<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q/A
Amendment No. 1
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarter ended March 31, 1994 Commission file number 0-6879
CORESTATES FINANCIAL CORP
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1899716
- -------------------------------- -----------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
N.E. Corner Broad and Chestnut Streets
Philadelphia, Pennsylvania 19101
- ---------------------------------------- --------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including
area code 215-973-3827
------------
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X . No .
------- -------
Number of Shares of Common Stock Outstanding
at May 2, 1994: 126,520,181
<PAGE>
Page 2
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
INDEX
<TABLE>
<CAPTION>
Page
----
<S> <C>
PART I. FINANCIAL INFORMATION
Item 1 - Restated Financial Statements
Consolidated Balance Sheet March 31, 1994 and
December 31, 1993 3
Consolidated Statement of Income for the Three
Months Ended March 31, 1994 and 1993 4
Consolidated Statement of Changes in Shareholders'
Equity for the Three Months Ended March 31, 1994
and 1993 5
Consolidated Statement of Cash Flows for the
Three Months Ended March 31, 1994 and 1993 6
Notes to the Consolidated Financial Statements 7-13
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 14-30
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 31
SIGNATURE 32
EXHIBITS 11, 12.1, 12.2 33-35
</TABLE>
<PAGE>
Page 3
PART I. FINANCIAL INFORMATION
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET (unaudited)
(in thousands)
<TABLE>
<CAPTION>
December 31,
1993
March 31, Restated
1994 (See Note A)
----------- ------------
<S> <C> <C>
ASSETS
- ------
Cash and due from banks........................... $ 2,278,945 $ 2,466,867
Time deposits, principally Eurodollars............ 1,289,804 1,273,373
Investments held-to-maturity (fair value:
1994 - $2,067,704; 1993 - $2,257,513)........... 2,058,251 2,228,560
Investments available-for-sale, at fair value..... 375,672 785,046
Loans, net of unearned discounts of $115,725 in
1994 and $120,244 in 1993 (Note C)............... 18,535,299 18,026,142
Less: Allowance for loan losses.................. (532,606) (417,767)
----------- -----------
Net loans............................... 18,002,693 17,608,375
Federal funds sold and securities purchased under
agreements to resell............................ 403,662 148,527
Trading account securities, at fair value......... 3,761 6,393
Due from customers on acceptances................. 304,102 332,234
Premises and equipment............................ 378,730 376,115
Other assets...................................... 596,571 706,588
----------- -----------
Total assets............................ $25,692,191 $25,932,078
=========== ===========
LIABILITIES
- -----------
Deposits:
Domestic:
Non-interest bearing.......................... $ 6,272,922 $ 6,331,130
Interest bearing.............................. 11,651,676 11,916,852
Overseas branches and subsidiaries.............. 728,645 796,902
----------- -----------
Total deposits.......................... 18,653,243 19,044,884
Funds borrowed.................................... 2,191,643 1,830,495
Bank acceptances outstanding...................... 305,109 337,180
Other liabilities................................. 1,046,567 1,102,770
Long-term debt.................................... 1,478,531 1,455,036
----------- -----------
Total liabilities....................... 23,675,093 23,770,365
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES (Note D)
- --------------------------------------
SHAREHOLDERS' EQUITY
- --------------------
Common stock: $1 par value; authorized 200.0
million shares; issued 129.1 million shares in
1994 and 128.8 million shares in 1993
(including treasury shares of 2.1 million in
1994 and .4 million in 1993)................... 2,017,098 2,161,713
----------- -----------
Total shareholders' equity.............. 2,017,098 2,161,713
----------- -----------
Total liabilities and shareholders'
equity................................. $25,692,191 $25,932,078
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
Page 4
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME (unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
------------------
1994
Restated
(See Note A) 1993
-------- --------
<S> <C> <C>
INTEREST INCOME
- ---------------
Interest and fees on loans:
Taxable income.......................................... $352,751 $346,528
Tax exempt income....................................... 5,548 7,270
Interest on investment securities:
Taxable income.......................................... 28,144 40,525
Tax exempt income....................................... 4,032 4,996
Interest on time deposits in banks........................ 14,445 12,560
Other interest income..................................... 2,299 1,599
-------- --------
Total interest income.............................. 407,219 413,478
-------- --------
INTEREST EXPENSE
- ----------------
Interest on deposits...................................... 73,643 88,071
Interest on funds borrowed................................ 16,766 13,281
Interest on long-term debt................................ 15,286 16,965
-------- --------
Total interest expense............................. 105,695 118,317
-------- --------
NET INTEREST INCOME................................ 301,524 295,161
Provision for losses on loans............................. 145,000 27,500
-------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOSSES ON LOANS.................... 156,524 267,661
-------- --------
NON-INTEREST INCOME
- -------------------
Service charges on deposit accounts....................... 43,818 40,590
Trust income.............................................. 23,365 24,209
Fees for international services........................... 18,139 15,483
Debit and credit card fees................................ 13,726 13,271
Income from investment in EPS, Inc........................ 7,912 3,563
Gains (losses) on trading account securities.............. 310 761
Securities gains (losses)................................. 6,911 3,022
Other operating income.................................... 25,203 22,319
-------- --------
Total non-interest income.......................... 139,384 123,218
-------- --------
NON-FINANCIAL EXPENSES
- ----------------------
Salaries, wages and benefits.............................. 147,398 142,624
Net occupancy............................................. 28,451 27,578
Equipment expenses........................................ 17,789 17,492
Other operating expenses.................................. 154,764 90,628
-------- --------
Total non-financial expenses....................... 348,402 278,322
-------- --------
INCOME (LOSS) BEFORE INCOME TAXES......................... (52,494) 112,557
- --------------------------
Provision (benefit) for income taxes...................... (16,606) 37,507
-------- --------
INCOME (LOSS) BEFORE CUMULATIVE EFFECT OF A CHANGE IN
- ----------------------------------------------
ACCOUNTING PRINCIPLE.................................... (35,888) 75,050
- ----------------------
Cumulative effect of a change in accounting prin-
ciple, net of income tax benefits of $7,005............ (13,010)
-------- --------
NET INCOME (lOSS)......................................... $(35,888) $ 62,040
- ---------- ======== ========
Average common shares outstanding......................... 128,089 128,300
======== ========
PER COMMON SHARE DATA
- ---------------------
Income (loss) before cumulative effect of a change in
accounting principle.................................... $(0.28) $0.58
====== =====
Net income (loss)......................................... $(0.28) $0.48
====== =====
Cash dividends declared................................... $ 0.30 $0.27
====== =====
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
Page 5
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
(in thousands)
<TABLE>
<CAPTION>
Common Capital Retained Treasury
stock surplus earnings stock Total
-------- -------- ---------- -------- ----------
<S> <C> <C> <C> <C> <C>
Three Months Ended March 31, 1993
- ---------------------------------
Balances at beginning of year.......................................... $ 69,748 $722,257 $1,102,329 $ (3,881) $1,890,453
Net income............................................................. 62,040 62,040
Treasury shares acquired (10 shares)................................... (547) (547)
Common stock issued under employee
benefit plans (198 shares)........................................... 198 6,768 6,966
Common stock issued under dividend
reinvestment plan (47 shares)........................................ 47 2,490 2,537
Foreign currency translation adjustments............................... (2,377) (2,377)
Common dividends declared.............................................. (31,625) (31,625)
-------- -------- ---------- -------- ----------
Balances at end of period.............................................. $ 69,993 $731,515 $1,130,367 $ (4,428) $1,927,447
======== ======== ========== ======== ==========
Three Months Ended March 31, 1994
- ---------------------------------
Balances at beginning of year restated (see note A).................... $129,136 $680,556 $1,359,840 $ (7,819) $2,161,713
Net income (loss) restated (see note A)................................ (35,888) (35,888)
Net change in unrealized gain on invest-
ments available-for-sale, net of tax................................. (25,487) (25,487)
Treasury shares acquired (2,004 shares)................................ (53,879) (53,879)
Common stock issued under employee benefit
plans (10 new shares; 126 treasury shares)........................... 10 (25) (661) 3,403 2,727
Common stock issued under dividend reinvest-
ment plan (0 new shares; 122 treasury shares)........................ 1 (364) 3,522 3,159
Foreign currency translation adjustments............................... (14) (14)
Common dividends declared.............................................. (35,233) (35,233)
-------- -------- ---------- -------- ----------
Balances at end of period............................................. $129,146 $680,532 $1,262,193 $(54,773) $2,017,098
======== ======== ========== ======== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
Page 6
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
(in thousands)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1994
Restated
(See Note A) 1993
----------- -----------
<S> <C> <C>
Operating Activities
- --------------------
Net income (loss)........................... $ (35,888) $ 62,040
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of a change in
accounting principle..................... 13,010
Provision for losses on loans............. 145,000 27,500
Provision for losses on OREO and
writedowns............................... 28,000 4,388
Depreciation and amortization............. 29,436 17,559
Securities gains, net .................... (6,911) (3,022)
Deferred income tax expense (benefit)..... (71,170) 4,927
Increase in due to factored clients....... 56,807 44,829
Decrease in interest receivable........... 4,913 7,583
Decrease in interest payable.............. (13,980) (39,726)
Other assets and liabilities, net......... 53,350 136,248
----------- -----------
Net Cash Provided By Operating
Activities............................ 189,557 275,336
----------- -----------
Investing Activities
- --------------------
Net (increase) decrease in loans............ (509,671) 151,063
Proceeds from sales of loans................ 85,691 106,562
Loans originated or acquired - non-bank
subsidiary................................. (7,673,456) (5,605,372)
Principal collected on loans - non-bank
subsidiary................................. 7,551,980 5,439,714
Net (increase) decrease in time deposits,
principally eurodollars.................... (16,431) 343,874
Purchases of investments held-to-maturity... (343,604)
Purchases of investments available-for-sale. (81,777)
Purchases of investment securities.......... (516,053)
Proceeds from maturities of investments
available-for-sale......................... 3,227
Proceeds from maturities of investments
held-to-maturity........................... 501,529
Proceeds from sales of investments
available-for-sale......................... 462,766
Proceeds from sales of investment securities 32,712
Proceeds from maturities of investment
securities................................. 220,482
Net (increase) decrease in Federal funds
sold and securities purchased under
agreements to resell....................... (255,135) 24,258
Purchases of premises and equipment......... (21,195) (14,661)
Proceeds from sales and paydowns on other
real estate owned.......................... 7,496 5,272
Other....................................... 1,317 20,028
----------- -----------
Net Cash Provided (Used) By Investing
Activities............................ (287,263) 207,879
----------- -----------
Financing Activities
- --------------------
Net decrease in deposits.................... (391,641) (694,574)
Proceeds from issuance of long-term debt.... 51,701 237,500
Retirement of long-term debt................ (28,260) (200,761)
Net increase (decrease) in funds borrowed... 361,148 (96,204)
Cash dividends paid......................... (35,171) (31,474)
Purchases of treasury stock................. (53,879) (547)
Other....................................... 5,886 9,503
----------- -----------
Net Cash Used In Financing Activities.. (90,216) (776,557)
----------- -----------
Decrease In Cash And Due From Banks.... (187,922) (293,342)
Cash and due from banks at January 1,.. 2,466,867 2,445,283
----------- -----------
Cash And Due From Banks at March 31,... $ 2,278,945 $ 2,151,941
=========== ===========
Supplemental Disclosure of Cash Flow Information
- ------------------------------------------------
Cash paid during the period for:
Interest............................... $ 119,675 $ 158,057
=========== ===========
Income taxes........................... $ 621 $ 3,737
=========== ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
Page 7
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 1994
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of CoreStates
Financial Corp ("CoreStates") have been prepared in accordance with generally
accepted accounting principles for interim financial information. Accordingly,
they do not include all information and footnotes required by generally accepted
accounting principles for complete financial statements. In the opinion of
management, all adjustments (comprising only normal recurring accruals)
necessary for a fair presentation have been included. Prior year data in the
accompanying financial statements have been restated to include the consolidated
accounts of Constellation Bancorp, which was acquired on March 16, 1994 in a
transaction accounted for as a pooling of interests. Certain amounts in prior
periods have been reclassified for comparative purposes. Operating results for
the three-month period ended March 31, 1994 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1994.
