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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-K
(MARK ONE)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [FEE REQUIRED]
FOR THE FISCAL YEAR ENDED DECEMBER 31, 1994
OR
[_] TRANSITION REPORT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934 [NO FEE REQUIRED]
Commission File Number 0-6879
CORESTATES FINANCIAL CORP
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(Exact name of registrant as specified in its charter)
Pennsylvania 23-1899716
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
Philadelphia National Bank Building
Broad & Chestnut Streets
P.O. Box 7618
Philadelphia, Pennsylvania 19101-7618 19101
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(Address of Principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code: 215-973-3827
Securities registered pursuant to Section 12(b) of the Act:
Name of Each Exchange
Title of Class Upon Which Registered
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Common Stock, $1.00 par value New York Stock Exchange
Securities registered pursuant to Section 12(g) of the Act: None
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________
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Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [ ]
The aggregate market value of voting stock held by non-affiliates of registrant
based on the closing sale price on March 7, 1995 was approximately
$4,160,965,000. For this purpose only, all directors and officers of the
registrant were assumed to be affiliates.
The number of shares of Common Stock outstanding at March 7, 1995 was
144,442,476.
DOCUMENTS INCORPORATED BY REFERENCE
1. Annual Report to Shareholders for the fiscal year ended December 31, 1994,
portions of which are incorporated by reference in Parts I, II and IV of this
Report.
2. Definitive Proxy Statement dated March 15, 1995 for the Annual
Shareholders' Meeting to be held on April 18, 1995, portions of which are
incorporated by reference in Part III of this Report.
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PART I
ITEM 1 - BUSINESS
CoreStates Financial Corp ("CoreStates") is a bank holding company
registered under the Federal Bank Holding Company Act of 1956, as amended (the
"Act") and incorporated under the laws of Pennsylvania with executive offices at
the Philadelphia National Bank Building, 1345 Chestnut Street, Philadelphia,
Pennsylvania 19107 (telephone number 215-973-3827). At December 31, 1994,
CoreStates had total consolidated assets of approximately $29.3 billion and
shareholders' equity of approximately $2.35 billion, and, based on December 31,
1994 rankings of bank holding companies by total consolidated assets, was
believed to be the 29th largest bank holding company in the United States at
such date.
BANKING SUBSIDIARIES
The lead banking subsidiary of CoreStates is CoreStates Bank, N.A.
("CoreStates Bank"), a national banking association with executive offices
located in Philadelphia, Pennsylvania. Divisions of CoreStates Bank have been
marketed as Philadelphia National Bank Division, the wholesale banking unit,
CoreStates First Pennsylvania Bank Division, the retail banking unit, and
CoreStates Hamilton Bank, the unit serving central Pennsylvania. Other principal
banking subsidiaries of CoreStates are New Jersey National Bank ("NJNB"), a
national banking association with its executive offices located in Ewing
Township, New Jersey and CoreStates Bank of Delaware, N.A. ("CBD"), a national
banking association with its sole office located in New Castle County, Delaware.
CoreStates Bank, NJNB and CBD are sometimes referred to herein as the "Banking
Subsidiaries". Through CoreStates Bank, NJNB and CBD, CoreStates engages in the
business of providing wholesale banking services, consumer financial services
which includes retail banking, and trust & investment management services.
Electronic Payment Services, Inc. ("EPS"), a joint venture in which CoreStates
owns 20%, includes the MAC automated teller machine network and point of sale
processing businesses.
During 1994, CoreStates, as a part of an ongoing process of consolidation,
began phasing out the use of the trade names "Philadelphia National Bank" and
"CoreStates First Pennsylvania Bank" and using only the name CoreStates Bank. It
is presently anticipated that the trade name "CoreStates Hamilton Bank" will be
phased out during 1995. In addition, Constellation Bank N.A., acquired on March
16, 1994, was merged into NJNB; Bucks County Bank and Trust Company, Cheltenham
Bank, Lehigh Valley Bank and Third National Bank and Trust Company of Scranton,
all acquired as a result of the acquisition of Independence Bancorp, Inc. on
June 27, 1994, were merged into CoreStates Bank; and Germantown Savings Bank was
merged into CoreStates Bank effective with its acquisition on
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December 2, 1994. CoreStates has received approval from the Office of the
Comptroller of the Currency ("OCC") to relocate the head office of CoreStates
Bank from Philadelphia, Pennsylvania to Ewing Township, New Jersey, to merge
NJNB into CoreStates Bank and to establish a CoreStates Bank branch at the
present location of the head office of CoreStates Bank. It is anticipated that
the relocation and merger will take place in 1995. After the merger of NJNB into
CoreStates Bank, it is CoreStates' present intent to conduct all of its
Pennsylvania and New Jersey banking business under the name of CoreStates Bank.
As of December 31, 1994, the Banking Subsidiaries operated from 400 full
service offices located in eastern and central Pennsylvania and New Jersey and
one office located in Delaware. CoreStates Bank also operates from five foreign
branch offices and nineteen foreign representative offices.
OTHER SIGNIFICANT SUBSIDIARIES AND AFFILIATED COMPANIES
Congress Financial Corporation ("Congress"), a majority-owned subsidiary of
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CoreStates, and its subsidiaries are engaged in commercial financing and
factoring with headquarters in New York City and offices in Atlanta, Boston,
Chicago, Columbia, Dallas, Los Angeles, Miami, Milwaukee, Portland, Toronto and
San Juan. As of December 31, 1994, factored receivables of Congress and its
subsidiaries totalled $523.6 million while outstanding commercial finance
obligations and other receivables totalled $1.778 billion.
CoreStates Capital Corp ("Capital") is CoreStates' designated financing
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entity to obtain both short-term and long-term financing for CoreStates and its
other subsidiaries. At December 31, 1994, Capital had outstanding commercial
paper in the aggregate principal amount of $827.9 million and debt securities in
the aggregate outstanding principal amount of $1.725 billion, with remaining
maturities ranging from 1 month to 10.25 years.
Electronic Payment Services, Inc. ("EPS") is a joint venture formed in late
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1992 that combined the separate consumer electronic transaction processing
businesses of CoreStates, Banc One Corporation, PNC Financial Corp. and KeyCorp
(formerly Society Corporation) into the nation's leading provider of automated
teller machine and point of sale processing services to individuals, financial
institutions and retail stores. On March 2, 1995, National City Corporation was
admitted as an additional partner and the ownership of KeyCorp was increased
with the result that each partner now owns 20% of EPS.
CoreStates also has several other direct and indirect subsidiaries
including companies engaged in discount brokerage services, investment advisory
services, lease financing activities, holding real property facilities used by
CoreStates' Banking Subsidiaries and companies created solely to facilitate the
business of other subsidiaries.
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For analytical purposes, management has focused CoreStates into four core
businesses: Wholesale Banking, Consumer Financial Services, Trust & Investment
Management and Electronic Payment Services conducted by EPS. Further information
regarding CoreStates' four core businesses is presented in Management's
Discussion and Analysis of Financial Condition and Results of Operations at
pages 13 and 14 of the CoreStates Annual Report to Shareholders for the fiscal
year ended December 31, 1994 (Exhibit 13 pages 8 through 12) which pages of the
Annual Report are incorporated herein by reference. A brief discussion of the
four core businesses is presented below. There is considerable inter-
relationship among these businesses.
Wholesale Banking Wholesale banking services are provided through the
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Banking Subsidiaries and Congress by the following six groups: corporate and
institutional banking; investment banking; cash management; international
banking; corporate middle market; and specialized finance. Domestic financing
services include commercial, industrial and real estate loans, the financing of
receivables, inventory and equipment, derivative market activities to provide
risk management services for customers and other requirements of business
customers and the provision of financial services for correspondent banks.
Foreign and international finance services include the making of loans, banker's
acceptance financing, the issuance and confirmation of letters of credit and
related financial services. Also provided are transaction processing services,
including cash management, lock box, funds transfer and collection and
disbursement management on both a domestic and an international basis.
International activities are conducted directly by CoreStates Bank through
its head office in Philadelphia and 24 foreign offices. In addition,
international banking and financing activities are conducted through two wholly
owned Edge Act subsidiaries with four offices.
Advisory services are also provided which relate to loan syndications,
private placements, mergers and acquisitions, company valuations and other
similar matters. This business also deals in and underwrites obligations of the
United States Government and federal agencies and general obligations of States
and municipal sub-divisions and assists individual corporate customers as well
as other institutions with the purchase and sale of all types of marketable
securities.
Consumer Financial Services This core business is provided by the Banking
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Subsidiaries and includes community banking, mortgage services and specialty
products. Community banking services are offered through the branch network of
the Banking Subsidiaries in Pennsylvania and New Jersey. This branch banking
network provides a full range of products including deposit, loan and related
financial products, primarily on a full relationship basis. The
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specialty products business, which includes consumer and commercial credit cards
and other revolving credit, education finance, merchant card services and card
processing services for CoreStates and other financial institutions is provided
by CBD primarily from its Delaware location. In late 1994 CoreStates acquired a
Delaware-chartered savings and loan association which has been converted to a
national bank and which it is positioning to offer enhanced consumer banking
services in Delaware in 1995.
Trust & Investment Management This core business provides products through
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four business lines: institutional trust; personal trust; private banking; and
investment management. These products are offered through the Banking
Subsidiaries and include fiduciary administration and transaction processing
services, corporate trust services and through CoreStates Investment Advisors,
Inc. which provides investment management services.
Electronic Payment Services This core business includes the MAC
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automated teller machine network ("MAC"), and point of sale processing ("POS").
Customers for these businesses include individuals, financial institutions and
retail stores. The MAC and POS business lines are conducted by EPS.
STRATEGIC ACTIONS
A discussion of strategic actions, including recent acquisitions, taken by
CoreStates in 1994 is presented in Management's Discussion and Analysis of
Financial Condition and Results of Operations at pages 11 through 13 of the
CoreStates Annual Report to Shareholders for the fiscal year ended December 31,
1994 (Exhibit 13 pages 5 through 7) which pages of the Annual Report are
incorporated herein by reference.
Process Redesign In September 1994, CoreStates announced that management
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had authorized an intensive review of all aspects of CoreStates' operations and
businesses. Based upon this review CoreStates will redesign its processes, as
appropriate, to achieve the following objectives: (i) to enhance CoreStates'
customer focus; (ii) to accelerate the culture changes already in progress; and
(iii) to improve productivity. It is anticipated that this review will identify
activities which do not contribute to value for customers, and that this, in
turn, will lead to reductions in expenses and jobs and to a smaller employee
base. The review will be completed by the end of the first quarter of 1995 and
the resulting decisions implemented over the following year.
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GOVERNMENT SUPERVISION AND REGULATION
General CoreStates is a bank holding company within the meaning of the Act
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and is registered as such with the Federal Reserve Board. As a bank holding
company, CoreStates is also subject to regulation by applicable state regulatory
authorities. The Banking Subsidiaries are national banks and are subject to
regulation, supervision and regular examination by the OCC, as well as
regulation by the Federal Deposit Insurance Corporation ("FDIC").
Bank holding companies and banks are extensively regulated under both
federal and state law. The regulation and supervision of CoreStates and the
Banking Subsidiaries are designed primarily for the protection of depositors and
not the respective institutions or their stockholders. To the extent that the
following information describes statutory and regulatory provisions, it is
qualified in its entirety by reference to the particular statutory and
regulatory provisions. A change in applicable law or regulation may have a
material effect on the business of CoreStates.
CoreStates is required to file an annual report with the Federal Reserve
Board containing such additional information as the Federal Reserve Board may
require pursuant to the Act. Copies of annual and other periodic reports are
also required to be filed with the applicable state regulatory authorities. The
Act requires each bank holding company to obtain the prior approval of the
Federal Reserve Board before it may acquire substantially all of the assets of
any bank, or before it may acquire ownership or control of any voting shares of
any bank, if, after such acquisition, it would own or control, directly or
indirectly, more than 5% of the voting shares of such bank. The Act also
restricts the types of businesses and operations in which a bank holding company
and its non-bank subsidiaries may engage. Generally, permissible activities are
limited to banking and activities found by the Federal Reserve Board to be so
closely related to banking as to be a proper incident thereto.
The operations of the Banking Subsidiaries are subject to requirements and
restrictions under federal and state law, including requirements to maintain
reserves against deposits, restrictions on the types and amounts of loans that
may be made and limits upon the types of services which may be offered. Various
consumer laws and regulations also affect the operations of the Banking
Subsidiaries. Regulatory approvals are required for branching and for bank
mergers.
Capital Guidelines A discussion of capital guidelines and capital
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strengths is included in Management's Discussion and Analysis of Financial
Condition and Results of Operations on page 15 of the CoreStates Annual Report
to Shareholders for the
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fiscal year ended December 31, 1994 (Exhibit 13 pages 12 and 13) which pages of
the Annual Report are incorporated herein by reference.
Potential Enforcement Actions Bank holding companies and banks and their
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institution-affiliated parties may be subject to potential enforcement actions
by the Federal Reserve Board, the OCC or the FDIC for unsafe or unsound
practices in conducting their businesses, or for violations of any law, rule or
regulation or provision, any consent order with any agency, any condition
imposed in writing by the agency or any written agreement with the agency.
Enforcement actions may include the imposition of a conservator or receiver,
additional cease-and-desist orders and written agreements, the termination of
insurance of deposits, the imposition of civil money penalties and removal and
prohibition orders against institution-affiliated parties.
Dividends CoreStates is a legal entity separate and distinct from its bank
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and other subsidiaries. CoreStates' principal source of revenue consists of
dividends from its bank and non-bank subsidiaries. Federal law imposes
limitations on the payment of dividends by national banks.
Provisions of federal banking law restrict the amount of dividends that can
be paid to CoreStates by its nationally chartered bank subsidiaries, while state
banking regulations limit the amount of dividends that can be paid to CoreStates
by its state chartered bank subsidiaries. Under applicable federal law, no
dividends may be paid in an amount greater than "undivided profits then on
hand," after deduction therefrom of certain loan losses. In addition, for each
of the Banking Subsidiaries, prior approval of the Comptroller is required if
dividends declared by a subsidiary bank in any calendar year will exceed its net
profits (as defined) for that year, combined with its retained net profits for
the preceding two calendar years, less any required transfers to surplus or a
fund for the retirement of preferred stock. Under applicable state law,
dividends may be declared and paid only out of accumulated net earnings, which
are the undistributed net profits recorded on the books of an institution for
the last complete calendar or fiscal year. Based on these regulations, the
Banking Subsidiaries, without regulatory approval, could declare dividends at
December 31, 1994 of $157 million.
The payment of dividends by each of CoreStates and the Banking Subsidiaries
may also be affected by other factors, such as the maintenance of adequate
capital. For example, the Federal Deposit Insurance Corporation Improvement Act
of 1991 ("FDICIA") generally prohibits an undercapitalized institution from
paying dividends. In addition, if, in the opinion of the applicable regulatory
authority, a bank holding company or a bank under its jurisdiction is engaged in
or is about to engage in an unsafe or unsound practice (which, depending on the
financial condition of the bank,
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could include the payment of dividends), such authority may require, after
notice and hearing, that such organization cease and desist from such practice.
The Federal Reserve Board, the OCC and the FDIC have issued policy statements
which provide that insured banks and bank holding companies should generally
only pay dividends out of current operating earnings.
Support of Bank Subsidiaries A depository institution insured by the FDIC
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can be held liable for any loss incurred by, or reasonably expected to be
incurred by, the FDIC after August 9, 1989 in connection with (i) the default of
a commonly controlled FDIC-insured depository institution or (ii) any assistance
provided by the FDIC to a commonly controlled FDIC-insured depository
institution in danger of default. "Default" is defined generally as the
appointment of a conservator or receiver and "in danger of default" is defined
generally as the existence of certain conditions indicating that a "default" is
likely to occur in the absence of regulatory assistance.
Under Federal Reserve Board regulations, a bank holding company is required
to serve as a source of financial and managerial strength to its subsidiary
banks and may not conduct its operations in an unsafe or unsound manner. In
addition, it is the Federal Reserve Board's policy that in serving as a source
of strength to its subsidiary banks, a bank holding company should stand ready
to use available resources to provide adequate capital funds to its subsidiary
banks during periods of financial stress or adversity and should maintain the
financial flexibility and capital-raising capacity to obtain additional
resources for assisting its subsidiary banks. A bank holding company's failure
to meet its obligations to serve as a source of strength to its subsidiary banks
will generally be considered by the Federal Reserve Board to be an unsafe and
unsound banking practice or a violation of the Federal Reserve Board regulations
or both. This doctrine is commonly known as the "source of strength" doctrine.
Federal law provides for the enforcement of any pro rata assessment of
shareholders of a national bank to cover impairment of capital stock by sale, to
the extent necessary, of the stock of any assessed shareholder failing to pay
the assessment.
Borrowings by Holding Companies Federal law prevents CoreStates and
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certain of its affiliates from borrowing from its banking subsidiaries unless
such borrowings are secured by specified amounts and types of collateral.
Additionally, each such secured loan to an affiliate is generally limited to an
amount not exceeding 10% of the bank's capital and surplus, and all such loans
between the lending bank and its affiliates are limited to an amount not to
exceed 20% of the lending bank's capital and surplus. Further, a bank holding
company and its subsidiaries are prohibited
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from engaging in certain tie-in arrangements in connection with any extension of
credit, lease or sale of property or furnishing of services.
FDICIA
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Insurance Premiums FDICIA, enacted on December 19, 1991 in connection with
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the recapitalization of the Bank Insurance Fund ("BIF"), requires the FDIC to
set semi-annual assessment rates for BIF members at levels sufficient to
increase the BIF's reserve ratio to a designated level within a prescribed
period of time, not to exceed 15 years from the date that the FDIC promulgates
the applicable time schedule. Pursuant to FDICIA, the FDIC has developed a risk-
based assessment system, under which the assessment rate for an insured
depository institution varies according to the level of risk incurred in its
activities. An institution's risk category is based upon whether the institution
is well capitalized, adequately capitalized or less than adequately capitalized.
Each insured depository institution is also to be assigned to one of the
following "supervisory subgroups": Subgroup A, B or C. Subgroup A institutions
are financially sound institutions with few minor weaknesses; Subgroup B
institutions are institutions that demonstrate weaknesses which, if not
corrected, could result in significant deterioration; and Subgroup C
institutions are institutions for which there is a substantial probability that
the FDIC will suffer a loss in connection with the institution unless effective
action is taken to correct the areas of weakness. Based on its capital and
supervisory subgroups, each BIF or Savings Association Insurance Fund member
institution is assigned an annual FDIC assessment rate varying between 0.23% per
annum (for well capitalized Subgroup A institutions) and 0.31% per annum (for
undercapitalized Subgroup C institutions). Each of the Banking Subsidiaries is
considered well capitalized.
Prompt Corrective Action FDICIA requires federal banking agencies to
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broaden the scope of regulatory corrective action taken with respect to
depository institutions that do not meet minimum capital requirements and to
take such actions promptly in order to minimize losses to the FDIC. In
connection with FDICIA, federal banking agencies are required to establish
capital measures (including both a leverage measure and a risk-based capital
measure) and to specify for each capital measure the levels at which depository
institutions will be considered "well capitalized", "adequately capitalized",
"undercapitalized", "significantly undercapitalized" or "critically
undercapitalized".
Under FDICIA, the Federal banking regulators have adopted regulations
establishing relevant capital measures and relevant capital levels. The relevant
capital measures are the Total Capital to risk adjusted assets ratio, Tier 1
Capital to risk adjusted assets ratio and the leverage ratio. Under these
regulations, a bank will be (i) well capitalized if it has a Total
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Capital to risk adjusted assets ratio of 10% or greater, a Tier 1 Capital to
risk adjusted assets ratio of 6% or greater and a leverage ratio of 5% or
greater and is not subject to any order or written directive by its primary
Federal regulator to meet and maintain a specific capital level for any capital
measure; (ii) adequately capitalized if it has a Total Capital to risk adjusted
assets ratio of 8% or greater, a Tier 1 Capital to risk adjusted assets ratio of
4% or greater and a leverage ratio of 4% or greater (3% in certain
circumstances) and is not well capitalized; (iii) undercapitalized if it has a
Total Capital to risk adjusted assets ratio of less than 8%, a Tier 1 Capital to
risk adjusted assets ratio of less than 4% or a leverage ratio of less than 4%
(3% in certain circumstances); (iv) significantly undercapitalized if it has a
Total Capital to risk adjusted assets ratio of less than 6%, a Tier 1 Capital to
risk adjusted assets ratio of less than 3% or a leverage ratio of less than 3%;
and (v) critically undercapitalized if its tangible equity is equal to or less
than 2% of average quarterly tangible assets. Each of the Banking Subsidiaries
is considered well capitalized.
FDICIA authorizes the appropriate federal banking agency, after notice and
an opportunity for a hearing, to treat a well capitalized, adequately
capitalized or undercapitalized insured depository institution as if it had a
lower capital-based classification if it is in an unsafe or unsound condition or
engaging in an unsafe or unsound practice. Thus, an adequately capitalized
institution can be subjected to the restrictions on undercapitalized
institutions described below (except that a capital restoration plan cannot be
required of the institution) and an undercapitalized institution can be
subjected to the restrictions applicable to significantly undercapitalized
institutions described below.
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to growth
limitations and are required to submit a capital restoration plan. The federal
banking agencies may not accept a capital plan without determining, among other
things, that the plan is based on realistic assumptions and is likely to succeed
in restoring the depository institution's capital. In addition, for a capital
restoration plan to be acceptable, the depository institution's parent holding
company must guarantee that the institution will comply with such capital
restoration plan. The aggregate liability of the parent holding company is
limited to the lesser of (i) an amount equal to five percent of the depository
institution's total assets at the time it became undercapitalized, and (ii) the
amount which is necessary (or would have been necessary) to bring the
institution into compliance with all capital standards applicable with respect
to such institution as of the time it fails to comply
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with the plan. In the event of a bank holding company's bankruptcy, any
commitment by the bank holding company to a federal bank regulatory agency to
maintain the capital of a subsidiary bank will be assumed by the bankruptcy
trustee and entitled to a priority of payment. If a depository institution fails
to submit an acceptable plan, it is treated as if it is significantly
undercapitalized.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets and cessation of receipt of deposits from correspondent banks. Critically
undercapitalized institutions are subject to the appointment of a receiver or
conservator.
Brokered Deposits Under FDICIA, a bank cannot accept brokered deposits
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(which term is defined to include payment of an interest rate more than 75 basis
points above prevailing rates) unless (i) it is well capitalized or (ii) it is
adequately capitalized and receives a waiver from the FDIC. A bank that cannot
receive brokered deposits also cannot offer "pass-through" insurance on certain
employee benefit accounts. In addition, a bank that is adequately capitalized
may not pay an interest rate on any deposits in excess of 75 basis points over
certain prevailing market rates. There are no such restrictions on a bank that
is well capitalized. Each of the CoreStates Banking Subsidiaries is well
capitalized for purposes of the foregoing.
Safety and Soundness Standards FDICIA requires that each of the Federal
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bank regulatory agencies prescribe by regulation or guideline the depository
institution and depository institution holding company standards relating to
internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth, and
employee compensation, fees and benefits and standards specifying minimum
earnings sufficient to absorb losses without impairing capital, to the extent
feasible a minimum ratio of market value to book value for publicly traded
shares and such other standards relating to the foregoing as it deems
appropriate. A holding company or institution that fails to comply with such
standards will be required to submit a plan designed to achieve such compliance.
If no such plan is submitted or a failure to implement such a plan exists, the
depository institution or holding company would become subject to additional
regulatory action or enforcement proceedings. FDICIA provides that final
regulations under such provisions should have become effective no later than
December 1, 1993. Since the standards have not yet been prescribed in final
form, CoreStates can not assess the significance of the impact such standards
will have on their respective operations, which could be material.
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Other FDICIA also contains a variety of other provisions that may affect
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the operations of bank holding companies and banks, including new reporting
requirements, revised regulatory standards for real estate lending, "truth in
savings" provisions and the requirement that a depository institution give 90
days' prior notice to customers and regulatory authorities before closing any
branch.
INTERSTATE BANKING AND BRANCHING LEGISLATION
Legislation was passed, and signed by President Clinton on September 29,
1994, which will eliminate many currently existing restrictions on interstate
banking and branching. The legislation will authorize interstate acquisitions of
banks by bank holding companies without geographic limitations one year after
enactment. Beginning June 1, 1997, the legislation will allow interstate
branching in states that have not passed legislation prohibiting interstate
branching, except that de novo branching or acquisition of a branch in another
state without acquisition of the entire bank will only be permitted if expressly
permitted by the law of the state in which such branch would be located.
Interstate branching prior to June 1, 1997 will be possible in states that pass
laws affirmatively authorizing such interstate branching. As of December 31,
1994 no such legislation had been enacted in Pennsylvania, New Jersey or
Delaware. Prior to this legislation, interstate acquisitions of banks have
required affirmative authorization in state law, and interstate branching has
been possible only to a very limited degree. The effect of this legislation on
CoreStates cannot be predicted at this time.
COMPETITION
The activities in which CoreStates and the Banking Subsidiaries engage are
highly competitive. Generally, the lines of activity and markets served involve
competition with other banks and non-bank financial institutions, as well as
other entities which offer financial services, located both within and without
the United States. The methods of competition center around various factors,
such as customer services, interest rates on loans and deposits, lending limits
and location of offices.
The four core business segments in the markets served by the Banking
Subsidiaries and EPS are highly competitive and the Banking Subsidiaries and EPS
compete with other commercial banks, savings and loan associations and other
businesses which provide services similar to those offered by the Banking
Subsidiaries and EPS. The Banking Subsidiaries actively compete in wholesale
banking with local, regional and international banks and non-bank financial
organizations, some of which are significantly larger than certain of the
Banking Subsidiaries. In providing consumer financial services, the Banking
Subsidiaries' competitors include other banks, savings and loan associations,
credit unions, regulated
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small loan companies and other non-bank organizations offering financial
services. In providing trust and investment management services, the Banking
Subsidiaries compete with other banks, investment counselors and insurance
companies in national markets for institutional funds and corporate pension and
profit sharing accounts. The Banking Subsidiaries also compete with other banks,
insurance agents, financial counselors and other fiduciaries for personal trust
business.
The Banking Subsidiaries also actively compete for funding. A primary
source of funds is deposits, and competition for deposits includes other deposit
taking organizations, such as commercial banks, savings and loan associations
and credit unions, and so-called "money market" mutual funds. The Banking
Subsidiaries also actively compete for funds with U.S. Government securities and
in the open money market.
Employees
As of February 28, 1995, CoreStates and its subsidiaries employed 12,393
persons on a full time basis and 3,352 persons on a part-time basis. CoreStates
provides a variety of employment benefits and considers its relations with its
employees to be satisfactory.
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Selected Statistical Information
Tables and selected statistical information concerning CoreStates and its
subsidiaries as described below and set forth on pages of the CoreStates 1994
Annual Report to Shareholders (and Exhibit 13 page numbers) set forth below are
incorporated herein by reference:
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Annual Report to Exhibit 13
Shareholders Page
Page Reference Reference
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Distribution of Assets, Liabilities
and Stockholders' Equity;
Interest Rates and Interest
Differential........................... 56-57, 61 76-79, 83
Investment Portfolio......................... 67 91
Loan Portfolio............................... 16-22, 62-65 14-26, 84-88
Summary of Loan Loss Experience.............. 19-20, 64-65 21-22, 87-88
Deposits..................................... 56-57, 65 76-79, 88
Return on Average Equity and Average
Assets.................................. 60 82
Short-Term Borrowings........................ 46 61
</TABLE>
Information illustrating the interest sensitivity of CoreStates
interest earning assets and interest bearing liabilities is contained on page
66 of the Annual Report to Shareholders (Exhibit 13 page 89) and on page 15 of
this Form 10-K. The interest sensitivity table on page 15 of this Form 10-K is
different from the table contained in the Annual Report because managerial
assumptions related to the appropriate investment maturities for non-interest
bearing funding sources and the repricing behavior of non-contractual deposit
products which are included in the Annual Report have been eliminated from the
table on page 15.
14
<PAGE>
CoreStates Financial Corp and Subsidiaries
<TABLE>
<CAPTION>
INTEREST SENSITIVITY ANALYSIS AT DECEMBER 31, 1994
(in millions)
Rate Maturity Period
------------------------------------------------------------------------
1-90 91-181 182-365 1-2 2-5 > 5
Days Days Days Years Years Years Total
------- -------- ---------- ------ ----- ----- -------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Federal funds sold, resale agreements and
trading account securities................... $ 733 $ 733
Time deposits................................... 853 $ 620 $ 255 $ 22 1,750
Investment securities........................... 604 353 559 555 $ 631 $ 179 2,881
Interest rate swaps............................. 1,229 378 742 2,163 2,717 1,005 8,234
Asset financial futures......................... 25 199 305 - - - 529
------- -------- ------ ------ ------- ------- -------
Total discretionary assets................. 3,444 1,550 1,861 2,740 3,348 1,184 14,127
Total loans(a).................................. 13,847 1,554 1,176 1,420 2,061 468 20,526
------- -------- ------ ------ ------- ------- -------
Total earning assets....................... 17,291 3,104 3,037 4,160 5,409 1,652 34,653
------- -------- ------ ------ ------- ------- -------
LIABILITIES
Federal funds purchased, repurchase
agreements and other short-term funds
borrowed..................................... 1,538 7 1 1,546
Domestic and foreign time deposits(b)........... 1,300 26 17 8 1 25 1,377
Long-term debt.................................. 1,024 32 37 54 7 637 1,791
Interest rate swaps............................. 7,258 306 134 300 141 95 8,234
Liability financial futures..................... 359 170 - - - - 529
------- -------- ------ ------ ------- ------- -------
Total discretionary liabilities............ 11,479 541 189 362 149 757 13,477
------- -------- ------ ------ ------- ------- -------
Savings certificates............................ 1,159 1,023 1,130 1,231 521 280 5,344
Money market, savings and NOW accounts.......... 3,830 - - - - 5,127 8,957
------- -------- ------ ------ ------- ------- -------
Total savings certificates and indefinite
maturity liabilities.................... 4,989 1,023 1,130 1,231 521 5,407 14,301
------- -------- ------ ------ ------- ------- -------
Total net funding sources.................. 16,468 1,564 1,319 1,593 670 6,164 27,778
------- -------- ------ ------ ------- ------- -------
Adjusted period gap........................ $ 823 $ 1,540 $1,718 $2,567 $ 4,739 $(4,512) $ 6,875(c)
======= ======== ====== ====== ======= ======= =======
Cumulative gap............................. $ 823 $ 2,363 $4,081 $6,648 $11,387 $ 6,875
======= ======== ====== ====== ======= =======
</TABLE>
Notes to interest sensitivity analysis:
(a) Non-performing loans are included in 1-90 days.
(b) Deposit volumes exclude time deposits not at interest.
(c) Represents the portion of total interest earning assets which are funded by
non-interest bearing funding sources including demand deposits and
shareholders' equity.
15
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
(Information to be updated)
The following table shows the name and age of the current executive
officers of CoreStates Financial Corp ("Corporation") and their present and
previous positions held by them for at least the past five years.
<TABLE>
<CAPTION>
NAME AGE PRESENT & PREVIOUS POSITIONS
- ---- --- ----------------------------
<S> <C> <C>
Terrence A. Larsen 48 Chairman, Chief Executive Officer, (1988 to
present) and Director (1986 to present),
President (January 1, 1992 to August 2,
1994, 1986 to March 1990), Chief Operating
Officer (1986 to 1988) of the Corporation;
Chairman and Director (October 1990 to
present) and President (January 1, 1992 to
August 2, 1994) of CoreStates Bank; Chairman
(1989 to October 1990), Director (1986 to
October 1990), and Executive Vice President,
1983 to 1986) of The Philadelphia National
Bank ("PNB").
Thomas A. Bracken 48 Chief Executive Officer and President of New
Jersey National Bank ("NJNB") (January 1993
to present), Executive Vice President of
NJNB (1986 to January 1993).
Leslie R. Butler 54 Chief Human Resources Officer (December 1990
to present) of the Corporation; Vice
Chairman (1988 to December 1990) and
Director (1988 to March 1990) and prior
thereto Senior Executive Vice President and
Chief Administration Officer of First
Pennsylvania Bank.
</TABLE>
16
<PAGE>
<TABLE>
<S> <C> <C>
David C. Carney 57 Chief Financial Officer (April 1991 to
present) of the Corporation; Philadelphia
Area Managing Partner (1989 to March 1991)
of Ernst & Young; Prior thereto, Office
Managing Partner, Arthur Young & Company.
Charles L.
Coltman, III 51 President and Chief Operating Officer
(August 2, 1994 to present), Assistant to
the Chairman, Corporate Quality (February
1993 to August 2, 1994), Chief Credit Policy
Officer (September 1990 to February 1993),
Executive Vice President and Credit Policy
Officer (1989 to September 1990) of the
Corporation; Vice Chairman (March 1990 to
September 1990) and Executive Vice President
and Credit Policy Officer (1986 to 1989) of
PNB.
Charles P. Connolly 46 Senior Executive Vice President (August 2,
1994 to present), Chief Credit Policy
Officer (February 1993 to August 2, 1994) of
the Corporation; Executive Vice President
(1987 to February 1993) of CoreStates Bank.
Donald M. Cooper 56 President and Chief Executive Officer
(August 1993 to present) of CoreStates
Hamilton Bank Division of CoreStates Bank;
Chairman, President and Chief Executive
Officer (January 1991 to August 1993), Vice
Chairman and Chief Operating Officer (1988
to January 1991) of Hamilton Bank; Executive
Vice President (1983 to 1988) of the
Corporation.
</TABLE>
17
<PAGE>
<TABLE>
<S> <C>
Robert N. Gilmore 46 Chief Technology and Processing Services
Officer (August 1991 to present), Executive
Vice President (September 1986 to August
1991) of the Corporation; Executive Vice
President (September 1986 to present) of
CoreStates Bank.
Rosemarie B. Greco 48 Chief Retail Services Officer (October 1993
to present) of the Corporation; President
and Chief Executive Officer (August 2, 1994
to present) of CoreStates Bank; President
and Chief Executive Officer of CoreStates
First Pennsylvania Bank Division of
CoreStates Bank (March 1991 to August 2,
1994) and Director (April 1992 to present);
President and Director (1987 to March 1991),
Chief Executive Officer (September 1990 to
March 1991), Executive Vice President (1986
to 1987) of Fidelity Bank; Senior Executive
Vice President and Director (1987 to March
1991) of First Fidelity Bancorporation.
John D. Harding 50 President (September 20, 1994 to present)
CoreStates Bank Northern Region, Director
(October 18, 1994 to present) CoreStates
Bank; President and Chief Executive Officer,
(1989 to June 27, 1994) President and Chief
Operating Officer, (1988 to 1989)
Independence Bancorp, Inc.
Albert W. Mandia 47 Executive Vice President (1989 to present)
of the Corporation; Executive Vice President
(April 1992 to present) of CoreStates Bank;
Executive Vice President (1986 to 1989) of
PNB.
</TABLE>
18
<PAGE>
<TABLE>
<S> <C> <C>
Mark E. Stalnecker 43 Chief Trust & Investment Services Officer
(May 1992 to present) of the Corporation;
Executive Vice President CoreStates Trust
and Investment Group (March 1990 to present)
of CoreStates Bank; Director (April 1992 to
present) of CoreStates Bank; Chief Executive
Officer of Philadelphia National Limited and
Executive Vice President (1988 to March
1990) of the Corporation and PNB; Associate
Director, Treasury - J. P. Morgan
Securities, Ltd.-London (February 1987 to
1988); Executive Vice President of the
Corporation (1986 to 1987).
</TABLE>
19
<PAGE>
ITEM 2 - PROPERTIES
The principal offices of CoreStates and CoreStates Bank are located in a
25-story building known as the Philadelphia National Bank Building ("PNB
Building"), located at Broad and Chestnut Streets, Philadelphia, Pennsylvania,
owned by Clymer Realty Corporation, a real estate subsidiary of CoreStates Bank,
and in leased space located at Centre Square West, 16th and Market Streets,
Philadelphia, Pennsylvania. CoreStates and its subsidiaries and affiliates
occupy approximately 260,000 square feet of the PNB Building's approximately
400,000 square feet of office space and 547,600 square feet of the office space
in the Centre Square complex. Approximately 217,400 square feet of office space
in the Widener Building adjacent to the PNB Building is leased for use by
CoreStates Bank. In addition, office space is leased for use by CoreStates and
CoreStates Bank in the following Philadelphia locations: approximately 402,000
square feet in the Penn Mutual Buildings, 510, 520 and 530 Walnut Street, and
approximately 111,600 square feet in the Curtis Center, 6th and Walnut Streets.
Fifth and Market Corporation, a real estate subsidiary of CoreStates Bank,
owns the 11 story building located at Fifth and Market Streets, Philadelphia,
Pennsylvania. The building, containing approximately 587,000 square feet, is
comprised of almost 493,000 square feet of office space, a branch banking office
and an underground garage, in addition to the public access and service areas.
CoreStates Bank's operations center and several other units presently occupy all
of the office space in this building.
As of December 31, 1994, CoreStates had 441 additional properties, of which
186 were owned and 255 were leased. The additional owned properties aggregate
approximately 1.70 million square feet, and the leased properties aggregate
approximately 1.75 million square feet. Aggregate leased properties in 1994
required approximately $59,820,000 in rental payments net of sublease income.
On May 13, 1977, CoreStates borrowed $25 million from two institutional
lenders at an interest rate of 8 5/8% per annum. The loan is secured by a first
lien mortgage on 30 CoreStates Bank owned properties.
ITEM 3 - LEGAL PROCEEDINGS
In the normal course of business, CoreStates and its subsidiaries are
subject to numerous pending and threatened legal actions and proceedings, some
for which the relief or damages sought are substantial. Management does not
believe the outcome of these actions and proceedings will have a materially
adverse effect on the consolidated financial position of CoreStates.
20
<PAGE>
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
PART II
ITEM 5 - MARKET FOR THE REGISTRANT'S COMMON STOCK AND RELATED
STOCKHOLDER MATTERS
CoreStates Common Shares are traded on the New York Stock Exchange under
the symbol "CFL". Until December 29, 1993, CoreStates Common Shares were traded
in the over-the-counter market and the price quotations were reported on the
NASDAQ National Market System. The table below sets forth, for the periods
indicated, the high and low prices for CoreStates Common Shares as reported on
the New York Stock Exchange or as quoted on the NASDAQ National Market System,
as applicable, and cash dividends declared per share. Over-the-counter market
quotations reflect inter-dealer prices, without retail mark-up, mark-down or
commission and may not necessarily represent actual transactions. The
information set forth in the table has been adjusted retroactively for a stock
dividend in the form of a two-for-one stock split declared on August 17, 1993
and distributed on October 15, 1993 to shareholders of record on September 15,
1993. On March 7, 1995, there were approximately 43,500 registered holders of
Common Stock of CoreStates.
<TABLE>
<CAPTION>
CORESTATES
-------------------------------
DIVIDEND
HIGH LOW DECLARED
---- --- --------
<S> <C> <C> <C>
Year ended December 31, 1993:
First Quarter............. 29 3/4 26 3/8 $0.27
Second Quarter............ 30 1/8 25 1/8 0.27
Third Quarter............. 29 3/4 26 3/4 0.30
Fourth Quarter............ 29 3/4 25 1/8 0.30
Year ended December 31, 1994:
First Quarter............. 27 1/8 24 1/2 $0.30
Second Quarter............ 28 25 0.30
Third Quarter............. 29 1/8 25 7/8 0.30
Fourth Quarter............ 27 5/8 22 7/8 0.34
</TABLE>
CoreStates currently expects to continue its policy of paying regular cash
dividends, although there can be no assurance as to further dividends because
they are dependent upon further operating results, capital requirements and
financial condition.
The approval of the Comptroller of the Currency is required for national
banks to pay dividends if the total of all dividends declared in any calendar
year exceeds the bank's net profits for that year combined with its retained net
profits for the proceeding two calendar years. Under this formula CoreStates
Bank and CBD can
21
<PAGE>
declare dividends to CoreStates of approximately $139 million and $18 million,
respectively, plus an additional amount equal to CoreStates Bank's and CBD's
retained net profits for 1995 up to the date of dividend declaration. Due to
merger-related charges recorded by Constellation Bancorp in 1994, NJNB is
currently unable to pay dividends without the prior approval of the OCC.
ITEM 6 - SELECTED FINANCIAL DATA
Pursuant to General Instructions G(2), information required by this Item is
incorporated by reference from pages 58, 59 and 60 of the CoreStates Annual
Report to Shareholders for the fiscal year ended December 31, 1994 (Exhibit 13
pages 80 through 82).
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATION
Pursuant to General Instructions G(2), information required by this Item is
incorporated by reference from pages 10 through 32 of the CoreStates Annual
Report to Shareholders for the fiscal year ended December 31, 1994 (Exhibit 13
pages 3 through 41).
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
Pursuant to General Instructions G(2), information required by this Item is
incorporated by reference from pages 32 through 69 of the CoreStates Annual
Report to Shareholders for the fiscal year ended December 31, 1994 (Exhibit 13
pages 42 through 95).
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Pursuant to General Instruction G(3), information required by this Item is
incorporated by reference from pages 1 through 7 of the CoreStates Proxy
Statement dated March 15, 1995 and from Part I of this report on Form 10-K.
ITEM 11 - EXECUTIVE COMPENSATION
Pursuant to General Instruction G(3), information required by this Item is
incorporated by reference from pages 10 through 20 of the CoreStates Proxy
Statement dated March 15, 1995. Such incorporation by reference shall not be
deemed to specifically incorporate by reference the information referred to in
Item 402(a)(8) of Regulation S-K.
22
<PAGE>
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Pursuant to General Instruction G(3), information required by this Item is
incorporated by reference from pages 2-7, 15-17, and 19 of the CoreStates Proxy
Statement dated March 15, 1995.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Pursuant to General Instruction G(3), information required by this Item is
incorporated by reference from page 9 of the CoreStates Proxy Statement dated
March 15, 1995.
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
(a) 1. Financial Statements:
The following consolidated statements of CoreStates Financial Corp included
in the Annual Report of the Registrant to its Shareholders for the year ended
December 31, 1994 are incorporated by reference in Item 8:
<TABLE>
<CAPTION>
Annual Report Exhibit 13
to Shareholders Page
Page Reference Reference
--------------- -----------
<S> <C> <C>
Consolidated Statements of Income for
the years ended December 31, 1994, 1993
and 1992........................................... 34 45
Consolidated Balance Sheets as of
December 31, 1994 and 1993......................... 35 46
Consolidated Statements of Changes
in Shareholders' Equity for the years
ended December 31, 1994, 1993 and 1992............. 36 47
Consolidated Statements of Cash Flows
for the years ended December 31, 1994,
1993 and 1992...................................... 37 48-49
Notes to the Financial Statements.................. 38-55 50-75
</TABLE>
(a) 2. Financial Statement Schedules
All other schedules for which provision is made in the applicable accounting
regulation of the Securities and Exchange Commission are not required under the
related instructions or are inapplicable, and therefore have been omitted.
23
<PAGE>
(a) 3. Exhibits
--------
<TABLE>
<CAPTION>
Exhibit No. Page No.
- ----------- --------
<S> <C> <C>
2.1 Agreement and Plan of Merger dated as of August 2, 1993
by and between CoreStates Financial Corp and
Constellation Bancorp and filed as Exhibit 2 to
Registrant's Quarterly Report on Form 10-Q for the
quarter ended June 30, 1993 and incorporated herein by
reference.
2.2 Agreement and Plan of Merger dated as of November 19,
1993 by and between CoreStates Financial Corp and
Independence Bancorp, Inc. and filed as Exhibit 2.2 to
Registrant's Report on Form 10-K for the year ended
December 31, 1994 and incorporated herein by reference.
2.3 Agreement and Plan of Merger dated as of March 7, 1994
by and between CoreStates Financial Corp and Germantown
Savings Bank and filed as Exhibit 2(a) to Registrant's
Registration Statement on Form S-4, No. 33-55505 and
incorporated herein by reference.
3.1 Articles of Incorporation of Registrant as amended
through May 3, 1993. Filed as Exhibit 3(a) to the
Registrant's Current Report on Form 8-K dated October
21, 1993 and incorporated herein by reference.
3.2 By-laws of Registrant as amended through April 20,
1993. Filed as Exhibit 3(b) to the Registrant's Current
Report on Form 8-K dated October 21, 1993 and
incorporated herein by reference.
4.1 The Registrant will furnish to the Securities and
Exchange Commission, upon request, copies of
instruments defining the rights of holders of long-term
debt of CoreStates Financial Corp and its subsidiaries.
