<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 September 30, 1995 Commission file number 0-6879
CORESTATES FINANCIAL CORP
-------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-189716
-------------------------------- -----------------------------
(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)
215-973-3827
------------
(Registrant's telephone number, including area code)
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 November 1, 1995: 139,052,444
1
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
Item 1 - FINANCIAL INFORMATION
<S> <C>
Consolidated Balance Sheets as of September 30, 1995
and December 31, 1994 3
Consolidated Statements of Income for the Three and
Nine Months Ended September 30, 1995 and 1994 4
Consolidated Statements of Changes in Shareholders'
Equity for the Nine Months Ended September 30, 1995
and 1994 5
Consolidated Statements of Cash Flows for the
Nine Months Ended September 30, 1995 and 1994 6
Notes to the Consolidated Financial Statements 7-10
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations 11-37
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K 38
SIGNATURE 39
EXHIBITS 11, 12.1, 12.2, 27 40-44
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
- ------
Cash and due from banks........................... $ 2,214,933 $ 2,262,512
Time deposits, principally Eurodollars............ 1,755,526 1,750,458
Investments held-to-maturity (fair value:
1995 - $1,756,417; 1994 - $2,423,830)............ 1,745,784 2,454,584
Investments available-for-sale, at fair
value........................................... 390,828 426,047
Loans, net of unearned discounts of
$129,728 in 1995 and $146,305
in 1994 (Note C)................................ 21,168,026 20,526,216
Less: Allowance for loan losses................ (501,392) (500,631)
------------- ------------
Net loans.................................... 20,666,634 20,025,585
------------- ------------
Federal funds sold and securities
purchased under agreements to resell............ 294,916 731,820
Trading account securities, at fair
value........................................... 349 1,206
Due from customers on acceptance.................. 493,212 342,211
Premises and equipment............................ 427,003 423,832
Other assets...................................... 856,547 906,881
------------- ------------
Total assets................................. $28,845,732 $29,325,136
============= ============
LIABILITIES
- -----------
Deposits:
Domestic:
Non-interest bearing......................... $ 6,051,497 $ 6,362,470
Interest bearing............................. 13,718,685 14,565,051
Overseas branches and subsidiaries.............. 923,930 1,113,365
------------- ------------
Total deposits............................... 20,694,112 22,040,886
Funds borrowed.................................... 2,245,238 1,546,201
Bank acceptances outstanding...................... 490,520 336,103
Other liabilities................................. 1,238,126 1,260,722
Long-term debt.................................... 1,861,946 1,791,110
------------- ------------
Total liabilities............................ 26,529,942 26,975,022
------------- ------------
COMMITMENTS AND CONTINGENT LIABILITIES
(Note D)
- --------------------------------------
SHAREHOLDERS' EQUITY
- --------------------
Preferred stock: authorized 10.0 million shares;
no shares issued................................ - -
Common stock: $1 par value; authorized
200.0 million shares; issued 145.875
million shares in 1995 and
145.878 million shares in 1994
(including treasury shares of 6.966
million in 1995 and 1.023 million in
1994)........................................... 2,315,790 2,350,114
------------- ------------
Total shareholders' equity................... 2,315,790 2,350,114
------------- ------------
Total liabilities and shareholders'
equity..................................... $28,845,732 $29,325,136
============= ============
</TABLE>
Note: The balance sheet at December 31, 1994 has been derived from the audited
financial statements at that date.
See accompanying notes to the consolidated financial statements.
3
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (UNAUDITED)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- --------------------------
1995 1994 1995 1994
-------- -------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME
- ---------------
Interest and fees on loans:
Taxable income................................... $496,720 $426,337 $1,472,978 $1,227,510
Tax exempt income................................ 5,044 5,344 15,019 17,225
Interest on investment securities:
Taxable income................................... 29,817 33,161 99,178 104,539
Tax exempt income................................ 2,923 3,827 9,354 12,530
Interest on time deposits in banks................. 27,653 18,566 89,729 44,911
Other interest income.............................. 4,211 1,171 7,689 4,856
-------- -------- ---------- ----------
Total interest income......................... 566,368 488,406 1,693,947 1,411,571
-------- -------- ---------- ----------
INTEREST EXPENSE
- ----------------
Interest on deposits............................... 135,076 89,702 400,622 258,540
Interest on funds borrowed......................... 30,080 23,169 87,284 62,768
Interest on long-term debt......................... 30,824 23,416 92,157 60,141
-------- -------- ---------- ----------
Total interest expense........................ 195,980 136,287 580,063 381,449
-------- -------- ---------- ----------
NET INTEREST INCOME........................... 370,388 352,119 1,113,884 1,030,122
Provision for losses on loans...................... 27,500 25,000 77,500 221,900
-------- -------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOSSES ON LOANS......................... 342,888 327,119 1,036,384 808,222
-------- -------- ---------- ----------
NON-INTEREST INCOME
- -------------------
Service charges on deposit accounts................ 43,957 44,448 132,057 137,454
Trust income....................................... 23,419 23,166 72,154 72,379
Fees for international services.................... 23,914 21,881 69,048 59,321
Debit and credit card fees......................... 16,160 16,565 47,017 47,068
Income from investment in EPS, Inc................. 7,570 8,125 41,566 23,802
Gains on trading account securities................ 540 714 1,763 1,887
Securities gains................................... 470 4,223 8,457 14,143
Other operating income............................. 28,700 14,173 80,135 65,225
-------- -------- ---------- ----------
Total non-interest income..................... 144,730 133,295 452,197 421,279
-------- -------- ---------- ----------
NON-FINANCIAL EXPENSES
- ----------------------
Salaries, wages and benefits....................... 146,287 157,935 457,013 477,883
Net occupancy...................................... 28,314 28,863 86,830 87,484
Equipment expenses................................. 19,156 18,615 58,051 57,081
Restructuring and merger-related
charges (credit)................................. (2,400) - 104,563 108,700
Other operating expenses........................... 84,789 92,993 283,726 279,710
-------- -------- ---------- ----------
Total non-financial expenses.................. 276,146 298,406 990,183 1,010,858
-------- -------- ---------- ----------
INCOME BEFORE INCOME TAXES......................... 211,472 162,008 498,398 218,643
- --------------------------
Provision for income taxes......................... 77,526 57,787 183,115 81,326
-------- -------- ---------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF A
- ------------------------------------
CHANGE IN ACCOUNTING PRINCIPLE................... 133,946 104,221 315,283 137,317
- -------------------------------
Cumulative effect of a change in
accounting principle, net of
income tax benefits of $1,846.................... - - - (3,430)
-------- -------- ---------- ----------
NET INCOME......................................... $133,946 $104,221 $ 315,283 $ 133,887
- ---------- ======== ======== ========== ==========
Average common shares outstanding.................. 139,176 141,033 141,427 142,581
======== ======== ========== ==========
PER COMMON SHARE DATA
- ---------------------
Income before cumulative effect of a
change in accounting principle.................... $0.96 $0.74 $2.23 $0.97
===== ===== ===== =====
Net income......................................... $0.96 $0.74 $2.23 $0.95
===== ===== ===== =====
Cash dividends declared............................ $0.34 $0.30 $1.02 $0.90
===== ===== ===== =====
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Common Capital Retained Treasury
stock surplus earnings stock Total
-------- -------- ---------- --------- ----------
Nine Months Ended September 30, 1994
- ----------------------------------------
<S> <C> <C> <C> <C> <C>
Balances at beginning of year..................... $145,740 $778,498 $1,451,965 $ (7,819) $2,368,384
Net income........................................ 133,887 133,887
Net change in unrealized gain on
investments available-for-sale, net of tax...... (37,394) (37,394)
Treasury shares acquired (5,849 shares)........... (157,543) (157,543)
Purchase and retirement of common stock........... (166) (994) (3,583) (4,743)
Common stock issued under employee
benefit plans (279 new shares;
559 treasury shares)........................... 279 4,159 (6,313) 15,069 13,194
Common stock issued under dividend
reinvestment plan (338 treasury shares)......... 8 (474) 9,315 8,849
Conversion of subordinated debentures
(30 new shares)................................. 30 684 714
Cash paid for fractional shares issued............ (83) (83)
Foreign currency translation adjustments.......... 90 90
Common dividends declared......................... (125,170) (125,170)
-------- -------- ---------- --------- ----------
Balances at end of period......................... $145,883 $782,355 $1,412,925 $(140,978) $2,200,185
======== ======== ========== ========= ==========
Nine Months Ended September 30, 1995
- ------------------------------------
Balances at beginning of year..................... $145,878 $781,766 $1,446,767 $ (24,297) $2,350,114
Net income........................................ 315,283 315,283
Net change in unrealized gain on
investments available-for-sale, net of tax....... 14,926 14,926
Treasury shares acquired (8,987 shares)........... (287,760) (287,760)
Common stock issued under employee
benefit plans (2,714 treasury shares)............ (3) (61) (26,449) 83,685 57,172
Common stock issued under dividend
reinvestment plan (330 treasury shares).......... 200 (2) 9,801 9,999
Cash paid for fractional shares issued............ (24) (24)
Foreign currency translation adjustments.......... 27 27
Common dividends declared......................... (143,947) (143,947)
-------- -------- ---------- --------- ----------
Balances at end of period......................... $145,875 $781,905 $1,606,581 $(218,571) $2,315,790
======== ======== ========== ========= ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (UNAUDITED)
(in thousands)
<TABLE>
<CAPTION>
Nine Months Ended
September 30,
---------------------------
1995 1994
------------ ------------
<S> <C> <C>
Operating Activities
- --------------------
Net income....................................... $ 315,283 $ 133,887
Adjustments to reconcile net income to
net cash provided by operating activities:
Restructuring and merger-related
charges...................................... 104,563 108,700
Cumulative effect of a change in
accounting principle......................... - 3,430
Provision for losses on loans.................. 77,500 221,900
Provision for losses and writedowns on
OREO......................................... 6,464 33,181
Depreciation and amortization.................. 44,919 53,008
Securities gains, net.......................... (8,457) (14,143)
Other gains.................................... (19,000) -
Deferred income tax benefit.................... (38,028) (24,310)
Increase in due to factored clients............ 43,039 146,480
(Increase) decrease in accrued
interest receivable.......................... (2,176) 18,357
Increase in accrued interest payable........... 32,193 7,011
Other assets and liabilities, net.............. (127,178) (169,863)
------------ ------------
Net Cash Provided by Operating
Activities................................ 429,122 517,638
------------ ------------
Investing Activities
- --------------------
Net increase in loans............................ (972,950) (250,613)
Proceeds from sales of loans..................... 678,234 664,362
Loans originated or acquired -- non-bank
subsidiary..................................... (26,573,505) (25,895,781)
Principal collected on loans -- non-bank
subsidiary..................................... 26,178,636 25,309,901
Net increase in time deposits,
principally eurodollars........................ (3,049) (282,037)
Purchases of investments
held-to-maturity............................... (401,243) (798,748)
Purchases of investments
available-for-sale............................. (81,449) (350,166)
Proceeds from maturities of investments
available-for-sale............................. 12,738 306,083
Proceeds from maturities of investments
held-to-maturity............................... 1,103,030 1,054,808
Proceeds from sales of investments
available-for-sale............................. 144,674 465,641
Net decrease in Federal funds sold and
securities purchased under agreements
to resell...................................... 436,904 34,821
Purchases of premises and equipment.............. (79,398) (72,239)
Proceeds from sales and paydowns on OREO......... 23,337 26,664
Other............................................ 4,784 17,096
------------ ------------
Net Cash Provided by Investing
Activities................................ 470,743 229,792
------------ ------------
Financing Activities
- --------------------
Net decrease in deposits......................... (1,349,949) (1,620,909)
Proceeds from issuance of long-term debt......... 430,952 267,115
Retirement of long-term debt..................... (360,109) (130,634)
Net increase in short-term funds
borrowed....................................... 699,037 314,756
Cash dividends paid.............................. (146,762) (113,089)
Purchases of treasury stock...................... (287,760) (157,543)
Other............................................ 67,147 17,217
------------ ------------
Net Cash Used in Financing Activities....... (947,444) (1,423,087)
------------ ------------
Decrease in Cash and Due from Banks......... (47,579) (675,657)
-----------------------------------
Cash and due from banks at January 1,....... 2,262,512 2,521,676
------------ ------------
Cash and due from banks at September
30,....................................... $ 2,214,933 $ 1,846,019
============ ============
Supplemental Disclosure of Cash Flow
- ------------------------------------
Information
-----------
Cash paid during the period for:
Interest....................................... $ 547,870 $ 374,438
============ ============
Income taxes................................... $ 138,314 $ 104,776
============ ============
Net cash received on interest rate swaps......... $ 17,768 $ 81,020
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
6
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1995
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. Certain amounts in prior
periods have been reclassified for comparative purposes. Operating results for
the nine-month period ended September 30, 1995 are not necessarily indicative of
the results that may be expected for the year ending December 31, 1995.