The accompanying financial statements as of December 31, 1993 and for the three
months ended March 31, 1994 have been restated to reflect merger-related charges
of $127.8 million after-tax, or $.89 per share, related to the Constellation
acquisition in the first quarter of 1994, rather than in the fourth quarter of
1993 as previously reported. This restatement was made after discussions with
the Securities and Exchange Commission staff which resulted in these charges
being reflected in the quarter that the acquisition was consummated. This
restatement has no effect on CoreStates' financial position as reported for
March 31, 1994. The restatement also has no effect on CoreStates' basic
operating results for 1993 or 1994, excluding the one-time merger-related
charges. On a pre-tax basis, the merger-related charges consisted of a $120.0
million provision for loan losses, a $28.0 million addition to the OREO reserve,
$13.0 million for the writedown of purchased mortgage servicing rights and
related assets, and $34.0 million for expenses directly attributable to the
acquisition. The effects of this restatement on the accompanying consolidated
financial statements as of December 31, 1993 and for the three months ended
March 31, 1994 are summarized as follows:
<TABLE>
<CAPTION>
As Previously As
Reported Restated
------------- ------------
<S> <C> <C>
December 31, 1993
- -----------------
Total Common Shareholders' Equity $2,033,913 $2,161,713
March 31, 1994
- --------------
Provision for Loan Losses 25,000 145,000
Net Interest Income After
Provision for Loan Losses 276,524 156,524
Other Operating Expenses 79,764 154,764
Net Income 91,912 (35,888)
Net Income Per Share
of Common Stock $0.72 $(0.28)
</TABLE>
Effective January 1, 1993, CoreStates adopted Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("FAS
112"). FAS 112 requires that employers accrue the costs associated with
postemployment benefits during the active service periods of employees.
CoreStates recognized the January 1, 1993 transitional liability of $20,015,000,
$13,010,000 after-tax or $0.10 per share, as the cumulative effect of a change
in accounting principle.
NOTE B -- PROPOSED MERGER
In November 1993, CoreStates announced a definitive agreement to acquire
Independence Bancorp ("Independence") in a transaction expected to be accounted
for as a pooling of interests (the "Merger"). For each Independence common
share outstanding 1.5 shares of CoreStates' common stock will be issued. As a
result of this transaction, approximately 16.5 million new shares will be
issued. This agreement is subject to, among other conditions, approval by
Independence's shareholders and certain regulatory authorities.
In March 1994, CoreStates announced a definitive agreement to acquire
Germantown Savings Bank ("GSB") in a transaction to be accounted for as a
purchase (the "Purchase"). Under the terms of the agreement, each of GSB's 4.19
million shares of common stock will be exchanged for a combination of
CoreStates' common stock, equal to 55% of the $62 per GSB share purchase price,
and cash, equal to 45% of the purchase price. This agreement is subject to,
among other conditions, approval by GSB's shareholders and certain regulatory
authorities.
The following unaudited pro forma information reflects the Merger and the
Purchase. This pro forma information has been prepared using historical
consolidated financial statements, as modified for intercompany balances,
assuming that the operations of Independence had been consolidated with
CoreStates for all periods presented and the operations of GSB had been
consolidated for 1994.
<PAGE>
Page 8
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) continued
March 31, 1994
NOTE B -- PROPOSED MERGER: continued
CoreStates currently estimates that in connection with a change in strategic
direction related to Independence's problem assets and to conform Independence's
loan, accrual and reserve policies to those of CoreStates, it will take an
addition to the allowance for possible loan losses of approximately $25 million
and an addition to the reserve against other real estate owned ("OREO") of
approximately $4 million. Accordingly, pro forma common shareholders' equity at
March 31, 1994 has been reduced by $18.9 million, the after-tax effect of the
estimated provisions. CoreStates currently estimates the assets related to the
$29.0 million in estimated provisions will be disposed of within eighteen months
of the Merger. The carrying value of these assets is approximately $120.0
million (of which approximately $32.0 million is reported as non-performing
assets by Independence) and the estimated provisions represent 25% of the
carrying value. It is also estimated that the conforming adjustments, mostly
related to commercial real estate reserve policies, will comprise approximately
$3.0 million of the $29.0 million in estimated provisions.
Pro forma shareholders' equity at March 31, 1994 also reflects charges of
approximately $29.7 million, $21.0 million after-tax, which include expenses
directly attributed to the Merger and certain other costs and expenses.
Pro forma operating results do not reflect the estimated $25 million provision
for losses on loans related to Independence's loan portfolio, the $4 million
addition to Independence's reserve against OREO, or charges of approximately $30
million which include expenses directly attributable to the Merger and certain
other costs and expenses. Were these expenses reflected in pro forma operating
results for the three months ended March 31, 1994, net income would decrease by
$39.9 million, or $.28 per share.
The pro forma information does not purport to be indicative of the combined
financial position as it may be in the future or indicative of the results that
actually would have been realized had the entities been a single entity during
these periods or indicative of the actual results the combined company will
report in the future.
Pro forma cash dividends declared per share for the periods presented assume
that CoreStates would have declared cash dividends per share equal to the cash
dividends per share actually declared by CoreStates prior to March 31, 1994.
Unaudited pro forma financial information for CoreStates, Independence and GSB
combined follows:
<PAGE>
Page 9
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued
NOTE B -- PROPOSED MERGER - Continued
PRO FORMA CONDENSED COMBINED BALANCE SHEET - March 31, 1994
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
CoreStates Independence Germantown
and and Savings
Subsidiaries Subsidiaries Bank Pro Forma
------------- ------------- ----------- ------------
<S> <C> <C> <C> <C> <C>
ASSETS
- ------
Cash and due from banks $ 2,278,945 $ 114,600 $ 20,637 $ 2,349,837 (a)
Time deposits, principally Eurodollars 1,289,804 42,395 139 1,332,338
Investment securities 2,433,923 566,629 556,848 3,544,599 (e) (h)
Loans, net of unearned discounts 18,535,299 1,691,393 1,014,124 21,253,338 (h)
Allowance for loan losses (532,606) (33,016) (23,507) (614,129) (b)
Federal funds sold and securities
purchased under agreements to resell 403,662 72,500 20,000 437,962
Trading account securities 3,761 - - 3,761
Due from customers on acceptances 304,102 - - 304,102
Premises, equipment and other assets 975,301 86,994 24,842 1,231,377 (a) (b) (c) (d) (e) (h)
------------ ---------- ---------- -----------
Total assets $ 25,692,191 $2,541,495 $1,613,083 $29,843,185
============ ========== ========== ===========
LIABILITIES
-----------
Deposits:
Domestic:
Non-interest bearing $ 6,272,922 $ 374,626 $ 45,080 $ 6,628,283 (a)
Interest bearing 11,651,676 1,754,043 1,408,528 14,823,610 (h)
Overseas branches and subsidiaries 728,645 - - 728,645
------------ ---------- ---------- -----------
Total deposits 18,653,243 2,128,669 1,453,608 22,180,538
Funds borrowed 2,191,643 51,406 - 2,184,849 (a)
Bank acceptances outstanding 305,109 - - 305,109
Other liabilities 1,046,567 14,888 12,731 1,129,531 (a) (c) (d)
Long-term debt 1,478,531 132,880 - 1,728,442 (g)
------------ ---------- ---------- -----------
Total liabilities 23,675,093 2,327,843 1,466,339 27,528,469
------------ ---------- ---------- -----------
SHAREHOLDERS' EQUITY
--------------------
Common stock 2,017,098 213,652 146,744 2,314,716 (b) (c) (d) (e) (f) (g)
------------ ---------- ---------- -----------
Total shareholders' equity 2,017,098 213,652 146,744 2,314,716
------------ ---------- ---------- -----------
Total liabilities and
shareholders' equity $ 25,692,191 $2,541,495 $1,613,083 $29,843,185
============ ========== ========== ===========
Book value per share $15.88 $18.47 $34.98 $15.54
====== ====== ====== ======
See FOOTNOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET on page 10.
