing rights amortization 2 - 2
FDIC assessment 34 - 34
Marketing 49 (15) 34
Core deposit and goodwill amortization 49 - 49
OREO expense 5 - 5
Merger-related charges - - -
Other noninterest expense 174 100 274
------------ ------------- -------------
Total noninterest expense 878 (4) 874
------------ ------------- -------------
Income before income taxes 327 13 340
Applicable income taxes 28 43 71
------------ ------------- -------------
Net income $ 299 $ (30) $ 269
============ ============= =============
Net income applicable to common shares: (f) $ 299 $ (30) $ 269
============ ============= =============
</TABLE>
See accompanying notes to the unaudited pro forma combined financial statements
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
(a) The pro forma information presented is not necessarily indicative
of the results of operations or the combined financial position that would
have resulted had the Merger been consummated at the beginning of the
periods indicated, nor is it necessarily indicative of the results of
operations in future periods or the future financial position of the
combined entities. Under generally accepted accounting principles
("GAAP"), the assets and liabilities of NatWest will be combined at
market value with those of Fleet with the excess of the purchase price
over the net assets acquired allocated to goodwill. On November 30,
1995, Fleet completed the merger (the "Shawmut Merger") of Shawmut
National Corporation ("Shawmut") with and into Fleet with such merger
accounted for as a pooling of interests. Fleet's historical financial
information has been restated to give effect to the Shawmut Merger for all
periods presented.
The pro forma combined financial statements do not give effect to the
anticipated cost savings in connection with the Merger or the Shawmut
Merger. While no assurance can be given, Fleet expects to achieve cost
savings of approximately $200 million (pre-tax) within eighteen months
following the Merger. Cost savings of $400 million are also expected
to be achieved in connection with the Shawmut Merger. Such cost savings
are expected to be achieved within the first fifteen months after the
consummation of the Shawmut Merger. Cost savings from both the Merger
and the Shawmut Merger are expected to be realized primarily through
reductions in staff, elimination and consolidation of certain branches,
and the consolidation of certain offices, data processing and other
redundant back-office operations. The extent to which cost savings will be
achieved in connection with the Merger and the Shawmut Merger is dependent
upon various factors beyond the control of Fleet, including the regulatory
environment, economic conditions, unanticipated changes in business
conditions and inflation. Therefore, no assurances can be given with
respect to the ultimate level of cost savings to be realized, or that such
savings will be realized in the time-frame currently anticipated.
The pro forma information gives effect to the Merger as if such Merger
had occurred on January 1, 1994. In connection with the Merger, Fleet
intends to substantially restructure its balance sheet to replace lower
yielding assets, primarily securities and residential loans, with higher
earning assets acquired from NatWest and to replace higher cost funding
with lower cost deposits acquired from NatWest (see note d). The pro forma
information gives effect to the balance sheet restructuring. However, due
to differences in market conditions and the balance sheet mix and size
during 1994 and 1995 compared to the current market conditions and the
current balance sheet mix and size, pro forma results of operations may
not be indicative of the results of operations in the future or which would
have resulted had the acquisition been consummated during the periods for
which the pro forma information is presented.
In connection with the Shawmut Merger, Fleet signed definitive
agreements to divest 64 branches to comply with anti-trust concerns. The
sales will consist of approximately $2.6 billion in deposits and $1.9
billion in loans. The negative impact of the divestitures is not expected
to be material to the business operations or financial condition of Fleet
and such impact has not been included in the accompanying Unaudited Pro
Forma Combined Financial Statements. No divestitures are anticipated from
the Merger.
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
During the fourth quarter of 1995, Fleet recorded pre-tax charges of
$440 million relating to the Shawmut Merger and $175 million related to
Fleet's decision to sell Fleet Finance, the corporation's Atlanta based
consumer finance subsidiary, and certain nonperforming assets that have
been identified for accelerated disposition. In connection with this
charge, approximately $1.7 billion of assets (primarily loans) were
classified to held for sale or accelerated disposition. The after-tax
effect of these charges was $398 million. During the fourth quarter of
1995, Fleet exchanged all of the corporation's dual convertible preferred
stock for 19.9 million shares of Fleet common stock. As part of that
transaction, $283 million of preferred equity was reclassified to common
equity and earnings available to common shareholders was reduced by $0.59
per share. These transactions are not reflected in the accompanying
Unaudited Pro Forma Combined Financial Statements.
All dollar amounts included in these Notes to Unaudited Pro Forma
Combined Financial Statements are in thousands unless otherwise indicated.
(b) The Merger Agreement provides for the payment of $2.7 billion in
cash at the closing; provided that Fleet may elect to pay (i) up to $175
million of the purchase price in shares of its common stock, $0.01 par
value (the "Common Stock") and (ii) up to $300 million of the purchase
price in shares of a new series of Fleet preferred stock with a stated
value of $250 per share. The Unaudited Pro Forma Combined Financial
Statements assume that no Common Stock is issued as part of the purchase
price and the entire $300 million of preferred stock is issued either as
part of the purchase price or otherwise by Fleet to fund the payment of the
cash purchase price. The following funding assumptions have been made in
conjunction with the Merger and are reflected in the accompanying Unaudited
Pro Forma Combined Financial Statements. The $2.7 billion purchase price
will be funded through the issuance of $600 million of preferred stock with
a dividend rate of 7.50 %, the issuance of $400 million of long-term debt
with an average borrowing rate of 6.50%, and the sale of approximately
$1.7 billion of securities with an average yield of 6.22% for 1995 and
5.92% for 1994. These funding assumptions are based on the best
information available as of the date of the filing of these Unaudited Pro
Forma Combined Financial Statements and may be different from the actual
adjustments to reflect the funding transactions actually consummated. All
funding transactions are assumed to have occurred as of January 1, 1994.
(c) Purchase accounting adjustments include adjustments to reflect
the fair value of the assets acquired and liabilities assumed, the
elimination of NatWest's stockholders' equity, and the recording of
goodwill and core deposit intangible in accordance with the purchase
method of accounting. These adjustments are based on the best information
available as of the date of the filing of these Unaudited Pro Forma
Combined Financial Statements and may be different from the actual
adjustments to reflect the fair value of the net assets purchased as of
the date of consummation of the merger. Adjustments have been made to the
Unaudited Pro Forma Combined Balance Sheet to reflect the recording of
goodwill as well as to eliminate any goodwill balances previously recorded
at NatWest, in accordance with the purchase method of accounting.
Purchase price $ 2,700
Historical net tangible assets acquired $3,230
Elimination of NatWest goodwill and
identifiable intangibles (1,007) 2,223
--------
Estimated fair value adjustments 62
-------
Estimated fair value of net assets acquired 2,285
-------
Excess cost over net assets acquired (Goodwill) $ 415
=======
Goodwill of $415 million has been estimated assuming a purchase price of $2.7
billion which excludes any payments to be made under the earnout agreement.
The Merger Agreement provides for additional payments (the "Earnout") to be
made annually based upon the level of earnings from the NatWest franchise,
not to exceed $560 million during an eight year "Earnout Period", which will
commence (a) on July 1, 1996 and end on June 30, 2004 if the closing occurs
on or before June 30, 1996, or, if the closing occurs after June 30, 1996,
(b) on the first day of the fiscal quarter immediately following such closing
and end on the eighth anniversary of such first day of such fiscal
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
quarter. Assuming full payout of the Earnout, the total purchase price
would be $3.26 billion resulting in an increase to goodwill of $560
million. Such increase, if any, will be recorded when earned during the
Earnout Period and will be amortized over the remaining life of the
goodwill. Included in the pro forma adjustments is an increase to goodwill
of $62 million reflecting the estimated payment required under the Earnout
assuming consummation of the Merger as of January 1, 1994. This estimate
is based upon the level of NatWest pro forma earnings in 1994 and is not
necessarily indicative of payments that may be made, if any, upon
consummation of the Merger. Estimated fair value adjustments include
merger related charges and other adjustments to reflect the estimated fair
value of assets being acquired and liabilities being assumed. Significant
adjustments include core deposit intangible of $150 million, net of tax and
a liability of $106 million, net of tax to reflect Fleet's best estimate of
merger related charges. Goodwill due to the merger will be amortized on a
straight line basis over 25 years. Other identifiable intangible assets
due to the Merger will be amortized over the estimated period of benefit
(primarily core deposit not exceeding 10 years).
(d) In conjunction with or prior to the Merger, Fleet and Bancorp
will take certain actions to restructure the Combined Balance Sheet through
the liquidation of low-return assets and the reduction of borrowed
funds. These restructuring adjustments are reflected in the accompanying
Unaudited Pro Forma Combined Financial Statements. The accompanying
Unaudited Pro Forma Combined Financial Statements assume the reduction of
approximately $22 billion of assets and reduces an equal amount of
borrowed funds. The assets assumed to be reduced include approximately
$16.1 billion of securities with an average yield of 6.22% for 1995 and
5.92% for 1994, approximately $3.5 billion of loans, primarily
residential real estate, with an average yield of 8.00% for 1995 and 7.51%
for 1994, and approximately $2.4 billion in federal funds sold with an
average yield of 6.26% for 1995 and 4.99% for 1994. The $22 billion of
borrowed funds assumed to be reduced includes approximately $18.4 billion
of short-term borrowings with an average borrowing rate of 5.79% for 1995
and 4.07% for 1994, and $3.6 billion of time deposits with an average
borrowing rate of 5.95% for 1995 and 4.67% for 1994. Asset yields and
funding costs have been estimated based upon historical weighted average
yields and funding costs of similar assets and liabilities in the
aggregate and may not be indicative of the results of operations in the
future or which would have been realized had such transactions been
consummated during the periods for which the pro forma information is
presented. In addition, because the assumed asset yields and funding
costs have been based upon historical weighted average asset yields and
funding costs in the aggregate, wider spreads between assets and
liabilities assumed to have been liquidated during 1994 compared to 1995
have created a more negative impact on 1994 pro forma results of operations
compared to 1995. The balance sheet restructuring adjustments have been
calculated assuming a certain balance sheet size as well as a certain mix
of balance sheet assets (primarily securities and residential loans) to
total assets as of September 30, 1995. As a result, restructuring
assumptions may not be indicative of the results of operations in the
future or that would have been achieved had the Merger been consummated at
the beginning of the periods indicated. Also, due to changing market
conditions, balance sheet mix and balance sheet size restructuring
assumptions may differ as compared to the ultimate balance sheet
restructuring upon consummation of the Merger.