</TABLE>
24
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Page No.
- ----------- --------
<S> <C> <C>
4.2 Indenture dated as of December 1, 1990 between
CoreStates Financial Corp, CoreStates Capital Corp and
Nations Bank of Georgia, N.A., as successor to Wachovia
Bank of Georgia, N.A., (formerly The First National
Bank of Atlanta). Filed as Exhibit 4.1 to the
Registrant's Current Report on Form 8-K dated January
29, 1991 and incorporated herein by reference.
4.3 Indenture dated as of December 1, 1990 between
CoreStates Financial Corp, CoreStates Capital Corp and
Bank One, Columbus, NA. Filed as Exhibit 4.2 to the
Registrant's Current Report on Form 8-K dated January
29, 1991 and incorporated herein by reference.
4.4 First Supplemental Indenture dated as of March 1, 1993
to the Indenture dated as of December 1, 1990 by and
between CoreStates Capital Corp, CoreStates Financial
Corp and BankOne, Columbus, N.A. filed as Exhibit 4 to
Registrant's Current Report on Form 8-K dated April 20,
1993 and incorporated herein by reference.
4.5 Second Supplemental Indenture dated as of August 1,
1994 among CoreStates Financial Corp, CoreStates Capital
Corp, Bank One, Columbus, N.A. and Citibank, N.A.
4.6 Specimen of Medium-Term Note (Senior Fixed Rate). Filed
as Exhibit 4.3 to the Registrant's Current Report on
Form 8-K dated January 29, 1991 and incorporated herein
by reference.
4.7 Specimen of Medium-Term Note (Senior Floating Rate).
Filed as Exhibit 4.4 to the Registrant's Current Report
on Form 8-K dated January 29, 1991 and incorporated
herein by reference.
4.8 Specimen of Medium-Term Note (Subordinated Fixed Rate).
Filed as Exhibit 4.5 to the Registrant's Current Report
on Form 8-K dated January 29, 1991 and incorporated
herein by reference.
</TABLE>
25
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Page No.
- ----------- --------
<S> <C> <C>
4.9 Specimen of Medium-Term Note (Subordinated Floating
Rate). Filed as Exhibit 4.6 to the Registrant's Current
Report on Form 8-K dated January 29, 1991 and
incorporated herein by reference.
4.10 Specimen of 9 5/8% Subordinated Note due February 15,
2001. Filed as Exhibit 4.7 to the Registrant's Current
Report on Form 8-K dated January 29, 1991 and
incorporated herein by reference.
4.11 Specimen of CoreStates Capital Corp 9 3/8% Subordinated
Note due April 15, 2003. Filed as Exhibit (4) to the
Registrant's Current Report on Form 8-K dated April 21,
1991 and incorporated herein by reference.
4.12 Specimen of 6 5/8% Subordinated Note due March 15, 2005
issued by CoreStates Capital Corp filed as Exhibit 4 to
Registrant's Current Report on Form 8-K dated March 18,
1993 and incorporated herein by reference.
4.13 Specimen of 5 7/8% Subordinated Note due October 15,
2003 issued by CoreStates Capital Corp and
unconditionally guaranteed as to payment of principal
and interest on a subordinated basis by CoreStates
Financial Corp. Filed as Exhibit 4 of Registrant's
Current Report on Form 8-K dated October 21, 1993 and
incorporated herein by reference.
4.14 Specimen of CoreStates Capital Corp Medium-Term Note
(Senior Fixed Rate). Filed as Exhibit 4(d) to
Registrant's Registration Statement on Form S-3, No. 33-
54049 and incorporated herein by reference.
4.15 Specimen of CoreStates Capital Corp Medium-Term Note
(Senior Floating Rate). Filed as Exhibit 4(e) to
Registrant's Registration Statement on Form S-3, No. 33-
54049 and incorporated herein by reference.
</TABLE>
26
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Page No.
- ----------- --------
<S> <C> <C>
4.16 Specimen of CoreStates Capital Corp Medium-Term Note
(Subordinated Fixed Rate). Filed as Exhibit 4(f) to
Registrant's Registration Statement on Form S-3, No. 33-
54049 and incorporated herein by reference.
4.17 Specimen of CoreStates Capital Corp Medium-Term Note
(Subordinated Floating Rate). Filed as Exhibit 4(g) to
Registrant's Registration Statement on Form S-3, No. 33-
54049 and incorporated herein by reference.
10.1 * Incentive Compensation Plan for CoreStates Financial
Corp and Participating Subsidiaries effective January
1, 1983. Filed as Exhibit 10.5 to the Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1983 and incorporated herein by reference.
10.2 * Long-Term Incentive Compensation Plan of CoreStates
Financial Corp as amended through April 18, 1989. Filed
as Exhibit 10.4 to the Registrant's Report on Form 10-K
for the fiscal year ended December 31, 1989 and
incorporated herein by reference.
10.3 * Hamilton Bank Directors Deferred Compensation Plan.
Filed as Exhibit 1b, File No. 0-6879 to National
Central Financial Corporation's Form 10-K for the year
ended December 31, 1980 and incorporated herein by
reference.
10.4 * Deferred Compensation Plan for Directors of Hamilton
Bank as amended and restated effective July 1, 1988.
Filed as Exhibit 10.6 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31,
1987 and incorporated herein by reference.
</TABLE>
27
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Page No.
- ----------- --------
<S> <C> <C>
10.5 * Deferred Compensation Plan for Directors of CoreStates
Financial Corp and The Philadelphia National Bank as
amended and restated effective April 1, 1988. Filed as
Exhibit 10.7 to the Registrant's Annual Report on Form
10-K for the fiscal year ended December 31, 1987 and
incorporated herein by reference.
10.6 * Deferred Compensation Plan for Officers of CoreStates
Financial Corp and Participating Subsidiaries as
amended and restated effective January 1, 1988. Filed
as Exhibit 10.8 to the Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1987
and incorporated herein by reference.
10.7 * The CoreStates Financial Corp Supplemental Retirement
Plan. Filed as Exhibit 10.9 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December
31, 1987 and incorporated herein by reference.
10.8 * Profit Sharing Deferral Plan for Officers of CoreStates
Financial Corp and Participating Subsidiaries effective
November 1, 1987. Filed as Exhibit 10.10 to the
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1987 and incorporated herein by
reference.
10.9 Agreement between New Jersey National Bank and Textron
Financial- New Jersey, Inc. for the sale and leaseback
of the Corporate and operations centers and four
branches. Filed as Exhibit 10(i), File No. 0-6002 to
the New Jersey National Corporation Annual Report on
Form 10-K for the fiscal year ended December 31, 1985
and incorporated herein by reference.
</TABLE>
28
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Page No.
- ----------- --------
<S> <C> <C>
10.10 Agreement and Plan of Reorganization, dated as of
September 18, 1989, between First Pennsylvania
Corporation and CoreStates Financial Corp. Filed as
Appendix I to the Joint Proxy Statement of CoreStates
Financial Corp and First Pennsylvania Corporation
included in the Registrant's Registration Statement on
Form S-4 (File No. 33-31896) and incorporated herein by
reference.
10.11 Lease between Centre Square, Inc. and Tishman
Construction Company of Pennsylvania, Inc. and The
First Pennsylvania Banking and Trust Company, dated as
of December 13, 1968 as amended through January 31,
1974, for the property known as Centre Square West.
Filed as Exhibit 10.15 to the Registrant's Annual
Report on Form 10-K for the fiscal year ended December
31, 1989 and incorporated herein by reference.
10.12 * First Pennsylvania Corporation Amended and Restated
Retirement Benefit Supplement Plan filed as Exhibit
10.16 to the Registrant's Annual Report on Form 10-K
for the fiscal year ended December 31, 1992 and
incorporated herein by reference.
10.13 Agreement and Plan of Reorganization dated as of
February 13, 1992 between First Peoples Financial
Corporation and CoreStates Financial Corp filed as
Exhibit 2(b) to the Registrant's Registration Statement
on Form S-3 (File No. 33-54049) and incorporated herein
by reference.
10.14 * CoreStates Financial Corp 1992 Long Term Incentive Plan
filed as Exhibit 10.18 to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992
and incorporated herein by reference.
10.15 * CoreStates Financial Corp Stock Compensation Plan For
Non-Employee Directors filed as Exhibit 10.19 to
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1992 and incorporated herein by
reference.
</TABLE>
29
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Page No.
- ----------- --------
<S> <C> <C>
10.16 * CoreStates Financial Corp 401 Excess Plan For Senior
Management filed as Exhibit 10.20 to Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1992 and incorporated herein by reference.
10.17 Agreement to Form a Joint Venture By and Among Banc One
Corporation, CoreStates Financial Corp, PNC Financial
Corp and Society Corporation dated as of July 21, 1992
filed as Exhibit 10.21 to Registrant's Annual Report on
Form 10-K for the fiscal year ended December 31, 1992
and incorporated herein by reference.
10.18 * Incentive Compensation Plan for Designated Executives
of CoreStates Financial Corp and Participating
Subsidiaries.
10.19 * Independence Bancorp, Inc. Supplemental Executive
Retirement Plan.
10.20 Distribution Agreement dated January 29, 1991 among
CoreStates Financial Corp, CoreStates Capital Corp and
Merrill Lynch & Co., Goldman, Sachs & Co., Shearson
Lehman Brothers Inc. and J.P. Morgan Securities Inc.
Filed as Exhibit 4.5 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31,
1991 and incorporated herein by reference.
10.21 Underwriting Agreement dated February 12, 1991 among
CoreStates Financial Corp, CoreStates Capital Corp and
Shearson Lehman Brothers Inc., Goldman, Sachs & Co.,
Merrill Lynch & Co. and J.P. Morgan Securities Inc.
Filed as Exhibit 4.6 to the Registrant's Annual Report
on Form 10-K for the fiscal year ended December 31,
1991 and incorporated herein by reference.
</TABLE>
30
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Page No.
- ----------- --------
<S> <C> <C>
10.22 Distribution Agreement dated September 16, 1994 among
CoreStates Financial Corp, CoreStates Capital Corp and
Merrill Lynch & Co., Goldman, Sachs & Co., Lehman
Brothers Inc., J.P. Morgan Securities Inc., CS First
Boston Corporation and Smith Barney Inc. Filed as
Exhibit 1(b) to the Registrant's Registration Statement
on Form S-3, No. 33-54049 and incorporated herein by
reference.
10.23 Underwriting Agreement dated September 16, 1994 among
CoreStates Financial Corp, CoreStates Capital Corp and
Lehman Brothers Inc., Goldman, Sachs & Co., Merrill
Lynch & Co., J.P. Morgan Securities Inc., CS First
Boston Corporation and Smith Barney Inc. Filed as
Exhibit 1(a) to the Registrant's Registration Statement
on Form S-3, No. 33-54049 and incorporated herein by
reference.
11 CoreStates Financial Corp Statement re Computation of
Per Share Earnings.
12.1 CoreStates Financial Corp and Subsidiaries Computation
of Ratio of Earnings from Continuing Operations to
Fixed Charges of Continuing Operations.
12.2 CoreStates Financial Corp Computation of Ratio of
Earnings to Fixed Charges Combined CoreStates (Parent
Company) and CoreStates Capital
13 Pages 10 through 69 of the Registrant's Annual Report
to Shareholders for the fiscal year ended December 31,
1994.
21 List of Subsidiaries.
23.1 Consent of Ernst & Young LLP
23.2 Consent of KPMG Peat Marwick LLP
23.3 Consent of Coopers & Lybrand L.L.P.
</TABLE>
31
<PAGE>
<TABLE>
<CAPTION>
Exhibit No. Page No.
- ----------- --------
<S> <C> <C>
27 Financial Data Schedule.
99.1 Undertaking - Form S-8 Registration Statements.
</TABLE>
* Management contract or compensatory plan or arrangement required to be
filed as an exhibit pursuant to Item 14(c) of Form 10-K.
NOTE: CoreStates Financial Corp will furnish, at cost, any exhibit not
accompanying this document upon request. Cost for each document is determined by
the number of pages in the document.
(b) Reports on Form 8-K for the quarter ended December 31, 1994:
A Report on Form 8-K was filed on October 19, 1994 reporting earnings
information contained in the news release of CoreStates Financial Corp dated
October 19, 1994.
A Report on Form 8-K was filed on December 2, 1994 reporting that
CoreStates Financial Corp had completed the acquisition of Germantown Savings
Bank on December 2, 1994.
32
<PAGE>
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
CoreStates Financial Corp
We have audited the accompanying consolidated balance sheets of CoreStates
Financial Corp as of December 31, 1994 and 1993, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the 1993 and 1992 financial statements of
Constellation Bancorp and Independence Bancorp, Inc., which statements reflect
total assets constituting 17.2% of the related consolidated totals as of
December 31, 1993, and net interest income constituting 15.6% of the related
consolidated totals for each of the years ended December 31, 1993 and 1992.
Those statements were audited by other auditors whose reports thereon have been
furnished to us, and our opinion, insofar as it relates to data included for
Constellation Bancorp and Independence Bancorp, Inc. is based solely on the
reports of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of CoreStates Financial Corp at December 31,
1994 and 1993, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 1994, in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, in 1994 and 1993 the Company
changed its methods of accounting for certain investments in debt and equity
securities, in 1993 the Company changed its method of accounting for post-
employment benefits, and in 1992 the Company changed its method of accounting
for income taxes and for post-retirement benefits other than pensions.
/s/Ernst & Young LLP
Philadelphia, Pennsylvania
February 7, 1995
33
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
Constellation Bancorp:
We have audited the consolidated statement of condition of Constellation Bancorp
and subsidiaries as of December 31, 1993 and the related consolidated
statements of operations, changes in shareholders' equity, and cash flows for
each of the years in the two-year period ended December 31, 1993 (not presented
separately herein). These consolidated financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Constellation
Bancorp and subsidiaries at December 31, 1993 and 1992 and the results of their
operations and their cash flows for each of the years in the two-year period
ended December 31, 1993, in conformity with generally accepted accounting
principles.
As explained in Note 1 to the consolidated financial statements, Constellation
Bancorp adopted the provisions of the Financial Accounting Standards Board's
Statements of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other than Pensions," No. 109, "Accounting for Income
Taxes," and No. 115, "Accounting for Certain Investments in Debt and Equity
Securities," in 1993.
As discussed in Note 1, the accompanying 1993 Consolidated Financial Statements
have been restated to remove certain merger-related charges.
/s/KPMG Peat Marwick LLP
Short Hills, New Jersey
March 16, 1994, except as to the
third paragraph of Note 1 and
the last paragraph of Note 16,
which are as of July 19, 1994
34
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Independence Bancorp, Inc.
We have audited the consolidated balance sheet of Independence Bancorp, Inc. and
Subsidiaries as of December 31, 1993 and the related consolidated statements of
income, changes in stockholders' equity, and cash flows for each of the two
years in the period ended December 31, 1993. These financial statements are the
responsibility of the Company's management. Our responsibility is to express an
opinion on these financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated financial position of
Independence Bancorp, Inc. and Subsidiaries at December 31, 1993 and the
consolidated results of their operations and their cash flows for each of the
two years in the period ended December 31, 1993 in conformity with generally
accepted accounting principles.
As discussed in the Notes to the Consolidated Financial Statements, the Company
changed its method of accounting for investments in 1993 and method of
accounting for income taxes in 1992.
/s/Coopers & Lybrand L.L.P.
January 19, 1994
2400 Eleven Penn Center
Philadelphia, Pennsylvania
35
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15 (d) 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.
(Registrant) CORESTATES FINANCIAL CORP
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/Terrence A. Larsen Director, Chairman March 15, 1995
- -------------------------- of the Board and
Terrence A. Larsen Chief Executive
Officer
(principal
executive
officer)
/s/David C. Carney Principal financial March 15, 1995
- -------------------------- officer
David C. Carney
/s/Albert W. Mandia Principal March 15, 1995
- -------------------------- accounting officer
Albert W. Mandia
<CAPTION>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
<S> <C> <C>
/s/George A. Butler Director March 15, 1995
- --------------------------
George A. Butler
/s/Nelson G. Harris Director March 15, 1995
- --------------------------
Nelson G. Harris
/s/Carlton E. Hughes Director March 15, 1995
- --------------------------
Carlton E. Hughes
/s/Shirley A. Jackson Director March 15, 1995
- --------------------------
Shirley A. Jackson
</TABLE>
36
<PAGE>
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/Ernest E. Jones Director March 15, 1995
- --------------------------
Ernest E. Jones
/s/Herbert Lotman Director March 15, 1995
- --------------------------
Herbert Lotman
/s/George V. Lynett Director March 15, 1995
- --------------------------
George V. Lynett
/s/Patricia A. McFate Director March 15, 1995
- --------------------------
Patricia A. McFate
/s/John A. Miller Director March 15, 1995
- --------------------------
John A. Miller
/s/Marlin Miller, Jr. Director March 15, 1995
- --------------------------
Marlin Miller, Jr.
/s/Stephanie W. Naidoff Director March 15, 1995
- --------------------------
Stephanie W. Naidoff
/s/Seymour S. Preston, III Director March 15, 1995
- --------------------------
Seymour S. Preston, III
/s/James M. Seabrook Director March 15, 1995
- --------------------------
James M. Seabrook
/s/J. Lawrence Shane Director March 15, 1995
- --------------------------
J. Lawrence Shane
/s/Raymond W. Smith Director March 15, 1995
- --------------------------
Raymond W. Smith
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
Signature Capacity Date
--------- -------- ----
<S> <C> <C>
/s/Harold A. Sorgenti Director March 15, 1995
- --------------------------
Harold A. Sorgenti
/s/Peter S. Strawbridge Director March 15, 1995
- --------------------------
Peter S. Strawbridge
</TABLE>
38
<PAGE>
EXHIBIT 4.5
-----------
SECOND SUPPLEMENTAL INDENTURE
THIS SECOND SUPPLEMENTAL INDENTURE, dated as of August 1, 1994, by and
between CoreStates Capital Corp, a corporation organized and existing under the
laws of the Commonwealth of Pennsylvania (the "Company"), CoreStates Financial
Corp, a corporation duly organized and existing under the laws of the
Commonwealth of Pennsylvania (the "Guarantor") Citibank, N.A., a national
banking association organized under the laws of the United States of America
(the "New Trustee") and Bank One, Columbus, NA, a national banking association
organized under the laws of the United States of America (the "Original
Trustee"),
WITNESSETH:
WHEREAS, the Company and the Guarantor have heretofore duly executed and
delivered to the Original Trustee their Indenture dated as of December 1, 1990,
as supplemented by a First Supplemental Indenture dated as of March 1, 1993
(collectively, the "Indenture"), to provide for the issuance from time to time
by the Company of Securities and the guarantee thereof by the Guarantor; and
WHEREAS, by the provisions of Article Ten, Section 10.01(5), of the
Indenture, the Company and the Guarantor, when authorized by Board Resolutions,
and the Original Trustee may, together with the New Trustee, enter into an
indenture supplemental to the Indenture without the consent of any Holders of
Securities to provide for or facilitate the administration of the trusts
thereunder by more than one Trustee, pursuant to the requirements of Section
711(b) thereof; and
WHEREAS, the parties hereto desire to execute and deliver to the Original
Trustee and the New Trustee a supplemental indenture by the terms of which the
Original Trustee shall remain as Trustee with respect to all Securities issued
prior to the date hereof and the New Trustee shall accept the appointment as
Trustee with respect to all Securities issued from and after the date hereof;
and
WHEREAS, all acts and things necessary to constitute these presents a valid
supplemental indenture and agreement have been done and performed, and the
execution of this Second Supplemental Indenture has in all respects been duly
authorized, and the Company, the Guarantor, the Original Trustee and the New
Trustee, in the exercise of the legal right and power vested in each, execute
this Second Supplemental Indenture.
NOW THEREFORE, THIS SECOND SUPPLEMENTAL INDENTURE WITNESSETH:
<PAGE>
For and in consideration of the premises and the purchase of the Securities
by the Holders thereof, it is mutually covenanted and agreed, for the equal and
proportionate benefit of all Holders of Securities from and after the date
hereof as follows:
ARTICLE ONE
DEFINITIONS
Section 1.01. For all purposes of this Second Supplemental Indenture,
------------
except as otherwise expressly provided in this Article One or unless the context
otherwise requires, terms used herein that are defined in the Indenture, either
directly or by reference therein, have the meanings ascribed to them therein.
Section 1.02. The definitions of "Business Day" and "Corporate Trust
------------
Office" are hereby deleted and in their places are inserted the following:
"Business Day", except as may otherwise be provided in the form of
------------
Securities of any particular series pursuant to the provisions in this
Indenture, means, with respect to the applicable Trustee and the Securities
for which it is acting in such capacity, and for any Place of Payment, each
Monday, Tuesday, Wednesday, Thursday and Friday which is not a day on which
banking institutions or trust companies in the city of Columbus, Ohio, in
the case of the Original Trustee, or in The City of New York, in the case
of the New Trustee, and in the Place of Payment are authorized or obligated
by law to close.
"Corporate Trust Office" means the principal office of the applicable
----------------------
Trustee, at which at any particular time its corporate trust business shall
be administered, which office, at the date of execution of this Second
Supplemental Indenture is, for the Original Trustee, located at 100 East
Broad Street, Columbus, Ohio 43271-0181, Attention: Corporate Trust
Division and is, for the New Trustee, located at 120 Wall Street, 13th
Floor, New York, New York 10043, Attention: Corporate Trust Department.
ARTICLE TWO
APPOINTMENT
Section 2.01. The New Trustee hereby accepts the appointment as Trustee
------------
under the Indenture for all Securities issued from and after the date of this
Second Supplemental Indenture and shall exercise all rights, powers, trusts and
duties pertaining thereto with respect to such Securities as set forth in the
Indenture.
2
<PAGE>
Section 2.02. The rights, powers, trusts and duties of the Original
------------
Trustee under the Indenture with respect to all Securities issued pursuant
thereto prior to the date of this Second Supplemental Indenture are hereby
confirmed and shall continue to be vested in the Original Trustee.
Section 2.03. Nothing contained herein or in the Indenture shall cause the
------------
New Trustee and the Original Trustee to be considered cotrustees of the same
trust. The New Trustee and the Original Trustee shall each be trustee of a
trust or trusts for the Securities for which they are acting as Trustee under
the Indenture, separate and apart from any trust or trusts administered
thereunder by such other Trustee.
Section 2.04. Upon execution and delivery of this Second Supplemental
------------
Indenture, the Original Trustee shall have no further responsibility for the
exercise of rights and powers or for the performance of the duties and
obligations vested in the Trustee under the Indenture for any Securities issued
on or after the date hereof.
ARTICLE THREE
OBLIGATIONS CONCERNING TRUSTEES
Section 3.01. Each of the Original Trustee and the New Trustee hereby
------------
accept this Second Supplemental Indenture, but only upon the terms and
conditions set forth in the Indenture as supplement hereby. The Original
Trustee and the New Trustee shall be entitled to, may exercise, and shall be
protected by, where, and to the full extent that the same are applicable, all
the rights, powers, privileges, immunities and exemptions provided in the
Indenture as if the provisions concerning the same were incorporated herein at
length. The recitals and statements in this Second Supplemental Indenture shall
be taken as statements of the Company and the Guarantor, and shall not be
considered as made by, or imposing any obligation or liability upon, the
Original Trustee or the New Trustee, nor shall the Original Trustee or the New
Trustee be held responsible for the legality or validity of this Second
Supplemental Indenture, and neither the Original Trustee nor the New Trustee
make any covenant or representation nor shall either of them be responsible as
to or for the effect, authorization, execution, delivery or validity hereof.
ARTICLE FOUR
MISCELLANEOUS PROVISIONS
Section 4.01. This Second Supplemental Indenture shall take effect,
------------
without further action of the parties hereto, immediately upon execution by all
of the parties.
3
<PAGE>
Section 4.02. Except as herein expressly provided, the Indenture is in all
------------
respects ratified and confirmed and all the terms, provisions and conditions
thereof shall be and remain in full force and effect.
Section 4.03. The recitals contained herein shall be taken as the
------------
statements of the Company and the Guarantor, and neither the Original Trustee
nor the New Trustee assume any responsibility for their correctness. Neither
the Original Trustee nor the New Trustee make any representations as to the
validity or sufficiency of this Second Supplemental Indenture.
Section 4.04. This Second Supplemental Indenture may be executed in
------------
several counterparts, and each of such counterparts shall for all purposes be
deemed to be an original, and all such counterparts shall together constitute
but one and the same instrument.
Section 4.05. This Second Supplemental Indenture shall be governed by and
------------
construed in accordance with the laws of the State of New York.
IN WITNESS WHEREOF, the parties hereto have caused this Second Supplemental
Indenture to be duly executed, all as of the day and year first above written.
CORESTATES CAPITAL CORP
[Corporate Seal]
Attest__________________ By_____________________________
Secretary Vice President and Treasurer
CORESTATES FINANCIAL CORP
[Corporate Seal]
Attest__________________ By_____________________________
Secretary Executive Vice President
BANK ONE, Columbus, NA
[Corporate Seal]
Attest__________________ By_____________________________
Authorized Signer Authorized Signer
CITIBANK, N.A.
[Corporate Seal]
Attest__________________ By_____________________________
Authorized Signer Authorized Signer
4
<PAGE>
EXHIBIT 10.18
-------------
INCENTIVE COMPENSATION PLAN FOR DESIGNATED EXECUTIVES
OF CORESTATES FINANCIAL CORP AND PARTICIPATING SUBSIDIARIES
EFFECTIVE AS OF JANUARY 1, 1995
1. PURPOSE
The purpose of the Incentive Compensation Plan for Designated Executives
(the "Plan") is to support the business goals and earnings of CoreStates
Financial Corp ("CoreStates") and its participating subsidiaries by providing
additional, variable and contingent incentive compensation to attract, retain
and motivate key members of executive management whose performance has and will
continue to have a substantial impact on the earnings performance and growth of
the Corporation.
2. DEFINITIONS
(a) "AWARD RECIPIENT" shall mean an Eligible Participant who has continued
in the full time employ of the Corporation during the respective Incentive Year,
who remains so employed at the time of the granting of awards under the Plan and
who is selected for an award pursuant to the Plan; provided that an Eligible
Participant who retires under, and begins receiving an immediate pension benefit
from, the CoreStates Retirement Plan shall be eligible to receive a pro-rated
award under the Plan for the year of retirement (including early retirement).
Any Eligible Participant who ceases to be a full time Employee of the
Corporation during an Incentive Year or who is not so employed at the time of
the granting of awards under the Plan for any reason other than retirement as
stated above shall not be eligible for an award for such Incentive Year.
(b) "BOARD OF DIRECTORS" shall mean the Board of Directors of CoreStates.
(c) "CHIEF EXECUTIVE OFFICER" shall mean the Chief Executive Officer of
CoreStates.
(d) "CORPORATION" shall mean CoreStates Financial Corp and its
Participating Subsidiaries.
(e) "ELIGIBLE PARTICIPANT" shall mean the Chief Executive Officer and any
executive officer employed by the Corporation whose cash compensation
opportunity, as determined by the Human Resources Committee, places her or him
in the group of highly compensated officers subject to section 162(m) of the
Internal Revenue Code, as it applies to the tax deductibility of compensation
paid to executives. An award Recipient under the Incentive Compensation Plan
for CoreStates Financial Corp and Participating Subsidiaries is ineligible to
receive an award under this Plan.
<PAGE>
(f) "HUMAN RESOURCES COMMITTEE" shall mean a committee appointed by, and
serving at the pleasure of, the Board of Directors, composed of not less than
three members of such Board, none of whom shall be eligible for an award under
the Plan.
(g) "INCENTIVE YEAR" shall mean any respective fiscal year of CoreStates
beginning on or after January 1, 1995, during which the Plan shall be in effect.
(h) "MAXIMUM AWARD" shall mean: 1) For the Chief Executive Officer: an
amount not greater than 150% of salary and no more than $1,500,000 per year; 2)
For any other designated executive: an amount not greater than 100% of salary
and no more than $700,000 per year.
(i) "PARTICIPATING SUBSIDIARY" shall mean CoreStates Bank, N.A., and any
other Subsidiary which has been admitted to participation in the Plan with the
approval of the boards of directors of CoreStates and the respective Subsidiary.
(j) "SALARY" shall mean regular fixed compensation in the currency of the
United States which is paid by the Corporation to any Eligible Participant
during any year of service rendered to the Corporation but such term shall not
include any payment for overtime, bonus, incentive award, profit sharing
distribution, stock options, stock awards, stock appreciation rights,
supplemental compensation, retirement benefit or similar type payment.
(k) "SALARY GRADE MIDPOINT" shall mean the respective midpoint of the
salary grades or equivalent thereof of the Corporation as of January 1 of the
respective Incentive Year.
(l) "SUBSIDIARY" shall mean any corporation at least 50% of the
outstanding voting stock of which is owned directly or indirectly by CoreStates.
(m) "TARGET AWARD" shall mean such amount expressed as a percent of Salary
Grade Midpoint of an Eligible Participant projected for award to such Eligible
Participant as of the commencement of and for such Incentive Year on the
assumption that the performance objectives of the Corporation for the Incentive
Year as determined by the Human Resources Committee will in each case be fully
achieved.
3. ADMINISTRATION AND GENERAL CONDITIONS
(a) The Plan shall be administered by the Human Resources Committee.
(b) As soon as practicable after the commencement of each Incentive Year,
the Human Resources Committee shall consult with
2
<PAGE>
the Chief Executive Officer of CoreStates and shall determine the Eligible
Participants and the Target Award for each Eligible Participant. The Human
Resources Committee may during any Incentive Year revise the Target Award for an
Eligible Participant based on changes in such person's salary grade,
responsibilities or other factors, but in no case shall the revised Target Award
result in an award opportunity in excess of the Maximum Award allowable under
the Plan.
(c) The Human Resources Committee shall adopt such rules and procedures
and shall make such determinations and interpretations of the Plan thereunder
as it shall deem desirable. All such rules, procedures and determinations
shall be conclusive and binding upon all parties.
(d) Classification as an Eligible Participant or determination of a Target
Award shall not in themselves be deemed to create any rights or interests under
the Plan, and the interest of an Award Recipient in the Plan shall not be
assignable either by voluntary or involuntary assignment or by operation of the
law.
(e) An award under the Plan shall not confer any right on the Award
Recipient to continue in the employ of the Corporation or limit in any way the
right of the Corporation to terminate employment at any time.
(f) The Plan shall be effective as of January 1, 1995, subject to approval
by CoreStates' shareholders, and shall continue from year to year until
terminated by the Board of Directors.
(g) The Board of Directors may amend, suspend or terminate the Plan at any
time, but may in no way reduce amounts previously awarded under the Plan and to
which Award Recipients are entitled.
4. DETERMINATION OF AWARDS
The selection among Eligible Participants for awards and the amount of the
award to each such Eligible Participant shall be determined by the Human
Resources Committee after consultation with the Chief Executive Officer. The
Human Resources Committee shall determine the amount of the award to the Chief
Executive Officer. The actual award paid to an Individual Participant shall not
exceed either 150% of her or his Target Award, or the Maximum Award allowable
under the Plan.
With respect to the determination of the amount of any awards for any
Incentive Year, the Human Resources Committee may take into account the
profitability of the operation of the Corporation in comparison with a prior
year or years and/or in
3
<PAGE>
comparison with other corporations and/or generally prevailing economic
conditions, the presence or absence of nonrecurring or extraordinary items of
income, gain, expense or loss (including security gains and losses) and any and
all other factors which, in its sole discretion, it may deem relevant. Such
factors may result in the Human Resources Committee adjusting the amount of any
awards paid downward, but in no case will upward adjustments be made.
5. PERFORMANCE OBJECTIVES
The Human Resources Committee no later than 90 days after the commencement
of the Incentive Year shall determine the performance objectives for the
Incentive Year.
The Human Resources Committee shall determine the quantitative objectives
(i.e. earnings per share, net income after capital charge, return on equity,
return on assets, return on investment, total shareholder return), and the
qualitative objectives, if any, for the Incentive Year. The weighting of the
selected objectives shall also be determined by the Human Resources Committee.
6. PAYMENT OF AWARDS
Awards shall be payable in cash as soon as practicable after the
consolidated financial results and the assessment of achievement of qualitative
objectives, if any, for the Corporation have been determined and certified.
At the discretion of the Human Resources Committee, an Award Recipient may
request that any amount shall be deferred in such manner and subject to such
conditions as the Human Resources
4
<PAGE>
Committee shall determine. Such request shall be made in writing in accordance
with guidelines adopted by the Human Resources Committee to conform with
applicable tax law. Any such deferred awards shall be retained as part of the
general assets of the Corporation. Interest shall be credited annually on any
deferred amounts at a reasonable rate established from time to time by the Human
Resources Committee. Interest credits shall be payable in the same manner as
amounts elected to be deferred by the Award Recipient.
7. APPLICABLE TAXES
Payment of all awards hereunder shall be subject to withholding of all
Federal, state or local taxes which, by law, must be withheld in respect to such
payment.
5
<PAGE>
EXHIBIT 10.19
-------------
INDEPENDENCE BANCORP, INC.
SUPPLEMENTAL EXECUTIVE RETIREMENT PLAN
PURPOSE
-------
In accordance with a Resolution passed on November 18, 1986, Independence
Bancorp, Inc. has adopted this Supplemental Executive Retirement Plan to provide
eligible participants with a supplemental benefit equal to the difference
between the amount of benefit a participant would have received under the
Independence Capital Accumulation Plan and the Independence Savings Plan as
determined by the Plan formulas without maximum limitations and the amount they
have actually received as limited by the maximum contribution limitations set
forth in such plans.
ARTICLE I
DEFINITIONS
-----------
"CAPITAL ACCUMULATION PLAN" shall mean the Independence Capital
Accumulation Plan.
"CODE" shall mean the Internal Revenue Code of 1954, as amended.
"COMPENSATION" shall mean earnings for the taxable year ending with or
within the Plan Year which are subject to tax under Section 3101(a) of the Code
without the dollar limitations of Section 3121(a). Compensation shall not
include commissions, nor shall it include non-cash earnings such as insurance,
the use of vehicles or stock awards.
All compensation that is deferred by a Participant through a salary
reduction agreement to the Savings Plan, through a Deferral Compensation
Agreement under this Supplemental Plan or through any other deferred
compensation arrangement between the Employee and the Employer shall be included
as compensation under this Plan.
Any deferred compensation which is taken down by the Employee shall not be
counted twice in determining the benefits under this Plan.
"COMMITTEE" shall mean a group of individuals appointed by the Employer.
"COMPENSATION LIMIT" shall mean the limit imposed on the amount of
includable compensation for the purposes of contribution amount by the
Participant and the Employer under Section 401(a) of the code.
<PAGE>
"DEFERRED COMPENSATION AGREEMENT" shall mean an agreement executed by a
Participant and the Employer by which the Participant indicates the percentage
of his Compensation that is to be deferred in conjunction with the Savings Plan
and this Supplemental Plan.
"EFFECTIVE DATE" shall mean January 1, 1986.
"EMPLOYER" shall mean Independence Bancorp, Inc. and all of its
subsidiaries.
"MAXIMUM ANNUAL ADDITION LIMIT" shall mean the limitations imposed on
contributions made by or on behalf of a Participant under Section 415 of the
Code.
"PARTICIPANT" shall mean a Participant in this Supplemental Plan as
provided in Article III.
"PLAN YEAR" shall mean the twelve month period commencing with January 1 of
each year and ending with the following December 31.
"SALARY DEFERRAL LIMIT" shall mean the limit imposed on the amount of
salary a Participant may defer as contribution to the Savings Plan under Section
402(h) of the Code.
"SAVINGS PLAN" shall mean the Independence Savings Plan.
"SUPPLEMENTAL PLAN" shall mean this Supplemental Executive Retirement Plan
as set forth herein.
ARTICLE II
PURPOSE
-------
2.1 The Employer hereby establishes this Supplemental Plan effective
January 1, 1986 to provide the benefits which a Participant would have received
under the Capital Accumulation Plan and Savings Plan but for the Maximum Annual
Addition Limit, Salary Deferral Limit, and Compensation Limit provided for in
the Capital Accumulation Plan and Savings Plan.
ARTICLE III
ELIGIBILITY AND PARTICIPATION
-----------------------------
3.1 An individual is eligible to participate in this Supplemental Plan if
the individual's annual Compensation is in excess of $87,500 and is either:
2
<PAGE>
a. A Participant of the Capital Accumulation Plan, as defined in such
plan, whose contributions are limited thereunder by reason of either the
Maximum Annual Addition Limit, the Salary Deferral Limit or the
Compensation Limit provided under the Capital Accumulation Plan.
b. A Participant of the Savings Plan as defined by such Plan, and
i. his contributions are limited under the Savings Plan for
reasons described in Section 3.1(a) and
ii. the individual executes a Deferred Compensation agreement, if
necessary, prior to the period of service for which the
compensation is payable in 1986, or prior to the prior
January 1 of each subsequent for such year.
c. A member of Senior Management designated by the Committee as
eligible for immediate participation.
ARTICLE IV
CONTRIBUTION AMOUNTS
--------------------
4.1 Participant Contributions - The Participant shall contribute to this
Supplemental Plan the excess, if any, of (a) over (b) where:
a. The percentage of Compensation such Participant elected to defer
under the Savings Plan times the definition of Compensation defined under
this Supplemental Plan.
b. The amount actually deferred into the Savings Plan on his behalf.
4.2 Participant Contributions to this Supplemental Plan shall be made
through a Deferred Compensation Agreement that shall be executed prior to the
period of service for which the compensation is payable in 1986, or prior to the
prior January 1 of each subsequent for such year.
4.3 The Employer shall contribute the excess, if any, of (a) over (b)
where:
a. The amount of Employer contributions the Participant would be
entitled under the Capital Accumulation Plan and Savings Plan times the
definition of Compensation defined under this Supplemental Plan.
3
<PAGE>
b. The amount of Employer contribution actually made on behalf of the
Participant to the Capital Accumulation Plan and Savings Plan.
4.4 The Committee, at the beginning of each Plan Year, shall establish an
investment rate of return. The Employer will credit the Employee's account
balance with an amount equal to the investment income that would have been
earned had the account balance been invested at the aforementioned rate.
ARTICLE V
WITHDRAWALS
-----------
5.1 A Participant may withdraw while in the employ of the Employer the
vested accrued amounts under Article IV provided that the reason for such
withdrawal is hardship, as defined by Section 401(k) of the Code, and approved
by the Committee.
ARTICLE VI
TIME AND METHOD OF PAYMENT
--------------------------
6.1 Upon the Participant's retirement, death, disability, or separation
from employment, accrued vested amounts under Article IV shall be paid to such
Participant and/or his spouse or other beneficiary in a single sum or in period
payments, at the Participant's discretion.
In the event the Participant elects to receive periodic payments, this
election must be in writing and irrevocable with respect to the length of the
period.
6.2 The payments described in Section 6.1 shall commence no later than 60
days following the valuation date, as defined in the Capital Accumulation Plan
and Savings Plan, subsequent to retirement, death, disability, or separation
from employment. The contributions defined in Section 4.4 shall be accrued
through such valuation date.
ARTICLE VII
VESTING
-------
7.1 Participant contributions as described in Section 4.1 and the Employer
contributions representing the amount of investment income attributable to such
contributions as described in Section 4.4 shall be 100% vested at all times.
4
<PAGE>
7.2 Employer contributions as described in Section 4.3 and the Employer
contributions representing the amount of investment income attributable to such
contributions as described in Section 4.4 shall vest according to the schedule
under the Savings Plan. In addition, those events that automatically fully vest
a Participant's account in the Savings Plan will do likewise in this
Supplemental Plan.
5
<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 Twelve Months Ended
December 31, December 31,
-------------------- --------------------
1994 1993 1994 1993
-------- -------- ---------- --------
<S> <C> <C> <C> <C>
(A) Income before cumulative effect of a
change in accounting principle.......... $111,475 $ 94,672 $248,792 $362,429
Cumulative effect of a change in
accounting principle.................... (3,430) (13,010)
-------- -------- -------- --------
(B) Net Income.............................. $111,475 $ 94,672 $245,362 $349,419
======== ======== ======== ========
EARNINGS PER SHARE
Based on average common shares outstanding
- ------------------------------------------
(C) Average shares outstanding.............. 142,252 145,372 142,498 145,398
======== ======== ======== ========
(A/C) Income before cumulative effect of a
change in accounting principle...... $0.78 $0.65 $1.75 $2.49
======== ======== ======== ========
(B/C) Net Income............................ $0.78 $0.65 $1.73 $2.40
======== ======== ======== ========
Based on average common and common
- ----------------------------------
equivalent shares outstanding
- -----------------------------
Primary:
(D) Average common equivalent shares........ 922 1,604 1,207 1,809
===== ===== ===== =====
(E) Average common and common
equivalent shares (C + D)................ 143,174 146,976 143,705 147,207
======= ======= ======= =======
(A/E) Income before cumulative effect of a
change in accounting principle (1). $0.78 $0.64 $1.73 $2.46
===== ===== ===== =====
(B/E) Net Income (1)........................ $0.78 $0.64 $1.71 $2.37
===== ===== ===== =====
Fully diluted:
(F) Average common equivalent shares........ 906 1,996 1,240 2,269
===== ===== ===== =====
(G) Average common and common
equivalent shares (C + F)................ 143,158 147,368 143,738 147,667
======= ======= ======= =======
(I) Interest expense on Subordinated
convertible debentures, net of tax......... $ 384 $ 480 $1,821 $1,918
===== ===== ====== ======
((A+I)/G) Income before cumulative effect
of a change in accounting
principle (1)........................ $0.78 $0.65 $1.74 $ 2.47
===== ===== ====== ======
((B+I)/G) Net Income (1)..................... $0.78 $0.65 $1.72 $ 2.38
===== ===== ====== ======
</TABLE>
- -------------------------------
(1) Dilution is less than 3%.
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
EXHIBIT 12.1
COMPUTATION OF RATIO OF EARNINGS FROM CONTINUING OPERATIONS
TO FIXED CHARGES OF CONTINUING OPERATIONS
CONSOLIDATED
<TABLE>
<CAPTION>
Twelve Months Ended December 31, 1994
- -------------------------------------
<S> <C>
1. Income from continuing operations before cumulative effect of
change in accounting principle and income taxes.................... $392,448
========
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.......................... $195,367
B. Interest on deposits............................................ 364,858
--------
C. Total fixed charges (line 2A + line 2B)......................... $560,225
========
3. Income from continuing operations before cumulative effect of
change in accounting principle and income taxes, plus total fixed
charges of continuing operations:
A. Excluding interest on deposits (line 1 + line 2A)............... $587,815
========
B. Including interest on deposits (line 1 + line 2C)............... $952,673
========
4. Ratio of earnings (as defined) to fixed charges:
A. Excluding interest on deposits (line 3A/line 2A)................ 3.01x
====
B. Including interest on deposits (line 3B/line 2C)................ 1.70x
====
</TABLE>
<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
<TABLE>
<CAPTION>
Twelve Months Ended December 31, 1994
- -------------------------------------
<S> <C>
1. Income before income taxes, equity in undistributed income
of subsidiaries and cumulative effect of change in accounting
principle...................................................... $221,559
2. Fixed charges - interest expense, amortization of
debt issuance costs and one-third of rental expenses, net of
income from subleases.......................................... 122,087
--------
3. Income before taxes, equity in undistributed income of
subsidiaries and cumulative effect of change in accounting
principle, plus fixed charges.................................. $343,646
========
4. Ratio of earnings (as defined) to fixed charges (line 3/
line 2)........................................................ 2.81x
====
</TABLE>
<PAGE>
CoreStates Financial Corp and Subsidiaries
Exhibit 13 - Portions of the Registrant's Annual Report
1
<PAGE>
1994 Annual Report
CoreStates Financial Corp and Subsidiaries
<TABLE>
<CAPTION>
CONTENTS OF FINANCIAL SECTION PAGE
----
<S> <C>
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS 3-41
FINANCIAL STATEMENTS
Management's Report on Internal Controls over
Financial Reporting................................... 42
Independent Accountants' Report and Report of
Independent Auditors.................................. 43-44
Consolidated Statements of Income for the
years ended December 31, 1994, 1993 and 1992.......... 45
Consolidated Balance Sheets as of December 31, 1994
and 1993.............................................. 46
Consolidated Statements of Changes in Shareholders'
Equity for the years ended December 31, 1994,
1993 and 1992......................................... 47
Consolidated Statements of Cash Flows for the years ended
December 31, 1994, 1993 and 1992...................... 48
Notes to the Consolidated Financial Statements............. 49-75
SUPPLEMENTAL FINANCIAL DATA
Six Year Average Balance Sheet, Statement of Income
and Balance Sheet..................................... 76-81
Shareholders' and Other Selected Data...................... 82
Rate/Volume Analysis Taxable Equivalent Basis.............. 83
Loan Portfolio, Risk Elements and Allowance for
Loan Losses Data...................................... 84-88
Selected Maturity and Interest Sensitivity Data............ 88-91
Fourth Quarter Results..................................... 92-95
</TABLE>
2
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
In 1994, CoreStates Financial Corp ("CoreStates") achieved solid earnings
performance amid the challenges of rising interest rates, merger consolidations
and a moderate business climate. Driving 1994 earnings performance were a strong
net interest margin, improved credit quality and expense management.