</TABLE>
<PAGE>
Page 10
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued
NOTE B -- PROPOSED MERGER - Continued
FOOTNOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
March 31, 1994
(a) Reflects elimination of intercompany deposits, Federal funds transactions,
and other intercompany funding.
(b) Reflects the estimated $25 million provision for losses on loans related to
Independence's loan portfolio and the $4 million addition to Independence's
reserve against OREO.
(c) Reflects charges of approximately $29.7 million, $21.0 million after related
tax effects, which include expenses directly attributable to the Merger.
(d) Reflects charges of approximately $41.9 million, $27.3 million after related
tax effects, for expenses directly attributable to the Purchase including
$16.1 million to redeem GSB stock options, $10.0 million to writedown
duplicate GSB facilities and systems and $9.0 million for employee
severance.
(e) Reflects the cancellation of 563,000 Independence Common Shares owned by
CoreStates and carried at fair value and 153,000 Independence Common Shares
held as treasury stock.
(f) Reflects the conversion of 11.566 million outstanding Independence Common
Shares on March 31, 1994 into 17.349 million CoreStates Common Shares.
(g) Represents the purchase price in the Germantown Proposed Combination using
the following assumptions:
(1) Shareholders of Germantown will receive, for each of the 4,194,647
Germantown Common Shares, $62 per share payable 55% in equivalent value
CoreStates Common Shares and 45% in cash, for a total purchase price of
$260.1 million.
(2) The market value for CoreStates Common Shares, for purposes of
Germantown pro forma calculations, was assumed to be $26.50 per share.
(3) CoreStates Common Shares issued in the Germantown Proposed Combination
will equal 5.398 million shares.
(4) The cash portion of the purchase price was assumed to be raised through
the issuance of seven year notes at 7 1/4%.
(5) The elimination of GSB's total shareholders' equity at March 31, 1994
after reduction for the $41.9 million, $15.7 million after-tax, of
expenses directly attributable to the Purchase.
(h) Represents the estimated adjustments of Germantown's assets and liabilities
to their fair values (which were determined using information available at
the most recent practicable date), the intangible asset related to the value
of the deposit base acquired, which is estimated to be approximately $28
million ($43 million including the deferred income tax effect), and the
adjustment of approximately $105 million arising from the excess of the
total purchase price over net assets acquired (i.e. goodwill).
<PAGE>
Page 11
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued
NOTE B -- PROPOSED MERGER - Continued
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended March 31, 1994 Three Months Ended March 31, 1993
Restated (See Note A)
--------------------------------------------------------- ----------------------------------------
CoreStates Independence Germantown CoreStates Independence
and and Savings and and
Subsidiaries Subsidiaries Bank Pro Forma(a) Subsidiaries Subsidiaries Pro Forma
-------------- -------------- ---------- --------- -------------- ------------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
- ---------------------------
Interest and fees on loans $358,299 $33,894 $19,601 $411,168(c) $353,798 $35,424 $389,222
Interest on investment
securities 32,176 7,849 6,707 46,147(b)(c) 45,521 9,695 55,216
Interest on time deposits
in banks 14,445 351 1 14,797 12,560 403 12,963
Interest on federal funds
sold and securities purchased
under agreement to resell 2,278 303 156 2,614(b) 1,586 197 1,779(b)
Other interest income 21 - - 21 13 - 13
-------- ------- ------- -------- -------- ------- --------
Total interest income 407,219 42,397 26,465 474,747 413,478 45,719 459,193
-------- ------- ------- -------- -------- ------- --------
INTEREST EXPENSE
- ---------------------------
Interest on deposits 73,643 13,098 10,178 95,374(c) 88,071 16,186 104,257
Interest on funds borrowed 16,766 317 28 16,978(b) 13,281 865 14,142(b)
Interest on long-term debt 15,286 2,168 - 19,546(c) 16,965 1,889 18,854
-------- ------- ------- -------- -------- ------- --------
Total interest expense 105,695 15,583 10,206 131,898 118,317 18,940 137,253
-------- ------- ------- -------- -------- ------- --------
Net interest income 301,524 26,814 16,259 342,849 295,161 26,799 321,940
Provision for losses on
loans
Net interest income after
provision 145,000 1,905 100 147,005 27,500 3,225 30,725
-------- ------- ------- -------- -------- ------- --------
for losses on loans 156,524 24,909 16,159 195,844 267,661 23,554 291,215
-------- ------- ------- -------- -------- ------- --------
NON-INTEREST INCOME
- ---------------------------
Service charges on deposit 43,818 2,205 653 46,676 40,590 2,051 42,641
accounts
Trust income 23,365 1,227 - 24,592 24,209 1,163 25,372
Fees for international
services 18,139 - - 18,139 15,483 - 15,483
Debit and credit card fees 13,726 674 39 14,439 13,271 569 13,840
Securities gains (losses) 6,911 (13) 4 6,902 3,022 (173) 2,849
Other operating income 33,425 2,470 431 36,326 26,643 2,978 29,621
-------- ------- ------- -------- -------- ------- --------
Total non-interest
income 139,384 6,563 1,127 147,074 123,218 6,588 129,806
-------- ------- ------- -------- -------- ------- --------
NON-FINANCIAL EXPENSES
- ---------------------------
Salaries, wages and
benefits 147,398 11,530 5,121 164,049 142,624 11,713 154,337
Net occupancy 28,451 1,741 1,184 31,376 27,578 1,663 29,241
Equipment expenses 17,789 1,415 417 19,621 17,492 1,545 19,037
Other operating expenses 154,764 8,246 2,626 168,469(c) 90,628 7,832 98,460
-------- ------- ------- -------- -------- ------- --------
Total non-financial
expenses 348,402 22,932 9,348 383,515 278,322 22,753 301,075
-------- ------- ------- -------- -------- ------- --------
Income (loss) before
income taxes (52,494) 8,540 7,938 (40,597) 112,557 7,389 119,946
Provision (benefit) for income
taxes (16,606) 2,647 2,691 (12,872)(c) 37,507 2,158 39,665
-------- ------- ------- -------- -------- ------- --------
Income (loss) before cumulative
effect of a change in
accounting principle(d)(e) $(35,888) $ 5,893 $ 5,247 $(27,725) $ 75,050 $ 5,321 $ 80,281
======== ------- ======= ======== ======== ======= ========
Average common shares
outstanding 128,089 11,542 4,434 150,010 128,300 11,404 145,109
======== ======= ======= ======== ======== ======= ========
PER COMMON SHARE DATA
- ---------------------------
Income before the cumulative
effect of change in
accounting principle $(0.28) $.50 $1.18 $(0.18) $0.58 $0.46 $0.55
======== ======= ======= ======== ======== ======= ========
Cash dividends declared $0.30 $.29 $0.10 $0.30 $0.27 $0.29 $0.27
======== ======= ======= ======== ======== ======= ========
See FOOTNOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME on page 12.
</TABLE>
<PAGE>
Page 12
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued
NOTE B -- PROPOSED MERGER - Continued
FOOTNOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(a) The Pro Forma Condensed Combined Statements of Income do not reflect the
estimated $25 million provision for losses on loans related to
Independence's loan portfolio, the $4 million addition to Independence's
reserve against OREO, or charges of approximately $29.7 million which
include expenses directly attributable to the Merger and certain other costs
and expenses. Were these expenses reflected in the Pro Forma Condensed
Combined Statements of Income for the three months ended March 31, 1994, net
income would decrease by $39.9 million, or $.28 per share.
(b) Reflects the elimination of intercompany interest on deposits, long-term
debt, Federal funds transactions and other intercompany funding.
(c) Reflects the anticipated impact of the purchase accounting adjustments
(which were determined using information available at the most recent
practicable date) assuming the Germantown Proposed Combination was effective
on January 1, 1994. For the purposes of determining the effects on the pro
forma combined condensed statement of income, the following pro forma
adjustments have been made:
1) Amortization of the premium on the loan and investment securities
portfolios and certificates of deposit and the related income tax
effects.
2) Amortization of intangibles including goodwill and deposit base
intangible which was calculated using lives of 15 years and 10 years,
respectively. As required by FAS 109, the provision for income taxes
assumes that the amortization of the deposit base intangible is
deductible for Federal income tax purposes.
3) Interest expense on the seven year 7 1/4% notes which were assumed to
have been issued to fund the cash portion of the purchase price.
(d) During the first quarter of 1994, Independence recognized a $3.4 million
after-tax impairment loss on certain mortgage securities. The loss was the
result of a write down to fair value of these securities which were deemed
to be impaired. This resulted from the recent Financial Accounting Standards
Board ("FASB") interpretation of a 1993 accounting change, Statement of
Financial Accounting Standards No. 115. The interpretation reached by a
consensus of the FASB Emerging Issues Task Force in March 1994 provides more
definitive criteria for recognition of impairment losses on these types of
securities.
