<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-Q
Quarterly Report Under Section 13 or 15 (d)
of the Securities Exchange Act of 1934
For the quarter ended June 30, 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 August 1, 1994: 141,308,776
<PAGE>
Page 2
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
INDEX
Page
----
PART I. FINANCIAL INFORMATION
Item 1 - Financial Statements
Consolidated Balance Sheet June 30, 1994 and
December 31, 1993 3
Consolidated Statement of Income for the Three and
Six Months Ended June 30, 1994 and 1993 4
Consolidated Statement of Changes in Shareholders'
Equity for the Six Months Ended June 30, 1994
and 1993 5
Consolidated Statement of Cash Flows for the
Six Months Ended June 30, 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 14-34
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 35
SIGNATURE 36
EXHIBITS 11, 12.1, 12.2 37-39
<PAGE>
Page 3
PART I. FINANCIAL INFORMATION
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEET (unaudited)
(in thousands) June 30, December 31,
1994 1993
------------ -------------
Restated
(See Note 1)
<S> <C> <C>
ASSETS
- ------
Cash and due from banks........................... $ 2,217,192 $ 2,521,676
Time deposits, principally Eurodollars............ 1,686,462 1,319,457
Investments held-to-maturity (fair value:
1994 - $2,073,115; 1993 - $2,257,813)........... 2,081,344 2,228,560
Investments available-for-sale, at fair value..... 889,552 1,370,606
Loans, net of unearned discounts of $144,448 in
1994 and $151,994 in 1993 (Note C).............. 19,562,687 19,776,258
Less: Allowance for loan losses.................. (475,296) (450,823)
----------- -----------
Net loans............................... 19,087,391 19,325,435
Federal funds sold and securities purchased under
agreements to resell............................ 57,853 161,527
Trading account securities, at fair value......... 2,876 6,393
Due from customers on acceptances................. 319,691 332,234
Premises and equipment............................ 420,034 410,022
Other assets...................................... 701,214 758,707
----------- -----------
Total assets............................ $27,463,609 $28,434,617
=========== ===========
LIABILITIES
- -----------
Deposits:
Domestic:
Non-interest bearing.......................... $ 5,961,821 $ 6,649,367
Interest bearing.............................. 13,322,247 13,686,027
Overseas branches and subsidiaries.............. 841,504 796,902
----------- -----------
Total deposits.......................... 20,125,572 21,132,296
Funds borrowed.................................... 2,186,305 1,884,125
Bank acceptances outstanding...................... 307,216 337,180
Other liabilities................................. 1,023,152 1,123,342
Long-term debt.................................... 1,657,175 1,589,290
----------- -----------
Total liabilities....................... 25,299,420 26,066,233
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES (Note D)
- --------------------------------------
SHAREHOLDERS' EQUITY
- --------------------
Common stock: $1 par value; authorized 200.0
million shares; issued 145.8 million shares in
1994 and 145.8 million shares in 1993
(including treasury shares of 4.5 million in
1994 and .4 million in 1993)..................... 2,164,189 2,368,384
----------- -----------
Total shareholders' equity.............. 2,164,189 2,368,384
----------- -----------
Total liabilities and shareholders'
equity................................. $27,463,609 $28,434,617
=========== ===========
</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 Six Months Ended
June 30, June 30,
------------------ ------------------
1994 1993 1994 1993
-------- -------- -------- --------
<S> <C> <C> <C> <C>
INTEREST INCOME
- ---------------
Interest and fees on loans:
Taxable income.................... $415,363 $385,649 $801,173 $766,933
Tax exempt income................. 5,781 7,873 11,881 15,811
Interest on investment securities:
Taxable income.................... 35,691 49,781 71,378 99,728
Tax exempt income................... 4,365 5,392 8,703 10,662
Interest on time deposits in banks.. 11,549 11,427 26,345 24,354
Other interest income............... 1,207 1,399 3,685 3,191
-------- -------- -------- --------
Total interest income........ 473,956 461,521 923,165 920,679
-------- -------- -------- --------
INTEREST EXPENSE
- ----------------
Interest on deposits................ 82,097 94,166 168,838 198,423
Interest on funds borrowed.......... 22,640 18,314 39,599 32,457
Interest on long-term debt.......... 19,554 17,364 36,725 36,182
-------- -------- -------- --------
Total interest expense....... 124,291 129,844 245,162 267,062
-------- -------- -------- --------
NET INTEREST INCOME.......... 349,665 331,677 678,003 653,617
Provision for losses on loans....... 49,995 30,825 196,900 61,550
-------- -------- -------- --------
NET INTEREST INCOME AFTER
PROVISION FOR LOSSES ON
LOANS...................... 299,670 300,852 481,103 592,067
-------- -------- -------- --------
NON-INTEREST INCOME
- -------------------
Service charges on deposit accounts. 46,984 45,439 93,006 88,081
Trust income........................ 24,620 26,235 49,213 51,607
Fees for international services..... 19,301 17,087 37,440 32,570
Debit and credit card fees.......... 16,105 15,399 30,503 29,215
Income from investment in EPS, Inc.. 7,765 3,869 15,677 7,432
Gains (losses) on trading account
securities......................... 863 629 1,173 1,390
Securities gains (losses)........... 3,023 (694) 9,920 2,155
Other operating income.............. 23,376 32,420 51,052 57,740
-------- -------- -------- --------
Total non-interest income.... 142,037 140,384 287,984 270,190
-------- -------- -------- --------
NON-FINANCIAL EXPENSES
- ----------------------
Salaries, wages and benefits........ 161,020 156,697 319,948 311,034
Net occupancy....................... 28,429 28,412 58,621 57,653
Equipment expenses.................. 19,262 18,860 38,466 37,897
Other operating expenses............ 132,407 101,330 295,417 199,790
-------- -------- -------- --------
Total non-financial expenses. 341,118 305,299 712,452 606,374
-------- -------- -------- --------
INCOME BEFORE INCOME TAXES.......... 100,589 135,937 56,635 255,883
- --------------------------
Provision for income taxes.......... 37,498 44,546 23,539 84,211
-------- -------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT OF
- ----------------------------------
A CHANGE IN ACCOUNTING PRINCIPLE.. 63,091 91,391 33,096 171,672
-------------------------------
Cumulative effect of a change in
accounting principle, net of
income tax benefits of $1,846
in 1994 and $7,005 in 1993....... (3,430) (13,010)
-------- -------- -------- --------
NET INCOME.......................... $ 63,091 $ 91,391 $ 29,666 $158,662
- ---------- ======== ======== ======== ========
Average common shares outstanding... 142,139 145,476 143,368 145,255
======== ======== ======== ========
PER COMMON SHARE DATA
- ---------------------
Income before cumulative effect of
a change in accounting principle... $0.44 $0.63 $0.23 $1.18
===== ===== ===== =====
Net income.......................... $0.44 $0.63 $0.21 $1.09
===== ===== ===== =====
Cash dividends declared............. $0.30 $0.27 $0.60 $0.54
===== ===== ===== =====
</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>
Six Months Ended June 30, 1993
- ------------------------------
Balances at beginning of year........................... $ 86,387 $817,391 $1,194,662 $ (3,881) $2,094,559
Net income.............................................. 158,662 158,662
Change in unrealized loss on marketable equity
securities............................................. 250 250
Treasury shares acquired (10 shares).................... (547) (547)
Common stock issued under employee
benefit plans (415 new shares)........................ 415 10,281 10,696
Common stock issued under dividend
reinvestment plan (147 new shares).................... 147 5,770 5,917
Foreign currency translation adjustments................ 404 404
Common dividends declared............................... (69,930) (69,930)
--------- --------- ---------- --------- ----------
Balances at end of period............................... $ 86,949 $833,442 $1,284,048 $ (4,428) $2,200,011
========= ========= ========== ========= ==========
Six Months Ended June 30, 1994
- ------------------------------
Balances at beginning of year, restated (See Note 1).... $145,740 $778,498 $1,451,965 $ (7,819) $2,368,384
Net income.............................................. 29,666 29,666
Net change in unrealized gain on invest-
ments available-for-sale, net of tax.................. (36,262) (36,262)
Treasury shares acquired (4,706 shares)................. (125,703) (125,703)
Common stock issued under employee benefit
plans (267 new shares; 289 treasury shares)........... 267 3,844 (2,686) 7,789 9,214
Common stock issued under dividend reinvest-
ment plan (231 treasury shares)....................... 1 (431) 6,452 6,022
Purchase and retirement of common stock................. (165) (979) (3,583) (4,727)
Conversion of subordinated debt......................... 7 152 159
Cash paid for fractional shares issued.................. (50) (50)
Foreign currency translation adjustments................ 155 155
Common dividends declared............................... (82,669) (82,669)
--------- --------- ---------- --------- ----------
Balances at end of period.............................. $145,849 $781,516 $1,356,105 $(119,281) $2,164,189
========= ========= ========== ========= ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
Page 6
<TABLE>
<CAPTION>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CASH FLOWS (unaudited)
(in thousands) Six Months Ended
June 30,
--------------------------
1994 1993
------------ -----------
<S> <C> <C>
Operating Activities
- --------------------
Net income......................................... $ 29,666 $ 158,662
Adjustments to reconcile net income to net cash
provided by operating activities:
Cumulative effect of a change in accounting
principle....................................... 3,430 13,010
Provision for losses on loans.................... 196,900 61,550
Provision for losses on OREO and writedowns...... 7,309
Depreciation and amortization.................... 35,614 47,118
Securities gains, net............................ (9,920) (2,155)
Deferred income tax expense (benefit)............ (41,590) 12,484
Increase (decrease) in due to factored clients... (39,547) 50,853
(Increase) decrease in interest receivable....... 5,948 (3,975)
Decrease in interest payable..................... (15,582) (50,913)
Other assets and liabilities, net................ 77,288 (165,328)
------------ -----------
Net Cash Provided By Operating Activities..... 242,207 128,615
------------ -----------
Investing Activities
- --------------------
Net (increase) decrease in loans................... 213,571 (674,628)
Proceeds from sales of loans....................... 51,258 316,212
Loans originated or acquired - non-bank subsidiary. (17,393,875) (12,306,591)
Principal collected on loans - non-bank subsidiary. 17,009,148 12,024,872
Net (increase) decrease in time deposits,
principally eurodollars........................... (367,005) 523,009
Purchases of investments held-to-maturity.......... (602,145)
Purchases of investments available-for-sale........ (163,881)
Purchases of investment securities................. (1,173,388)
Proceeds from maturities of investments
available-for-sale................................ 160,004
Proceeds from maturities of investments
held-to-maturity.................................. 747,310
Proceeds from sales of investments
available-for-sale................................ 433,643 4,292
Proceeds from sales of investment securities....... 249,439
Proceeds from maturities of investment securities.. 830,639
Net decrease in Federal funds sold and
securities purchased under agreements to resell 103,674 89,851
Purchases of premises and equipment................ (43,557) (44,033)
Proceeds from sales and paydowns on other real
estate owned...................................... 21,948 49,641
Other.............................................. 5,771 3,894
------------ -----------
Net Cash Provided By (Used in) Investing
Activities................................... 275,864 (106,791)
------------ -----------
Financing Activities
- --------------------
Net decrease in deposits........................... (1,006,724) (872,033)
Proceeds from issuance of long-term debt........... 151,849 425,183
Retirement of long-term debt....................... (84,028) (356,357)
Net increase in funds borrowed.................... 302,180 327,074
Cash dividends paid................................ (70,588) (69,697)
Purchases of treasury stock........................ (130,480) (547)
Other.............................................. 15,236 16,564
------------ -----------
Net Cash Used In Financing Activities......... (822,555) (529,813)
------------ -----------
Decrease In Cash And Due From Banks........... (304,484) (507,989)
Cash And Due From Banks at January 1,......... 2,521,676 2,510,001
------------ -----------
Cash and due from banks at June 30,........... $ 2,217,192 $ 2,002,012
============ ===========
Supplemental Disclosure of Cash Flow Information
- ------------------------------------------------
Cash paid during the period for:
Interest...................................... $ 260,744 $ 318,050
============ ===========
Income taxes.................................. $ 88,899 $ 75,883
============ ===========
</TABLE>
See accompanying notes to the consolidated financial statements.