(e) Pursuant to the Merger Agreement, certain operating subsidiaries
of Bancorp, including its leasing business, and certain assets and
liabilities of NatWest will be retained by Bancorp. Pro forma adjustments
reflect the approximate impact of those assets not being purchased and
liabilities not being assumed.
(f) The Fleet/NatWest Pro Forma net income applicable to common
shares reflects the sum of the Fleet Pro Forma net income applicable per
common share and the NatWest Pro Forma net income applicable per common
share adjusted for the purchase accounting, funding, and restructuring
adjustments.
<PAGE>
NOTES TO UNAUDITED PRO FORMA COMBINED
FINANCIAL STATEMENTS
(g) The Fleet Pro Forma weighted average shares outstanding for the
nine months ended September 30, 1995, and for the year ended December 31,
1994, reflect Fleet's historical weighted average shares outstanding,
restated to give effect to the Shawmut Merger, plus the effect of issuing
treasury stock in connection with the NBB and Northeast transactions as if
such repurchase of common stock and reissuance of the treasury stock
occurred on January 1, 1994.
(h) During 1995 Fleet also completed the merger (the "NBB Merger") of
NBB Bancorp, Inc. ("NBB") with and into Fleet, the merger (the "Plaza
Merger") of Plaza Home Mortgage Corp. ("Plaza") with and into Fleet, the
merger (the "Northeast Merger") of Northeast Federal Corp. ("Northeast")
with and into Fleet, the acquisition (the "Barclays Acquisition") of
substantially all of the assets of Barclays Business Finance Division of
Barclays Business Credit, Inc. ("Barclays") by Fleet and Fleet's repurchase
(the "FMG Repurchase") of the publicly-held shares of Fleet's majority-
owned subsidiary, Fleet Mortgage Group, Inc. ("FMG"), each of which was
accounted for by the purchase method of accounting and each of which is
included in the Unaudited Pro Forma Combined Balance Sheet. Pro forma
adjustments to the Unaudited Pro Forma Combined Statements of Income
reflect the impact of the NBB Merger, the Barclays Acquisition, the FMG
Repurchase, the Plaza Merger and the Northeast Merger which were
consummated on January 27, 1995, January 31, 1995, February 28, 1995,
March 3, 1995 and June 9, 1995, respectively, as if such transactions had
been consummated on January 1, 1994. Certain acquisitions completed by
NatWest during 1994 and 1995 have not been reflected in the Unaudited Pro
Forma Combined Financial Statements due to immateriality.
Exhibit 99(b)
Consolidated Statement of Condition
National Westminster Bancorp Inc. and Subsidiaries
<TABLE><CAPTION>
(Amounts in Thousands except Share Amounts)
- ------------------------------------------------------------------------------------------
December 31 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks (Note C) $ 1,327,644 $ 983,441
Interest bearing deposits with banks 1,140,676 1,046,955
Securities (Notes D, L and M)
Held to maturity (at amortized cost) 2,877,357 2,286,127
Available for sale (at approximate fair value) 1,759,177 1,782,037
Trading account (Note M) 745,692 826,062
Federal funds sold and securities purchased
under agreement to resell 1,887,013 1,622,421
Loans, net of unearned income of $266,789 and $262,794 15,298,063 13,978,536
Allowance for loan losses (289,002) (373,281)
- ------------------------------------------------------------------------------------------
Loans, net (Notes E, L and M) 15,009,061 13,605,255
Goodwill 849,368 551,299
Premises and equipment, net (Note F) 452,784 399,346
Due from customers on acceptances 127,639 98,695
Other assets (Note K) 912,956 459,499
- ------------------------------------------------------------------------------------------
Total assets $ 27,089,367 $ 23,661,137
- ------------------------------------------------------------------------------------------
Liabilities and Equity Capital
Deposits
Domestic offices
Demand $ 4,570,954 $ 4,120,221
Retail savings and time 11,156,970 9,824,616
Other domestic time 1,366,856 693,444
Foreign offices 1,917,927 2,225,817
- ------------------------------------------------------------------------------------------
Total 19,012,707 16,864,098
Short-term borrowed funds (Note G) 4,157,644 3,774,977
Long-term debt (Note H) 597,828 611,074
Acceptances outstanding 139,927 107,712
Accounts payable and accrued liabilities (Note I) 494,845 153,914
- ------------------------------------------------------------------------------------------
Total liabilities 24,402,951 21,511,775
- ------------------------------------------------------------------------------------------
Equity capital (Note J)
Common stock, no par value (1,500 shares
authorized; 1,000 shares issued and outstanding) 500,000 500,000
Surplus 2,265,065 1,998,287
Accumulated deficit (50,327) (348,925)
Unrealized losses on available for sale securities (Note D) (28,322)
- ------------------------------------------------------------------------------------------
Total equity capital 2,686,416 2,149,362
- ------------------------------------------------------------------------------------------
Total liabilities and equity capital $ 27,089,367 $ 23,661,137
- ------------------------------------------------------------------------------------------
<FN>
Notes to consolidated financial statements appear on pages 39 through 58.
</FN>
</TABLE>
<PAGE>
Consolidated Statement of Operations
National Westminster Bancorp Inc. and Subsidiaries
<TABLE><CAPTION>
(Amounts in Thousands)
- ----------------------------------------------------------------------------------------------
Year Ended December 31 1994 1993 1992
- ----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Interest Income
Loans (Note E) $ 1,182,219 $ 1,054,117 $ 1,112,358
Securities 212,145 187,399 218,715
Trading account 72,866 37,621 32,487
Deposits with banks, Federal funds sold and
securities purchased under agreements to resell 137,236 80,084 69,051
- ----------------------------------------------------------------------------------------------
Total interest income 1,604,466 1,359,221 1,432,611
- ----------------------------------------------------------------------------------------------
Interest Expense
Deposits 375,198 373,943 528,048
Short-term borrowed funds (Note G) 226,089 123,993 97,218
Long-term debt (Note H) 59,928 63,128 63,162
- ----------------------------------------------------------------------------------------------
Total interest expense 661,215 561,064 688,428
- ----------------------------------------------------------------------------------------------
Net interest income 943,251 798,157 744,183
Provision for loan losses (Note E) 81,467 135,298 148,488
- ----------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 861,784 662,859 595,695
- ----------------------------------------------------------------------------------------------
Non-Interest Income
Service charges on deposit accounts 119,873 113,986 98,565
Syndication and other loan-related fees 35,386 52,511 37,553
Credit card fees 34,989 27,473 23,699
Letter of credit and acceptance fees 21,126 21,953 24,601
Securities trading and foreign exchange 19,342 16,000 10,445
Trust and custody fees 13,834 14,707 13,357
Mutual fund and annuity fees 10,560 9,652 7,668
Securities gains (Note D) 7,657 63,510 42,054
Other 80,152 84,258 72,231
- ----------------------------------------------------------------------------------------------
Total non-interest income 342,919 404,050 330,173
- ----------------------------------------------------------------------------------------------
Operating Expenses
Salaries and benefits (Note K) 448,250 405,010 392,177
Supplies and services 141,498 135,356 129,754
Net occupancy (Notes F and L) 74,233 71,429 69,692
Business development 49,102 41,186 34,027
Equipment (Note F) 42,512 39,256 35,804
FDIC insurance 34,384 36,623 33,287
Restructuring (Note P) 10,000
Foreclosed assets (Note E) 4,875 30,305 8,595
Amortization of goodwill 42,670 36,992 36,992
Other 30,461 18,226 15,486
- ----------------------------------------------------------------------------------------------
Total operating expenses 877,985 814,383 755,814
- ----------------------------------------------------------------------------------------------
Income before income taxes 326,718 252,526 170,054
Provision (benefit) for income taxes (Note I) 28,120 (45,566) 14,897
- ----------------------------------------------------------------------------------------------
Net income $ 298,598 $ 298,092 $ 155,157
- ----------------------------------------------------------------------------------------------
<FN>
Notes to consolidated financial statements appear on pages 39 through 58.
</FN>
</TABLE>
<PAGE>
Consolidated Statement of Changes in Equity Capital
National Westminster Bancorp Inc. and Subsidiaries
<TABLE><CAPTION>
(Amounts in Thousands except Share Amounts)
- ------------------------------------------------------------------------------------------------------------------
Unrealized
Common Accumulated gains and
stock Surplus deficit (losses) Total
- ------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1992 $ 500,000 $ 1,998,287 $ (802,174) $ 1,696,113
Net income 155,157 155,157
- ------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1992 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 B and J) (240,000) (240,000)
Capital contributions (Notes B and J) 506,778 506,778
Adjustment to beginning balance
for change in accounting principle,
net of related tax effect of $4,379
(Note D) $ 6,005 6,005
Change in unrealized gains
and (losses), net of related tax
effect of $25,493 (Note D) (34,327) (34,327)
- ------------------------------------------------------------------------------------------------------------------
Balance, December 31, 1994
(1,500 shares authorized; 1,000
shares issued and outstanding) $ 500,000 $ 2,265,065 $ (50,327) $ (28,322) $ 2,686,416
- ------------------------------------------------------------------------------------------------------------------
<FN>
Notes to consolidated financial statements appear on pages 39 through 58.