(e) Effective January 1, 1993, CoreStates adopted FAS 112, "Employers'
Accounting for Postemployment Benefits." CoreStates recognized the January
1, 1993 FAS 112 transitional liability of $20.0 million, $13.0 million
after-tax or $.10 per share, as the cumulative effect of a change in
accounting principle. The impact of FAS 112 on Independence and Germantown
is immaterial.
<PAGE>
Page 13
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) - Continued
NOTE C -- LOAN PORTFOLIO
Loans, net of unearned discounts, at March 31, 1994 and December 31, 1993
consist of the following (in thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1994 1993
----------- ------------
<S> <C> <C>
Domestic:
Commercial, industrial and other:
Highly leveraged transactions ("HLTs").... $ 479,248 $ 452,137
Other..................................... 7,650,543 7,086,337
----------- -----------
Total commercial, industrial and other.. 8,129,791 7,538,474
----------- -----------
Real estate:
Construction and development.............. 322,003 326,658
Residential............................... 2,349,904 2,524,471
Other..................................... 2,826,578 2,796,727
----------- -----------
Total real estate....................... 5,498,485 5,647,856
----------- -----------
Consumer:
Installment............................... 1,056,677 1,053,411
Credit card............................... 1,165,171 1,165,994
----------- -----------
Total consumer.......................... 2,221,848 2,219,405
----------- -----------
Financial institutions...................... 737,479 865,494
Factoring receivables....................... 638,048 555,211
Lease financing............................. 679,728 656,620
----------- -----------
Total domestic.......................... 17,905,379 17,483,060
----------- -----------
Foreign....................................... 629,920 543,082
----------- -----------
Total loans............................. $18,535,299 $18,026,142
=========== ===========
</TABLE>
NOTE D -- COMMITMENTS AND CONTINGENT LIABILITIES
There are outstanding commitments or contingent liabilities which include,
among other things, commitments to extend credit, interest rate contracts,
letters of credit and loan guarantees undertaken in the normal course of
business. Outstanding standby letters of credit at March 31, 1994 amount to
$1,164 million. Management does not anticipate any significant losses as a
result of these transactions.
<PAGE>
Page 14
PART I. FINANCIAL INFORMATION
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Financial Information for December 31, 1993 and the Three Months Ended
March 31, 1994 Have Been Restated.
SUMMARY
- -------
In August 1993, CoreStates Financial Corp ("CoreStates") entered into an
agreement to acquire Constellation Bancorp ("Constellation"), a bank holding
company with $2.3 billion in assets. On March 16, 1994, CoreStates consummated
its acquisition of Constellation and has accounted for this transaction as a
pooling of interests. The following Management's Discussion and Analysis of
Financial Condition and Results of Operations have been revised subsequent to
the release of March 31, 1994 financial statements to reflect merger-related
charges of $127.8 million after-tax, or $.89 per share, related to the
Constellation acquisition in the first quarter of 1994, rather than in the
fourth quarter of 1993 as previously reported. This restatement was made after
discussions with the Securities and Exchange Commission staff which resulted in
these charges being reflected in the quarter that the acquisition was
consummated. This restatement has no effect on CoreStates' financial position as
reported for March 31, 1994. The restatement also has no effect on CoreStates'
basic operating results for 1993 or 1994, excluding the one-time merger-related
charges. On a pre-tax basis, the merger-related charges consisted of a $120.0
million provision for loan losses, a $28.0 million addition to the OREO reserve,
$13.0 million for the writedown of purchased mortgage servicing rights and
related assets, and $34.0 million for expenses directly attributable to the
acquisition.
The net loss for the first quarter of 1994 was $35.9 million, or $0.28 per
share, compared to income before the cumulative effect of a change in accounting
principle of $75.1 million, or $0.50 per share, for the first quarter of 1993.
Excluding the merger-related charges related to the Constellation acquisition,
income for the first quarter of 1994 was $91.9 million, or $0.72 per share.
Effective January 1, 1993, CoreStates adopted Statement of Financial Accounting
Standards No. 112 "Employers' Accounting for Postemployment Benefits" ("FAS
112"). FAS 112 requires that employers accrue the costs associated with
providing postemployment benefits during the active service periods of
employees. CoreStates recognized the January 1, 1993 transitional liability of
$20.0 million, $13.0 million after-tax or $0.10 per share, as the cumulative
effect of a change in accounting principle in the first quarter of 1993. All
prior year data has been restated to include Constellation. First quarter of
1994 highlights included:
. A 16.87% return on average common shareholders' equity and 1.47% return on
average total assets excluding the merger-related charges. Net income per
share for the first quarter of 1994 excluding the merger-related charges
was 24.1% above the first quarter of 1993.
. Net interest income on a taxable equivalent basis increased $5.4 million,
or 1.8%, over the first quarter of 1993 primarily due to a $1.0 billion
increase in average loan volume. The net financial margin for the first
quarter was 5.64%, down 8 basis points from the 5.72% reported in the prior
year first quarter and down slightly compared to the 5.67% reported in the
fourth quarter of 1994.
. Excluding the $120.0 million merger-related provision recorded by
Constellation in connection with a change in strategy related to problem
assets and to conform Constellation's consumer lending charge-off policies
to those of CoreStates, the provision for losses on loans for the first
quarter of 1994 was $2.5 million lower than the provision recorded for the
first quarter of 1993. The decrease in the provision for losses on loans
resulted from the continued improvement in credit quality outlook and
credit quality indicators, including a decline in non-performing assets of
$73.3 million, or 13.6% from March 31, 1993. Non-performing assets
increased $63.7 million, or 15.9%, from December 31, 1993, reflecting
recognition of non-performing assets in the Constellation portfolios in
accordance with the change in strategic direction concerning those assets.
At March 31, 1994 non-performing assets were $464.3 million, compared to
$400.6 million at December 31, 1993 and $537.6 million at March 31, 1993.
. On March 16, 1994, CoreStates completed its acquisition of the $2.3 billion
asset Constellation Bancorp. Constellation's bank subsidiary and its 49
branches were merged into CoreStates' New Jersey National Bank ("NJNB")
subsidiary on April 29, 1994, increasing NJNB's assets to $6.7 billion and
its branches to 153. As a result of this acquisition, which was accounted
for as a pooling of interests, 11.3 million shares of CoreStates common
stock were issued.
<PAGE>
Page 15
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
PENDING ACQUISITIONS
- --------------------
. On November 18, 1993, CoreStates announced a definitive agreement to
acquire Independence Bancorp, Inc. ("Independence"), a bank holding company
with $2.5 billion assets. Assuming approval by regulators and by
Independence's shareholders, the transaction is expected to close in the
second quarter of 1994. Each of Independence's 11.2 million shares of
common stock will be exchanged for up to 1.5 shares of CoreStates' common
stock. The transaction has a total value of approximately $430 million and
is expected to be accounted for as a pooling of interests. This in-market
acquisition is expected to result in annual expense savings of
approximately $32 million, excluding first year charges of $29 million for
planned strategic initiatives regarding Independence's problem assets and
$30 million for expenses directly attributable to the acquisition including
severence costs related to approximately 500 employees. Independence is
expected to add to earnings per share in the second year.
. On March 7, 1994, CoreStates announced a definitive agreement to acquire
Germantown Savings Bank ("GSB"), which has $1.6 billion in assets. Assuming
approval by GSB's shareholders and certain regulatory authorities, the
transaction is expected to close in the fourth quarter of 1994. This
transaction will be accounted for as a purchase, and under the terms of the
agreement, each of GSB's 4.19 million shares of common stock will be
exchanged for a combination of CoreStates' common stock, equal to 55% of
the $62 per GSB share purchase price, and cash, equal to 45% of the
purchase price. This in-market acquisition is expected to result in annual
expense savings of approximately $23 million, partially offset by $10
million of amortization expense that will be recorded each year related to
the intangible assets created as a result purchase accounting. As a result
of the acquisition, it is expected that approximately 400 employees will be
terminated.
. On March 31, 1994, CoreStates announced an agreement to acquire Alpha Beta
Data Services, Inc. ("Alpha Beta"), a remittance processing and data entry
services business in Los Angeles, CA. This acquisition establishes a West
Coast presence for CoreStates in the sizeable Southern California economy,
providing growth opportunity for fee-based businesses. Alpha Beta currently
provides remittance processing to seven financial institutions customers
representing 40-end customers and data-entry service to more than 100
customers. Alpha Beta will operate as a division of the CoreStates'
subsidiary Financial Telesis, Inc., which has headquarters and operations
in Clifton, New Jersey.
<PAGE>
Page 16
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
BUSINESS LINE RESULTS
- ---------------------
The following tables present the performance results of CoreStates' four core
business segments: Wholesale Banking; Consumer Financial Services; Trust and
Investment Management; and Electronic Payment Services ("EPS"), Inc. Affiliate
for the three-month periods ended March 31, 1994 and 1993. Each segment is
comprised of well defined business lines with market or product specific
missions.
For the current reporting period, Constellation is reported as a separate
entity. During 1994, as the new company is fully integrated into CoreStates,
the respective business components of Constellation will be blended into the
existing business lines. It is expected that there will be a one to two quarter
transition period following each acquisition before complete business line
reporting can be established. During the transition period, a new acquisition
may be reported separately from the existing lines of business.
<TABLE>
<CAPTION>
Three Months Ended March 31,
(in millions, taxable
equivalent basis) Consumer Trust and
Wholesale Financial Investment EPS, Inc.