In March 1995, CoreStates completed an intensive review of its operations
and businesses and announced a corporate-wide process redesign plan, which
restructures its banking services around customers and enhances employees'
authority to make decisions to benefit customers. As a result of this process
redesign, CoreStates recorded a $110 million pre-tax restructuring charge, $70.0
million after-tax or $0.49 per share, in March 1995. CoreStates recorded
restructuring credits of $3.0 million, $1.9 million after-tax or $0.01 per share
in the second quarter of 1995 and $2.4 million, $1.5 million after-tax or $0.01
per share in the third quarter of 1995, related to gains on the curtailment of
future pension benefits associated with employees terminated during the second
and third quarters. CoreStates anticipates the recognition of an additional
curtailment gain in the fourth quarter of 1995, as more employees reach their
work-through dates. By late 1996, the process redesign is expected to generate
efficiencies which will reduce expenses by approximately $180 million and
revenue enhancements which will net an addition of approximately $30 million to
revenues, combining to improve net income at an annual rate of $0.90 per share.
During the first quarter of 1994, CoreStates 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 a Financial Accounting Standards Board ("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.
NOTE B -- PENDING ACQUISITION
On October 10, 1995, CoreStates announced a definitive agreement to acquire
Meridian Bancorp, Inc. ("Meridian") in a transaction expected to be accounted
for under the pooling of interests method of accounting (the "Merger"). For each
Meridian common share outstanding, 1.225 shares of CoreStates' common stock will
be issued. As a result of this transaction, approximately 81.6 million new
shares will be issued. This agreement is subject to, among other conditions,
approval by the shareholders of both CoreStates and Meridian and certain
regulatory authorities.
In May 1995, Meridian announced a definitive agreement to acquire United
Counties Bancorporation ("United Counties"), a $1.6 billion asset New Jersey
bank holding company. For each United Counties common share outstanding, 5.0
shares of Meridian's common stock will be issued. This agreement is also subject
to, among other conditions, approval by shareholders and certain regulatory
authorities.
7
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
SEPTEMBER 30, 1995
NOTE B -- PROPOSED MERGER - CONTINUED
<TABLE>
<CAPTION>
A summary of selected unaudited historical financial information for Meridian follows:
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- ----------------
<S> <C> <C> <C> <C>
Operating results: 1995 1994 1995 1994
---- ---- ---- ----
(in millions, except per share amounts)
Net interest income......................... $ 156 $ 156 $ 459 $ 459
Non-interest income......................... 63 57 188 171
Income before cumulative effect of a change
in accounting principle.................. 54 37 122(a) 118
Per common share data:
Income before cumulative effect of a
change in accounting principle........ 0.96 0.63 2.14(a) 2.03
Cash dividends declared.................. 0.37 0.34 1.08 1.00
Average common shares outstanding........... 55.848 57.804 55.928 57.798
</TABLE>
<TABLE>
<CAPTION>
September 30,
1995
-------------
<S> <C>
Balance sheet (at period-end):
(in millions, except per share amount)
Assets............................... $ 14,581
Loans................................ 10,246
Deposits............................. 11,104
Common shareholders' equity.......... 1,266
Book value per common share.......... 22.65
</TABLE>
- ---------------------
(a) In June 1995, Meridian completed an internal review of its operations and
businesses and announced a company-wide plan designed to improve its
operating performance and competitive position. As a result of this
review, Meridian recorded a restructuring charge in the second quarter of
1995 of $32.0 million ($20.8 million after-tax or $0.37 per share).
A summary of selected unaudited historical financial information for United
Counties follows:
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
----------------- ----------------
<S> <C> <C> <C> <C>
Operating results: 1995 1994 1995 1994
---- ---- ---- ----
(in millions, except per share amounts)
Net interest income......................... $ 16 $ 17 $ 47 $ 50
Non-interest income......................... 2 2 16(b) 4
Income before cumulative effect of a change
in accounting principle.................. 6 6 26 18
Per common share data:
Income before cumulative effect of a
change in accounting principle........ 2.87 2.80 11.89(b) 8.30
Cash dividends declared.................. 1.85 0.80 3.45 2.20
Average common shares outstanding........... 2.146 2.138 2.145 2.136
</TABLE>
<TABLE>
<CAPTION>
September 30,
1995
-------------
<S> <C>
Balance sheet (at period-end):
(in millions, except per share amount)
Assets............................... $ 1,630
Loans................................ 389
Deposits............................. 1,303
Common shareholders' equity.......... 199
Book value per common share.......... 92.68
</TABLE>
- ---------------------
(b) Includes a gain of $12.0 million ($7.6 million after-tax or $3.56 per
share) on the exchange of investment securities.
8
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED)
September 30, 1995
NOTE C - LOAN PORTFOLIO
Loans, net of unearned discounts, at September 30, 1995 and December 31,
1994 consist of the following (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Domestic:
Commercial, industrial and other:
Highly leveraged transactions ("HLTs"). $ 539,693 $ 497,972
Other.................................. 9,141,537 8,190,761
----------- -----------
Total commercial, industrial and 9,681,230 8,688,733
other................................ ----------- -----------
Real estate:
Construction and development........... 330,619 331,369
Residential............................ 2,493,735 3,180,227
Other.................................. 2,739,302 2,979,053
----------- -----------
Total real estate..................... 5,563,656 6,490,649
----------- -----------
Consumer:
Installment............................ 1,396,684 1,386,776
Credit card............................ 1,485,761 1,374,598
----------- -----------
Total consumer........................ 2,882,445 2,761,374
----------- -----------
Financial institutions................... 942,039 668,119
Factoring receivables.................... 555,169 622,380
Lease financing.......................... 742,251 710,338
----------- -----------
Total domestic........................ 20,366,790 19,941,593
----------- -----------
Foreign................................... 801,236 584,623
----------- -----------
Total loans........................... $21,168,026 $20,526,216
=========== ===========
</TABLE>
In May 1993, the FASB issued Statement of Financial Accounting Standards No.
114, "Accounting by Creditors for Impairment of a Loan" ("FAS 114") and in
October 1994, the FASB issued Statement No. 118, "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures" ("FAS 118"). FAS 114
addresses accounting for impairment of certain loans and requires that impaired
loans within the scope of FAS 114 be measured based on the present value of
expected cash flows discounted at the loan's effective interest rate, or be
measured at the loan's observable market price or the fair value of its
collateral. FAS 118 amended FAS 114's income recognition policies and clarifies
FAS 114's disclosure requirements. Both FAS 114 and 118 are effective beginning
in 1995. As required, CoreStates adopted FAS 114 and 118 in the first quarter of
1995. The adoption of these standards did not have an impact on CoreStates'
provision for loan losses or allowance for loan losses, nor change CoreStates'
methodology for recognizing income on impaired loans.
9
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) -- continued
September 30, 1995
NOTE D -- OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS AND COMMITMENTS
In the normal course of business, there are outstanding commitments and
contingent liabilities which are not reflected in the financial statements.
These include various financial instruments with off-balance sheet risk used in
connection with CoreStates' asset and liability management and to provide for
the needs of customers. These involve varying degrees of credit, interest rate
and liquidity risk, but do not represent unusual risks for the Corporation and
management does not anticipate any significant losses as a result of these
transactions.
The following is a summary of contractual or notional amounts of off-balance
sheet commitments and derivative financial instruments as of September 30, 1995
and December 31, 1994 (in thousands):
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Standby letters of credit, net of
participations......................... $ 949,577 $1,125,262
Commercial letters of credit............ 1,211,765 1,244,164
Commitments to extend credit............ 9,332,230 8,223,261
Unused commitments under credit card
lines.................................. 3,865,837 3,579,453
Interest rate futures contracts:
Commitments to purchase................ 659,000 1,043,000
Commitments to purchase foreign and
U.S. currencies........................ 2,608,756 1,816,549
Interest rate swaps, notional principal
amounts................................ 7,868,041 8,234,400
Interest rate caps and floors:
Written................................ 583,986 749,857
Purchased.............................. 900,435 1,150,657
Other derivatives....................... 222,000 295,000
</TABLE>
10
<PAGE>
PART I. FINANCIAL INFORMATION -- continued
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
- -------
Earnings Review - In the third quarter of 1995, CoreStates Financial Corp
("CoreStates") recorded net income of $133.9 million or $0.96 per share.
"Operating earnings" for the third quarter of 1995, which has been defined for
purposes of this discussion as net income excluding a restructuring credit, was
$132.4 million, or $0.95 per share. This represents a 28.4% increase on a per
share basis when compared to third quarter of 1994 operating earnings of $104.2
million, or $0.74 per share. The restructuring credit is discussed below.
Operating results, key financial ratios and per share information are
summarized in the following table (in millions, except per share):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, Percentage September 30, Percentage
------------------- Increase ----------------- Increase
1995 1994 (Decrease) 1995 1994 (Decrease)
-------- -------- ---------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net interest income (taxable equivalent $ 374.7 $ 357.1 4.9% $1,127.0 $1,046.2 7.7%
basis)................................. ======== ======== ======== ========
Income before the cumulative effect of a
change in accounting principle......... $ 133.9 $ 104.2 28.5 $ 315.3 $ 137.4 129.5
Exclude:
After-tax restructuring charge (credit) (1.5) - 66.6 -
After-tax EPS gain..................... - - (11.8) -
After-tax merger-related charges....... - - - 167.4
-------- -------- -------- --------
Operating earnings...................... $ 132.4 $ 104.2 27.1 $ 370.1 $ 304.8 21.4
======== ======== ======== ========
Operating earnings per share............ $ 0.95 $ 0.74 28.4 $ 2.62 $ 2.14 22.4
======== ======== ======== ========
Return on average equity (a)............ 22.94% 18.91% 21.53% 17.95%
Return on average assets (a)............ 1.85 1.50 1.74 1.47
Net interest margin..................... 5.90 5.91 5.97 5.78
Average common shares outstanding....... 139.176 141.033 141.427 142.581
</TABLE>
- -----------------
(a) Calculated based on "Operating earnings."
The $28.2 million improvement in operating earnings for the third quarter of
1995, as compared to the third quarter of 1994, was primarily due to a 4.9%
increase in taxable equivalent net interest income coupled with a 7.4% decrease
in expenses. The net interest margin for the third quarter of 1995 was 5.90%
compared to 5.91% for the third quarter of 1994. The increase in the level of
taxable equivalent net interest income was primarily related to improved
interest rate spreads on deposits and prime-based loans, higher earnings on non-
interest bearing funding and loan growth. Also contributing to the improvement
in third quarter operating earnings was an $11.4 million, or 8.6% increase in
non-interest income and a $19.8 million, or 6.6% decrease in non-financial
expenses excluding the restructuring credit. The financial impact of those
aspects of the process redesign (see "Process Redesign" beginning on page 13)
implemented since March 31, 1995 was to increase third quarter of 1995 operating
income by $22.0 million pre-tax, or $0.10 per share after-tax. This impact
principally related to expense savings and exceeded original projections by
$0.05 per share due to timing.
Key performance measures, based on operating earnings, continued to improve
on already strong ratios. Returns on average equity and assets were 22.94% and
1.85%, respectively, in the third quarter of 1995, compared to 18.91% and 1.50%,
respectively, in the third quarter of 1994. Return on average equity was
positively affected by the common stock repurchase program (see "Capital
Management" beginning on page 27).
11
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
SUMMARY - continued
- -------
For the nine months ended September 30, 1995, CoreStates recorded net income
of $315.3 million or $2.23 per share. Operating earnings for the 1995 nine-
month period, defined as net income excluding the net restructuring charge and
a gain related to changes in an investment in an affiliate joint venture, were
$370.1 million, or $2.62 per share. This represents a 22.4% increase on a per
share basis when compared to operating earnings of $304.8 million, or $2.14 per
share for the 1994 nine-month period. Operating earnings for the 1994 nine-month
period exclude after-tax merger-related charges of $167.4 million, or $1.17 per
share, and the cumulative effect of a change in accounting principle. The $65.3
million improvement in operating earnings for the first nine months of 1995 was
primarily due to an increase in taxable equivalent net interest income. Taxable
equivalent net interest income for the 1995 nine-month period increased $80.8
million, or 7.7%, over the 1994 nine-month period.
RESTRUCTURING CHARGE/CREDIT - In March 1995, CoreStates completed an
intensive review of its operations and businesses and announced a corporate-wide
process redesign plan, which restructures its banking services around customers
and enhances employees' authority to make decisions to benefit customers. As a
result of this process redesign, CoreStates recorded a $110.0 million pre-tax
restructuring charge, $70.0 million after-tax or $0.49 per share in March 1995.
CoreStates recorded restructuring credits of $3.0 million, $1.9 million after-
tax or $0.01 per share in the second quarter of 1995 and $2.4 million, $1.5
million after-tax or $0.01 per share in the third quarter of 1995, related to
gains on the curtailment of future pension benefits associated with employees
terminated during the second and third quarters. CoreStates anticipates the
recognition of an additional curtailment gain in the fourth quarter of 1995, as
more employees reach their work-through dates. For a more detailed discussion
of the process redesign and related restructuring charge see "Process Redesign"
beginning on page 13.
JOINT VENTURE - In March 1995, Electronic Payment Services, Inc. ("EPS"), an
affiliate joint venture formed in 1992 to combine the consumer electronic
transaction processing businesses of CoreStates and three partners, admitted a
fifth partner and increased the ownership interest of an existing partner. As a
direct result of this change in its ownership interest, CoreStates recognized a
pre-tax gain of $19.0 million, $11.8 million after-tax or $0.08 per share, in
the first quarter of 1995.
1994 MERGER-RELATED CHARGES - Upon consummation of its acquisition by
CoreStates on June 27, 1994, Independence Bancorp, Inc. ("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
consumer lending charge-off policies to those of CoreStates, and for expenses
directly attributable to the acquisition. These merger-related charges totaled
$39.6 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 including $5.0 million of severance costs
related to approximately 345 employees.