</FN>
</TABLE>
<PAGE>
<TABLE>
Consolidated Statement of Cash Flows
National Westminster Bancorp Inc. and Subsidiaries
(Amounts in Thousands)
<CAPTION>
- ---------------------------------------------------------------------------------------------------------
Year Ended December 31 1994 1993 1992
- ---------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 298,598 $ 298,092 $ 155,157
Adjustments to reconcile net income to
net cash provided by (used in) operating activities:
Amortization of goodwill 42,670 36,992 36,992
Depreciation of premises and equipment 41,271 38,569 37,315
Provision for loan losses 81,467 135,298 148,488
Provision and charge-offs for foreclosed assets 2,915 20,364 4,782
Amortization of (discount) premium on securities (16,729) (3,082) 9,381
Amortization of unearned income on loans (143,376) (154,414) (202,234)
Provision for deferred income taxes 2,508 (62,309) 322
Securities gains (7,657) (63,510) (42,054)
Premises and equipment (gains) losses (7,044) (366) 318
(Increase) decrease in interest and other income receivable (158,885) (1,372) 29,797
Increase (decrease) in interest and other expenses payable 157,491 73,061 (47,759)
Net (increase) decrease in trading account 80,370 (253,789) 77,481
Other, net (21,332) 32,967 39,810
- ---------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 352,267 96,501 247,796
- ---------------------------------------------------------------------------------------------------------
Investing Activities
Net (increase) decrease in interest bearing
deposits with banks (76,371) 100,466 (529,262)
Net increase in Federal funds sold and securities
purchased under agreements to resell (264,592) (77,755) (1,116,173)
Purchases of securities held to maturity (1,397,947) (1,565,427) (2,212,880)
Sales of securities held to maturity 1,775,927
Maturities of securities held to maturity 786,261 956,374 432,969
Purchases of securities available for sale (4,692,923) (7,612,732)
Sales of securities available for sale 1,510,434 6,559,203
Maturities of securities available for sale 3,628,971 981,620
Purchase of credit card loans (5,923) (155,100)
Net principal received (disbursed) on loans 358,578 (39,099) 84,957
Net decrease in acceptances 3,271 1,352 5,252
Capital expenditures on premises and equipment (65,725) (49,811) (33,096)
Proceeds from sale of premises and equipment 13,354 1,235 848
Cash received from the purchase of Citizens First 161,302
- ---------------------------------------------------------------------------------------------------------
Net cash used in investing activities (35,387) (750,497) (1,746,558)
- ---------------------------------------------------------------------------------------------------------
Financing Activities
Net increase (decrease) in demand deposits (9,485) 284,373 555,621
Net decrease in retail savings and time deposits (454,316) (180,649) (284,277)
Net increase (decrease) in other domestic time deposits 673,412 (367,686) (421,776)
Net increase (decrease) in foreign office deposits (307,890) 383,466 (1,719)
Net increase in short-term borrowed funds 378,999 517,847 1,425,303
Repayment of long-term debt (13,397) (25,073) (213)
Dividends paid to NatWest Holdings (240,000)
- ---------------------------------------------------------------------------------------------------------
Net cash provided by financing activities 27,323 612,278 1,272,939
- ---------------------------------------------------------------------------------------------------------
Increase (decrease) in cash and due from banks 344,203 (41,718) (225,823)
Cash and due from banks at January 1 983,441 1,025,159 1,250,982
- ---------------------------------------------------------------------------------------------------------
Cash and due from banks at December 31 $ 1,327,644 $ 983,441 $ 1,025,159
- ---------------------------------------------------------------------------------------------------------
<FN>
For the years ended December 31, 1994, 1993, and 1992, income tax payments
totaled $12,800,000, $19,818,000 and $29,609,000, respectively, and interest
payments totaled $570,205,000, $566,037,000 and $746,782,000, respectively.
Notes to consolidated financial statements appear on pages 39 through 58.
</FN>
</TABLE>
<PAGE>
A. Summary of Significant Accounting Policies
The following are the significant accounting policies of NatWest Bancorp. At
December 31, 1994, the primary subsidiaries were NatWest USA and NatWest Bancorp
NJ. The primary subsidiary of NatWest Bancorp NJ was NatWest NJ. Effective
January 1, 1995, NatWest USA and NatWest NJ were merged to form one bank -
NatWest Bank N.A., a subsidiary of NatWest Bancorp NJ. NatWest Bancorp is a
wholly owned subsidiary of NatWest Holdings, which is a wholly owned subsidiary
of NatWest Plc.
These policies conform with generally accepted accounting principles and with
general practice in the banking industry. 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.
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. 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. This
represents a change in accounting policy. Previously, available for sale
securities were valued at the lower of cost or market value, with any valuation
adjustment reflected currently in income. In accordance with SFAS 115 prior
periods have not been restated. The cumulative effect of this change in
accounting principle has been reflected as an adjustment to equity capital as of
January 1, 1994.
The cost of all securities sold is determined on a specific identification
basis.
Trading Account
Trading account assets are composed 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 on trading
account assets is recorded as interest income.
Derivatives Carried at Fair Value
Derivatives carried at fair value are derivative contracts entered into
primarily on the behalf of customers but also to trade for NatWest Bancorp's own
account. These derivatives are marked to market, and the resulting gross fair
value amounts are included within 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>
Derivatives Held for Asset and Liability Management
Derivatives are used in the management of interest rate exposures, and 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. 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 asset or liability hedged.
Loans
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.
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.
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.
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.
Foreclosed Assets
Foreclosed assets comprise property acquired in legal foreclosure. These
properties 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 on the
Consolidated Statement of Operations.
In the second quarter of 1994, NatWest Bancorp reclassified the outstanding
balances on properties that had been accounted for as substantively foreclosed
from "foreclosed assets" to "loans" in accordance with guidelines established by
bank regulatory agencies. Prior period balances were also reclassified
to reflect the accounting change that affected the classification of certain
balances in the Consolidated Statement of Condition and Consolidated Statement
of Operations, but did not affect net income in any reported period.
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. 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.
<PAGE>
In May 1993, FASB issued FASB Statement No. 114 - "Accounting by Creditors for
Impairment of a Loan" (SFAS 114), effective for the 1995 financial statements.
SFAS 114 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"). The adoption
of SFAS 114 on January 1, 1995, is not expected to have a significant financial
statement impact.
In October 1994, FASB issued FASB Statement No. 118 -"Accounting by Creditors
for Impairment of a Loan - Income Recognition" (SFAS 118), an amendment to SFAS
114. The new accounting standard amends SFAS 114 to allow a creditor to use
existing methods for recognizing interest income on an impaired loan. The
adoption of this standard on January 1, 1995, is not expected to have a
significant financial statement impact.
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 these benefits 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 the 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 has been established 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.
B. Acquisitions
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 Depositary 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 addition, 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 resulted in
goodwill of $340,739,000. This amount is being amortized on a straight-line
basis over an estimated benefit period of 15 years.
C. Cash and Due from Banks
Federal Reserve regulations require depository institutions to maintain cash
reserves with the Federal Reserve.
<PAGE>
The average amount of reserve balances was $242,564,000 and $201,507,000 during
1994 and 1993, respectively.
D. 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. In compliance with SFAS 115, the amounts reported for December 31, 1993,
have not been restated.
<TABLE><CAPTION>
- ----------------------------------------------------------------------------------------------------
(Amounts in Thousands)
Gross Gross
Amortized unrealized unrealized Approximate
December 31, 1994 cost gains losses fair value
- ----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Held to Maturity
U.S. Treasury securities and obligations
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 obligations
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
- ----------------------------------------------------------------------------------------------------
December 31, 1993
- ----------------------------------------------------------------------------------------------------
Held to Maturity
U.S. Treasury securities and obligations
of U.S. government agencies $2,185,646 $ 17,207 $ 2,983 $2,199,870
Obligations of states and political subdivisions 2,016 114 2,130
Foreign government securities 10,810 10,810
Corporate debt securities 10,454 737 11,191
Mortgage-backed securities 27,312 280 14 27,578
- ----------------------------------------------------------------------------------------------------
Total debt securities 2,236,238 18,338 2,997 2,251,579
Equity securities 49,889 21 49,868
- ----------------------------------------------------------------------------------------------------
Total $2,286,127 $ 18,338 $ 3,018 $2,301,447
- ----------------------------------------------------------------------------------------------------
Available for Sale
U.S. Treasury securities and obligations
of U.S. government agencies $1,770,682 $ 4,699 $ 1,542 $1,773,839
Equity securities 11,355 7,249 22 18,582
- ----------------------------------------------------------------------------------------------------
Total $1,782,037 $ 11,948 $ 1,564 $1,792,421
- ----------------------------------------------------------------------------------------------------
</TABLE>
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.
<PAGE>
<TABLE><CAPTION>
(Amounts in Thousands)
- ------------------------------------------------------------------------------------------
Amortized Approximate Amortized Approximate
cost fair value cost fair value
- ------------------------------------------------------------------------------------------
December 31 1994 1993
- ------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Held to Maturity
Due in one year or less $ 548,594 $ 540,844 $ 716,245 $ 720,091
Due after one year through five years 2,015,357 1,894,564 1,233,839 1,245,197
Due after five years through ten years 94,479 93,736 350 350
Due after ten years 22 21
- ------------------------------------------------------------------------------------------
2,658,452 2,529,165 1,950,434 1,965,638
Mortgage-backed securities 218,905 199,570 285,804 285,941
- ------------------------------------------------------------------------------------------
Total $2,877,357 $2,728,735 $2,236,238 $2,251,579
- ------------------------------------------------------------------------------------------
Available for Sale
Due in one year or less $ 741,031 $ 736,630 $1,274,078 $1,274,336
Due after one year through five years 986,100 939,734 496,604 499,503
Due after five years through ten years 24,665 21,813
- ------------------------------------------------------------------------------------------
Total $1,751,796 $1,698,177 $1,770,682 $1,773,839
- ------------------------------------------------------------------------------------------
</TABLE>
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.
In conjunction with the acquisition of Citizens First, $163,762,000 of
securities that were classified as held to maturity by Citizens First were
reclassified as available for sale by NatWest Bancorp. This accounting treatment
is consistent with the provisions of SFAS 115.
The increase in net unrealized losses on available for sale securities included
as a separate component of equity capital, net of the effect of applicable
income taxes, totaled $34,327,000.
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.
Proceeds from sales of debt securities during 1992 were $1,764,943,000. Gross
gains of $42,229,000 and gross losses of $2,877,000 were realized on these
sales. During 1992, proceeds from sales of equity securities were $10,984,000
and net gains recorded on sales of equity securities totaled $2,702,000.
Total securities of any state (including all of its political subdivisions) were
less than 10% of equity capital at December 31, 1994, and 1993.