Banking Services Management Affiliate
---------------- ---------------- -------------- --------------
1994 1993 1994 1993 1994 1993 1994 1993
------ ------ ------ ------ ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $135.7 $128.4 $131.1 $133.5 $ 7.5 $ 7.9 $(1.4) $(1.4)
Provision for loan
losses 13.9 12.4 13.2 11.6 .3 .3
Non-interest income 55.9 49.3 35.2 30.3 23.0 23.8 7.9 3.6
Non-financial expenses 106.9 104.8 116.5 110.6 25.9 26.3
------ ------ ------ ------ ----- ----- ----- -----
Income before income
taxes 70.8 60.5 36.6 41.6 4.3 5.1 6.5 2.2
Income tax expense 27.8 22.7 14.1 15.7 1.6 1.8 2.3 (.1)
------ ------ ------ ------ ----- ----- ----- -----
Net income $ 43.0 $ 37.8 $ 22.5 $ 25.9 $ 2.7 $ 3.3 $ 4.2 $ 2.3
====== ====== ====== ====== ===== ===== ===== =====
Return on assets 1.29 1.20 1.64 1.89 1.59 1.89 23.66 13.72
Return on equity (a) 24.46 22.28 33.92 39.19 39.11 47.80 425.83 233.19
Average assets $13,530 $12,773 $5,554 $5,543 $ 687 $ 709 $ 72 $ 68
Average equity (a) 713 688 269 268 28 28 4 4
Constellation Corporate Total
--------------- --------------- --------------
1994(c) 1993 1994 1993 1994 1993
----- ----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C> <C>
Net interest income $24.3 $ 24.7 $ 9.5 $ 8.2 $306.7 $301.3
Provision for loan
losses 121.9 2.5 (4.3) .7 145.0 27.5
Non-interest income 12.1 9.0 5.3 7.2 139.4 123.2
Non-financial expenses 96.1 28.3 3.0 8.3 348.4 278.3
-------- ----- ------ ------ ------- -------
Income (loss) before
income taxes (181.6) 2.9 16.1 6.4 (47.3) 118.7
Income tax expense
(benefit) (62.5) 1.2 5.3 2.4 (11.4) 43.7
-------- ----- ------ ------ ------- ------
Net income (loss) $ (119.1) $ 1.7 $ 10.8 $ 4.0 $ (35.9) $ 75.0(b)
======== ===== ====== ====== ======= ======
Return on assets nm .29 1.32 .46 (.57) 1.22(b)
Return on equity (a) nm 3.65 4.36 2.23 (6.59) 15.98(b)
Average assets $2,193 $2,396 $3,318 $3,528 $25,354 $25,017
Average equity (a) 190 189 1,005 728 2,209 1,905
</TABLE>
(a) Equity is allocated to business lines in the four core business segments by
applying a factor of 5.0% against average risk-weighted assets and adding
intangible assets.
Equity for Constellation Bancorp reflects that entity's legal equity.
(b) Based on income before the cumulative effect of a change in accounting
principle.
(c) Includes $120.0 million in the provision and $75.0 million in non-
financial expenses for charges related to Constellation's acquisition by
CoreStates.
nm Not meaningful.
<PAGE>
Page 17
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
BUSINESS LINE RESULTS - continued
- ---------------------
Corporate overhead, processing and support costs are allocated along
with the impact of balance sheet management and hedging activities of
CoreStates. A matched maturity transfer pricing system is used to allocate
interest income and interest expense. The loan loss provision and allowance for
loan losses are allocated based on an expected normalized credit environment.
All business lines are allocated equity based on regulatory risk-based capital
guidelines as well as each business line's fixed assets and other capital
investment requirements. Intangible assets and associated costs are also
allocated to relevant business units. The development of these allocation
methodologies is a continuous process at CoreStates. Business line results can
change as a result of improvements to the underlying allocation methodologies.
The Corporate category includes the income and expense impact of unallocated
equity; unallocated loan loss reserves and provision; unusual or non-recurring
items not attributable to the operating activities of the four major business
areas; emerging business activities not directly related to the four major
business areas; and miscellaneous items.
Wholesale Banking is organized into six business lines: Corporate and
-----------------
Institutional Banking; Investment Banking; Cash Management; International
Banking; Corporate Middle Market; and Specialized Finance. Net income of $43.0
million for the first quarter was $5.2 million, or 13.8% above the first quarter
of 1993. This increase was due primarily to strong performance in net interest
income and non-interest income. Net interest income was 5.7% over the first
quarter of 1993 due primarily to lower levels of non-performing loans, and
higher loan and deposit volumes. Average loan volume was above 1993 by 8.0%.
Average non-performing loans declined 36.3% from the first quarter of 1993.
Non-interest income was above 1993 levels by 13.4%. This was primarily due to
increases in service charges on deposits and fees for international services.
Non-financial expenses were 2.0% above the first quarter of 1993.
Consumer Financial Services includes the following business lines: Community
---------------------------
Banking; Specialty Products; and Mortgage Banking. Specialty Products includes
Credit Card, Student Lending, Synapsys and Cardlinx. Community Banking's 1993
results include five Virgin Islands branches and related operations areas, all
of which were sold on September 30, 1993. From a net operating earnings
standpoint, the impact of the Virgin Islands was insignificant and the following
discussion excludes the Virgin Islands to facilitate a meaningful review of the
operating trends of the remaining businesses.
<PAGE>
Page 18
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
BUSINESS LINE RESULTS - continued
- ---------------------
Net income for the first quarter of 1994 was $22.5 million. This represents
a decrease of $3.4 million, or 13.1% compared to the first quarter of 1993.
Net interest income was virtually flat versus last year, declining $.2 million
or 0.2%. A $6.6 million increase in the Specialty Products Group ("SPG") was
more than offset by a decline of $6.8 million in Community Banking. The
increase in net interest income in SPG is primarily the result of increased
credit card outstandings. Total average credit card balances of $1.1 billion
for the first quarter of 1994 showed growth of $214 million, or 23.5% compared
to 1993. The $6.8 million decline in Community Banking net interest income was
largely the result of declining deposit spreads, which had a $4.0 million
negative impact. Additionally, total loans of $3.5 billion reflect a decline
of $217 million compared to 1993, with a net interest income impact of $1.5
million. The decline in loan volumes included the securitization of $253
million in home equity loans over the past year. Declining loan spreads also
affected net interest income by $1.3 million. The provision for loan losses of
$13.2 million increased $1.7 million compared to the first quarter of 1993.
This increase was a direct result of the growth in credit card outstandings.
Non-interest income grew by $5.1 million, or 17.0%, including an increase of
$4.2 million, or 21.9% in Community Banking. In March, 1994, $65 million in
boat loans were sold, generating a gain of $1.5 million. Additionally, service
charges on deposits grew by $1.0 million, or 8.3%. Securitization income of
$1.7 million in 1994 represented an increase of $.9 million compared to 1993.
Revenues from sales of third-party annuities and mutual funds through the
branch network, which were not introduced until the second quarter of 1993,
contributed $.5 million to the 1994 results. SPG reported non-interest income
growth of $.9 million, or 8.3% for the quarter. Non-financial expenses grew by
$8.5 million, or 7.9% compared to 1993, including increases of 4.0% in
Community Banking and 26.3% in SPG. SPG expenses increased in support of the
23.5% growth in credit card outstandings noted above.
Trust and Investment Management is organized into four business lines:
-------------------------------
Institutional Trust; Personal Trust; Private Banking; and Investment Management.
Net income of $2.7 million for the first quarter was down $.6 million from the
first quarter of 1993. The decrease in net income is due to a 5.1% decrease in
net interest income and a 3.4% decline in non-interest income. Partially
offsetting these declines was a decrease in non-financial expenses of 1.5%. The
decline in net interest income is due to lower balance credits in addition to
narrower spreads on Private Banking loans. Bond refunding levels of early 1993
were not repeated in 1994 thus reducing the level of balances that generate
credits in Institutional Trust. The decline in non-interest income from the
first quarter of 1993 is related to fee growth weakness in the Institutional
businesses. Personal Financial and Investment Services fee growth partially
offset the declines in Institutional Trust. Asset growth in the CoreFund family
of Mutual Funds was 2% over 1993, contributing to the fee growth in Investment
Services. Stronger growth in trust fees continues to be hampered by lower than
anticipated new business and the recent declines in the equity and bond markets.
<PAGE>
Page 19
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
BUSINESS LINE RESULTS - continued
- ---------------------
EPS, Inc. Affiliate includes the following business lines: the MAC automated
-------------------
teller machine (ATM) network and POS processing. The MAC and POS business lines
were contributed to Electronic Payment Services (EPS), Inc. on December 4, 1992,
a joint venture that combined the separate consumer electronic transaction
processing businesses of CoreStates, Banc One Corporation, PNC Bank Corp. and
Society Corporation into the nation's leading provider of ATM and POS processing
services. The exchange generated a deferred gain of approximately $136 million.
In December, 1993, CoreStates and EPS mutually agreed to enter into a
recapitalization of EPS involving the EPS preferred stock held by CoreStates.
In exchange for substantially all of the preferred stock, CoreStates received
from EPS a ten-year 6.45% note providing for equal principal payments over the
life of the note. The recapitalization does not affect the amount of deferred
gain generated in the contribution of the business lines, but changes the timing
of deferred gain income recognition from a five-year period beginning in 1996 to
a ten-year period beginning in 1994.
Net income totalled $4.2 million for the quarter, $1.9 million above the
earnings reported in the same quarter last year. The 1994 results include non-
interest income from CoreStates' 31% equity interest in EPS, recognition of the
deferred gain, and income on the $250 million promissory note, partly offset by
an interest carrying charge of $1.4 million. Most of the increase from the
prior year is due to the recognition of the deferred gain. Loss of last year's
favorable tax treatment on the preferred dividends is offset by higher income
recognition on the $250 million promissory note.