<PAGE>
Page 7
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
June 30, 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. The accompanying financial
statements include the consolidated accounts of Constellation Bancorp
("Constellation"), which was acquired on March 16, 1994, and Independence
Bancorp, Inc. ("Independence"), which was acquired on June 27, 1994, for all
periods presented. Both transactions were accounted for under the pooling of
interests method of accounting. Certain amounts in prior periods have been
reclassified for comparative purposes. Operating results for the six-month
period ended June 30, 1994 are not necessarily indicative of the results that
may be expected for the year ending December 31, 1994.
The accompanying financial information for December 31, 1993 and the results
of operations for the three months ended March 31, 1994, also which are included
in the consolidated statement of income for the six months ended June 30, 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 either March 31, 1994 or June 30,
1994. The restatement also has no effect on CoreStates' basic operating results,
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.
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 $0.09 per share, as the cumulative effect
of a change in accounting principle.
During the first quarter of 1994, Independence recognized a $3,430,000
after-tax, or $0.02 per share, impairment loss on certain mortgage securities as
a cumulative effect of a change in accounting principle. 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 Financial Accounting Standards Board's ("FASB")
1994 interpretation of Statement of Financial Accounting Standards No. 115 ("FAS
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.
<PAGE>
Page 8
NOTE B -- PROPOSED ACQUISITION
In March 1994, CoreStates announced a definitive agreement to acquire
Germantown Savings Bank ("GSB") in a transaction to be accounted for as a
purchase. Under the terms of the agreement, each of GSB's 4.2 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 proposed
acquisition of GSB. This pro forma information has been prepared using
historical consolidated financial statements, as modified for intercompany
balances, assuming that the operations of GSB had been consolidated with
CoreStates since January 1, 1994.
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
this period or indicative of the actual results the combined company will report
in the future.
Pro forma cash dividends declared per share for the periods prior to
CoreStates' acquisition of Constellation, Independence and GSB assume that
CoreStates would have declared cash dividends per share equal to the cash
dividends per share actually declared by CoreStates prior to June 30, 1994.
Unaudited pro forma financial information for CoreStates 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 - June 30, 1994
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
CoreStates Germantown
and Savings
Subsidiaries Bank Pro Forma
------------ ----------- -----------
<S> <C> <C> <C>
ASSETS
- ------
Cash and due from banks $ 2,217,192 $ 25,266 $ 2,242,345 (a)
Time deposits, principally
Eurodollars 1,686,462 139 1,686,601
Investment securities 2,970,896 533,337 3,512,052 (d)
Loans, net of unearned
discounts 19,562,687 1,009,174 20,584,383 (d)
Allowance for loan losses (475,296) (23,770) (499,066)
Federal funds sold and
securities purchased under
agreements to resell 57,853 18,000 68,853 (a)
Trading account securities 2,876 2,876
Due from customers on
acceptances 319,691 319,691
Premises, equipment and
other assets 1,121,248 32,517 1,312,232 (b)(c)(d)
----------- ---------- -----------
Total assets $27,463,609 $1,594,663 $29,229,967
=========== ========== ===========
LIABILITIES
- -----------
Deposits:
Domestic:
Non-interest bearing $ 5,961,821 $ 52,447 $ 6,014,155 (a)
Interest bearing 13,322,247 1,380,050 14,711,659 (d)
Overseas branches and
subsidiaries 841,504 841,504
----------- ---------- -----------
Total deposits 20,125,572 1,432,497 21,567,318
Funds borrowed 2,186,305 2,179,305
Bank acceptances
outstanding 307,216 307,216
Other liabilities 1,023,152 10,661 1,094,634 (b)
Long-term debt 1,657,175 1,774,233 (c)
----------- ---------- -----------
Total liabilities 25,299,420 1,443,158 26,922,706
----------- ---------- -----------
SHAREHOLDERS' EQUITY
- --------------------
Common shareholders' equity 2,164,189 151,505 2,307,261 (c)(d)
----------- ---------- -----------
Total shareholders'
equity 2,164,189 151,505 2,307,261
----------- ---------- -----------
Total liabilities and
shareholders' equity $27,463,609 $1,594,663 $29,229,967
=========== ========== ===========
Book value per share $15.32 $36.11 $15.73
====== ====== ======
</TABLE>
See FOOTNOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET on page 10.
<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 - June 30, 1994
(a) Reflects elimination of intercompany deposits and Federal funds
transactions.
(b) Reflects charges of approximately $41.9 million, $27.3 million after
related tax effects, for expenses directly attributable to the acquisition
of GSB 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.
(c) Represents the purchase price in the GSB acquisition using the following
assumptions:
(1) Shareholders of GSB will receive, for each of the 4,194,647 GSB 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 GSB pro
forma calculations, was assumed to be $26.50 per share.
(3) CoreStates Common Shares issued in the GSB acquisition 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 June 30, 1994
after reduction for the $41.9 million, $27.3 million after-tax, of
expenses directly attributable to the GSB acquisition.
(d) Represents the estimated adjustments of GSB'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 $101 million arising from the excess of the
total purchase price over net assets acquired (i.e. goodwill).