E. Loans and Allowance for Loan Losses
The following table is a summary by type of loan:
<TABLE><CAPTION>
(Amounts in Thousands)
- --------------------------------------------------------------------------------
December 31 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Domestic
Business
Commercial and financial $ 8,009,779 $ 9,062,913
Real estate construction 235,211 192,415
Commercial mortgage 2,431,877 1,638,699
Lease financing 218,829 181,281
- --------------------------------------------------------------------------------
Total business 10,895,696 11,075,308
- --------------------------------------------------------------------------------
Consumer
Residential mortgage and home equity 2,424,394 1,352,158
Credit cards and cash reserve 1,206,588 1,006,551
Installment loans to individuals 875,708 701,119
- --------------------------------------------------------------------------------
Total consumer 4,506,690 3,059,828
- --------------------------------------------------------------------------------
Total domestic 15,402,386 14,135,136
- --------------------------------------------------------------------------------
Foreign 162,466 106,194
- --------------------------------------------------------------------------------
Gross loans 15,564,852 14,241,330
Unearned income (266,789) (262,794)
- --------------------------------------------------------------------------------
Total loans $ 15,298,063 $ 13,978,536
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
Non-accrual loans totaled $318,277,000 at December 31, 1994, and $493,504,000 at
December 31, 1993. Foreclosed assets amounted to $84,872,000 at December 31,
1994, compared with $67,605,000 at December 31, 1993. Troubled debt
restructurings amounted to $64,104,000 and $94,126,000 at December 31, 1994, and
1993, respectively.
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:
<TABLE><CAPTION>
(Amounts in Thousands)
- --------------------------------------------------------------------------------
Year Ended December 31 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Gross interest under original terms $ 44,107 $ 81,525 $122,895
- --------------------------------------------------------------------------------
Interest actually recognized $ 14,875 $ 21,838 $ 24,731
- --------------------------------------------------------------------------------
</TABLE>
The following table presents an analysis of the allowance for loan losses for
the three years ended December 31, 1994:
<TABLE><CAPTION>
(Dollar Amounts in Thousands)
- --------------------------------------------------------------------------------
1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Balance, January 1 $373,281 $622,991 $703,521
Add
Provision for loan losses 81,467 135,298 148,488
Additions due to acquisition 62,770
Deduct
Charge-offs 272,888 419,382 252,117
Less recoveries on accounts previously
charged off 44,372 34,374 23,099
- --------------------------------------------------------------------------------
Net charge-offs 228,516 385,008 229,018
- --------------------------------------------------------------------------------
Balance, December 31 $289,002 $373,281 $622,991
- --------------------------------------------------------------------------------
As a percentage of loans outstanding 1.89% 2.67% 4.33%
- --------------------------------------------------------------------------------
</TABLE>
Foreclosed assets expense for the years ended December 31, 1994, 1993, and 1992,
totaled $4,875,000, $30,305,000, and $8,595,000, respectively. Included in
foreclosed assets expense were asset valuation adjustments of $2,915,000,
$20,364,000 and $4,782,000 in 1994, 1993 and 1992, 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 $2,068,000 and $6,942,000 in 1993 and 1992,
respectively.
F. Premises and Equipment
<TABLE><CAPTION>
(Amounts in Thousands)
- --------------------------------------------------------------------------------
December 31 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Land $ 72,565 $ 68,225
Buildings 306,987 292,877
Equipment 261,862 230,607
Leasehold improvements 97,475 67,820
- --------------------------------------------------------------------------------
Total 738,889 659,529
- --------------------------------------------------------------------------------
Accumulated depreciation and amortization (286,105) (260,183)
- --------------------------------------------------------------------------------
Net book value $ 452,784 $ 399,346
- --------------------------------------------------------------------------------
</TABLE>
Rental expense (net of rents received) for premises and equipment amounted to
$16,331,000 in 1994, $13,228,000 in 1993 and $11,523,000 in 1992. Depreciation
and amortization expense amounted to $41,271,000 in 1994, $38,569,000 in 1993
and $37,315,000 in 1992.
<PAGE>
G. Short-Term Borrowed Funds
<TABLE><CAPTION>
(Dollar Amounts in Thousands)
- --------------------------------------------------------------------------------
1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal Funds Purchased
Balance at year-end $ 228,817 $ 472,298 $1,575,829
Average interest rate on year-end
balance 4.03% 3.02% 2.69%
Average outstanding during the year 756,967 1,159,894 787,199
Average interest rate for the year 4.08% 3.08% 3.35%
Maximum outstanding at any month-end 1,580,885 1,518,185 1,575,829
- --------------------------------------------------------------------------------
Securities Sold Under Agreements to
Repurchase
Balance at year-end 2,646,565 1,899,545 513,173
Average interest rate on year-end
balance 4.99% 2.64% 2.68%
Average outstanding during the year 2,388,869 1,269,920 801,824
Average interest rate for the year 4.06% 2.78% 3.20%
Maximum outstanding at any month-end 3,069,002 2,401,834 1,003,674
- --------------------------------------------------------------------------------
Commercial Paper
Balance at year-end 602,012 244,718 149,978
Average interest rate on year-end
balance 5.59% 3.19% 3.34%
Average outstanding during the year 440,113 223,128 196,438
Average interest rate for the year 4.98% 3.15% 3.66%
Maximum outstanding at any month-end 659,309 274,620 277,439
- --------------------------------------------------------------------------------
Other Borrowed Funds
Balance at year-end 680,250 1,158,416 1,018,150
Average interest rate on year-end
balance 5.22% 3.31% 3.44%
Average outstanding during the year 1,535,605 1,097,367 942,264
Average interest rate for the year 4.97% 4.18% 4.04%
Maximum outstanding at any month-end 2,430,397 1,513,334 1,586,882
- --------------------------------------------------------------------------------
</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, 1994, 1993, and 1992, had a weighted
average maturity of approximately 4 days, 9 days, and 13 days, respectively.
NatWest Bancorp had no lines of credit for short-term borrowing at December 31,
1994.
H. Long-Term Debt
<TABLE><CAPTION>
(Amounts in Thousands)
- --------------------------------------------------------------------------------
December 31 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
NatWest Bancorp
12 1/8% Guaranteed Capital Notes, Due
November 15, 2002 $ 99,749 $ 99,731
9 3/8% Guaranteed Subordinated Capital Notes,
Due November 15, 2003 498,079 497,946
NatWest USA
4.90% Mortgage Notes, Due January 1, 1995 397
NatWest Bancorp NJ
8.70% Promissory Notes, Due April 30, 1994 13,000
- --------------------------------------------------------------------------------
Total $597,828 $611,074
- --------------------------------------------------------------------------------
</TABLE>
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, 1994, and 1993, amounted to $251,000
and $269,000, 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>
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, 1994, and 1993, amounted to $1,921,000
and $2,054,000, respectively.
NatWest USA
The 4.90% Mortgage Notes were secured by first mortgages on NatWest USA
premises. The premises were sold during 1994 and the Mortgage Notes were paid
off before the scheduled maturity date.
NatWest Bancorp NJ
Interest on the 8.70% Promissory Notes was payable semiannually. Payment of
total principal was made at maturity.
NatWest Bancorp had no lines of credit for long-term borrowing at December 31,
1994.
I. Income Taxes
NatWest Bancorp accounts for income taxes in accordance with SFAS 109 which was
adopted in 1993, retroactive to January 1, 1991. The adoption resulted in a
restatement decreasing income before income taxes in 1992 by $508,000.
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:
<TABLE><CAPTION>
(Amounts in Thousands)
- --------------------------------------------------------------------------------
Year Ended December 31 1994 1993 1992
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
Federal income tax provision at
statutory rate $ 114,351 $ 88,384 $ 57,991
Increase (decrease) due to:
Changes in the valuation allowance (118,000) (164,198) (63,832)
Adjustments to deferred tax assets
and liabilities for enacted
changes in tax laws and rates (1,994)
Tax-exempt interest (4,573) (4,639) (4,451)
State and local income taxes, net
of Federal income tax benefit 19,899 21,443 11,621
Amortization of goodwill 14,935 12,947 12,577
Other 1,508 2,491 991
- --------------------------------------------------------------------------------
Income tax at effective rate $ 28,120 $ (45,566) $ 14,897
- --------------------------------------------------------------------------------
</TABLE>
Income tax expenses for the years ended December 31, 1994, 1993, and 1992,
consist of:
<TABLE><CAPTION>
(Amounts in Thousands)
- --------------------------------------------------------------------------------
Year Ended December 31, 1994 Current Deferred Total
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
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)
- --------------------------------------------------------------------------------
Year Ended December 31, 1992
- --------------------------------------------------------------------------------
U.S. Federal $ 11,596 $(14,194) $ (2,598)
State and local 2,979 14,516 17,495
- --------------------------------------------------------------------------------
Total $ 14,575 $ 322 $ 14,897
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
The tax effects of temporary differences that give rise to significant portions
of the deferred tax assets and deferred tax liabilities at December 31, 1994,
and 1993, were as follows:
<TABLE><CAPTION>
(Amounts in Thousands)
- --------------------------------------------------------------------------------
December 31 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Deferred tax assets
Net operating loss carryforwards $ (71,143) $(188,000)
Provision for loan losses (115,385) (51,951)
Accrued interest and deferred fees (97,482) (117,876)
Deferred compensation (2,669) (2,139)
Alternative minimum tax liability (26,866) (13,818)
Post-employment benefit expense (3,154) (1,457)
Other (2,409) (1,058)
- --------------------------------------------------------------------------------
Gross deferred tax assets (319,108) (376,299)
Less valuation allowance 118,000
- --------------------------------------------------------------------------------
Deferred tax assets, net of valuation allowance (319,108) (258,299)
- --------------------------------------------------------------------------------
Deferred tax liabilities
Lease transactions 99,954 95,156
Premises valuation and depreciation 28,300 38,261
SFAS 115 adjustment 5,990
State and local income taxes, net of Federal
income tax benefit 32,054 20,435
Other 2,059 936
- --------------------------------------------------------------------------------
Deferred tax liabilities 168,357 154,788
- --------------------------------------------------------------------------------
Net deferred tax asset $(150,751) $(103,511)
- --------------------------------------------------------------------------------
</TABLE>
The change in the net deferred tax asset for the year ended December 31, 1994,
included net deferred tax assets from the acquisition of Citizens First and
deferred tax assets associated with the net unrealized losses on available for
sale securities incurred as a result of the application of SFAS 115.