Upon consummation of its acquisition by CoreStates on March 16, 1994,
Constellation Bancorp ("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 consumer lending charge-off policies to those
of CoreStates, and for expenses directly attributable to the acquisition. These
merger-related charges totaled $127.8 million after-tax, or $0.89 per share. On
a pre-tax basis, these 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
including $8.0 million of severance costs related to approximately 370
employees.
1994 ACCOUNTING CHANGE - During the first quarter of 1994, CoreStates
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.
12
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
SUMMARY - continued
- -------
PROCESS REDESIGN - In order to build upon CoreStates' strong financial
condition and sustain previous financial successes, and to accomplish this goal
in the competitive financial services environment in which CoreStates operates,
management had commenced an intensive review of all aspects of CoreStates'
operations and businesses in September 1994. In March 1995, CoreStates
completed its review and approved and announced a corporate-wide process
redesign plan, which restructures its banking services around customers and
enhances employees' authority to make decisions to benefit customers. The
objectives of the process redesign are: (i) to enhance CoreStates customer
focus; (ii) to accelerate the culture change already in progress at CoreStates;
and (iii) to improve productivity.
As a result of the process redesign, CoreStates recorded a $110 million
restructuring charge, $70 million after-tax or $0.49 per share, in March 1995.
When complete, the process redesign will result in the elimination of 2,800
positions, or 2,600 full-time equivalent employees. The breakdown of the
eliminated positions is as follows: (i) 450 positions resulting from a hiring
freeze in place from September 1994 to April 1995; (ii) 530 positions resulting
from expected attrition during implementation of the process redesign; (iii) 930
employees who have elected to accept an enhanced severance package; and (iv) 890
layoffs. At September 30, 1995, CoreStates had 13,700 full-time equivalent
employees which includes reductions for the impact of the hiring freeze and
1,400 employee terminations during the second and third quarters. The
components of the restructuring charge and related cash outflow were as follows
(in millions):
<TABLE>
<CAPTION>
Restructuring Charge
-------------------------
Requiring Cash
Cash Outflow
Total Outflow To-date (a)
---------- ------------- -----------
<S> <C> <C> <C>
Severance costs............... $ 72 $72 $17
Office reconfiguration costs.. 16 7 -
Branch closing costs.......... 15 7 1
Outplacement costs............ 3 3 2
Miscellaneous................. 4 2 2
---- --- ---
Total...................... $110 $91 $22
==== === ===
- -------------------------
</TABLE>
(a) CoreStates' liquidity has not been significantly affected by these cash
outflows.
CoreStates believes that the restructuring charges recorded through September
30, 1995 will be sufficient to absorb the remaining restructuring related costs.
The severance charge relates to the separation package which will be paid to
those employees who have elected to accept that package and to those employees
laid off. Cash payments under separation packages commenced in April 1995 and
will continue for varying terms. No lump sum severance payments will be made.
The office reconfiguration charge relates to the costs of asset writeoffs and
lease buyouts that will be incurred principally in the process of streamlining
and consolidating center city Philadelphia operations. This streamlining and
consolidating process will occur over the 18-month period which began in April
1995. The branch closing charge relates to the costs of asset writeoffs and
lease buyouts that will be incurred in the process of consolidating and closing
37 branch offices.
CoreStates recorded restructuring credits of $3.0 million, $1.9 million
after-tax or $0.01 per share in the second quarter of 1995 and $2.4 million,
$1.5 million after-tax or $0.01 per share in the third quarter of 1995, related
to gains on the curtailment of future pension benefits associated with the 1,400
employees terminated during the second and third quarters. CoreStates
anticipates the recognition of an additional curtailment gain in the fourth
quarter of 1995, as more employees reach their work-through dates.
13
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
SUMMARY - continued
- -------
Future cash outflows to be incurred in implementing the process redesign
plan, which were not included in the restructuring charge, will include
approximately $25 million for capital expenditures and approximately $16 million
in operating expenses. Since April 1995, the amount of incremental operating
expenses that were incurred related to the process redesign were approximately
$4 million.
The principal themes of the process redesign plan are as follows:
. Redefine the organizational structure around customers, customer segments
and markets, not products;
. Streamline and consolidate functions and processes;
. Vacate 1.2 million square feet of occupied space in 45 buildings,
including the 37 branches;
. Use technology to automate services and processes; and
. Employ tiered pricing strategies and streamline product pricing.
Implementation of the process redesign plan will occur over the 18-month
period which began in April 1995. By late 1996, the process redesign is expected
to generate cost efficiencies which will reduce expenses by $180 million and
revenue enhancements which will net an addition of $30 million, combining to
improve CoreStates' net income at an annual rate of $0.90 per share. The process
redesign was originally expected to have a positive impact on net income of
approximately $0.16 per share in 1995 (excluding the restructuring charge and
subsequent credits) and $0.72 per share in 1996. Due to timing, the impact of
the process redesign on 1995 net income is expected to exceed $0.16 per share.
For the third quarter of 1995, the impact of the process redesign on net income
(excluding the restructuring credit) was approximately $0.10 per share. This
impact principally related to expense savings and exceeded original projections
for the third quarter by $0.05 per share. The impact on net income for the nine
months ended September 30, 1995 (excluding the net restructuring charge) was
approximately $0.13 per share, $0.06 per share above original projections. The
favorable variances to original projections are principally due to personnel
savings, and mostly due to timing. CoreStates does not anticipate exceeding the
annual run rate of $0.90 per share. A breakdown of expected expense reductions
is as follows: personnel related -$98 million; professional and outside
services - 20 million; occupancy - $18 million; office supplies - $9 million;
telecommunications - $5 million; travel and entertainment - $5 million;
furnishings - $4 million; and all other -$21 million. As with any earnings
estimates, there are factors beyond CoreStates' control that could influence the
actual results for 1995-1996, such as changes in economic conditions. As a
result, the actual results could differ materially from these estimates.
PENDING ACQUISITION - On October 10, 1995, CoreStates and Meridian Bancorp,
Inc. ("Meridian") announced a definitive agreement to merge. Meridian is a
Pennsylvania bank holding company with approximately $14.6 billion in assets and
$11.1 billion in deposits. Assuming approval by shareholders of both companies
and regulators, the transaction is expected to close in the second quarter of
1996. Based on closing share prices of October 9, 1995, the transaction would
be valued at approximately $3.2 billion. The deal is structured as an
acquisition of Meridian by CoreStates which will be accounted for under the
pooling of interests method of accounting. This in-market acquisition is
expected to achieve annual pre-tax operating efficiencies of approximately
$186.0 million and is expected to add to earnings per share in 1997.
14
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
BUSINESS LINE RESULTS
- ---------------------
The following tables present the performance results of CoreStates' four core
business segments: Wholesale Banking; Consumer Financial Services; Trust and
Investment Management; and Electronic Payment Services, Inc. ("EPS"), an
affiliate, for the three and nine-month periods ended September 30, 1995 and
1994. Each segment is comprised of well defined business lines with market or
product-specific missions.
THREE MONTHS ENDED SEPTEMBER 30,
($ in millions, taxable equivalent basis)
<TABLE>
<CAPTION>
Consumer Trust and
Wholesale Financial Investment
Banking Services Management
------------------- -------------------- --------------------
1995 1994 1995 1994 1995 1994
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net interest income........ $ 168.4 $ 165.3 $ 184.7 $170.4 $ 7.3 $ 7.5
Provision for loan losses.. 14.0 10.6 13.2 14.1 0.3 0.3
Non-interest income........ 56.1 54.7 44.7 39.9 23.6 23.1
Non-financial expenses..... 102.7 112.8 134.7 146.5 24.2 28.2
------- ------- ------- ------ ------- -------
Income before income taxes. 107.8 96.6 81.5 49.7 6.4 2.1
Income tax expense......... 36.0 38.3 29.4 19.7 2.4 0.9
------- ------- ------- ------ ------- -------
Net income................. $ 71.8 $ 58.3 $ 52.1 $ 30.0 $ 4.0 $ 1.2
======= ======= ======= ====== ======= =======
Return on assets........... 1.72% 1.50% 2.65% 1.66% 2.33% 0.68%
Return on equity (a)....... 29.37 26.93 58.56 33.81 63.48 17.00
Average assets............. $16,548 $15,430 $ 7,813 $7,180 $ 681 $ 705
Average equity (a)......... 970 859 353 352 25 28
EPS, Inc.
Affiliate Corporate Total
------------------- -------------------- --------------------
1995 1994 1995 1994 1995 1994
------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net interest income........ $ (1.5) $ (1.5) $ 15.8 $ 15.4 $ 374.7 $ 357.1
Provision for loan losses.. - - - - 27.5 25.0
Non-interest income........ 7.6 8.0 12.7 7.6 144.7 133.3
Non-financial expenses..... - - 14.6(b) 10.9 276.2 298.4
------- ------- ------- ------ ------- -------
Income before income taxes. 6.1 6.5 13.9 12.1 215.7 167.0
Income tax expense......... 2.1 2.3 11.9 1.6 81.8 62.8
------- ------- ------- ------ ------- -------
Net income (loss).......... $ 4.0 $ 4.2 $ 2.0 $ 10.5 $ 133.9 $ 104.2
======= ======= ======= ====== ======= =======
Return on assets........... 19.84% 20.83% 0.24% 1.02% 1.87% 1.50%
Return on equity (a)....... 396.74 416.58 0.85 4.42 23.20 18.91
Average assets............. $ 80 $ 80 $ 3,334 $4,087 $28,456 $27,482
Average equity (a)......... 4 4 938 943 2,290 2,186
</TABLE>
- -------------------
(a) Equity is allocated to business lines in the four core business segments by
applying a factor of 5.0% against average risk-weighted assets and adding
intangible assets.
(b) Includes a restructuring credit of $2.4 million pre-tax, $1.5 million
after-tax or $0.01 per share.
15
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
BUSINESS LINE RESULTS -- continued
- ---------------------
NINE MONTHS ENDED SEPTEMBER 30,
($ in millions, taxable equivalent basis)
<TABLE>
<CAPTION>
Consumer Trust and
Wholesale Financial Investment
Banking Services Management
----------------------- ---------------------- ---------------------
1995 1994 1995 1994 1995 1994
------- ------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net interest income.......... $ 493.8 $ 472.4 $ 556.3 $ 498.7 $ 21.3 $ 22.5
Provision for loan losses.... 35.4 34.1 41.3 42.0 0.8 0.8
Non-interest income.......... 173.4 167.5 128.8 129.7 72.8 72.9
Non-financial expenses....... 329.9 346.0 430.3 443.8 76.9 84.1
------- ------- ------- ------- -------- --------
Income before income taxes... 301.9 259.8 213.5 142.6 16.4 10.5
Income tax expense........... 112.8 102.3 78.5 55.7 6.1 4.0
------- ------- ------- ------- -------- --------
Net income................... $ 189.1 $ 157.5 $ 135.0 $ 86.9 $ 10.3 $ 6.5
======= ======= ======= ======= ======== ========
Return on assets............. 1.57% 1.37% 2.26% 1.56% 2.00% 1.25%
Return on equity (a)......... 27.01 25.01 50.56 32.01 52.97 31.04
Average assets............... $16,092 $15,371 $ 7,975 $ 7,449 $ 689 $ 698
Average equity (a)........... 936 842 357 363 26 28
</TABLE>
<TABLE>
<CAPTION>
EPS, Inc.
Affiliate Corporate Total
------------------------ --------------------- ---------------------
1995 1994 1995 1994(d) 1995 1994
------- ------- ------- --------- -------- --------
<S> <C> <C> <C> <C> <C> <C>
Net interest income.......... $ (4.0) $ (4.4) $ 59.6 $ 57.0 $1,127.0 $1,046.2
Provision for loan losses.... - - - 145.0 77.5 221.9
Non-interest income.......... 42.4(b) 23.7 34.8 27.5 452.2 421.3
Non-financial expenses....... - - 153.1(c) 137.0 990.2 1,010.9
------- ------- --------- ------- -------- --------
Income (loss) before
income taxes................ 38.4 19.3 (58.7) (197.5) 511.5 234.7
Income tax expense (benefit). 14.5 6.8 (15.7) (71.4) 196.2 97.4
------- ------- ------- ------- -------- --------
Net income (loss)............ $ 23.9 $ 12.5 $ (43.0) $(126.1) $ 315.3 $ 137.3(e)
======= ======= ======= ======= ======== ========
Return on assets............. 42.05% 21.99% (1.62)% (4.11)% 1.49% 0.66%
Return on equity (a)......... 798.86 417.81 (5.90) (16.32) 18.34 8.09
Average assets............... $ 76 $ 76 $ 3,551 $ 4,104 $ 28,383 $ 27,698
Average equity (a)........... 4 4 975 1,033 2,298 2,270
- -------------------
</TABLE>
(a) Equity is allocated to business lines in the four core business segments by
applying a factor of 5.0% against average risk-weighted assets and adding
intangible assets.
(b) Includes a gain of $19.0 million pre-tax, $11.8 million after-tax or $0.08
per share, related to changes in the investment in the EPS affiliate joint
venture.
(c) Includes a net restructuring charge of $104.6 million pre-tax, $66.6 million
after-tax or $0.47 per share, related to a corporate-wide process redesign.
(d) Includes after-tax merger-related charges of $127.8 million or $0.89 per
share recorded in the first quarter of 1994 for the Constellation
acquisition and $39.6 million or $0.28 per share recorded in the second
quarter of 1994 for the Independence acquisition.