<PAGE>
Page 11
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 June 30, 1994 Six Months Ended June 30, 1994
-------------------------------------------- -----------------------------------------
CoreStates Germantown CoreStates Germantown
and Savings and Savings
Subsidiaries Bank Pro Forma Subsidiaries Bank Pro Forma
------------ ---------- --------- ------------ ---------- ---------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
- ---------------
Interest and fees on loans $421,144 $19,136 $439,654(b) $813,054 $38,737 $850,539(b)
Interest on investment
securities 40,056 7,305 46,786(b) 80,081 14,012 92,943(b)
Interest on time deposits
in banks 11,549 1 11,550 26,345 2 26,347
Interest on federal funds
sold and securities purchased
under agreement to resell 1,195 219 1,323(a) 3,652 375 3,926(a)
Other interest income 12 12 33 33
-------- ------- -------- -------- ------- --------
Total interest income 473,956 26,661 499,325 923,165 53,126 973,788
-------- ------- -------- -------- ------- --------
INTEREST EXPENSE
- ----------------
Interest on deposits 82,097 10,030 90,567(b) 168,838 20,208 185,925(b)
Interest on funds borrowed 22,640 32 22,581(a) 39,599 60 39,558(a)
Interest on long-term debt 19,554 21,670(b) 36,725 40,934(b)
-------- ------- -------- -------- ------- --------
Total interest expense 124,291 10,062 134,818 245,162 20,268 266,417
-------- ------- -------- -------- ------- --------
Net interest income 349,665 16,599 364,507 678,003 32,858 707,371
Provision for losses on loans 49,995 100 50,095 196,900 200 197,100
Net interest income after -------- ------- -------- -------- ------- --------
provision for losses on loans 299,670 16,499 314,412 481,103 32,658 510,271
-------- ------- -------- -------- ------- --------
NON-INTEREST INCOME
- -------------------
Service charges on deposit
accounts 46,984 703 47,687 93,006 1,356 94,362
Trust income 24,620 24,620 49,213 49,213
Fees for international services 19,301 19,301 37,440 37,440
Debit and credit card fees 16,105 41 16,146 30,503 80 30,583
Securities gains (losses) 3,023 141 3,164 9,920 145 10,065
Other operating income 32,004 250 32,253(a) 67,902 682 68,582(a)
-------- ------- -------- -------- ------- --------
Total non-interest income 142,037 1,135 143,171 287,984 2,263 290,245
-------- ------- -------- -------- ------- --------
NON-FINANCIAL EXPENSES
- ----------------------
Salaries, wages and benefits 161,020 5,093 166,113 319,948 10,214 330,162
Net occupancy 28,429 1,162 29,591 58,621 2,346 60,967
Equipment expenses 19,262 412 19,674 38,466 829 39,295
Other operating expenses 132,407 2,605 137,765(a)(b) 295,417 5,232 306,155(a)(b)
-------- ------- -------- -------- ------- --------
Total non-financial
expenses 341,118 9,272 353,143 712,452 18,621 736,579
-------- ------- -------- -------- ------- --------
Income before income taxes 100,589 8,362 104,440 56,635 16,300 63,937
Provision for income taxes 37,498 2,853 38,772(b) 23,539 5,544 25,934(b)
-------- ------- -------- -------- ------- --------
Income before cumulative effect
of a change in accounting
principle(c)(d) $ 63,091 $ 5,509 $ 65,668 $ 33,096 $10,756 $ 38,003
======== ======= ======== ======== ======= ========
Average common shares
outstanding 142,139 4,196 147,538 143,368 4,195 148,766
======== ======= ======== ======== ======= ========
PER COMMON SHARE DATA
- ---------------------
Income before the cumulative
effect of change in
accounting principle $0.44 $1.31 $0.45 $0.23 $2.56 $0.26
======== ======= ======== ======== ======= ========
Cash dividends declared $0.30 $0.15 $0.30 $0.60 $.25 $0.60
======== ======= ======== ======== ======= ========
</TABLE>
See FOOTNOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME on page 12.
<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) Reflects the elimination of intercompany interest on Federal funds
transactions and intercompany servicing fees.
(b) Reflects the anticipated impact of the purchase accounting adjustments
(which were determined using information available at the most recent
practicable date) assuming the GSB acquisition 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 "Accounting for Income Taxes", 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.
(c) During the first quarter of 1994, Independence recognized a $3.4 million
after-tax, or $0.02 per share, impairment loss on certain mortgage
securities as a cumulative effect of a change in accounting principle. 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 Financial
Accounting Standards Board's ("FASB") 1994 interpretation of 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.
(d) 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 $0.09 per share, as the cumulative effect of a change in
accounting principle. The impact of FAS 112 on GSB 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 June 30, 1994 and December 31, 1993
consist of the following (in thousands):
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
----------- ------------
<S> <C> <C>
Domestic:
Commercial, industrial and other:
Highly leveraged transactions ("HLTs")... $ 487,064 $ 452,137
Other.................................... 7,735,034 7,427,314
----------- -----------
Total commercial, industrial and
other................................. 8,222,098 7,879,451
----------- -----------
Real estate:
Construction and development............. 322,037 367,364
Residential.............................. 2,797,695 3,121,008
Other.................................... 3,134,875 3,175,284
----------- -----------
Total real estate...................... 6,254,607 6,663,656
----------- -----------
Consumer:
Installment.............................. 1,268,831 1,356,633
Credit card.............................. 1,224,903 1,178,972
----------- -----------
Total consumer......................... 2,493,734 2,535,605
----------- -----------
Financial institutions..................... 613,204 870,489
Factoring receivables...................... 570,106 555,211
Lease financing............................ 784,214 728,764
----------- -----------
Total domestic......................... 18,937,963 19,233,176
----------- -----------
Foreign...................................... 624,724 543,082
----------- -----------
Total loans............................ $19,562,687 $19,776,258
=========== ===========
</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 June 30, 1994 amount to
$1,074 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
SUMMARY
- -------
CoreStates Financial Corp ("CoreStates") consummated its acquisition of
Independence Bancorp, Inc. ("Independence") on June 27, 1994 and its acquisition
of Constellation Bancorp ("Constellation") on March 16, 1994. The Independence
and Constellation acquisitions were both accounted for as pooling of interests.
All prior period data has been restated to include Independence and
Constellation.
Subsequent to the March 16, 1994 consummation of the Constellation
acquisition, Constellation recorded merger-related charges in the first quarter
of 1994 in connection with a change in strategic direction related to problem
assets and to conform its consumer lending charge-off policies to those of
CoreStates, and for expenses directly attributable to the acquisition. These
merger-related charges totalled $127.8 million after-tax, or $0.89 per share. 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.
Upon consummation of the Independence acquisition, Independence recorded
merger-related charges in the second quarter of 1994 in connection with a change
in strategic direction related to problem assets and to conform its consumer
lending charge-off policies to those of CoreStates, and for expenses
attributable to the acquisition. These merger-related charges totalled $39.9
million after-tax, or $0.28 per share. On a pre-tax basis, the merger-related
charges consisted of a $25.0 million provision for loan losses, a $4.0 million
addition to the OREO reserve, and $29.7 million for expenses directly
attributable to the acquisition.
Net income for the second quarter of 1994 was $63.1 million, or $0.44 per
share, compared to $91.4 million, or $0.63 per share for the second quarter of
1993. Excluding the Independence merger-related charges recorded in the second
quarter of 1994, which totalled $39.9 million after-tax, or $0.28 per share,
income for the second quarter of 1994 was $102.7 million, $0.72 per share. Net
income, before the cumulative effect of a change in accounting principle, for
the first six months of 1994 was $33.1 million, or $0.23 per share, compared to
$171.7 million, or $1.18 per share in 1993. Excluding the Independence merger-
related charges and the Constellation merger-related charges recorded in the
first quarter of 1994 of $127.8 million after-tax, or $0.89 per share, income
for the six months ended June 30, 1994 was $200.5 million, or $1.40 per share.
During the first quarter of 1994, Independence recognized a $3.4 million
after-tax, or $0.02 per share, impairment loss on certain mortgage securities as
a cumulative effect of a change in accounting principle. The loss was the result
of a writedown to fair value of these securities, which were deemed to be
impaired. This resulted from the Financial Accounting Standards Board's ("FASB")
1994 interpretation of Statement of Financial Accounting Standards No. 115 ("FAS
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.
<PAGE>
Page 15
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
SUMMARY - continued
- -------------------
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 $0.09 per share, as the
cumulative effect of a change in accounting principle in the first quarter of
1993.
Second quarter of 1994 highlights included:
. A 18.55% return on average common shareholders' equity and 1.48% return on
average total assets, excluding the merger-related charges. Net income per
share, excluding merger-related charges, for the second quarter of 1994
was 14.3% above the second quarter of 1993.
. Net interest income on a taxable equivalent basis increased $16.7 million,
or 4.9%, over the second quarter of 1993 primarily due to wider interest
rate spreads and a $.7 billion increase in average loan volume. The net
interest margin for the second quarter was 5.86%, an increase of 26 basis
points from 5.60% in the prior year second quarter and an increase of 30
basis points compared to 5.56% in the first quarter of 1994.
. Excluding the $25.0 million provision recorded by Independence resulting
from a change in strategy related to problem assets, the provision for
losses on loans for the second quarter of 1994 was $5.8 million lower than
the provision recorded for the second 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 $148.9 million, or 29.7%, from March 31, 1994.
The decline in non-performing assets from March 31, 1994 resulted primarily
from a bulk sale of loans and charge-offs reflecting actions related to the
strategy to dispose of problem assets acquired with Constellation. At June
30, 1994 non-performing assets were $352.1 million, compared to $501.0
million at March 31, 1994 and $438.7 million at December 31, 1993.
PENDING ACQUISITIONS
- --------------------
. 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 4.2 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 of purchase accounting.
<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 and six-month periods ended June 30, 1994 and 1993. Each
segment is comprised of well defined business lines with market or product
specific missions.
For the current reporting period, Independence is reported as a separate
entity. During 1994, as the new company is fully integrated into CoreStates,
the respective business components of Independence 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 June 30,
(in millions, taxable Consumer Trust and
equivalent basis) Wholesale Financial Investment EPS, Inc.