CoreStates' operating income for 1994, defined as net income excluding merger-
related charges and the cumulative effect of a change in accounting principle
was $416.2 million, or $2.92 per share, reflecting growth of 17.3% on a per
share basis, when compared to operating income of $362.4 million, or $2.49 per
share in 1993. See "Strategic Actions in 1994 - Acquisitions" beginning on page
5 for a detailed discussion of merger-related charges. CoreStates recorded net
income, before the cumulative effect of a change in accounting principle, of
$248.8 million, or $1.75 per share in 1994.
Key performance measures based on operating income continued to improve in 1994,
and are among the highest in the banking industry. Returns on average equity
and assets were 18.34% and 1.50%, respectively, in 1994, compared to 16.49% and
1.31%, respectively, in 1993. The 1994 Montgomery Securities Regional Bank
composites for returns on average equity and assets were 15.84% and .88%,
respectively. The Montgomery Securities Regional Bank composite is comprised of
the 41 largest regional banking companies, in terms of assets, in the United
States including CoreStates.
The improvement in 1994 operating income was primarily due to an increase in
taxable equivalent net interest income of $58.8 million, or 4.4%. The net
interest margin in 1994 was 5.80%, compared to 5.59% in 1993. The increases in
the level of taxable equivalent net interest income and in the net interest
margin were primarily the result of improved average loan demand, wider interest
rate spreads and a lower level of non-performing loans. While the rising
interest rate environment experienced during 1994 has negatively impacted
earnings and net interest margin at some banking companies, CoreStates' interest
rate risk management practices have continued to generate a strong and stable
net interest margin. CoreStates strives to maintain a neutral interest rate
risk sensitivity and avoids taking speculative positions based on interest rate
movement. For a detailed discussion of CoreStates' interest rate risk
management practices, see the "Asset and Liability Management" section beginning
on page 27.
Also contributing to the 1994 improvement was a reduction of $19.3 million, or
15.9%, in CoreStates' provision for loan losses excluding $145.0 million of
merger-related provisions recorded in 1994. This decrease resulted primarily
from the improved credit environment at CoreStates, as evidenced by a 29.1%
decline in non-performing assets from December 31, 1993.
CoreStates' total operating expenses, excluding other real estate owned
expenses, as a percentage of total revenues, were 61.0% in 1994. This compares
to an expense ratio of 62.7% in 1993. The expense ratio improved throughout
each quarter of 1994 resulting from continued progress in achieving merger
efficiencies and from the heightened attention to expense management created by
the process redesign program (see "Strategic Actions in 1994 - Process Redesign"
on page 7). For the fourth quarter of 1994, the expense ratio was below 60%.
3
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
OVERVIEW - continued
Two 1994 acquisitions had a significant impact on 1994 results; Constellation
Bancorp ("Constellation") acquired on March 16, 1994 and Independence Bancorp,
Inc. ("Independence") acquired on June 27, 1994. The Constellation and
Independence acquisitions were both accounted for as poolings of interests.
After-tax merger-related charges totaling $127.8 million, or $.89 per share, for
Constellation and $39.6 million, or $.28 per share, for Independence were
recorded in connection with changes in strategic direction related to problem
assets and to conform those banks' consumer lending charge-off policies to those
of CoreStates, and for expenses directly attributable to the acquisitions.
Excluding the impact of merger-related charges, these two acquisitions resulted
in approximately $.17 dilution to CoreStates' 1994 earnings per share. All
prior period data have been restated to include Independence and Constellation.
On a business line basis, CoreStates' 1994 earnings improvement reflects another
year of strong growth achieved by the Wholesale Banking business, as that
business line's net income increased $40.2 million, or 23.2% over 1993. This
growth was primarily driven by a 6.8% increase in net interest income due to
higher average loan balances, wider interest rate spreads on prime-based loans
and substantial reductions in non-performing assets. The growth in average
loans was principally in the higher yielding asset-based lending portfolio at
Congress Financial Corporation. Wholesale Banking's provision for loan losses
was reduced 28.9% due to improvements in credit quality. For a more detailed
analysis of the performance of Wholesale Banking and CoreStates' other business
lines, refer to the "Business Line Results" section beginning on page 8.
Operating results, key financial ratios and per share information are summarized
in the following table (in millions, except per share):
<TABLE>
<CAPTION>
Percentage
increase(decrease)
------------------
1994 1993 1992 '94/'93 '93/'92
-------- -------- -------- ------- ----------
<S> <C> <C> <C> <C> <C>
OPERATING RESULTS
Net interest income (taxable
equivalent basis)........... $1,410.6 $1,351.8 $1,283.5 4.4% 5.3%
======== ======== ========
Income before the cumulative
effect of a change in
accounting principle,
net of tax.................. $ 248.8 $ 362.4 $ 268.1 (31.3) 35.2
Add back after-tax merger-
related charges............. 167.4
-------- -------- --------
Operating income.............. $ 416.2 $ 362.4 $ 268.1 14.8 35.2
======== ======== ========
Operating income per share.... $ 2.92 $ 2.49 $ 1.97 17.3 26.4
Return on average equity (a).. 18.34% 16.49% 13.75%
Return on average assets (a).. 1.50 1.31 .97
Net interest margin........... 5.80 5.59 5.32
Average common shares
outstanding................ 142.498 145.398 135.813
</TABLE>
- ------------------------
(a) Calculated based on "Operating income."
4
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
OVERVIEW - continued
COMPARISON OF 1993 TO 1992
Income before the cumulative effect of a change in accounting principle of
$362.4 million, or $2.49 per share for 1993 grew 26.4% on a per share basis when
compared to $268.1 million, or $1.97 per share for 1992. The growth in earnings
for 1993 reflected the broad strength in CoreStates' basic banking businesses.
Contributing to the growth in 1993 earnings were similar factors as those
contributing to 1994 growth. Increases in net interest income and the net
interest margin were primarily due to loan demand and significant reductions in
non-performing assets, and a reduction in the provision for loan losses resulted
from improvements in credit quality.
NON-PERFORMING ASSETS
Non-performing assets at December 31, 1994 totalled $310.9 million, a decline of
$127.8 million, or 29.1% from December 31, 1993. The decrease in non-
performing assets as compared to the level at December 31, 1993 was principally
in non-performing real estate assets which were down $119.4 million, or 38.1%
from year-end 1993. At December 31, 1994 the allowance for loan losses at
$500.6 million was 203.3% of non-performing loans. This compares to $450.8
million and 148.7% at December 31, 1993.
ACCOUNTING CHANGES AFFECTING INCOME
During the first quarter of 1994, Independence recognized a $3.4 million after-
tax, or $.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.
Effective January 1, 1993, CoreStates adopted Statement of Financial Accounting
Standards No. 112, "Employers' Accounting for Postemployment Benefits" ("FAS
112"). FAS 112 requires that employers accrue the costs associated with
providing benefits, such as salary and benefit continuation under disability
plans, when payment of the benefits is probable and the amount of the obligation
can be reasonably estimated. CoreStates recognized the January 1, 1993 FAS 112
transitional liability of $20.0 million, $13.0 million after-tax or $.09 per
share, as the cumulative effect of a change in accounting principle in 1993.
In 1992, CoreStates adopted Statement of Financial Accounting Standards No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions" ("FAS
106") effective January 1, 1992. FAS 106 requires that employers accrue the
costs associated with providing postretirement benefits during the active
service periods of employees. CoreStates recognized the January 1, 1992
transitional liability of $128.7 million, $84.9 million after-tax or $.62 per
share, as the cumulative effect of a change in accounting principle in 1992.
STRATEGIC ACTIONS IN 1994
ACQUISITIONS
CoreStates evaluates merger and acquisition opportunities where potential for
shareholder value enhancement, strategic growth and franchise development exist.
CoreStates makes acquisitions to supplement corporate and business line
strategies, not solely to drive earnings growth. Acquisition opportunities are
evaluated by a specialized staff aided by teams of business line managers who
are responsible for planning and executing due diligence and integration
activities.
The following discussion summarizes CoreStates' more significant acquisition
activity during 1994.
CONSTELLATION - On March 16, 1994, CoreStates acquired Constellation Bancorp
("Constellation") a New Jersey bank holding company with $2.3 billion in assets
and $2.1 billion in deposits. As a result of this transaction, approximately
11.3 million new shares of CoreStates' common stock were issued. The transaction
was accounted for as a pooling of interests.
5
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
STRATEGIC ACTIONS IN 1994 - CONTINUED
The acquisition of Constellation, which operates mostly in northern and central
New Jersey, is highly complementary to the branch network and businesses of
CoreStates' New Jersey National Bank ("NJNB") subsidiary and the merged bank is
the fifth largest in New Jersey with more than $6 billion in assets. The
acquisition creates the strength of presence CoreStates considers necessary in
the strategically important commercial and industrial middle region of New
Jersey.
Subsequent to the March 16, 1994 consummation of the Constellation acquisition,
Constellation recorded merger-related charges in the first quarter of 1994 in
connection with a change in strategic direction related to problem assets and to
conform its consumer lending charge-off policies to those of CoreStates, and for
expenses directly attributable to the acquisition. These merger-related charges
totaled $127.8 million after-tax, or $.89 per share. On a pre-tax basis, the
merger-related charges consisted of a $120.0 million provision for loan losses,
a $28.0 million addition to the OREO reserve, $13.0 million for the writedown of
purchased mortgage servicing rights and related assets, and $34.0 million for
expenses directly attributable to the acquisition including $8.0 million of
severance costs related to approximately 370 employees.
In addition to the impact of the merger-related charges, the Constellation
acquisition resulted in approximately $.02 dilution to CoreStates' 1994 earnings
per share. With the successful integration and consolidation of Constellation's
operations, 49 branches and other businesses into NJNB on April 29, 1994,
CoreStates expects to realize pre-tax expense efficiencies of approximately $35
million annually and a positive contribution to earnings per share in 1995.
INDEPENDENCE - On June 27, 1994, CoreStates acquired Independence Bancorp, Inc.
("Independence"), a Pennsylvania bank holding company with $2.6 billion in
assets and $2.1 billion in deposits. As a result of this transaction,
approximately 16.6 million new shares of CoreStates' common stock were issued.
The transaction was accounted for as a pooling of interests.
Subsequent to the June 27, 1994 consummation of the Independence acquisition,
Independence recorded merger-related charges in the second quarter of 1994 in
connection with a change in strategic direction related to problem assets and to
conform its consumer lending charge-off policies to those of CoreStates, and for
expenses directly attributable to the acquisition. These merger-related charges
totaled $39.6 million after-tax, or $.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.
The 54 branches of Independence's four Pennsylvania bank subsidiaries were
merged into CoreStates' lead banking subsidiary, CoreStates Bank, N.A. ("CBNA")
on November 18, 1994. Independence's operating areas and other businesses also
were integrated successfully into CoreStates on that date. In addition to the
impact of the merger-related charges, the Independence acquisition resulted in
approximately $.15 dilution to CoreStates' 1994 earnings per share. With the
November 18th integration, CoreStates expects to realize pre-tax expense
efficiencies of approximately $35 million annually and earnings per share
dilution will be eliminated by the fourth quarter of 1995.
6
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
STRATEGIC ACTIONS IN 1994 - CONTINUED
GERMANTOWN - On December 2, 1994, CoreStates acquired Germantown Savings Bank
("Germantown"), a $1.6 billion Pennsylvania chartered stock savings bank.
Germantown was purchased for approximately $260 million, of which approximately
55% was paid in CoreStates common stock and 45% was paid in cash. The
acquisition was accounted for under the purchase method of accounting and
accordingly, the results of operations of Germantown were combined with
CoreStates' results since the date of acquisition. Intangible assets of
approximately $191 million were created in this acquisition. For the period
January 1, 1994 through the date of acquisition, Germantown recorded net income
of $20.7 million. As a result of this acquisition, CoreStates issued
approximately 5.9 million shares of common stock out of treasury shares.
The 32 branches of Germantown were merged legally into CBNA on December 2, 1994
and will be merged operationally into CBNA's branch network on March 17, 1995.
This in-market acquisition is expected to result in annual pre-tax expense
savings of approximately $23 million, partially offset by approximately $12
million of annual after-tax amortization expense related to the intangible
assets created as a result of purchase accounting. The Germantown acquisition
is expected to add to earnings per share in the first quarter of 1995. As a
result of this acquisition, approximately 200 employees are expected to be
displaced.
NATIONAL REMITTANCE CENTERS - On January 27, 1995, CoreStates acquired
Nationwide Remittance Centers, Inc. ("NRC"), the largest independent remittance
processor in the United States. NRC will join CoreStates' third-party
remittance processing company, CashFlex, a subsidiary of CBNA, to create the
second largest lockbox processor in the country. Upon completion of this
transaction, CashFlex will service more than 60 major financial institutions and
will be processing 300 million payment items annually. This acquisition affirms
CoreStates' commitment to growing its fee-based businesses and to building on
its expertise in cash management. Fees earned by NRC were approximately $20
million on an annual basis.
MAJOR INITIATIVES
PROCESS REDESIGN - In order to build upon CoreStates' strong financial condition
and sustain previous financial successes, and accomplish this goal in the
competitive financial services environment in which CoreStates operates,
management has authorized an intensive review of all aspects of CoreStates'
operations and businesses. Based upon this review, CoreStates will redesign its
processes, as appropriate, to achieve the following objectives: (i) to enhance
CoreStates' customer focus; (ii) to accelerate the culture changes already in
progress at CoreStates; and (iii) to improve productivity.
CoreStates expects that this review will identify many current processes which
do not contribute value for customers and that the resulting process redesign
will lead to reductions in the number of jobs and future expense levels, and
increases in future revenues. CoreStates has designed this process to be
completed at the end of the first quarter of 1995. CoreStates further expects
to record a charge against earnings in the first quarter of 1995 for the costs
associated with the process redesign.
The amount of the restructuring charge and the impact of the process redesigns
on future results cannot be determined at this time.
ONE BANK, ONE NAME, ONE MISSION - The branches and trade divisions of CBNA which
previously had been operating and marketing under separate identities, have
adopted the name CoreStates Bank as the new identity for their banking
businesses.
Upon merging CBNA with NJNB, that combined entity also will operate under the
name CoreStates Bank. Regulatory approval for this interstate combination has
been received.
The benefits of replacing the various trade names will be less customer
confusion and unified marketing and advertising under one name. The combination
of the Pennsylvania and New Jersey banking subsidiaries will significantly
increase customer convenience.
7
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
BUSINESS LINE RESULTS
CoreStates utilizes a value-based reporting methodology to facilitate
management's analysis of performance by defined business lines. This process
supports CoreStates' strategic objective of creating superior growth in
shareholder value by focusing on the performance and value creation potential of
CoreStates' component businesses.
This section of management's discussion and analysis presents the performance
results of CoreStates' four core businesses: Wholesale Banking; Consumer
Financial Services; Trust and Investment Management; and Electronic Payment
Services, Inc. ("EPS"), an affiliate . Each core business is comprised of well-
defined business lines with market or product specific missions.
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 four major business areas; emerging business activities not
directly related to the four major business areas; and miscellaneous items.
The earnings contribution of these core businesses is reflected in the table
below (in millions):
8
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
BUSINESS LINE RESULTS - continued
<TABLE>
<CAPTION>
Consumer Trust and
Wholesale Financial Investment EPS, Inc.
taxable equivalent Banking Services Management Affiliate Corporate
--------------- ----------------- ---------------- --------------- -----------------
basis) 1994 1993 1994 1993 1994 1993 1994 1993 1994(b) 1993
------ ------- ------ -------- ----- ------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income............ $ 637.5 $ 596.7 $ 671.6 $ 650.3 $ 30.4 $ 31.0 $ (6.0) $ (5.7) $ 77.1 $ 79.5
Provision for loan
losses....................... 44.2 62.2 56.6 58.0 1.1 1.0 145.0
Non-interest income............ 219.9 216.9 175.0 189.0 98.3 104.4 31.8 13.2 42.5 50.5
Non-financial expenses......... 462.1 469.7 591.0 593.7 112.9 113.4 151.6 65.1
----- ----- ----- ----- ----- ----- ---- ---- ------ ----
Income (loss) before
income taxes................. 351.1 281.7 199.0 187.6 14.7 21.0 25.8 7.5 (177.0) 64.9
Income tax expense (benefit)... 137.8 108.6 77.5 71.6 5.5 7.7 9.1 (0.7) (65.1) 13.1
----- ----- ----- ----- ----- ----- ---- ---- ------ ----
Net income (loss).............. $ 213.3 $ 173.1 $ 121.5 $ 116.0 $ 9.2 $ 13.3 $ 16.7 $ 8.2 $(111.9) $ 51.8
======= ======= ======= ======= ====== ====== ====== ====== ======= =======
Return on assets............... 1.39% 1.17% 1.65% 1.51% 1.33% 1.93% 21.41% 11.88% (2.70)% 1.17%
Return on equity (a)........... 25.01 21.86 33.84 31.69 34.07 47.50 417.50 205.00 (10.90) 5.14
Average assets................. $15,396 $14,829 $ 7,358 $ 7,674 $ 692 $ 689 $ 78 $ 69 $ 4,143 $ 4,439
Average equity (a)............. 853 792 359 366 27 28 4 4 1,027 1,008
taxable equivalent Total
--------------------
basis) 1994 1993
-------- --------
<S> <C> <C>
Net interest income............ $1,410.6 $1,351.8
Provision for loan
losses....................... 246.9 121.2
Non-interest income............ 567.5 574.0
Non-financial expenses......... 1,317.6 1,241.9
------- -------
Income (loss) before
income taxes................. 413.6 562.7
Income tax expense (benefit)... 164.8 200.3
------- -------
Net income (loss).............. $ 248.8(c) $ 362.4(c)
======= =======
Return on assets............... .90% 1.31%
Return on equity (a)........... 10.96 16.49
Average assets................. $ 27,667 $ 27,700
Average equity (a)............. 2,270 2,198
</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 $120.0 million in the provision for loan losses and $75.0 million
in other operating expenses related to the Constellation acquisition and
$25.0 million in the provision for loan losses and $33.7 million in other
operating expenses related to the Independence acquisition.
(c) Based on income before cumulative effect of a change in accounting
principle.
9
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
BUSINESS LINE RESULTS - continued
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 1994 as net income increased $40.2 million,
or 23.2% above 1993. This increase was due primarily to growth in net interest
income and a decline in the provision for loan losses. Net interest income was
$40.8 million, or 6.8% above 1993 due to higher loan outstandings, higher
interest rate spreads on loans, lower levels of non-performing loans, and higher
loan fees. Average loan outstandings increased 5.4% from the prior year,
principally due to growth in the higher yielding asset-based lending portfolio
at Congress. Average non-performing loans declined 31.1% from the prior year.
The increase in loan fees principally resulted from loan prepayments and fees
collected on new loans. The provision for loan losses declined 28.9% as the
overall quality of the loan portfolio improved. Also contributing to the growth
in net income for 1994 was a $3.0 million, or 1.4%, increase in non-interest
revenue. The growth in non-interest income was attributable to cash management
revenues (including international service fees) which were 5.1% above 1993.
Growth in international service fees, and the value of deposit balances
maintained by customers in lieu of paying cash fees for deposit services, which
is included in net interest income, more than offset a 3.5% year-to-year decline
in service charges on deposits related to the rising interest rate environment
in 1994.
CONSUMER FINANCIAL SERVICES includes the Community Banking, Mortgage
Services and Specialty Products business lines. Specialty Products includes
Credit Card, Student Lending, Card Linx (CoreStates' merchant credit card
processing business), and Synapsys (CoreStates' credit card processing
subsidiary). Community Banking's 1993 results include the Virgin Islands
operation center and five branches until their sale on September 30, 1993. The
Virgin Islands operation, for the remainder of 1993 and the entire year of 1994,
consisted of two branches. Those two branches were sold on December 30, 1994 at
a pre-tax gain of $1.9 million.
Net income for Consumer Financial Services of $121.5 million in 1994 was
$5.5 million, or 4.7% above 1993. This increase reflects growth in Specialty
Products and Community Banking, partially offset by a decline in income from
Mortgage Services. The growth in combined net income was primarily due to a
$21.3 million increase in net interest income, which was partially offset by a
$14.0 million decline in non-interest income. Also contributing to 1994 net
income growth was management's continued emphasis on cost control, as well as
synergies realized from the Constellation acquisition, which resulted in a $2.7
million decline in non-financial expenses.
The increase in net interest income of $21.3 million, or 3.3% in 1994, would
have been greater if not for the impact of the $6.4 million decline in the
Virgin Islands net interest income due to the sale of five branches in the third
quarter of 1993. Excluding the impact of the sale, Consumer net interest income
grew $27.7 million, or 4.3%. The single most important factor for this increase
was the strong growth of $24.0 million, or 22.0% in net interest income from the
credit card portfolio, resulting from a $209.0 million, or 19.6% increase in
average credit card outstandings. Community Banking net interest income,
excluding the Virgin Islands impact, was approximately $5.8 million higher than
1993. Favorable deposit spreads in the latter part of the year more than offset
declines in the net interest income due to lower loan outstandings. Community
Banking average loan outstandings, excluding the Virgin Islands, were down $.2
billion, or 3.8% from 1993 due in part to portfolio sales and to weak consumer
loan demand. Average deposits, excluding the Virgin Islands, were approximately
level with 1993.
Non-interest income was down $14.0 million, or 7.4% compared to 1993. The
decline was principally due to gains on sales of mortgage portfolios realized in
1993, as well as reduced mortgage servicing fees resulting from the portfolio
sales. Community Banking service charges on deposit accounts and securitization
gains and fees were both slightly higher than 1993.
Non-financial expenses declined by $2.7 million, or .5%. Excluding the
impact of the Virgin Islands sale, non-financial expenses increased by only $4.9
million, or .8%, reflecting management's ongoing cost control efforts, as well
as merger-related synergies.
10
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
BUSINESS LINE RESULTS - continued
TRUST AND INVESTMENT MANAGEMENT is organized into four business lines:
Institutional Trust; Personal Trust; Private Banking; and Investment Management.
Net income of $9.2 million was down $4.1 million, or 30.8% from 1993. The
decline in net income was due to a $6.1 million, or 5.8% decline in non-interest
income and a $.6 million, or 1.9% decline in net interest income. The decline
in net interest income was due to soft loan demand and narrower loan spreads in
Private Banking, and lower balance credits in Corporate Trust. Bond refunding
levels of early 1993 have not been repeated in 1994, thus reducing the level of
balances that generate credits in Corporate Trust. The decline in non-interest
income was caused by declines in the financial markets which generated lower
asset values, as well as customer attrition principally in Institutional Trust.
Fee growth was hampered by lower than anticipated new business and the
instability of the equity and bond markets. Fee growth in Investment Management
partially offset the declines in Personal Trust and Institutional Trust. Asset
growth in the CoreFund family of Mutual Funds was 4.0%, contributing to much of
the fee growth in Investment Management.
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 the nation's leading provider 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 6.45% note providing for equal principal payments over the
life of the note. The recapitalization does not affect the amount of the
deferred gain generated in the 1992 contribution of the business lines to EPS,
but does change the timing of the recognition of that $138 million deferred gain
from a five-year period beginning in 1996 to a ten-year period beginning in
1994.
EPS is pursuing a strategy of selective expansion through the entry of new
banking companies into the joint venture. As a result of adding any new
partners, CoreStates' share in the earnings of EPS would decline proportionately
from the current 31%, but the income from businesses contributed by new partners
is expected to increase EPS' earnings.
Full year 1994 net income for CoreStates totaled $16.7 million versus $8.2
million in 1993. Most of the increase from the prior year is due to the
recognition of one-tenth of the deferred gain. The 1994 results include non-
interest income from CoreStates' 31% equity interest, recognition of the
deferred gain, and interest income on the $250 million promissory note, partly
offset by interest carrying charges on the net investment in EPS.
11
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
BUSINESS LINE RESULTS - continued
THE CORPORATE CATEGORY'S net income reflects $167.4 million in merger-
related charges recorded in the first half of the year for the acquisitions of
Constellation and Independence. The merger-related charges include a $145
million loan loss provision. The merger-related charges had an after-tax impact
of $127.8 million for Constellation and $39.6 million for Independence. After
adjusting for the acquisition costs, the Corporate Category's net income was
above 1993 by $3.7 million. Non-interest income and non-financial expenses,
after adjusting for merger-related costs of $108.7 million, are below 1993
levels. Unusual gains and expenses occurring in 1993 were not repeated in 1994.
In 1993, an $11.0 million gain on the sale of five Virgin Island branches was
reported. An expense of $10.0 million was recognized for the Transys start-up
costs for the new check processing company.
CAPITAL STRENGTH
Capital strength must be evaluated in the context of business risk
exposures, including asset quality, interest sensitivity, liquidity and earnings
diversification. CoreStates places a significant emphasis on the maintenance of
strong capital which promotes investor confidence, helps provide access to the
credit markets under favorable terms and enhances the flexibility to capitalize
on business growth and acquisition opportunities. Capital is managed for each
CoreStates subsidiary based on its respective risks and growth opportunities, as
well as regulatory requirements. CoreStates is positioned to take advantage of
market opportunities to strengthen capital. A shelf registration statement,
which is in place, provides for a universal range of securities issuance,
including: senior and subordinated debt, straight and convertible preferred
securities and equity. The relative strength of CoreStates' capital is reflected
in the chart "Average Common Equity/Assets".
Average Common Equity/Assets
- ----------------------------
Plotting Points for Graph
- -------------------------
(In percent)
<TABLE>
<CAPTION>
Average Common
Equity/Assets
-----------------------
Montgomery
CoreStates Securities*
----------- ------------
<S> <C> <C>
1994 8.20% 5.30%
1993 7.94 6.87
1992 7.08 6.54
1991 6.50 6.09
1990 6.69 5.77
</TABLE>
* The Montgomery Securities Regional Bank Composite
At December 31, 1994, common shareholders' equity totaled $2,350 million or
8.0% of total assets, compared with $2,368 million or 8.3% at year-end 1993.
The year-end 1994 equity to assets ratio for the Montgomery Securities Regional
Bank Composite was 7.1%. CoreStates has achieved steady internal capital
generation throughout the past five years. Common shareholders' equity
increased over the five years ended December 31, 1994 at a compound annual
growth rate of 4.4%, while dividends paid increased at a compound annual growth
rate of 7.4%.
During 1994, CoreStates increased its quarterly dividend by 13.3% to $.34
per share beginning January 1995. CoreStates' dividend on its common stock was
$1.24 per share in 1994, $1.14 per share in 1993 and $1.02 per share in 1992.
The common dividend payout ratio was 42.5% for 1994 excluding merger-related
charges, compared to 45.8% for 1993.
In the fourth quarter of 1994, CoreStates called for redemption all of its
$42 million of convertible subordinated debentures. As a result of the call,
approximately .9 million common shares were issued on conversion of $22 million
of the debentures. The conversion and redemption of these debentures is expected
to result in lower future financing costs and elimination of potential future
dilution.
12
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
CAPITAL STRENGTH - CONTINUED
As a result of the mergers with Constellation and Independence, both
accounted for as a poolings of interests, CoreStates issued approximately 27.9
million new shares of common stock in exchange for the common stock of the
acquired banks. During 1994, CoreStates repurchased approximately 8.6 million
shares of its own common stock. About 8.0 million of these shares in the
aggregate were reissued for the dividend reinvestment plan, stock-based benefit
plans, redemption of convertible subordinated debentures and the purchase of
Germantown. Approximately 1.0 million shares remained as treasury shares at
December 31, 1994.
CoreStates and its bank subsidiaries are subject to minimum risk-based and
leverage capital guidelines issued by the Federal Reserve Board and Comptroller
of the Currency. The measurement of risk-based capital takes into account the
credit risk of both balance sheet assets and off-balance sheet exposures. These
guidelines require minimum risk-based capital ratios of 4% for Tier 1 capital
and 8% for total capital. In addition, a minimum leverage ratio of Tier 1
capital to quarterly average total assets of 3% is required for banking
organizations that are rated as strong. CoreStates' risk-based and leverage
capital ratios decreased slightly in 1994 as a consequence of acquisition
related activities, although the ratios remained well above the regulatory
minimums. The following table illustrates CoreStates' risk-based and leverage
capital ratios at December 31, 1994 and 1993:
RISK-BASED AND LEVERAGE CAPITAL RATIOS
- ----------------------------------------
At December 31,
- ---------------
($ in millions)
<TABLE>
<CAPTION>
1994 1993
------ ------
CAPITAL
<S> <C> <C>
Tier 1 capital.......................... $ 2,129 $ 2,279
Tier 2 capital.......................... 935 1,002
Total qualifying capital................ 3,064 3,281
ASSETS
Risk-adjusted assets.................... 24,645 23,863
Average assets-
leverage capital basis................. 27,316 27,603
RATIOS
Tier 1 capital ratio.................... 8.6% 9.5%
Total capital ratio..................... 12.4 13.7
Tier 1 leverage ratio................... 7.8 8.3
</TABLE>
Bank regulators apply substantially the same capital requirements to
CoreStates' banking subsidiaries. A bank is considered "well capitalized", the
highest regulatory category, if it has minimum Tier 1 and Total risk-based
capital ratios of 6% and 10%, respectively, and a minimum Tier 1 leverage ratio
of 5%. As illustrated in the following table, all of CoreStates' banking
subsidiaries qualified as "well capitalized" at December 31, 1994.
BANK REGULATORY CAPITAL RATIOS
- ------------------------------
At December 31, 1994
- --------------------
<TABLE>
<CAPTION>
Capital Ratios
--------------------------
Tier 1 Total Leverage
------ ----- --------
<S> <C> <C> <C>
CoreStates Bank, N.A.............. 8.3% 10.5% 7.6%
New Jersey National Bank.......... 9.5 12.7 5.8
CoreStates Bank of Delaware, N.A.. 10.5 13.0 12.0
</TABLE>
13
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
RISK MANAGEMENT
As communicated in the third quarter of 1994, the risk management functions
of CoreStates, including interest rate risk, credit risk, operating risk and
other risk components of our businesses, were brought under the management
umbrella of CoreStates' Chief Risk Policy Office. A Risk Policy Council was
established to focus on risk strategy. This Council has designed a comprehensive
program for integrated risk management which will begin to be implemented during
1995. This structure better supports management's goal of developing a
comprehensive and all-inclusive risk profile for CoreStates which will enhance
management's ability to make informed decisions about the direction and
complexion of CoreStates' portfolio and to price equitably its products and
services. The discussion of risk management is covered in the following sections
on "CREDIT QUALITY" and "ASSET AND LIABILITY MANAGEMENT."
CREDIT QUALITY
CREDIT RISK MANAGEMENT
The management of credit risk at CoreStates relies on maintaining a
diversified loan portfolio, limiting exposures to a given industry or market
segment, and on a well-established credit culture. Early identification and
communication of deterioration/problems in the portfolio, early recognition of
non-performing assets, maintaining reserves that are strong, and a credit
advisory team process that provides all lenders access to the most senior and
experienced credit officers in the organization, are key components of this
credit culture. Underlying this credit culture is a tradition of extensive and
ongoing credit training and comprehensive and well-communicated policies and
procedures.
In acquiring a company whose businesses include the extension of credit, it
is a priority of CoreStates to extend this credit culture to the newly acquired
institution. This is done by immediately placing highly experienced CoreStates
lenders and/or credit officers into the acquired bank. These individuals teach
CoreStates' credit policies, procedures and process and actively participate in
the credit decision-making process at the acquired company. This extension of
CoreStates' credit culture, coupled with an intensive due diligence process and
early integration of the acquired bank's portfolio, ensures that CoreStates'
credit quality standards continue to be maintained. During 1994, the portfolios
of Constellation, Independence and Germantown were integrated into CoreStates
through this approach.
Maintaining CoreStates' asset quality standards is further supported by a
comprehensive and independent assessment of credit quality and portfolio
management by Credit Review, which reports to the Audit Committee of the Board
of Directors.
14
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
CREDIT QUALITY - CONTINUED
LOAN PORTFOLIO
WHOLESALE LOANS - CoreStates has traditionally maintained limits on
industry, market and borrower concentrations as a way to diversify and manage
credit risk. Management's current policy is to limit industry concentrations to
50% of total equity and to limit market segment concentrations to 10% of total
assets. CoreStates conservatively manages industry concentrations by applying
these dollar limits to a family of industries that have common risk
characteristics. This management process is reflected in the following chart,
which illustrates each industry that exceeds 10% of total shareholders' equity.
WHOLESALE LOANS BY INDUSTRY
- ---------------------------
At December 31, 1994
- --------------------
Plotting Points for a Graph
- -----------------------------
<TABLE>
<CAPTION>
Outstandings % of
as a % Outstandings
of equity non-performing
----------- ----------------
<S> <C> <C>
Communications............... 32.8% 0.2%
Non-bank Finance............. 31.3% 3.8%
Retail Trade................. 28.3% 1.7%
Healthcare................... 20.4% 0.4%
Depository Institutions...... 19.2% 0.1%
Apparel...................... 16.2% 8.4%
Trucking and Auto Leasing.... 15.3% 1.6%
Real Estate Construction..... 14.1% 3.2%
Chemical..................... 13.3% 0.1%
</TABLE>
The following discussion highlights these portfolios: non-bank finance because
it represents a large percentage of equity; the commercial finance portfolio at
a CoreStates' non-bank subsidiary, Congress Financial Corporation ("Congress"),
because of the continued growth in this portfolio; the credit card portfolio due
to recent growth and anticipated future growth; and real estate loans, due to
the overall size of the combined commercial and residential portfolios.
15
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
CREDIT QUALITY - CONTINUED
NON-BANK FINANCE - This specialized lending is directed at non-bank
providers of credit, including insurance, mortgage, mutual funds, and finance
companies. There are opportunities for significant overall relationships with
relatively large customers, and considerable business volume for CoreStates.
Credit extension strategies for insurance firms aim at the initiation of
larger relationships with extensive accompanying cash management activities. The
customer base is typically large national firms providing life and/or property
and casualty insurance, with regulation by both the state and the National
Association of Insurance Commissioners. Although most relationships involve cash
management operating services rather than credit, CoreStates also provides well-
structured acquisition financing and lease financing.
With respect to mortgage banking, CoreStates provides mortgage warehousing
lines of credit to numerous customers throughout the east coast. CoreStates also
supports large facilities for customers who use electronic payment services. For
large, well-capitalized servicers, general corporate financing may also be
provided. Due to rising interest rates during 1994, and a resultant industry-
wide decline in refinancing activity, the mortgage banking segment of the
portfolio declined to $266.7 million in outstandings from $565.3 million at year
end 1993.
Credit extension to mutual funds, which are regulated by the Securities and
Exchange Commission, also strongly relates to cash management operating
services. The rise in outstandings to $71.4 million, from $11.0 million at
year-end 1993, was due to acquisition financing and liquidity lines.
CoreStates' credit activities in the finance company industry are generally
to small and medium sized consumer finance companies, and loans are usually
secured by the customers' loan portfolio. The year-to-year increase in
outstandings to finance companies was the result of both new customer
relationships and growth in the existing customer base.
The following table summarizes CoreStates' outstandings in the four non-bank
finance industry segments discussed above at December 31, 1994.
NON-BANK FINANCE PORTFOLIO
- --------------------------
At December 31,
- ---------------
(in millions)
<TABLE>
<CAPTION>
Insurance Mortgage Mutual Finance
Companies Companies Funds Companies Total
--------- --------- ------ --------- ------
<S> <C> <C> <C> <C> <C>
1994
- ----
Outstandings....................... $162.4 $266.7 $71.4 $235.4 $735.9
Non-performing..................... 2.1 25.9(a) 28.0
% of loans....................... 1.3% 11.0% 3.8%
1993
- ----
Outstandings....................... $169.7 $565.3 $11.0 $213.3 $959.3
Non-performing..................... .2 .2
</TABLE>
- -------------------
(a) Represents one non-performing credit.
16
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
CREDIT QUALITY - CONTINUED
COMMERCIAL FINANCE - Congress continued to enhance its position as a leader
in providing asset-based financing in an increasingly competitive market. The
loan portfolio reflects strong, geographically diverse growth of approximately
25% on a year-to-year basis. Credit quality exhibited consistent characteristics
in keeping with Congress' historical trends.
Congress' sustained growth is attributed to its ability to structure and
syndicate large, complex transactions primarily collateralized by accounts
receivable and inventory.
COMMERCIAL FINANCE PORTFOLIO
- ----------------------------
At December 31,
- ---------------
(in millions)
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Outstandings.................. $1,778.7 $1,426.5
Non-performing................ 16.9 15.9
% of loans.................. .9% 1.1%
</TABLE>
17
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
CREDIT QUALITY - CONTINUED
CREDIT CARDS - Credit card outstandings grew 20% on average during 1994. Of
the $209 million in growth, 46% was the result of a new pre-approved marketing
technology. In 1994, credit card sales activities increased the number of
accounts by 11%, and average balances per account by 15% from $1,695 per account
to $1,955 per account.
A new fee-based product, Commercial Card lines, was introduced in 1994 to
participate in this growing market. CoreStates is pleased with the high early
acceptance of this product in the marketplace.
Most of the growth in 1994 outstandings was developed with risk-based
scoring technology. CoreStates experienced a modest increase in the level of net
credit losses to 2.3% of average outstandings in 1994 from 2.2% in 1993. Net
credit losses continue to be below industry averages. During 1995, CoreStates
will adjust the risk scoring criteria in further pre-approved campaigns in
anticipation of a slowdown in the economy during 1996.
CREDIT CARD PORTFOLIO
- ---------------------
At December 31,
- ---------------
(in millions)
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Year-end outstandings.. $1,374.6 $1,179.0
Average outstandings... 1,277.0 1,068.0
Net charge-offs........ 29.3 23.6
% of average loans.... 2.3% 2.2%
</TABLE>
REAL ESTATE LOANS - Although continuing to improve, the CoreStates regional
real estate market continues to present a mixed picture. The residential market
has achieved supply/demand balance; however, rising interest rates have had a
negative impact on residential sales in the latter half of 1994. The commercial
and industrial market remains fundamentally weak, with tenant lease renewals and
downsizings continuing to create pressures.
Total real estate related loans outstanding were $6,491 million at December
31, 1994, compared to $6,664 million at December 31, 1993. Included within the
broad classification of real estate loans are a number of different lending
categories with distinctly different risk factors and performance. The
construction and development loan portfolio was $331 million or 1.6% of total
loans at December 31, 1994. At December 31, 1994, 3.2% of CoreStates'
construction and development loan portfolio was non-performing, compared to 1.9%
for the remaining real estate loan portfolio. The table below summarizes
CoreStates' real estate loans outstanding.
18
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
CREDIT QUALITY - CONTINUED
REAL ESTATE LOANS
- -----------------
At December 31,
- ---------------
(in millions)
<TABLE>
<CAPTION>
Completed
projects/ Total
Construction/ Investment real
development properties(a) Residential Other(b) estate
------------- ---------- ----------- ------ ------
<S> <C> <C> <C> <C> <C>
1994
- -----
Year-end outstandings....... $331 $1,021 $3,180 $1,959 $6,491
Average loans outstanding 341 1,195 2,912 1,817 6,265
Non-performing loans........ 11 33 37 48 129
% of year-end loans....... 3.2% 3.2% 1.2% 2.5% 2.0%
Net charge-offs . 10 32 25 46 113
% of average loans........ 2.9% 2.7% .9% 2.5% 1.8%
1993
- -----
Year-end outstandings....... $367 $1,321 $3,121 $1,855 $6,664
Average loans outstanding 421 1,351 2,867 2,156 6,795
Non-performing loans........ 20 47 43 68 178
% of year-end loans....... 5.4% 3.6% 1.4% 3.7% 2.7%
Net charge-offs............. 8 13 6 24 51
% of average loans........ 1.9% 1.0% .2% 1.1% .8%
</TABLE>
- -------------
(a) Completed projects/investment properties included $299 million at December
31, 1994 related to loans on completed projects for which net rental
receipts are not sufficient to cover 115% of debt service.
(b) Principally commercial loans secured by owner-occupied real estate.
The largest category within real estate loans is residential mortgages which
include home equity loans. Residential mortgages were $3,180 million or 15.5%
of total loans at December 31, 1994. Loans in the Other Real Estate Loans
category, primarily commercial loans collateralized by owner-occupied real
estate, accounted for 30.2% of total real estate loans and 9.5% of total loans.
19
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
CREDIT QUALITY - CONTINUED
Another key to risk management in this portfolio is diversification by project
type. The following table illustrates CoreStates' construction and development
portfolio and completed projects/investment properties portfolio by project
type.
CONSTRUCTION AND DEVELOPMENT AND COMPLETED PROJECTS/INVESTMENT PROPERTIES
- -------------------------------------------------------------------------
LOANS OUTSTANDING BY PROJECT TYPE
- ---------------------------------
At December 31,
(in millions)
<TABLE>
<CAPTION>
Construction/ Completed projects/
development investment properties Total
--------------------------- ------------------------------ ------------------------
Loans % Non- Loans % Non- Loans % Non-
outstanding performing outstanding performing outstanding performing
----------- ------------ ----------- ----------- ------------ ---------
<S> <C> <C> <C> <C> <C> <C>
1994
- -----
Residential development.......... $197.4 3.7% $ 197.4 3.7%
Commercial:
Land and site development. 58.8 2.0 58.8 2.0
Apartments....................... .9 $ 111.8 1.8% 112.7 1.8
Light industrial................. 11.2 18.8 149.2 6.8 160.4 7.6
Hotels........................... 25.2 9.1 25.2 9.1
Office........................... 6.4 352.3 2.4 358.7 2.3
Shopping centers................. 1.7 242.3 .9 244.0 .9
Miscellaneous.................... 55.0 .4 140.0 5.8 195.0 4.3
---- -------- -----
Total commercial............... 134.0 2.5 1,020.8 3.2 1,154.8 3.1
------ ------- --------
Total........................ $331.4 3.2% $1,020.8 3.2% $1,352.2 3.2%
====== === ======== === ======== ===
1993
- ----
Residential development............ $188.3 7.5% $ 188.3 7.5%
Commercial:
Land and site development. 65.9 5.3 65.9 5.3
Apartments....................... $ 128.9 1.7% 128.9 1.7
Light industrial................. 29.9 3.3 165.6 2.7 195.5 2.8
Hotels........................... 21.2 10.4 21.2 10.4
Office........................... 19.0 5.8 414.4 6.5 433.4 6.5
Shopping centers................. 10.8 1.9 202.6 1.7 213.4 1.7
Miscellaneous.................... 53.4 .2 388.4 1.9 441.8 1.7
------ -------- --------
Total commercial............... 179.0 3.2 1,321.1 3.6 1,500.1 3.5
------ -------- --------
Total........................ $367.3 5.4% $1,321.1 3.6% $1,688.4 4.0%
====== ==== ======== ==== ======== ====
</TABLE>
Geographically, $1,270.4 million or 94% of CoreStates'
construction/development loans and completed projects/investment properties are
financing real estate in CoreStates' market area of Pennsylvania, New Jersey and
Maryland/Delaware.
20
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
CREDIT QUALITY - CONTINUED
ALLOWANCE FOR LOAN LOSSES
In CoreStates' methodology for determining appropriate levels of allowance
for loan losses ("ALLL"), each subsidiary which extends credit maintains an
allowance sufficient to absorb the anticipated loss inherent in its credit
portfolio. Factors included in management's determination of an adequate level
of ALLL are a statistical analysis of historical loss levels throughout an
economic cycle and one year of projected charge-offs, establishing a minimum
level below which a bank's ALLL is considered inadequate and a maximum level
above which is considered inappropriate. A quarterly evaluation of loss
potential on specific credits, products, industries, portfolios and markets as
well as indicators for loan growth, the economic environment and concentrations
assist in validating the position of the ALLL within those boundaries.
Management's evaluation of the adequacy of the ALLL is independently tested by
Credit Review. Prompt recognition of problem situations and prompt write-downs
of these assets to net realizable value is an important source of protection
against problems in the portfolio. Accordingly, over an economic cycle,
CoreStates has experienced relatively high levels of recoveries of prior charge-
offs compared to other banking companies.