Constellation Excluding merger-related charges, income for Constellation
-------------
has increased from $1.7 million in the first quarter of 1993 to $8.7 million in
the first quarter of 1994. This was primarily due to higher non-interest income
and lower non-financial expenses. Non-interest income increased $3.1 million due
to $5.0 million of securities gains reported in the first quarter of 1994,
partially offset by a decline in service charges and mortgage origination and
servicing fees. Non-financial expenses decreased $7.2 million from last year's
first quarter due to reductions in OREO provision of $2.2 million, mortgage
servicing rights amortization of $1.8 million, and decreases in other non-
performing asset related expenses.
<PAGE>
Page 20
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
NET INTEREST INCOME
- -------------------
The largest source of CoreStates' operating revenue is net interest income.
For analytical purposes, net interest income is adjusted to a "taxable
equivalent" basis to recognize the income tax savings on tax exempt assets. Net
interest income on a taxable equivalent basis for the first quarter of 1994 was
$306.7 million, an increase of $5.4 million, or 1.8%, from the first quarter of
1993. The increase in the level of taxable equivalent net interest income was
primarily a result of: a $1.0 billion increase in average domestic loan volume,
a $737 million increase in non-interest bearing funding and a lower level of
non-performing assets, partially offset by reduced interest rate spreads. The
net interest margin at 5.64% declined 8 basis points from the first quarter of
1993 due to reduced interest rate spreads.
Taxable equivalent net interest income for the first quarter of 1994
decreased $7.1 million, or 2.3%, compared to the fourth quarter of 1994. This
decrease was principally attributable to the impact of lower cash basis interest
income on non-performing assets, lower interest rates spreads, reduced non-
interest bearing funding and the impact of two less days in the quarter, which
resulted in approximately $2.4 million less net interest income.
The following table compares taxable equivalent net interest income for the
three months ended March 31, 1994 versus the first quarter of 1993 and the
fourth quarter of 1993, respectively (in millions):
<TABLE>
<CAPTION>
Taxable Equivalent
Net Interest Income
- -------------------
Three Months Ended Increase (decrease)
------------------------------ --------------------------
Mar. 31, Mar. 31, Dec. 31, Mar. 1994/ Mar. 1994/
1994 1993 1993 Mar. 1993 Dec 1993
-------- -------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total interest income $407.2 $413.5 $414.3 $ (6.3) $(7.1)
Tax equivalent adjustment 5.2 6.1 6.7 (0.9) (1.5)
------ ------ ------ ------ -----
Tax equivalent interest
income 412.4 419.6 421.0 (7.2) (8.6)
Total interest expense 105.7 118.3 107.2 (12.6) (1.5)
------ ------ ------ ------ -----
Taxable equivalent net
interest income $306.7 $301.3 $313.8 $ 5.4 $(7.1)
====== ====== ====== ====== =====
Interest rate spread 4.89% 4.96% 4.91%
==== ==== ====
Net interest margin 5.64% 5.72% 5.67%
==== ==== ====
</TABLE>
<PAGE>
Page 21
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Continued
NET INTEREST INCOME - continued
- -------------------------------
The following rate/volume analysis on a taxable equivalent basis illustrates
the underlying factors producing these increases (decreases) in tax equivalent
net interest income (in millions):
<TABLE>
<CAPTION>
Increase (decrease) in interest Increase (decrease) in interest
------------------------------- -------------------------------
Three Months Ended Three Months Ended
March 31, 1994/1993 March 31, 1994/Dec. 31, 1993
------------------------------- -------------------------------
Income/ Change attributable to Income/ Change attributable to
---------------------- ----------------------
expense Volume Rate expense Volume Rate
------- ------ ---- ------- ------ ----
Interest earning assets
- -----------------------
<S> <C> <C> <C> <C> <C> <C>
Time deposits-Eurodollars $ 1.9 $(1.4) $ 3.3 $ 4.5 $ 1.4 $ 3.1
Investment securities (13.7) (3.1) (10.6) (6.6) (2.4) (4.2)
Federal funds sold .7 .5 .2 .4 (.1) .5
Trading account securities - - - - - -
Loans:
Domestic 4.5 22.9 (18.4) (6.6) 3.6 (10.2)
Foreign (.6) - (.6) (.3) (.4) .1
------ ----- ------ ----- ----- ------
Total interest income (7.2) 18.9 (26.1) (8.6) 2.1 (10.7)
------ ----- ------ ----- ----- ------
Interest bearing funds
- ----------------------
Deposits:
Domestic (17.7) (3.6) (14.1) (6.6) (.1) (6.5)
Overseas 3.3 (.3) 3.6 4.5 .2 4.3
Funds borrowed:
Federal funds purchased .4 (.2) .6 (.5) (.2) (.3)
Other 3.1 3.2 (.1) (1.1) .9 (2.0)
Long-term debt (1.7) 3.0 (4.7) 2.2 .7 1.5
------ ----- ----- ----- ----- ----
Total interest expense (12.6) 2.1 (14.7) (1.5) 1.5 (3.0)
------ ----- ------ ----- ----- ----
Net interest income $ 5.4 $16.8 $(11.4) $(7.1) $ .6 $(7.7)
- ------------------- ====== ===== ====== ===== ===== =====
</TABLE>
- - Changes in interest income or expenses not arising solely as a result of
volume or rate variances are allocated to rate variances due to the interest
sensitivity of consolidated assets and liabilities.
- - Non-performing loans are included in interest earning assets.
- - The changes in interest expense on domestic time deposits attributable to
volume and rate are adjusted by specific reserves as average balances are
reduced by such reserves for purposes of rate calculations.
<PAGE>
Page 22
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Continued
NET INTEREST INCOME - continued
- -------------------------------
The effect of cash basis and other non-performing loans on interest income and
net interest income for the three-month periods ended March 31, 1994 and 1993
was as follows (in millions):
<TABLE>
<CAPTION>
Three
Months Ended
March 31,
---------------
1994 1993
----- -----
<S> <C> <C>
Interest income due on non-performing loans
in accordance with their original terms $ 8.1 $ 7.6
Interest income on non-performing loans
reflected in total interest income 4.1 4.8
----- -----
Net reduction in interest income $ 4.0 $ 2.8
===== =====
</TABLE>
<PAGE>
Page 23
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Continued
PROVISION AND ALLOWANCE FOR LOAN LOSSES
- ---------------------------------------
Excluding the $120.0 million merger-related provision recorded by
Constellation in connection with a change in strategy related to problem assets
and to conform Constellation's consumer lending charge-off policies to those of
CoreStates, the provision for loan losses for the first quarter of 1994 was $2.5
million below the provision for the prior year first quarter. The decrease in
the loan loss provision resulted primarily from an improving outlook for credit
quality and continuing improvements in credit quality indicators, including a
13.6% decline in non-performing assets from March 31, 1993.
The following table presents an analysis of changes in the allowance for loan
losses for the three months ended March 31, 1994 and 1993 (in millions):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------
1994 1993
--------- ---------
<S> <C> <C>
Balance at beginning of period $ 417.8 $ 407.6
Provision charged to operating expense 145.0 27.5
Loan charge-offs (43.1) (46.6)
Recoveries of loans previously charged off 12.9 25.9
------- -------
Net loan charge-offs (30.2) (20.7)
------- -------
Balance at end of period $ 532.6 $ 414.4
======= =======
Ratios:
Net charge-offs (annualized) as a
percentage of average total loans .68% .49%
==== ====
Allowance for loan losses as a
percentage of loans at end of period 2.87% 2.42%
==== ====
Allowance for loan losses as a percentage
of non-performing loans 141.77% 110.56%
======= =======
</TABLE>
<PAGE>
Page 24
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Continued
PROVISION AND ALLOWANCE FOR LOAN LOSSES -- Continued
- ---------------------------------------
The following table reflects the distribution of net loan charge-offs by loan
type for the three months ended March 31, 1994 and 1993 (in millions):
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1994 March 31, 1993
------------------------------------- ------------------------------
% of % of
% of Total % of Total
Net Average Net Net Average Net
Charge- Loan Charge- Charge- Loan Charge-
offs Type(1) offs offs Type(1) offs
------------- ------------ -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Domestic:
Commercial, industrial and other $16.1 .8% 53.3% $ .5 2.4%
Real estate:
Construction and development 1.3 1.6 4.3 1.8 1.7% 8.7
Other 5.4 .4 17.9 11.5 .8 55.6
Consumer:
Credit Card 6.0 2.1 19.9 5.5 2.4 26.6
Installment 1.3 .5 4.3 1.2 .4 5.8
Other (2) .1 .3 .9 .3 4.3
----- ----- ----- -----
Total domestic net charge-offs 30.2 .7 100.0 21.4 .5 103.4
----- ----- ----- -----
Foreign (3) (.7) (.5) (3.4)
----- ----- ----- -----
Total net charge-offs $30.2 .7% 100.0% $20.7 .5% 100.0%
===== === ===== ===== === =====
</TABLE>
- --------------------------------------------
(1) Annualized.
(2) Includes loans to financial institutions and lease financing.
(3) Reflects net recoveries on LDC assets of $.7 million for the three months
ended March 31, 1993.
<PAGE>
Page 25
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Continued
NON-PERFORMING LOANS AND OTHER REAL ESTATE OWNED
- ------------------------------------------------
Total non-performing assets at March 31, 1994 increased $63.7 million, or
15.9%, from December 31, 1993. Most of the increase from December 31, 1993 was
in the real estate category, which increased $60.4 million due to $76.3 million
of commercial mortgage loans acquired with Constellation being placed on non-
accrual in accordance with a previously announced change in strategic direction
concerning those assets. The commercial and industrial loan portfolio declined
by $2.0 million.