Banking Services Management Affiliate
------------------- ------------------- ------------------ ------------------
1994 1993(a) 1994 1993(a) 1994 1993(a) 1994 1993(a)
------ --------- ------ --------- ------ -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $154.6 $142.5 $148.3 $145.4 $ 7.5 $ 7.6 $ (1.5) $ (1.5)
Provision for loan
losses 15.6 14.5 14.1 12.3 .3 .3
Non-interest income 56.3 52.0 39.1 42.8 23.7 25.4 7.8 3.9
Non-financial expenses 114.3 115.5 130.0 125.7 27.4 27.3
------ ------ ------ ------ ----- ----- ------ ------
Income before income
taxes 81.0 64.5 43.3 50.2 3.5 5.4 6.3 2.4
Income tax expense 31.5 24.8 16.8 18.8 1.3 1.9 2.2
------ ------ ------ ------ ----- ----- ------ ------
Net income $ 49.5 $ 39.7 $ 26.5 $ 31.4 $ 2.2 $ 3.5 $ 4.1 $ 2.4
====== ====== ====== ====== ===== ===== ====== ======
Percentage contribution 78.4% 43.4% 42.0% 34.4% 3.5% 3.8% 6.5% 2.6%
Return on assets 1.32 1.12 1.70 1.96 1.27 2.08 22.53 13.95
Return on equity (b) 24.12 20.92 35.91 41.57 32.68 50.14 411.13 240.66
Average assets $15,042 $14,227 $6,257 $6,428 $ 697 $ 675 $ 73 $ 69
Average equity (b) 823 761 296 303 27 28 4 4
<CAPTION>
Independence Corporate Total
------------------ ------------------- -----------------
1994 1993 1994(c) 1993(a) 1994 1993(a)
------ ------ --------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 28.0 $ 27.5 $ 18.2 $ 16.9 $ 355.1 $338.4
Provision for loan
losses 3.0 3.3 17.0 .4 50.0 30.8
Non-interest income 6.0 6.9 9.2 9.4 142.1 140.4
Non-financial expenses 21.6 23.1 47.8 13.7 341.1 305.3
------ ------ ------ ------ ------- ------
Income before income
taxes 9.4 8.0 (37.4) 12.2 106.1 142.7
Income tax expense 3.3 2.2 (12.1) 3.6 43.0 51.3
------ ------ ------ ------ ------- ------
Net income $ 6.1 $ 5.8 $(25.3) $ 8.6 $ 63.1 $ 91.4
====== ====== ====== ====== ======= ======
Percentage contribution 9.7% 6.3% (40.1)% 9.5% 100.0% 100.0%
Return on assets .97 .89 (3.08) .91 .91 1.32
Return on equity (b) 11.38 10.97 (11.85) 4.02 11.39 16.92
Average assets $2,530 $2,619 $3,290 $3,797 $27,889 $27,815
Average equity (b) 215 212 856 859 2,221 2,167
</TABLE>
(a) Restated to include Constellation.
(b) 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 Independence reflects that entity's legal
equity.
(c) Includes $25.0 million in the provision and $33.7 million in other
operating expenses related to the Independence acquisition.
<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
- ---------------------
<TABLE>
<CAPTION>
Three Months Ended June 30,
(in millions, taxable Consumer Trust and
equivalent basis) Wholesale Financial Investment EPS, Inc.
Banking Services Management Affiliate
------------------- ------------------- ------------------ ------------------
1994 1993(a) 1994 1993(a) 1994 1993(a) 1994 1993(a)
------ --------- ------ --------- ------ -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income $297.6 $278.3 $291.8 $291.4 $15.0 $15.5 $(2.9) $(2.9)
Provision for loan
losses 30.8 28.1 27.8 24.5 .5 .6
Non-interest income 112.6 101.9 80.1 80.2 47.3 49.9 15.7 7.5
Non-financial expenses 226.6 228.7 261.3 250.5 53.9 54.5
------ ------ ------ ------ ----- ----- ------ ------
Income before income
taxes 152.8 123.4 82.8 96.6 7.9 10.3 12.8 4.6
Income tax expense 59.8 46.9 32.1 36.4 2.9 3.6 4.5 (.1)
------ ------ ------ ------ ----- ----- ------ ------
Net income $ 93.0 $ 76.5 $ 50.7 $ 60.2 $ 5.0 $ 6.7 $ 8.3 $ 4.7
====== ====== ====== ====== ===== ===== ====== ======
Percentage contribution 281.0% 44.6% 153.2% 35.1% 15.1% 3.9% 25.1% 2.7%
Return on assets 1.27 1.10 1.62 1.88 1.46 1.95 22.62 13.74
Return on equity (b) 23.65 20.68 34.31 40.07 36.01 48.25 418.44 236.95
Average assets $14,769 $14,011 $6,319 $6,443 $ 691 $ 692 $ 74 $ 69
Average equity (b) 793 746 298 303 28 28 4 4
<CAPTION>
Independence Corporate Total
------------------ ------------------- -----------------
1994 1993 1994(c) 1993(a) 1994 1993(a)
------ ------ --------- -------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $ 55.3 $ 54.8 $ 32.3 $ 29.9 $ 689.1 $ 667.0
Provision for loan
losses 4.9 6.5 132.9 1.8 196.9 61.5
Non-interest income 12.5 13.5 19.8 17.2 288.0 270.2
Non-financial expenses 44.5 45.9 126.1 26.8 712.4 606.4
------ ------ ------ ------ ------- -------
Income before income
taxes 18.4 15.9 (206.9) 18.5 67.8 269.3
Income tax expense 6.4 4.8 (71.0) 6.0 34.7 97.6
Net income ------ ------ ------- ------ ------- -------
$ 12.0 $ 11.1 $(135.9) $ 12.5 $ 33.1(d) $ 171.7(d)
====== ====== ======= ====== ======= =======
Percentage contribution 36.3% 6.5% (410.7)% 7.2% 100.0% 100.0%
Return on assets .95 .85 (8.10) .65 .24(d) 1.25(d)
Return on equity (b) 11.10 10.61 (27.91) 2.98 2.87(d) 16.19(d)
Average assets $2,541 $ 2,626 $ 3,383 $3,851 $27,777 $27,692
Average equity (b) 218 211 982 846 2,323 2,138
</TABLE>
(a) Restated to include Constellation.
(b) 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 Independence reflects that entity's legal
equity.
(c) Includes $120.0 million in the provision and $75.0 million in other
operating expenses related to the Constellation acquisition, and $25.0
million in the provision and $33.7 million in other operating expenses
related to the Independence acquisition.
(d) Based on income before cumulative effect of a change in accounting
principle.
<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
- ---------------------
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 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 for the
second quarter was $49.5 million, or 24.7% above the second quarter of 1993,
while June year-to-date net income was $93.0 million, or 21.6% above last year.
These increases were due primarily to strong growth in net interest income and
non-interest income. Net interest income was 8.5% above second quarter 1993 and
6.9% above 1993 year-to-date. This improvement was due to lower non-performing
loans, higher loan and deposit volumes and interest received on factoring
volumes. Average loan volume was above 1993 by 8.3% for the quarter and 8.8%
year-to-date. Year-to-date average non-performing loans significantly declined
19.8% from 1993. Non interest income was above 1993 levels by 8.3% and 10.5% for
the second quarter and year-to-date, respectively. This was primarily due to
increases in service charges on deposits, fees for international services and
securities gains. Non-financial expenses were 1.0% below the second quarter of
1993 and .9% below 1993 on a year-to-date basis.
Consumer Financial Services includes the following business lines: Community
Banking, Specialty Products and Mortgage Banking. Specialty Products ("SPG")
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.
Net income for the second quarter was $26.5 million, or $5.1 million below the
second quarter of 1993, excluding the Virgin Islands, while June year-to-date
net income was $50.6 million, or $9.9 million below 1993.
<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
- ---------------------
Net interest income increased $5.0 million and $4.7 million for the quarter and
year-to-date, respectively, when compared to the prior year. For the quarter,
growth of $6.1 million in the SPG margin was fueled by an increase of over 20%
in credit card outstandings. In Community Banking, declines in loan outstandings
resulting from portfolio sales were almost entirely offset by improving deposit
spreads during the second quarter of 1994. On a year-to-date basis, the $4.7
million margin improvement represents an increase of $12.7 million, or 22.6% at
SPG. This was partially offset by an $8.0 million decrease in Community Banking
net interest income. Community Banking's results reflect not only the asset
sales previously noted, but also reduced deposit spreads in the first quarter of
1994.
The loan loss provision increased by $2.0 million and $3.6 million for the
quarter and year-to-date, respectively, in conjunction with the growth in credit
card outstandings.
Non-interest income of $39.0 million for the second quarter reflects a decline
of $3.5 million from 1993. In Community Banking, double-digit growth in most
basic fee sources, including service charges on deposits, third party
appointment fees, automated teller machine revenues and auto leasing fees were
more than offset by declines in loan securitization gains and a slowdown in
mortgage origination activity. For the year-to-date, total non-interest income
was virtually flat. Again, significant improvement in Community Banking fees was
offset by lower mortgage revenues.
Non-financial expenses for the group grew by $6.8 million, or 5.6% for the
quarter and $15.9 million, or 6.5% for the year-to-date in comparison to 1993.
SPG expenses grew by 20.6% for the quarter and 23.4% over the first six months,
primarily as the result of aggressive marketing efforts in 1994 to increase the
credit card portfolio. Excluding SPG, total expenses for the group grew by only
2.6% for the quarter and 3.3% year-to-date. This reflects management's ongoing
efforts to control costs as well as efficiencies realized from the Constellation
acquisition.
Trust and Investment Management is organized into four business lines:
Institutional Trust; Personal Trust; Private Banking; and Investment Management.
Net income of $2.2 million for the second quarter was down $1.3 million, or
37.1% from the second quarter of 1993, while net income of $5.0 million year-to-
date was down $1.7 million, or 25.4% from 1993. The decline in net income for
the quarter is due primarily to a 1.3% decline in net interest income and a 6.7%
decline in non-interest income. The decline in net income year-to-date is due to
a 3.2% decline in net interest income and a 5.2% decline in non-interest income,
partially offset by a 1.1% decline in non-financial expenses. The decline in net
interest income was due to soft loan demand and narrower spreads in Private
Banking as well as lower balance credits. Bond refunding levels of early 1993
have not been repeated in 1994 thus reducing the level of balances that generate
credits in Institutional Trust. The decline in non-interest income from the
second quarter and year-to-date versus 1993 is related to weak fee growth in the
Personal Financial Services and Institutional businesses. Fee growth for the
quarter and year-to-date continues to be hampered by lower than anticipated new
business and declines in the financial markets. Fee growth in Investment
Services partially offset the declines in the Personal Financial Services and
Institutional businesses, due in part to asset growth in the CoreFund family of
Mutual Funds. Asset growth in the CoreFund family of Mutual Funds for the
quarter and year-to-date was 2.6% and 2.3%, respectively, above 1993.