(e) Reflects income before cumulative effect of a change in accounting
principle.
16
<PAGE>
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, and the loan loss provision
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. All business lines in the four
core businesses are allocated equity utilizing 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.
The Corporate category includes the income and expense impact of unallocated
equity; 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 Middle Market,
Corporate and Institutional Banking, Investment Banking, Cash Management,
International Banking, and Specialized Banking. Wholesale Banking continued its
strong performance in 1995 as net income increased $13.5 million or 23.2% above
third quarter 1994, and $31.6 million or 20.1% above prior year-to-date. This
increase was due to growth in net interest income, and non-interest income, and
declines in non-financial expenses. Net interest income was $3.1 million or 1.9%
above third quarter 1994, and $21.4 million or 4.5% above prior year, largely
due to higher loan volumes, lower levels of non-performing loans, and higher
loan fees. Average loan outstandings increased 8.9% from the third quarter
1994, and 6.5% above prior year-to-date. Average non-performing loans declined
32.5% from third quarter 1994 and 40.1% below September year-to-date 1994. Non-
interest revenue increased $1.4 million or 2.6% above prior year, and $5.9
million or 3.5% above 1994 year-to-date due to growth in international service
fees and securities gains. Non-financial expenses declined $10.1 million or 9.0%
from the third quarter 1994, and $16.1 million or 4.7% from prior year-to-date
largely due to expense reductions related to the impact of BEST.
CONSUMER FINANCIAL SERVICES includes the following business lines: Community
Banking, Specialty Products and Mortgage Banking. Specialty Products ("SPG")
includes Credit Card, Student Lending and CardLinx. Results for 1995 include
the acquisition of Germantown Savings Bank ("GSB"). Since the GSB transaction
was accounted for under the purchase method, restatement of 1994 was not
required.
Net income for the third quarter of 1995 was $52.1 million which was $22.1
million or 73.7% over the third quarter of 1994. Net income for the nine months
ended September 30, 1995 was $135.0 million or $48.1 million (55.4%) over the
same period in 1994.
Net interest income for the quarter grew by $14.3 million or 8.4% when compared
to prior year, which includes $8.6 million of net interest income for GSB. The
SPG net interest income grew by $4.6 million driven by a 16.0% increase in
credit card outstandings which equated to $5.1 million. Net interest income in
the Community Banking Line, excluding GSB, increased slightly by $0.5 million.
Favorable deposit spreads, up 20 basis points, generated a $6.9 million increase
in net interest income, which was partially offset by narrowing loan spreads,
down 23 basis points or $2.8 million, and a $387 million decrease in deposits
equating to a $2.7 million decline in net interest income. On a year-to-date
basis the net interest income increased by $57.6 million, which includes $28.6
million of net interest income for GSB. The increase was primarily a result
of favorable deposit spreads and increased credit card outstandings contributing
$38.2 million and $14.7 million, respectively. These were partially offset by
narrowing loan spreads resulting in a net interest income impact of $10.3
million, and declining deposit and loan volumes contributing $7.6 million and
$1.9 million, respectively, to the decline.
17
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
BUSINESS LINE RESULTS - continued
- ---------------------
Non-interest income for the quarter increased by $4.8 million, which includes
$1.2 million of non-interest income for GSB. Income generated from Home Equity
loan securitization transactions for the third quarter increased by $1.6
million. This increase was partially offset by declines in revenue from third
party sales of annuities and mutual funds due, in part, to customer shifts from
these products to certificates of deposits as rates became more attractive in
the latter half of 1994. Year-to-date non-interest income decreased by $0.9
million. Mortgage income declined by $4.8 million primarily the result of the
Constellation portfolio which was sold in 1994. In addition, in March 1994,
Community Banking sold its Marine portfolio at a one-time gain of $1.5 million.
Securitization income for the nine-month period rose by $3.3 million. GSB non-
interest income was $3.0 million.
Non-financial expenses for the quarter were $134.7 million, including $8.7
million of operating and amortization expenses added by GSB. Non-financial
expenses for the quarter decreased by $18.8 million, or 8.1%, when compared to
1994. The decline occurred in Community Banking where expenses were down $20.3
million. Ideas implemented related to the company-wide process redesign program
("BEST") generated savings of $10.9 million. Additional savings have resulted
from heightened expense controls, a reduction in FDIC premiums from $.23 to $.04
per $100 of deposits and continued synergies from merger related activities.
Year-to-date non-financial expenses were $430.3 million, including $28.2 million
of operating and amortization expenses added by GSB. Compared to prior year,
expenses have declined by $13.5 million or 3.0%. Community Banking expenses were
down $42.3 million including $14.5 million related to BEST generated savings as
well as the FDIC premium reduction and merger related synergies.
TRUST AND INVESTMENT MANAGEMENT is organized into four business lines:
Institutional Trust, Personal Trust, Private Banking, and Investment Management.
In the third quarter, net income of $4.0 million was up $2.8 million over 1994
levels. Year-to-date net income of $10.3 million was $3.8 million above the
earnings reported for the same period in 1994. For the third quarter net
interest income declined by $200 thousand or 2.7% due to lower demand balances
in most business lines, particularly in Personal Trust. Year-to-date net
interest income declined by $1.2 million or 5.3% due primarily to lower demand
balances in Institutional Custody and shortfalls in Corporate Trust balances
resulting from higher levels of refinancings in 1994. Non-interest income
increased by $500 thousand or 2.2% from the third quarter of 1994 principally
due to new business in Institutional Custody, which was partially offset by
lower non-recurring fees in Personal Trust. Year-to-date the $100 thousand
decrease in non-interest income is primarily due to customer attrition in
Employee Benefits and lower non-recurring fees in Personal Trust. New business
and fee growth in Institutional Custody partially offsets these shortfalls.
Expenses for the quarter were $4.0 million or 14.2% below 1994, more than
offsetting the shortfall in revenues and creating the favorable net income
variance. Year-to-date expenses were $7.2 million or 8.6% below 1994 levels.
Favorable expense variances for both the quarter and year-to-date are primarily
due to the impact of BEST.
In October 1995, CoreStates sold its Corporate Trust business for a pre-tax gain
of approximately $7 million, which will be included in results for the fourth
quarter of 1995.
ELECTRONIC PAYMENT SERVICES, INC. ("EPS") was formed on December 4, 1992 through
a separate contribution of the consumer electronic transaction processing
businesses of CoreStates, Banc One Corporation, PNC Bank Corp and KeyCorp
(formerly Society Corporation). EPS is one of the nation's leading providers of
ATM and POS processing services. CoreStates received cash, preferred stock and
common stock for the contribution of its MAC ATM network and BUYPASS POS
businesses. CoreStates' ownership at formation was 31%.
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 note providing for equal quarterly principal payments over the
life of the note. The recapitalization did not affect the amount of the deferred
gain generated in the 1992 contribution of the business lines to EPS, but
changed the timing of the recognition of that $138 million deferred gain from a
five-year period beginning in 1996 to a ten-year period which began in 1994.
18
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
BUSINESS LINE RESULTS - continued
- ---------------------
Net income of $4.0 million for the third quarter of 1995 includes $7.6 million
in non-interest income, partly offset by interest carrying charges on the net
investment in EPS. Non-interest income components include CoreStates' equity
ownership interest in EPS' net income, recognition of the deferred gain, and
interest income on the promissory note. Net income for the third quarter 1994
totalled $4.2 million.
Net income of $23.9 million for nine months ended September 30, 1995 includes a
$19.0 million gain, $11.8 million after-tax, associated with the addition of
National City Corp as a partner in EPS and the buy-up by KeyCorp to an equal
partner in EPS. Both transactions closed on March 27, 1995. These transactions
decreased CoreStates' share of ownership from 31% to 20%. The 1995 results also
include $22.6 million of non-interest income from CoreStates' equity interest in
EPS' net income, deferred gain recognition, and promissory note interest income,
partly offset by interest carrying charges on the net investment in EPS. Net
income for the first nine months of 1994 totalled $12.5 million
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 third quarter of 1995 was $374.7
million, an increase of $17.6 million, or 4.9%, from the third quarter of 1994.
The net interest margin was 5.90% for the third quarter of 1995, compared to
5.91% for the third quarter of 1994. The increase in net interest income was
primarily driven by improved spreads on deposits and prime-based loans and
higher earnings on non-interest bearing funding. In addition, net interest
income and the net interest margin benefited from growth in loans particularly
at Congress Financial Corp, CoreStates' commercial finance subsidiary, and
credit card outstandings. Average loans for the third quarter of 1995 were $20.9
billion, an increase of $1.4 billion or 7.4% over the third quarter of 1994. The
strength of CoreStates' net interest income and net interest margin stems from
the combination of wide spreads on both loans and deposits and a balance sheet
which has a relatively high portion of loans and a large base of non-interest
bearing funding principally generated by our processing and cash management
businesses.
Compared to the second quarter of 1995, taxable equivalent net interest
income for the third quarter of 1995 decreased $8.3 million, or 2.2%. The
decline in third quarter interest income, as compared to the second quarter of
1995, principally reflected the impact of narrower spreads on loans and
deposits, and a $163 million decline in average interest bearing deposits,
partially offset by the impact of one additional day in the third quarter.
Taxable equivalent net interest income for the nine months ended September
30, 1995 increased $80.8 million, or 7.7%, and the net interest margin increased
19 basis points to 5.97%, as compared to the 1994 nine-month period. The
increases were primarily due to improved interest spreads on deposits and prime-
based loans, higher earnings on non-interest bearing funding and loan growth.
19
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
NET INTEREST INCOME - continued
- -------------------
The following table compares taxable equivalent net interest income for the
three months ended September 30, 1995 versus the third quarter of 1994 and the
second quarter of 1995, and for the nine months ended September 30, 1995 versus
the 1994 nine-month period, respectively (in millions):
Taxable Equivalent Net Interest Income
- --------------------------------------
<TABLE>
<CAPTION>
Three Months Ended Increase (decrease)
------------------------------------- -------------------------------
Sept 30, Sept 30, June 30, Sept 1995/ Sept 1995/
1995 1994 1995 Sept 1994 June 1995
----------- ----------- ----------- --------------- --------------
<S> <C> <C> <C> <C> <C>
Total interest income................... $ 566.4 $ 488.4 $576.6 $78.0 $(10.2)
Tax equivalent adjustment............... 4.3 5.0 4.4 (0.7) (0.1)
-------- -------- ------ ----- ------
Tax equivalent interest income.......... 570.7 493.4 581.0 77.3 (10.3)
Total interest expense.................. 196.0 136.3 198.0 59.7 (2.0)
-------- -------- ------ ----- ------
Taxable equivalent net
interest income........................ $ 374.7 $ 357.1 $383.0 $17.6 $ (8.3)
======== ======== ====== ===== ======
Interest rate spread.................... 4.84% 5.12% 5.04%
==== ==== ====
Net interest margin..................... 5.90% 5.91% 6.10%
==== ==== ====
Nine Months Ended
------------------------------------
Sept 30, Sept 30, Increase/
1995 1994 (decrease)
-------- -------- ----------
Total interest income................... $1,693.9 $1,411.6 $282.3
Tax equivalent adjustment............... 13.2 16.0 (2.8)
-------- -------- ------
Tax equivalent interest income.......... 1,707.1 1,427.6 279.5
Total interest expense.................. 580.1 381.4 198.7
-------- -------- ------
Taxable equivalent net
interest income........................ $1,127.0 $1,046.2 $ 80.8
======== ======== ======
Interest rate spread.................... 4.93% 5.01%
==== ====
Net interest margin..................... 5.97% 5.78%
==== ====
</TABLE>
20
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
NET INTEREST INCOME - continued
- -------------------
The following rate/volume analysis on a taxable equivalent basis illustrates
the underlying factors producing these increases (decreases) in tax equivalent
net interest income (in millions):
<TABLE>
<CAPTION>
Increase (decrease) in interest Increase (decrease) in interest
--------------------------------------------- ---------------------------------------------
Three Months Ended Three Months Ended
September 30, 1995/1994 September 30, 1995/June 30, 1995
--------------------------------------------- ---------------------------------------------
Change attributable to Change attributable to
Income/ ---------------------------- Income/ ----------------------------
expense Volume Rate expense Volume Rate
--------------- ------------- ------------- --------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets
- -----------------------
Time deposits-Eurodollars... $ 9.1 $ 2.7 $ 6.4 $ (5.3) $(2.8) $ (2.5)
Investment securities....... (4.8) (7.9) 3.1 (5.2) (2.5) (2.7)
Federal funds sold.......... 3.1 2.9 0.2 2.9 2.6 0.3
Trading account securities.. - - - - - -
Loans:
- Domestic................ 63.0 30.1 32.9 (4.5) 3.8 (8.3)
- Foreign................. 6.9 2.9 4.0 1.8 2.0 (0.2)
----- ----- ----- ------ ----- ------
Total interest income. 77.3 30.7 46.6 (10.3) 3.1 (13.4)
----- ----- ----- ------ ----- ------
Interest bearing funds
- ----------------------------
Deposits:
Domestic................... 42.7 11.0 31.7 (0.7) (1.0) 0.3
Overseas................... 2.7 1.5 1.2 (1.3) 0.1 (1.4)
Funds borrowed:
Federal funds purchased.... (0.7) (2.6) 1.9 (0.7) (0.5) (0.2)
Other...................... 7.6 2.7 4.9 0.8 1.0 (0.2)
Long-term debt.............. 7.4 3.3 4.1 (0.1) 0.8 (0.9)
----- ----- ----- ------ ----- ------
Total interest expense..... 59.7 15.9 43.8 (2.0) 0.4 (2.4)
----- ----- ----- ------ ----- ------
Net interest income......... $17.6 $14.8 $ 2.8 $ (8.3) $ 2.7 $(11.0)
- ------------------- ===== ===== ===== ====== ===== ======
</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 rates are adjusted by specific reserves as average balances are
reduced by such reserves for purposes of rate calculations.
