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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, 1995
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
Common Stock, $1.00 par value The Philadelphia 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 February 29, 1996 was approximately
$5,941,147,333. 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 February 29, 1996 was 138,566,547.
DOCUMENTS INCORPORATED BY REFERENCE
1. Annual Report to Shareholders for the fiscal year ended December 31, 1995,
portions of which are incorporated by reference in Parts I, II and IV 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, 1995,
CoreStates had total consolidated assets of approximately $29.6 billion and
shareholders' equity of approximately $2.4 billion, and, based on December 31,
1995 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. On October 10, 1995, CoreStates entered into a definitive agreement
to acquire Meridian Bancorp, Inc. ("Meridian"). See "Strategic Actions" on
page 5 of this Form 10K Annual Report. Assuming the consummation of this
transaction which is subject to various regulatory approvals, CoreStates will
have total consolidated assets of approximately $46.0 billion and shareholders'
equity of approximately $3.9 billion, and based on December 31, 1995 rankings of
bank holding companies by consolidated total assets, would be approximately the
20th largest bank holding company in the United States had the consummation of
the transaction taken place on 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. 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
executive 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
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teller machine network and point of sale processing businesses.
CoreStates has received approval from the Office of the Comptroller of the
Currency ("OCC") to relocate the head office of NJNB from Ewing Township, New
Jersey, to Philadelphia, Pennsylvania, to merge NJNB into CoreStates Bank and to
establish a branch of the resulting bank at the present location of the head
office of NJNB. It is anticipated that the relocation and merger will take
place in 1996. 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, 1995, the Banking Subsidiaries operated from 334 full
service offices located in eastern and central Pennsylvania and New Jersey and
one office located in Delaware. CoreStates Delaware, N.A. operated from one
office located in Delaware. CoreStates Bank also operates from five foreign
branch offices and twenty 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, 1995, factored receivables of Congress and its
subsidiaries totaled $557 million while outstanding commercial finance
obligations and other receivables totaled $2,068 million.
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, 1995, Capital had outstanding commercial
paper in the aggregate principal amount of $1,216 million and debt securities in
the aggregate outstanding principal amount of $1,657 million, with remaining
maturities ranging from 1 month to 9.25 years.
CoreStates Delaware, N.A. ("CS Delaware") is a national bank subsidiary of
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CoreStates which in 1995 opened a specialized consumer credit and education
financing business at one location in Delaware under the registered trade name
of The LearningCurve. As of December 31, 1995, CS Delaware had outstanding
accounts receivable of approximately $1.3 million.
Electronic Payment Services, Inc. ("EPS") is a joint venture formed in late
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1992 that combined the separate consumer electronic
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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 27,
1995, National City Corporation was admitted as an additional partner.
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.
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 through 15 of the CoreStates Annual Report to
Shareholders for the fiscal year ended December 31, 1995 (Exhibit 13 pages 10
through 14) 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 banking. 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 financial services include the making of loans,
banker's acceptance financing, the issuance and confirmation of letters of
credit, check and funds clearings, 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 25 foreign offices. In addition,
international banking and financing
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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. The wholesale banking business also deals in and underwrites
obligations of the United States Government and Federal agencies and general
obligations of states, municipalities and political 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 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 primarily
by CBD from its Delaware location. CS Delaware also conducts certain consumer
banking services, including education financing, in Delaware.
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. In 1995, the corporate trust business, included in
institutional trust, was divided into its Pennsylvania and New Jersey components
and sold to Mellon Bank and Bank of New York, respectively. The products of the
four business lines are offered through the Banking Subsidiaries and include
fiduciary administration and transaction processing services. CoreStates
Investment Advisers, Inc. 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 1995 is presented in Management's Discussion and Analysis of
Financial Condition and
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Results of Operations at pages 11 through 13 of the CoreStates Annual Report to
Shareholders for the fiscal year ended December 31, 1995 (Exhibit 13 pages 7
through 10) which pages of the Annual Report are incorporated herein by
reference.
Acquisitions - CoreStates' strategy for growth focuses first on servicing
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its existing customers and second on growing its business. CoreStates evaluates
merger and acquisition opportunities of both banks and non-banks where potential
for shareholder enhancement, strategic growth and franchise development exist.