<PAGE>
Page 20
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
BUSINESS LINE RESULTS - continued
- ---------------------
Electronic Payment Services, Inc. includes the following business lines: the
MAC automated teller machine ("ATM") network and POS processing. The MAC and POS
business line were contributed to Electronic Payment Services, Inc. ("EPS") on
December 4, 1992, a joint venture that combines 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 the deferred
gain, generated in the contribution of the business lines, but changes the
timing of the deferred gain income recognition from a five-year period beginning
in 1996 to a ten-year period beginning in 1994.
Net income totalled $4.1 million for the quarter and $8.3 million year-to-
date. This represents increases of $1.7 million and $3.6 million for the quarter
and year-to-date, respectively versus 1993. Most of the current quarter and
year-to-date increase from the prior year is due to recognition of the deferred
gain. The 1994 results include non-interest income from CoreStates 31% equity
interest, recognition of the deferred gain, and income on the $250 million
promissory note, partly offset by an interest carrying charge of $1.4 million on
the net investment in EPS. Loss of prior year's favorable tax treatment on the
preferred dividends is offset by higher income recognition on the $250 million
promissory note.
Independence net income for the second quarter of 1994 was $6.1 million, or
5.2% above 1993, while June year-to-date was $12.0 million, or 8.1% above 1993.
Net interest income increased $.5 million, or 1.8% over the second quarter of
1993 and $.5 million, or .9% year-to-date versus 1993. Non-interest income
decreased $.9 million, or 13% for the quarter and $1.0 million, or 7.4% year-to-
date due to the reduction in gains on sales of mortgages caused by lower
refinance activity due to higher mortgage rates. Non-financial expenses were
below 1993 levels by $1.5 million, or 6.5% for the second quarter, and by $1.4
million or 3.0% for the year-to-date due to the curtailment of new expenditures
in anticipation of the merger.
<PAGE>
Page 21
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 second quarter of 1994 was
$355.1 million, an increase of $16.7 million, or 4.9%, from the second quarter
of 1993. The net interest margin at 5.86% improved 26 basis points from the
second quarter of 1993. The increase in the level of taxable equivalent net
interest income and the net interest margin were primarily a result of: wider
interest rate spreads as the rates earned on domestic loans increased 23 basis
points from the second quarter of 1993, a $714 million increase in average
domestic loan volume, a $433 million increase in non-interest bearing funding,
and a lower level of non-performing assets.
Taxable equivalent net interest income for the second quarter of 1994
increased $21.1 million, or 6.3%, compared to the first quarter of 1994. This
increase was principally attributable to the impact of wider interest rates
spreads, as the rates earned on domestic loans increased 36 basis points and the
impact of one more day in the quarter, which resulted in approximately a $1.6
million increase in net interest income.
For the six-month period ended June 30, 1994, taxable equivalent net
interest income increased $22.1 million, or 3.3%, from the comparable period in
1993. This increase principally reflects: wider interest rate spreads as the
rates paid on domestic deposits decreased 39 basis points, while the rates
earned on domestic loans decreased only 9 basis points, a $609 million increase
in non-interest bearing funding, and an $863 million increase in average
domestic loan volume.
<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 following tables compare taxable equivalent net interest income for the
three months ended June 30, 1994 versus the second quarter of 1993 and the first
quarter of 1994, respectively and the six months ended June 30, 1994 versus the
six months ended June 30, 1993 (in millions):
<TABLE>
<CAPTION>
Taxable Equivalent
Net Interest Income
- -------------------
Three Months Ended Increase (decrease)
----------------------- -----------------------
June 30, June 30, Mar. 31, June 1994/ June 1994/
1994 1993 1994 June 1993 Mar. 1994
-------- ----------- -------- --------- ---------
<S> <C> <C> <C> <C> <C>
Total interest income $474.0 $461.5 $449.2 $12.5 $24.8
Tax equivalent adjustment 5.4 6.7 5.6 (1.3) (.2)
------ ------ ------ ----- -----
Tax equivalent interest
income 479.4 468.2 454.8 11.2 24.6
Total interest expense 124.3 129.8 120.8 (5.5) 3.5
------ ------ ------ ----- -----
Taxable equivalent net
interest income $355.1 $338.4 $334.0 $16.7 $21.1
====== ====== ====== ===== =====
Interest rate spread 5.11% 4.88% 4.82%
====== ====== ======
Net interest margin 5.86% 5.60% 5.56%
====== ====== ======
<CAPTION>
Six Months Ended June 30,
-------------------------
Increase
1994 1993 (decrease)
---------- ---------- ----------
<S> <C> <C> <C>
Total interest income $923.2 $920.7 $ 2.5
Tax equivalent adjustment 11.0 13.3 (2.3)
------ ------ ------
Tax equivalent interest income 934.2 934.0 .2
Total interest expense 245.1 267.0 (21.9)
------ ------ ------
Tax equivalent net
interest income $689.1 $667.0 $ 22.1
====== ====== ======
Interest rate spread 4.96% 4.86%
==== ====
Net interest margin 5.71% 5.60%
==== ====
</TABLE>
<PAGE>
Page 23
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 Increase (decrease) in interest
--------------------------------- ------------------------------- ---------------------------------
Three Months Ended Three Months Ended Six Months Ended
June 30, 1994/1993 June 30, 1994/March 31, 1994 June 30, 1994/June 30, 1993
--------------------------------- ------------------------------- ---------------------------------
Income/ Change attributable to Income/ Change attributable to Income/ Change attributable to
---------------------- ---------------------- ----------------------
expense Volume Rate expense Volume Rate expense Volume Rate
----------- ---------- --------- ----------- ---------- ----------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Interest earning assets
- ---------------------------
Time deposits-Eurodollars $ .1 $ .6 $ (.5) $(3.2) $ 1.1 $(4.3) $ 2.0 $ (1.5) $ 3.5
Investment securities (15.6) (10.2) (5.4) .1 (3.6) 3.7 (31.1) (30.8) (.3)
Federal funds sold (.2) (.5) .3 (1.3) (1.5) .2 .5 (.7) 1.2
Trading account securities
Loans:
Domestic 26.2 16.6 9.6 28.0 4.7 23.3 28.8 80.8 (52.0)
- - Foreign .7 .2 .5 1.0 .4 .6 .3 (.3)
------ ------ ----- ----- ----- ----- ------ ------ ------
Total interest income 11.2 6.7 4.5 24.6 1.1 23.5 .2 48.1 (47.9)
------ ------ ----- ----- ----- ----- ------ ------ ------
Interest bearing funds
- ---------------------------
Deposits:
Domestic (11.6) (2.5) (9.1) ( .1) (.7) .6 (32.4) (13.0) (19.4)
Overseas (.5) .4 ( .9) (4.5) .3 (4.8) 2.8 .4 2.4
Funds borrowed:
Federal funds purchased (1.7) (3.6) 1.9 1.4 (.6) 2.0 (2.0) (8.8) 6.8
Other 6.1 2.6 3.5 4.3 1.5 2.8 9.1 11.3 (2.2)
Long-term debt 2.2 2.9 ( .7) 2.4 .4 2.0 .6 12.1 (11.5)
------ ------ ----- ----- ----- ----- ------ ------ ------
Total interest expense (5.5) (.2) (5.3) 3.5 .9 2.6 (21.9) 2.0 (23.9)
------ ------ ----- ----- ----- ----- ------ ------ ------
Net interest income $ 16.7 $ 6.9 $ 9.8 $21.1 $ .2 $20.9 $ 22.1 $ 46.1 $(24.0)
- --------------------------- ====== ====== ===== ===== ===== ===== ====== ====== ======
</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 24
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 and six-month periods ended June 30, 1994
and 1993 was as follows (in millions):
<TABLE>
<CAPTION>
Three Six
Months Ended Months Ended
June 30, June 30,
-------------------------- ------------
1994 1993 1994 1993
------------ ------------ ----- -----
<S> <C> <C> <C> <C>
Interest income due on non-performing
loans in accordance with their original
terms $ 5.4 $ 8.4 $13.9 $16.6
Interest income on non-performing loans
reflected in total interest income 6.0 4.0 10.1 8.9
----- ----- ----- -----
Net reduction in interest income $(0.6) $ 4.4 $ 3.8 $ 7.7
===== ===== ===== =====
</TABLE>
<PAGE>
Page 25
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 $25.0 million merger-related provision recorded by
Independence, the provision for loan losses for the second quarter of 1994 was
$5.8 million lower than the provision for the prior year second 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 33.5% decline in non-performing assets from June 30, 1993.
Net loan charge-offs of $140.3 million in the second quarter of 1994
included $103.1 million of net charge-offs related to problem assets acquired
with Constellation. The Constellation charge-offs related to actions taken in
connection with the change in strategic direction including a bulk sale of $62
million of real estate loans.