In May 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan" ("FAS 114"). 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 114 is effective beginning in 1995. The
adoption of FAS 114 is not expected to have a material impact on CoreStates'
level of allowance for loan losses.
The year-end 1994 allowance for loan losses totaled $500.6 million and
represented 2.4% of loans. This compares with a loan loss allowance at year-end
1993 of $450.8 million, or 2.3% of loans. The December 31, 1994 and 1993
Montgomery Securities Regional Bank Composites for allowance for loan losses as
a percentage of loans were 2.2% and 2.4%, respectively. The allowance for loan
losses at year-end 1994 was 203.3% of non-performing loans, an increase over the
year-end 1993 coverage ratio of 148.7% and a reflection of the lower level of
non-performing loans at year-end 1994.
CoreStates' provision for loan losses in 1994, excluding $145.0 million of
Constellation and Independence merger-related provisions for loan losses, was
$101.9 million, a decrease of $19.3 million from the $121.2 million provided in
1993. Net charge-offs in 1994, excluding $103.1 million related to problem
assets acquired with Constellation, were $117.8 million or .6% of average loans.
This compares to $115.0 million, or .6% of net charge-offs in 1993.
During 1994, Constellation and Independence recorded provisions for loan
losses of $120.0 million and $25.0 million, respectively, in connection with a
change in strategy related to problem assets, and to conform their consumer
lending charge-off policies to those of CoreStates.
21
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
CREDIT QUALITY - CONTINUED
The following table reflects the distribution of 1994 and 1993 net charge-
offs by loan type:
DISTRIBUTION OF NET CHARGE-OFFS
- ---------------------------------
For the Year Ended December 31,
- ---------------------------------
(in millions)
<TABLE>
<CAPTION>
1994 1993
----------------------------- -----------------------------
% of % of
Total Total
Net % of net Net % of net
charge- Average charge- charge- Average charge-
Loan type offs loan type offs offs loan type offs
- --------- ------- --------- ------- ------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Domestic:
Commercial
and industrial............... $ 75.1 .9% 34.0% $ 46.6 .6% 40.5%
Real estate:
Construction................. 9.7 2.9 4.4 8.1 1.9 7.0
Other........................ 102.9 1.7 46.6 42.6 .7 37.0
Consumer:
Credit card.................. 29.3 2.3 13.3 23.6 2.2 20.5
Installment.................. 5.8 .4 2.6 5.7 .4 5.0
Other (a)...................... .7 - .3 1.0 .1 .9
------ ----- ------ -----
Total domestic............. 223.5 1.2 101.2 127.6 .7 110.9
------ --- ----- ------ ---- -----
Foreign (b)..................... (2.6) (.4) (1.2) (12.6) (2.3) (10.9)
------ ----- ------ -----
Total net charge-offs....... $220.9 1.1% 100.0% $115.0 .6% 100.0%
====== === ===== ====== ==== =====
</TABLE>
- -----------------------------
(a) Includes loans to financial institutions and lease financing.
(b) Reflects net recoveries on Less Developed Countries (LDC) assets of $2.6
million in 1994 and $12.6 million in 1993.
22
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
CREDIT QUALITY - CONTINUED
NON-PERFORMING ASSETS
Non-performing assets at year-end 1994 were $310.9 million, or 1.5% of
total loans plus other real estate owned ("OREO") and 1.1% of total assets.
These levels compared to total non-performing assets at year-end 1993 of $438.7
million, 2.2% of total loans plus OREO and 1.5% of total assets. Management
expects a continuing decline in non-performing asset levels during 1995.
At year-end 1994, total non-performing assets were comprised of $244.6
million of non-accrual loans, $1.6 million of renegotiated loans and $64.7
million of OREO. The $127.8 million, or 29.1%, decline in total non-performing
assets as compared to year-end 1993 was principally experienced in CoreStates'
two largest portfolios, the commercial loan portfolio, declining $35.5 million,
or 28.9%, and the real estate portfolio which declined $119.4 million, or 38.1%.
Much of the decline in real estate non-performing assets resulted from a $28
million addition to the Constellation OREO reserve in the first quarter of 1994
and the subsequent bulk sale of problem loans and OREO acquired with
Constellation. During 1994, loans aggregating $393 million were added to non-
performing status, payments of $226 million against non-performing assets were
received, loans totaling $53 million were returned to full accrual status and
$242 million of non-performing assets were charged off.
CoreStates monitors the movements within the non-performing portfolio
closely. The following table illustrates the components of the changes in non-
performing assets for 1994, 1993 and 1992:
ANNUAL CHANGES IN NON-PERFORMING ASSETS
- ------------------------------------------
(in millions)
<TABLE>
<CAPTION>
1994 1993 1992
---- ---- ----
<S> <C> <C> <C>
Beginning balance.......... $ 439 $ 672 $ 802
Additions.................. 393 247 405
Return to accrual.......... (53) (83) (83)
Payments................... (226) (236) (277)
Charge-offs................ (242) (161) (175)
----- ----- -----
Net change................. (128) (233) (130)
----- ----- -----
Ending balance............. $ 311 $ 439 $ 672
===== ===== =====
</TABLE>
23
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
CREDIT QUALITY - CONTINUED
The following table reflects the distribution of non-performing assets by
loan type at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
DISTRIBUTION OF NON-PERFORMING ASSETS
- -------------------------------------
At December 31,
- ---------------
(in millions)
1994 1993
--------------------------------- ----------------------------------
% of % Total % of % Total
Non- Loan non- Non- Loan non-
Loan type performing type performing performing type performing
- --------- ---------- ---- ---------- ---------- ---- ----------
<S> <C> <C> <C> <C> <C> <C>
Domestic:
Commercial and
industrial:
Highly leveraged
transactions ("HLTs"). $ 3.0 .6% 1.0% $ 5.1 1.1% 1.2%
Other.................... 84.2 1.0 27.1 117.6 1.5 26.8
Real estate:
Construction............. 10.7 3.2 3.4 19.7 5.4 4.5
Other loans.............. 118.2 1.9 38.0 157.8 2.5 36.0
OREO..................... 64.7 20.8 135.5 30.9
Consumer................... .7 .2 1.0 .2
Other domestic loans(a).... 29.2 2.1 9.4 1.8 .1 .4
------ ----- ------ -----
Total domestic........... 310.7 1.6 99.9 438.5 2.3 100.0
Foreign loans............... .2 .1 .2
------ ----- ------ -----
Total non-performing
assets(b)............... $310.9 1.5% 100.0% $438.7 2.2% 100.0%
====== ==== ===== ====== === =====
% Total assets........... 1.1% 1.5%
====== ======
</TABLE>
________________________________________________________________________________
(a) Includes loans to financial institutions and lease financing.
(b) The table does not include loans of $53 million and $54 million at December
31, 1994 and 1993, respectively, that are past due 90 days or more as to
principal or interest, but which remain on full accrual since such loans are
well secured and in the process of collection.
Non-performing assets at year-end 1993 declined $232.9 million, or 34.7%, as
compared to year-end 1992. The 1993 decline also reflected decreases in non-
performing assets in the commercial loan portfolio, which declined $56.2
million, or 31.4%, and in the real estate portfolio which declined $170.8
million or 35.3%.
24
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
CREDIT QUALITY - CONTINUED
The following table reflects the distribution of non-accrual loans by their
respective levels of performance as defined below:
Substantial performance - No loss is anticipated on the present book balance and
the borrower has paid at least 85% of contractual obligations over the prior six
months.
Limited performance - Borrower has paid between 25% and 85% of contractual
obligations over the prior six months.
No performance - Borrower has paid less than 25% of contractual obligations over
the prior six months.
Full payment is doubtful - Loan is contractually current, however, there is some
doubt as to full collectability.
Other - Loan is contractually current, however, borrower is in a specified
period of demonstrating performance or loan has a prior charge-off.
<TABLE>
<CAPTION>
PERFORMANCE LEVELS OF NON-ACCRUAL LOANS
- ---------------------------------------------
At December 31, 1994
- ---------------------------------
(in millions)
Accumulated
net charge-
offs as % of
Book Contractual contractual
balance(a) balance balance (a)
---------- ----------- ------------
<S> <C> <C> <C>
Contractually past due with:
Substantial performance........ $ 12.4 $ 16.7 25.7%
Limited performance............ 21.3 31.3 31.9
No performance................. 148.9 221.8 32.9
------ ------
182.6 269.8 32.3
------ ------
Contractually current, however:
Full payment is doubtful....... 33.9 63.3 46.5
Other.......................... 28.1 38.0 26.2
------ ------
62.0 101.3 38.8
------ ------
Total non-accrual loans...... $244.6 $371.1 34.1%
====== ====== ====
</TABLE>
__________________________
(a) Book balance reflects application of $8.6 million of cash basis interest
received which was applied to principal. The accumulated net charge-off
percentage also includes the impact of interest applied to principal.
25
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
CREDIT QUALITY - CONTINUED
The following OREO portfolio table illustrates the relationship of original
contractual balances to accumulated net charge-offs. Accumulated net charge-
offs include charge-offs taken against the allowance for loan losses while the
asset was classified as a loan and write-downs charged directly to the income
statement subsequent to a loan's transfer to OREO. During 1994 and 1993, $44.3
million and $26.6 million, respectively, were charged to the income statement
for OREO write-downs. The charge for 1994 included the $28.0 million addition
to Constellation's OREO reserve.
<TABLE>
<CAPTION>
OTHER REAL ESTATE OWNED
- -----------------------
At December 31, 1994
- --------------------
(in millions)
Accumulated
net charge-
offs as % of
Book Contractual contractual
balance balance balance
------- ----------- -----------
<S> <C> <C> <C>
Construction and development.. $14.0 $ 68.4 79.5%
Completed projects............ 27.4 90.2 69.6
----- ------
Total(a)..................... $41.4 $158.6 73.9%
===== ====== ====
</TABLE>
______________________
(a) Does not include $11.6 million of OREO from the residential mortgage
portfolio or $11.7 million in OREO from other commercial real estate loans,
primarily the owner occupied portfolio.
The two preceding charts reflect the results of CoreStates' charge-off
practices. At year-end 1994, 34.1% of non-accrual loans had been charged off,
while 73.9% of OREO assets' original contractual balances had been charged off.
These levels of markdowns reflect CoreStates' approach in handling problem
assets.
26
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
ASSET AND LIABILITY MANAGEMENT
Asset and liability management is the process of directing and coordinating
activities that effectively control liquidity and interest rate risk.
CoreStates' philosophy includes a disciplined approach to asset and liability
management which calls for minimizing interest rate risk, maintaining a strong
balance sheet and a focus on achieving appropriate product spreads. This
disciplined approach contributes to the stability and strength of CoreStates'
net interest margin. The sharply rising rate environment of 1994 has
highlighted the value of CoreStates' strong interest rate risk management
approach.
CoreStates manages its balance sheet to achieve maximum shareholder value
within the constraints of conservative interest rate risk policies, the
maintenance of high credit quality, and sound leverage and liquidity positions.
CoreStates' asset and liability management is centralized and individual
subsidiaries are managed within the context of overall corporate policies.
CoreStates' management emphasizes stable net interest income throughout rate
cycles, with the result that intermediate and longer term considerations take
precedence over short-term profitability. This commitment is evidenced by the
consistency of CoreStates' net interest margin over time. During the past five
years, a period of significant changes in economic conditions, competition and
interest rates, CoreStates' net interest margin has remained consistently above
industry averages as illustrated in the chart "Net Interest Margin". During
that time interest rates, as measured by the monthly average Federal Funds Rate,
declined 525 basis points from 8.25% in early 1990 to 3.00% at the end of 1992
then remained flat during 1993 before rising 250 basis points during 1994 to end
the year at 5.50%.
Net Interest Margin
- -------------------
Plotting Points for a Graph
- ---------------------------
(In percent)
<TABLE>
<CAPTION>
Net interest margin
------------------------
Montgomery
CoreStates Securities*
---------- -----------
<S> <C> <C>
1994 5.80% 4.52%
1993 5.59 4.75
1992 5.32 4.75
1991 5.16 4.38
1990 5.08 4.22
</TABLE>
* The Montgomery Securities Regional Bank Composite
CoreStates' net interest margin reflects relationship business activities
rather than interest rate risk taking. The strength of CoreStates' net interest
margin comes from the combination of healthy spreads on both loans and deposits
and a balance sheet which has a relatively high proportion of loans and a large
base of non-interest bearing funds. (See Charts "Earning Asset Mix" and
"Funding Mix" on pages 35 and 36.) In addition to the wide spread achieved in
recent years between the prime rate and other market rates, areas such as credit
card, middle market lending, specialized lending and commercial finance at
Congress produce attractive lending spreads. CoreStates' cash management
business provides a significant source of non-interest bearing funds, while the
retail franchise includes a substantial base of low cost funding. Emphasis on
profitable relationship business is supported by CoreStates' management
practices. CoreStates uses a matched maturity funds transfer pricing system
which focuses business managers on profitability, appropriate compensation for
embedded risks and overall pricing discipline. In addition to providing a
pricing tool, transfer pricing supports performance measurement and analysis of
net interest margin components.
27
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
ASSET AND LIABILITY MANAGEMENT - continued
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 monthly 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.
CoreStates believes that 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.
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 with indefinite maturities and non-contractual rates such as savings,
NOW and money market accounts. The repricing characteristics of those deposits
tend to be longer term; traditionally, pricing has been relatively stable for
long periods and pricing changes lag changes in financial market rates. While
this mix of relationship assets and liabilities provides excellent liquidity, it
results in considerable interest rate risk. This inherent mismatch (the
"relationship gap") of longer term fixed-rate liabilities funding short-term
rate sensitive assets generates significant exposure to declining interest rates
if not hedged.
CoreStates hedges this relationship gap through the use of both on and off-
balance sheet discretionary assets and liabilities. The typical offsetting
position is created by purchasing fixed-rate investment securities funded by
short-term liabilities, or by entering into interest rate swaps in which
CoreStates receives a fixed rate and pays a variable rate. The following
excerpts from the Interest Sensitivity Analysis shown on page 89 demonstrates
the basic mismatch of the relationship portfolios and the offsetting
discretionary position. 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.
28
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
ASSET AND LIABILITY MANAGEMENT - continued
<TABLE>
<CAPTION>
SELECTED INTEREST SENSITIVITY BALANCES
- --------------------------------------
At December 31, 1994
- --------------------
(in millions)
Months Years
--------------------------- --------------------------
0-3 4-6 7-12 1-2 2-5 over 5 Total
------- ------- ------- ------- ------- ------ -------
<S> <C> <C> <C> <C> <C> <C> <C>
RELATIONSHIP PORTFOLIOS:
Total loans................ $13,847 $ 1,554 $ 1,176 $ 1,420 $ 2,061 $ 468 $20,526
Total consumer
deposits, net non-
interest funding.......... 6,183 1,811 2,372 3,183 3,319 4,308 21,176
Adjustments................ 493 (881) (492) (642) (1,934) 3,456 -
------- ------- ------- ------- ------- ------ -------
Relationship gap......... 8,157 (1,138) (1,688) (2,405) (3,192) (384) (650)
------- ------- ------- ------- ------- ------ -------
DISCRETIONARY PORTFOLIOS:
Assets..................... 3,444 1,550 1,861 2,740 3,348 1,184 14,127
Liabilities................ 11,479 541 189 362 149 757 13,477
------- ------- ------- ------- ------- ------ -------
Discretionary gap........ (8,035) 1,009 1,672 2,378 3,199 427 650
------- ------- ------- ------- ------- ------ -------
Combined gap............. $ 122 $ (129) $ (16) $ (27) $ 7 $ 43 $ -0-
======= ======= ======= ======= ======= ====== =======
Cumulative gap........... $ 122 $ (7) $ (23) $ (50) $ (43) $ -0- $ -0-
======= ======= ======= ======= ======= ====== =======
</TABLE>
While CoreStates maintains a balanced position, the recently acquired
Germantown generally carried a negative gap comprised of mortgages and mortgage-
backed securities funded by shorter term deposits. In anticipation of the
Germantown acquisition, CoreStates adjusted its longer term gap position early
in 1994 to mitigate the exposure to higher rates inherent on Germantown's
balance sheet.
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.
Consumer deposit spreads are a key element of net interest income. As
interest rates rose in 1994, changes in the pricing of consumer deposit products
lagged changes in financial market rates resulting in wider spreads. The prior
year's trend of deposit balances shifting from certificates to more liquid
deposit products began to reverse. Looking ahead, the spread on total consumer
deposits is subject to internal shifting to products with narrower spreads such
as certificates, balance runoff and potential pricing pressure on liquid deposit
accounts. Simulations include assumptions regarding runoff, shifting across
products as well as upward repricing of savings type accounts in rising rate
scenarios. Narrower spreads are generally assumed in falling rate environments
due to limited repricing opportunities. Those assumptions are developed in
conjunction with the business managers and, while management believes its
current simulation assumptions are realistic, it recognizes that this is an area
of potential volatility.
The spread between the prime rate and short-term market rates is also an
important component of net interest income. That spread has been very wide over
the last several years compared to historic levels. While the risk of a
narrowing of the prime spread is not unique to CoreStates, a contraction in that
spread would reduce net interest income. CoreStates has approximately $9.0
billion in loans subject to changes in prime, including the credit card
portfolio.
29
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
ASSET AND LIABILITY MANAGEMENT - continued
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 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.
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 December 31,
1994, the major balance sheet category to which they relate, and the associated
unrealized gains/losses:
OUTSTANDING INTEREST RATE RISK RELATED DERIVATIVES
- --------------------------------------------------
At December 31, 1994
- --------------------
(in millions)
<TABLE>
<CAPTION>
Interest Interest Interest
rate rate rate Other
swaps futures caps derivatives Total
----------- -------- -------- ----------- -------
<S> <C> <C> <C> <C> <C>
Interest Sensitivity Adjustment:
Assets:
Notional amount.................... $2,920 $1,043 $ 51 $125 $ 4,139
Unrealized gains................... 5 1 6
Unrealized losses.................. (70) (1) (71)
Deposits and other borrowings:
Notional amount..................... 3,714 3,714
Unrealized gains.................... 4 4
Unrealized losses................... (96) (96)
Long-term debt:
Notional amount..................... 788 25 813
Unrealized gains.................... 3 3
Unrealized losses................... (57) (1) (58)
Spread Protection:
Assets:
Notional amount.................... 677 677
Unrealized gains................... 4 4
Unrealized losses.................. (9) (9)
Deposits and other borrowings:
Notional amount..................... 300 300
Unrealized gains.................... 10 10
Unrealized losses...................
Anticipated Asset Sales:
Notional amount..................... 428 170 598
Unrealized gains 1 1 2
Unrealized losses...................
Total:
Notional amount..................... $7,850 $1,043 $1,053 $295 $10,241
====== ====== ====== ==== =======
Unrealized gains.................... $ 13 $ - $ 15 $ 1 $ 29
====== ====== ====== ==== =======
Unrealized losses................... $ (223) $ (1) $ (10) $ - $ (234)
====== ====== ====== ==== =======
Net unrealized gains (losses) $ (210) $ (1) $ 5 $ 1 $ (205)
====== ====== ====== ==== =======
</TABLE>
30
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
ASSET AND LIABILITY MANAGEMENT - continued
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 December 31, 1994, 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 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 December 31, 1994, 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.
31
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
ASSET AND LIABILITY MANAGEMENT - continued
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 $377 million of interest rate caps which offset that risk by limiting the
potential increase in funding costs. CoreStates has sold $300 million of
interest rate caps indexed to prime rate in combination with the purchase of an
identical amount of caps indexed to LIBOR; this combination reduces the risk of
a narrowing spread on prime rate indexed assets in rising rate environments.
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 December
31, 1994, CoreStates held $585 million in fixed-rate pay swaps and forward rate
locks to hedge a portion of the residential mortgage portfolio. This included
$306 million of swaps which will amortize with a reference portfolio of
mortgage-backed securities. CoreStates anticipates sale of a portion of the
mortgage portfolio in the second quarter of 1995. The interest rate swaps, which
are intended to be terminated as the mortgage sale is completed, will increase
in value if rates rise offsetting 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.
The repricing schedule below 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 December 31, 1994. The amount recorded in net
interest income related to interest rate swaps was $82.3 million in 1994 and
$116.2 million in 1993.
REPRICING SCHEDULE OF INTEREST RATE SWAPS
- -----------------------------------------
At December 31, 1994
- --------------------
(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........... $1,411 $2,153 $ 767 $ 672 $ 979 $ 975 $6,957
Rate............... 6.30% 6.95% 6.58% 6.57% 7.04% 6.92% 6.75%
Pay Notional........... $6,957 $6,957
Rate............... 6.16% 6.16%
Pay Fixed/Receive Floating(a)
Pay Notional........... $ 346 $ 30 $ 40 $ 37 $ 90 $ 543
Rate............... 7.79% 8.78% 8.33% 8.09% 8.42% 8.01%
Receive Notional........... $ 543 $ 543
Rate............... 5.49% 5.49%
Receive Floating/Pay Floating
(Basis Swaps)
Notional........... $ 90 $ 90
Receive Rate............... 4.96% 4.96%
Pay Rate............... 6.23% 6.23%
Receive Fixed/Pay Floating(b)
(Forward Start)
Receive Notional........... $ 205 $ 30 $ 25 $ 260
Rate............... 6.32% 6.38% 6.37% 6.33%
Start Date Notional........... $ 260 $ 260
</TABLE>
_________________________________________
(a) Includes $306 million swaps which CoreStates has agreed with counterparty
to terminate in 1995.
(b) 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
ASSET AND LIABILITY MANAGEMENT - continued
Credit risk exists in a derivative transaction to the extent that there is a
favorable move in interest rates 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 December 31, 1994, the current cost to replace
CoreStates' derivatives portfolio was $29.3 million. This assumes that only
counterparties for whom it would be favorable to default would do so.
The following schedule illustrates CoreStates' interest rate risk related
derivative activity during 1994:
ACTIVITY IN DERIVATIVES PRODUCTS
- --------------------------------
Year Ended December 31, 1994
- ----------------------------
(in millions)
<TABLE>
<CAPTION>
Interest Interest Interest
rate rate rate Other
Notional Amounts swaps futures caps derivatives Total
- ---------------- -------- -------- -------- ----------- -------
<S> <C> <C> <C> <C> <C>
As of December 31, 1993........... $4,125 $ 926 $ 701 $ 39 $ 5,791
Additions......................... 4,477 8,420 476 976 14,349
Terminated contracts(a)........... (8,303) (8,303)
Maturities/.......................
amortization.................... (752) (124) (720) (1,596)
------- ------ ------ ------ -------
As of December 31, 1994........... $7,850 $1,043 $1,053 $ 295 $10,241
======= ====== ====== ====== =======
</TABLE>
- ---------------------------------------
(a) As of December 31, 1994, CoreStates had no material deferred gains or
losses related to terminated derivative contracts.
The notional amount of CoreStates' interest rate swaps increased $3.7 billion
versus December 31, 1993. This increase offsets increases in fixed-rate
deposits and replaces the fixed-rate sensitivity lost through the sale and
runoff of investment securities. Swaps were also used to restructure the
interest sensitivity positions of acquired institutions and to hedge expected
asset sales. The interest rate cap activity in 1994 relates to hedging the
adjustable rate mortgage portfolios acquired with Constellation and Germantown.
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 December 31, 1994.
CUSTOMER RELATED DERIVATIVES
- ----------------------------
At December 31, 1994
- --------------------
(in millions)
Interest Rate Swaps:
<TABLE>
<CAPTION>
Notional Net gain
amount (loss)(a)
-------- ---------
<S> <C> <C>
CoreStates receives fixed............. $ 192 $ (4)
CoreStates pays fixed................. 192 4
Interest Rate Caps/Floors:
Sold.................................. 424 (5)
Purchased............................. 424 5
Foreign exchange contracts.............. 1,817 2
------ ----
Total Customer Related Derivatives...... $3,049 $ 2
====== ====
</TABLE>
- -----------------
(a) Average net gain (loss) during 1994 was substantially the same as the net
gain (loss) at December 31, 1994.
The current replacement cost for the customer related derivatives portfolio was
$11.2 million at December 31, 1994. This assumes that only counterparties for
whom it would be favorable to default would do so.
33
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
ASSET AND LIABILITY MANAGEMENT - continued
LIQUIDITY
Liquidity management allows a financial institution to meet potential cash
needs at a reasonable price under various operating conditions. Liquidity comes
from a variety of sources: the maturing of short-term assets, readily marketable
unpledged securities, and the ability to attract new funds. The ability to
securitize or sell other assets, such as loans, also enhances liquidity, as does
the structure and stability of existing funding sources. It is CoreStates'
practice to maintain a high degree of liquidity through a strong funding base of
core deposits combined with modest and diversified use of market sources and
relatively short-term maturities of discretionary asset portfolios.
CoreStates maintains sufficient liquidity to meet its obligations in a timely
and cost-effective manner. Management monitors current and projected cash flows,
and adjusts positions as necessary to maintain adequate levels of liquidity.
CoreStates emphasizes diversification of funding sources. By using a variety of
markets, limiting funds borrowed from a single investor, and staggering
maturities, the risk of potential funding pressure is significantly reduced.
Management also maintains a detailed liquidity contingency plan designed to
adequately respond to situations such as a decline in asset quality or credit
ratings, which could lead to liquidity concerns. Management analyzes potential
changes in major funding sources during difficult times, the amount of runoff
that may be expected, as well as available options to replace those funds. The
plan includes specific action steps to be taken in the event of funding
disturbances.
The cornerstone of CoreStates' liquidity position is a sizable and stable
base of core deposits acquired through customer relationships. Core deposits are
comprised of interest bearing consumer savings products as well as non-interest
bearing consumer and commercial deposits. Core deposits averaged 69.7% of assets
in 1994 compared to 70.4% in 1993. This decline is a result of a modest
reduction in the average balance of interest bearing relationship deposits.
Core deposits are supplemented by discretionary funding sources from direct
customer contacts in both the domestic and international markets. These sources
include large denomination certificates of deposit, deposits in foreign branches
as well as federal funds, repurchase agreements, commercial paper and long-term
debt. Commercial paper is used primarily to fund Congress, the non-bank
commercial finance subsidiary. In addition to commercial paper, Congress is
funded through the issuance of medium-term notes and long-term debt. Growth in
loans at Congress during 1994 accounted for most of the growth in discretionary
funding sources. CoreStates' liquidity is further enhanced by its ability to
raise funds in a variety of domestic and international money and capital
markets.
Under an existing shelf registration statement filed with the Securities and
Exchange Commission ("SEC"), CoreStates had a broad range of debt and capital
securities that were registered but unissued of approximately $674 million at
December 31, 1994.
The tables on pages 88, 90 and 91 illustrate the maturity characteristics of
CoreStates' domestic certificates of deposit over $100 thousand, loan portfolio
and investment portfolio, respectively. For information regarding the maturity
characteristics of CoreStates' short-term funds borrowed and long-term debt, see
notes 10 and 11 to the financial statements.
INVESTMENT PORTFOLIO
Within the context of the policies and practices previously outlined,
CoreStates maintains a portfolio of marketable debt securities to contribute to
a balanced interest rate risk position and to provide liquidity reserves.
Interest rate risk management disciplines require strict matching of interest
rate sensitivities and, therefore, CoreStates generally does not consider
changes in the market value of individual portfolios as significant to the
management of its interest sensitivity. CoreStates generally has both the
ability and the intent to hold these securities until maturity.
34
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
ASSET AND LIABILITY MANAGEMENT - continued
In 1993, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities" ("FAS 115"). FAS 115 requires that certain types of
securities as well as any other securities which CoreStates foresees as
potential candidates for sale prior to maturity be classified as "available-for-
sale" and carried at fair market value. CoreStates' available-for-sale account
guidelines establish a minimum and maximum amount of debt and equity securities
which can be carried as available-for-sale. The intent of the minimum guideline
is to establish an amount of debt securities as available-for-sale to meet
liquidity and balance sheet management concerns. The maximum is established to
protect against capital ratio deterioration, while providing portfolio
management flexibility. At December 31, 1994, the available-for-sale portfolio
was $426 million. These securities include a bank stock portfolio and other
marketable equity securities, as well as certain debt securities which
CoreStates views as possible sale candidates.
SOURCES AND USES OF FUNDS
Total assets were $29.3 billion at year-end 1994, up $890 million or 3.1%
from year-end 1993. However, excluding the $1.6 billion of assets acquired with
Germantown, total assets reflect a decline of $734 million, or 2.6% from year-
end 1993. Comparing specific asset categories to year-end 1993 balances and
excluding the impact of assets acquired with Germantown, reflects a $205
million, or 1.0%, decline in loans and a $1.0 billion, or 28.3%, reduction in
investment securities. The decline in loans resulted from 1994 sales of low
profit and problem loans from portfolios acquired during 1994. The impact of
these sales was largely offset by growth in the credit card portfolio and asset-
based lending portfolio of Congress. The decline in investment securities
reflects the restructuring of acquired portfolios and the sale of fixed-rate
securities in anticipation of the purchase of Germantown. Excluding the $1.4
billion of deposits acquired with Germantown, total deposits declined $527
million, or 2.5%, from year-end 1993. A $338 million, or 17.9%, decline in
short-term borrowings was partially offset by a $202 million, or 12.7%, increase
in long-term debt. Approximately $110 million of the increase in long-term debt
was issued to fund the cash portion of the Germantown purchase price.
Total assets averaged $27.7 billion in 1994, substantially the same as in
1993. Average loans increased $566 million, or 3.0%, while average investment
securities decreased $569 million or 15.9%. As reflected in the chart on
"Earning Asset Mix", loans comprised 80.7% of CoreStates' average earning assets
in 1994, compared to 78.8% in 1993. A $319 million, or 2.2% decline in average
interest bearing deposits was offset by an increase in non-interest bearing
funding sources.
Earning Asset Mix
-----------------
Plotting Points for a Graph
---------------------------
(percentage of average earning assets)
<TABLE>
<CAPTION>
Earning Asset Mix
------------------------------------------
Short-term
money market Investment
investments securities Loans
------------- ---------- ---------
<S> <C> <C> <C>
1994 6.9% 12.4% 80.7%
1993 6.4 14.8 78.8
1992 8.1 13.6 78.3
1991 6.5 12.6 80.9
1990 4.2 11.8 84.0
</TABLE>
35
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
SOURCES AND USES OF FUNDS - continued
The accompanying table on Funding Mix illustrates that 58.2% of CoreStates'
funds were derived from consumer deposits in 1994, compared with 59.3% in 1993.
Funding to accommodate current business needs and future growth at non-bank
subsidiaries will continue to be supported by the previously discussed SEC shelf
registration.
Funding Mix
-----------
Plotting Points for a Graph
---------------------------
(percentage of average earnings assets*)
<TABLE>
<CAPTION>
Funding Mix
-------------------------------
Other Non-
Retail Interest Interest
Deposits Bearing Bearing
-------- -------- ---------
<S> <C> <C> <C>
1994 58.2% 13.0% 28.8%
1993 59.3 13.3 27.4
1992 63.0 11.6 25.4
1991 58.3 21.1 20.6
1990 52.4 27.5 20.1
</TABLE>
* excluding short-term money market investments
REVIEW AND ANALYSIS OF EARNINGS
OPERATING REVENUE
Operating revenues for 1994, adjusted for unusual items, experienced a 3.6%
improvement over 1993, principally in the Wholesale Banking business. The usual
items excluded from the 1994 to 1993 comparison were: a $1.9 million gain from
the sale of the final two Virgin Islands branches in 1994, a gain of $9.1
million on the prepayment of long-term debt in 1993, the $11.0 million gain on
the sale of five Virgin Islands branches in 1993, and net securities gains in
both years.
While operating revenue for 1993, as compared to 1992, was significantly
impacted by the December 1992 EPS transaction and other significant items,
CoreStates' operating revenue for 1993 reflected strong growth in revenues in
Wholesale Banking and in fee-based businesses. Excluding EPS related revenues in
1993 and 1992, net gains on investment securities transactions, gains of $11.0
million from the Virgin Islands branch sale and $9.1 million on prepayments of
long-term debt in 1993, and the $41.1 million gain recorded on the December 1992
EPS transaction, operating revenue increased 7.4% for 1993.
Operating revenue has three major components and, as illustrated on the
accompanying chart ("Operating Revenue"), net interest income from loans and
investments is the largest component. Net interest income is presented excluding
the earnings benefit of balances maintained by commercial customers as
compensation for transaction oriented non-credit products.
The two other components of operating revenue are non-interest income and
the previously mentioned earnings benefit of balances maintained as compensation
for non-credit products. Net interest income and non-interest income are
discussed in further detail on the following pages.
OPERATING REVENUE
- -----------------
Plotting Points for a Graph
- ---------------------------
(tax equivalent net interest income plus non-interest income-in millions)
<TABLE>
<CAPTION>
Operating Revenue
-----------------------------------------------------
Derived
Loan and from Non-
Investment Non-credit Interest
Interest Balances Income Total
---------- -------------- -------- ---------
<S> <C> <C> <C> <C>
1994 $1,262.5 $148.1 $567.5 $1,978.1
1993 1,211.4 140.4 574.0 1,925.8
1992 1,160.7 122.8 610.7 1,894.2
1991 1,190.6 123.1 615.6 1,929.3
1990 1,203.9 115.5 475.0 1,794.4
</TABLE>
36
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
NET INTEREST INCOME
For analytical purposes, net interest income is adjusted to a taxable
equivalent basis to recognize the income from tax exempt assets as if the
interest were taxable. Net interest income on a taxable equivalent basis
increased $58.8 million, or 4.4% in 1994, compared to an increase of $68.3
million, or 5.3% in 1993. 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. The following table compares taxable
equivalent net interest income for the years ended December 31, 1994, 1993 and
1992.
Taxable Equivalent Net Interest Income
- -----------------------------------------
(in millions)
<TABLE>
<CAPTION>
Percentage
increase(decrease)
------------------
1994 1993 1992 '94/'93 '93/'92
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Total interest income $1,929.5 $1,841.9 $1,961.8 4.8% (6.1)%
Tax equivalent adjustment 21.3 26.5 31.0 (19.6) (14.5)
-------- -------- --------
Tax equivalent interest
income 1,950.8 1,868.4 1,992.8 4.4 (6.2)
Total interest expense 540.2 516.6 709.3 4.6 (27.2)
-------- -------- --------
Tax equivalent net
interest income $1,410.6 $1,351.8 $1,283.5 4.4 5.3
======== ======== ========
Interest rate spread 4.99% 4.85% 4.42%
==== ==== ====
Net interest margin 5.80% 5.59% 5.32%
==== ==== ====
</TABLE>
The increase in net interest income in 1994 continues the improvement in
interest rate spread of the previous years. While average total earning assets
showed little growth in 1994, a change in asset mix resulted in the yield on
earning assets increasing to 8.03% in 1994 from 7.73%, partially offset by a
smaller increase in average cost of liabilities to 3.03% from 2.90% in 1993. The
loan portfolio experienced a $566 million increase on average, mostly in the
higher yield credit card and asset-based lending portfolios, while the
comparatively lower yielding investment portfolio was reduced $569 million. An
increase in non-interest bearing funding sources of $287 million also
contributed to the 1994 increase in net interest income.
The increase in net interest income in 1993 principally reflected the impact
of wider interest rate spreads. Also contributing to the increase in 1993 net
interest income were a $59 million increase in average interest earning assets,
a $.6 billion increase in non-interest bearing funding sources, the earnings
impact of lower levels of non-performing loans and cash basis interest received
on non-performing loans. The interest rate spread increased in 1993 mostly due
to a decline in the rates paid on domestic deposits of 131 basis points, while
the rates earned on domestic loans decreased 38 basis points.
The net interest margin is a key measure of net interest income performance.
It represents the difference between tax equivalent interest income, including
net loan fees earned, and interest expense, reflected as a percentage of average
earning assets. The net interest margin increased 21 basis points in 1994 to
5.80% following a 27 basis point increase in 1993. The 1994 increase was
principally attributable to higher yields on loans due to the change in asset
mix and the increase in the prime rate during the year, partially offset by the
lower yield on the investment portfolio. The cost of interest bearing deposits
decreased by 5 basis points in 1994 as changes in the pricing of consumer
deposits in the rising rate environment lagged changes in financial market
rates. The cost of borrowed funds, more sensitive to rising interest rates,
increased during 1994 by 89 basis points. The 1993 increase in the net interest
margin was principally related to improved interest rate spreads which resulted
from the decline of interest rates in 1993 and from the shift in funding mix to
lower cost funding. The migration of consumer deposits from certificates of
deposit to more liquid and less costly deposit products contributed to the
reduction in 1993 funding costs.
For further detailed information regarding average balances, yields and
costs, see the consolidated average balance sheet on pages 76-79, and the
rate/volume analysis on page 83.
37
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
<TABLE>
<CAPTION>
NON-INTEREST INCOME
Percentage
(in millions) increase(decrease)
------------------
1994 1993 1992 '94/'93 '93/'92
------ ------ ------ ------- -------
<S> <C> <C> <C> <C> <C>
Basic banking transactional
services(a) $422.3 $412.4 $379.7 2.4% 8.6%
EPS related revenues (b) 31.8 13.1 92.5 142.7 (85.8)
Securities gains 18.7 16.1 13.8
Other non-interest income 92.8 110.9 81.8 (16.3) 35.6
------ ------ ------
Non-interest income before
non-recurring items 565.6 552.5 567.8 2.4 (2.7)
Non-recurring items 1.9(c) 21.5(d) 42.9(e)
------ ------ ------
Total non-interest income $567.5 $574.0 $610.7 (1.1) (6.0)
====== ====== ======
</TABLE>
- --------------------------------------------
(a) Comprised of debit and credit card fees, service charges on deposit
accounts, trust income, and fees for international services.
(b) Includes income related to CoreStates' investment in the EPS joint venture
in 1994 and 1993, and for 1992, MAC and POS revenues, the businesses
contributed to the joint venture in December 1992.
(c) Includes the pre-tax gain of $1.9 million recorded on the sale of the two
remaining Virgin Islands branches.
(d) Includes pre-tax gains of $11.0 million recorded on the sale of five Virgin
Islands branches, $9.1 million on prepayments of long-term debt and $1.4
million in excess recoveries from the settlement of a previously charged
off loan at Independence.
(e) Includes a $41.1 million pre-tax gain recorded on the EPS transaction, and
a $1.8 million gain on the sale of a Constellation branch.
While reported total non-interest income decreased $6.5 million or 1.1% in
1994, following a decline of $36.7 million, or 6.0% in 1993, total non-interest
income in 1994 before non-recurring items increased $13.1 million or 2.4% over
1993. The relatively low growth rate for 1994 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,
declines in income and fees derived from mortgage banking, and a decline in
trust income.
Comparability between the three years was affected by the December 1992
restructuring of CoreStates' MAC and POS consumer electronic payment business
into EPS. Also in December 1993, CoreStates exchanged substantially all of its
preferred stock in EPS for a ten-year 6.45% note providing for equal payments
over the life of the note. While the deferred gain generated in 1992 was
unchanged, the gain began to be recognized in 1994 and is the principal reason
for the increase in EPS related revenues for 1994. As a result of the original
EPS restructuring in 1992, 1993 reflects a significant decline in debit and
credit card fees and includes $13.2 million, reflecting EPS' preferred stock
dividends and CoreStates' 31% equity share in the net income of the EPS joint
venture for that year. For analytical purposes, fees generated by the MAC and
POS businesses have been reclassified from the debit and credit card fee
category in the preceding table in 1992. POS and MAC revenues in 1994 and 1993
were recorded by EPS. Included in other non-interest income in 1994 and 1993,
respectively, are $23.1 million and $17.5 million of fees earned by Financial
Telesis, a third-party provider of lockbox processing and data management
services, which was acquired by CoreStates on December 31, 1992.
CoreStates recorded net securities gains of $18.7 million in 1994, $16.1
million in 1993 and $13.8 million in 1992. Investment securities gains in 1994
included $5.0 million recorded on sale of certain investments acquired with
Constellation and $10.7 million recorded on sales of certain bank stocks.
Investment securities gains for 1993 included $13.6 million on sales of domestic
equity securities and $8.6 million on sales of foreign equity securities,
partially offset by $6.1 million for partial writedowns of foreign equity
securities. Investment securities gains for 1992 were $2.6 million, including
$3.6 million of gains recorded on sales of certain investments acquired with
First Peoples Corporation in September 1992, $5.3 million of gains recorded on
the partial sale of a foreign equity investment, and $1.7 million of gains
recorded on sales of domestic equity securities.
38
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
NON-INTEREST INCOME - CONTINUED
Income from basic banking transactional services increased 2.4% in 1994,
following growth of 8.6% in 1993. The components of basic banking transactional
services are discussed in detail below.
. Service charges on deposit accounts, paid in fees, increased $1.2
million, or .7%, in 1994, compared to $16.3 million, or 10.0%, in 1993.
After adding the value of service charges paid through the maintenance of
deposit balances by commercial and correspondent customers, which is
included in net interest income, total service charge compensation for
1994 was $328.8 million, up $9.0 million, or 2.8%, from 1993. Although
the underlying activity related to this combined revenue stream was up
over 10%, the revenue growth was much lower because 1993 revenues
included the partial benefit of a wider spread on a portion of these
balances invested on a longer term basis. This spread narrowed
significantly in 1994. Total service charge compensation on this basis
for 1993 was $319.8 million, an increase of $33.9 million or 11.9% over
1992.
. Fees for international services increased $10.3 million, or 14.8%, in
1994, as compared with an increase of $9.2 million, or 15.2%, in 1993.
The growth in revenues for 1994 reflects a continuing emphasis on
international services. The growth in revenues for 1993 was principally
due to increased volume from new branch offices. International non-credit
product volume growth, particularly foreign exchange fees, continued to
be responsible for high gross revenue increases in 1994 and 1993.
. Trust income decreased $4.4 million, or 4.4%, in 1994 following an
increase of $5.1 million, or 5.2%, in 1993. The 1994 decline in trust
income was caused by declines in the financial markets which generated
lower asset values and some customer attrition. Growth in assets and
related fees in the Personal Trust, Investment Services, and Employee
Benefit areas contributed to 1993 fee growth.
. Debit and credit card fees increased $2.9 million, or 4.6% in 1994,
following an increase of $2.1 million, or 3.5%, in 1993. For analytical
purposes, fees generated by the MAC and POS businesses, which were
contributed to the EPS joint venture in December 1992, have been
reclassified from the debit and credit card fee category in the table on
page 38 in 1992. Credit card fees were up $.9 million, or 3.4%, for 1993.
At year-end 1994, CoreStates' credit card portfolio included
approximately 601,000 active accounts, compared to 575,000 active
accounts at year-end 1993. Merchant processing services fees in 1993 were
level with 1992.
Other operating income decreased by $18.1 million, or 16.3% principally as a
result of mortgage banking activity which was adversely impacted by reduced
refinance activity and higher mortgage rates. Gains on sales of mortgages and
mortgage servicing fees were down $11.6 million and $4.1 million in 1994,
respectively. Other operating income in 1993 increased $29.1 million, or 35.6%,
primarily due to $17.5 million of fees earned by Financial Telesis. Gains on
trading account securities were $2.3 million in 1994, as compared with $2.3
million in 1993 and $1.8 million in 1992.
39
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
<TABLE>
<CAPTION>
NON-FINANCIAL EXPENSES Percentage
(in millions) increase(decrease)
------------------
1994 1993 1992 '94/'93 '93/'92
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Salaries, wages and
benefits $ 631.1 $ 623.0 $ 620.5 1.3% 0.4%
Net occupancy expense 114.5 115.0 112.8 (.4) 2.0
Equipment expense 77.1 74.8 85.6 3.1 (12.6)
Other operating expenses 380.2 384.3 414.6 (1.1) (7.3)
-------- -------- --------
Non-financial expenses
before significant and
unusual items 1,202.9 1,197.1 1,233.5 (.5) (3.0)
Significant and unusual
items 114.7(a) 44.8(b) 73.1(c)
-------- -------- --------
Total non-financial
expenses $1,317.6 $1,241.9 $1,306.6 6.1 (5.0)
======== ======== ========
</TABLE>
- ----------------------------
(a) Includes merger-related costs at $75.0 million and $33.7 million for
Constellation and Independence, respectively; other real estate writedowns
of $2.3 million and $3.7 million related to Germantown branch closings and
signage.
(b) Comprised of other real estate writedowns totalling $26.6 million;
writedowns of purchased mortgage servicing rights of $8.2 million and $10.0
million related to the establishment of Transys, a new transaction services
business.