Emphasis is placed on opportunities which extend existing markets into adjacent
geography and deepen market share within existing markets.
Pending Acquisition of Meridian Bancorp, Inc. - On October 10, 1995,
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CoreStates and Meridian announced a definitive agreement to merge. Meridian is
a bank holding company with approximately $14.8 billion in assets and $11.2
billion in deposits with executive offices located at 35 North Sixth Street,
Reading, PA 19603. Approval by the shareholders of both companies was received
on February 6, 1996. The transaction must also be approved by various
regulatory authorities. Subject to the receipt of such regulatory approvals,
the merger of Meridian and CoreStates is expected to close during the first half
of 1996. For each share of Meridian outstanding, 1.225 shares of CoreStates
common stock will be issued. Based on closing share prices on October 9, 1995,
the transaction would be valued at approximately $3.2 billion. The transaction
is structured as an acquisition of Meridian by CoreStates and is expected to be
accounted for under the pooling of interests method of accounting.
Strategically, this acquisition will: combine two strong performing banking
companies, create a leading market position in eastern Pennsylvania, northern
Delaware, and central New Jersey, extend the combined company's market and
create a company with more resources and capital to support investments in
growth and improved services to customers.
In June 1995, Meridian completed an internal review of operations and
businesses and announced a company-wide plan designed to improve its operating
performance and competitive position. Implementation of the Meridian plan began
at the end of the second quarter of 1995 and will continue for approximately 12
months from that date. The process implementation is expected to reduce
operating expenses and provide recurring revenue enhancements.
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On February 23, 1996, Meridian acquired United Counties Bancorporation
("United Counties"), a $1.6 billion asset New Jersey bank holding company in a
transaction accounted for as a pooling of interests. For each United Counties
common share outstanding, 5.0 shares of Meridian's common stock were issued.
Pending approvals from various regulatory authorities, consolidations of
bank subsidiaries and operations are expected to begin in the third quarter of
1996 with the consolidation of Meridian's Pennsylvania bank subsidiary into
CoreStates' lead Pennsylvania bank, CoreStates Bank. Other consolidations also
scheduled for the third quarter of 1996 include the combination of Meridian Bank
NJ and United Counties Trust Bank into NJNB and the consolidation of Meridian's
Delaware Trust Company into CoreStates Bank. The interstate consolidation of
CoreStates Bank and NJNB, previously scheduled for January 1996, has been
postponed until the fourth quarter of 1996 in order to accommodate the
consolidations of the Meridian bank subsidiaries.
Major Initiatives
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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. In March 1995, CoreStates completed its review and approved and
announced a corporate-wide process redesign plan, which restructures its banking
services around customers and enhances employees' authority to make decisions to
benefit customers. The objectives of the process redesign were: (i) to enhance
CoreStates' customer focus; (ii) to accelerate the culture changes already in
progress; and (iii) to improve productivity. This review has identified
activities which do not contribute to value for customers, and has led to
reductions in expenses and jobs and to a smaller employee base.
The process redesign plan is expected to be implemented within an 18-month
period which began in April 1995. The process redesign is expected to generate
cost efficiencies and reduce expenses. The following are the major themes of the
process redesign: (i) redefine the organizational structure around customers,
customer segments and markets, not products; (ii) streamline and consolidate
functions and processes; (iii) vacate 1.2 million square feet of occupied space
in 45 buildings, including 37 branches to be closed; (iv) use technology to
automate services and processes; and (v) employ tiered pricing strategies and
streamline product pricing.
Government Supervision and Regulation
General CoreStates is a bank holding company within the
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meaning of the Act 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 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 pages
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15 and 16 of the CoreStates Annual Report to Shareholders for the fiscal year
ended December 31, 1995 (Exhibit 13 pages 14 and 15) which pages of the Annual
Report are incorporated herein by reference.
Potential Enforcement Actions Bank holding companies and national banks
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and their 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. Non-
bank holding companies may also be subject to enforcement actions by state
regulatory authorities. 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 and the suspension or revocation of state-mandated lending or
other licenses.