21
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
NET INTEREST INCOME - continued
- -------------------
<TABLE>
<CAPTION>
Increase (decrease) in interest
------------------------------------------
Nine Months Ended
September 30, 1995/1994
------------------------------------------
Change attributable to
Income/ --------------------------
expense Volume Rate
-------------- ------------ ------------
<S> <C> <C> <C>
Interest earning assets
- -----------------------
Time deposits-Eurodollars... $ 44.8 $ 4.4 $ 40.4
Investment securities....... (10.2) (8.0) (2.2)
Federal funds sold.......... 2.9 0.3 2.6
Trading account securities.. - - -
Loans:
- Domestic................ 224.7 24.2 200.5
- Foreign................. 17.3 2.1 15.2
------ ----- ------
Total interest income.... 279.5 23.0 256.5
------ ----- ------
Interest bearing funds
- ----------------------
Deposits:
Domestic................... 130.1 11.2 118.9
Overseas................... 12.0 1.6 10.4
Funds borrowed:
Federal funds purchased.... 5.4 (1.9) 7.3
Other...................... 19.2 1.9 17.3
Long-term debt.............. 32.0 2.6 29.4
------ ----- ------
Total interest expense..... 198.7 15.4 183.3
------ ----- ------
Net interest income......... $ 80.8 $ 7.6 $ 73.2
- ------------------- ====== ===== ======
</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 rates are adjusted by specific reserves as average balances are
reduced by such reserves for purposes of rate calculations.
The effect of cash basis and other non-performing loans on interest income and
net interest income for the three and nine-month periods ended September 30,
1995 and 1994 was as follows (in millions):
<TABLE>
<CAPTION>
Three Nine
Months Ended Months Ended
September 30, September 30,
------------- ---------------
1995 1994 1995 1994
---- ---- ----- -----
<S> <C> <C> <C> <C>
Interest income due on non-performing
loans in accordance with their original
terms................................... $4.7 $ 6.4 $15.5 $20.3
Interest income on non-performing loans
reflected in total interest income...... 3.3 7.4 9.3 17.5
---- ----- ----- -----
Net reduction (increase) in interest $1.4 $(1.0) $ 6.2 $ 2.8
income................................. ==== ===== ===== =====
</TABLE>
22
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
PROVISION AND ALLOWANCE FOR LOAN LOSSES
- ---------------------------------------
The provision for loan losses for the third quarter of 1995 was $27.5
million, up $2.5 million from the provisions recorded in the prior year third
quarter and the 1995 second quarter. The increase in the provision for the
third quarter of 1995 was made in response to loan growth and higher charge-offs
on credit card outstandings. The provision for loan losses for the nine months
ended September 30, 1995 was $77.5 million, a $0.6 million increase over the
provision recorded in the prior year nine-month period (excluding $145.0 million
of combined merger-related provisions recorded in the 1994 nine-month period).
In the second quarter of 1994 Independence recorded a $25.0 million provision
for loan losses and in the first quarter of 1994 Constellation recorded a $120.0
million provision for loan losses, both in connection with a change in strategy
related to problem assets, and to conform their consumer lending charge-off
policies to those of CoreStates.
Net loan charge-offs for the 1994 nine-month period included $103.1 million
of net charge-offs in the second quarter 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 nine-month periods ended September 30, 1995 and 1994
(in millions):
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------- ------------------------
1995 1994 1995 1994
---------- ----------- ----------- ----------
<S> <C> <C> <C> <C>
Balance at beginning of period.............. $497.4 $475.3 $ 500.6 $ 450.8
Provision charged to expense................ 27.5 25.0 77.5 221.9(a)
Loan charge-offs............................ (40.7) (39.4) (130.5) (241.5)
Recoveries of loans previously charged off.. 17.2 17.0 53.8 46.7
------ ------ ------- -------
Net loan charge-offs...................... (23.5) (22.4) (76.7) (194.8)
------ ------ ------- -------
Balance at end of period.................... $501.4 $477.9 $ 501.4 $ 477.9
====== ====== ======= =======
Ratios:
Net charge-offs (annualized) as a
percentage of average total loans......... 0.45% 0.46% 0.49% 1.33%
Allowance for loan losses as a percentage
of loans at end of period................. 2.37 2.42
Allowance for loan losses as a percentage
of non-performing loans................... 300.5 171.6
</TABLE>
- --------------
(a) Includes merger-related provisions of $120.0 million related to the first
quarter of 1994 Constellation acquisition and $25.0 million related to the
third quarter of 1994 Independence acquisition.
23
<PAGE>
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 nine-month periods ended September 30, 1995 and 1994 (in
millions):
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
September 30, 1995 September 30, 1994
---------------------------------- -----------------------------------
% of % of
% of Total % of Total
Net Average Net Net Average Net
Charge- Loan Charge- Charge- Loan Charge-
offs Type (a) offs offs Type (a) offs
----------- --------- ---------- ------------ -------- -----------
<S> <C> <C> <C> <C> <C> <C>
Domestic:
Commercial, industrial and other..... $ 1.1 - 4.7% $ 5.2 0.2% 23.2%
Real estate:
Construction and development loans. - - - 2.2 2.7 9.8
Other.............................. 3.7 0.3% 15.8 6.8 0.5 30.4
Consumer:
Credit Card........................ 14.5 4.1 61.7 7.7 2.4 34.4
Installment........................ 2.1 0.7 8.9 0.5 0.2 2.2
Other (b)............................ 2.4 0.6 10.2 - - -
----- ----- ------ -----
Total domestic..................... 23.8 0.5 101.3 22.4 0.5 100.0
----- ----- ------ -----
Foreign................................ (0.3) (0.1) (1.3) - - -
----- ----- ------ -----
Total net charge-offs.............. $23.5 0.5% 100.0% $ 22.4 0.5% 100.0%
===== ==== ===== ====== === =====
Nine Months Ended Nine Months Ended
September 30, 1995 September 30, 1994
---------------------------------- -----------------------------------
% of % of
% of Total % of Total
Net Average Net Net Average Net
Charge- Loan Charge- Charge- Loan Charge-
offs Type (a) offs offs Type (a) offs
----------- --------- ---------- ------------ -------- -----------
Domestic:
Commercial, industrial and other..... $ 8.6 0.1% 11.2% $ 71.9 1.1% 36.9%
Real estate:
Construction and development loans. 0.7 0.3 0.9 6.1 2.4 3.1
Other.............................. 24.2 0.6 31.6 90.2 2.0 46.3
Consumer:
Credit Card........................ 37.6 3.6 49.0 20.9 2.3 10.7
Installment........................ 3.6 0.4 4.7 5.5 0.6 2.9
Other (b)............................ 2.3 0.2 3.0 0.2 - 0.1
----- ----- ------ -----
Total domestic..................... 77.0 0.5 100.4 194.8 1.4 100.0
----- ----- ------ -----
Foreign................................ (0.3) (0.1) (0.4) - - -
----- ----- ------ -----
Total net charge-offs.............. $76.7 0.5% 100.0% $194.8(c) 1.3% 100.0%
===== === ===== ====== === =====
</TABLE>
- ----------------------------
(a) Annualized.
(b) Includes loans to financial institutions and lease financing.
(c) Reflects net loan charge-offs of $103.1 million recorded in the second
quarter of 1994 related to problem assets acquired with Constellation.
24
<PAGE>
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 September 30, 1995 decreased $103.1 million,
or 33.2%, from December 31, 1994. The decrease in non-performing assets from
December 31, 1994 was divided between the non-performing commercial loan
portfolio, which decreased $41.0 million or 47.0%, and the non-performing real
estate portfolio, which declined by $52.7 million or 27.2%. Most of the decline
from December 31, 1994 occurred during the second quarter of 1995 as credit
quality continued to improve and a single non-performing credit of approximately
$26.7 million was paid off.
The following table summarizes non-performing assets at September 30, 1995 and
December 31, 1994 (in millions):
<TABLE>
<CAPTION>
September 30, December 31,
1995 1994
------------- ------------
<S> <C> <C>
Non-accrual loans............... $165.3 $244.6
Renegotiated loans.............. 1.6 1.6
------ ------
Total non-performing loans.... 166.9 246.2
Other real estate owned (OREO).. 40.9 64.7
------ ------
Total non-performing assets... $207.8 $310.9
====== ======
</TABLE>
The following table reflects the distribution of non-performing assets by
loan type at September 30, 1995 and December 31, 1994 (in millions):
<TABLE>
<CAPTION>
September 30, 1995 December 31, 1994
----------------------- ----------------------
% of % of
Non- Loan Non- Loan
performing Type performing Type
----------- ---------- ------------- -------
<S> <C> <C> <C> <C>
Domestic:
Commercial, industrial and other:
HLTs.................................. $ 1.1 0.2% $ 3.0 0.6%
Other................................. 45.1 0.5 84.2 1.0
------ ------
Total commercial, industrial and 46.2 0.5 87.2 1.0
other............................... ------ ------
Real estate:
Construction and development.......... 11.5 3.5 10.7 3.2
Other loans........................... 88.5 1.7 118.2 1.9
Other real estate owned............... 40.9 64.7
------ ------
Total real estate.................... 140.9 1.8 193.6 2.0
------ ------
Consumer............................... 1.0 - 0.7 -
------ ------
Other domestic loans (a)............... 19.5 1.2 29.2 2.1
------ ------
Total domestic non-performing assets.. 207.6 1.0 310.7 1.6
------ ------
Foreign loans........................... 0.2 - 0.2 -
------ ------
Total non-performing assets (b)....... $207.8 1.0% $310.9 1.5%
====== === ====== ===
% Total assets........................ 0.7% 1.1%
=== ===
</TABLE>
- -----------------
(a) Includes loans to financial institutions and lease financing.
(b) Includes non-accrual loans, renegotiated loans and other real estate owned.
The table does not include loans of $53 million and $53 million at September
30, 1995 and December 31, 1994, 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.
25
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
NON-PERFORMING LOANS AND OTHER REAL ESTATE OWNED - continued
- ------------------------------------------------
The following table summarizes the components of the change in non-performing
assets for 1995 (in millions):
<TABLE>
<CAPTION>
Quarter
----------------------------- Nine
First Second Third Months
----- ------ ----- ------
<S> <C> <C> <C> <C>
Beginning balance....................... $311 $299 $243 $ 311
Additions............................... 54 35 42 131
Return to accrual....................... (3) (2) (5) (10)
Payments................................ (38) (74) (54) (166)
Charge-offs............................. (25) (15) (18) (58)
---- ---- ---- -----
Net change............................. (12) (56) (35) (103)
---- ---- ---- -----
Ending balance.......................... $299 $243 $208 $ 208
==== ==== ==== =====
</TABLE>
NON-INTEREST INCOME
- -------------------
(in millions)
<TABLE>
<CAPTION>
Percentage
Three Months Ended Nine Months Ended Increase (decrease)
September 30, September 30, ------------------
------------------ ------------------ Three Nine
1995 1994 1995 1994 Months Months
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Basic banking transactional services (a) $107.5 $106.1 $320.3 $316.2 1.3% 1.3%
Income from investment in EPS, Inc...... 7.6 8.1 22.6 23.8 (6.2) (5.0)
Investment securities gains............. 0.5 4.2 8.5 14.1
Other non-interest income............... 29.1 14.9 81.8 67.2 95.3 21.7
------ ------ ------ ------
Non-interest income before significant
and unusual items...................... 144.7 133.3 433.2 421.3 8.6 2.8
Significant and unusual items........... - - 19.0(b) -
------ ------ ---------- ------
Total non-interest income............... $144.7 $133.3 $452.2 $421.3 8.6% 7.3%
====== ====== ====== ====== === ===
</TABLE>
- --------------------------
(a) Comprised of debit and credit card fees, service charges on deposit
accounts, trust income, and fees for international services.
(b) Reflects the $19.0 million pre-tax gain related to the changes in the
investment in the EPS, Inc. affiliate joint venture.
Non-interest income for the third quarter of 1995 increased 8.6% from the
third quarter of 1994, reflecting an increase in third-party processing fees and
modest growth in revenues in CoreStates' basic banking transaction businesses,
as a $2.0 million, or 9.3%, increase in fees for international services was
partially offset by declines of $0.5 million, or 1.1%, in service charges on
deposits and $0.4 million, or 2.4%, in debit and credit card fees. The decline
in service charges on deposits reflects the election by commercial customers to
pay for deposit services by maintaining deposit balances (the value of which is
included in net interest income) in lieu of cash fees. Other non-interest income
for the third quarter of 1995 increased $14.2 million, or 95.3%, principally as
a result of growth of $6.0 million in third-party processing fee income due to
the acquisition of National Remittance Centers, Inc. ("NRC") on January 27, 1995
and a $5.2 million favorable variance of 1995 gains compared to 1994 losses on
sales of loans.