(c) Includes $34.3 million of other real estate writedowns; writedown of $10.7
million of purchased mortgage servicing rights; $4.5 million for
streamlining business operations; $7.4 million of expenses associated with
personnel related initiatives; and $16.2 million for systems enhancements
and operations consolidations.
Reported total non-financial expenses in 1994 were 6.1% higher than 1993.
However, excluding significant and unusual items, non-financial expenses for
1994 were substantially unchanged from 1993. While reported total non-financial
expenses in 1993 of $1,241.9 million reflected a decrease of 5.0% from 1992,
excluding significant and unusual items as noted for both years in the table
above, non-financial expenses for 1993 decreased 3.0% from 1992. Comparability
of 1993 and 1992 is also impacted by the formation of EPS, as total non-
financial expenses for 1992 included eleven months of expenses related to the
MAC and POS businesses which were contributed to EPS in December 1992.
Salaries, wages and benefits increased 1.3% in 1994, compared to an increase
of 0.4% in 1993. The 1994 increase in salary and benefit costs was largely the
result of normal salary increases offset by partial year staff reductions due to
merger consolidations. At year-end 1994, the number of full-time equivalent
employees declined by over 900 as operations and systems mergers were completed
for acquired companies. A decrease in 1993 salary expense attributable to the
transfer of employees in the MAC and POS businesses to EPS, was partially offset
by an increase in employee related expenses of $11.7 million due to the
acquisition of Financial Telesis. The number of full-time equivalent employees
at December 31, 1994, 1993 and 1992 was: 15,076; 16,017; and 16,271,
respectively.
Net occupancy expense decreased .4% in 1994, compared to an increase of 2.0%
in 1993. Equipment expenses increased 3.1% in 1994, compared to a decrease of
12.6% in 1993. Equipment expense showed increases in 1994 as continued
technological improvements were made in delivery systems and support areas. The
decline in combined 1993 net occupancy and equipment expense was primarily due
to the formation of the EPS joint venture.
Other operating expenses decreased 1.1% in 1994, following a decline of 7.3%
in 1993 compared to 1992. The decrease in 1994 was largely due to reductions in
amortization of mortgage servicing rights intangibles which was $8.2 million
less than 1993.
40
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
PROVISION FOR INCOME TAXES
The provision for income taxes was $143.7 million in 1994 compared to $173.8
million in 1993 and $128.2 million in 1992. The $30.1 million decrease in 1994
total tax expense was primarily the result of lower pre-tax book income. The
provision for income taxes for 1994, 1993 and 1992 were at effective rates of
36.6%, 32.4%, and 32.3%, respectively. The increase in the effective rate is
primarily due to a lower dividend received deduction resulting from the EPS
recapitalization.
41
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S REPORT ON INTERNAL CONTROLS OVER
FINANCIAL REPORTING
FINANCIAL STATEMENTS
CoreStates Financial Corp is responsible for the preparation, integrity, and
fair presentation of its published financial statements as of December 31, 1994,
and the year then ended. The consolidated financial statements of CoreStates
Financial Corp have been prepared in accordance with generally accepted
accounting principles and, as such, include some amounts that are based on
judgments and estimates of management.
INTERNAL CONTROLS OVER FINANCIAL REPORTING
Management is responsible for establishing and maintaining an effective internal
control structure over financial reporting. The system contains monitoring
mechanisms, and actions are taken to correct deficiencies identified.
There are inherent limitations in the effectiveness of any system of internal
control, including the possibility of human error and the circumvention or
overriding of controls. Accordingly, even an effective internal control system
can provide only reasonable assurance with respect to financial statement
preparation. Further, because of changes in conditions, the effectiveness of an
internal control system may vary over time.
Management assessed CoreStates Financial Corp's internal control structure over
financial reporting as of December 31, 1994. This assessment was based on
criteria for effective internal control over financial reporting described in
"Internal Control - Integrated Framework" issued by the Committee of Sponsoring
Organizations of the Treadway Commission. Based on this assessment, management
believes that CoreStates Financial Corp maintained an effective internal control
structure over financial reporting as of December 31, 1994.
Chief Financial Officer
/s/ David C. Carney
Chairman and Chief Executive Officer
/s/ Terrence A. Larsen
42
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors and Shareholders
CoreStates Financial Corp
We have examined managements assertion that CoreStates Financial Corp maintained
an effective internal control structure over financial reporting as of December
31, 1994 included in the accompanying Management's Report on Internal Controls
over Financial Reporting, insofar as management's assertion relates to the
internal control structure over the annual financial reporting in the 1994
consolidated financial statements of CoreStates Financial Corp.
Our examination was made in accordance with standards established by the
American Institute of Certified Public Accountants and, accordingly, included
obtaining an understanding of the internal control structure over financial
reporting, testing, and evaluating the design and operating effectiveness of the
internal control structure, and such other procedures as we considered necessary
in the circumstances. We believe that our examination provides a reasonable
basis for our opinion.
Because of inherent limitations in any internal control structure, errors or
irregularities may occur and not be detected. Also, projections of any
evaluation of the internal control structure over financial reporting to future
periods are subject to the risk that the internal control structure may become
inadequate because of changes in conditions, or that the degree of compliance
with the policies or procedures may deteriorate.
In our opinion, management's assertion that CoreStates Financial Corp maintained
an effective internal control structure over financial reporting as of December
31, 1994, insofar as management's assertion relates to the internal control
structure over the annual financial reporting in the 1994 consolidated financial
statements of CoreStates Financial Corp, is fairly stated, in all material
respects, based upon the criteria established in "Internal Control - Integrated
Framework" issued by the Committee of Sponsoring Organizations of the Treadway
Commission.
/s/ ERNST & YOUNG LLP
Philadelphia, Pennsylvania
March 7, 1995
43
<PAGE>
REPORT OF INDEPENDENT AUDITORS
THE BOARD OF DIRECTORS AND SHAREHOLDERS
CORESTATES FINANCIAL CORP
We have audited the accompanying consolidated balance sheets of CoreStates
Financial Corp as of December 31, 1994 and 1993, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1994. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the 1993 and 1992 financial statements of
Constellation Bancorp and Independence Bancorp, Inc., which statements reflect
total assets constituting 17.2% of the related consolidated totals as of
December 31, 1993, and net interest income constituting 15.6% of the related
consolidated totals for each of the years ended December 31, 1993 and 1992.
Those statements were audited by other auditors whose reports thereon have been
furnished to us, and our opinion, insofar as it relates to data included for
Constellation Bancorp and Independence Bancorp, Inc., is based solely on the
reports of other auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of CoreStates Financial Corp at December 31,
1994 and 1993, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 1994, in conformity
with generally accepted accounting principles.
As discussed in Note 1 to the financial statements, in 1994 and 1993 the Company
changed its method of accounting for certain investments in debt and equity
securities, in 1993 the Company changed its method of accounting for post-
employment benefits, and in 1992 the Company changed its methods of accounting
for income taxes and for post-retirement benefits other than pensions.
/s/Ernst & Young LLP
Philadelphia, Pennsylvania
February 7, 1995
44
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------------------
INTEREST INCOME 1994 1993 1992
----------- ---------- ----------
<S> <C> <C> <C>
Interest and fees on loans:
Taxable income..................................... $1,675,532 $1,553,865 $1,609,209
Tax exempt income.................................. 22,818 31,150 38,554
Interest on investment securities:
Taxable income..................................... 140,379 185,866 216,074
Tax exempt income.................................. 16,552 19,304 22,777
Interest on time deposits in banks................... 66,389 44,340 58,613
Interest on Federal funds sold, securities purchased
under agreements to resell and other............... 7,857 7,339 16,611
----------- ---------- ----------
Total interest income............................ 1,929,527 1,841,864 1,961,838
----------- ---------- ----------
INTEREST EXPENSE
Interest on deposits:
Domestic savings................................... 139,703 149,094 230,166
Domestic time (Note 9)............................. 196,869 212,471 311,970
Overseas branches and subsidiaries................. 28,286 18,248 28,319
----------- ---------- ----------
Total interest on deposits....................... 364,858 379,813 570,455
Interest on short-term funds borrowed (Note 10)...... 85,123 67,001 60,480
Interest on long-term debt (Note 11)................. 90,177 69,779 78,425
----------- ---------- ----------
Total interest expense........................... 540,158 516,593 709,360
----------- ---------- ----------
Net interest income.............................. 1,389,369 1,325,271 1,252,478
Provision for losses on loans (Note 7)............... 246,900 121,201 160,250
----------- ---------- ----------
Net interest income after provision for
losses on loans................................. 1,142,469 1,204,070 1,092,228
----------- ---------- ----------
NON-INTEREST INCOME
Service charges on deposit accounts.................. 180,676 179,428 163,132
Trust income......................................... 97,362 101,793 96,731
Fees for international services...................... 79,682 69,432 60,247
Debit and credit card fees........................... 64,585 61,717 152,078
Income from investment in EPS, Inc. (Note 20)........ 31,800 13,159 -
Gains on trading account securities.................. 2,347 2,254 1,836
Securities gains (Note 5)............................ 18,753 16,110 13,805
Other gains (Notes 6 and 20)......................... 1,900 11,000 41,072
Other operating income............................... 90,435 119,137 81,763
----------- ---------- ----------
Total non-interest income........................ 567,540 574,030 610,664
----------- ---------- ----------
NON-FINANCIAL EXPENSES
Salaries, wages and benefits (Notes 12 and 13)....... 631,134 622,969 627,904
Net occupancy (Notes 8 and 14)....................... 117,516 114,951 112,765
Equipment expenses (Note 8).......................... 77,098 74,844 85,589
Other operating expenses (Note 16)................... 491,813 429,098 480,335
----------- ---------- ----------
Total non-financial expenses..................... 1,317,561 1,241,862 1,306,593
----------- ---------- ----------
INCOME BEFORE INCOME TAXES....................... 392,448 536,238 396,299
Provision for income taxes (Note 16)................. 143,656 173,809 128,165
----------- ---------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE.............................. 248,792 362,429 268,134
Cumulative effect of a change in accounting
principle, net of income tax benefits of $1,846
in 1994, $7,005 in 1993 and $43,760 in 1992........ (3,430) (13,010) (84,946)
----------- ---------- ----------
NET INCOME..................................... $ 245,362 $ 349,419 $ 183,188
=========== ========== ==========
PER COMMON SHARE DATA (Based on weighted average
shares outstanding of 142.498 million in 1994,
145.398 million in 1993, and 135.813 million
in 1992)..........................................
Income before cumulative effect of a change in
accounting principle.............................. $1.75 $2.49 $1.97
===== ===== =====
Net Income.......................................... $1.73 $2.40 $1.35
===== ===== =====
Cash dividends declared............................. $1.24 $1.14 $1.02
===== ===== =====
</TABLE>
See accompanying notes to the financial statements.
45
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
December 31,
-------------------------
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
Cash and due from banks (Note 4)....................... $ 2,262,512 $ 2,521,676
Time deposits, principally Eurodollars................. 1,750,458 1,319,457
Investment securities held-to-maturity (market value:
1994-$2,423,830; 1993-$2,257,513) (Note 5)........... 2,454,584 2,228,560
Investment securities available-for-sale (Note 5)...... 426,047 1,370,606
Total loans, net of unearned discounts of
$146,305 in 1994 and $151,994 in 1993 (Note 6)....... 20,526,216 19,776,258
Less: Allowance for loan losses (Note 7)............. (500,631) (450,823)
----------- -----------
Net loans.................................... 20,025,585 19,325,435
Federal funds sold and securities purchased under
agreements to resell................................. 731,820 161,527
Trading account securities............................. 1,206 6,393
Due from customers on acceptances...................... 342,211 332,234
Premises and equipment (Note 8)........................ 423,832 410,022
Other assets (Note 20)................................. 906,881 758,707
----------- -----------
Total assets................................. $29,325,136 $28,434,617
=========== ===========
LIABILITIES
Deposits:
Domestic:
Non-interest bearing............................... $ 6,362,470 $ 6,649,367
Interest bearing (Note 9).......................... 14,565,051 13,686,027
Overseas branches and subsidiaries (Note 9).......... 1,113,365 796,902
----------- -----------
Total deposits............................... 22,040,886 21,132,296
Short-term funds borrowed (Note 10).................... 1,546,201 1,884,125
Bank acceptances outstanding........................... 336,103 337,180
Other liabilities (Note 12)............................ 1,260,722 1,123,342
Long-term debt (Note 11)............................... 1,791,110 1,589,290
----------- -----------
Total liabilities............................ 26,975,022 26,066,233
----------- -----------
COMMITMENTS AND CONTINGENT LIABILITIES (NOTE 15)
SHAREHOLDERS' EQUITY (NOTES 11, 13 AND 19)
Preferred stock: authorized 10.0 million
shares; no shares issued................................ - -
Common stock: $1 par value; authorized 200.0 million
shares; issued 145.9 million shares in 1994 and
145.8 million shares in 1993 (including treasury
shares of 1.0 million in 1994 and .4 million in 1993). 2,350,114 2,368,384
----------- -----------
Total shareholders' equity...................... 2,350,114 2,368,384
----------- -----------
Total liabilities and shareholders' equity...... $29,325,136 $28,434,617
=========== ===========
</TABLE>
See accompanying notes to the financial statements.
46
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(IN THOUSANDS)
<TABLE>
<CAPTION>
COMMON CAPITAL RETAINED TREASURY
STOCK SURPLUS EARNINGS STOCK TOTAL
-------- -------- ---------- --------- ----------
<S> <C> <C> <C> <C> <C>
Balances at December 31, 1991............................ $ 77,017 $713,283 $1,144,822 $ (7,711) $1,927,411
Net income............................................... 183,188 183,188
Net change in unrealized gain in marketable
equity securities, net of tax (Note 5)................. 1,331 1,331
Treasury shares acquired (30 shares)..................... (1,480) (1,480)
Stock issued in public offering (7,842 shares)........... 7,842 59,739 67,581
Common stock issued under employee benefit
plans (1,230 new shares; 52 treasury shares)........... 1,190 30,286 131 777 32,384
Common stock issued under dividend reinvestment
plan (449 new shares; 220 treasury shares)............. 338 14,083 4,288 18,709
Conversion of subordinated debt (16 treasury shares)..... (45) 245 200
Foreign currency translation adjustments................. (4,384) (4,384)
Common dividends declared................................ (130,381) (130,381)
-------- -------- ---------- --------- ----------
Balances at December 31, 1992............................ 86,387 817,391 1,194,662 (3,881) 2,094,559
Net income............................................... 349,419 349,419
Issuance of shares in connection with a 100% common
stock dividend......................................... 58,929 (58,929)
Net unrealized gain on investments available-for-sale,
net of tax (Note 5).................................... 64,305 64,305
Acquisition of Inter Community Bancorp (640 treasury
shares)................................................ (213) 17,459 17,246
Treasury shares acquired (1,060 shares).................. (29,449) (29,449)
Repurchase and retirement of common stock................ (382) (2,255) (5,808) (8,445)
Common stock issued under employee benefit
plans (857 new shares; 175 treasury shares)............ 586 13,701 (1,510) 4,871 17,648
Common stock issued under dividend reinvestment
plan (358 new shares; 111 treasury shares)............. 220 8,590 (101) 3,181 11,890
Foreign currency translation adjustments................. (1,758) (1,758)
Common dividends declared................................ (147,031) (147,031)
-------- -------- ---------- --------- ----------
Balances at December 31, 1993............................ 145,740 778,498 1,451,965 (7,819) 2,368,384
Net income............................................... 245,362 245,362
Net change in unrealized gain on investments avaliable-
for-sale, net of tax (Note 5).......................... (52,951) (52,951)
Acquisition of Germantown Savings Bank (5,880 treasury
shares) (Note 2)....................................... (8,605) 156,361 147,756
Treasury shares acquired (8,598 shares).................. (228,963) (228,963)
Repurchase and retirement of common stock................ (177) (981) (3,583) (2) (4,743)
Common stock issued under employee benefit
plans (279 new shares; 688 treasury shares)............ 279 4,172 (7,803) 18,456 15,104
Common stock issued under dividend reinvestment and
stock purchase plans (450 treasury shares)............. 77 (483) 12,306 11,900
Conversion of subordinated debt (36 new shares;
909 treasury shares)................................... 36 (2,001) 25,364 23,399
Cash paid for fractional shares.......................... (83) (83)
Foreign currency translation adjustments................. 52 52
Common dividends declared................................ (175,103) (175,103)
-------- -------- ---------- --------- ----------
Balances at December 31, 1994............................ $145,878 $781,766 $1,446,767 $ (24,297) $2,350,114
======== ======== ========== ========= ==========
</TABLE>
See accompanying notes to the financial statements.
47
<PAGE>
CoreStates Financial Corp and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
---------------------------------------------
1994 1993 1992
------------ ------------- ------------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income.................................. $ 245,362 $ 349,419 $ 183,188
Adjustments to reconcile net income to net
cash provided by operating activities:
Cumulative effect of a change in
accounting principle (Note 12)........ 3,430 13,010 84,946
Provision for losses on loans............. 246,900 121,201 160,250
Provision for losses and writedowns
on other real estate owned............... 44,538 26,614 34,253
Depreciation and amortization............. 76,277 84,998 106,111
Deferred income tax expense (benefit)..... 16,393 (10,656) 26,864
Securities gains (Note 5)................. (18,753) (16,110) (13,805)
Other gains (Notes 6 and 20).............. (1,900) (11,000) (41,072)
Increase in due to factored clients....... 41,262 147,072 1,923
Proceeds from contribution of assets
to EPS joint venture (Note 20)........... - - 79,350
(Increase) decrease in interest receivable (25,625) 3,646 44,398
Increase (decrease) in interest payable... 23,551 (7,738) (62,667)
Other, net................................ 54,881 43,789 80,004
----------- ------------ -----------
NET CASH PROVIDED BY OPERATING ACTIVITIES 706,316 744,245 683,743
----------- ------------ -----------
INVESTING ACTIVITIES
Purchase of Germantown Saving Bank, net of
cash acquired (Note 2).................... (74,053) - -
Net (increase) decrease in loans (Note 6)... (633,013) (1,483,539) (191,780)
Proceeds from sales of loans (Note 6)....... 897,528 790,193 568,698
Loans originated or acquired--non-bank
subsidiaries.............................. (33,760,035) (24,712,336) (16,561,468)
Principal collected on loans--non-bank
subsidiaries.............................. 33,399,764 24,411,312 16,364,389
Net (increase) decrease in time deposits,
principally Eurodollars................... (431,001) 495,615 (131,596)
Purchases of investments held-to-maturity... (1,030,404) - -
Purchases of investments available-for-sale. (422,894)
Proceeds from maturities of investments held-
to-maturity............................... 1,655,885 - -
Proceeds from maturities of investments
available-for-sale........................ 308,598 - -
Proceeds from sales of investments
available-for-sale........................ 690,343 - -
Purchases of investment securities.......... - (2,252,933) (2,169,341)
Proceeds from sales of investment
securities................................ - 581,101 408,341
Proceeds from maturities of investment
securities................................ - 1,819,500 1,440,311
Net (increase) decrease in Federal funds
sold and securities purchased under
agreements to resell...................... (549,293) 105,363 109,410
Purchases of premises and equipment......... (92,232) (107,275) (47,221)
Proceeds from sales and paydowns on other
real estate owned......................... 59,947 84,389 79,073
Other, net.................................. 19,617 6,689 49,505
----------- ------------ -----------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES.............................. 38,757 (261,921) (81,679)
----------- ------------ -----------
FINANCING ACTIVITIES
Net decrease in deposits.................... (536,836) (540,605) (244,987)
Long-term debt issued (Note 11)............. 478,048 916,519 332,775
Retirement of long-term debt................ (242,432) (683,399) (215,756)
Net proceeds from issuance of common
stock in public offering.................. - - 67,581
Net decrease in short-term funds
borrowed.................................. (337,924) (19,919) (165,407)
Cash dividends paid......................... (160,122) (143,334) (126,265)
Purchase of treasury stock.................. (228,963) (29,449) (1,480)
Other, net.................................. 23,992 29,538 51,093
----------- ------------ -----------
NET CASH USED IN FINANCING ACTIVITIES..... (1,004,237) (470,649) (302,446)
----------- ------------ -----------
INCREASE (DECREASE) IN CASH AND DUE
FROM BANKS............................... (259,164) 11,675 299,618
Cash and due from banks at January 1,..... 2,521,676 2,510,001 2,210,383
----------- ------------ -----------
CASH AND DUE FROM BANKS AT DECEMBER 31,..... $ 2,262,512 $ 2,521,676 $ 2,510,001
=========== ============ ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest.................................. $ 513,773 $ 524,565 $ 771,780
============ ============ ============
Income taxes.............................. $ 130,904 $ 167,216 $ 124,952
============ ============ ============
</TABLE>
See accompanying notes to the financial statements.
48
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
BASIS OF PRESENTATION
The consolidated financial statements include the accounts of CoreStates
Financial Corp ("the Corporation") and all of its subsidiaries, including:
CoreStates Bank, N.A. ("CBNA"); New Jersey National Bank ("NJNB"); CoreStates
Bank of Delaware, N.A. ("CBD"); Congress Financial Corporation; and CoreStates
Capital Corp. All material intercompany transactions have been eliminated. The
financial statements include the consolidated accounts of Independence Bancorp,
Inc. ("Independence"), which was acquired on June 27, 1994, and Constellation
Bancorp ("Constellation"), which was acquired on March 16, 1994 for all periods
presented. Both transactions were accounted for under the pooling of interests
method of accounting. Certain amounts in prior years have been reclassified for
comparative purposes.
CHANGES IN ACCOUNTING PRINCIPLES.
During the first quarter of 1994, Independence recognized a $3,430 after-tax, or
$.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,
"Accounting for Certain Investments in Debt and Equity Securities" ("FAS 115").
The interpretation, reached by 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.
Effective December 31, 1993, the Corporation adopted FAS 115. FAS 115
established the accounting and reporting requirements for investments in equity
securities that have readily determinable fair values and for all investments in
debt securities. All affected investment securities must be classified as
either held-to-maturity, trading, or available-for-sale. Held-to-maturity
securities are carried at amortized cost. Trading securities are carried at
fair value with unrealized holding gains and losses reported in the income
statement. Available-for-sale securities are carried at fair value with
unrealized holding gains and losses reported as a component of shareholders'
equity. As a result of adopting FAS 115, securities with an original carrying
value of $1,272,138 were classified as available-for-sale at December 31, 1993
and were written up to their aggregate fair value of $1,370,606. After the
related tax effects, shareholders' equity at December 31, 1993 was increased by
$64,305 to reflect the write-up of these securities to fair value.
Effective January 1, 1993, the Corporation adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits" ("FAS 112"). FAS 112 established the accounting requirements for
benefits provided to former or inactive employees after employment but before
retirement. FAS 112 requires that employers accrue the costs associated with
providing benefits, such as salary and benefit continuation under disability
plans, when payment of the benefits is probable and the amount of the obligation
can be reasonably estimated. The Corporation recognized the January 1, 1993 FAS
112 transitional liability of $20,015, $13,010 after-tax or $.09 per share, as
the cumulative effect of a change in accounting principle.
Effective January 1, 1992, the Corporation adopted Statement of Financial
Accounting Standards No. 106, "Employers' Accounting for Postretirement Benefits
Other Than Pensions" ("FAS 106"). FAS 106 requires that employers accrue the
costs associated with providing postretirement benefits during the active
service periods of employees. As permitted under FAS 106, the Corporation
elected to immediately recognize the January 1, 1992 transitional liability of
$128,706, $84,946 after-tax or $.62 per share, as the cumulative effect of a
change in accounting principle.
49
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
INCOME TAXES
In February 1992, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 109, "Accounting for Income Taxes" ("FAS
109"). In the first quarter of 1992 the Corporation retroactively adopted FAS
109 as of January 1, 1987. Under the asset and liability method provided for by
FAS 109, deferred tax assets and liabilities are recognized for the tax
consequences of temporary differences by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities.
The Corporation and its subsidiaries file a consolidated Federal income tax
return.
INVESTMENT SECURITIES
Held-to-maturity securities are carried at cost adjusted for amortization of
premiums and accretion of discounts, both computed on the interest method.
Held-to-maturity securities primarily consist of debt securities. The
Corporation has both the ability and positive intent to hold these securities
until maturity. Trading account securities are carried at market values. Gains
on trading account securities include both realized and unrealized gains and
losses on the portfolio.
Debt securities not classified as held-to-maturity or trading and marketable
equity securities are classified as available-for-sale. Available-for-sale
securities are carried at fair value, with unrealized gains and losses, net of
tax, reported as a component of shareholders' equity. The accumulated net
unrealized gain on available-for-sale securities included in retained earnings
was $11,354 at December 31, 1994.
The adjusted cost of a specific certificate sold is the basis for determining
realized securities gains and losses as included in the consolidated statement
of income in "non-interest income".
Interest and dividends on investment securities are recognized as income when
earned.
LOANS
Interest on commercial loans is recognized on the daily principal amounts
outstanding. Loan fees are generally considered as adjustments of interest rate
yields and are amortized into interest income on loans over the terms of the
related loans. Interest on installment loans is principally recognized on the
interest method.
Commercial loans are placed on a non-accrual status, generally recognizing
interest as income when received, when, in the opinion of management, the
collectability of principal or interest becomes doubtful. The deferral or non-
recognition of interest does not constitute forgiveness of the borrower's
obligation. In those cases where collection of principal is in doubt, additions
are made to the allowance for loan losses.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is based on management's evaluation of the effects
on the loan portfolio of current economic and political conditions and other
pertinent indicators. Activities in foreign countries may involve special risks
not normally a part of domestic operations. Credit review personnel and senior
officers evaluate the loan portfolio by determining the net realizable value of
collateral and the financial strength of borrowers. Installment and credit card
loans are evaluated largely on the basis of delinquency data because of the
number of such loans and the relatively small size of each individual loan.
Additions to the allowance arise from the provision for loan losses charged to
operations or from the recovery of amounts previously charged off. Loan charge-
offs reduce the allowance. Loans are charged off when there has been permanent
impairment of the related carrying values.
50
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
PREMISES AND EQUIPMENT
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. The provision for depreciation and amortization is computed,
generally, on the straight-line method at rates based on the following range of
lives: buildings - 10 to 45 years; equipment - 3 to 12 years; and leasehold
improvements - 3 to 15 years.
RETIREMENT PLANS
The Corporation maintains a non-contributory defined benefit pension plan for
substantially all employees. Benefits are primarily based on the employee's
years of credited service, average annual salary and primary social security
benefit, as defined in the plan. It is the Corporation's policy to fund the
plan on a current basis to the extent deductible under existing tax regulations.
The Corporation provides certain postretirement health care and life insurance
benefits for retired employees. In order to participate in the health care
plan, an employee must retire with at least 10 years of service. The
postretirement health care plan is contributory, with retiree contributions
based on years of service. It is the Corporation's policy to fund the health
care plan on a current basis to the extent deductible under existing tax
regulations.
INTERNATIONAL OPERATIONS
Forward exchange contracts are valued at current rates of exchange. Gains or
losses on forward exchange contracts intended to hedge an identifiable foreign
currency commitment, if any, are deferred and included in the measurement of the
related foreign currency transaction. All other gains or losses on forward
exchange contracts are included in the consolidated statement of income.
Currency gains and losses in connection with foreign loans and deposit contract
transactions, which are included in interest income and expenses, are recognized
pro rata over the contract terms. Foreign currency translation adjustments are
recorded directly to retained earnings. The cumulative foreign currency
translation gain (loss) was $(1,571), $(1,623) and $135 at December 31, 1994,
1993 and 1992, respectively.
DERIVATIVE INTEREST RATE CONTRACTS
The Corporation uses various interest rate contracts such as, interest rate
swaps, futures, forward rate agreements, caps and floors, primarily to manage
the interest rate risk of specific assets, liabilities or anticipated
transactions and to provide for the needs of its customers. For contracts held
for purposes other than trading, gains or losses are deferred and recognized as
adjustments to interest income or expense of the underlying assets or
liabilities and the interest differentials are recognized as adjustments of the
related interest income or expense. Gains or losses resulting from early
terminations of these contracts are deferred and amortized over the remaining
term of the underlying assets or liabilities. Any fees received or disbursed
which represent adjustments to the yield on interest rate contracts are
capitalized and amortized over the term of the interest rate contracts.
Contracts held or issued for customers are valued at market with gains or losses
included in the consolidated income statement.
CASH DIVIDENDS DECLARED PER SHARE
Cash dividends declared per share for the periods prior to the acquisitions of
Independence on June 27, 1994, Constellation on March 16, 1994 and First Peoples
Financial Corporation on September 3, 1992 assume that the Corporation would
have declared cash dividends equal to the cash dividends per share actually
declared by the Corporation.
STOCK DIVIDEND
All common shares outstanding and per common share data reflect the impact of
the Corporation's 100% stock dividend declared on August 17, 1993, and paid on
October 15, 1993 to shareholders of record on September 15, 1993 ("the Stock
Dividend"). An amount equal to the par value of the shares issued in connection
with the Stock Dividend was transferred from capital surplus to common stock.
51
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
2. ACQUISITIONS
On December 2, 1994, the Corporation purchased Germantown Savings Bank
("Germantown") a Pennsylvania chartered stock savings bank with $1.6 billion in
assets and $1.4 billion in deposits at the time of the acquisition. Under the
terms of the transaction, each of Germantown's 4.15 million shares of common
stock was exchanged for a combination of the Corporation's common stock, equal
to approximately 55% of the $62 per Germantown share purchase price, and cash,
equal to approximately 45% of the purchase price. As a result of this
acquisition, 5.9 million shares of the Corporation's common stock were issued
out of treasury stock. The transaction had a total value of approximately $260
million and was accounted for under the purchase method of accounting.
Accordingly, the results of operations of Germantown have been included with the
Corporation since the date of acquisition. Under this method of accounting, the
purchase price is allocated to the respective assets acquired and liabilities
assumed based on their estimated fair values, net of applicable income tax
effects. Intangible assets of $191 million, including $148 million of goodwill,
were created in this transaction. Goodwill will be amortized to other operating
expense on a straight-line basis over 15 years.
A summary of unaudited pro forma combined financial information for the
Corporation and Germantown combined follows:
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1994 1993
---------- ---------
<S> <C> <C>
Operating results (in thousands,
except per share):
Net interest income............... $1,457,323 $1,395,883
Non-interest income............... 571,738 580,445
Income before cumulative effect
of a change in accounting
principle....................... 263,219 374,178
Per common share.................. 1.77 2.47
Average common shares
outstanding..................... 148,444 151,261
</TABLE>
On March 16, 1994, the Corporation acquired Constellation Bancorp
("Constellation"), a New Jersey bank holding company with $2.3 billion in assets
and $2.1 billion in deposits. The Corporation issued approximately 11.3 million
shares of common stock to shareholders of Constellation based on an exchange
ratio of .4137 of a share of the Corporation's common stock for each share of
Constellation common stock.
On June 27, 1994, the Corporation acquired Independence Bancorp, Inc.
("Independence"), a Pennsylvania bank holding company with $2.6 billion in
assets and $2.1 billion in deposits. The Corporation issued approximately 16.6
million shares of common stock to shareholders of Independence based on an
exchange ratio of 1.5 shares of the Corporation's common stock for each share of
Independence common stock.
52
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
2. ACQUISITIONS - (continued)
The Constellation and Independence acquisitions were both accounted for under
the pooling of interests method of accounting; accordingly, the consolidated
financial statements have been restated to include the consolidated accounts of
Constellation and Independence for all periods presented. Previously reported
information was as follows:
<TABLE>
<CAPTION>
1993 CORPORATION CONSTELLATION INDEPENDENCE
- ---- ----------- ------------- ------------
<S> <C> <C> <C>
Net interest income........................... $1,117,901 $100,753 $106,617
Provision for losses on loans................. 100,000 10,000 11,201
Non-interest income........................... 503,055 41,599 29,376
Non-financial expenses........................ 1,033,375 115,186 93,601
Provision for income taxes.................... 159,654 662 (a) 8,312
Income before cumulative effect of a change
in accounting principle..................... 327,927 16,504 22,879
Cumulative effect of a change in accounting
principle, net of tax....................... (13,010) -
Net income.................................... 314,917 16,504 22,879
Income per share before cumulative effect of a
change in accounting principle.............. 2.80 .61 1.98
Net income per share.......................... 2.69 .61 1.98
Cash dividends declared....................... 1.14 - 1.16
1992
- ----
Net interest income........................... $1,057,046 $ 86,304 $109,128
Provision for losses on loans................. 119,300 10,000 30,950
Non-interest income........................... 546,509 40,585 23,941
Non-financial expenses........................ 1,094,591 118,527 93,250
Provision for income taxes.................... 127,260 53 (a) 1,757
Income (loss) before cumulative effect of a
change in accounting principle.............. 262,404 (1,691) 7,112
Cumulative effect of a change in accounting
principle, net of tax....................... (80,986) - (c) 4,378 (b)
Net income (loss)............................. 181,418 (1,691) 11,490
Income (loss) per share before cumulative
effect of a change in accounting principle 2.27 (.19) .63
Net income (loss) per share................... 1.57 (.19) 1.02
Cash dividends declared....................... 1.02 - 1.16
</TABLE>
_____________________________
(a) In 1993, Constellation prospectively adopted FAS 109. However, restated
financial information is prepared as if Constellation retroactively adopted
FAS 109 as of January 1, 1987. The impact of applying pooling of interests
accounting rules and retroactively applying FAS 109 to Constellation had
the following effects on restated net income and period-end common
shareholders' equity:
<TABLE>
<CAPTION>
Increase (decrease)
in net income Cumulative increase
--------------------- in common
Amount Per Share shareholders' equity
------ --------- --------------------
<S> <C> <C> <C>
Year ended:
December 31, 1993........................................... $(5,076) $(.03) $39,924
December 31, 1992........................................... 702 .01 45,000
</TABLE>
53
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
2. ACQUISITIONS - (continued)
(b) Independence prospectively adopted FAS 109 on January 1, 1992, recognizing
a cumulative benefit of $4.4 million as the cumulative effect of a change in
accounting principle. However, restated financial information is prepared as if
Independence retroactively adopted FAS 109 as of January 1, 1987. The impact of
applying pooling of interests accounting rules and retroactively applying FAS
109 to Independence had the following effects on restated net income and period-
end common shareholders' equity:
<TABLE>
<CAPTION>
Increase (decrease)
in net income Cumulative increase
------------------- in common
Amount Per Share shareholders' equity
------ --------- --------------------
<S> <C> <C> <C>
Year ended:
December 31, 1993............................... - - -
December 31, 1992............................... $(4,378) $(.03) -
</TABLE>
(c) Constellation adopted FAS 106 on January 1, 1993, the date required under
that statement. Constellation elected not to recognize immediately is $6.0
million transitional liability, but to amortize that liability over 20 years. As
permitted under FAS 106 and pooling accounting, the restated financial
information is prepared as if Constellation adopted FAS 106 effective January 1,
1992 and immediately recognized the $6.0 million, $4.0 million after-tax,
transitional liability. Salaries, wages and benefits have been adjusted
accordingly.
Subsequent to the March 16, 1994 consummation of the Constellation acquisition,
Constellation recorded merger-related charges in the first quarter of 1994 in
connection with a change in strategic direction related to problem assets and to
conform its consumer lending charge-off policies to those of the Corporation,
and charges for expenses attributable to the acquisition. These merger-related
charges totalled $127.8 million after-tax, or $.89 per share. On a pre-tax
basis, the merger-related charges consisted of a $120.0 million provision for
loan losses, a $28.0 million addition to the OREO reserve, $13.0 million for the
writedown of purchased mortgage servicing rights and related assets, and $34.0
million for expenses directly attributable to the acquisition including
severance costs of $8.0 million related to approximately 370 employees.
Subsequent to the June 27, 1994 consummation of the Independence acquisition,
Independence recorded merger-related charges in the second quarter of 1994 in
connection with a change in strategic direction related to problem assets and to
conform its consumer lending charge-off policies to those of the Corporation,
and charges for expenses attributable to the acquisition. These merger-related
charges totalled $39.6 million after-tax, or $.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 severance costs of
$5.0 million related to approximately 345 employees.
54
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
3. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" ("FAS 107"), requires disclosure of fair value
information about financial instruments, whether or not required to be
recognized in the balance sheet, for which it is practicable to estimate that
value. FAS 107 defines a financial instrument as cash, evidence of ownership
interest in an entity, or a contractual obligation or right that will be settled
with another financial instrument.
In cases where quoted market prices are not available, fair values are based on
estimates using discounted cash flow or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. Fair value estimates derived
through those techniques cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of the
instrument. FAS 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the
Corporation.
The following table summarizes the carrying amount and fair value estimates of
financial instruments at December 31, 1994 and 1993.
<TABLE>
<CAPTION>
1994 1993
------------------------------ -------------------------
Carrying Carrying
or Notional Fair or Notional Fair
Amount Value Amount Value
----------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
ASSETS:
Cash and short-term assets..................... $ 4,744,790 $ 4,744,790 $ 4,002,660 $ 4,002,660
Investment securities.......................... 2,880,631 2,849,877 3,599,166 3,628,119
Trading account securities..................... 1,206 1,206 6,393 6,393
Net loans, excluding leases.................... 19,315,247 19,856,330 18,596,671 19,190,044
LIABILITIES:
Demand deposits................................ 15,213,517 15,213,517 1,788,786 15,788,786
Time deposits.................................. 6,827,369 6,898,093 5,343,510 5,505,362
Short-term borrowings.......................... 1,546,201 1,546,201 1,884,125 1,884,125
Long-term debt................................. 1,791,110 1,741,345 1,589,290 1,637,098
OFF-BALANCE SHEET ASSET
(LIABILITY):
Letters of credit.............................. 2,369,426 (5,923) 2,015,753 (4,111)
Commitments to extend credit................... 11,802,714 (13,310) 9,993,922 (13,000)
Derivative financial
instruments.................................. 13,289,463 (204,183) 8,142,583 135,709
</TABLE>
Fair value estimates, methods, and assumptions are set forth below for the
Corporation's financial instruments.
CASH AND DUE FROM BANKS AND SHORT-TERM INSTRUMENTS The carrying amounts reported
in the balance sheet for cash and due from banks and short-term instruments
approximate their fair values. Short-term instruments include: time deposits;
Federal funds sold; and securities purchased under agreements to resell, all of
which generally have original maturities of less than 90 days.
INVESTMENT SECURITIES Fair values for investment securities are based on quoted
market prices, where available. If quoted market prices are not available, fair
values are based on quoted market prices of comparable instruments. See Note 5
for the carrying value and estimated fair value of investment securities.
TRADING ACCOUNT SECURITIES Fair values for the Corporation's trading account
securities, which also are the amounts recognized in the balance sheet, are
based on quoted market prices where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
LOANS Fair values are estimated for loans in groups with similar financial and
risk characteristics. Loans are segregated by type including: commercial and
industrial; commercial real estate; residential real estate; credit card and
other consumer; financial institutions; factoring receivables; and foreign.
Each loan type is further segmented into fixed and variable rate interest terms
and by performing and non-performing categories in order to estimate fair
values.
55
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
3. FAIR VALUES OF FINANCIAL INSTRUMENTS - (continued)
The fair value of fixed-rate performing loans is calculated by discounting
scheduled principal and interest cash flows through the estimated maturity using
estimated market discount rates that reflect the credit and interest rate risk
inherent in the loan type at December 31, 1994 and 1993. The estimate of
maturity is based on the Corporation's historical experience with repayments for
each loan type, modified by an estimate of the effect of current economic and
lending conditions. For performing residential mortgage loans, fair value is
estimated by referring to secondary market source pricing.
For credit card loans, cash flows and maturities are estimated based on
contractual interest rates and historical experience and are discounted using
secondary market rates adjusted for differences in servicing and credit costs.
For variable rate loans that reprice frequently and which have experienced no
significant change in credit risk, fair values are based on carrying amounts.
Fair value for non-performing loans is based on discounting estimated cash flows
using a rate commensurate with the risk associated with the estimated cash
flows. Assumptions regarding cash flows, and discount rates are determined
using available market information and specific borrower information.
The following table presents carrying amounts and estimated fair values for
loans at December 31, 1994 and 1993. Disclosures about fair value of lease
financing receivables, which totaled $710,338 and $728,764 at December 31, 1994
and 1993, respectively, are not required by FAS 107, accordingly, the following
table excludes lease financing receivables.
<TABLE>
<CAPTION>
1994 1993
-------------------------- -------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
------------ ----------- ------------ -----------
<S> <C> <C> <C> <C>
Domestic loans:
Commercial, industrial and other.................. $ 8,688,733 $8,678,995 $ 7,879,451 $ 7,869,217
Real estate loans 6,490,649 6,426,174 6,663,656 6,695,595
Consumer:
Installment..................................... 1,386,776 1,396,125 1,356,633 1,380,210
Credit card..................................... 1,374,598 1,481,430 1,178,972 1,274,288
Financial institutions............................ 668,119 666,554 870,489 872,396
Factoring receivables............................. 622,380 622,380 555,211 555,211
Foreign............................................. 584,623 584,672 543,082 543,127
----------- ----------- ----------- -----------
Total loans, excluding lease
financing......................................... 19,815,878 19,856,330 19,047,494 19,190,044
Allowance for loan losses........................... (500,631) - (450,823) -
----------- ----------- ----------- -----------
Net loans, excluding lease
financing........................................... $19,315,247 $19,856,330 $18,596,671 $19,190,044
=========== =========== =========== ===========
</TABLE>
The fair value estimate for credit card loans is based on the value of existing
loans at December 31, 1994 and 1993. This estimate does not include the benefit
that relates to estimated cash flows from new loans expected to be generated
from existing cardholders over the remaining life of the portfolio. That
benefit is estimated to be approximately $59 million at December 31, 1994 and
$64 million at December 31, 1993 and is neither included in the fair value
estimate for credit card loans, nor recorded as an intangible asset in the
consolidated balance sheet.
DEPOSIT LIABILITIES The fair values disclosed for demand deposits (non-interest
bearing checking accounts, NOW accounts, savings accounts, and money market
accounts) are, by FAS 107 definition, equal to the amount payable on demand at
the reporting date (i.e. their carrying amounts). The carrying amounts for
variable-rate, fixed-term certificates of deposit approximate their fair values.
Fair values for fixed-rate certificates of deposit are estimated using a
discounted cash flow calculation that applies interest rates offered on
certificates at December 31, 1994 and 1993, respectively, to an estimate of
aggregate expected maturities for those certificates of deposit.
56
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
3. FAIR VALUES OF FINANCIAL INSTRUMENTS - (continued)
The following table presents carrying amounts and estimated fair values of
deposits at December 31, 1994 and 1993:
<TABLE>
<CAPTION>
1994 1993
------------------------------ ------------------------------
Carrying Fair Carrying Fair
Amount Value Amount Value
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Domestic:
Non-interest bearing checking......................... $ 6,362,470 $ 6,362,470 $ 6,649,367 $ 6,649,367
NOW accounts.......................................... 1,875,391 1,875,391 1,907,537 1,907,537
Savings accounts...................................... 4,354,829 4,354,829 4,188,103 4,188,103
Money market accounts................................. 2,620,827 2,620,827 3,043,779 3,043,779
Time deposits......................................... 5,714,004 5,784,728 4,546,608 4,708,460
----------- ----------- ----------- -----------
Total domestic deposits......................... 20,927,521 20,998,245 20,335,394 20,497,246
Overseas branches and
subsidiaries......................................... 1,113,365 1,113,365 796,902 796,902
----------- ----------- ----------- -----------
Total deposits.................................. $22,040,886 $22,111,610 $21,132,296 $21,294,148
=========== =========== =========== ===========
</TABLE>
The estimated fair values above do not include the benefit that results from
funding provided by core deposit liabilities as compared to the cost of
borrowing funds in the financial markets. That benefit, commonly referred to as
a deposit base intangible, is estimated to be approximately $600,000 at December
31, 1994 and $570,000 at December 31, 1993 and is neither considered in the
above estimated fair value amounts nor recorded as an intangible asset in the
consolidated balance sheet. The core deposit base intangible was determined by
using a discounted cash flow approach to value the spread between the cost of
core deposit liabilities and the cost of alternative borrowing sources over the
estimated lives of the core deposit liabilities.
SHORT-TERM FUNDS BORROWED The carrying amounts of Federal funds purchased,
securities sold under agreements to repurchase, commercial paper and other
short-term borrowings approximate their fair values.
LONG-TERM DEBT The fair values for long-term debt are based on quoted market
prices where available. If quoted market prices are not available, fair values
are estimated using discounted cash flow analyses based on the Corporation's
borrowing rates at December 31, 1994 and 1993 for comparable types of borrowing
arrangements. See Note 11 for additional information regarding the carrying
value and estimated fair value of long-term debt.
OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS AND COMMITMENTS Fair values
for the Corporation's futures, forwards, interest rate swaps, options, interest
rate caps and floors, and foreign exchange contracts are based on quoted market
prices (futures); current settlement values (forwards); quoted market prices of
comparable instruments (foreign currency exchange contracts); or, if there are
no relevant comparable instruments, on pricing models or formulas using current
assumptions (interest rate swaps, interest rate caps and floors, and options).
The fair value of commitments to extend credit other than credit card is
estimated using the fees currently charged to enter into similar agreements,
taking into account the remaining terms of the agreements and the present credit
worthiness of the counterparties. For fixed-rate loan commitments, fair value
also considers the difference between current levels of interest rates and the
committed rates. The value of commitments to extend credit under credit card
lines is embodied in the benefit that relates to estimated cash flows from new
loans expected to be generated from existing cardholders over the remaining life
of the portfolio.
The fair value of standby and commercial letters of credit is based on fees
currently charged for similar agreements or on the estimated cost to terminate
the agreements or otherwise settle the obligations with the counterparties. See
Note 15 for the notional value and estimated fair value of the Corporation's
off-balance sheet derivative financial instruments and commitments.
4. CASH AND DUE FROM BANKS
The Corporation's banking subsidiaries are required to maintain reserve balances
with the Federal Reserve Bank. The average amount of those reserve balances for
the years ended December 31, 1994 and 1993 were approximately $326,000, and
$462,000, respectively.
57
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
5. INVESTMENT SECURITIES
The carrying and fair values of investment securities at December 31, 1994 and
1993 were as follows:
<TABLE>
<CAPTION>
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1994
- ----
Held-to-Maturity
- ----------------
U.S. Treasury................ $ 736,613 $ 202 $13,545 $ 723,270
U.S. Government agencies..... 1,107,550 923 16,572 1,091,901
State and municipal.......... 297,890 6,602 5,562 298,930
Other:
Domestic.................... 284,466 331 3,133 281,664
Foreign..................... 28,065 - - 28,065
---------- -------- ------- ----------
Total held-to-maturity..... $2,454,584 $ 8,058 $38,812 $2,423,830
========== ======== ======= ==========
Available-for-Sale
- ------------------
U.S. Treasury................ $ 185,411 $ 8,015 $ 177,396
U.S. Government agencies..... 147,996 $ 89 8,855 139,230
State and municipal.......... 8,218 99 90 8,227
Other:
Domestic.................... 35,914 17,041 2,067 50,888
Foreign..................... 23,229 27,109 32 50,306
---------- -------- ------- ----------
Total available-for-sale.. $ 400,768 $ 44,338 $19,059 $ 426,047
========== ======== ======= ==========
1993
- ----
Held-to-Maturity
- ----------------
U.S. Treasury................ $ 522,537 $ 6,203 $ 169 $ 528,571
U.S. Government agencies..... 1,318,522 5,481 2,758 1,321,245
State and municipal.......... 277,377 16,753 247 293,883
Other:
Domestic.................... 88,423 1,193 154 89,462
Foreign..................... 21,701 2,655 4 24,352
---------- -------- ------- ----------
Total held-to-maturity..... $2,228,560 $ 32,285 $ 3,332 $2,257,513
========== ======== ======= ==========
Available-for-Sale
- ------------------
U.S. Treasury................ $ 435,721 $ 14,320 $ 502 $ 449,539
U.S. Government agencies..... 439,496 9,815 621 448,690
State and municipal.......... 77,050 2,185 174 79,061
Other:
Domestic.................... 308,488 26,988 5,919 329,557
Foreign..................... 11,383 52,376 - 63,759
---------- -------- ------- ----------
Total available-for-sale.. $1,272,138 $105,684 $ 7,216 $1,370,606
========== ======== ======= ==========
</TABLE>
At December 31, 1992, marketable equity securities of $37,204 were carried at
the aggregate of their lower of cost or market. During 1992, the Corporation
recorded pre-tax gains of $2,636 on sales of certain domestic marketable equity
securities. At December 31, 1992, the market value of the marketable equity
securities portfolio exceeded its carrying value by $20,592. These marketable
equity securities are carried in the available-for-sale portfolio and have been
written up by $43,989 at December 31, 1994 the aggregate of their excess fair
values over cost, through an after-tax credit to retained earnings. The
Corporation recorded pre-tax gains of $11,926 in 1994 and $13,594 in 1993 on
sales of certain domestic equity securities. During 1994, 1993 and 1992, the
Corporation recorded pre-tax gains of $2,567, $8,617 and $5,325 on sales of
foreign equity securities.
Included in other domestic securities available-for-sale at December 31, 1993
were mortgage residual securities with an amortized cost and fair value of
$13,251 and $8,339, respectively. Pre-tax write-downs of $3,961 were recognized
in 1993 on these investments and were included in securities gains and losses.
During the first quarter of 1994, a $3,430 after-tax impairment loss was
recognized on these mortgage residual securities as the 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 write-down
resulted from a FASB interpretation of FAS 115 reached by a consensus of the
FASB Emerging Issues Task Force in March 1994, which provided more definitive
criteria for recognition of impairment losses on these types of securities.
58
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
5. INVESTMENT SECURITIES - (continued)
At December 31, 1994 and 1993, there were no investments in securities of any
single, non-Federal issuer in excess of 10% of shareholders' equity.
Securities with a carrying value of $1,579,588 were pledged at December 31, 1994
to secure public deposits, trust deposits, and for certain other purposes as
required by law.
The amortized cost and estimated fair value of debt securities at December 31,
1994, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to prepay
obligations without prepayment penalties.
<TABLE>
<CAPTION>
Amortized Fair
Cost Value
---------- ----------
<S> <C> <C>
Held-to-Maturity
- ----------------
Due in one year or less................. $ 721,604 $ 717,867
Due after one year through five years... 617,953 606,435
Due after five years through ten years.. 147,964 146,205
Due after ten years..................... 105,699 107,466
Mortgage-backed securities.............. 789,479 773,952
---------- ----------
$2,382,699 $2,351,925
========== ==========
Available-for-Sale
- ------------------
Due in one year or less................. $ 76,069 $ 76,079
Due after one year through five years... 96,703 90,907
Due after five years through ten years.. 27,967 25,157
Due after ten years..................... 6,446 6,327
Mortgage-backed securities.............. 158,408 148,413
---------- ----------
$ 365,593 $ 346,883
========== ==========
</TABLE>
Proceeds from sales of investments in debt securities available-for-sale during
1994, 1993, and 1992 were $657,361, $535,267 and $344,605, respectively. Gross
gains of $9,625 in 1994, $6,069 in 1993 and $8,475 in 1992, and gross losses of
$4,739 in 1994, $200 in 1993 and $808 in 1992 were realized on those sales.
6. LOAN PORTFOLIO
For a breakdown of the loan portfolio by type of loan and for information on
non-performing loans, refer to Supplemental Financial Data under the captions
Loan Portfolio and Non-Performing Assets (pages 84 and 86).
The book value of real estate loans transferred to other real estate owned
during 1994, 1993, and 1992 was $32,215, $48,124 and $126,184, respectively.
Other real estate owned includes properties that the Corporation has acquired in
foreclosure or that have been determined to be "in substance" foreclosed.
At December 31, 1994 and 1993, the Corporation had loans totalling $149,996 and
$119,099, respectively, to its directors, officers and companies in which the
directors had a 10% or more voting interest. These loans were made on
substantially the same terms, including interest rates and collateral as those
prevailing at the time for comparable transactions with unrelated persons and do
not involve more than normal risk of collectibility. The 1994 additions and
reductions were $2,081,641 and $2,050,744, respectively.
In May 1992, the Corporation sold the assets of Signal Financial Corp, a
consumer finance subsidiary, including approximately $300,000 of consumer
installment loans. The loans were sold net of $14,700 of the allowance for loan
losses. This transaction had an immaterial impact on the earnings of the
Corporation.
In September 1993, the Corporation sold five of its seven branches from the
Virgin Islands operations. The five branches had loans of $131,200 and deposits
of $228,800 at the time of sale. The Corporation recorded a pre-tax gain of
$11,000 on the sale. In December 1994, the remaining two branches were sold at
a pre-tax gain of $1,900.
In 1994 and 1993, the Corporation sold $317,000 and $207,000, respectively, of
fixed-rate home equity loans in securitization transactions.
Included in the loan portfolio are $530 million of residential mortgage loans
which will be sold in the second quarter of 1995. These loans are being
accounted for as assets held for sale and are carried at lower of cost or market
at December 31, 1994.
59
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
7. ALLOWANCE FOR LOAN LOSSES
The following represents an analysis of changes in the allowance for loan losses
for the years ended December 31, 1994, 1993 and 1992:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of period............... $ 450,823 $ 442,267 $ 473,301
Allowance for loans sold at date of sale..... - (353) (14,700)
Allowance for loans purchased at date
of purchase............................... 24 - 1,028
Allowance for loans of bank acquired under
purchase method of accounting............. 23,739 2,703 -
Provision charged to operating expense....... 246,900 121,201 160,250
Recoveries of loans previously charged off. 63,059 86,738 70,069
Loan charge-offs............................. (283,914) ( 201,733) (247,681)
--------- --------- -------
Balance at end of period..................... $ 500,631 $ 450,823 $442,267
========= ========= =======
</TABLE>
In May 1993, the Financial Accounting Standards Board issued statement of
Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan" ("FAS 114"). 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 114 is effective beginning in 1995. The
adoption of FAS 114 is not expected to have a material impact on CoreStates'
level of allowance for loan losses.
8. PREMISES AND EQUIPMENT
The consolidated balance sheet includes premises and equipment, net of
accumulated depreciation and amortization of $535,126 and $525,889 at December
31, 1994 and 1993, respectively. Depreciation and amortization of premises and
equipment for the years ended December 31, 1994, 1993, and 1992, was $56,919,
$59,792, and $67,384, respectively.
9. TIME DEPOSITS
Domestic time deposits in denominations of $100 or more at December 31, 1994,
1993, and 1992 were:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Commercial certificates of deposit......... $268,402 $295,835 $638,258
Other domestic time deposits,
principally savings certificates....... 371,771 145,195 209,637
-------- -------- --------
Total....................... $640,173 $441,030 $847,895
======== ======== ========
</TABLE>
Interest expense on domestic time deposits in denominations of $100 or more for
the years ended December 31, 1994, 1993, and 1992 was:
<TABLE>
<CAPTION>
1994 1993 1992
-------- ------- -------
Interest expense:
<S> <C> <C> <C>
Commercial certificates of deposit................. $ 9,547 $13,908 $30,739
Other domestic time deposits, principally
savings certificates........................ 13,231 9,434 17,956
------- ------- -------
Total................................... $22,778 $23,342 $48,695
======= ======= =======
</TABLE>
Substantially all of the deposits of overseas branches and subsidiaries were
time deposits in denominations of $100 or more for each of the three years.
60
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
10. SHORT-TERM FUNDS BORROWED
Short-term funds borrowed at December 31, 1994 and 1993 include the following:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Federal funds purchased (a)......................... $ 252,340 $ 606,617
Securities sold under agreements to repurchase (b).. 139,923 249,731
Commercial paper (c)................................ 853,947 501,838
Other short-term funds borrowed (d)................. 299,991 525,939
---------- ----------
Total short-term funds borrowed (e)....... $1,546,201 $1,884,125
========== ==========
</TABLE>
(a) Federal funds purchased generally represent the overnight Federal funds
transactions of banking subsidiaries with correspondent banks. The weighted
average interest rate paid was 4.58% in 1994, 3.15% in 1993 and 3.39% in 1992.
The maximum amount outstanding at any month-end was $961,634 during 1994,
$1,160,951 during 1993, and $848,953 during 1992.
(b) Securities sold under agreements to repurchase usually mature within one to
thirty days or are due on demand. The weighted average interest rate paid was
2.61% in 1994, 2.73% in 1993 and 3.57% in 1992. The maximum amount outstanding
at any month-end was $281,327 during 1994, $386,368 during 1993 and $427,349
during 1992.
(c) Commercial paper issued by CoreStates Capital Corp is used to finance the
short-term borrowing requirements of certain banking-related activities.
Commercial paper is issued with maturities of not more than nine months and
there are no provisions for extension, renewal or automatic rollover. The
weighted average interest rate on commercial paper borrowings was 4.24% in 1994,
3.14% in 1993 and 3.72% in 1992. The maximum amount outstanding at any month-end
was $919,292 during 1994, $714,439 during 1993 and $578,364 during 1992.
At December 31, 1994, the Corporation had fee-based lines of credit facilities
from unaffiliated banks totalling $645,000. The lines of credit were
established in support of commercial paper borrowings, Medium Term Note issuance
and general corporate purposes. In January 1995, the Corporation replaced these
bi-lateral lines of credit with a $650,000 revolving credit facility. Unless
extended by the Corporation in accordance with the terms of the facility
agreement, the facility expires January 1999. There were no borrowings under
these lines at December 31, 1994. The interest rate charged for usage of these
lines varies with money market conditions.
(d) Other short-term funds borrowed include term Federal funds purchased and
demand notes payable to the U.S. Treasury.
(e) The aggregate average short-term funds borrowed were $1,928,000 in 1994,
$1,962,000 in 1993 and $1,657,000 in 1992. The weighted average interest rate
was 4.42% in 1994, 3.42% in 1993 and 3.65% in 1992. The average interest rate is
calculated primarily on a daily average of short-term funds borrowed.
61
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
11. LONG-TERM DEBT
Long-term debt at December 31, 1994 and 1993 includes the following:
<TABLE>
<CAPTION>
1994 1993
----------------------------- -----------------------
Carrying Fair Carrying Fair
CoreStates Financial Corp: Amount Value Amount Value
------------ ---------- ---------- ----------
<S> <C> <C> <C> <C>
8 5/8% Mortgages due 2001........... $ 9,997 $ 10,068 $ 10,803 $ 12,505
7% Convertible Subordinated
Debentures due 2011 (a)........... -- -- 42,147 44,813
Subordinated Debentures due
2000 (b).......................... -- -- 25,000 25,000
---------- --------- -------- ------
9,997 10,068 77,950 82,318
---------- --------- -------- --------
CoreStates Capital Corp ("CSCC"):
5 7/8% Guaranteed Subordinated
Notes due 2003 (c)................ 200,000 165,900 200,000 192,480
6 6/8% Guaranteed Subordinated
Notes due 2005 (c)................ 175,000 150,535 175,000 172,358
9 6/8% Guaranteed Subordinated
Notes due 2001 (d)................ 150,000 157,230 150,000 178,395
9 1/8% Guaranteed Subordinated
Notes due 2003 (e)................ 100,000 104,130 100,000 118,830
Medium Term Notes (f)............... 1,099,585 1,097,998 808,085 812,299
---------- ---------- ---------- ----------
1,724,585 1,675,793 1,433,085 1,474,362
---------- ---------- ---------- ----------
Other subsidiaries:
Federal Home Loan Bank
Borrowings (g).................... 55,000 53,956 65,000 66,801
9.35% Subordinated
Note due July 2003 (h)............ -- -- 10,000 10,250
Various other....................... 1,528 1,528 3,255 3,367
---------- ---------- ---------- ----------
56,528 55,484 78,255 80,418
---------- ---------- ---------- ----------
Total long-term debt (i)............ $1,791,110 $1,741,345 $1,589,290 $1,637,098
========== ========== ========== ==========
</TABLE>
(a) The Debentures were called for redemption at 101.4% plus accrued interest in
November 1994. As a result of this call, 945,000 common shares were issued on
conversion of $23,000 of the debentures.
(b) The debentures were retired at par plus accrued interest in January 1994.
(c) The Notes are not subject to redemption prior to maturity and are
unconditionally guaranteed, on a subordinated basis, as to payment of principal
and interest by the Corporation. The Notes are subordinated to all existing and
future senior CSCC indebtedness and the guarantee is subordinated to all
outstanding senior Corporation indebtedness.
(d) The Notes are unconditionally guaranteed, on a subordinated basis, as to
payment of principal and interest by the Corporation. The Notes are
subordinated to all existing and future senior CSCC indebtedness and the
guarantee is subordinated to all existing and future senior indebtedness of the
Corporation.
(e) The Notes are not subject to redemption prior to maturity and are
unconditionally guaranteed, on a subordinated basis, as to payment of principal
and interest by the Corporation. The Notes are subordinated to all existing and
future senior CSCC indebtedness and the guarantee is subordinated to all
existing and future senior Corporation indebtedness.
(f) CSCC can issue Medium Term Notes (Senior and Subordinated) ranging in
maturity of more than nine months from date of issue. The interest rate or
interest rate formula on each Note is established by CSCC at the time of
issuance. The Senior Notes are unconditionally guaranteed as to payment of
principal and interest by the Corporation. The Subordinated Notes are
unconditionally guaranteed, on a subordinated basis, as to payment of principal
and interest by the Corporation. The Subordinated Notes are subordinated to all
existing and future senior CSCC indebtedness and the guarantee is subordinated
to all existing and future senior Corporation indebtedness. At December 31,
1994, $1.1 billion of debt was outstanding with terms up to five years at fixed
interest rates ranging from 4.90% to 6.51% and various floating interest rates.
62
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
11. LONG-TERM DEBT - continued
Under an existing shelf registration statement filed with the Securities and
Exchange Commission, the Corporation had debt and capital securities that were
registered but unissued of approximately $674.0 million at December 31, 1994.
(g) The borrowings range in maturity from May 1995 to June 1996 at floating
interest rates of three month LIBOR less .10% and fixed interest rates from
4.58% to 5.89%.
(h) On December 16, 1994, the Note was called. The redemption price was 102%.
(i) The consolidated aggregate maturities and sinking fund requirements for
long-term debt for the years ending December 31, 1995 through 1999 are:
$470,375; $305,965; $137,616; $111,743; and $137,222, respectively.
12. RETIREMENT AND BENEFIT PLANS
Pension expense under the Corporation's defined benefit pension plans was
$20,390 in 1994, $12,007 in 1993 and $10,926 in 1992. The projected benefit
obligation exceeded plan assets at fair value by $44,346 at December 31, 1994,
based on current and estimated future salary levels. The excess of the projected
benefit obligation is reconciled to the accrued pension cost included in other
liabilities as follows:
<TABLE>
<CAPTION>
December 31,
----------------------
1994 1993
-------- --------
<S> <C> <C>
Plan assets at fair value(a)........................... $456,293 $484,273
-------- --------
Present value of benefit obligation:
Accumulated benefits based on salaries to date,
including vested benefits of $371,570 in 1994 and
$384,469 in 1993................................... 402,772 419,943
Additional benefits based on estimated future
salary levels...................................... 97,867 110,675
-------- --------
Projected benefit obligation........................... 500,639 530,618
-------- --------
Amount projected benefit obligation exceeds
plan assets at fair value at December 31,............ (44,346) (46,345)
Reconciliation:
Unrecognized prior service cost...................... 5,879 5,736
Unrecognized net asset from date of initial
application........................................ (27,538) (31,551)
Net deferred actuarial loss.......................... 19,299 44,172
-------- --------
Accrued pension expense included in other liabilities.. $(46,706) $(27,988)
======== ========
</TABLE>
_____________________________________
(a) Primarily U.S. Government securities, U.S. agency securities, fixed income
securities and commingled funds managed by subsidiary banks.
Net pension cost for the years ended December 31, 1994, 1993 and 1992 included
the following expense (income) components:
<TABLE>
<CAPTION>
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
Service cost benefits earned during the period.. $ 21,260 $ 16,117 $ 15,384
Interest cost on projected benefit obligation... 38,773 35,186 32,933
Actual (return) loss on plan assets............. 17,746 (49,401) (16,426)
Net amortization and deferral................... (57,389) 10,105 (20,965)
-------- -------- --------
Net pension cost.............................. $ 20,390 $ 12,007 $ 10,926
======== ======== ========
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation for the Corporation was 8.0% and 7.0%,
respectively, at December 31, 1994 and 1993. The rate of increase on future
compensation levels was 5.0%. The expected long-term rate of return on plan
assets was 8.5% to 9.5%.
The Corporation sponsors a savings plan for its employees. Contributions to the
savings plan for the employers' match were $13,133 in 1994, $13,576 in 1993, and
$13,117 in 1992.
Prior to its acquisition by the Corporation, Independence maintained a defined
contribution plan which covered all employees who meet age and service
requirements. Expense related to this plan was $2,407 in 1994, $2,636 in 1993,
and $2,861 in 1992. Vested contributions were rolled into the Corporation's
savings plan.
63
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
12. RETIREMENT AND BENEFIT PLANS - (continued)
The Corporation and its subsidiaries provide certain postretirement health care
and life insurance benefits for retired employees. Postretirement benefits are
provided through an insurance company whose premiums are based on the benefits
paid during the year. The postretirement health care plan is contributory, with
retiree contributions based on years of service.
Statement of Financial Accounting Standards No. 106, "Employers' Accounting for
Postretirement Benefits Other Than Pensions" ("FAS 106") requires that employers
accrue the costs associated with providing postretirement benefits during the
active service periods of employees, rather than the previously accepted
accounting practice of recognizing these costs on a pay-as-you-go basis.
Effective January 1, 1992, the Corporation adopted FAS 106. As permitted under
FAS 106, the Corporation elected to recognize immediately the transitional
postretirement benefit liability of $128,706, $84,946 after-tax or $.62 per
share, as the cumulative effect of a change in accounting principle.
The liability for postretirement benefits included in other liabilities at
December 31, 1994 and 1993 was as follows:
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees..................................... $ (93,547) $(102,143)
Fully eligible active plan participants...... (2,979) (3,662)
Other active plan participants............... (32,420) (41,056)
--------- ---------
Accumulated postretirement benefit obligation (128,946) (146,861)
Plan assets at fair value (a)................... 24,467 20,006
--------- ---------
Unfunded obligation at December 31,............. (104,479) (126,855)
Unrecognized net (gain) loss.................... (27,247) 3,795
--------- --------
Accrued postretirement benefit obligation....... $(131,726) $(123,060)
========= =========
</TABLE>
- ------------------------------------
(a) Primarily municipal bonds and short-term investments.
Net periodic postretirement benefit cost for the years ended December 31, 1994
and 1993 included the following expense (income) components:
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
Service cost-benefits earned during the period.. $ 2,323 $ 2,160
Interest cost on accumulated postretirement
benefit obligation........................... 9,261 10,108
Actual return on plan assets.................... (461) (6)
Net amortization and deferral................... (736) 6
------- -------
Net periodic postretirement benefit cost........ $10,387 $12,268
======= =======
</TABLE>
For measurement purposes, an 11% annual rate of increase in the per capita cost
of covered health care benefits was assumed for 1994; the rate was assumed to
decrease gradually to 9.5% for 1997 and remains at that level thereafter. For
measurement purposes, a fixed dollar amount was determined as the Corporation's
maximum cost per employee. This fixed dollar amount was established at the
projected cost level for medical expenses in 1997. The health care cost trend
rate assumption has a significant effect on the amounts reported. To
illustrate, increasing the assumed health care cost trend rates by 1 percentage
point in each year would increase the accumulated postretirement benefit
obligation as of December 31, 1994 by $9,217 and the aggregate of the service
and interest cost components of net periodic postretirement benefit cost for the
year then ended by $730.
The expected long-term rate of return on plan assets was 6.0%. The weighted-
average discount rate used in determining the accumulated postretirement benefit
obligation was 8.0% and 7.0%, respectively, at December 31, 1994 and 1993.
64
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
12. RETIREMENT AND BENEFIT PLANS - (continued)
Statement of Financial Accounting Standards No. 112, "Employers' Accounting for
Postemployment Benefits" ("FAS 112") was issued in November 1992 to establish
accounting for benefits provided to former or inactive employees after
employment but before retirement. FAS 112 requires that employers accrue the
costs associated with providing benefits, such as salary and benefit
continuation under disability plans, when payment of the benefits is probable
and the amount of the obligation can be reasonably estimated. Effective January
1, 1993, the Corporation adopted FAS 112. The Corporation recognized the January
1, 1993 FAS 112 transitional liability of $20,015, $13,010 after-tax or $.09 per
share, as the cumulative effect of a change in accounting principle. The impact
of FAS 112 on salaries, wages and benefits expense for the year ended December
31, 1994 and 1993 was not material.
13. LONG-TERM INCENTIVE PLAN
The Corporation has outstanding options granted under the Corporation's long-
term incentive plan (the "Plan"). As provided in the Plan, a variety of
incentives can be issued to eligible participants including restricted stock
awards, incentive stock options, non-qualified stock options, stock appreciation
rights, performance units and cash awards. Constellation, Independence and
Germantown had maintained similar plans. Options granted under those plans were
assumed by the Corporation upon consummation of their respective acquisitions.
The Plan provides for a maximum number of options available to be granted each
year equal to 2% of outstanding common shares as of January 1 of that year.
Information on options for 1994 follows:
<TABLE>
<CAPTION>
Shares
under Option price
option per share
---------- ---------------
<S> <C> <C>
Balance at January 1, 1994.......... 6,419,579 $ 3.21 - $54.70
Options granted..................... 1,896,925 26.38 - 28.00
Options exercised................... (936,294) 3.21 - 27.50
Options cancelled................... (144,511) 7.64 - 54.70
---------
Balance at December 31, 1994........ 7,235,699 3.99 - 54.70
=========
</TABLE>
Options under the Plan are granted to purchase the Corporation's common shares
at market value on the date of grant and are exercisable one year from the date
of grant for a period not exceeding ten years. Stock appreciation rights may be
granted in conjunction with the granting of an option. Upon the exercise of
stock appreciation rights and the surrender of the related option, an employee
may receive in cash or common stock of the Corporation a value equal to the
difference between the market price at the date of exercise and the option price
of shares.
The assumed exercise of the options and other awards under the Plan did not have
a materially dilutive effect on the earnings per share in years 1992 through
1994.
The preceding option table does not reflect 214,062 performance unit awards
outstanding at December 31, 1994, 280,190 at December 31, 1993 and 371,514 at
December 31, 1992. Performance unit awards are earned subject to specific
performance of the Corporation over specified performance periods as defined in
the Plan. The payment value of each performance unit earned for the applicable
performance period is the fair market value of one share of common stock of the
Corporation based on the formula contained in the Plan. During 1994, 1993 and
1992, respectively, $867, $1,051 and $1,557 was expensed in connection with
performance unit awards.
14. OPERATING LEASES
Rental expense, reduced by sublease rental income, charged to operations was
$59,820, $63,055 and $62,042 for 1994, 1993 and 1992, respectively.
15. 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 the Corporation's 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.
65
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
15. OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS AND COMMITMENTS -
continued
DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED FOR PURPOSES OTHER THAN TRADING
The Corporation uses off-balance sheet derivative financial instruments, such as
interest rate swaps, futures and caps, to manage interest rate risk. The
Corporation's exposure to interest rate risk stems from the mismatch between the
sensitivity to movements in interest rates of the Corporation's assets and
liabilities and from the spread risk between the rates on those assets and
liabilities and financial market rates. The use of derivatives to manage
interest rate risk falls into three categories: interest sensitivity
adjustments, interest rate spread protection and hedging anticipated asset
sales.
Interest rate swaps and futures are generally used to lengthen the interest rate
sensitivity of short-term assets and to shorten the repricing characteristics of
longer term liabilities. Interest rate caps are used to manage spread risk.
Interest rate caps are also used to offset the risk of upward interest rate
movement on adjustable rate mortgages and other products with imbedded caps as
well as to reduce the risk that interest rate spreads narrow on prime based
products. Gains or losses are used to adjust the basis of the related asset or
liability and interest differentials are adjustments of the related interest
income or expense.
In connection with anticipated sales of longer term assets acquired through
merger or generated in the loan origination process, the Corporation uses
interest rate swaps and option agreements to reduce interest rate sensitivity as
the assets are readied for sale. Hedge gains or losses are used to adjust the
basis of the assets held for sale.
Derivative financial instruments used in the management of interest rate risk at
December 31, 1994 are summarized by category in the table on page 30. A summary
of interest rate swap contracts categorized by whether the Corporation receives
or pays fixed rates and stratified by repricing or maturity date is on page 32.
Foreign currency derivatives used for hedging activities have not had a material
impact on income or liquidity of the Corporation for any of the years presented.
DERIVATIVE FINANCIAL INSTRUMENTS HELD OR ISSUED FOR TRADING PURPOSES
In its business of providing risk management services for its customers, the
Corporation engages in derivative activities including interest rate swaps, caps
and floors. In addition, as part of its international business, the Corporation
enters into foreign exchange contracts on behalf of customers. These contracts
are matched against forward sale or purchase contracts. All customer related
derivative financial instrument transactions are marked to market and any gains
or losses are recorded in the income statement.
The Corporation does not maintain a regular trading business where unbalanced
positions are taken in any financial derivative instrument.
Customer related derivative financial instruments accounted for as held for
trading at December 31, 1994 are summarized by type of instrument in the table
on page 33.
The following is a summary of off-balance sheet commitments and derivative
financial instruments as of December 31, 1994 and 1993, including fair values:
<TABLE>
<CAPTION>
1994 1993
-------------------------- -------------------------
Notional Fair Notional Fair
or Value or Value
Contractual of Asset Contractual of Asset
Amount (Liability)(1) Amount (Liability)(1)
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Standby letters of credit, net of participations (a)........... $1,125,262 $ (2,813) $1,123,303 $ (1,884)
Commercial letters of credit................................... 1,244,164 (3,110) 892,450 (2,227)
Commitments to extend credit (b)............................... 8,223,261 (13,310) 7,000,689 (13,000)
Unused commitments under credit card lines..................... 3,579,453 2,993,233
Interest rate futures and forward contracts (c):
Commitments to purchase..................................... 1,043,000 (1,185) 925,500 365
Commitments to purchase foreign and
U.S. currencies (d)......................................... 1,816,549 1,702 1,336,646 1,148
Interest rate swaps, notional principal
amounts (e)................................................. 8,234,400 (210,300) 4,597,119 133,163
Interest rate caps and floors (f):
Written..................................................... 749,857 (15,000) 622,920 (4,196)
Purchased................................................... 1,150,657 20,200 621,398 5,004
Other derivatives.............................................. 295,000 400 39,000 225
</TABLE>
- ------------------------------------
(1) See Note 3 for discussion of fair value.
66
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
15. OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS AND COMMITMENTS -
continued
(a) Standby letters of credit ("SBLC") are used in various transactions to
enhance the credit standing of the Corporation's customers and are subjected to
the same risk, credit review and approval process as loans. SBLC's are
irrevocable assurances that the Corporation will make payment in the event that
a customer cannot perform its contractual obligations to third parties.
(b) Commitments to extend credit represent the Corporation's obligation to fund
commercial and real estate loans, including home equity lines, lines of credit,
revolving lines of credit and other types of commitments.
(c) Exchange traded futures contracts and forward rate agreements represent
agreements to exchange dollar amounts at a specified future date for interest
rate differentials between an agreed interest rate and a reference rate,
computed on a notional amount. Credit and market risk exist with respect to
these instruments. Exchange traded futures contracts entail daily cash
settlement; therefore, the credit risk amount represents a one-day receivable.
(d) Commitments to purchase foreign and U.S. currencies are primarily executed
for the needs of customers. These foreign exchange contracts are structured
similar to interest rate futures and forward contracts. The risk associated
with a foreign exchange contract arises from the counterparty's ability to make
payment at settlement and that the value of a foreign currency might change in
relation to the U.S. dollar. The Corporation's exposure, if any, to
counterparty failure equals the current market value of the contract, which at
December 31, 1994 and 1993 was $2,275 and $1,160, respectively. Included in
fees for international services are net foreign exchange gains of $18,863,
$15,979 and $16,887 for the years ended December 31, 1994, 1993 and 1992,
respectively.
(e) Interest rate swaps generally represent the contractual exchange of fixed
and variable rate interest payments based on a notional principal amount and an
interest reference rate. Credit risk exists with respect to these instruments
arising from the possible failure of the counterparty to make required payments
on those contracts which are favorable to the Corporation. The Corporation's
exposure to counterparty failure equals the current replacement cost of the
contract. At December 31, 1994 and 1993, the replacement cost of the
Corporation's interest rate swap contracts was $17,093 and $160,598,
respectively. The risk of counterparty failure is controlled by limiting
transactions to an approved list of counterparties. Net cash received on
interest rate swaps during 1994 totaled $99,928.
(f) Interest rate caps and floors are written by the Corporation to enable
customers to transfer, modify or reduce their interest rate risk. Interest rate
caps and floors are similar to interest rate swaps except that payments are made
only if current interest rates move above or below a predetermined rate. The
risk associated with interest rate caps and floors is an unfavorable change in
interest rates. As a writer of interest rate caps and floors, the Corporation
receives a premium in exchange for bearing the risk of an unfavorable change in
interest rates. The Corporation generally minimizes this risk by entering into
offsetting cap and floor positions that essentially counterbalance each other.
The Corporation also enters interest rate caps to offset the risk of upward
interest rate movement on assets with embedded caps as well as to limit spread
risk. As a purchaser of interest rate caps, the Corporation pays a premium in
exchange for the right to receive payments if interest rates rise above
predetermined levels. Similar to interest rate swaps, credit risk exists with
respect to the possible failure of the counterparty to make required payments on
those contracts which are favorable to the Corporation. Exposure to
counterparty failure equals the current replacement cost of the contract which
totalled $20,200 and $5,004, respectively, at December 31, 1994 and 1993.
In the normal course of business, the Corporation and its subsidiaries are
subject to numerous pending and threatened legal actions and proceedings, some
for which the relief or damages sought are substantial. Management does not
believe the outcome of these actions and proceedings will have a materially
adverse effect on the consolidated financial position of the Corporation.
67
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
16. PROVISION FOR INCOME TAXES
The provision for income taxes in the consolidated statement of income consists
of the following:
<TABLE>
<CAPTION>
1994 1993 1992
-------- -------- --------
<S> <C> <C> <C>
Current:
Federal..................................... $106,053 $155,972 $ 85,838
State....................................... 15,652 18,209 11,095
-------- -------- --------
Total domestic........................ 121,705 174,181 96,933
Foreign..................................... 5,558 10,284 4,368
-------- -------- --------
Total current......................... 127,263 184,465 101,301
Deferred Federal and state expense (benefit).. 16,393 (10,656) 26,864
-------- -------- --------
Total provision for income taxes...... $143,656 $173,809 $128,165
======== ======== ========
</TABLE>
The significant components of the Corporation's deferred tax assets and
liabilities at December 31, 1994 and 1993 are as follows:
<TABLE>
<CAPTION>
1994 1993
--------- ---------
Deferred tax assets:
<S> <C> <C>
Allowance for loan losses.................... $171,176 $149,097
Postretirement and postemployment benefits... 65,743 56,346
Reserves..................................... 26,616 30,931
Other........................................ 61,108 71,388
-------- --------
Gross deferred tax asset..................... 324,643 307,762
Valuation allowance.......................... (9,102) (9,102)
-------- --------
Total deferred tax assets............. 315,541 298,660
-------- --------
Deferred tax liabilities:
Auto leasing portfolio....................... 88,570 69,721
FAS 115 fair value accounting................ 5,981 34,916
Partnership investments...................... 744 19,660
Tax over book depreciation................... 18,040 16,689
Affiliate income............................. 17,716 14,924
Other........................................ 9,984 15,692
-------- --------
Total deferred tax liabilities......... 141,035 171,602
-------- --------
Net deferred tax assets........................ $174,506 $127,058
======== ========
</TABLE>
At December 31, 1994 cumulative deductible temporary differences are
approximately $928 million and the related deferred tax asset is $325 million.
The major components of the temporary differences include $489 million related
to the allowance for loan losses and $188 million related to pension, FAS 106
and FAS 112. Cumulative taxable temporary differences related to deferred tax
credits at December 31, 1994 are estimated at $403 million and are primarily
related to leasing, FAS 115 fair value accounting, affiliate income and
depreciation. The related deferred tax liability is $141 million.
68
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
16. PROVISION FOR INCOME TAXES - (continued)
The Corporation has determined that it is not required to establish a valuation
reserve for the Federal deferred tax asset since it is more likely than not that
the deferred tax asset of $315 million will be principally realized through
carryback to taxable income in prior years, and future reversals of existing
taxable temporary differences, and to a lesser extent, future taxable income and
tax planning strategies. Management believes that future taxable income will be
sufficient to realize the benefits of temporary deductible differences that
cannot be realized through carryback to prior years or through the reversal of
future temporary taxable differences. The Corporation's conclusion that it is
"more likely than not" that the deferred tax asset will be realized is based on
a history of growth in earnings and the prospects for continued growth including
an analysis of potential uncertainties that may affect future operating results.
The Corporation will continue to review the tax criteria of "more likely than
not", for the recognition of deferred tax assets on a quarterly basis.
As required by FAS 109, the Corporation has determined that it is required to
establish a $9 million valuation reserve for the deferred tax asset related to
pre-affiliation state income taxes.
The consolidated effective tax rates are reconciled to the statutory rate as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
Statutory rate......................... 35.0% 35.0% 34.0%
Difference resulting from:
Tax-exempt income.................... (3.4) (3.1) (5.0)
State, local and foreign income tax.. 2.6 2.4 2.2
Other, net........................... 2.4 (1.9) 1.1
---- ---- ----
Effective tax rate..................... 36.6% 32.4% 32.3%
==== ==== ====
</TABLE>
Foreign earnings of certain subsidiaries would be taxed only upon their transfer
to the United States. Accumulated earnings of insurance subsidiaries would be
taxed only to the extent they are distributed as dividends, or exceed limits
prescribed by tax laws. No transfers or dividends are contemplated at this
time. Taxes payable upon remittance of such accumulated earnings of $22,014 at
December 31, 1994 would approximate $7,306.
Taxes, other than income taxes, included in other operating expenses for the
years ended December 31, 1994, 1993 and 1992 are $70,505, $76,608 and $75,382,
respectively.
69
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS: Continued
(DOLLAR AMOUNTS IN THOUSANDS)
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following represents summarized quarterly financial data of the Corporation,
which, in the opinion of management, reflects all adjustments (comprising only
normal recurring accruals) necessary for a fair presentation:
<TABLE>
<CAPTION>
THREE MONTHS ENDED
------------------------------------------------------------
DEC.31 SEPT.30 JUNE 30 MARCH 31
------ ------- ------- --------
<S> <C> <C> <C> <C>
1994
- -----
Interest income...................... $517,956 $488,406 $473,956 $449,209
======== ======== ======== ========
Interest expense..................... $158,709 $136,287 $124,291 $120,871
======== ======== ======== ========
Net interest income.................. $359,247 $352,119 $349,665 $328,338
======== ======== ======== ========
Provision for losses on loans........ $ 25,000 $ 25,000 $ 49,995 $146,905
======== ======== ======== ========
Securities gains..................... $ 4,610 $ 4,223 $ 3,023 $ 6,897
======== ======== ======== ========
Income (loss) before cumulative
effect of a change in accounting
principle.......................... $111,475 $104,221 $ 63,091 $(29,995)
======== ======== ======== ========
Cumulative effect of a change
in accounting principle............ $ (3,430)
========
Net income (loss).................... $111,475 $104,221 $ 63,091 $(33,425)
======== ======== ======== ========
Net income (loss) per common share... $.78 $.74 $.44(b) $(.21)(a)(b)
==== ==== ==== =====
Average common shares outstanding.... 142,252 141,033 142,139 144,612
======== ======== ======== ========
1993
- ----
Interest income...................... $457,021 $464,164 $461,521 $459,158
======== ======== ======== ========
Interest expense..................... $123,601 $125,930 $129,844 $137,218
======== ======== ======== ========
Net interest income.................. $333,420 $338,234 $331,677 $321,940
======== ======== ======== ========
Provision for losses on loans........ $ 29,646 $ 30,005 $ 30,825 $ 30,725
======== ======== ======== ========
Securities gains (losses)............ $ 10,649 $ 3,306 $ (694) $ 2,849
======== ======== ======== ========
Income before cumulative
effect of a change in accounting
principle......................... $ 94,676 $ 96,081 $ 91,391 $ 80,281
======== ======== ======== ========
Cumulative effect of a change
in accounting principle........... $(13,010)
========
Net income........................... $ 94,676 $ 96,081 $ 91,391 $ 67,271
======== ======== ======== ========
Net income per common share.......... $.65 $.66 $.63 $.55(a)
==== ==== ==== ====
Average common shares outstanding.... 145,372 145,702 145,476 145,109
======== ======== ======== ========
</TABLE>
____________________________________
(a) Based on income before cumulative effect of a change in accounting
principle.
(b) Reflects after-tax merger-related charges of $.89 per share recorded in the
first quarter of 1994 for the Constellation acquisition and $.28 per share
recorded in the second quarter for the Independence acquisition.
18. INTERNATIONAL OPERATIONS
International operations include the international activities of CBNA and its
six overseas branches and two Edge Act subsidiaries. The International Banking
group engages in foreign banking and international financing activities
including loans, acceptances, time deposits, letter of credit financing and
related financial services.
Due to the complex nature of the Corporation's businesses and because its
revenue from customers domiciled outside the U.S. is recorded in both domestic
and foreign offices, it is impossible to segregate with precision the respective
contributions to income from the domestic and international operations. As
these operations are highly integrated, estimates and subjective assumptions
have been made to apportion revenue and expenses between domestic and
international operations. Charges for funds used by one segment provided by
another segment are based on a pooled cost of purchased funds. Geographic
distributions of earnings are based upon average interest earning assets.
Expenses are charged to international operations as directly incurred by such
activities plus allocated charges consistent with internal allocation policies.
Subject to the above limitations, estimates and assumptions, the following
tables present information attributable to international operations:
70
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS: CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS)
18. INTERNATIONAL OPERATIONS - (continued)
<TABLE>
<CAPTION>
Domestic International
Operations Operations Total
----------- -------------- -----------
<S> <C> <C> <C>
DECEMBER 31, 1994
Assets(a)................. $27,581,360 $ 1,743,776(b) $29,325,136
=========== =========== ===========
Total operating
income.................. $ 2,297,773 $ 194,269 $ 2,492,042
=========== =========== ===========
Income before
income taxes............ $ 349,473 $ 42,975 $ 392,448
=========== =========== ===========
Income before cumulative
effect of a change in
accounting principle.... $ 220,859 $ 27,933 $ 248,792
=========== =========== ===========
DECEMBER 31, 1993
Assets(a)................. $26,784,458 $1,650,159 $28,434,617
=========== =========== ===========
Total operating
income.................. $ 2,258,689 $ 157,205 $ 2,415,894
=========== =========== ===========
Income before
income taxes............ $ 492,450 $ 43,788 $ 536,238
=========== =========== ===========
Income before cumulative
effect of a change in
accounting principle.... $ 333,967 $ 28,462 $ 362,429
=========== =========== ===========
DECEMBER 31, 1992
Assets(a)................. $26,786,725 $1,945,992 $28,732,717
=========== =========== ===========
Total operating
income.................. $ 2,411,954 $ 160,548 $ 2,572,502
=========== =========== ===========
Income before
income taxes............ $ 351,224 $ 45,075 $ 396,299
=========== =========== ===========
Income before cumulative
effect of a change in
accounting principle.... $ 238,835 $ 29,299 $ 268,134
=========== =========== ===========
</TABLE>
____________________
(a) The Corporation had no material foreign currency position at December 31,
1994, 1993 and 1992. Assets primarily consist of Eurodollar time deposit
placements, loans and acceptances with maturities of one year or less.
(b) At December 31, 1994, $227,772 of these assets represent LDC risk related to
short-term trade finance.