The following table presents an analysis of changes in the allowance for
loan losses for the three and six-month periods ended June 30, 1994 and 1993 (in
millions):
<TABLE>
<CAPTION>
Three Months Ended Six Months Ended
June 30, June 30,
-------------------- ------------------
1994 1993 1994 1993
--------- --------- -------- --------
<S> <C> <C> <C> <C>
Balance at beginning of period $ 565.6 $ 449.5 $ 450.8 $442.3
Allowance for loans sold at
date of sale (.4) (.4)
Provision charged to operating expense 50.0 30.9 196.9 61.5
Loan charge-offs (156.6) (46.5) (202.1) (96.5)
Recoveries of loans previously
charged off 16.3 19.2 29.7 45.7
------- ------- ------- ------
Net loan charge-offs (140.3) (27.3) (172.4) (50.8)
------- ------- ------- ------
Balance at end of period $ 475.3 $ 452.7 $ 475.3 $452.6
======= ======= ======= ======
Ratios:
Net charge-offs (annualized) as a
percentage of average total loans 2.84% .58% 1.76% .54%
======= ======= ======= ======
Allowance for loan losses as a
percentage of loans at end of period 2.43% 2.32%
======= =======
Allowance for loan losses as a
percentage of non-performing loans 179.5% 123.96%
======= =======
</TABLE>
<PAGE>
Page 26
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 tables reflect the distribution of net loan charge-offs by
loan type for the three and six-month periods ended June 30, 1994 and 1993 (in
millions):
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
June 30, 1994 June 30, 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 $ 49.3 2.2% 35.1% $14.0 .7% 51.3%
Real estate:
Construction and development loans 2.6 3.0 1.9 1.7 1.6 6.2
Other 77.7 5.1 55.4 10.9 .7 39.9
Consumer:
Credit Card 7.1 2.4 5.0 6.4 2.7 23.4
Installment 3.6 1.1 2.6 2.0 .5 7.3
Other (2) (.9) (.2) (3.2)
------ ----- ----- -----
Total domestic 140.3 2.9 100.0 34.1 .7 124.9
------ ----- ----- -----
Foreign (3) (6.8) (5.2) (24.9)
----- -----
Total net charge-offs $140.3 2.8% 100.0% $27.3 .6% 100.0%
====== === ===== ===== ===== =====
<CAPTION>
Six Months Ended Six Months Ended
June 30, 1994 June 30, 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
------ ------- ------- ------- ------- -------
Domestic:
Commercial, industrial and other $ 66.7 1.5% 38.7% $16.1 .4% 31.7%
Real estate:
Construction and development 3.9 2.2 2.3 3.7 1.6 7.3
Other 83.4 2.7 48.3 23.1 .7 45.5
Consumer:
Credit Card 13.2 2.2 7.7 12.1 2.5 23.8
Installment 5.0 .8 2.9 3.3 .5 6.5
Other (2) .2 .1
------ ----- -----
Total domestic net charge-offs 172.4 1.8 100.0 58.3 .6 114.8
------ ----- ----- -----
Foreign (3) (7.5) (2.9) (14.8)
------ ----- ----- -----
Total net charge-offs $172.4 1.8% 100.0% $50.8 .5% 100.0%
====== === ===== ===== ===== =====
</TABLE>
- -------------------------------------------
(1) Annualized.
(2) Includes loans to financial institutions and lease financing.
(3) Reflects net recoveries on LDC assets of $6.8 million for the three months
ended June 30, 1993 and $7.5 million for the six months ended
June 30, 1993.
<PAGE>
Page 27
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 June 30, 1994 decreased $86.6 million, or
19.7%, from December 31, 1993. Most of the decrease from December 31, 1993 was
in the real estate category, which decreased $63.9 million primarily due to the
bulk sale of Constellation loans and OREO, and the $28 million addition to the
OREO reserve during the first quarter of 1994. The commercial and industrial
loan portfolio declined by $38.4 million mostly due to loan charge-offs against
the Constellation portfolio.
The following table summarizes non-performing assets at June 30, 1994 and
December 31, 1993 (in millions):
<TABLE>
<CAPTION>
June 30, December 31,
1994 1993
-------- -----------
<S> <C> <C>
Non-accrual loans $260.9 $246.7
Renegotiated loans 3.9 56.5
------ ------
Total non-performing loans 264.8 303.2
Other real estate owned ("OREO"):
Acquired through foreclosure 63.1 90.9
In-substance foreclosure 19.3 38.4
Property formerly used in
banking operations 4.9 6.2
------ ------
Total other real estate owned 87.3 135.5
------ ------
Total non-performing assets $352.1 $438.7
====== ======
</TABLE>
The following table reflects the distribution of non-performing assets by loan
type at June 30, 1994 and December 31, 1993 (in millions):
<TABLE>
<CAPTION>
June 30, 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 1.0% $ 5.1 1.1%
Other 87.3 1.1 117.6 1.5
------ ------
Total commercial, industrial
and other 92.4 1.1 122.7 1.5
------ ------
Real estate:
Construction and development
loans 16.6 5.6 19.7 5.4
Other loans 145.2 2.4 157.8 2.5
Other real estate owned 87.3 135.5
------ ------
Total real estate 249.1 2.6 313.0 2.7
------ ------
Consumer 1.1 1.0
------
Other domestic loans(1) 9.3 .7 1.8 .1
------ ------
Total domestic non-performing
assets 351.9 1.9 438.5 2.3
------ ------
Foreign loans .2 .2
------ ------
Total non-performing assets(2) $352.1 1.8% $438.7 2.2%
====== === ====== ===
% Total assets 1.3% 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 $48 million and $53 million at June 30, 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 28
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 quarterly change in
non-performing assets for 1994 (in millions):
<TABLE>
<CAPTION>
Quarter
----------- Six
First Second Months
----- ------ ------
<S> <C> <C> <C>
Beginning balance $439 $ 501 $ 439
Additions 132 125 257
Return to accrual (15) (37) (52)
Payments (26) (102) (128)
Charge-offs (29) (134) (163)
---- ----- -----
Net change 62 (148) (86)
---- ----- -----
Ending balance $501 $ 353 $ 353
==== ===== =====
</TABLE>
NON-INTEREST INCOME
- -------------------
Total non-interest income for the second quarter of 1994 increased $1.7
million, or 1.2%, from the second quarter of 1993. Excluding the impact of
securities gains, non-interest income decreased $2.1 million, or 1.5% compared
to the prior year second quarter. This 1.5% decrease results principally from a
$1.6 million, or 6.2% decrease in trust income and a $9.0 million, or 27.9%
decrease in other operating income reflecting a $5.0 millon gain recorded on the
prepayment of long-term debt in the second quarter of 1993. However, the second
quarter of 1994 does reflect continuing increases in revenues from CoreStates'
fee-based businesses other than trust including a $1.5 million, or 3.4%,
increase in service charges on deposit accounts and a $2.2 million, or 13.0%,
increase in fees for international services. Also contributing to the second
quarter of 1994 was 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 second quarter of 1994 were $3.0 million
compared to $.7 million of losses in the prior year second quarter. The second
quarter of 1994 includes gains of $4.6 million recorded on sales of certain bank
stock investments. The prior year second quarter principally reflects the net
losses recorded on domestic equity investments.
For the six-month period ended June 30, 1994, non-interest income increased
$17.8 million, or 6.6% from the comparable prior year period. Excluding the
impact of gains on investment securities, year-to-date non-interest income
increased $10.0 million, or 3.7%. For the 1994 six-month period, service charges
on deposit accounts increased $4.9 million, or 5.6%, and fees for international
services increased $4.9 million, or 15.0%, both volume related. Other operating
income decreased $6.7 million, or 11.6% from the same period last year. This
decrease principally reflects the $5.0 million gain on prepayment of long-term
debt included in the second quarter of 1993.
Investment securities gains for the six-month period ended June 30, 1994
were $9.9 million compared to $2.2 million in the same period last year.
Year-to-date 1994 investment securities gains include $5.0 million recorded on
sales of certain investments acquired with Constellation and $4.6 million in
gains on sales of certain bank stock investments. Prior year investment
securities gains principally reflected net gains recorded on foreign equity
securities.
<PAGE>
Page 29
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
- ------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
- ---------------------------------------
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Continued
- ----------------------------------------------------------
NON-FINANCIAL EXPENSES
- ----------------------
Total non-financial expenses were $341.1 million in the second quarter of
1994, an increase of $35.8 million, or 11.7% from the second quarter of 1993,
primarily reflecting $33.7 million in merger-related charges for the
Independence acquisition. Excluding the merger-related charges, non-financial
expenses increased less than 1%. For the six-month period ended June 30, 1994,
non-financial expenses increased $106.1 million or 17.5%. Excluding the impact
of merger-related costs of $75.0 million for the Constellation acquisition in
the first quarter and $33.7 million for the Independence acquisition in the
second quarter, non-financial expenses decreased 0.4%, reflecting CoreStates'
emphasis on expense management.
CAPITAL MANAGEMENT
- ------------------
CoreStates' capital provides the resources and flexibility for anticipated
growth. CoreStates' capital position at June 30, 1994 under risk-based capital
guidelines was $2.1 billion, or 9.0% of risk-weighted assets, for Tier I capital
and $3.1 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 June 30, 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 7.6% at June 30, 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.
<PAGE>
Page 30
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
- ------------------------------------------
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- Continued
Substantially the same capital requirements are applied to CoreStates'
banking subsidiaries 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 June 30, 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. 8.6% 11.0% 7.5% $17.4
New Jersey National Bank 8.3 11.3 5.5 6.5
CoreStates Bank of
Delaware, N.A. 12.2 13.5 12.6 .6
Bucks County Bank 10.0 11.3 7.6 1.1
Cheltenham Bank 13.5 14.7 9.2 .5
Lehigh Valley Bank 12.3 13.6 9.7 .5
Third National Bank and
Trust Company of Scranton 10.6 11.7 8.6 .4
</TABLE>
CoreStates' dividend on its common stock was $.30 per share in the second
quarter of 1994 and $.27 in the second quarter of 1993, both reflecting the
Stock Dividend. The common dividend payout ratio was 41.7% for the second
quarter of 1994 excluding the impact of merger-related charges, compared to
42.9% for the second quarter of 1993.