Total non-interest income for the nine months ended September 30, 1995
increased 7.3% from the 1994 nine-month period. Before significant and unusual
items and investment securities gains, non-interest income for the 1995 nine-
month period increased 4.3%, reflecting growth of $15.3 million in third-party
processing fee income.
26
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
NON-INTEREST INCOME - continued
- -------------------
Investment securities gains in the third quarter of 1995 were $0.5 million
compared to $4.2 million in the prior year third quarter and for the nine months
ended September 30, 1995 were $8.5 million compared to $14.1 million in the 1994
nine-month period. Investment securities gains in the nine months ended
September 30, 1995 included $7.2 million of gains recorded on sales of equity
securities acquired in connection with prior loan arrangements. The first nine
months of 1994 included gains of $5.0 million recorded on sales of certain
investments acquired with Constellation and $7.1 million of gains on sales of
certain bank stock investments.
NON-FINANCIAL EXPENSES
- ----------------------
(in millions)
<TABLE>
<CAPTION>
Percentage
Three Months Ended Nine Months Ended Increase (decrease)
September 30, September 30, ------------------
------------------ ------------------ Three Nine
1995 1994 1995 1994 Months Months
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C>
Salaries, wages and benefits............ $146.3 $157.9 $457.0 $ 477.9 (7.3)% (4.4)%
Net occupancy expense................... 28.3 28.9 86.8 87.5 (2.1) (0.8)
Equipment expense....................... 19.2 18.6 58.1 57.1 3.2 1.8
Other operating expenses................ 84.8 93.0 283.7 279.7 (8.8) 1.4
------ ------ ------ --------
Non-financial expense before
significant and unusual items.......... 278.6 298.4 885.6 902.2 (6.6) (1.8)
Significant and unusual items........... (2.4)(a) - 104.6(b) 108.7(c)
------ ------ ------ --------
Total non-financial expenses............ $276.2 $298.4 $990.2 $1,010.9 (7.4)% (2.0)%
====== ====== ====== ======== ==== ====
</TABLE>
- ------------------------
(a) Reflects a $2.4 million restructuring credit related to a gain on the
curtailment of future pension benefits associated with employees terminated
during the third quarter. See "Process Redesign" on page 13 for more detail.
(b) Reflects the net $104.6 million restructuring charge related to the
corporate-wide process redesign. See "Process Redesign" on page 13 for more
detail.
(c) Includes merger-related costs of $33.7 million for the Independence
acquisition and $75.0 million for the Constellation acquisition.
Total non-financial expenses for the third quarter of 1995, excluding the
significant and unusual items as noted in the above table, were $278.6 million,
a decrease of $19.8 million, or 6.6% from the third quarter of 1994. This
decline reflects the impacts of the hiring freeze, the benefits of those aspects
of the process redesign implemented to date, merger-related synergies and the
aggregate $11.8 million impact of reduced Federal Deposit Insurance Corporation
("FDIC") premiums for the third quarter of 1995 and the refund of one month's
premium from the second quarter of 1995. Most of the reduction in FDIC premiums
will be used to fund investments in technology to support improved products and
services and increased volume. Affecting comparability of expenses period-to-
period are the acquisitions of GSB on December 2, 1994 and NRC on January 27,
1995. Excluding the amortization of intangible assets created in the
acquisitions, GSB added approximately $3.5 million to non-financial expenses and
NRC added approximately $4.7 million. Expense for amortization of intangible
assets created in the two acquisitions added $3.7 million to third quarter of
1995 expenses. Excluding the significant and unusual items as noted in the
above table and the impact of GSB and NRC related expenses, non-financial
expenses for the third quarter of 1995 declined 10.6% from the prior year third
quarter.
CAPITAL MANAGEMENT
- ------------------
CoreStates' capital provides the resources and flexibility for anticipated
growth. CoreStates' capital position at September 30, 1995 under risk-based
capital guidelines was $2.1 billion or 8.1% of risk-weighted assets, for Tier 1
capital and $3.0 billion, or 11.8%, for total risk-based capital. Tier 1
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
27
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
CAPITAL MANAGEMENT - continued
- ------------------
loan losses, within permitted limits, to Tier 1 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 September 30,
1995 exceed the risk-based capital standards that require all banks to have Tier
1 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 1 capital to quarterly average total
assets), CoreStates had a leverage ratio of 7.4% at September 30, 1995. The
minimum 3.0% leverage requirement applies only to top rated banking
organizations without any operating, financial or supervisory deficiencies.
Other organizations (including those experiencing or anticipating significant
growth) are expected to hold an additional capital cushion of at least 100 to
200 basis points of Tier 1 capital, and in all cases, banking organizations
should hold capital commensurate with the level and nature of all the risks,
including the volume and severity of problem loans, to which they are exposed.
Substantially the same capital requirements are applied to CoreStates' banking
subsidiaries 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 September 30, 1995 the banking subsidiaries of CoreStates
were "well capitalized" as defined by regulatory authorities.
Regulatory Capital Ratios
-----------------------------------------
Tier 1 Total Leverage
------ ----- --------
CoreStates Bank, N.A............... 7.8% 10.8% 7.0%
New Jersey National Bank........... 11.6 14.9 7.1
CoreStates Bank of Delaware, N.A... 6.7 11.4 6.5
CoreStates' dividend on its common stock was $0.34 per share in the third
quarter of 1995 and $0.30 per share in the third quarter of 1994. The common
dividend payout ratio was 35.4% for the third quarter of 1995, compared to
40.5%, for the third quarter of 1994.
In March 1995, the Board of Directors approved an expansion of CoreStates'
common stock repurchase program from an annual maximum of 2% of outstanding
shares to a maximum of 5%, excluding purchases for benefit plans and the
dividend reinvestment plan. Given the pending acquisition of Meridian, the
common stock repurchase program was suspended on October 10, 1995. During the
nine months ended September 30, 1995, CoreStates repurchased approximately 9.0
million shares of its common stock, including 0.9 million shares in the third
quarter, and reissued 3.0 million treasury shares under employee benefit plans
and the dividend reinvestment plan.
INTEREST RATE RISK MANAGEMENT
- -----------------------------
Interest rate risk refers to potential changes in current and future net
interest income resulting from changes in interest rates, product spreads and
mismatches in the repricing between interest rate sensitive assets and
liabilities. At CoreStates, measurement of interest rate risk focuses on
potential changes in net interest income identified through computer simulations
against both rising and falling interest rates. Longer term repricing risks are
measured through gap analysis. All measurements of interest rate risk include
the impact of off-balance sheet activities. Under CoreStates' policy, rate
changes of at least 200 basis points over a six-month period are simulated with
rate related negative net interest income volatility over a twelve-month horizon
limited to 4% of shareholders' equity. Changes are measured relative to a base
forecast in which rates remain constant at current levels. Based on historical
data, 95% of the time, rates have moved less than 200 basis points over a six-
month period. Included in these simulations are all contractual repricing risks,
the impact of prepayments in the loan and securities portfolios, potential
spread and volume changes on consumer deposits and fluctuations in the value of
non-interest bearing funding sources. It should be noted that CoreStates
believes the spread between the prime rate and financial market rates is a
function of both interest rates and credit conditions. While changes in the
prime spread are included in simulations, only that portion believed to be
interest rate related is subject to the policy guidelines.
28
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
INTEREST RATE RISK MANAGEMENT - continued
- -----------------------------
As a matter of practice, positions are generally managed to produce
significantly lower volatility than policy guidelines would permit. Current
simulations using a 200 basis point change in short term interest rates show
that CoreStates' net interest income volatility over the next twelve months
would be relatively neutral or less than 1% of shareholders equity. That level
is representative of simulations performed throughout the year. Recognizing that
simulation is a very assumption driven process, management reviews results by
category of risk as well as by product and tests the sensitivity of the results
to key assumptions.
There are two main elements to CoreStates' interest rate risk. The first is
the broad mismatch between the rate sensitivity of the assets and liabilities in
its core businesses, and the second is the spread risk between the rates on
those products and financial market rates.
CoreStates' core wholesale and retail businesses generate a large portfolio
of prime and other short-term rate related assets. Characteristic of a regional
banking company, CoreStates also has a significant funding base of consumer
deposits on which pricing changes have traditionally lagged changes in financial
market rates. This inherent mismatch of longer term fixed-rate liabilities
funding short-term rate sensitive assets generates significant exposure to
declining interest rates if not hedged. CoreStates manages this position through
the use of both on and off-balance sheet discretionary assets and liabilities.
In keeping with CoreStates' interest rate risk discipline, the combined position
is relatively balanced so that there is minimal impact on earnings from an
interest rate move in either direction.
The second major element of CoreStates' interest rate risk is the spread risk
between product rates and financial market rates. These spreads are a function
of competitive and other factors as well as interest rate levels. CoreStates
simulates the behavior of individual products under various rate scenarios to
determine an appropriate investment or funding strategy to provide a stable
spread.
OFF-BALANCE SHEET INSTRUMENTS AND DERIVATIVE ACTIVITIES
CoreStates uses off-balance sheet derivative instruments primarily to manage
CoreStates' interest rate risk. CoreStates believes that interest rate risk
management must be balanced with the management of liquidity and capital.
Therefore, CoreStates uses off-balance sheet instruments to modify its rate
sensitivity and consequently, avoids the unnecessary leverage and liquidity
impairment which would result from using on-balance sheet alternatives.
CoreStates also uses interest rate contracts to provide risk management services
for its customers. CoreStates does not use off-balance sheet derivative
instruments for speculative investment.
Credit risk exists in a derivative transaction to the extent that there is a
move in interest rates favorable to CoreStates and the counterparty fails to
perform. The current credit exposure in a derivative transaction is the
estimated cost to replace the transaction at current market rates, while
potential exposure is the estimated cost to replace the transaction at future
interest rates. CoreStates monitors both the current and potential risk.
CoreStates evaluates the credit worthiness of all off-balance sheet
counterparties using the same standards applied in any other loan or credit
transaction. In addition, CoreStates requires collateral from counterparties
when the risk exceeds an acceptable threshold. Collateral agreements are
determined based on the quality of individual counterparties. As of September
30, 1995, the current cost to replace CoreStates' derivatives portfolio was $181
million. This assumes that only counterparties for whom it would be favorable to
default would do so.
INTEREST RATE RISK RELATED DERIVATIVE ACTIVITIES - CoreStates' use of
derivatives for interest rate risk management falls into three categories:
interest sensitivity adjustments, spread protection, and the hedging of
anticipated asset sales. The following schedule reflects by interest rate risk
management category, the outstanding derivative positions as of September 30,
1995, the major balance sheet category to which they relate, and the associated
unrealized gains/losses:
29
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
INTEREST RATE RISK MANAGEMENT - continued
- -----------------------------
Outstanding Interest Rate Risk Related Derivatives
- --------------------------------------------------
at September 30, 1995
(in millions)
<TABLE>
<CAPTION>
Interest
Interest Interest rate caps
rate rate and Other
swaps futures floors derivatives Total
-------- -------- --------- ----------- ------
<S> <C> <C> <C> <C> <C>
Interest Sensitivity Adjustment:
Assets:
Notional amount........................ $2,959 $659 $ 11 $3,629
Unrealized gains....................... 86 - - 86
Unrealized losses...................... (9) - - (9)
Deposits and other borrowings:
Notional amount........................ 3,862 3,862
Unrealized gains....................... 48 48
Unrealized losses...................... (9) (9)
Long-term debt:
Notional amount........................ 664 25 689
Unrealized gains....................... 14 - 14
Unrealized losses...................... (18) - (18)
SPREAD PROTECTION:
Assets:
Notional amount........................ 443 443
Unrealized gains....................... 2 2
Unrealized losses...................... (2) (2)
Deposits and Other borrowings:
Notional amount........................ 100 100
Unrealized gains....................... 2 2
Unrealized losses...................... - -
ANTICIPATED ASSET SALES:
Notional amount........................ 88 $47 135
Unrealized gains....................... - - -
Unrealized losses...................... (1) - (1)
TOTAL:
Notional amount........................ $7,573 $659 $579 $47 $8,858
====== ==== ==== === ======
Unrealized gains....................... $ 148 $ - $ 4 $ - $ 152
====== ==== ==== === ======
Unrealized losses...................... $ (37) $ - $ (2) $ - $ (39)
====== ==== ==== === ======
Net unrealized gains................... $ 111 $ - $ 2 $ - $ 113
====== ==== ==== === ======
</TABLE>
Although the value of the various derivative instruments will change with
interest rates, CoreStates does not consider changes in individual portfolio
values to be significant given that the portfolios are used to offset specific
risks. As of September 30, 1995, CoreStates' off-balance sheet portfolios do
not include any instruments which carry a leveraged exposure to either rising or
falling rates.
Interest sensitivity adjustments account for the majority of CoreStates'
derivative activities. CoreStates has a naturally asset sensitive balance sheet
as a result of its basic loan and deposit businesses. Commercial and consumer
loan activities tend to have short-term repricing characteristics versus the
longer term repricing nature of CoreStates' funding sources. These relationship
portfolios have a positive effect on earnings in a rising rate environment and a
negative effect in a falling rate environment. Therefore, CoreStates uses
fixed-rate assets or off-balance sheet instruments with characteristics similar
to fixed-rate assets to offset this risk. When off-balance sheet instruments
are used, cash balances are invested in shorter time periods and interest rate
30
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS - continued
INTEREST RATE RISK MANAGEMENT - continued
- -----------------------------
swaps or other derivatives are used to "fix" the rate for longer terms similar
to those of CoreStates' liabilities. By using swaps and futures in this manner,
leverage is reduced and liquidity is enhanced. If derivative instruments were
not used, CoreStates would invest in longer term assets based on its disciplined
interest rate risk management practice of strict matching of asset and liability
terms. Therefore, the impact of derivatives on pre-tax income is confined to the
spread between the derivative instrument and other instruments of similar terms.