Dividends CoreStates is a legal entity separate and distinct from its
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Banking Subsidiaries 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. 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.
Based on these regulations, CBD, without regulatory approval, could declare
dividends to CoreStates at December 31, 1995 of $37 million. CoreStates Bank
and NJNB will be able to declare dividends without the approval of the
Comptroller of the Currency to the extent that and when retained net profits for
1996 exceed $2 million and $7 million, respectively.
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
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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, 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
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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
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 Fund member institution is assigned a semiannual
assessment rate beginning January 1, 1996 which ranges from 0% per annum of
domestic deposits (for well capitalized Subgroup A institutions) to .27% per
annum (for undercapitalized Subgroup C institutions). Each Savings Association
Insurance Fund ("SAIF") member institution is assigned a semiannual assessment
rate beginning January 1, 1996 which ranges from .23% per annum of domestic
deposits (for well capitalized Subgroup A institutions) to .31% per annum (for
undercapitalized Subgroup C institutions). Each of the Banking Subsidiaries is
considered well capitalized, and has been notified by the FDIC that, for the
semiannual assessment period beginning January 1, 1996, each is subject to a BIF
assessment rate of 0% and a SAIF assessment rate of .23%. Deposits in the
Banking
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Subsidiaries subject to the SAIF assessment rate were less than $200 million at
December 31, 1995.
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
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
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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 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
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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 Pursuant to FDICIA, each of the Federal bank
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regulatory agencies has adopted the Interagency Guidelines Establishing
Standards for Safety and Soundness (the "Guidelines"). The Guidelines contain
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. An 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 would become subject to additional regulatory action or enforcement
proceedings.
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 various 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
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
("Riegle-Neal") which was signed by President Clinton on September 29, 1994,
eliminated many restrictions on interstate banking and branching. Riegle-Neal
authorized, as of September 29, 1995, interstate acquisitions of banks by bank
holding companies without geographic limitations. 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
14
<PAGE>
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 is possible in states that pass laws affirmatively
authorizing such interstate branching. As of December 31, 1995 Pennsylvania and
Delaware have enacted such legislation; New Jersey had not enacted such
legislation as of that date. Although, under certain circumstances, national
banks located in different states have been permitted to merge under authority
of the National Bank Act, prior to the Riegle-Neal legislation, other types of
interstate acquisitions of banks had required affirmative authorization in state
law, and interstate branching had been possible only to a very limited degree.
The total effect of this legislation on CoreStates cannot be predicted at this
time, although it is clear that certain mergers of CoreStates Banking
Subsidiaries are now permitted, including the mergers contemplated in
connection with the Meridian merger.
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 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
15
<PAGE>
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 29, 1996, CoreStates and its subsidiaries employed 11,241
persons on a full time basis and 2,398 part-time persons on a full-time
equivalent basis. CoreStates provides a variety of employment benefits and
considers its relations with its employees to be satisfactory.
Selected Statistical Information
Tables and selected statistical information concerning CoreStates and its
subsidiaries as described below and set forth on pages of the CoreStates 1995
Annual Report to Shareholders (and Exhibit 13 page numbers) set forth below are
incorporated herein by reference:
<TABLE>
<CAPTION>
Annual Report to Exhibit 13
Shareholders Page
Page Reference Reference
-------------- ----------
<S> <C> <C>
Distribution of Assets, Liabilities
and Stockholders' Equity;
Interest Rates and Interest
Differential..................... 60-61, 64 81-84, 87
Investment Portfolio.................. 70 95
Loan Portfolio........................ 16-23, 16-24,
65-68 88-92
Summary of Loan Loss Experience....... 21-22, 22-23
67-68 91-92
Deposits.............................. 60-61 81-84
68 92
Return on Average Equity and Average
Assets........................... 62 85
Short-Term Borrowings................. 49 66
</TABLE>
16
<PAGE>
Information illustrating the interest sensitivity of CoreStates interest
earning assets and interest bearing liabilities is contained on page 69 of the
Annual Report to Shareholders (Exhibit 13 page 93) and on page 18 of this Form
10-K. The interest sensitivity table on page 18 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 18.