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 derivative instruments 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. In addition, CoreStates purchases options
and uses forward rate locks to hedge the price sensitivity of assets slated for
sale. 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>
Page 31
PART I FINANCIAL INFORMATION
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEET AND TAXABLE EQUIVALENT INCOME/EXPENSE AND
RATES
<TABLE>
<CAPTION>
Six Months Ended
----------------------------------------------------------
June 30, 1994 June 30, 1993
-------------------------- ----------------------------
Average Income/ Average Income/
balance Rate expense balance Rate expense
---------- ------ ---------- -------- ------ --------
(000,000) (000) (000,000) (000)
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
- -----------------------
Time deposits, principally Eurodollars (a)....... $ 1,397 3.80% $ 26,345 $ 1,440 3.41% $ 24,354
Investment securities (b):
U.S. Government................................ 2,315 4.95 56,795 2,785 6.13 84,631
State and municipal............................ 393 7.72 15,160 445 8.21 18,270
Other.......................................... 467 5.53 12,808 427 6.13 12,981
--------- --------- ------- --------
Total investment securities................ 3,175 5.38 84,763 3,657 6.39 115,882
Federal funds sold............................... 181 4.07 3,652 203 3.15 3,168
Trading account securities....................... 2 6.90 69 1 6.20 31
Loans (b) (c) (d):
Domestic:
Commercial, industrial and other............. 8,060 8.01 319,990 7,162 8.04 285,582
Real estate.................................. 6,527 7.94 257,011 6,885 8.08 276,037
Consumer..................................... 2,514 11.57 144,297 2,324 12.08 139,219
Financial institutions....................... 611 8.12 24,592 671 6.41 21,330
Factoring receivables........................ 570 9.92 28,027 510 9.93 25,110
Lease financing.............................. 755 8.33 31,456 622 9.40 29,229
Foreign........................................ 556 5.10 14,073 550 5.17 14,092
--------- --------- ------- --------
Total loans, net of discounts.............. 19,593 8.43 819,446 18,724 8.51 790,599
--------- --------- ------- --------
Total interest earning assets (d).......... $ 24,348 7.74 934,275 $24,025 7.84 934,034
========= ----- --------- ======= ----- --------
FUNDING SOURCES
- ---------------
Interest bearing liabilities (b):
Deposits in domestic offices (e):
Commercial................................... $ 276 3.64 4,976 $ 447 3.74 8,294
NOW accounts................................. 1,882 .53 4,677 1,784 1.11 8,863
Money Market Accounts........................ 4,074 2.09 42,176 4,153 2.14 43,914
Consumer savings............................. 3,072 1.19 18,157 2,945 1.65 24,167
Consumer certificates........................ 4,181 4.16 86,290 4,690 4.45 103,438
Time deposits of overseas branches and
subsidiaries................................. 747 3.39 12,562 732 2.69 9,747
--------- --------- ------- --------
Total interest bearing deposits............ 14,232 2.41 168,838 14,751 2.75 198,423
Short-term funds borrowed:
Federal funds purchased...................... 937 3.59 16,662 1,222 3.07 18,630
Commercial paper............................. 653 3.65 11,831 618 3.15 9,652
Other........................................ 371 6.04 11,106 111 7.58 4,175
--------- --------- ------- --------
Total short-term funds borrowed............ 1,961 4.07 39,599 1,951 3.35 32,457
Long-term debt (f)............................. 1,608 4.61 36,725 1,385 5.29 36,182
--------- --------- ------- --------
Total interest bearing liabilities......... 17,801 2.78 245,162 18,087 2.98 267,062
Portion of non-interest bearing funding sources.. 6,547 5,938
--------- --------- -------
Total funding sources...................... $ 24,348 2.03 245,162 $24,025 2.24 267,062
========= ----- --------- ======= ----- --------
Net interest income and net interest margin...... 5.71% $ 689,113 5.60% $666,972
===== ========= ===== ========
NON-INTEREST EARNING ASSETS
- ---------------------------
Cash............................................. $ 2,338 $ 2,275
Allowance for loan losses........................ (527) (457)
Other assets..................................... 1,618 1,849
--------- -------
Total non-interest earning assets.............. $ 3,429 $ 3,667
========= =======
</TABLE>
<PAGE>
Page 32
PART I FINANCIAL INFORMATION
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEET AND TAXABLE EQUIVALENT INCOME/EXPENSE AND
RATES -- continued
<TABLE>
<CAPTION>
Six Months Ended
-------------------------------------------------------
June 30, 1994 June 30, 1993
---------------------------- -------------------------
Average Income/ Average Income/
balance Rate expense balance Rate expense
---------- ----- ---------- -------- ----- -------
(000,000) (000) (000,000) (000)
<S> <C> <C> <C> <C> <C> <C>
NON-INTEREST BEARING FUNDING SOURCES
Demand deposits:
Domestic......................................... $ 5,774 $ 5,624
Foreign.......................................... 392 358
Other liabilities.................................. 1,487 1,485
Shareholders' equity............................... 2,323 2,138
Non-interest bearing funding sources used to fund
earning assets................................... (6,547) (5,938)
--------- -------
Total net non-interest bearing funding
sources.................................... $ 3,429 $ 3,667
========= =======
SUPPLEMENTARY AVERAGES
- ----------------------
Net demand deposits................................ $ 4,533 $ 4,482
Net Federal funds purchased........................ 756 3.47% $ 13,010 1,019 3.06% $15,462
Commercial certificates of deposit in domestic
offices over $100,000............................ 253 3.57 4,485 385 3.58 6,826
Average prime rate................................. 6.33 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 33
PART I FINANCIAL INFORMATION
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEET AND TAXABLE EQUIVALENT INCOME/EXPENSE AND
RATES
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------------
June 30, 1994 March 31, 1994
------------------------------------- -------------------------------------
Average Income/ Average Income/
balance Rate expense balance Rate expense
---------- ------------- ---------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C>
(000,000) (000) (000,000) (000)
INTEREST EARNING ASSETS
- ---------------------------
Time deposits, principally
Eurodollars (a)........... $ 1,445 3.21% $ 11,549 $ 1,348 4.45% $ 14,796
Investment securities (b):
U.S. Government.......... 2,212 4.91 27,102 2,421 4.97 29,693
State and municipal...... 388 7.68 7,448 398 7.75 7,712
Other.................... 424 7.43 7,854 489 4.11 4,954
--------- --------- --------- ---------
Total investment
securities.......... 3,024 5.62 42,404 3,308 5.19 42,359
Federal funds sold......... 105 4.56 1,195 257 3.88 2,457
Trading account securities. 3 4.00 30 2 7.80 39
Loans (b) (c) (d):
Domestic:
Commercial, industrial
and other............. 8,189 8.32 169,902 7,905 7.70 150,088
Real estate............ 6,472 8.00 129,028 6,584 7.88 127,983
Consumer............... 2,497 11.63 72,405 2,530 11.52 71,892
Financial institutions. 628 8.96 14,028 619 6.92 10,564
Factoring receivables.. 605 10.08 15,202 536 9.70 12,825
Lease financing........ 770 8.39 16,144 739 8.29 15,312
Foreign.................. 571 5.30 7,545 541 4.89 6,528
--------- --------- --------- ---------
Total loans, net of
discounts........... 19,732 8.62 424,254 19,454 8.24 395,192
--------- --------- --------- ---------
Total interest
earning assets (d).. $ 24,309 7.91 479,432 $ 24,369 7.57 454,843
========= ----- --------- ========= ----- ---------
FUNDING SOURCES
- ---------------------------
Interest bearing
liabilities (b):
Deposits in domestic
offices (e):
Commercial............. $ 272 3.90 2,644 $ 280 3.38 2,332
NOW accounts........... 1,866 .53 2,364 1,896 .53 2,313
Money Market Accounts.. 4,012 2.08 20,811 4,135 2.11 21,365
Consumer savings....... 3,080 1.21 9,267 3,065 1.18 8,890
Consumer certificates.. 4,170 4.14 43,016 4,193 4.19 43,274
Time deposits of
overseas branches and
subsidiaries........... 759 2.11 3,995 735 4.73 8,567
--------- --------- --------- ---------
Total interest
bearing deposits.... 14,159 2.34 82,097 14,304 2.49 86,741
Short-term funds
borrowed:
Federal funds purchased 902 4.02 9,033 973 3.18 7,629
Commercial paper....... 756 3.93 7,416 549 3.26 4,415
Other.................. 343 7.24 6,191 399 5.00 4,915
--------- --------- --------- ---------
Total short-term
funds borrowed...... 2,001 4.54 22,640 1,921 3.58 16,959
Long-term debt (f)....... 1,626 4.82 19,554 1,591 4.38 17,171
--------- --------- --------- ---------
Total interest
bearing liabilities. 17,786 2.80 124,291 17,816 2.75 120,871
Portion of non-interest
bearing funding sources... 6,523 6,553
--------- --------- --------- ---------
Total funding sources $ 24,309 2.05 124,291 $ 24,369 2.01 120,871
========= ----- --------- ========= ----- ---------
Net interest income and
net interest margin....... 5.86% $ 355,141 5.56% $333,972
===== ========= ===== =========
NON-INTEREST EARNING ASSETS
- ---------------------------
Cash....................... $ 2,353 $ 2,323
Allowance for loan losses.. (541) (512)
Other assets............... 1,768 1,552
--------- ---------