At December 31, 1994, the valuation allowance against deferred tax assets was
reduced to zero, from $118,000,000 at December 31, 1993. The elimination of the
valuation allowance was based upon the existence of deferred tax liabilities
that can be used in offsetting deferred tax assets and the probability that
taxable income sufficient to offset losses incurred in earlier periods would be
realized in the future.
The net change in the valuation allowance for the year ended December 31, 1993,
was a decrease of $164,198,000, bringing the net deferred tax asset to
$103,511,000. The deferred tax asset was established at this level based upon
the existence of deferred tax liabilities that can be used in offsetting
deferred tax assets and the probability that taxable income sufficient to offset
losses incurred in earlier periods would be realized in the future.
For tax return purposes, NatWest Bancorp had a net operating loss carryforward
at December 31, 1994, of approximately $91,155,000. A portion of this
carryforward expires in 1996 and is restricted to offsetting future taxable
income. NatWest Bancorp also has alternative minimum tax credit carryforwards of
$26,866,000 which are available to reduce future Federal regular income taxes
over an indefinite period.
Income tax expense related to investment securities gains amounted to $3,202,000
in 1994, $27,313,000 in 1993 and $17,784,000 in 1992.
J. Parent Company Information
The following is the parent company only condensed Statement of Condition at
December 31, 1994, and 1993, and the Statement of Operations and Statement of
Cash Flows for each of the years in the three-year period ended December 31,
1994, for NatWest Bancorp. NatWest Bancorp currently has 1,000 shares of no par
common stock outstanding having a stated value of $500,000,000.
<PAGE>
Statement of Condition
<TABLE><CAPTION>
(Amounts in Thousands)
- --------------------------------------------------------------------------------
December 31 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Assets
Due from bank subsidiary $ 34,613 $ 7,379
Interest bearing deposits with bank subsidiary 553,670 220,165
Commercial paper of bank holding company subsidiary 46,000
Loans to subsidiaries 400,886 408,486
Investment in bank subsidiaries, at underlying
equity in net assets 2,750,382 2,234,412
Investment in non-bank subsidiaries, at underlying
equity in net assets 90,560 85,364
Premises and equipment, net 9,812 5,459
Other assets 13,321 14,095
- --------------------------------------------------------------------------------
Total assets $3,899,244 $2,975,360
- --------------------------------------------------------------------------------
Liabilities and Equity Capital
Long-term debt $ 597,828 $ 597,677
Commercial paper 602,012 202,412
Other liabilities 12,988 25,909
Total equity capital 2,686,416 2,149,362
- --------------------------------------------------------------------------------
Total liabilities and equity capital $3,899,244 $2,975,360
- --------------------------------------------------------------------------------
</TABLE>
Statement of Operations
<TABLE><CAPTION>
(Amounts in Thousands)
- --------------------------------------------------------------------------------------
Year Ended December 31 1994 1993 1992
- --------------------------------------------------------------------------------------
<S> <C> <C> <C>
Income
Interest on deposits with bank subsidiary $ 18,206 $ 6,583 $ 12,390
Interest on commercial paper of bank holding
company subsidiary 1,818
Interest on loans to subsidiaries 35,622 35,269 28,101
Dividends from bank subsidiary 240,000
Management fees 115,990 86,571
Other interest income 4 712 8
Other income 1,025 331 755
- --------------------------------------------------------------------------------------
Total income 412,665 129,466 41,254
- --------------------------------------------------------------------------------------
Expenses
Interest on long-term debt 59,509 59,462 59,418
Interest on commercial paper 19,960 5,641 5,530
Salaries and benefits 87,413 81,020 484
Supplies and services 14,734 9,402 1,142
Business development 14,936 6,629 237
Other expenses 2,680 706 421
- --------------------------------------------------------------------------------------
Total expenses 199,232 162,860 67,232
- --------------------------------------------------------------------------------------
Income (loss) before income taxes and
equity in undistributed income of subsidiaries 213,433 (33,394) (25,978)
(Benefit) provision for income taxes (42,188) 1,663 (4,303)
- --------------------------------------------------------------------------------------
Income (loss) before equity in undistributed
income of subsidiaries 255,621 (35,057) (21,675)
Equity in undistributed income of subsidiaries 42,977 333,149 176,832
- --------------------------------------------------------------------------------------
Net income $ 298,598 $ 298,092 $ 155,157
- --------------------------------------------------------------------------------------
</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>
Statement of Cash Flows
<TABLE><CAPTION>
(Amounts in Thousands)
- --------------------------------------------------------------------------------------------
Year Ended December 31 1994 1993 1992
- --------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Operating Activities
Net income $ 298,598 $ 298,092 $ 155,157
Adjustments to reconcile net income to net
cash provided by (used in) operating activities:
Equity in undistributed net (income) of subsidiaries (42,977) (333,149) (176,832)
Depreciation of premises and equipment 553 154 85
Net increase in interest and other income receivable (1,244) (221) (3,596)
Net (increase) decrease in prepaid expenses (2,958) 364 374
Net increase (decrease) in interest and other
expenses payable (18,829) 16,033 (7,640)
Other, net 11,301 (11,377) (340)
- --------------------------------------------------------------------------------------------
Net cash provided by (used in) operating activities 244,444 (30,104) (32,792)
- --------------------------------------------------------------------------------------------
Investing Activities
Net (increase) decrease in interest bearing deposits
with bank subsidiary (333,505) (61,611) 220,403
Net increase in commercial paper of bank
holding company subsidiary (46,000)
Net (increase) decrease in loans to subsidiaries 7,600 (16,986) (178,000)
Net (increase) decrease in loans to others 258 (258)
Capital expenditures on premises and equipment (4,905) (2,109) (472)
Capital contribution to NatWest Pennsylvania Corp. (100)
- --------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (376,810) (80,448) 41,573
- --------------------------------------------------------------------------------------------
Financing Activities
Net increase (decrease) in commercial paper 399,600 102,549 (21,618)
Dividends paid to NatWest Holdings (240,000)
- --------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 159,600 102,549 (21,618)
- --------------------------------------------------------------------------------------------
Net increase (decrease) in due from bank subsidiary 27,234 (8,003) (12,837)
Due from bank subsidiary at January 1 7,379 15,382 28,219
- --------------------------------------------------------------------------------------------
Due from bank subsidiary at December 31 $ 34,613 $ 7,379 $ 15,382
- --------------------------------------------------------------------------------------------
</TABLE>
In 1994, NatWest Bancorp paid a dividend to NatWest Holdings in the amount of
$240,000,000. During 1994, NatWest Bancorp received a capital contribution from
NatWest Holdings and made a capital contribution to NatWest Bancorp NJ of
$506,778,000 which represented the transfer of the ownership of Citizens First
National Bank of New Jersey.
At December 31, 1994, and 1993, NatWest Bancorp had loans of $25,886,000 and
$33,486,000, respectively, to NatWest Leasing. NatWest Bancorp had loans on a
subordinated basis to NatWest USA and NatWest NJ of $325,000,000 and
$50,000,000, respectively, at December 31, 1994, and 1993.
All transactions between NatWest Bancorp and its subsidiaries are conducted on
an arms-length basis. NatWest USA and NatWest NJ 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, 1994, NatWest USA and NatWest NJ could declare
dividends of $187,970,000 and $197,928,000, respectively.
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>
K. 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 and was merged into the
NatWest Bancorp Plan as of January 1, 1995. The funding policy for the Natwest
Bancorp Plan and the Citizens 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 are unfunded plans that provide benefits in addition
to those provided under the NatWest Bancorp Plan. NatWest Bancorp had accrued
liabilities under the supplemental plans of $11,535,000 at December 31, 1994,
and $5,377,000 at December 31, 1993. The combined cost in dollars and as a
percentage of total salaries and benefits of the retirement benefit plans to
NatWest Bancorp for 1994, 1993 and 1992 was $9,340,000 or 2.1%, $6,724,000 or
1.7%, and $7,913,000 or 2.0%, respectively.
The following tables set forth the funded status for the NatWest Bancorp Plan
and Citizens Plan combined at December 31, 1994. The tables set forth the funded
status and components of net periodic pension cost for the NatWest Bancorp Plan
at December 31, 1993, and for the years ended December 31, 1994, 1993, and 1992.
<TABLE><CAPTION>
(Amounts in Thousands)
- ----------------------------------------------------------------------------------------------
December 31 1994 1993
- ----------------------------------------------------------------------------------------------
<S> <C> <C>
Actuarial present value of benefit obligations
Accumulated benefit obligation, including vested benefits of $173,620
and $168,473 at December 31, 1994, and 1993, respectively $ 190,213 $ 185,783
- ----------------------------------------------------------------------------------------------
Projected benefit obligation for service rendered to date $(244,495) $(236,018)
Plan assets at fair value, primarily listed stocks and U.S. bonds 244,918 235,110
- ----------------------------------------------------------------------------------------------
Plan assets in excess of (less than) projected benefit obligation 423 (908)
Prior service cost not yet recognized (1,987) 949
Unrecognized net loss 16,983 26,247
Unrecognized obligation being recognized over 15 years (7,157) (8,372)
- ----------------------------------------------------------------------------------------------
Prepaid pension cost $ 8,262 $ 17,916
- ----------------------------------------------------------------------------------------------
</TABLE>
<TABLE><CAPTION>
(Amounts in Thousands)
- -----------------------------------------------------------------------------------------------
Year Ended December 31 1994 1993 1992
- -----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Net periodic pension cost included the following components:
Service cost $ 13,689 $ 11,479 $ 11,131
Interest cost 15,766 15,453 14,721
Actual return on plan assets (2,146) (23,266) (10,799)
Net amortization and deferral (19,387) 2,462 (8,724)
- -----------------------------------------------------------------------------------------------
Net periodic pension cost - total plan 7,922 6,128 6,329
Expense attributed to other participants (666) (593) (526)
- -----------------------------------------------------------------------------------------------
Net periodic pension cost $ 7,256 $ 5,535 $ 5,803
- -----------------------------------------------------------------------------------------------
</TABLE>
The projected unit cost method was used to determine net periodic pension cost.