71
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS: Continued
(DOLLAR AMOUNTS IN THOUSANDS)
19. FINANCIAL STATEMENTS OF THE PARENT COMPANY
Statement of Income
<TABLE>
<CAPTION>
Year Ended December 31,
-------------------------------
1994 1993 1992
--------- --------- ---------
<S> <C> <C> <C>
REVENUES
- --------
Dividends from subsidiaries:
Banks........................................... $240,370 $204,393 $151,016
Other subsidiaries.............................. 20,375 14,648 20,527
-------- -------- --------
Total dividends from subsidiaries......... 260,745 219,041 171,543
Interest income from subsidiaries................. 1,702 6,238 6,724
Processing and management fees from subsidiaries 140,558 133,114 128,917
Rental income from subsidiaries................... 2,059 2,059 2,059
Securities gains (losses)......................... (2) (380) 806
Other income...................................... 119 721 828
-------- -------- --------
Total revenues............................... 405,181 360,793 310,877
-------- -------- --------
EXPENSES
- --------
Interest on:
Funds borrowed.................................. 5,142 2,738 2,311
Long-term debt.................................. 5,323 8,827 18,348
-------- -------- --------
Total interest expense.......................... 10,465 11,565 20,659
Salaries, wages and benefits...................... 79,055 75,031 71,327
Net occupancy..................................... 29,230 29,827 25,995
Equipment expenses................................ 7,520 6,493 3,697
Other operating expenses.......................... 57,352 26,117 29,210
-------- -------- --------
Total expenses............................... 183,622 149,033 150,888
-------- -------- --------
Income before income tax benefit and equity in
undistributed income of subsidiaries............ 221,559 211,760 159,989
Income tax benefit................................ (13,715) (2,882) (3,840)
-------- -------- --------
Income before equity in undistributed income
of subsidiaries................................. 235,274 214,642 163,829
Equity in undistributed income (loss) of
subsidiaries:
Banks........................................ (52,590) 89,743 3,767
Other subsidiaries........................... 62,678 45,034 17,061
-------- -------- --------
10,088 134,777 20,828
-------- -------- --------
INCOME BEFORE CUMULATIVE EFFECT OF A CHANGE IN
ACCOUNTING PRINCIPLE............................ 245,362 349,419 184,657
Cumulative effect of a change in accounting
principle....................................... - - (1,469)
-------- -------- --------
NET INCOME........................................ $245,362 $349,419 $183,188
======== ======== ========
</TABLE>
72
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS: Continued
(DOLLAR AMOUNTS IN THOUSANDS)
19. FINANCIAL STATEMENTS OF THE PARENT COMPANY - (continued)
<TABLE>
<CAPTION>
Balance Sheet December 31,
-------------------------
1994 1993
---------- -----------
<S> <C> <C>
ASSETS
- ------
Cash.............................................. $ 3,893 $ 8,754
Time deposit...................................... 300 300
Investments and receivables-subsidiaries:
Investments in subsidiaries at equity
in underlying net assets:
Banks......................................... 2,279,541 2,116,076
Other subsidiaries............................ 308,130 228,630
---------- ----------
Total investments in subsidiaries........... 2,587,671 2,344,706
Other........................................... 9,165 69,427
---------- ----------
Total investments and receivables-
subsidiaries.............................. 2,596,836 2,414,133
Investments: securities available-for-sale....... 69,566 55,317
Premises, net of accumulated depreciation......... 6,457 7,187
Other assets...................................... 9,282 5,823
---------- ----------
Total assets................................ $2,686,334 $2,491,514
========== ==========
LIABILITIES
- -----------
Funds borrowed - subsidiaries..................... $ 246,609
Dividends payable................................. 50,152 $ 35,171
Other liabilities................................. 28,208 7,821
Long-term debt.................................... 11,251 80,138
---------- ----------
Total liabilities............................ 336,220 123,130
SHAREHOLDERS' EQUITY
- --------------------
Total shareholders' equity................... 2,350,114 2,368,384
---------- ----------
Total liabilities and shareholders' equity... $2,686,334 $2,491,514
========== ==========
</TABLE>
The approval of the Comptroller of the Currency is required for a nationally
chartered bank to pay dividends if the total of all dividends declared in any
calendar year exceeds the bank's net profits (as defined) for that year combined
with its retained net profits for the preceding two calendar years. Under this
formula, CBNA and CBD can declare dividends without approval of the Comptroller
of the Currency of approximately $139 million and $18 million, respectively,
plus an additional amount equal to CBNA's and CBD's retained net profits for
1995 up to the date of any such dividend declaration. Due to merger-related
charges recorded in 1994 by Constellation, which was merged into NJNB,NJNB is
unable to pay dividends without the prior approval of the Comptroller of the
Currency.
The Federal Reserve Act requires that extensions of credit by CBNA and NJNB to
certain affiliates, including the Corporation, be secured by specified amounts
and types of collateral, that extensions of credit to any such affiliate
generally be limited to 10% of capital and surplus (as defined) and that
extensions of credit to all such affiliates be limited to 20% of capital and
surplus.
The Corporation has guaranteed certain borrowings of its subsidiaries at
December 31, 1994 in the amount of $2,577,507, which includes $852,922 for
commercial paper.
The maturities for parent company long-term debt for the years ending December
31, 1995 through 1999 are: $1,133; $1,234; $1,345; $1,465; and $1,596,
respectively.
73
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS: CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS)
19. FINANCIAL STATEMENTS OF THE PARENT COMPANY - (continued)
<TABLE>
<CAPTION>
Statement of Cash Flows
Year Ended December 31,
------------------------------------------------
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
OPERATING ACTIVITIES
Net income........................................ $ 245,362 $ 349,419 $ 183,188
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed income of subsidiaries............ (10,088) (143,393) (32,823)
Cumulative effect of a change in
accounting principle.......................... - - 1,469
Securities (gains) losses....................... 2 380 (806)
Depreciation and amortization................... 1,524 938 1,328
Deferred income tax expense (benefit)........... (5,428) 1,692 (1,563)
Decrease in interest receivable................. - 96 291
Increase (decrease) in interest payable......... (419) 1,082 60
Increase (decrease) in due to subsidiaries...... 23,978 (6,875) (47,695)
Other........................................... (9,666) (4,085) 14,223
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES...... 245,265 199,254 117,672
--------- --------- ---------
INVESTING ACTIVITIES
Purchase of Germantown Savings Bank............... (108,061) - -
Investment in subsidiaries........................ (96,860) (5,460) (72,240)
(Increase) decrease in receivables from
subsidiaries..................................... 53,862 (16,962) 11,142
Purchases of investment securities................ (202,309) (483,551) (232,313)
Proceeds from maturities and sales of investment
securities...................................... 188,028 453,002 292,956
Premises and equipment expenditures............... - (188) (271)
Return of capital from subsidiaries............... 81,000 42,579 42,165
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES................................... (84,340) (10,580) 41,439
--------- --------- ---------
FINANCING ACTIVITIES
Retirement of long-term debt...................... (45,488) (20,940) (18,407)
Net increase (decrease) in financing from
subsidiaries..................................... 246,609 (69,092) (80,849)
Proceeds from public issuance of common stock..... - - 67,581
Cash dividends paid............................... (160,122) (143,334) (126,265)
Purchase of treasury stock........................ (228,963) (29,449) (1,480)
Other............................................. 22,178 29,538 51,093
--------- --------- ---------
NET CASH USED IN FINANCING ACTIVITIES........ (165,786) (233,277) (108,327)
--------- --------- ---------
INCREASE (DECREASE) IN CASH AND DUE
FROM BANKS................................. (4,861) (44,603) 50,784
Cash and due from banks at January 1,........ 8,754 53,357 2,573
--------- --------- ---------
CASH AND DUE FROM BANKS AT DECEMBER 31....... $ 3,893 $ 8,754 $ 53,357
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest........................................ $ 10,884 $ 10,712 $ 15,965
========= ========= =========
Income taxes.................................... - - -
========= ========= =========
</TABLE>
20. JOINT VENTURE
On December 4, 1992, the Corporation entered into a joint venture with three
other banking companies creating Electronic Payment Services, Inc. ("EPS"). The
joint venture combines the partners' separate consumer electronic transaction
processing businesses and provides automated teller machine ("ATM") and
electronic point-of-sale ("POS") processing services.
The Corporation contributed to EPS its wholly-owned subsidiaries Money Access
Service Inc. ("MAC"), a regional ATM network, and BUYPASS Corporation, a third-
party processor of electronic POS transactions.
The Corporation has equal ownership with two partners in the joint venture, each
with 31%. The fourth partner owns 7%. As part of the transaction, the
Corporation received a cash payment of $79,350 and $245,400 of EPS 5% cumulative
redeemable preferred stock. The exchange of assets involved in the transaction
resulted in a pre-tax gain to the Corporation of $41,072, $25,670 after-tax,
which was recorded in other operating income for the year ended December 31,
1992. The exchange also generated a deferred gain of approximately $138,000.
74
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
20. JOINT VENTURE - continued
In December 1993, the Corporation and EPS mutually agreed to enter into a
recapitalization of EPS involving the EPS preferred stock held by the
Corporation. In exchange for substantially all of the preferred stock, the
Corporation received from EPS a ten-year 6.45% note providing for equal
principal payments over the life of the note. The recapitalization does not
affect the amount of deferred gain, but changes the timing of deferred gain
income recognition from a five-year period beginning in 1996 to a ten-year
period beginning in 1994.
The Corporation's net investment in EPS, $60,610 at December 31, 1994, is
included in other assets. "Income from investment in EPS, Inc.", which is
included in Non-interest Income, reflects the Corporation's 31% share in EPS net
income, interest income on the $250,000 note and $13,666 for recognition of the
deferred gain in 1994.
75
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA
CONSOLIDATED AVERAGE BALANCE SHEET AND TAXABLE EQUIVALENT INCOME/EXPENSE AND
RATES
<TABLE>
<CAPTION>
1994 1993
------------------------------------ ------------------------------------
Average Income/ Average Income/
balance Rate expense balance Rate expense
---------- ------ ---------- ---------- ------ -----------
(000,000) (000) (000,000) (000)
<S> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Time deposits, principally
Eurodollars (a)................... $ 1,520 4.37% $ 66,389 $ 1,312 3.38% $ 44,340
Investment securities (b):
U.S. Government.................. 2,235 5.06 112,990 2,759 5.80 159,950
State and municipal.............. 365 7.65 27,921 414 8.28 34,261
Other............................ 414 6.02 24,925 410 5.21 21,347
--------- --------- --------- ----------
Total investment
securities............... 3,014 5.50 165,836 3,583 6.02 215,558
Federal funds sold................. 165 4.70 7,754 235 3.10 7,282
Trading account securities......... 3 5.63 169 2 4.15 83
Loans (b)(c)(d):
Domestic:
Commercial, industrial and
other......................... 8,222 8.56 703,985 7,378 8.07 595,114
Real estate.................... 6,265 8.01 502,048 6,795 7.89 536,234
Consumer....................... 2,572 11.78 302,951 2,399 11.93 286,134
Financial institutions......... 618 8.02 49,571 707 6.15 43,475
Factoring receivables.......... 587 9.95 58,389 554 9.62 53,312
Lease financing................ 750 8.27 61,999 658 9.06 59,609
Foreign.......................... 587 5.40 31,683 544 5.01 27,258
--------- ---------- --------- ----------
Total loans, net of
discounts............... 19,601 8.73 1,710,626 19,035 8.41 1,601,136
--------- ---------- --------- ----------
Total interest earning
assets (d)(e)........... $ 24,303 8.02 1,950,774 $ 24,167 7.73 1,868,399
========= ----- ---------- ========= ----- ----------
FUNDING SOURCES
Interest bearing liabilities (b):
Deposits in domestic offices (f):
Commercial..................... $ 269 3.76 10,125 $ 419 3.74 15,656
NOW accounts................... 1,829 .68 11,470 1,793 .94 15,442
Money Market Accounts.......... 3,935 2.12 83,167 4,142 2.13 88,061
Consumer savings............... 3,029 1.49 45,066 2,982 1.54 45,792
Consumer certificates.......... 4,361 4.28 186,744 4,499 4.37 196,614
Time deposits of overseas
branches
and subsidiaries............... 804 3.52 28,286 711 2.57 18,248
--------- ---------- --------- ----------
Total interest bearing
deposits................ 14,227 2.59 364,858 14,546 2.64 379,813
Short-term funds borrowed:
Federal funds purchased........ 861 4.08 35,162 1,129 3.05 34,444
Commercial paper............... 753 4.24 31,948 604 3.14 18,982
Other.......................... 314 5.74 18,013 229 5.93 13,575
--------- ---------- --------- ----------
Total short-term funds
borrowed................ 1,928 4.42 85,123 1,962 3.42 67,001
Long-term debt (g)............... 1,657 5.44 90,177 1,455 4.80 69,779
--------- ---------- --------- ----------
Total interest bearing
liabilities............. 17,812 3.03 540,158 17,963 2.88 516,593
Portion of non-interest bearing
funding sources................... 6,491 6,204
--------- --------- ----------
Total funding sources (e). $ 24,303 2.22 540,158 $ 24,167 2.14 516,593
========= ----- ---------- ========= ----- ----------
Net interest income and net
interest margin................... 5.80% $1,410,616 5.59% $1,351,806
===== ========== ===== ==========
1992
----------------------------------------
Average Income/
balance Rate expense
---------- ------ ------------
(000,000) (000)
<S> <C> <C> <C>
INTEREST EARNING ASSETS
Time deposits, principally
Eurodollars (a)................... $ 1,435 4.08% $ 58,613
Investment securities (b):
U.S. Government.................. 2,321 6.97 161,760
State and municipal.............. 423 9.40 39,766
Other............................ 550 7.82 43,024
--------- ----------
Total investment
securities............... 3,294 7.42 244,550
Federal funds sold................. 510 4.43 22,611
Trading account securities......... 1 7.20 72
Loans (b)(c)(d):
Domestic:
Commercial, industrial and
other......................... 7,234 8.31 601,294
Real estate.................... 6,854 8.51 583,562
Consumer....................... 2,471 12.35 305,193
Financial institutions......... 832 6.24 51,903
Factoring receivables.......... 486 9.70 47,154
Lease financing................ 562 8.87 49,848
Foreign.......................... 429 6.53 28,018
--------- ----------
Total loans, net of
discounts............... 18,868 8.83 1,666,972
--------- ----------
Total interest earning
assets (d)(e)........... $ 24,108 8.26 1,992,818
========= ----- ----------
FUNDING SOURCES
Interest bearing liabilities (b):
Deposits in domestic offices (f):
Commercial..................... $ 796 4.40 34,996
NOW accounts................... 1,671 2.44 36,858
Money Market Accounts.......... 4,225 2.89 122,086
Consumer savings............... 2,612 2.74 71,495
Consumer certificates.......... 5,446 5.08 276,701
Time deposits of overseas
branches
and subsidiaries............... 756 3.75 28,319
--------- ----------
Total interest bearing
deposits................ 15,506 3.72 570,455
Short-term funds borrowed:
Federal funds purchased........ 990 3.41 33,735
Commercial paper............... 539 3.72 20,030
Other.......................... 128 5.25 6,715
--------- ----------
Total short-term funds
borrowed................ 1,657 3.65 60,480
Long-term debt (g)............... 1,312 6.06 78,425
--------- ----------
Total interest bearing
liabilities............. 18,475 3.84 709,360
Portion of non-interest bearing
funding sources................... 5,633
---------
Total funding sources (e). $ 24,108 2.94 709,360
========= ----- ----------
Net interest income and net
interest margin................... 5.32% $1,283,458
===== ==========
</TABLE>
(a) Yields and income on time 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) For the years 1994-1989, 7%, 7%, 10%, 9%, 8%, and 7%. respectively, of total
average assets and liabilities are attributed to foreign operations.
(f) Average balances on time deposits in domestic offices are reduced
by specified reserve amounts for purposes of rate calculations.
(g) Rates on long-term debt are based on average balances excluding
capital lease obligations.
76
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA
CONSOLIDATED AVERAGE BALANCE SHEET AND TAXABLE EQUIVALENT INCOME/EXPENSE AND
RATES
<TABLE>
<CAPTION>
1994 1993 1992
-------------------------- --------------------------- -------------------------
AVERAGE INCOME/ AVERAGE INCOME/ AVERAGE INCOME/
BALANCE RATE EXPENSE BALANCE RATE EXPENSE BALANCE RATE EXPENSE
---------- ------ -------- ---------- ----- -------- -------- ------ --------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(000,000) (000) (000,000) (000) (000,000) (000)
NON-INTEREST EARNING ASSETS
Cash............................................ $ 2,256 $ 2,263 $ 2,114
Allowance for loan losses....................... (506) (457) (463)
Other assets.................................... 1,614 1,727 1,795
--------- --------- -------
Total non-interest earning assets.......... $ 3,364 $ 3,533 $ 3,446
========= ========= =======
NON-INTEREST BEARING FUNDING SOURCES
Demand deposits:
Domestic...................................... $ 5,708 $ 5,714 $ 5,437
Foreign....................................... 417 369 324
Other liabilities............................... 1,460 1,456 1,368
Shareholders' equity............................ 2,270 2,198 1,950
Non-interest bearing funding sources used
to fund earning assets........................ (6,491) (6,204) (5,633)
--------- --------- -------
Total net non-interest bearing
funding sources........................ $ 3,364 $ 3,533 $ 3,446
========= ========= =======
SUPPLEMENTARY AVERAGES
Net demand deposits............................. $ 4,525 $ 4,579 $ 3,998
Net Federal funds purchased..................... 696 3.94% $27,408 894 3.04% $27,162 480 2.32% $11,124
Commercial certificates of deposit in domestic
offices over $100,000......................... 261 3.66 9,547 373 3.73 13,908 702 4.38 30,739
Average prime rate.............................. 6.60 6.00 6.25
</TABLE>
77
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA
CONSOLIDATED AVERAGE BALANCE SHEET AND TAXABLE EQUIVALENT INCOME/EXPENSE AND
RATES: CONTINUED
<TABLE>
<CAPTION>
1991 1990 1989
---------------------------- ----------------------------- -------------------------------
AVERAGE INCOME/ AVERAGE INCOME/ AVERAGE INCOME/
BALANCE RATE EXPENSE BALANCE RATE EXPENSE BALANCE RATE EXPENSE
--------- ----- -------- ---------- ------ --------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
(000,000) (000) (000,000) (000) (000,000) (000)
INTEREST EARNING ASSETS
Time deposits, principally
Eurodollars (a)................... $ 1,213 6.52% $ 79,125 $ 744 8.43% $ 62,706 $ 1,043 9.17% $ 95,592
Investment securities (b):
U.S. Government.................. 2,061 8.04 165,700 1,761 8.73 153,707 2,144 8.71 186,756
State and municipal.............. 466 10.44 48,664 560 10.74 60,151 576 10.64 61,279
Other............................ 671 9.23 61,945 752 9.17 68,931 974 9.33 90,827
--------- ---------- --------- ---------- --------- ----------
Total investment
securities.............. 3,198 8.64 276,309 3,073 9.20 282,789 3,694 9.17 338,862
Federal funds sold................. 450 6.40 28,813 328 8.47 27,787 500 8.75 43,766
Trading account securities......... 1 5.10 51 7 8.66 606 38 8.26 3,138
Loans (b)(c)(d):
Domestic:
Commercial, industrial and
other......................... 7,993 9.71 776,261 8,436 10.91 920,406 8,061 11.69 942,247
Real estate.................... 6,571 9.47 622,340 6,563 10.77 707,084 6,165 11.43 704,631
Consumer....................... 3,653 14.35 524,058 4,159 14.06 584,594 3,773 13.60 513,167
Financial institutions......... 900 8.71 78,420 1,025 10.08 103,306 966 10.38 100,285
Factoring receivable........... 480 10.69 51,327 478 10.42 49,829 458 11.79 53,983
Lease financing................ 546 9.50 51,876 566 9.92 56,175 496 10.97 54,392
Foreign............................ 431 8.68 37,429 582 9.77 56,876 874 9.23 80,670
--------- ---------- --------- ---------- --------- ----------
Total loans, net of
discounts............... 20,574 10.41 2,141,711 21,809 11.36 2,478,270 20,793 11.78 2,449,375
--------- ---------- --------- ---------- --------- ----------
Total interest earning
assets (d)(e)........... $ 25,436 9.93 2,526,009 $ 25,961 10.98 2,852,158 $ 26,068 11.24 2,930,733
========= ----- ---------- ========= ----- ---------- ========= ----- ----------
FUNDING SOURCES
Interest bearing liabilities (b):
Deposits in domestic offices (f):
Commercial..................... $ 1,466 6.42 94,181 $ 1,976 8.23 159,832 $ 2,387 8.96 210,408
NOW accounts................... 1,444 4.54 58,450 1,327 5.25 62,115 1,272 5.27 61,062
Money Market Accounts.......... 3,947 4.91 193,621 3,520 6.09 213,098 3,387 6.11 206,564
Consumer savings............... 2,024 4.62 93,408 1,854 5.03 93,049 1,854 5.07 93,769
Consumer certificates.......... 6,449 6.73 433,790 6,337 8.15 516,574 5,628 8.59 483,381
Time deposits of overseas branches
and subsidiaries............... 1,227 6.27 76,929 943 8.59 81,039 1,439 9.57 137,653
--------- ---------- --------- ---------- --------- ----------
Total interest bearing
deposits................ 16,557 5.79 950,379 15,957 7.14 1,125,707 15,967 7.55 1,192,837
Short-term funds borrowed:
Federal funds purchased........ 1,321 5.58 73,742 1,993 8.11 161,588 2,500 9.24 230,991
Commercial paper............... 791 6.28 49,657 1,179 8.18 96,435 947 9.24 87,529
Other.......................... 700 6.89 48,206 1,016 7.37 74,843 617 9.48 58,502
--------- ---------- --------- ---------- --------- ----------
Total short-term funds
borrowed................ 2,812 6.10 171,605 4,188 7.95 332,866 4,064 9.28 377,022
Long-term debt (g)................ 1,168 7.86 90,363 825 9.20 74,162 798 9.17 71,380
--------- ---------- --------- ---------- --------- ----------
Total interest bearing
liabilities............. 20,537 5.90 1,212,347 20,970 7.31 1,532,735 20,829 7.88 1,641,239
Portion of non-interest bearing
funding sources................... 4,899 4,991 5,239
--------- --------- ---------
Total funding sources (e). $ 25,436 4.77 1,212,347 $ 25,961 5.90 1,532,735 $ 26,068 6.29 1,641,239
========= ---- ---------- ========= ----- ---------- ========= ----- ----------
Net interest income and net
interest margin................... 5.16% $1,313,662 5.08% $1,319,423 4.95% $1,289,494
==== ========== ===== ========== ===== ==========
</TABLE>
(a) Yields and income on time 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) For the years 1994-1989, 7%, 7%, 10%, 9%, 8%,and 7%, respectively, of total
average assets and liabilities are attributed to foreign operations.
(f) Average balances on time deposits in domestic offices are reduced by
specified reserve amounts for purposes of rate calculations.
(g) Rates on long-term debt are based on average balances excluding
capital lease obligations.
78
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA
CONSOLIDATED AVERAGE BALANCE SHEET AND TAXABLE EQUIVALENT INCOME/EXPENSE AND
RATES: CONTINUED
<TABLE>
<CAPTION>
1991 1990
--------------------------- -----------------------------
AVERAGE INCOME/ AVERAGE INCOME/
BALANCE RATE EXPENSE BALANCE RATE EXPENSE
---------- ------ ------- -------- ------ ---------
<S> <C> <C> <C> <C> <C> <C>
(000,000) (000) (000,000) (000)
NON-INTEREST EARNINGS ASSETS
Cash............................................ $ 1,973 $ 2,136
Allowance for loan losses....................... (512) (358)
Other assets.................................... 1,746 1,573
--------- ---------
Total non-interest earning assets..... $ 3,207 $ 3,351
========= =========
NON-INTEREST BEARING FUNDING SOURCES
Demand deposits:
Domestic...................................... $ 4,752 $ 4,860
Foreign....................................... 308 273
Other liabilities............................... 1,184 1,231
Shareholders' equity............................ 1,862 1,978
Non-interest bearing funding sources used to
fund earning assets........................... (4,899) (4,991)
--------- ---------
Total net non-interest bearing
funding sources..................... $ 3,207 $ 3,351
========= =========
SUPPLEMENTARY AVERAGES
Net demand deposits............................. $ 3,306 $ 3,228
Net Federal funds purchased..................... 871 5.16% $44,929 1,665 8.04% $133,801
Commercial certificates of deposit in domestic
offices over $100,000......................... 1,310 6.47 84,812 1,700 8.24 140,084
Average prime rate.............................. 8.46 10.01
1989
-----------------------------
AVERAGE INCOME/
BALANCE RATE EXPENSE
---------- ------ ---------
<S> <C> <C> <C>
(000,000) (000)
NON-INTEREST EARNINGS ASSETS
Cash............................................ $ 2,113
Allowance for loan losses....................... (405)
Other assets.................................... 1,600
---------
Total non-interest earning assets..... $ 3,308
=========
NON-INTEREST BEARING FUNDING SOURCES
Demand deposits:
Domestic...................................... $ 4,839
Foreign....................................... 275
Other liabilities............................... 1,387
Shareholders' equity............................ 2,046
Non-interest bearing funding sources used to
fund earning assets........................... (5,239)
---------
Total net non-interest bearing
funding sources..................... $ 3,308
=========
SUPPLEMENTARY AVERAGES
Net demand deposits............................. $ 3,193
Net Federal funds purchased..................... 2,000 9.36% $187,225
Commercial certificates of deposit in domestic
offices over $100,000......................... 2,253 8.93 201,124
Average prime rate.............................. 10.87
</TABLE>
79
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA: CONTINUED
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Interest income and fees................. $1,929,527 $1,841,864 $1,961,838 $2,485,277 $2,799,141 $2,870,616
Interest expense......................... 540,158 516,593 709,360 1,212,367 1,532,735 1,641,239
---------- ---------- ---------- ---------- ---------- ----------
Net interest income..................... 1,389,369 1,325,271 1,252,478 1,272,910 1,266,406 1,229,377
Provision for losses on loans............ 246,900 121,201 160,250 291,261 437,860 327,181
---------- ---------- ---------- ---------- ---------- ----------
Net interest income after
provision for losses on loans.. 1,142,469 1,204,070 1,092,228 981,649 828,546 902,196
Non-interest income...................... 567,540 574,030 610,664 615,565 474,971 430,915
Non-financial expenses................... 1,317,561 1,241,862 1,306,593 1,319,465 1,186,319 1,156,107
---------- ---------- ---------- ---------- ---------- ----------
Income before income taxes............... 392,448 536,238 396,299 277,749 117,198 177,004
Provision for income taxes............... 143,656 173,809 128,165 97,432 11,998 18,708
---------- ---------- ---------- ---------- ---------- ----------
Income before cumulative effect of a
change in accounting principle......... 248,792 362,429 268,134 180,317 105,200 158,296
Cumulative effect of a change in
accounting principle, net of tax....... (3,430) (13,010) (84,946) - - -
---------- ---------- ---------- ---------- ---------- ----------
Net income............................... 245,362 349,419 183,188 180,317 105,200 158,296
Dividends on preferred stock............. - - - - 1,662 20,973
---------- ---------- ---------- ---------- ---------- ----------
Net income applicable to common stock.... $ 245,362 $ 349,419 $ 183,188 $ 180,317 $ 103,538 $ 137,323
========== ========== ========== ========== ========== ==========
Per common share data:
Income before cumulative effect of a
change in accounting principle...... $1.75(a) $2.49 $1.97 $1.35 $0.78 $1.02
Net income............................ $1.73(a) $2.40 $1.35 $1.35 $0.78 $1.02
Average common shares outstanding........ 142,498 145,398 135,813 133,237 133,525 134,066
</TABLE>
______________________________________
(a) Includes after-tax merger-related charges of $.89 per share recorded for
the acquisition of Constellation Bancorp and $.28 per share recorded for the
acquisition of Independence Bancorp, Inc. (See Note 2 to the Financial
Statements).
80
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA: CONTINUED
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS)
<TABLE>
<CAPTION>
December 31,
---------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks..................... $ 2,262,512 $ 2,521,676 $ 2,510,001 $ 2,210,383 $ 2,642,911 $ 2,743,216
Time deposits, principally Eurodollars...... 1,750,458 1,319,457 1,815,394 1,673,553 1,289,925 815,125
Investment securities....................... 2,880,631 3,599,166 3,588,348 3,298,107 3,086,687 3,579,390
Loans....................................... 20,526,216 19,776,258 18,940,402 19,418,084 21,543,536 21,548,468
Allowance for loan losses................... (500,631) (450,823) (442,267) (473,301) (512,288) (555,427)
Funds sold.................................. 731,820 161,527 266,890 376,300 234,298 260,226
Trading account securities.................. 1,206 6,393 2,796 1,255 3,883 18,691
Due from customers on acceptances........... 342,211 332,234 632,976 212,024 499,690 371,883
Premises, equipment and other assets........ 1,330,713 1,168,729 1,418,177 1,467,492 1,514,522 1,502,717
----------- ----------- ----------- ----------- ----------- -----------
Total assets........................ $29,325,136 $28,434,617 $28,732,717 $28,183,897 $30,303,164 $30,284,289
=========== =========== =========== =========== =========== ===========
LIABILITIES
Deposits:
Domestic:
Non-interest bearing.................... $ 6,362,470 $ 6,649,367 $ 6,460,415 $ 5,930,296 $ 5,813,027 $ 5,857,767
Interest bearing........................ 14,565,051 13,686,027 14,446,043 15,147,941 15,616,028 15,100,264
Overseas branches and subsidiaries........ 1,113,365 796,902 766,119 839,327 1,181,341 1,296,926
----------- ----------- ----------- ----------- ----------- -----------
Total deposits...................... 22,040,886 21,132,296 21,672,577 21,917,564 22,610,396 22,254,957
Short-term funds borrowed................... 1,546,201 1,884,125 1,904,044 2,069,451 3,628,797 3,860,900
Bank acceptances outstanding................ 336,103 337,180 635,544 213,613 503,049 376,213
Other liabilities........................... 1,260,722 1,123,342 1,068,395 814,888 849,085 1,017,493
Long-term debt.............................. 1,791,110 1,589,290 1,357,598 1,240,970 882,271 781,187
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities................... 26,975,022 26,066,233 26,638,158 26,256,486 28,473,598 28,290,750
----------- ----------- ----------- ----------- ----------- -----------
SHAREHOLDERS' EQUITY
Preferred................................... - - - - - 100,000
Common...................................... 2,350,114 2,368,384 2,094,559 1,927,411 1,829,566 1,893,539
----------- ----------- ----------- ----------- ----------- -----------
Total shareholders' equity.......... 2,350,114 2,368,384 2,094,559 1,927,411 1,829,566 1,993,539
----------- ----------- ----------- ----------- ----------- -----------
Total liabilities and
shareholders' equity.............. $29,325,136 $28,434,617 $28,732,717 $28,183,897 $30,303,164 $30,284,289
=========== =========== =========== =========== =========== ===========
</TABLE>
81
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA: CONTINUED
SHAREHOLDERS' DATA
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989
------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNINGS AND DIVIDENDS PER SHARE APPLICABLE
TO COMMON SHARES
Income before cumulative effect of a
change in accounting principle............. $1.75(a) $2.49 $1.97 $1.35 $ .78 $1.02
Dividends paid............................... 1.20 1.11 1.00 .96 .96 .84
Dividends declared........................... 1.24 1.14 1.02 .97 .96 .87
COMMON STOCK MARKET BID INFORMATION
First quarter:
High....................................... $27 1/8 $29 3/4 $25 1/8 $18 3/8 $21 5/8 $21 3/4
Low........................................ 24 1/2 26 3/8 21 7/8 12 18 5/8 20
Second quarter:
High....................................... 28 30 1/8 27 20 3/4 22 24 1/8
Low........................................ 25 25 1/8 21 17 3/4 18 3/8 21 1/2
Third quarter:
High....................................... 29 1/8 29 3/4 26 1/4 23 1/2 20 3/4 25
Low........................................ 25 7/8 26 3/4 23 5/8 19 1/4 13 23 1/8
Fourth quarter:
High....................................... 27 5/8 29 3/4 28 7/8 24 3/8 15 7/8 23 1/2
Low........................................ 22 7/8 25 1/8 24 1/8 20 7/8 11 3/4 19 1/4
Year-end..................................... 26 26 1/8 28 1/2 24 15 5/8 21 3/8
Year-end bid/net income...................... 14.9x 10.5x 14.5x 17.8x 20.0x 21.0x
Book value per share at year-end............. $16.22 $16.29 $14.48 $14.40 $13.77 $14.13
OTHER SELECTED DATA
OPERATING RATIOS:
Income from continuing operations
applicable to common stock
as a percent of:
Operating income......................... 9.96% 15.00% 10.42% 5.82% 3.16% 4.16%
Average common shareholders' equity...... 10.96(a) 16.49 13.75 9.68 5.28 7.06
Average total assets..................... .90(a) 1.31 .97 .63 .35 .47
Average total shareholders' equity as a
percent of average total assets............ 8.20 7.94 7.08 6.50 6.75 6.96
Dividends declared as a percent of
income from continuing operations.......... 70.86(a) 45.78 51.78 71.85 123.08 85.29
FULL TIME EQUIVALENT STAFF AT YEAR-END....... 15,076 16,017 16,271 16,571 17,144 17,572
NUMBER OF LOCATIONS...................... 472 483 482 540 554 573
NUMBER OF REGISTERED COMMON SHAREHOLDERS. 43,287 44,128 45,209 48,701 51,076 55,512
</TABLE>
- -------------------------------
(a) Includes the impact of after-tax merger-related charges of $.89 per share
recorded for the acquisition of Constellation Bancorp and $.28 per share
recorded for the acquisition of Independence Bancorp, Inc. Excluding the
impact of these merger-related charges, per share income before the
cumulative effect of a change in accounting principle was $2.92, return on
average common shareholders' equity was 18.34%, and return on average total
assets was 1.50% (see Note 2 to the Financial Statements).
82
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA: CONTINUED
Rate/Volume Analysis Taxable Equivalent Basis - (in thousands)
<TABLE>
<CAPTION>
1994 vs. 1993 1993 vs. 1992
------------------------------------ ------------------------------------
Increase (decrease) in interest Increase (decrease) in interest
------------------------------------ ------------------------------------
Income/ Change attributable to Income/ Change attributable to
------------------------ ------------------------
expense Volume Rate expense Volume Rate
------- ---------- ----------- -------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets
- -----------------------
Time deposits, principally
Eurodollars................... $ 22,049 $ 7,030 $ 15,019 $ (14,273) $ (5,018) $ (9,255)
Investment securities........... (49,722) (34,241) (15,481) (28,992) 21,444 (50,436)
Federal funds sold.............. 472 (2,170) 2,642 (15,329) (12,183) (3,146)
Trading account securities...... 86 42 44 11 72 (61)
Loans:
Domestic..................... 105,065 52,969 52,096 (65,076) 4,623 (69,699)
Foreign...................... 4,425 2,154 2,271 (760) 7,510 (8,270)
-------- -------- -------- --------- -------- ---------
Total interest income..... 82,375 25,784 56,591 (124,419) 16,448 (140,867)
-------- -------- -------- --------- -------- ---------
Interest bearing funds
- ----------------------
Deposits:
Domestic...................... (24,993) (14,796) (10,197) (180,570) (34,596) (145,974)
Overseas...................... 10,038 2,390 7,648 (10,071) (1,688) (8,383)
Short-term funds borrowed:
Federal funds purchased....... 718 (8,174) 8,892 709 4,740 (4,031)
Other......................... 17,404 9,720 7,684 5,812 6,657 (845)
Long-term debt.................. 20,398 9,696 10,702 (8,647) 9,696 (18,343)
-------- -------- -------- --------- -------- ---------
Total interest expense.... 23,565 (1,164) 24,729 (192,767) (15,191) (177,576)
-------- -------- -------- --------- -------- ---------
Net interest income............. $ 58,810 $ 26,948 $ 31,862 $ 68,348 $ 31,639 $ 36,709
- ------------------- ======== ======== ======== ========= ======== =========
</TABLE>
Changes in interest income or expense 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.
Included in interest income is $66.2 million, $62.1 million and $57.2 million of
loan fees for the years ended 1994, 1993 and 1992, respectively.
Non-performing loans are included in interest earning assets.
The changes in interest expense on domestic deposits attributable to volume and
rate are adjusted by specific reserves as average balances are reduced by such
reserve amounts for purposes of rate calculations.
83
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA: CONTINUED
LOAN PORTFOLIO
The following are summaries of certain loan categories, net of unearned
discounts, for the five years ended December 31, 1994 (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Domestic loans:
Commercial, industrial and other......... $ 8,688,733 $ 7,879,451 $ 7,354,666 $ 7,503,223 $ 8,002,759
----------- ----------- ----------- ----------- -----------
Real estate loans:
Construction and development........... 331,369 367,364 501,404 754,089 1,016,830
Residential............................ 3,180,227 3,121,008 3,314,111 3,106,984 3,065,826
Other, primarily commercial mortgages
and commercial loans secured by
owner-occupied real estate........... 2,979,053 3,175,284 3,212,582 2,984,798 2,954,493
----------- ----------- ----------- ----------- -----------
Total real estate loans............ 6,490,649 6,663,656 7,028,097 6,845,871 7,037,149
----------- ----------- ----------- ----------- -----------
Consumer loans:
Installment............................ 1,386,776 1,356,633 1,379,760 1,762,210 1,998,889
Credit card............................ 1,374,598 1,178,972 957,168 979,327 2,000,941
----------- ----------- ----------- ----------- -----------
Total consumer loans............... 2,761,374 2,535,605 2,336,928 2,741,537 3,999,830
----------- ----------- ----------- ----------- -----------
Financial institutions................... 668,119 870,489 783,125 996,500 1,077,419
Factoring receivables.................... 622,380 555,211 454,244 402,752 418,129
Lease financing.......................... 710,338 728,764 583,187 536,836 546,203
----------- ----------- ----------- ----------- -----------
Total domestic loans.............. 19,941,593 19,233,176 18,540,247 19,026,719 21,081,489
----------- ----------- ----------- ----------- -----------
Foreign loans:
Loans to or guaranteed by foreign
banks:
Government owned and central
banks.............................. - - 257 1,506 7,725
Other foreign banks.................. 300,590 332,149 203,103 130,308 154,158
----------- ----------- ----------- ----------- -----------
300,590 332,149 203,360 131,814 161,883
Commercial and industrial................ 274,720 210,573 196,795 242,098 300,164
Loans to other financial institutions.... 9,313 360 - 17,453 -
----------- ----------- ----------- ----------- -----------
Total foreign loans................ 584,623 543,082 400,155 391,365 462,047
----------- ----------- ----------- ----------- -----------
Total loans........................ $20,526,216 $19,776,258 $18,940,402 $19,418,084 $21,543,536
=========== =========== =========== =========== ===========
</TABLE>
84
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA: CONTINUED
RISK ELEMENT DATA:
FOREIGN OUTSTANDINGS - (IN THOUSANDS)
While the associated risks are clearly recognized, international lending is a
part of the Corporation's wide range of international services. It is the
Corporation's intent to remain involved in providing the international financial
services needed for the increasingly global competition faced by customers. At
December 31, 1994 and 1993, aggregate foreign outstandings (defined as loans,
investments, acceptances and time deposits) to borrowers in a foreign country
that exceeded 1% of total assets were as follows:
<TABLE>
<CAPTION>
Banks
and other Governments Commercial
financial and and
institutions agencies industrial Total
------------ ----------- ---------- -----
<S> <C> <C> <C> <C>
DECEMBER 31, 1994
United Kingdom......... $ 262,891 -- $ 48,209 $ 311,100
DECEMBER 31, 1993
United Kingdom......... 269,109 -- 43,798 312,907
</TABLE>
Outstandings below 1%, but over .75% of total assets were $267,816 in the
Cayman Islands at December 31, 1994, and $286,417 in the United Kingdom at
December 31, 1992.
85
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA: CONTINUED
NON-PERFORMING ASSETS
The following represents the Corporation's non-accrual loans, renegotiated loans
and other real estate owned for the five years ended December 31, 1994 (in
thousands):
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NON-ACCRUAL LOANS
Domestic.......................... $244,406 $246,512 $411,120 $565,644 $539,766
Foreign........................... 158 171 3,047 8,797 29,139
-------- -------- -------- -------- --------
Total non-accrual loans...... 244,564 246,683 414,167 574,441 568,905
-------- -------- -------- -------- --------
RENEGOTIATED LOANS
Domestic.......................... 1,657 56,457 63,074 46,611 6,547
-------- -------- -------- -------- --------
Total renegotiated loans..... 1,657 56,457 63,074 46,611 6,547
-------- -------- -------- -------- --------
Total non-performing loans... 246,221 303,140 477,241 621,052 575,452
-------- -------- -------- -------- --------
OTHER REAL ESTATE OWNED (OREO)
Acquired through foreclosure
or exchange..................... 53,900 72,907 72,140 76,138 58,213
In-substance foreclosure.......... 6,687 56,419 118,264 103,386 31,853
Property formerly used in
banking operations.............. 4,076 6,202 3,908 2,022 -
-------- -------- -------- -------- --------
Total OREO................... 64,663 135,528 194,312 181,546 90,066
-------- -------- -------- -------- --------
Total non-performing assets.. $310,884 $438,668 $671,553 $802,598 $665,518
======== ======== ======== ======== ========
Non-performing assets as a
percentage of loans plus OREO... 1.51% 2.20% 3.51% 4.09% 3.08%
===== ===== ==== ==== ====
Non-performing assets as a
percentage of total assets...... 1.06% 1.54% 2.34% 2.85% 2.20%
==== ==== ==== ==== ====
</TABLE>
The following reflects the effect of non-accrual and renegotiated loans on both
interest income and net interest income for the three years ended December 31,
1994 (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992
------- ------- -------
<S> <C> <C> <C>
Interest income which would have
been recorded in accordance
with original terms:
Domestic......................... $25,347 $30,838 $38,375
Foreign.......................... 9 38 324
------- ------- -------
Total....................... 25,356 30,876 38,699
------- ------- -------
Interest income reflected in
total operating income:
Domestic......................... 12,003 17,300 20,479
Foreign.......................... - - -
------- ------- -------
Total....................... 12,003 17,300 20,479
------- ------- -------
Net reduction in interest income
and net interest income.............. $13,353 $13,576 $18,220
======= ======= =======
</TABLE>
ACCRUING LOANS PAST DUE 90 DAYS OR MORE
Accruing loans 90 days or more past due as to payment of interest or principal
for the five years ended December 31, 1994 were as follows (in thousands):
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
------- ------- ------- -------- --------
<S> <C> <C> <C> <C> <C>
Domestic........................... $53,104 $53,524 $95,866 $110,143 $147,218
------- ------- ------- -------- --------
Total............................ $53,104 $53,524 $95,866 $110,143 $147,218
======= ======= ======= ======== ========
</TABLE>
86
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SUPPLEMENTAL FIANNCIAL DATA: CONTINUED
CONSOLIDATED ALLOWANCE FOR LOAN LOSSES
The following table summarizes the distribution of loan charge-offs and
recoveries by type of loan for the five years ended December 31, 1994 (in
thousands):
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
Balance at beginning of year:
Domestic........................ $440,823 $432,267 $463,301 $495,775 $268,660
Foreign......................... 10,000 10,000 10,000 16,513 286,767
-------- -------- -------- -------- --------
450,823 442,267 473,301 512,288 555,427
-------- -------- -------- -------- --------
Allowance for loans purchased
at date of purchase:
Domestic..................... 23,763 2,703 1,028 6,146
-------- -------- -------- --------
Allowance for loans sold
at date of sale:
Domestic..................... - (14,700) (27,486) (657)
Foreign...................... (353) - - -
-------- -------- -------- --------
(353) (14,700) (27,486) (657)
-------- -------- -------- --------
Recoveries, by type of loan:
Domestic:
Commercial, industrial
and other.................. 25,893 45,207 25,865 26,636 30,853
Real estate................... 13,596 8,470 6,438 5,874 8,690
Consumer...................... 20,300 18,170 21,852 20,729 11,343
Financial institutions........ 654 2,246 2,776 1,966 1,607
Foreign......................... 2,616 12,645 13,138 26,586 17,110
-------- -------- -------- -------- --------
Total recoveries............. 63,059 86,738 70,069 81,791 69,603
-------- -------- -------- -------- --------
Charge-offs, by type of loan:
Domestic:
Commercial, industrial
and other................ 101,313 91,785 103,000 136,363 105,240
Real estate................... 126,189 59,191 69,896 99,650 87,074
Consumer...................... 56,371 49,941 71,585 130,981 92,996
Financial institutions........ 41 816 3,195 14,669 5,993
Foreign......................... - - 5 2,890 264,788
-------- -------- -------- -------- --------
Total loans charged off...... 283,914 201,733 247,681 384,553 556,091
-------- -------- -------- -------- --------
Total net charge-offs............ 220,855 114,995 177,612 302,762 486,488
-------- -------- -------- -------- --------
Provision charged to operating
expense:
Domestic........................ 239,516 133,493 173,383 321,470 460,436
Foreign......................... 7,384 (12,292)(a) (13,133)(a) (30,209)(a) (22,576)(a)
-------- -------- -------- -------- --------
246,900 121,201 160,250 291,261 437,860
-------- -------- -------- -------- --------
Balance at end of year:
Domestic........................ 480,631 440,823 432,267 463,301 495,775
Foreign......................... 20,000 10,000 10,000 10,000 16,513
-------- -------- -------- -------- --------
$500,631 $450,823 $442,267 $473,301 $512,288
======== ======== ======== ======== ========
RATIOS
Net charge-offs as a percentage
of average loans outstanding.... 1.13% .60% .94% 1.47% 2.23%
==== === === ==== ====
Allowance for loan losses as a
percentage of year-end loans.... 2.44% 2.28% 2.34% 2.44% 2.38%
==== ==== ==== ==== ====
</TABLE>
- ------------------------------------
(a) Reflects reallocation of the foreign allowance for loan losses to the
domestic allowance for loan losses.