Management estimates that this spread is not material relative to pre-tax
income.
For accounting purposes, the income effects of futures or swaps is associated
with either the asset or the liability contributing to the mismatch. When
CoreStates is adjusting the interest sensitivity of an asset with interest rate
swaps or futures contracts, it is generally to lengthen the interest rate
sensitivity of short-term assets. Conversely, when they are associated with
deposits and other borrowings or long-term debt, it is generally to shorten the
repricing characteristics of longer term liabilities.
Interest rate swaps are agreements between two parties to exchange interest
cash flows. Generally, one party receives a fixed rate and pays a variable
rate, while the counterparty pays the fixed rate and receives the variable rate.
As of September 30, 1995, the rates CoreStates has contracted to receive are
fixed for longer time periods than the rates CoreStates has contracted to pay.
Therefore, if interest rates fall, this portfolio will provide higher interest
income, offsetting a decline in interest income in relationship portfolios;
conversely if rates rise, the swap portfolio will produce less interest income
which will be offset by increased interest income in the relationship
portfolios. CoreStates also uses interest rate futures in a similar manner.
While swaps are used in both short and long term maturities, futures are used
primarily to extend the rate sensitivity of short-term assets to periods less
than one year. CoreStates' use of financial futures is largely concentrated in
Eurodollar and LIBOR contracts.
Given the direction of its natural interest sensitivity, CoreStates has not
historically paid fixed rates on interest rate swaps or used off-balance sheet
instruments to extend its liabilities. However, its current position includes
fixed rate pay positions acquired through mergers which relate to specific
assets and liabilities also acquired.
CoreStates also uses derivative instruments to protect spreads on certain
balance sheet products. CoreStates' loan portfolio includes adjustable rate
mortgages which carry interest rate caps limiting the amount of rate increase
per year as well as over the life of the mortgage. As interest rates rise and
funding costs increase, the spread on that portfolio will compress. CoreStates
holds $343 million of interest rate caps which offset that risk by limiting the
potential increase in funding costs. CoreStates also owns a combination of caps
which were designed to reduce the risk of a narrowing spread on prime rate
indexed assets in a rising rate environment; CoreStates sold $100 million of
interest rate caps indexed to prime rate and purchased an identical amount of
caps indexed to LIBOR.
The third category of derivative activity is the hedging of anticipated asset
sales. As fixed rate assets are accumulated for future sale, CoreStates is
exposed to a decline in sale price due to rising interest rates. At September
30, 1995, CoreStates held $88 million in fixed-rate pay swaps to hedge a portion
of the residential mortgage portfolio. The interest rate swaps are intended to
be terminated as the mortgage sales are completed. If rates rise, the swaps
will increase in value and offset any loss in value on the mortgage portfolio.
CoreStates securitizes and sells its longer term fixed-rate home equity loans
and fixed-rate mortgages on an ongoing basis. Home equity loans are held for
several months prior to sale while sufficient volume for securitization is
accumulated. Forward rate locks are used to hedge rate changes during that
warehouse period. Options on mortgage-backed securities as well as both
mandatory and optional forward sale commitments are used to hedge the mortgage
pipeline.
31
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
INTEREST RATE RISK MANAGEMENT - continued
- -----------------------------
The following repricing schedule summarizes the notional amount and
associated interest rate of CoreStates' interest rate swaps categorized by
whether CoreStates receives or pays the rate shown. The swaps are stratified by
repricing date or maturity depending on whether the payments are floating or
fixed, respectively. Floating rates included in the repricing schedule are
based on the rates in effect on September 30, 1995. The amount recorded in net
interest income related to interest rate swaps was $11.3 million in the third
quarter of 1995, compared to $19.8 million in the 1994 third quarter and $24.2
million for the nine months ended September 30, 1995, compared to $69.0 million
in the 1994 nine-month period.
Repricing Schedule of Interest Rate Swaps
- -----------------------------------------
at September 30, 1995
- ---------------------
(in millions)
<TABLE>
<CAPTION>
Years
------------------------------------------------------------------------
0-1 1-2 2-3 3-4 4-5 over 5 Total
------ ------ ----- ----- ----- ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
Receive Fixed/Pay Floating
Receive Notional......... $2,264 $1,365 $ 632 $ 962 $ 631 $1,012 $6,866
Rate............. 6.80% 7.02% 6.59% 6.89% 7.29% 6.93% 6.90%
Pay Notional......... $6,866 $6,866
Rate............. 5.96% 5.96%
Pay Fixed/Receive Floating
Pay Notional......... $ 123 $ 10 $ 20 $ 40 $ 193
Rate............. 7.83% 9.05% 8.60% 8.82% 8.18%
Receive Notional......... $ 193 $ 193
Rate............. 5.59% 5.59%
Receive Floating/Pay Floating
(Basis Swaps)
Notional......... $ 79 $ 79
Receive Rate............. 4.89% 4.89%
Pay Rate............. 5.80% 5.80%
Receive Fixed/Pay Floating (a)
(Forward Start)
Receive Notional......... $ 195 $ 40 $ 150 $ 50 $ 435
Rate............. 6.35% 6.21% 7.14% 6.31% 6.60%
Start Date Notional......... $ 250 $ 35 $ 100 $ 50 $ 435
</TABLE>
- --------
(a) Pay rate will be determined on forward start date.
32
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
INTEREST RATE RISK MANAGEMENT - continued
- -----------------------------
The following schedule illustrates CoreStates' interest rate risk related
derivative activity during the quarter ended September 30, 1995:
Activity in Derivatives Products
- --------------------------------
Three Months Ended September 30, 1995
- -------------------------------------
(in millions)
<TABLE>
<CAPTION>
Interest
Interest Interest rate caps
rate rate and Other
swaps futures floors derivatives Total
-------- --------- --------- ----------- -------
<S> <C> <C> <C> <C> <C>
Notional Amounts
- ----------------
As of June 30, 1995.................... $8,023 $ 1,223 $ 943 $ 3 $10,192
Additions.............................. 240 1,001 - 47 1,288
Terminated contracts (a)............... (208) - - - (208)
Maturities/amortization................ (482) (1,565) (364) (3) (2,414)
------ ------- ----- --- -------
As of September 30, 1995............... $7,573 $ 659 $ 579 $47 $ 8,858
====== ======= ===== === =======
</TABLE>
- ----------------
(a) As of September 30, 1995 CoreStates had no material deferred gains or
losses related to terminated derivative contracts.
During the quarter, increased loan volumes and shifts in funding mix,
including the impact of share repurchases, resulted in a decreased need for
fixed-rate asset sensitivity. Therefore, maturities during the third quarter in
the interest rate swaps and futures portfolios were not fully replaced and
certain interest rate swaps were terminated. There were $208 million in
interest rate swaps terminated during the third quarter including $42 million
related to the sale of mortgages.
CUSTOMER RELATED DERIVATIVE ACTIVITIES - CoreStates also engages in
derivative market activities to provide risk management services for its
customers. These services include interest rate swaps, caps, and floors.
CoreStates offsets protection sold to customers through purchases of similar
protection. Customer related derivative activity is marked to market. The
following schedule details the outstanding notional amounts of customer related
derivative transactions as of September 30, 1995.
<TABLE>
<CAPTION>
Customer Related Derivatives
- ----------------------------
at September 30, 1995 Notional Net gain
- --------------------- amount (loss) (a)
(in millions) -------- ----------
<S> <C> <C>
Interest Rate Swaps:
CoreStates receives fixed.......... $ 148 $ -
CoreStates pays fixed.............. 148 -
Rate Locks:
Receive fixed...................... 50 -
Pay fixed.......................... 50 -
Interest Rate Caps/Floors:
Sold............................... 453 (1)
Purchased.......................... 453 1
Options:
Sold............................... 50 -
Purchased.......................... 25 -
Foreign Exchange Contracts.......... 2,609 1
------ ---
Total Customer Related Derivatives.. $3,986 $ 1
====== ===
</TABLE>
- ---------------------
(a) Average net gain (loss) during 1995 was substantially the same as the net
gain (loss) at June 30, 1995.
33
<PAGE>
<TABLE>
<CAPTION>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEETS AND TAXABLE EQUIVALENT INCOME/EXPENSE AND RATES
Three Months Ended
----------------------------------------------------------------------------------------------------
September 30, 1995 June 30, 1995 September 30, 1994
-------------------------------- ------------------------------- -----------------------------
Average Income/ Average Income/ Average Income/
balance Rate expense balance Rate expense balance Rate expense
--------- ---- -------- --------- ---- -------- --------- ---- --------
(000,000) (000) (000,000) (000) (000,000) (000)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
- ---------------------------
Time deposits, principally $ 1,787 6.14% $ 27,653 $ 1,954 6.76% $ 32,946 $ 1,562 4.72% $ 18,566
Eurodollars (a)...........
Investment securities (b):
U.S. Government........... 1,544 5.73 22,287 1,771 5.64 24,923 2,166 4.85 26,489
State and municipal....... 278 8.34 5,795 281 8.45 5,939 344 8.15 7,012
Other..................... 449 5.47 6,192 414 8.40 8,668 381 5.78 5,546
------- -------- ------- -------- ------- --------
Total investment 2,271 5.99 34,274 2,466 6.43 39,530 2,891 5.36 39,047
securities.............. ------- -------- ------- -------- ------- --------
Federal funds sold......... 277 6.08 4,246 96 5.78 1,383 76 5.90 1,130
Trading account securities. 1 4.52 5 1 3.02 2 3 8.13 61
Loans (b) (c) (d):
Domestic:
Commercial, industrial
and other............... 9,568 9.72 234,441 9,316 10.09 234,283 8,274 8.83 184,141
Real estate.............. 5,737 8.89 128,499 5,966 9.10 135,408 6,037 7.98 121,447
Consumer................. 2,728 12.28 84,436 2,710 12.25 82,750 2,556 11.99 77,235
Financial institutions... 766 7.59 14,654 673 7.40 12,422 612 8.12 12,524
Factoring receivables.... 516 10.10 13,130 567 10.56 14,923 577 10.30 14,986
Lease financing.......... 738 7.92 14,612 735 7.88 14,474 786 8.38 16,458
Foreign................... 818 7.13 14,708 709 7.29 12,879 596 5.17 7,765
------- -------- ------- -------- ------- --------
Total loans, net of 20,871 9.59 504,480 20,676 9.84 507,139 19,438 8.87 434,556
discounts.............. ------- -------- ------- -------- ------- --------
Total interest earning $25,207 8.98 570,658 $25,193 9.25 581,000 $23,970 8.17 493,360
assets (d)............. ======= ---- ======== ======= ----- -------- ======= ----- --------
FUNDING SOURCES
- ---------------
Interest Bearing
Liabilities (b):
Deposits in domestic
offices:
Commercial............... $ 237 5.24 3,129 $ 262 5.62 3,668 $ 260 3.56 2,330
NOW accounts (e)......... 1,677 1.05 4,078 1,736 1.10 4,376 1,771 0.72 2,917
Money Market Accounts (e) 3,624 3.26 29,690 3,600 3.32 29,732 3,848 2.10 20,305
Consumer savings......... 2,761 1.92 13,382 2,856 2.00 14,221 3,014 1.37 10,437
Consumer certificates.... 5,549 5.30 74,062 5,562 5.27 73,076 4,278 4.23 45,639
Time deposits of overseas
branches and
subsidiaries............. 968 4.40 10,735 963 5.03 12,083 820 3.91 8,074
------- -------- ------- -------- ------- --------
Total interest bearing 14,816 3.65 135,076 14,979 3.71 137,156 13,991 2.57 89,702
deposits (e)........... ------- -------- ------- -------- ------- --------
Short-term funds borrowed:
Federal funds purchased.. 761 5.60 10,749 798 5.75 11,447 984 4.61 11,424
Commercial paper......... 1,057 5.90 15,732 991 6.12 15,109 825 4.54 9,442
Other.................... 292 4.89 3,599 285 4.71 3,350 280 3.26 2,303
------- -------- ------- -------- ------- --------
Total short-term funds 2,110 5.66 30,080 2,074 5.78 29,906 2,089 4.40 23,169
borrowed............... ------- -------- ------- -------- ------- --------
Long-term debt............ 1,870 6.54 30,824 1,824 6.80 30,902 1,640 5.66 23,416
------- -------- ------- -------- ------- --------
Total interest bearing 18,796 4.14 195,980 18,877 4.21 197,964 17,720 3.05 136,287
liabilities............
Portion of non-interest 6,411 6,316 6,250
bearing funding sources... ------- -------- -------- -------- ------- --------
Total funding sources... $25,207 3.08 195,980 $25,193 3.15 197,964 $23,970 2.26 136,287
======= ---- -------- ======= ----- -------- ======= ----- --------
Net interest income and 5.90% $374,678 6.10% $383,036 5.91% $357,073
net interest margin....... ==== ======== ===== ======== ===== ========
</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 NOW and Money Market Accounts in domestic offices are
reduced by specified reserve amounts for purposes of rate calculations.