The assumptions used in measuring the plan benefit obligation at December 31,
1993, and determining pension expense for 1994 were 7.25% for the discount rate,
9.00% for the expected long-term rate of return and 4.75% for the rate of
increase in future compensation levels. For 1993 and 1992, the assumptions used
in determining pension expense were 8.50% for the discount rate, 9.00% for the
expected long-term rate of return and 5.50% for the rate of increase in future
compensation levels. The change in the assumptions in 1994 increased the pension
expense by approximately $2,500,000. At December 31, 1994, the discount rate and
rate of increase in future compensation levels utilized to measure the plan
benefit obligation were increased to 8.50% and 5.50%, respectively. The changes
decreased the projected benefit obligation by approximately $20,775,000.
<PAGE>
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.
The following tables set forth the status for the NatWest Bancorp Plan and
Citizens Plan combined at December 31, 1994. The tables below set forth the
components of net periodic post-retirement benefit obligations for NatWest
Bancorp at December 31, 1994, and 1993, and the net periodic post-retirement
benefit cost for the years then ended.
<TABLE><CAPTION>
(Amounts in Thousands)
- --------------------------------------------------------------------------------
December 31 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Accumulated post-retirement benefit obligation
Retirees $(41,771) $(44,529)
Fully eligible active plan participants (3,345) (4,212)
Other active plan participants (14,191) (11,433)
- --------------------------------------------------------------------------------
Accumulated post-retirement benefit obligation (59,307) (60,174)
Unrecognized
Transition obligation 47,039 49,652
Net loss 179 6,231
- --------------------------------------------------------------------------------
Accrued post-retirement benefit cost $(12,089) $ (4,291)
- --------------------------------------------------------------------------------
<CAPTION>
(Amounts in Thousands)
- --------------------------------------------------------------------------------
Year Ended December 31 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Net periodic post-retirement benefit cost included
the following components:
Service cost $ 1,115 $ 979
Interest cost 4,002 4,260
Amortization of unrecognized transition obligation 2,613 2,613
- --------------------------------------------------------------------------------
Other post-retirement benefit cost $ 7,730 $ 7,852
- --------------------------------------------------------------------------------
</TABLE>
The assumptions used in determining post-retirement benefit cost for 1994 and
1993 were the same as those used in the pension plan.
For measurement purposes, a 15.00% (pre-65 coverage) and 13.00% (post-65
coverage) annual rate of increase in the cost of covered healthcare benefits was
assumed for 1994; 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, 1994, by $2,828,000 and the aggregate of
the service and interest cost components of net periodic post-retirement benefit
cost for the year then ended by $261,000.
<PAGE>
L. 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
<TABLE><CAPTION>
- --------------------------------------------------------------------------------
December 31 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Financial instruments whose contractual amounts
represent potential credit risk:
Standby letters of credit (net of participations) $ 578,513 $ 629,016
Commercial letters of credit 289,819 274,826
Commitments to extend credit 8,129,279 6,786,669
- --------------------------------------------------------------------------------
</TABLE>
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 $198,733,000 at
December 31, 1994, and $202,595,000 at December 31, 1993. Maturities on these
obligations range from 1995 to 2004.
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.
Contingencies and Pledged Assets
Various long-term operating leases have been entered into covering premises and
equipment. Such leases had an average remaining term of approximately 5.8
years. The minimum future rental commitments under operating leases at December
31, 1994, are as follows:
<TABLE><CAPTION>
(Amounts in Thousands)
- --------------------------------------------------------------------------------
<C> <C>
1995 $ 32,199
1996 32,503
1997 31,008
1998 26,810
1999 24,990
2000 and thereafter 222,713
- --------------------------------------------------------------------------------
Total $370,223
- --------------------------------------------------------------------------------
</TABLE>
<PAGE>
Securities with a principal amount of $2,663,867,000 at December 31, 1994, and
$2,038,230,000 at December 31, 1993, and loans of $390,564,000 at December 31,
1994, and $180,069,000 at December 31, 1993, were pledged to secure public and
trust deposits, repurchase agreements and for other purposes.
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.
M. 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 is as follows:
<TABLE><CAPTION>
(Amounts in Thousands)
- --------------------------------------------------------------------------------
December 31 1994 1993
- --------------------------------------------------------------------------------
<S> <C> <C>
Financial Depositories
On balance sheet $2,785,629 $2,532,007
Off balance sheet 82,194 149,392
- --------------------------------------------------------------------------------
Total $2,867,823 $2,681,399
- --------------------------------------------------------------------------------
Real Estate
On balance sheet $5,238,015 $3,772,381
Off balance sheet 797,237 958,839
- --------------------------------------------------------------------------------
Total $6,035,252 $4,731,220
- --------------------------------------------------------------------------------
U.S. Government
On balance sheet $5,424,513 $4,665,658
Off balance sheet
- --------------------------------------------------------------------------------
Total $5,424,513 $4,665,658
- --------------------------------------------------------------------------------
</TABLE>
The concentration in financial depositories consisted primarily of cash and due
from banks, interest bearing deposits with banks and Federal funds sold.
At December 31, 1994, and 1993, the concentration in real estate was primarily
located in the Northeast (principally the New York metropolitan area) and
included both business real estate construction and commercial mortgages in the
amounts of $2,667,088,000 and $1,831,114,000 and consumer residential mortgages
in the amounts of $2,424,394,000 and $1,352,158,000, respectively.
The U.S. government concentration consists of U.S. government and agencies
securities in the securities held to maturity, securities available for sale and
the trading portfolios. The concentration also includes cash deposits held by
the Federal Reserve.
<PAGE>
NatWest Bancorp is responsible for establishing and coordinating overall credit
policy for both NatWest USA and NatWest NJ 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.
N. 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.
Set forth below 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 impaired 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 O.
<PAGE>
<TABLE><CAPTION>
(Amounts in Thousands)
- ----------------------------------------------------------------------------------------------------------------------
Recorded Recorded
Fair value book balance Fair value book balance
- ----------------------------------------------------------------------------------------------------------------------
December 31 1994 1993
- ----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Financial Assets
Securities
Held to maturity $ 2,728,735 $ 2,877,357 $ 2,301,447 $ 2,286,127
Available for sale 1,759,177 1,759,177 1,792,421 1,782,037
Trading account 745,692 745,692 826,062 826,062
Loans, net of unearned income
and allowance for loan losses 15,068,248 15,009,061 13,753,953 13,605,255
Derivatives carried at fair value 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 6,508,360 6,577,945 5,280,924 5,237,938
Long-term debt 633,105 597,828 739,049 611,074
Derivatives carried at fair value 76,466 76,466
Derivatives held for asset and liability management
Related to deposits - assets (38,365) (12,665)
Related to deposits - liabilities 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, acceptances outstanding and accounts payable and accrued
liabilities.
The fair value of all off-balance-sheet derivative instruments at December 31,
1993, was an asset of $113,252,000.
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.
O. Disclosure of Information about Derivatives
FASB Statement No. 119 - "Disclosures about Derivative Financial Instruments and
Fair Value of Financial Instruments" (SFAS 119) requires disclosures about
derivatives - futures, forward, swap and option contracts, and other financial
instruments with similar characteristics as set forth in the tables below.
Derivatives Carried at Fair Value
NatWest Bancorp enters into derivative contracts primarily on behalf of
customers but also to trade for its own account. At December 31, 1994,
derivatives with notional values of $7,871,049,000 were entered into either on
behalf of customers, or to offset customer positions. The remaining positions
carried at fair value, with notional values of $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. For
derivatives carried at fair value, NatWest Bancorp often minimizes its exposure
to market risks by entering into offsetting positions.
<PAGE>
The following table sets forth the notional and gross fair value amounts of
derivatives carried at fair value.
<TABLE><CAPTION>
(Amounts in Thousands)
- --------------------------------------------------------------------------------
Positive Negative
Notional fair value fair value
December 31, 1994 amount (assets) (liabilities)
- --------------------------------------------------------------------------------
<S> <C> <C> <C>
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
- --------------------------------------------------------------------------------
</TABLE>
At December 31, 1993, the notional amount of derivatives carried at fair value
was $6,591,915,000. The positive fair value of these instruments was $11,514,000
and the negative fair value $10,840,000. As these derivatives are carried at
fair value, there is no off-balance-sheet credit risk attached to them. 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.
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 allows the buyer to put back to the writer 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 of return on an investment. 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.
<TABLE><CAPTION>
(Amounts in Thousands)
- --------------------------------------------------------------------------------
Year Ended December 31, 1994 Net gains
- --------------------------------------------------------------------------------
<S> <C>
Trading account assets $ 6,745
Interest rate contracts 3,055
Foreign exchange rate contracts (spot and forward) 9,542
- --------------------------------------------------------------------------------
Total $19,342
- --------------------------------------------------------------------------------
</TABLE>
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
<PAGE>
NatWest Bancorp enters 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. NatWest Bancorp is asset
sensitive, that is, fixed rate liabilities exceed fixed rate assets. Core retail
deposits are used to fund floating rate loans, which are tied to either LIBOR or
Prime. This sensitivity to floating rate assets can present significant exposure
under various interest rate environments. To manage this risk, NatWest Bancorp
uses interest rate swaps and other derivatives to synthetically convert floating
rate loans into fixed rate.
In addition to core deposits, most of which are considered to have long-term
maturities, 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 allow the bank to lock
in rates on these liabilities and so protect against rises in interest rates.
The use of derivatives increased net interest income by $113,577,000,
$104,199,000 and $83,198,000 in 1994, 1993 and 1992, respectively. NatWest
Bancorp's approach to rate risk management is discussed further in the
Management's Discussion and Analysis of Financial Condition and Results of
Operations.