<TABLE>
<CAPTION>
The following table summarizes non-performing assets at March 31, 1994 and
December 31, 1993 (in millions):
March 31, December 31,
1994 1993
--------- ------------
<S> <C> <C>
Non-accrual loans $344.9 $226.3
Renegotiated loans 30.7 54.9
------ ------
Total non-performing loans 375.6 281.2
Other real estate owned:
Acquired through foreclosure 46.4 64.4
In-substance foreclosure 36.4 48.8
Property formerly used in
banking operations 5.9 6.2
------ ------
Total other real estate owned 88.7 119.4
------ ------
Total non-performing assets $464.3 $400.6
====== ======
</TABLE>
The following table reflects the distribution of non-performing assets by loan
type at March 31, 1994 and December 31, 1993 (in millions):
<TABLE>
<CAPTION>
March 31, 1994 December 31, 1993
---------------------- ------------------
% of % of
Non- Loan Non- Loan
Domestic: performing Type performing Type
--------------- ----- ----------- -----
<S> <C> <C> <C> <C>
Commercial, industrial and other:
HLTs $ 5.1 1.1% $ 5.1 1.1%
Other 102.8 1.2 104.8 1.4
------ ------
Total commercial, industrial and other 107.9 1.2 109.9 1.4
------ ------
Real estate:
Construction and development loans 20.8 6.5 19.4 5.8
Other loans 239.1 4.6 149.4 2.8
Other real estate owned 88.6 119.4
------ ------
Total real estate 348.6 4.7 288.2 3.0
------ ------
Consumer .7
------
Other domestic loans(1) 7.7 .5 1.6 .1
------ ------
Total domestic non-performing assets 464.1 2.6 400.4 2.3
------ ------
Foreign loans .2 .2
------ ---
Total non-performing assets(2) $464.3 2.5% $400.6 2.2%
====== === ====== ===
% Total assets 1.8% 1.5%
====== ======
- ---------------------------------------------------------------------------
</TABLE>
(1) Includes loans to financial institutions and lease financing.
(2) Includes non-accrual loans, renegotiated loans and other real estate owned.
The table does not include loans of $46 million and $47 million at March
31, 1994 and December 31, 1993, respectively, that are past due 90 days or
more as to principal or interest, but which remain on full accrual since
such loans are well secured and in the process of collection.
<PAGE>
Page 26
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Continued
NON-PERFORMING LOANS AND OTHER REAL ESTATE OWNED - continued
- ------------------------------------------------
The following table summarizes the components of the change in non-performing
assets for the first quarter of 1994 (in millions):
<TABLE>
<S> <C>
Beginning balance, January 1, 1994 $401
Additions 154
Return to accrual (15)
Payments (21)
Charge-offs (55)
----
Net change 63
----
Ending balance, March 31, 1994 $464
====
</TABLE>
NON-INTEREST INCOME
- -------------------
Total non-interest income for the first quarter of 1994 increased $16.2
million, or 13.1%, from the first quarter of 1993. Excluding the impact of
securities gains, non-interest income increased $12.3 million, or 10.2% compared
to the prior year first quarter. This 10.2% increase principally reflects
continuing increases in revenues from CoreStates' fee-based businesses including
a $3.2 million, or 8.0%, increase in service charges on deposit accounts and a
$2.7 million, or 17.2%, increase in fees for international services. Also
contributing to the first quarter increase was a $1.5 million gain on the sale
of a portfolio of boat loans, $1.3 million gain on securitization of home
equity loans, and income related to CoreStates' investment in Electronic
Payment Services, Inc. ("EPS"). That investment was restructured in December
1993 adding $3 million to revenue each quarter for the next ten years,
representing recognition of deferred gains from CoreStates' contribution of
its former electronic payment services businesses to EPS.
Investment securities gains in the first quarter of 1994 were $6.9 million
compared to $3.0 million of gains in the prior year first quarter. The first
quarter of 1994 includes gains of $5.0 million recorded on sales of certain
investments acquired with Constellation. The prior year first quarter included
$2.4 million of net gains recorded on foreign equity securities.
NON-FINANCIAL EXPENSES
- ----------------------
Total non-financial expenses were $348.4 million in the first quarter of 1994,
an increase of $70.1 million, or 25.2%, from the first quarter of 1993,
reflecting $75.0 million of charges related to the Constellation acquisition.
Excluding those merger-related charges, non-financial expenses in the first
quarter of 1994 declined $4.9 million, or 1.8%, from the first quarter of 1993,
reflecting some cost efficiencies from the Constellation acquisition.
<PAGE>
Page 27
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
- ------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Continued
CAPITAL MANAGEMENT
- ------------------
CoreStates' capital provides the resources and flexibility for anticipated
growth. CoreStates' capital position at March 31, 1994 under risk-based capital
guidelines was $2.0 billion, or 8.9% of risk-weighted assets, for Tier I capital
and $2.9 billion, or 13.1%, for total risk-based capital. Tier I capital
consists primarily of common shareholders' equity less goodwill and certain
intangible assets, while total risk-based capital adds qualifying subordinated
debt and the allowance for loan losses, within permitted limits, to Tier I
capital. Risk-weighted assets are determined by assigning various levels of
risk to different categories of assets and off-balance sheet activities.
CoreStates' ratios at March 31, 1994 are above the risk-based capital standards
that require all banks to have Tier I capital of at least 4% and total capital
of 8%.
Under the Federal Reserve Board's capital leverage guidelines, which require a
minimum leverage ratio of 3.0% (Tier I capital to quarterly average total
assets), CoreStates had a leverage ratio of 7.8% at March 31, 1994. The minimum
3.0% leverage requirement applies only to top rated banking organizations
without any operating, financial, or supervisory deficiencies. Other
organizations (including those experiencing or anticipating significant growth)
are expected to hold an additional capital cushion of at least 100 to 200 basis
points of Tier 1 capital, and in all cases, banking organizations should hold
capital commensurate with the level and nature of all the risks, including the
volume and severity of problem loans, to which they are exposed.
Substantially the same capital requirements are applied to CoreStates' banking
subsidiaries; CoreStates Bank, N.A., New Jersey National Bank and CoreStates
Bank of Delaware, N.A. under guidelines issued by the Office of the Comptroller
of the Currency and the Federal Deposit Insurance Corporation. As illustrated
in the following table, at March 31, 1994 the banking subsidiaries of CoreStates
were "well capitalized" as defined by regulatory authorities.
<TABLE>
<CAPTION>
Regulatory Capital Ratios
------------------------------------- Total
Tier I Total Leverage Assets
------------ ------------ ---------- ---------
($ in billions)
<S> <C> <C> <C> <C>
CoreStates Bank, N.A. 8.4% 10.9% 7.4% $17.5
New Jersey National Bank(1) 9.5 11.6 6.6 4.5
CoreStates Bank of Delaware, N.A. 12.2 13.5 11.9 .6
- -----------------------------------
</TABLE>
(1) Constellation Bank was merged into New Jersey National Bank on April 29,
1994. Pro forma combined regulatory capital ratios at March 31, 1994 were
8.9%, 10.8% and 6.3% for Tier I capital, total capital and leverage ratios,
respectively.
CoreStates' dividend on its common stock was $.30 per share in the first
quarter of 1994 and $.27 in the first quarter of 1993, both reflecting the Stock
Dividend. The common dividend payout ratio was 41.7% for the first quarter of
1994 excluding the impact of merger-related charges, compared to 46.6% for the
first quarter of 1993.
<PAGE>
Page 28
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Continued
LIQUIDITY AND INTEREST RATE SENSITIVITY
- ---------------------------------------
CoreStates manages its sources of liquidity by participating in diversified
funding markets and by restructuring the maturities of its portfolio of
investment securities and short-term discretionary assets. To manage interest
sensitivity, CoreStates utilizes discretionary investment and funding
instruments as well as various types of hedging vehicles such as futures
contracts, interest rate swaps, options on interest rate swaps and interest rate
caps. These latter techniques are used principally to stabilize the margin
generated from relationship products. CoreStates monitors the interest rate
sensitivity posture of the institutions with which CoreStates has agreed to
merge. These postures are considered when CoreStates evaluates its overall
risk. CoreStates currently maintains a well balanced interest rate sensitivity
posture with limited exposure to interest rate changes in either direction.