Total non-interest
earning assets.......... $ 3,580 $ 3,363
========= =========
<CAPTION>
June 30, 1993
-----------------------------
Average Income/
balance Rate expense
--------- ------ ----------
(000,000) (000)
<S> <C> <C> <C>
INTEREST EARNING ASSETS
- ---------------------------
Time deposits, principally
Eurodollars (a)........... $ 1,369 3.35% $ 11,427
Investment securities (b):
U.S. Government.......... 2,826 5.89 41,488
State and municipal...... 446 8.21 9,151
Other.................... 409 7.17 7,310
------- ---------
Total investment
securities.......... 3,681 6.31 57,949
Federal funds sold......... 173 3.22 1,389
Trading account securities. 1 5.60 14
Loans (b) (c) (d):
Domestic:
Commercial, industrial
and other............. 7,368 7.93 145,704
Real estate............ 6,855 7.88 134,665
Consumer............... 2,343 12.22 71,404
Financial institutions. 687 6.00 10,274
Factoring receivables.. 552 9.84 13,536
Lease financing........ 642 9.32 14,961
Foreign.................. 557 4.96 6,891
------- ---------
Total loans, net of
discounts........... 19,004 8.39 397,435
------- ---------
Total interest
earning assets (d).. $24,228 7.75 468,214
======= ----- ---------
FUNDING SOURCES
- ---------------------------
Interest bearing
liabilities (b):
Deposits in domestic
offices (e):
Commercial............. $ 403 3.56 3,573
NOW accounts........... 1,787 1.05 4,219
Money Market Accounts.. 4,112 2.09 21,348
Consumer savings....... 3,013 1.53 11,528
Consumer certificates.. 4,552 4.32 49,011
Time deposits of
overseas branches and
subsidiaries........... 693 2.60 4,487
------- ---------
Total interest
bearing deposits.... 14,560 2.63 94,166
Short-term funds
borrowed:
Federal funds purchased 1,365 3.17 10,779
Commercial paper....... 683 3.08 5,252
Other.................. 137 6.68 2,283
------- ---------
Total short-term
funds borrowed...... 2,185 3.36 18,314
Long-term debt (f)....... 1,393 5.00 17,364
------- ---------
Total interest
bearing liabilities. 18,138 2.87 129,844
Portion of non-interest
bearing funding sources... 6,090
-------
Total funding sources $24,228 2.15 129,844
======= ----- ---------
Net interest income and
net interest margin....... 5.60% $ 338,370
===== =========
NON-INTEREST EARNING ASSETS
- ---------------------------
Cash....................... $ 2,236
Allowance for loan losses.. (460)
Other assets............... 1,811
-------
Total non-interest
earning assets.......... $ 3,587
=======
</TABLE>
<PAGE>
Page 34
PART I FINANCIAL INFORMATION
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEET AND TAXABLE EQUIVALENT INCOME/EXPENSE AND
RATES -- continued
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------------------------------------------------------------
June 30, 1994 March 31, 1994 June 30, 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................. $ 5,745 $ 5,805 $ 5,659
Foreign.................. 412 372 367
Other liabilities.......... 1,725 1,327 1,484
Shareholders' equity....... 2,221 2,412 2,167
Non-interest bearing
funding sources used to
fund earning assets....... (6,523) (6,553) (6,090)
------- ------- -------
Total net
non-interest
bearing funding
sources............ $ 3,580 $ 3,363 $ 3,587
======= ======= =======
SUPPLEMENTARY AVERAGES
- ----------------------
Net demand deposits........ $ 4,472 $ 4,594 $ 4,474
Net Federal funds purchased 797 3.94% $ 7,838 716 2.93% $ 5,172 1,192 3.16% $9,390
Commercial certificates of
deposit in domestic
offices over $100,000.... 272 3.90 2,642 234 3.19 1,843 342 3.38 2,879
Average prime rate......... 6.90 6.02 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 35
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)
12.2 Computation of Ratio of Earnings to Fixed Charges (Combined
CoreStates Parent Company and CoreStates Capital Corporation)
(b) The following Reports on Form 8-K were filed by CoreStates Financial Corp
during the quarter:
1. Date of Report: April 19, 1994
---------------
Item(s) Reported: The information set forth in the earnings news
----------------- release of CoreStates Financial Corp.
2. Date of Report: April 29, 1994
---------------
Item(s) Reported: Reporting under Item 7 Consolidated Financial
----------------- Statements of Germantown Savings Bank.
3. Date of Report: May 5, 1994
---------------
Item(s) Reported: Reporting under Item 7 Consolidated Financial
----------------- Statements of CoreStates Financial Corp.
4. Date of Report: May 5, 1994
---------------
Item(s) Reported: Form 8-K/A, Amendment No.1 to Form 8-K dated
----------------- March 16, 1994 Reporting Consolidated Financial
Statements of Constellation Bancorp and
Subsidiaries and Restated Financial Information of
CoreStates Financial Corp and Subsidiaries.
5. Date of Report: May 19, 1994
---------------
Item(s) Reported: Reporting under Item 7 Consolidated Financial
----------------- Statements of Germantown Savings Bank.
6. Date of Report: June 8, 1994
---------------
Item(s) Reported: Reporting under Item 7 Consolidated Financial
----------------- Statements of Independence Bancorp, Inc.
<PAGE>
Page 36
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SIGNATURE
- ---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CORESTATES FINANCIAL CORP
Date: August 12, 1994 By:/s/ Albert W. Mandia
--------------------------------
Albert W. Mandia
Executive Vice President, Finance
(Principal Accounting Officer)
<PAGE>
Page 37
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 Six Months Ended
June 30, June 30,
------------------ ----------------
1994 1993 1994 1993
-------- -------- ------- -------
<S> <C> <C> <C> <C>
(A) Income before cumulative effect of a
change in accounting principle $ 63,091 $ 91,391 $ 33,096 $ 171,672
Cumulative effect of a change in
accounting principle (3,430) (13,010)
-------- --------- -------- --------
(B) Net Income $ 63,091 $ 91,391 $ 29,666 $158,662
======== ======== ======== ========
EARNINGS PER SHARE
Based on average common shares outstanding
- --------------------------------------------
(C) Average shares outstanding 142,139 145,476 143,368 145,255
======== ======== ======== ========
(A/C) Income before cumulative effect of a
change in accounting principle $0.44 $0.63 $0.23 $1.18
===== ===== ===== =====
(B/C) Net Income $0.44 $0.63 $0.21 $1.09
===== ===== ===== =====
<CAPTION>
Based on average common and common
- ----------------------------------
equivalent shares outstanding
- -----------------------------
<S> <C> <C> <C> <C>
Primary:
(D) Average common equivalent shares 1,165 1,769 1,097 1,877
===== ===== ===== =====
(E) Average common and common
equivalent shares (C + D) 143,304 147,245 144,465 147,132
======= ======= ======= =======
(A/E) Income before cumulative effect of a
change in accounting principle (1) $0.44 $0.62 $0.23 $1.17
===== ===== ===== =====
(B/E) Net Income (1) $0.44 $0.62 $0.21 $1.08
===== ===== ===== =====
Fully diluted:
(F) Average common equivalent shares 1,068 2,017 1,014 2,032
===== ===== ===== =====
(G) Average common and common
equivalent shares (C + F) 143,207 147,493 144,382 147,326
======= ======= ======= =======
(A/G) Income before cumulative effect of a
change in accounting principle (1) $0.44 $0.62 $0.23 $1.17
===== ===== ===== =====
(B/G) Net Income (1) $0.44 $0.62 $0.21 $1.08
===== ===== ===== =====
</TABLE>
- -------------------------------
(1) Dilution is less than 3%.
<PAGE>
Page 38
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS FROM CONTINUING OPERATIONS
TO FIXED CHARGES OF CONTINUING OPERATIONS
CONSOLIDATED
Six Months Ended June 30, 1994
- ------------------------------
1. Income from continuing operations before extraordinary items and
income taxes.................................................... $ 56,635
========
2. Fixed charges of continuing operations:
A. Interest expense (excluding interest on deposits),
amortization of debt issuance costs and one-third of rental
expenses, net of income from subleases....................... $ 87,532
B. Interest on deposits......................................... 168,838
--------
C. Total fixed charges (line 2A + line 2B)...................... $256,370
========
3. Income 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)............ $144,167
========
B. Including interest on deposits (line 1 + line 2C)............ $313,005
========
4. Ratio of earnings (as defined) to fixed charges:
A. Excluding interest on deposits (line 3A/line 2A)............. 1.65x
====
B. Including interest on deposits (line 3B/line 2C)............. 1.22x
====
<PAGE>
Page 39
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
EXHIBIT 12.2
COMPUTATION OF RATIO OF EARNINGS FROM CONTINUING OPERATIONS
TO FIXED CHARGES OF CONTINUING OPERATIONS
COMBINED CORESTATES (PARENT ONLY) AND CORESTATES CAPITAL CORPORATION
Six Months Ended June 30, 1994
- ------------------------------
1. Income before income taxes and equity in undistributed income
of subsidiaries.............................................. $45,461
2. Fixed charges - interest expense, amortization of
debt issuance costs and one-third of rental expenses, net of 52,884
income from subleases........................................ _______
3. Income before taxes and equity in undistributed income of
subsidiaries, plus fixed charges............................. $98,345
=======
4. Ratio of earnings (as defined) to fixed charges (line 3/
line 2)...................................................... 1.86x
====