<TABLE><CAPTION>
(Amounts in Thousands)
- --------------------------------------------------------------------------------
Notional Credit
December 31, 1994 amount exposure
- --------------------------------------------------------------------------------
<S> <C> <C>
Forwards and futures contracts $ 8,605,000 $ 10,373
Options purchased 31,700,000 27,992
Options sold 2,000,000
Interest rate swaps 10,764,786 15,585
- --------------------------------------------------------------------------------
Total $53,069,786 $ 53,950
- --------------------------------------------------------------------------------
</TABLE>
At December 31, 1993, the notional amount of derivatives used for asset and
liability management was $26,689,757,000. These instruments had a positive fair
value of $144,586,000 and a negative fair value of $32,008,000.
Derivatives held for asset and liability management purposes 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.
The gross fair values of derivatives held for asset and liability management
purposes are given in Note N.
P. Restructuring Charge
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. At December 31, 1994, $2,814,000 of these costs had been paid
and charged against the accrual. The liability will be fully utilized in 1995
with the relocation of the remaining jobs and the recognition of the related
property abandonment costs.
<PAGE>
Q. Selected Quarterly Financial Data (Unaudited)
<TABLE><CAPTION>
(Amounts in Thousands
- ---------------------------------------------------------------------------------------------------------------
1994 Quarter 1993 Quarter
- ---------------------------------------------------------------------------------------------------------------
Fourth Third Second First Fourth Third
- ---------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE QUARTER
Net interest income $255,749 $230,601 $235,607 $221,294 $207,475 $201,862
Provision for loan losses 20,000 20,000 20,199 21,268 28,417 40,232
Non-interest income 94,757 89,427 78,961 79,774 101,500 115,923
Operating expenses 243,443 213,381 211,163 209,998 207,330 215,296
Provision (benefit) for
income taxes 3,553 10,373 6,990 7,204 (22,857) (9,267)
- ---------------------------------------------------------------------------------------------------------------
Net income $ 83,510 $ 76,274 $ 76,216 $ 62,598 $ 96,085 $ 71,524
- ---------------------------------------------------------------------------------------------------------------
At Quarter-End
Total assets $27,089,367 $24,647,357 $25,393,614 $25,418,422 $23,661,137 $24,430,961
Loans, net of
unearned income 15,298,063 13,461,508 13,773,732 14,160,631 13,978,536 13,855,610
Deposits
Demand, retail
savings and time 15,727,924 13,537,025 13,525,663 13,534,093 13,944,837 13,120,310
Other 3,284,783 2,968,559 2,785,797 2,847,293 2,919,261 2,657,005
Long-term debt 597,828 598,020 597,992 611,033 611,074 635,914
Equity capital 2,686,416 2,105,476 2,273,476 2,205,558 2,149,362 2,053,277
- ---------------------------------------------------------------------------------------------------------------
<CAPTION>
- -----------------------------------------------------
1993 Quarter
- -----------------------------------------------------
Second First
- -----------------------------------------------------
<S> <C> <C>
FOR THE QUARTER
Net interest income $196,557 $192,263
Provision for loan losses 27,151 39,498
Non-interest income 90,136 96,491
Operating expenses 199,230 192,527
Provision (benefit) for
income taxes (9,484) (3,958)
- -----------------------------------------------------
Net income $ 69,796 $ 60,687
- -----------------------------------------------------
At Quarter-End
Total assets $23,040,948 $22,042,830
Loans, net of
unearned income 14,360,705 14,081,120
Deposits
Demand, retail
savings and time 13,246,391 13,228,660
Other 2,831,083 3,059,076
Long-term debt 636,105 636,295
Equity capital 1,981,753 1,911,957
- ------------------------------------------------------
</TABLE>
R. Subsequent Events (Unaudited)
On June 30, 1994, NatWest Bancorp announced a definitive merger agreement with
Central Jersey Bancorp (Central Jersey). The acquisition was consummated on
January 14, 1995 following approval by the shareholders of Central Jersey and by
the bank regulatory agencies.
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 Depositary Receipts (ADRs). The
resultant aggregate purchase price was approximately $276,000,000. This included
previously acquired stock in the amount of $3,343,000.
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 resulted in
goodwill of approximately $204,000,000. This amount will be amortized on
a straight-line basis over an estimated benefit period of 15 years.
On January 23, 1995, as part of a previously announced goal to improve its
efficiency ratio, NatWest Bancorp eliminated 400 jobs and expects to eliminate
approximately 100 additional jobs through attrition during the year. The
combined reductions will reduce the workforce by 5.8%. NatWest Bancorp expects
to record a charge of approximately $10,000,000 in the first quarter of 1995 to
cover the cost of the layoffs.
<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, 1994
and 1993, and the related consolidated statement of operations, statement of
changes in equity capital and statement of cash flows for each of the years in
the three-year period ended December 31, 1994. 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, 1994 and 1993, and the results
of their operations and cash flows for each of the years in the three-year
period ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in Notes A and D 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 K 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
January 12, 1995
New York, New York
<PAGE>
Statement of Responsibility for Financial Data
Management is responsible for the integrity of all the financial data included
in this Report. The financial statements and related notes are prepared in
accordance with generally accepted accounting principles, which in the judgment
of management are appropriate in the circumstances. Financial information
elsewhere in this Report is consistent with that in the financial statements.
Management maintains a system of internal accounting control, including an
internal audit program, which provides reasonable assurance that assets are
safeguarded against loss from unauthorized use or disposition, transactions are
properly authorized, and accounting records are reliable for the preparation of
financial statements. The foundation of the system of internal accounting
control rests upon careful selection and training of personnel, segregation of
responsibilities, and application of formal policies and procedures that are
consistent with the highest standards of business conduct. The system of
internal accounting control is continually being modified and improved in
response to changes in business conditions and operations.
The Board of Directors has an Auditing Committee composed of five outside
directors. The Committee meets periodically with the independent auditors, the
internal auditors and management to ensure that the system of internal
accounting control is being properly administered and that the financial
data are being properly reported. The Committee reviews and approves the scope
and timing of both the internal and external audits, including recommendations
made with respect to the system of internal accounting control by the
independent auditors, the Comptroller of the Currency and the Audit Group.
The consolidated financial statements as identified in the accompanying
Independent Auditors' Report have been audited by KPMG Peat Marwick LLP,
independent certified public accountants. These audits were conducted in
accordance with generally accepted auditing standards, which included a review
of the system of internal accounting control, tests of the accounting records
and other auditing procedures considered necessary to formulate an opinion on
the consolidated financial statements.
<PAGE>
<TABLE>
<CAPTION>
NATIONAL WESTMINSTER BANCORP, INC.
CONSOLIDATED STATEMENT OF CONDITION
(UNAUDITED)
- -------------------------------------------------------------------------------------------------------
September 30, December 31,
(Amounts in thousands, except share amounts) 1995 1994
- -------------------------------------------------------------------------------------------------------
<S> <C> <C>
Assets
Cash and due from banks $1,251,020 $1,327,644
Interest bearing deposits with banks 839,340 1,140,676
Securities
Held to maturity (at amortized cost) 4,080,114 2,877,357
Available for sale (at approximate fair value) 1,567,871 1,759,177
Trading account 1,039,498 745,692
Federal funds sold and securities purchased under agreement to
resell 1,817,609 1,887,013
Loans, net of unearned income 19,269,012 15,298,063
Allowance for loan losses (265,890) (289,002)
- -------------------------------------------------------------------------------------------------------
Loans, net 19,003,122 15,009,061
Goodwill 999,903 849,368
Premises and equipment, net 545,505 452,784
Due from customers on acceptances 196,656 127,639
Other assets 968,007 912,956
- -------------------------------------------------------------------------------------------------------
Total assets $32,308,645 $27,089,367
- -------------------------------------------------------------------------------------------------------
Liabilities and Equity Capital
Deposits
Domestic offices
Demand $ 4,094,440 $ 4,570,954
Retail savings and time 11,745,900 11,156,970
Other domestic time 2,792,058 1,366,856
Foreign offices 2,303,696 1,917,927
- -------------------------------------------------------------------------------------------------------
Total 20,936,094 19,012,707
Short-term borrowed funds 6,854,954 4,157,644
Long-term debt 621,541 597,828
Acceptances outstanding 199,254 139,927
Accounts payable and accrued liabilities 587,762 494,845
- -------------------------------------------------------------------------------------------------------
Total liabilities 29,199,605 24,402,951
- -------------------------------------------------------------------------------------------------------
Equity capital
Common stock, no par value (1,500 shares authorized; 1,000
shares issued and outstanding) 500,000 500,000
Surplus 2,479,625 2,265,065
Accumulated profits/(deficit) 134,397 (50,327)
Unrealized losses on available for sale securities (4,982) (28,322)
- -------------------------------------------------------------------------------------------------------
Total equity capital 3,109,040 2,686,416
- -------------------------------------------------------------------------------------------------------
Total liabilities and equity capital $32,308,645 $27,089,367
- -------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Condensed Notes to Unaudited Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
NATIONAL WESTMINSTER BANCORP, INC.
CONSOLIDATED STATEMENT OF OPERATIONS
(UNAUDITED)
- -------------------------------------------------------------------------------------------
Nine Months Ended September 30
(Amounts in thousands) 1995 1994
- -------------------------------------------------------------------------------------------
<S> <C> <C>
Interest Income
Loans $1,111,075 $ 854,875
Securities 240,418 151,514
Trading account 51,668 53,017
Deposits with banks, federal funds sold and
securities purchased under agreements to resell 194,537 90,913
- -------------------------------------------------------------------------------------------
Total interest income 1,597,698 1,150,319
- -------------------------------------------------------------------------------------------
Interest Expense
Deposits 443,987 263,752
Short-term borrowed funds 321,256 154,046
Long-term debt 45,297 45,019
- -------------------------------------------------------------------------------------------
Total interest expense 810,540 462,817
- -------------------------------------------------------------------------------------------
Net interest income 787,158 687,502
Provision for loan losses 60,000 61,467
- -------------------------------------------------------------------------------------------
Net interest income after provision for loan losses 727,158 626,035
- -------------------------------------------------------------------------------------------
Non Interest Income
Service charges on deposit accounts 103,615 88,293
Credit card fees 30,416 25,219
Syndication and other loan-related fees 24,840 27,406
Letter of credit and acceptance fees 15,413 15,993
Securities trading and foreign exchange 13,488 13,026
Insurance and investment products 11,797 10,446
Trust and custody fees 11,327 10,274
Gain on sales of mortgage-backed securities 29,609 ---
Other securities gains 10,795 7,319
Other 74,805 50,186
- -------------------------------------------------------------------------------------------
Total non interest income 326,105 248,162
- -------------------------------------------------------------------------------------------
Operating Expenses
Salaries and benefits 339,726 325,615
Supplies and services 119,697 100,339
Net occupancy 60,514 53,834
Business development 44,755 37,563
Equipment 39,319 30,996
FDIC insurance 19,472 25,180
Restructuring 9,921 10,000
Foreclosed assets 3,650 3,313
Amortization of goodwill 53,905 27,744
Other 25,081 19,958
- -------------------------------------------------------------------------------------------
Total operating expenses 716,040 634,542
- -------------------------------------------------------------------------------------------
Income before income taxes 337,223 239,655
Provision for income taxes 152,499 24,567
- -------------------------------------------------------------------------------------------
Net income $ 184,724 $ 215,088
- -------------------------------------------------------------------------------------------
</TABLE>
See accompanying Condensed Notes to Unaudited Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
NATIONAL WESTMINSTER BANCORP, INC.
CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY CAPITAL
(UNAUDITED)
Accumulated Unrealized
Common (deficit)/ gains and
(Amounts in thousands, except share amounts) stock Surplus profits (losses) Total
- ------------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance, January 1, 1994 $500,000 $1,998,287 $(348,925) --- $2,149,362
Net income 215,088 215,088
Cash dividends declared (240,000) (240,000)
Capital contributions
Adjustment to beginning balance for change in accounting
principle, net of related tax effect of $4,379 6,005 6,005
Change in unrealized gains and (losses), net of related tax
effect of $18,771 (24,979) (24,979)
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1994 (1,500 shares authorized;
1,000 shares issued and outstanding) $500,000 $1,758,287 $(133,837) $(18,974) $2,105,476
- ------------------------------------------------------------------------------------------------------------------------------------
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, January 1, 1995 $500,000 $2,265,065 $(50,327) $(28,322) $2,686,416
Net income 184,724 184,724
Cash dividends paid (91,500) (91,500)
Capital contributions 306,060 306,060
Change in unrealized gains and (losses), net of related tax
effect of $17,296 23,340 23,340
- ------------------------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1995 (1,500 shares authorized;
1,000 shares issued and outstanding) $500,000 $2,479,625 $134,397 $(4,982) $3,109,040
- ------------------------------------------------------------------------------------------------------------------------------------
</TABLE>
See accompanying Condensed Notes to Unaudited Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
NATIONAL WESTMINSTER BANCORP, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
(UNAUDITED)
- ---------------------------------------------------------------------------------------------------
Nine Months Ended September 30
(Amounts in thousands) 1995 1994
- ---------------------------------------------------------------------------------------------------
<S> <C> <C>
Operating Activities
Net income $184,724 $ 215,088
Adjustment to reconcile net income to net cash used in operating
activities:
Amortization of goodwill 53,905 27,744
Depreciation of premises and equipment 37,835 29,519
Provision for loan losses 60,000 61,467
Provision and charge-offs for foreclosed assets 2,175 1,923
Amortization of discount and premium on securities (6,424) (13,131)
Amortization of unearned income on loans (60,935) (112,577)
Provision for deferred income taxes 51,119 1,881
Securities gains (40,404) (7,319)
Premises and equipment (gains) losses 516 (666)
Increase in interest and other income receivable (41,535) (110,182)
Increase in interest and other expenses payable 106,461 155,814
Net increase in trading account (293,806) (737,754)
Other, net (101,561) 9,673
- ---------------------------------------------------------------------------------------------------
Net cash used in operating activities (47,930) (478,520)
- ---------------------------------------------------------------------------------------------------
Investing Activities
Net decrease in interest bearing deposits with banks 301,336 161,937
Net (increase) decrease in federal funds sold and securities
purchased under agreements to resell 86,704 (445,234)
Purchases of securities held to maturity (1,695,729) (1,121,725)
Maturities of securities held to maturity 516,355 751,606
Purchases of securities available for sale (5,571,632) (3,460,005)
Maturities of securities available for sale 1,547,257 2,550,526
Sales of securities 5,090,590 1,246,270
Net principal received (disbursed) on loans (3,241,840) 457,732
Net increase in acceptances (9,690) (6,606)
Capital expenditures on premises and equipment (68,596) (41,517)
Proceeds from sale of premises and equipment 2,177 1,231
Cash received from the purchase of Central New Jersey 104,438 ---
- ---------------------------------------------------------------------------------------------------
Net cash provided by (used in) investing activities (2,938,630) 94,215
- ---------------------------------------------------------------------------------------------------
Financing Activities
Net decrease in demand deposits (754,859) (265,161)
Net decrease in retail savings and time deposits (731,115) (142,652)
Net increase in other domestic time deposits 1,425,202 378,433
Net increase (decrease) in foreign office deposits 385,769 (329,135)
Net increase in short-term borrowed funds 2,648,813 852,515
Repayment of long-term debt (2,374) (13,166)
Dividends paid to NatWest Holdings (91,500) ---
Capital contribution from NatWest Holdings 30,000 ---
- ---------------------------------------------------------------------------------------------------
Net cash provided by financing activities 2,909,936 480,834
- ---------------------------------------------------------------------------------------------------
Increase (decrease) in cash and due from banks (76,624) 96,529
Cash and due from banks at January 1 1,327,644 983,441
- ---------------------------------------------------------------------------------------------------
Cash and due from banks at September 30 $1,251,020 $1,079,970
- ---------------------------------------------------------------------------------------------------
</TABLE>
For the nine months ended September 30, 1995 and 1994, income tax payments
totaled $63,952,000 and $12,800,000, respectively, and interest payments
totaled $758,370,000 and $397,455,000, respectively.
See accompanying Condensed Notes to Unaudited Consolidated Financial Statements.
<PAGE>
NATIONAL WESTMINSTER BANCORP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
NOTE 1. General Accounting Standards The adoption of SFAS 114 had no
NatWest Bancorp Inc.'s accounting significant financial statement
and reporting policies conform with impact.
generally accepted accounting principles
and with general practice in the banking NOTE 3. Mortgage Servicing
industry. All significant intercompany Rights
accounts and transactions have been Effective June 1, 1995
eliminated. Prior period financial NatWest Bancorp adopted
statements have been restated where Financial Accounting Standards
necessary to conform with current Board Statement No. 122
period classifications. "Accounting for Mortgage
Servicing Rights". The
The accompanying consolidated Statement amends Statement No.
financial statements are unaudited; 65 to require that a mortgage
however, in the opinion of management banking enterprise recognize as
all adjustments, consisting solely of separate assets the rights to
normal recurring accruals, necessary for service mortgage loans for
a fair presentation have been made. See others, however those servicing
the notes to the financial statements rights are acquired. The
contained in the 1994 Annual Report for Statement requires the
a description of the accounting policies assessment of capitalized
used in the preparation of the mortgage servicing rights for
consolidated financial statements. impairment to be based on the
current fair value of those
NOTE 2. Loans rights. Mortgage servicing
On January 1, 1995, NatWest Bancorp rights are amortized in
adopted FASB Statement No. 114 - proportion to and over the
"Accounting by Creditors for Impairment period of the estimated net
of a Loan" (SFAS 114) as amended by FASB servicing income. The impact of
Statement No. 118 - "Accounting by this adoption resulted in the
Creditors for Impairment of a Loan - generation of an additional $2.3
Income Recognition and Disclosure" (SFAS million in mortgage sale gains
118). The Statement, as amended, for the reported period ended
prescribes the recognition criterion for September 30, 1995.
loan impairment and the measurement
methods for certain impaired loans and NOTE 4. Acquisitions
loans whose terms are modified in a On June 30, 1994, NatWest
troubled debt restructuring (a Bancorp announced a definitive
"restructured loan"). It does not apply merger agreement with Central
to groups of smaller-balance homogeneous Jersey Bancorp (Central Jersey).
loans that are collectively evaluated The acquisition was consummated
for impairment (mostly consumer loans). on January 14, 1995 following
Under this standard, a loan is approval by the shareholders of
considered to be impaired when, based on Central Jersey and by the bank
current information and events, regulatory agencies.
management considers it probable that
all amounts contractually due under the In consideration of the
terms of the loan agreement will not be merger, the holders of Central
recovered. For those loans subject to Jersey issued and outstanding
SFAS 114, impairment is measured based common stock, at their option,
on either the present value of future received $33.50 in cash or an
cash flows discounted at the loan's equivalent value in NatWest Plc
effective interest rate or the American Depository receipts
observable market price of the loan or, (ADRs). The resultant aggregate
for collateral dependent loans, at the purchase price was approximately
market value of the collateral. SFAS $276,060,000. This included
114 does not affect the timing of previously acquired stock in the
charge-offs. Generally, NatWest Bancorp amount of $3,343,000.
defines impaired loans as nonaccrual
loans, excluding those consumer loans The acquisition was
that are collectively evaluated for accounted for under the purchase
impairment. In accordance with SFAS method of accounting whereby
114, prior periods have not been Central Jersey assets of
restated. approximately $1.8 billion and
liabilities of approximately
$1.6 billion were recorded at
their fair value. This resulted
in goodwill of approximately
$204,000,000. This amount will
be amortized on a straight-line
basis over an estimated benefit
period of 15 years.
<PAGE>
NATIONAL WESTMINSTER BANCORP, INC.
CONDENSED NOTES TO UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
September 30, 1995
NOTE 5. Subsequent Events
On December 19, 1995,
National Westminster Bank Plc
announced a definitive agreement
to sell the three main operating
entities of NatWest Bancorp -
NatWest Bank NA, NatWest
(Delaware) and NatWest Services
Inc. to Fleet Financial Group.
The sale, which is subject to
regulatory approval, is expected
to close in the second quarter
of 1996.
In the fourth quarter of
1995, NatWest Bancorp
reclassified all of its held-to-
maturity securities to the
available-for-sale
classification.