34
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEETS AND TAXABLE EQUIVALENT INCOME/EXPENSE AND
RATES - continued
<TABLE>
<CAPTION>
Three Months Ended
-------------------------------------------------------------------------------------------------
September 30, 1995 June 30, 1995 September 30, 1994
------------------------------ ----------------------------- ----------------------------
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 EARNING ASSETS
- ---------------------------
Cash....................... $ 2,137 $ 2,087 $ 2,286
Allowance for loan losses.. (502) (497) (482)
Other assets............... 1,614 1,641 1,708
------- ------- -------
Total non-interest $ 3,249 $ 3,231 $ 3,512
earning assets........... ======= ======= =======
TOTAL AVERAGE ASSETS....... $28,456 $28,424 $27,482
- --------------------------- ======= ======= =======
NON-INTEREST BEARING
- --------------------
FUNDING SOURCES
- ---------------
Demand deposits:
Domestic.................. $ 5,413 $ 5,372 $ 5,711
Foreign................... 378 402 431
Other liabilities.......... 1,579 1,515 1,434
Shareholders' equity....... 2,290 2,258 2,186
Non-interest bearing
funding sources used to (6,411) (6,316) (6,250)
fund earning assets....... ------- ------- -------
Total net non-interest
bearing funding $ 3,249 $ 3,231 $ 3,512
sources................. ======= ======= =======
SUPPLEMENTARY AVERAGES
- ----------------------
Net demand deposits........ $ 4,488 $ 4,482 $ 4,357
Net Federal funds purchased 484 5.33% $6,503 702 5.75% $10,064 908 4.50% $10,294
Commercial certificates of
deposit in domestic
offices over $100,000..... 237 4.91 2,936 262 5.27 3,443 260 3.55 2,325
Average prime rate......... 8.77 9.00 7.50
</TABLE>
35
<PAGE>
<TABLE>
<CAPTION>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEETS AND TAXABLE EQUIVALENT INCOME/EXPENSE AND RATES - continued
Nine Months Ended
----------------------------------------------------------------------------------------------
September 30, 1995 September 30, 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)............. $ 1,878 6.39% $ 89,729 $ 1,452 4.14% $ 44,911
Investment securities (b):
U.S. Government............. 1,765 5.66 74,720 2,265 4.92 83,284
State and municipal......... 285 8.48 18,122 377 7.84 22,172
Other....................... 423 6.54 20,687 431 5.69 18,354
------- ---------- ------- ----------
Total investment
securities............... 2,473 6.14 113,529 3,073 5.39 123,810
------- ---------- ------- ----------
Federal funds sold........... 173 5.94 7,692 145 4.41 4,782
Trading account securities... 1 5.90 43 3 5.78 130
Loans (b) (c) (d):
Domestic:
Commercial, industrial
and other................. 9,246 9.82 679,392 8,132 8.29 504,131
Real estate................ 6,013 8.94 402,005 6,362 7.95 378,458
Consumer................... 2,734 12.28 251,130 2,528 11.72 221,532
Financial institutions..... 700 7.09 37,113 611 8.12 37,116
Factoring receivables...... 535 10.99 43,975 573 10.04 43,013
Lease financing............ 731 7.90 43,295 765 8.35 47,914
Foreign...................... 735 7.13 39,174 570 5.12 21,838
------- ---------- ------- ----------
Total loans, net of
discounts................ 20,694 9.67 1,496,084 19,541 8.58 1,254,002
------- ---------- ------- ----------
Total interest earning
assets (d)............... $25,219 9.05 1,707,077 $24,214 7.88 1,427,635
------- ---- ---------- ------- ----- ----------
FUNDING SOURCES
- ---------------
Interest Bearing Liabilities (b):
Deposits in domestic
offices:
Commercial................. $ 256 5.46 10,448 $ 271 3.60 7,306
NOW accounts (e)........... 1,731 1.10 13,041 1,844 0.60 7,594
Money Market Accounts (e).. 3,648 3.26 88,579 3,997 2.09 62,481
Consumer savings........... 2,860 1.96 41,895 3,053 1.25 28,594
Consumer certificates...... 5,542 5.16 214,003 4,214 4.19 131,929
Time deposits of overseas
branches and subsidiaries... 952 4.59 32,656 772 3.57 20,636
------- ---------- ------- ----------
Total interest bearing
deposits (e)............. 14,989 3.61 400,622 14,151 2.47 258,540
------- ---------- ------- ----------
Short-term funds borrowed:
Federal funds purchased..... 756 5.91 33,431 952 3.94 28,086
Commercial paper............ 971 5.99 43,528 711 4.00 21,273
Other....................... 290 4.76 10,325 341 5.26 13,409
------- ---------- ------- ----------
Total short-term funds
borrowed................. 2,017 5.79 87,284 2,004 4.19 62,768
------- ---------- ------- ----------
Long-term debt............... 1,828 6.74 92,157 1,619 4.97 60,141
------- ---------- ------- ----------
Total interest bearing
liabilities.............. 18,834 4.12 580,063 17,774 2.87 381,449
Portion of non-interest
bearing funding sources..... 6,385 6,440
------- ---------- ------- ----------
Total funding sources..... $25,219 3.08 580,063 $24,214 2.10 381,449
======= ----- ---------- ======= ----- ----------
Net interest income and
net interest margin....... 5.97% $1,127,014 5.78% $1,046,186
===== ========== ===== ==========
</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 NOW and Money Market Accounts in domestic offices are
reduced by specified reserve amounts for purposes of rate calculations.
36
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEETS AND TAXABLE EQUIVALENT INCOME/EXPENSE AND
RATES - continued
<TABLE>
<CAPTION>
Nine Months Ended
-----------------------------------------------------------------------------
September 30, 1995 September 30, 1994
------------------------------------- --------------------------------------
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 EARNING ASSETS
- ---------------------------
Cash.................................... $ 2,067 $ 2,322
Allowance for loan losses............... (501) (512)
Other assets............................ 1,598 1,674
------- -------
Total non-interest earning assets...... $ 3,164 $ 3,484
======= ======
TOTAL AVERAGE ASSETS.................... $28,383 $27,698
- -------------------- ======= =======
NON-INTEREST BEARING FUNDING SOURCES
- ------------------------------------
Demand deposits:
Domestic............................... $ 5,351 $ 5,752
Foreign................................ 426 405
Other liabilities....................... 1,474 1,497
Shareholders' equity.................... 2,298 2,270
Non-interest bearing funding sources
used to fund earning assets............ (6,385) (6,440)
------- -------
Total net non-interest bearing funding
sources.............................. $ 3,164 $ 3,484
======= =======
SUPPLEMENTARY AVERAGES
- ----------------------
Net demand deposits..................... $ 4,568 $ 4,474
Net Federal funds purchased............. 583 5.90% $25,739 807 3.86% $23,304
Commercial certificates of deposit in
domestic offices over $100,000......... 256 5.12 9,809 255 3.57 6,810
Average prime rate...................... 8.86 6.81
</TABLE>
37
<PAGE>
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)
27 Financial Data Schedule
(b) The following Reports on Form 8-K were filed by CoreStates Financial
Corp during the quarter:
1. Date of Report: July 19, 1995
--------------
Item(s) Reported: Reporting under Item 5 the information
----------------
set forth in the earnings news release of CoreStates
Financial Corp.
38
<PAGE>
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: November 10, 1995 By: /s/ Christopher J. Carey
-------------------------------------------
Christopher J. Carey
Senior Vice President and Controller
(Principal Accounting Officer)
39
<PAGE>
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 Nine Months Ended
September 30, September 30,
---------------------- ---------------------
1995 1994 1995 1994
-------- -------- -------- --------
<S> <C> <C> <C> <C>
(A) Income before cumulative effect
of a change in accounting
principle....................... $133,946 $104,221 $315,283 $137,317
Cumulative effect of a change
in accounting principle......... - - - (3,430)
-------- -------- -------- --------
(B) Net Income........................ $133,946 $104,221 $315,283 $133,887
======== ======== ======== ========
EARNINGS PER SHARE
Based on average common shares outstanding
- ------------------------------------------
(C) Average shares outstanding........ 139,176 141,033 141,427 142,581
======= ======= ======= =======
(A/C) Income before cumulative effect
of a change in accounting
principle....................... $0.96 $0.74 $2.23 $0.97
===== ===== ===== =====
(B/C) Net income........................ $0.96 $0.74 $2.23 $0.95
===== ===== ===== =====
Based on average common and common
- ----------------------------------
equivalent shares outstanding
- -----------------------------
Primary:
(D) Average common equivalent shares.. 1,467 1,648 1,266 1,318
----- ----- ----- -----
(E) Average common and common
equivalent shares (C + D)....... 140,643 142,681 142,693 143,899
======= ======= ======= =======
(A/E) Income before cumulative effect
of a change in accounting
principle....................... $0.95(1) $0.73(1) $2.21(1) $0.95(1)
===== ===== ===== =====
(B/E) Net income........................ $0.95(1) $0.73(1) $2.21(1) $0.93(1)
===== ===== ===== =====
Fully diluted:
(F) Average common equivalent shares.. 1,467 1,650 1,663 1,319
===== ===== ===== =====
(G) Average common and common
equivalent shares (C + F)....... 140,643 142,683 143,090 143,900
======= ======= ======= =======
(I) Interest expense on subordinated
convertible debentures, net
of tax.......................... - 479 - 1,437
======= === ======= =====
((A+I)/G) Income before cumulative
effect of a change in
accounting principle........ $0.95(1) $0.73(1) $2.20(1) $0.96(1)
===== ===== ===== =====
((B+I)/G) Net Income.................... $0.95(1) $0.73(1) $2.20(1) $0.94(1)
===== ===== ===== =====
- ------------
</TABLE>
(1) Dilution is less than 3%.
40
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS FROM CONTINUING OPERATIONS
TO FIXED CHARGES OF CONTINUING OPERATIONS
<TABLE>
<CAPTION>
CONSOLIDATED
Nine Months Ended September 30, 1995
- ------------------------------------
(in thousands)
<S> <C>
1. Income from continuing operations before extraordinary items and
income taxes..................................................................... $ 498,398
=========
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.............................................................. $ 195,224
B. Interest on deposits........................................................ 400,622
----------
C. Total fixed charges (line 2A + line 2B)..................................... $ 595,846
==========
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)........................... $ 693,622
==========
B. Including interest on deposits (line 1 + line 2C)........................... $1,094,244
==========
4. Ratio of earnings (as defined) to fixed charges:
A. Excluding interest on deposits (line 3A/line 2A)............................ 3.55x
B. Including interest on deposits (line 3B/line 2C)............................ 1.84x
</TABLE>
41
<PAGE>
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
Nine Months ended September 30, 1995
- ------------------------------------
(in thousands)
1. Income before income taxes and equity in
undistributed income of subsidiaries........................ $214,422
2. Fixed charges -- interest expense, amortization of debt
issuance costs and one-third of rental expenses, net of
income from subleases....................................... 128,669
--------
3. Income before taxes and equity in undistributed income
of subsidiaries, plus fixed charges......................... $343,091
========
4. Ratio of earnings (as defined) to fixed charges
(line 3/line 2)............................................. 2.67x
42
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND> This schedule contains summary financial information extracted from
the CoreStates Financial Corp consolidated balance sheet as of September 30,
1995, and the related consolidated statement of income, changes in shareholders'
equity, and other financial data included within management's discussion and
analysis of financial condition and results of operations for the nine months
ended September 30, 1995 and is qualified in its entirety by reference to such
financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> SEP-30-1995
<CASH> 2,214,933
<INT-BEARING-DEPOSITS> 1,755,526
<FED-FUNDS-SOLD> 294,916
<TRADING-ASSETS> 349
<INVESTMENTS-HELD-FOR-SALE> 390,828
<INVESTMENTS-CARRYING> 1,745,784
<INVESTMENTS-MARKET> 1,756,417
<LOANS> 21,168,026
<ALLOWANCE> 501,392
<TOTAL-ASSETS> 28,845,732
<DEPOSITS> 20,694,112
<SHORT-TERM> 2,245,238
<LIABILITIES-OTHER> 1,238,126
<LONG-TERM> 1,861,946
<COMMON> 145,875
0
0
<OTHER-SE> 2,169,915
<TOTAL-LIABILITIES-AND-EQUITY> 28,845,732
<INTEREST-LOAN> 1,487,997
<INTEREST-INVEST> 108,532
<INTEREST-OTHER> 97,418
<INTEREST-TOTAL> 1,693,947
<INTEREST-DEPOSIT> 400,622
<INTEREST-EXPENSE> 580,063
<INTEREST-INCOME-NET> 1,113,884
<LOAN-LOSSES> 77,500
<SECURITIES-GAINS> 8,457
<EXPENSE-OTHER> 990,183
<INCOME-PRETAX> 498,398
<INCOME-PRE-EXTRAORDINARY> 315,283
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 315,283
<EPS-PRIMARY> 2.23
<EPS-DILUTED> 2.20
<YIELD-ACTUAL> 5.97
<LOANS-NON> 165,300
<LOANS-PAST> 53,000
<LOANS-TROUBLED> 1,600
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 500,600
<CHARGE-OFFS> 130,500
<RECOVERIES> 53,800
<ALLOWANCE-CLOSE> 501,400
<ALLOWANCE-DOMESTIC> 481,400
<ALLOWANCE-FOREIGN> 20,000
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