87
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SUPPLEMENTAL FIANNCIAL DATA: CONTINUED
DISTRIBUTION OF ALLOWANCE FOR LOAN LOSSES (a)
The distribution of the allowance for loan losses and the percentage of such
distributions to each loan type for the five years ended December 31, 1994 is
illustrated in the table below (in millions):
December 31,
<TABLE>
<CAPTION>
1994 1993 1992 1991
------------------- ------------------- ------------------- -------------------
% % % %
of Loan of Loan of Loan of Loan
Allowance type Allowance type Allowance type Allowance type
--------- -------- --------- -------- --------- -------- --------- --------
Loan type
- ---------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Domestic:
Commercial and industrial.. $212.9 2.3% $208.3 2.5% $206.7 2.6% $238.1 3.0%
Real estate:
Construction............. 55.9 16.9 69.0 18.8 94.7 18.9 88.0 11.7
Other.................... 79.9 1.3 63.4 1.0 36.9 .6 45.5 .7
Consumer................. 101.9 3.7 83.1 3.3 73.8 3.2 79.6 2.9
Other domestic loans..... 30.0 2.2 17.0 1.1 20.2 1.5 12.1 .8
Foreign...................... 20.0 3.4 10.0 1.8 10.0 2.5 10.0 2.6
------ ------ ------ ------
Total.................... $500.6 2.4% $450.8 2.3% $442.3 2.3% $473.3 2.4%
====== ==== ====== ==== ====== ==== ====== ====
1990
-------------------
%
of Loan
Allowance type
---------- --------
Loan type
- ---------
<S> <C> <C>
Domestic:
Commercial and industrial.. $173.2 2.1%
Real estate:
Construction............. 134.3 13.2
Other.................... 65.3 1.1
Consumer................. 111.0 2.8
Other domestic loans..... 12.0 .7
Foreign...................... 16.5 3.6
------
Total.................... $512.3 2.4%
====== ====
- ----------------------------------
</TABLE>
(a) This distribution is made for analytical purposes. It does not represent
specific allocations of the allowance. The total allowance is available to
absorb losses from any segment of the portfolio.
COMMERCIAL CERTIFICATES OF DEPOSIT OVER $100,000 ISSUED BY DOMESTIC OFFICES
<TABLE>
<CAPTION>
(in thousands)
December 31,
--------------------------------------------------
1994 1993
----------------- -----------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C> <C> <C> <C>
MATURITY DISTRIBUTION
3 months or less....................... $225,348 84.0% $205,582 69.5%
3 through 6 months..................... 24,016 8.9 47,010 15.9
6 through 12 months.................... 16,432 6.1 16,884 5.7
Over 12 months......................... 2,606 1.0 26,359 8.9
------- --- -------- -----
Total............................... $268,402 100.0% $295,835 100.0%
======= ====== ======== =====
</TABLE>
88
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA: CONTINUED
INTEREST SENSITIVITY ANALYSIS AT DECEMBER 31, 1994
(in millions)
<TABLE>
<CAPTION>
Rate Maturity Period
-------------------------------------------------------------------
1-90 91-181 182-365 1-2 2-5 > 5
Days Days Days Years Years Years Total
------- ------- -------- ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Federal funds sold, resale agreements and trading
account securities.............................. $ 733 $ 733
Time deposits...................................... 853 $ 620 $ 255 $ 22 1,750
Investment securities.............................. 604 353 559 555 $ 631 $ 179 2,881
Interest rate swaps................................ 1,229 378 742 2,163 2,717 1,005 8,234
Asset financial futures............................ 25 199 305 - - - 529
------- ------- -------- ------ ------- ------- -------
Total discretionary assets.................... 3,444 1,550 1,861 2,740 3,348 1,184 14,127
Total loans(a)..................................... 13,847 1,554 1,176 1,420 2,061 468 20,526
------- ------- -------- ------ ------- ------- -------
Total earning assets............................... 17,291 3,104 3,037 4,160 5,409 1,652 34,653
------- ------- -------- ------ ------- ------- -------
FUNDING SOURCES
Federal funds purchased, repurchase
agreements and other short-term funds
borrowed........................................ 1,538 7 1 1,546
Domestic and foreign time deposits(b).............. 1,300 26 17 8 1 25 1,377
Long-term debt..................................... 1,024 32 37 54 7 637 1,791
Interest rate swaps................................ 7,258 306 134 300 141 95 8,234
Liability financial futures........................ 359 170 - - - - 529
------- ------- -------- ------ ------- ------- -------
Total discretionary liabilities............... 11,479 541 189 362 149 757 13,477
------- ------- -------- ------ ------- ------- -------
Savings certificates............................... 1,159 1,023 1,130 1,231 521 280 5,344
Money market, savings and NOW accounts(c).......... 2,177 788 1,242 1,952 2,798 - 8,957
Net non-interest bearing funds(d)(e)............... 2,847 - - - - 4,028 6,875
------- ------- -------- ------ ------- ------- -------
Total savings certificates and indefinite
maturity liabilities.......................... 6,183 1,811 2,372 3,183 3,319 4,308 21,176
------- ------- -------- ------ ------- ------- -------
Total net funding sources.......................... 17,662 2,352 2,561 3,545 3,468 5,065 34,653
------- ------- -------- ------ ------- ------- -------
Period gap......................................... (371) 752 476 615 1,941 (3,413) -0-
Cumulative gap..................................... (371) 381 857 1,472 3,413 - -0-
Adjustments(f)..................................... 493 (881) (492) (642) (1,934) 3,456 -0-
------- ------- -------- ------ ------- ------- -------
Adjusted period gap................................ $ 122 $ (129) $ (16) $ (27) $ 7 $ 43 $ -0-
======= ======= ======== ====== ======= ======= =======
Cumulative gap..................................... $ 122 $ (7) $ (23) $ (50) $ (43) $ -0- $ -0-
======= ======= ======== ====== ======= ======= =======
</TABLE>
Notes to interest sensitivity analysis:
(a) Non-performing loans are included in 1-90 days.
(b) Deposit volumes exclude time deposits not at interest.
(c) Adjustments to the interest sensitivity of savings and NOW account balances
reflect managerial assumptions based on historical experience, simulation
results as to the behavior of both the balances and rates on these products
in potential future rate environments and CoreStates' intent for positioning
these products.
(d) Net non-interest bearing funds is the sum of non-interest bearing
liabilities and shareholders' equity minus non-interest earning assets.
(e) The estimated volume of stable net non-interest bearing funds is allocated
to the over 1 year interest sensitivity period. Allocations to the under 1
year periods include: estimated volumes that are expected to vary inversely
with interest rates; and the temporary difference between the actual volume
of total net non-interest bearing funds on December 31, 1994 and the trend
volume at the current level of interest rates.
(f) Adjustments reflect managerial assumptions as to the appropriate investment
maturities for non-interest bearing funding sources, along with the funding
of current investment and loan commitments.
89
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA: CONTINUED
LOAN MATURITY AND INTEREST SENSITIVITY, NET OF UNEARNED DISCOUNTS
The contractual loan maturity of loans outstanding at December 31, 1994 was as
follows (in thousands):
<TABLE>
<CAPTION>
Due after one
Due in one year through Due after
year or less five years five years Total
------------ ------------- ---------- -----------
<S> <C> <C> <C> <C>
Commercial, industrial and other loans........ $6,803,080 $1,558,919 $ 326,734 $ 8,688,733
---------- ---------- ---------- -----------
Real estate loans:
Construction and development................ 186,468 133,044 11,857 331,369
Other, primarily permanent commercial
mortgages................................. 866,743 1,195,932 1,037,810 3,100,485
---------- ---------- ---------- -----------
Total real estate loans................. 1,053,211 1,328,976 1,049,667 3,431,854
---------- ---------- ---------- -----------
Loans to financial institutions:
Domestic commercial banks and bank holding
companies................................. - 8,170 750 8,920
Other....................................... 491,985 135,806 31,408 659,199
---------- ---------- ---------- -----------
Total loans to financial institutions..... 491,985 143,976 32,158 668,119
---------- ---------- ---------- -----------
Factoring receivables......................... 622,380 - - 622,380
---------- ---------- ---------- -----------
Lease financing............................... 6,489 57,379 - 63,868
---------- ---------- ---------- -----------
Foreign loans................................. 549,178 28,996 6,089 584,263
---------- ---------- ---------- -----------
Total loans (excluding loans to
individuals)(a)......................... $9,526,323 $3,118,246 $1,414,648 $14,059,217
========== ========== ========== ===========
</TABLE>
- ---------------------------------
(a) Loans due after one-year totalling $2,711,939 have fixed interest rates.
The remaining 40% of such loans or $1,820,955 have floating or adjustable
rates.
90
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA: CONTINUED
INVESTMENT SECURITIES
(in thousands)
CARRYING VALUE AT DECEMBER 31,
<TABLE>
<CAPTION>
1994(a) 1993(a) 1992
---------- ---------- ----------
<S> <C> <C> <C>
U.S. Treasury.................................... $ 914,009 $ 972,076 $ 887,055
U.S. Government agencies and
corporations.................................... 1,246,780 1,767,212 1,848,837
State and municipal.............................. 306,117 356,438 419,303
Other............................................ 413,725 503,440 433,153
---------- ---------- ----------
$2,880,631 $3,599,166 $3,588,348
========== ========== ==========
</TABLE>
- ------------------------------------
(a) Held-to-maturity and available-for-sale portfolios combined.
MATURITY DISTRIBUTION AND WEIGHTED AVERAGE YIELD AT DECEMBER 31, 1994(a)
<TABLE>
<CAPTION>
U.S. Government Total
Agencies and State and ------------------
U.S. Treasury Corporations Municipal Other Amount Yield(b)
------------- --------------- --------- ---------- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
1 year or less................................... $502,621 $ 537,409 $ 56,644 $ 20,892 $1,117,566 4.80%
1 year through 5 years........................... 387,569 509,096 185,780 94,052 1,176,497 6.28
5 years through 10 years......................... 23,779 79,684 29,871 88,100 221,434 6.53
After 10 years................................... 40 120,591 33,822 210,681 365,134 8.21
-------- ---------- -------- ---------- ----------
$914,009 $1,246,780 $306,117 $ 413,725 $2,880,631 5.97
======== ========== ======== ========== ==========
</TABLE>
- ------------------------------------
(a) Held-to-maturity and available-for-sale portfolios combined.
(b) The weighted average yield has been computed on a tax equivalent basis using
an effective tax rate of 35%. The amount of the tax equivalent adjustment by
range of maturity is as follows: 1 year or less - $1,412; 1 year to 5 years -
$5,396; 5 years to 10 years - $861 and after 10 years - $2,276.
91
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA: CONTINUED
FOURTH QUARTER RESULTS
CoreStates recorded net income of $111.5 million or $.78 per share in the
fourth quarter of 1994, compared to $94.7 million or $.65 per share for
the same period in 1993. Returns on average assets and average
shareholders' equity for the fourth quarter of 1994 were 1.60% and 19.50%,
respectively, compared to 1.35% and 16.47%, respectively, in the 1993
fourth quarter.
The 20.0% increase in fourth quarter net income per share was principally
attributable to: a $25.8 million, or 7.7% improvement in net interest
income reflecting an increase in the net interest margin mostly due to
increases in average credit card outstandings and asset-based loans; a
$4.6 million reduction in the provision for losses on loans, mostly due to
improved credit quality including a 12.8% reduction in non-performing
assets during the fourth quarter; and a $10.0 million, or 3.1%, decline in
non-financial expenses. The net financial margin for the fourth quarter
of 1994 was 5.89%, compared to 5.55% for the prior year fourth quarter.
Average loans outstanding for the fourth quarter of 1994 were $19.8
billion, up 2.3% from the prior year fourth quarter.
Excluding the impact of securities gains, non-interest income for the
fourth quarter of 1994 grew 2.8% over the fourth quarter of 1993. Non-
interest income for the fourth quarter of 1994 reflects minimal growth in
revenues from CoreStates' fee-based businesses as a $2.5 million, or
14.0%, increase in fees for international services and a $1.3 million, or
8.0% increase in debit and credit card fees were mostly offset by a $2.5
million, or 5.4% decline in service charges on deposits. The decline in
service charges on deposits reflects the decision by commercial customers
to maintain deposit balances with CoreStates in lieu of paying cash for
transaction services. The value of these deposit balances is included in
net interest income. Investment securities gains in the fourth quarter of
1994 were $4.6 million, compared to $10.6 million in the prior year fourth
quarter.
Non-financial expenses for the fourth quarter of 1994 totaled $306.7
million, a decrease of 3.1% from the fourth quarter of 1993. CoreStates'
total non-financial expenses, excluding other real estate owned expenses,
as a percentage of total revenues were 59.7%, compared to 63.2% for the
prior year fourth quarter. The decline in non-financial expenses reflects
some progress toward achieving efficiencies from recent acquisitions and
the heightened attention to expense management created by the process
redesign program initiated in September 1994 (see "Strategic Actions in
1994" beginning on page 5 of Management's Discussion and Analysis of
Financial Condition and Results of Operations).
92
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA: CONTINUED
FOURTH QUARTER RESULTS: Continued
<TABLE>
<CAPTION>
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(in thousands, except per share amounts)
Three Months Ended
December 31,
------------------
1994 1993
-------- --------
<S> <C> <C>
Interest income and fees...................................... $517,956 $457,021
Interest expense.............................................. 158,709 123,601
-------- --------
Net interest income....................................... 359,247 333,420
Provision for losses on loans................................. 25,000 29,646
-------- --------
Net interest income after provision for losses on loans... 334,247 303,774
Non-interest income........................................... 146,261 148,428
Non-financial expenses........................................ 306,703 316,656
-------- --------
Income before income taxes.................................... 173,805 135,546
Provision for income taxes.................................... 62,330 40,870
-------- --------
Net income.................................................... $111,475 $ 94,676
======== ========
PER COMMON SHARE DATA
(Based on weighted average shares of 142.252 million in 1994
and 145.372 million in 1993):
Net income.................................................... $ .78 $ .65
===== =====
Cash dividends declared....................................... $ .34 $ .30
===== =====
</TABLE>
93
<PAGE>
CoreStates Financial Corp and Subsidiaries
Supplemental Financial Data: Continued
CONSOLIDATED AVERAGE BALANCE SHEET AND TAXABLE EQUIVALENT INCOME/EXPENSE AND
RATES
<TABLE>
<CAPTION>
THREE MONTHS ENDED December 31, 1994 September 30, 1994 December 31, 1993
----------------------------- ------------------------------ -----------------------------
Average Income/ Average Income/ Average Income/
balance Rate expense balance Rate expense balance Rate expense
------- --------- -------- -------- --------- --------- -------- --------- ---------
(000,000) (000) (000,000) (000) (000,000) (000)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INTEREST EARNING ASSETS
Time deposits, principally
Eurodollars (a)..................... $ 1,722 4.95% $ 21,478 $ 1,562 4.72% $ 18,566 $ 1,185 3.46% $ 10,323
Investment securities(b):
U.S. Government.................... 2,147 5.49 29,706 2,166 4.85 26,489 2,713 5.26 35,996
State and municipal................ 330 6.97 5,749 344 8.15 7,012 381 8.34 7,944
Other.............................. 363 7.18 6,571 381 5.78 5,546 403 3.77 3,831
------- -------- ------- -------- ------- --------
Total investment
securities.............. 2,840 5.87 42,026 2,891 5.36 39,047 3,497 5.42 47,771
Federal funds sold................... 224 5.26 2,972 76 5.90 1,130 308 2.95 2,293
Trading account securities........... 3 5.20 39 3 8.13 61 2 5.60 28
Loans (b)(c)(d):
Domestic:
Commercial, industrial and other. 8,490 9.34 199,854 8,274 8.83 184,141 7,608 8.05 154,395
Real estate...................... 5,977 8.20 123,590 6,037 7.98 121,447 6,528 7.59 124,899
Consumer......................... 2,701 11.96 81,419 2,556 11.99 77,235 2,546 12.09 77,568
Financial institutions........... 637 7.76 12,455 612 8.12 12,524 762 6.03 11,574
Factoring receivables............ 631 9.67 15,376 577 10.30 14,986 614 8.55 13,233
Lease financing.................. 703 8.01 14,085 786 8.38 16,458 711 8.61 15,297
Foreign............................ 640 6.10 9,845 596 5.17 7,765 572 4.69 6,766
------- -------- ------- -------- ------- --------
Total loans, net of
discounts............... 19,779 9.16 456,624 19,438 8.87 434,556 19,341 8.28 403,732
------- -------- ------- -------- ------- --------
Total interest earning
assets (d).............. $24,568 8.45 523,139 $23,970 8.17 493,360 $24,333 7.57 464,147
======= -------- -------- ======= -------- -------- ======= -------- --------
FUNDING SOURCES
Interest bearing liabilities(b):
Deposits in domestic offices (e):
Commercial....................... $ 265 4.22 2,819 $ 260 3.56 2,330 $ 400 3.78 3,815
NOW accounts..................... 1,786 .94 3,876 1,771 .72 2,917 1,820 .79 3,300
Money Market Accounts............ 3,749 2.19 20,686 3,848 2.10 20,305 4,146 2.12 22,161
Consumer savings................. 2,957 2.21 16,472 3,014 1.37 10,437 2,989 1.35 10,140
Consumer certificates............ 4,798 4.53 54,815 4,278 4.23 45,639 4,252 4.31 46,214
Time deposits of overseas branches
and subsidiaries.................. 901 3.37 7,650 820 3.91 8,074 707 2.28 4,059
------- -------- ------- -------- ------- --------
Total interest bearing
deposits................ 14,456 2.95 106,318 13,991 2.57 89,702 14,314 2.52 89,689
Short-term funds borrowed:
Federal funds purchased.......... 591 4.75 7,076 984 4.61 11,424 1,010 3.21 8,166
Commercial paper................. 878 4.82 10,675 825 4.54 9,442 554 3.14 4,387
Other............................ 234 7.81 4,604 280 3.26 2,303 316 7.60 6,052
------- -------- ------- -------- ------- --------
Total short-term funds
borrowed................ 1,703 5.21 22,355 2,089 4.40 23,169 1,880 3.93 18,605
Long-term debt (f)................. 1,769 6.74 30,036 1,640 5.66 23,416 1,534 3.96 15,307
------- -------- ------- -------- ------- --------
Total interest bearing
liabilities............. 17,928 3.51 158,709 17,720 3.05 136,287 17,728 2.77 123,601
Portion of non-interest bearing
funding
sources............................ 6,640 6,250 6,605
------- ------- -------
Total funding sources.... $24,568 2.56 158,709 $23,970 2.26 136,287 $24,333 2.02 123,601
======= -------- -------- ======= -------- -------- ======= -------- --------
Net interest income and net interest
margin.............................. 5.89% $364,430 5.91% $357,073 5.55% $340,546
======== ======== ======== ======== ======== ========
</TABLE>
(a)Yields and income on time deposits include net Eurodollar trading
profits.
(b)The net impact of interest rate swaps is recognized as an adjustment to
interest income or expense of the related hedged asset or liability.
(c)Yields and income on loans include fees on loans.
(d)Non-performing loans are included in interest earning assets.
(e)Average balances on time deposits in domestic offices are reduced by
specified reserve amounts for purposes of rate calculations.
(f)Rates on long-term debt are based on average balances excluding average
capital lease obligations.
94
<PAGE>
CoreStates Financial Corp and Subsidiaries
Supplemental Financial Data: Continued
CONSOLIDATED AVERAGE BALANCE SHEET AND TAXABLE EQUIVALENT INCOME/EXPENSE AND
RATES
<TABLE>
<CAPTION>
THREE MONTHS ENDED December 31, 1994 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................................ $ 2,061 $ 2,286
Allowance for loan losses........... (489) (482)
Other assets........................ 1,435 1,708
--------- ---------
Total non-interest
earning assets $ 3,007 $ 3,512
========= =========
NON-INTEREST BEARING FUNDING SOURCES
Demand deposits:
Domestic.......................... $ 5,577 $ 5,711
Foreign........................... 452 431
Other liabilities................... 1,350 1,434
Shareholders' equity................ 2,268 2,186
Non-interest bearing funding
sources used to fund
earning assets.................... (6,640) (6,250)
--------- ---------
Total net non-interest
bearing funding
sources............... $ 3,007 $ 3,512
========= =========
SUPPLEMENTARY AVERAGES
Net demand deposits................. $ 4,679 $ 4,357
Net Federal funds purchased......... 367 4.44% $4,104 908 4.50% $10,294
Commercial certificates of deposit
in domestic
offices over $100,000............. 261 4.15 2,729 260 3.55 2,325
Average prime rate.................. 8.13 7.50
THREE MONTHS ENDED December 31, 1993
-------------------------------
Average Income/
balance Rate expense
---------- ------- ---------
(000,000) (000)
<S> <C> <C> <C>
NON-INTEREST EARNING ASSETS
Cash................................ $ 2,289
Allowance for loan losses........... (460)
Other assets........................ 1,566
---------
Total non-interest
earning assets $ 3,395
=========
NON-INTEREST BEARING FUNDING SOURCES
Demand deposits:
Domestic.......................... $ 5,918
Foreign........................... 377
Other liabilities................... 1,425
Shareholders' equity................ 2,280
Non-interest bearing funding
sources used to fund
earning assets.................... (6,605)
---------
Total net non-interest
bearing funding
sources............... $ 3,395
=========
SUPPLEMENTARY AVERAGES
Net demand deposits................. $ 4,651
Net Federal funds purchased......... 702 3.32% $5,873
Commercial certificates of deposit
in domestic
offices over $100,000............. 347 3.74 3,274
Average prime rate.................. 6.00
</TABLE>
95
<PAGE>
CoreStates Financial Corp and Subsidiaries
GRAPHICS APPENDIX LIST TO EXHIBIT 13
Narrative description of graphs from the Management's Discussion and Analysis of
Financial Condition and Results of Operations:
EDGAR VERSION TYPESET VERSION
- ------------- ---------------
Page 12 contains the plotting points for the Page 15
AVERAGE COMMON EQUITY TO ASSETS GRAPH The Average Common Equity to
Assets graph is a five year,
vertical bar graph with the
years 1990, 1991, 1992, 1993 and
1994 listed along the x axis.
Lines numbering 0 to 9 are drawn
along they y axis and represent,
in percent, the average common
equity to assets ratio. There
are 2 bars for each year: the
first representing the
CoreStates ratio and the second
representing the Montgomery
Securities Regional Bank
Composite Index ratio.
Page 15 contains the plotting points for the Page 16
WHOLESALE LOANS BY INDUSTRY GRAPH The Wholesale Loans by Industry
graph is a horizontal bar graph
with 9 wholesale loan industries
listed down the y axis. One bar
extends out from each industry,
parallel to the x axis and
represents the industry's
December 31, 1994 loan
outstandings as a percentage of
December 31, 1994 equity. A
second bar is overlayed on top
of the first bar and represents
the percentage of the industry's
loan outstandings that are
non-performing.
Page 27 contains the plotting points for the Page 22
NET INTEREST MARGIN GRAPH The Net Interest Margin graph is
a five year, vertical bar graph
with the years 1990, 1991, 1992,
1993 and 1994 listed along the x
axis. Lines numbering 0 to 6 are
drawn along the y axis and
represent, in percent, the net
interest margin. There are
2 bars for each year: the first
representing the CoreStates
margin and the second
representing the Montgomery
Securities Regional Bank
Composite Index margin.
96
<PAGE>
CoreStates Financial Corp and Subsidiaries
GRAPHICS APPENDIX LIST TO EXHIBIT 13 - (CONTINUED)
EDGAR VERSION TYPESET VERSION
- ------------- ---------------
Page 35 contains the plotting points for the Page 29
EARNING ASSET MIX GRAPH The Earning Asset Mix graph is a
five year, vertical bar graph
with the years 1990, 1991, 1992,
1993 and 1994 listed along the x
axis. One bar is drawn in each
year to represent 100% of
average earning assets. Each bar
is divided into three sections
along the y axis, representing
the percentage of average
earning assets comprised of: 1)
loans; 2) investment securities;
and 3) short-term money market
investments.
Page 36 contains the plotting points for the Page 29
FUNDING MIX GRAPH The Funding Mix graph is a five
year, vertical bar graph with
the years 1990, 1991, 1992,
1993, and 1994 listed along the
x axis. One bar is drawn in each
year to represent 100% of
average earning assets,
excluding short-term money
market investments. Each bar is
divided into three sections
along the y axis, representing
the percentage of : 1) retail
deposits; 2) other interest
bearing sources; and 3) non-
interest bearing sources to
average earning assets,
excluding short-term money
market investments.
Page 36 contains the plotting points for the Page 29
OPERATING REVENUE GRAPH The Operating Revenue graph is a
five year, vertical bar graph
with the years 1990, 1991, 1992,
1993 and 1994 listed along the x
axis. One bar is drawn in each
year to represent the total
dollar amount of operating
revenue (tax equivalent net
interest income plus non-
interest income) recorded, in
millions. Each bar is divided
into three sections along the y
axis, representing the dollar
amount of operating revenue
derived from: 1) loan and
investment related net interest
income; 2) net interest income
derived from non-credit
balances; and 3) non-interest
income.
97
<PAGE>
EXHIBIT 21
----------
List of Subsidiaries of CoreStates Financial Corp
-------------------------------------------------
as of December 31, 1994
-----------------------
<TABLE>
<S> <C> <C>
Congress Financial Corporation California 97%
Congress Credit Corporation New York 100%
Congress Financial Corporation Ontario 100%
(Canada)
Congress Financial Corporation Illinois 100%
(Central)
Congress Financial Corporation Florida 100%
(Florida)
Congress Financial Corporation Wisconsin 100%
(Midwest)
Congress Financial Corporation Massachusetts 100%
(New England)
Congress Financial Corporation Oregon 100%
(Northwest)
Congress Financial Corporation Georgia 100%
(Southern)
Congress Financial Corporation Texas 100%
(Southwest)
Congress Financial Corporation California 100%
(Western)
Congress Talcott Corporation Pennsylvania 100%
Congress Talcott Corporation California 100%
CoreStates Bank of Delaware, N.A. U.S.A. 100%
Synapsys Inc. Delaware 100%
CoreStates Bank, N.A. U.S.A. 100%
Clymer Realty Corporation Pennsylvania 100%
</TABLE>
<PAGE>
<TABLE>
<S> <C> <C>
CoreStates Bank International USA 100%
Philadelphia International Hong Kong 100%
Finance Co. - Hong Kong
Limited
Philadelphia National LTDA Brazil 100%/1/
CoreStates Dealer Services Corp Pennsylvania 100%
CoreStates Investment Advisers, Pennsylvania 100%
Inc.
CoreStates Mortgage Services Pennsylvania 100%
Corporation
DMR Realty Corp. Pennsylvania 100%
Fifth and Market Corporation Pennsylvania 100%
Financial Telesis, Inc. Delaware 100%
First Penco Realty Inc. Pennsylvania 100%
First Pennsylvania Financial Delaware 100%
Services, Inc.
Philadelphia International U.S.A. 100%
Investment Corporation
Established Holdings Limited England 100%
New World Development Bahamas 100%
Corporation Limited
New World Group Holdings Canada 37.5%
Limited
Philadelphia National England 100%
Limited
Philadelphia International Delaware 100%
Equities, Inc.
Heritable Group PLC England 50.01%
TI Remnaco, Inc. Canada 39.8%
Two APM Plaza, Inc. Delaware 89%
CoreStates Capital Corp Pennsylvania 100%
</TABLE>
___________________________
/1/Except for Brazilian resident quote shares
<PAGE>
<TABLE>
<S> <C> <C>
CoreStates Community Development Pennsylvania Board
Corporation, Inc. majority
Partnership Homes Pennsylvania 1/2 Board
membership
CoreStates Delaware Delaware 100%
CoreStates Export Trading Company Pennsylvania 100%
CoreStates Holdings, Inc. Delaware 100%
Electronic Payment Services, Inc. Delaware 20%/2/
BUYPASS Corporation Georgia 54%
Data NOW National Delaware 100%
Services, Inc.
Electronic Payment Service Delaware 100%
Corp
MONEY ACCESS SERVICE CORP Ohio 100%
Metroteller Security New York 100%
Corporation
Money Access Service Inc. Delaware 100%
CoreStates Securities Corp Pennsylvania 100%
First Bank of Philadelphia Pennsylvania 24.81%
First Pennsylvania Insurance Virginia 100%
Services, Inc.
Independence Investment Corp. Delaware 100%
Independence Life Insurance Arizona 100%
Company
Independence Resources, Inc. Pennsylvania 100%
</TABLE>
_______________________________
/2/The remaining interests are owned by Banc One Corporation, PNC
Financial Corp, KeyCorp and National City Corporation.
<PAGE>
<TABLE>
<S> <C> <C>
New Jersey National Corporation New Jersey 100%
New Jersey National Bank U.S.A. 100%
Badeal, Inc. New Jersey 100%
ABD Properties, Inc. Pennsylvania 100%
Citizens Investments Delaware 100%
of Delaware
Eagle 1851, Inc. New Jersey 100%
First Peoples Investment Co Delaware 100%
Mercer Development Co., Inc. New Jersey 100%
Pennamco, Inc., Delaware 100%
Pennco Life Insurance Company Arizona 100%
Princeton Life Insurance Company Pennsylvania 100%/3/
</TABLE>
_______________________
/3/Except for directors' qualifying shares
<PAGE>
EXHIBIT 23.1
------------
Consent of Independent Auditors
We consent to the incorporation by reference in the following registration
statements of our report dated February 7, 1995 with respect to the consolidated
financial statements of CoreStates Financial Corp incorporated by reference in
this Annual Report (Form 10-K) for the year ended December 31, 1994:
(a) The Registration Statement (Form S-8 No. 33-5874), in Post-Effective
Amendment No. 1 to the Registration Statement (Form S-8 No. 2-91176),
the Registration Statement (Form S-8 No. 33-28808) and in the related
prospectuses, each pertaining to the CoreStates Financial Corp Long-
Term Incentive Plan,
(b) The Registration Statement (Form S-8 No. 33-32934) and prospectus
relating to the CoreStates Savings Plan,
(c) The Registration Statement (Form S-8 No. 33-50324) pertaining to the
CoreStates Financial Corp 1992 Long-Term Incentive Plan,
(d) The Registration Statement (Form S-3 No. 33-57034) and prospectus and
prospectus supplement pertaining to $1,000,000,000 in aggregate amount
of Debt Securities issuable by CoreStates Capital Corp and the related
guarantees of the Corporation, and Preferred Stock, Depository Shares,
Common Stock, and Capital Securities, issuable by the Corporation,
(e) The Registration Statement (Form S-3 No. 33-54049) and prospectus and
prospectus supplement pertaining to $1,000,000,000 in aggregate amount
of Debt Securities and warrants issuable by CoreStates Capital Corp
and the related guarantees of the Corporation and Preferred Stock,
Depository Shares and Common Stock issuable by the Corporation,
(f) The Registration Statement (Form S-4 No. 33-7286) and prospectus
relating to shares of the Corporation Common Stock issuable upon the
exercise of stock options and Convertible Subordinated Debentures, the
obligations in respect to which were assumed by the Corporation in
connection with the acquisition of New Jersey National Corporation,
(g) The Registration Statement (Form S-4, as amended by Form S-8,
No. 33-31896) and prospectus relating to shares of the Corporation
Common Stock issuable upon the exercise of stock options and stock
appreciation rights and outstanding 5-1/2% Convertible Subordinated
Debentures, the obligations in respect to which were assumed by the
Corporation in connection with the acquisition of First Pennsylvania
Corporation,
(h) The Registration Statement (Form S-4, as amended by Form S-8,
No. 33-48422) and prospectus relating to shares of the Corporation
Common Stock issuable upon the exercise of stock options, the
obligations in respect to which were assumed by the Corporation in
connection with the acquisition of First Peoples Corporation,
(i) The Registration Statement (Form S-3, as amended by Post Effective
Amendment No. 1, No. 33-40717) and prospectus relating to shares of
the Corporation Common Stock issuable pursuant to the CoreStates
Dividend Reinvestment and Share Purchase Plan,
(j) The Registration Statement (Form S-4, as amended by Form S-8,
No. 33-51429) and prospectus relating to shares of the Corporation
Common Stock issuable upon the exercise of stock options, the
obligation in respect to which were assumed by the Corporation in
connection with the acquisition of Constellation Bancorp,
(k) The Registration Statement (Form S-4, as amended by Form S-8,
No. 33-53539) and prospectus relating to shares of the Corporation
Common Stock issuable upon the exercise of stock options, the
obligations in respect to which were assumed by the Corporation in
connection with the acquisition of Independence Bancorp, Inc., and
(l) The Registration Statement (Form S-4, as amended by Form S-8,
No. 33-55505) and prospectus relating to shares of the Corporation
Common Stock issuable upon the exercise of stock options, the
obligations in respect to which were assumed by the Corporation in
connection with the acquisition of Germantown Savings Bank.
/s/Ernst & Young LLP
Philadelphia, Pennsylvania
March 15, 1995
<PAGE>
EXHIBIT 23.2
------------
INDEPENDENT AUDITORS' CONSENT
We consent to the incorporation by reference in (a) the Registration Statement
(Form S-8 No. 33-5874), in Post-Effective Amendment No. 1 to the Registration
Statement (Form S-8 No. 2-91176), the Registration Statement (Form S-8
No. 33-28808) and in the related prospectuses, each pertaining to the CoreStates
Financial Corp Long-Term Incentive Plan, (b) the Registration Statement
(Form S-8 No. 33-32934) and prospectus relating to the CoreStates Savings Plan,
(c) the Registration Statement (Form S-8 No. 33-50324) pertaining to the
CoreStates Financial Corp 1992 Long-Term Incentive Plan, (d) the Registration
Statement (Form S-3 No. 33-57034) and prospectus and prospectus supplement
pertaining to $1,000,000,000 in aggregate amount of Debt Securities issuable by
CoreStates Capital Corp and the related guarantees of the Corporation, and
Preferred Stock, Depository Shares, Common Stock, and Capital Securities,
issuable by the Corporation, (e) the Registration Statement (Form S-3
No. 33-54049) and prospectus supplement pertaining to $1,000,000,000 in
aggregate amount of Debt Securities and warrants issuable by CoreStates Capital
Corp and the related guarantees of the Corporation and Preferred Stock,
Depository Shares and Common Stock issuable by the Corporation, (f) the
Registration Statement (Form S-4 No.33-7286) and prospectus relating to shares
of the Corporation Common Stock issuable upon the exercise of stock options and
Convertible Subordinated Debentures, the obligations in respect to which were
assumed by the Corporation in connection with the acquisition of New Jersey
National Corporation, (g) the Registration Statement (Form S-4, as amended by
Form S-8, No. 33-31896) and prospectus relating to shares of the Corporation
Common Stock issuable upon the exercise of stock options and stock appreciation
rights and outstanding 5-1/2% Convertible Subordinated Debentures, the
obligation in respect to which were assumed by the Corporation in connection
with the acquisition of First Pennsylvania Corporation, (h) the Registration
Statement (Form S-4, as amended by Form S-8, No. 33-48422) and prospectus
relating to shares of the Corporation Common Stock issuable upon the exercise of
stock options, the obligations in respect to which were assumed by the
Corporation in connection with the acquisition of First Peoples Corporation, (i)
the Registration Statement (Form S-3, as amended by Post Effective Amendment
No.1, No. 33-40717) and prospectus relating to shares of the Corporation Common
Stock issuable pursuant to the CoreStates Dividend Reinvestment and Share
Purchase Plan, (j) the Registration Statement (Form S-4, as amended by Form S-8,
No. 33-51429) and prospectus relating to shares of the Corporation Common Stock
issuable upon the exercise of stock options, the obligation in respect to which
were assumed by the Corporation in connection with the acquisition of
Constellation Bancorp, (k) the Registration Statement (Form S-4, as amended by
Form S-8, No. 33-53539) and prospectus relating to shares of the Corporation
Common Stock issuable upon the exercise of stock options, the obligations in
respect to which were assumed by the Corporation in connection with the
acquisition of Independence Bancorp, Inc., and (l) the Registration Statement
(Form S-4, as amended by Form S-8, No. 33-55505) and prospectus relating to
shares of the Corporation Common Stock issuable upon the exercise of stock
options, the obligations in respect to which were assumed by the Corporation in
connection with the acquisition of Germantown Savings Bank of our report dated
March 16, 1994, except as to the third paragraph of Note 1 and the last
paragraph of Note 16 which are as of July 19, 1994 relating to the consolidated
statement of condition of Constellation Bancorp and subsidiaries as of December
31, 1993, and the related consolidated statements of operations, changes in
shareholders' equity and cash flows for each of the years in the two-year period
ended December 31, 1993, which report appears in the 1994 Annual Report on Form
10-K of CoreStates Financial Corp. Our report refers to a restatement of the
1993 financial statements to remove certain merger-related charges, and to a
change in accounting for postretirement benefits, other than pensions, income
taxes, and certain investments in debt and equity securities in 1993. The
financial statements referred to above are not separately presented in such
report on Form 10-K.
/s/KPMG Peat Marwick LLP
Short Hills, New Jersey
March 13, 1995
<PAGE>
EXHIBIT 23.3
------------
CONSENT OF INDEPENDENT ACCOUNTANTS
We consent to the incorporation by reference in (a) the Registration Statement
on Form S-8 (No. 33-5874), the Post-Effective Amendment No. 1 to the
Registration Statement on Form S-8 (No. 2-91176), the Registration Statement on
Form S-8 (No. 33-28808) and in the related prospectuses, each pertaining to the
CoreStates Financial Corp Long-Term Incentive Plan, (b) the Registration
Statement on Form S-8 (No. 33-32934) and prospectus relating to the CoreStates
Savings Plan, (c) the Registration Statement on Form S-8 (No. 33-50324)
pertaining to the CoreStates Financial Corp 1992 Long-Term Incentive Plan, (d)
the Registration Statement on Form S-3 (No. 33-57034) and related prospectus and
prospectus supplements pertaining to $1,000,000,000 in aggregate amount of Debt
Securities issuable by CoreStates Capital Corp and the related guarantees of the
Corporation, and Preferred Stock, Depository Shares, Common Stock and Capital
Securities issuable by the Corporation, (e) the Registration Statement on Form
S-3 (No. 33-54049) and the related prospectus and prospectus supplements
pertaining to $1,000,000,000 in aggregate amount of Debt Securities and warrants
issuable by CoreStates Capital Corp and the related guarantees of the
Corporation and Preferred Stock, Depository Shares and Common Stock issuable by
the Corporation, (f) the Registration Statement on Form S-4 (No. 33-7286) and
prospectus relating to shares of the Corporation Common Stock issuable upon the
exercise of stock options and Convertible Subordinated Debentures, the
obligations in respect to which were assumed by the Corporation in connection
with the acquisition of New Jersey National Corporation, (g) the Registration
Statement on Form S-4, as amended by Form S-8 (No. 33-31896) and prospectus
relating to shares of the Corporation Common Stock issuable upon the exercise of
stock options and common stock appreciation rights and outstanding 5-1/2%
Convertible Subordinated Debentures, the obligations in respect to which were
assumed by the Corporation in connection with the acquisition of First
Pennsylvania Corporation, (h) the Registration Statement on Form S-4, as amended
by Form S-8 (No. 33-48422) and prospectus relating to shares of the Corporation
Common Stock issuable upon the exercise of stock options, the obligation in
respect to which were assumed by the Corporation in connection with the
acquisition of First Peoples Corporation, (i) the Registration Statement on Form
S-4, as amended by Form S-8 (No. 33-51429) and prospectus relating to shares of
the Corporation Common Stock issuable upon the exercise of stock options, the
obligation in respect to which were assumed by the Corporation in connection
with the acquisition of Constellation Bancorp, (j) the Registration Statement on
Form S-4, as amended by Form S-8 (No. 33-53539) and prospectus relating to
shares of the Corporation Common Stock issuable upon the exercise of stock
options, the obligation in respect to which were assumed by the Corporation in
connection with the acquisition of Independence Bancorp, Inc., (k) the
Registration Statement on Form S-4, as amended by Form S-8 (No. 33-55505) and
prospectus relating to shares of the Corporation Common Stock issuable upon the
exercise of stock options, the obligation in respect to which were assumed by
the Corporation in connection with the acquisition of Germantown Savings Bank,
and (l) the Registration Statement on Form S-3 (No. 33-40717) and prospectus
relating to shares of the Corporation Common Stock issuable pursuant to the
CoreStates Dividend Reinvestment and Share Purchase Plan, of our report, which
includes an explanatory paragraph related to changes in the method of accounting
for investments in 1993 and method of accounting for income taxes in 1992, dated
January 19, 1994, on our audit of the consolidated financial statements of
Independence Bancorp, Inc. as of December 31, 1993 and for the years ended
December 31, 1993 and 1992, incorporated by reference in CoreStates Annual
Report on Form 10-K for the year ended December 31, 1994.
/s/Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
March 13, 1995
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
CoreStates Financial Corp consolidated balance sheet as of December 31, 1994,
and the related consolidated statement of income, changes in shareholders'
equity, and other supplemental financial data included within management's
discussion and analysis of financial condition and results of operations for the
year ended December 31, 1994 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> $ 2,262,512
<INT-BEARING-DEPOSITS> 1,750,458
<FED-FUNDS-SOLD> 731,820
<TRADING-ASSETS> 1,206
<INVESTMENTS-HELD-FOR-SALE> 426,047
<INVESTMENTS-CARRYING> 2,454,584
<INVESTMENTS-MARKET> 2,423,830
<LOANS> 20,526,216
<ALLOWANCE> 500,631
<TOTAL-ASSETS> 29,325,136
<DEPOSITS> 22,040,886
<SHORT-TERM> 1,546,201
<LIABILITIES-OTHER> 1,260,722
<LONG-TERM> 1,791,110
<COMMON> 145,878
0
0
<OTHER-SE> 2,204,236
<TOTAL-LIABILITIES-AND-EQUITY> 29,325,136
<INTEREST-LOAN> 1,698,350
<INTEREST-INVEST> 156,931
<INTEREST-OTHER> 74,246
<INTEREST-TOTAL> 1,929,527
<INTEREST-DEPOSIT> 364,858
<INTEREST-EXPENSE> 540,158
<INTEREST-INCOME-NET> 1,389,369
<LOAN-LOSSES> 246,900
<SECURITIES-GAINS> 18,753
<EXPENSE-OTHER> 1,317,561
<INCOME-PRETAX> 392,448
<INCOME-PRE-EXTRAORDINARY> 248,792
<EXTRAORDINARY> 0
<CHANGES> (3,430)
<NET-INCOME> 245,362
<EPS-PRIMARY> 1.73
<EPS-DILUTED> 1.73
<YIELD-ACTUAL> 5.80
<LOANS-NON> 244,564
<LOANS-PAST> 53,104
<LOANS-TROUBLED> 1,657
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 450,823
<CHARGE-OFFS> 283,914
<RECOVERIES> 63,059
<ALLOWANCE-CLOSE> 500,631
<ALLOWANCE-DOMESTIC> 480,631
<ALLOWANCE-FOREIGN> 20,000
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
<PAGE>
EXHIBIT 99.1
------------
The undertaking set forth below is filed for purposes of incorporation by
reference into Part II of the registration statements on Form S-8, File Nos. 33-
28808, 33-5874, 33-32934 and 33-50324.
ITEM 9. UNDERTAKINGS.
- ------- ------------
(a) The undersigned registrant hereby undertakes:
Insofar as indemnification for liabilities rising under the Securities
Act of 1933 (the "Securities Act") may be permitted to directors,
officers or persons controlling the registrant pursuant to the
provisions described in this registration statement, or otherwise,
CoreStates Financial Corp (the "Company") has been advised that in the
opinion of the Commission such indemnification is against public
policy as expressed in the Securities Act and is therefore
unenforceable. In the event that a claim for indemnification against
such liabilities (other than the payment by the Company of expenses
incurred or paid by a director, officer or controlling person of the
Company in the successful defense of any action, suit or proceeding)
is asserted by such director, officer or controlling person in
connection with the securities being registered, the Company will,
unless in the opinion of its counsel the matter has been settled by
controlling precedent, submit to a court of appropriate jurisdiction
the question whether such indemnification by it is against public
policy as expressed in the Securities Act and will be governed by the
final adjudication of such issue.