<PAGE>
PART I FINANCIAL INFORMATION Page 29
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEET AND TAXABLE EQUIVALENT INCOME/EXPENSE AND RATES
THREE MONTHS ENDED
March 31, 1994 December 31, 1993 March 31, 1993
---------------------------- ---------------------------- --------------------------
Average Income/ Average Income/ Average Income/
balance Rate expense balance Rate expense balance Rate expense
------- ------ ------- ------- ------ ------- ------- ------ -------
(000,000) (000) (000,000) (000) (000,000) (000)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
- -----------------------
Time deposits, principally
Eurodollars (a)................... $ 1,305 4.49% $ 14,445 $ 1,145 3.46% $ 9,983 $ 1,470 3.47% $ 12,560
Investment securities (b):
U.S. Government.................. 2,168 4.84 25,857 2,462 5.26 32,625 2,376 6.44 37,714
State and municipal.............. 333 8.19 6,822 322 8.88 7,150 397 8.43 8,366
Other............................ 256 2.64 1,666 151 3.18 1,210 176 4.64 2,014
------- -------- --------- --------- ------- --------
Total investment securities.. 2,757 5.05 34,345 2,935 5.54 40,985 2,949 6.61 48,094
Federal funds sold................. 234 3.95 2,278 249 2.95 1,852 210 3.06 1,586
Trading account securities......... 2 7.80 39 2 5.60 28 1 6.80 17
Loans (b) (c) (d):
Domestic:
Commercial, industrial and
other......................... 7,593 7.67 143,663 7,297 8.01 147,287 6,606 8.12 132,236
Real estate.................... 5,583 7.89 108,666 5,507 7.53 104,511 5,928 8.30 121,344
Consumer....................... 2,209 11.99 65,284 2,230 12.64 71,024 2,010 12.32 61,064
Financial institutions......... 630 6.76 10,507 758 6.04 11,544 654 6.84 11,038
Factoring receivables.......... 536 9.70 12,825 614 8.55 13,233 467 10.05 11,574
Lease financing................ 665 8.31 13,811 641 8.59 13,771 543 9.53 12,940
Foreign.......................... 541 4.89 6,528 572 4.69 6,766 543 5.38 7,201
------- -------- --------- --------- ------- --------
Total loans, net of discounts 17,757 8.25 361,284 17,619 8.29 368,136 16,751 8.65 357,397
------- -------- --------- --------- ------- --------
Total interest earning
assets (d).................. $22,055 7.58 412,391 $ 21,950 7.61 420,984 $21,381 7.96 419,654
======= ------ -------- ========= ------- --------- ======= ----- --------
FUNDING SOURCES
- ---------------
Interest bearing liabilities (b):
Deposits in domestic offices (e):
Commercial..................... $ 202 2.53 1,262 $ 295 3.33 2,476 $ 366 3.37 3,041
NOW accounts................... 1,649 .36 1,351 1,578 .63 2,283 1,554 .98 3,427
Money Market Accounts.......... 3,577 1.98 17,445 3,587 2.01 18,142 3,588 2.02 17,859
Consumer savings............... 2,709 1.05 6,997 2,640 1.22 8,091 2,605 1.68 10,812
Consumer certificates.......... 3,675 4.20 38,021 3,720 4.34 40,717 4,224 4.58 47,672
Time deposits of overseas
branches and
subsidiaries................... 735 4.73 8,567 707 2.28 4,059 772 2.76 5,260
------- -------- --------- --------- ------- --------
Total interest bearing
deposits.................... 12,547 2.40 73,643 12,527 2.43 75,768 13,109 2.76 88,071
Short-term funds borrowed:
Federal funds purchased........ 943 3.23 7,499 961 3.26 7,901 967 2.95 7,035
Commercial paper............... 549 3.26 4,415 554 3.14 4,387 553 3.23 4,400
Other.......................... 391 5.03 4,852 310 7.70 6,016 73 10.26 1,846
------- -------- --------- --------- ------- --------
Total short-term funds
borrowed.................... 1,883 3.61 16,766 1,825 3.98 18,304 1,593 3.38 13,281
Long-term debt (f)............... 1,476 4.20 15,286 1,400 3.71 13,095 1,267 5.48 16,965
------- -------- --------- --------- ------- --------
Total interest bearing
liabilities................. 15,906 2.69 105,695 15,752 2.70 107,167 15,969 3.00 118,317
Portion of non-interest bearing
funding sources................... 6,149 6,198 5,412
------- -------- --------- --------- ------- --------
Total funding sources........ $22,055 1.94 105,695 $ 21,950 1.94 107,167 $21,381 2.24 118,317
======= ------ -------- ========= ------- --------- ======= ----- --------
Net interest income and net
interest margin................... 5.64% $306,696 5.67% $313,817 5.72% $301,337
====== ======== ======= ======== ===== ========
NON-INTEREST EARNING ASSETS
- ---------------------------
Cash............................... $ 2,273 $ 2,235 $ 2,263
Allowance for loan losses.......... (443) (426) (418)
Other assets....................... 1,469 1,466 1,791
------- ------ -------
Total non-interest earning
assets...................... $ 3,299 $3,275 $ 3,636
======= ====== =======
</TABLE>
<PAGE>
PART I FINANCIAL INFORMATION Page 30
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED AVERAGE BALANCE SHEET AND TAXABLE EQUIVALENT INCOME/EXPENSE AND RATES -- continued
THREE MONTHS ENDED
March 31, 1994 December 31, 1993 March 31, 1993
---------------------------- ---------------------------- --------------------------
Average Income/ Average Income/ Average Income/
balance Rate expense balance Rate expense balance Rate expense
------- ------ ------- ------- ------ ------- ------- ------ -------
(000,000) (000) (000,000) (000) (000,000) (000)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
NON-INTEREST BEARING FUNDING
SOURCES
Demand deposits:
Domestic......................... $ 5,517 $5,631 $ 5,336
Foreign.......................... 372 377 349
Other liabilities.................. 1,350 1,401 1,458
Shareholders' equity............... 2,209 2,064 1,905
Non-interest bearing funding
sources used to fund
earning assets................... (6,149) (6,198) (5,412)
--------- ------ --------
Total net non-interest
bearing funding
sources.................... $ 3,299 $3,275 $ 3,636
========= ====== ========
SUPPLEMENTARY AVERAGES
- -----------------------------------
Net demand deposits................ $ 4,358 $4,417 $ 4,289
Net Federal funds purchased........ 709 2.99% $ 5,221 712 3.37% $ 6,049 757 2.92% $ 5,449
Commercial certificates of deposit in
domestic offices over $100,000... 188 2.54 1,176 278 3.40 2,383 353 3.45 3,005
Average prime rate................. 6.02 6.00 6.00
</TABLE>
(a) Yields and income on deposits include net Eurodollar trading profits.
(b) The net impact of interest rate swaps is recognized as an adjustment to
interest income or expense of the related hedged asset or liability.
(c) Yields and income on loans include fees on loans.
(d) Non-performing loans are included in interest earning assets.
(e) Average balances on time deposits in domestic offices are reduced by
specified reserve amounts for purposes of rate calculations.
(f) Rates on long-term debt are based on average balances excluding average
capital lease obligations.
<PAGE>
Page 31
PART II. OTHER INFORMATION
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
------
(a) Exhibits - The following exhibits are filed herewith in
connection with registration statements filed from time to time
by the Corporation:
11 Computation of Per Share Earnings
12.1 Computation of Ratio of Earnings to Fixed Charges
(Consolidated)
(b) The following Reports on Form 8-K were filed by CoreStates
Financial Corp during the quarter:
<TABLE>
<S> <C> <C>
3. Date of Report: March 16, 1994, as amended by Amendment No. 1 on Form 8-K/A
----------------- dated May 5, 1994 and Amendment No. 2 on Form 8-K/A dated
September 13, 1994
Item(s) Reported: CoreStates Financial Corp acquired all of the outstanding
----------------- shares of Constellation Bancorp and submission of pro
forma financial information.
</TABLE>
<PAGE>
Page 32
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SIGNATURE
- ---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this Form 10-Q/A, Amendment No. 1 to Form 10-Q for
the quarter ended March 31, 1994 to be signed on its behalf by the undersigned,
thereunto duly authorized.
CORESTATES FINANCIAL CORP
Date: September 13, 1994 By:/s/ Albert W. Mandia
--------------------------------
Albert W. Mandia
Executive Vice President, Finance
(Principal Accounting Officer)
<PAGE>
Page 33
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
EXHIBIT 11
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
--------------------------
1994
Restated
(See Note A) 1993
------------ --------
<S> <C> <C>
(A) Income (loss) before cumulative effect of a
change in accounting principle $(35,888) $ 75,050
Cumulative effect of a change in
accounting principle (13,010)
-------- --------
(B) Net Income (loss) $(35,888) $ 62,040
======== ========
EARNINGS PER SHARE
Based on average common shares outstanding
- ------------------------------------------
(C) Average shares outstanding 128,089 128,300
======== ========
(A/C) Income (loss) before cumulative effect of a
Change in accounting principle $(0.28) $0.58
====== =====
(B/C) Net Income (loss) $(0.28) $0.48
====== =====
</TABLE>
Based on average common and common
- ----------------------------------
equivalent shares outstanding
- -----------------------------
<TABLE>
<CAPTION>
<S> <C> <C>
Primary:
(D) Average common equivalent shares 1,067 1,439
===== =====
(E) Average common and common
equivalent shares (C + D) 129,156 129,739
======= =======
(A/E) Income (loss) before cumulative effect of a
change in accounting principle (1) $(0.28) $0.58
====== =====
(B/E) Net Income (loss) (1) $(0.28) $0.48
====== =====
Fully diluted:
(F) Average common equivalent shares 1,042 1,520
===== =====
(G) Average common and common
equivalent shares (C + F) 129,131 129,820
======= =======
(A/G) Income (loss) before cumulative effect of a
change in accounting principle (1) $(0.28) $0.58
====== =====
(B/G) Net Income (loss) (1) $(0.28) $0.48
====== =====
</TABLE>
- -------------------------------
(1) Dilution is less than 3%.
<PAGE>
Page 34
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS FROM CONTINUING OPERATIONS
TO FIXED CHARGES OF CONTINUING OPERATIONS
CONSOLIDATED
Three Months Ended March 31, 1994 Restated (See Note A)
- ---------------------------------
<TABLE>
<CAPTION>
<S> <C>
1. Loss from continuing operations before extraordinary items and
income taxes...................................................... $(52,494)
========
2. Fixed charges of continuing operations:
A. Interest expense (excluding interest on deposits),
amortization of debt issuance costs and one-first of rental
expenses, net of income from subleases......................... $ 37,782
B. Interest on deposits........................................... 73,643
--------
C. Total fixed charges (line 2A + line 2B)........................ $111,425
========
3. Loss from continuing operations before extraordinary items and
income taxes, plus total fixed charges of continuing operations:
A. Excluding interest on deposits (line 1 + line 2A).............. $(14,712)
========
B. Including interest on deposits (line 1 + line 2C).............. $ 58,931
========
4. Ratio of earnings (as defined) to fixed charges:
A. Excluding interest on deposits (line 3A/line 2A)............... -- (a)
========
B. Including interest on deposits (line 3B/line 2C)............. .53x
====
</TABLE>
(a) Earnings did not cover fixed charges, excluding interest on deposits,
by approximately $14,712.