17
<PAGE>
<TABLE>
<CAPTION>
Interest Sensitivity Analysis at December 31, 1995 Rate Maturity Period
(in millions) -----------------------------------------------------------
(More
Than)
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 $ 596 $ 596
Time Deposits 996 $ 408 $ 438 1,842
Investment Securities 452 155 381 $ 430 $ 439 $ 133 1,990
Interest Rate Swaps 862 812 1,278 1,125 2,788 906 7,771
Asset Financial Futures 0 15 383 21 0 0 419
------- ------ ------ ------ ------ ------ -------
Total Discretionary Assets 2,906 1,390 2,480 1,576 3,227 1,039 12,618
Total Loans and Lease Financing (a) 15,031 1,240 1,077 1,432 1,871 396 21,047
------- ------ ------ ------ ------ ------ -------
Total Earning Assets 17,937 2,630 3,557 3,008 5,098 1,435 33,665
------- ------ ------ ------ ------ ------ -------
Liabilities
- - -----------
Federal Funds Purchased, Repurchase Agreements and
Other Short-term Funds Borrowed 1,990 102 0 0 0 0 2,092
Domestic and Foreign Time Deposits (b) 1,312 18 12 1 5 0 1,348
Long Term Debt 1,023 20 21 2 7 625 1,698
Interest Rate Swaps 7,246 25 200 71 224 5 7,771
Liability Financial Futures 167 237 15 0 0 0 419
------- ------ ------ ------ ------ ------ -------
Total Discretionary Liabilities 11,738 402 248 74 236 630 13,328
Savings Certificates 1,382 933 1,724 599 453 255 5,346
Money Market, savings, and NOW accounts 2,347 584 1,008 1,672 2,497 0 8,108
Total Savings Certificates and ------- ------ ------ ------ ------ ------ -------
Indefinite Maturity 3,729 1,517 2,732 2,271 2,950 255 13,454
------- ------ ------ ------ ------ ------ -------
Total Net Funding Sources 15,467 1,919 2,980 2,345 3,186 885 26,782
------- ------ ------ ------ ------ ------ -------
Period Gap $ 2,470 $ 711 $ 577 $ 663 $1,912 $ 550 $ 6,883 (c)
======= ====== ====== ====== ====== ====== =======
Cumulative Gap $ 2,470 $3,181 $3,758 $4,421 $6,333 $6,883
======= ====== ====== ====== ====== ======
</TABLE>
Notes to Interest Sensitivity Analysis:
- - ---------------------------------------
a) Non-performing loans are included in 1-90 days.
b) Deposit volumes exclude time not at interest.
c) Net non-interest bearing funds is the sum of non-interest bearing
liabilities, shareholders' equity minus non-interest
earning assets.
18
<PAGE>
EXECUTIVE OFFICERS OF THE REGISTRANT
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.
NAME AGE PRESENT & PREVIOUS POSITIONS
- - ---- --- ----------------------------
Terrence A. Larsen 49 Chairman, Chief Executive Officer, (January 1,
1988 to present) and Director (June 1, 1986 to
present), President (January 1, 1992 to August
2, 1994, May 6, 1986 to March 5, 1990), Chief
Operating Officer (May 6, 1986 to January 1,
1988) of the Corporation; Chairman and Director
(October 1, 1990 to present) and President
(January 1, 1992 to August 2, 1994) of
CoreStates Bank; Chairman, Director (April 1,
1989 to October 1, 1990), Senior Executive
Officer (1987 to 1988), and Executive Vice
President, (1983 to 1986) of The Philadelphia
National Bank ("PNB").
Christopher J. Carey 41 Senior Vice President (November 1, 1991 to
present) and Corporate Controller (July 21,
1992 to present) of the Corporation and of
CoreStates Bank, Vice President (November 12,
1985 to November 1, 1991) of CoreStates Bank.
Charles L. Coltman, III 52 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
19
<PAGE>
Officer (September 1990 to February 1993),
Executive Vice President and Credit Policy
Officer (November 21, 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 47 Senior Executive Vice President and Chief Risk
Policy Officer (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.
Robert N. Gilmore 47 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 49 Chief Banking Officer (August 2, 1994 to
present), Chief Retail Services Officer
(October 1, 1993 to August 2, 1994) 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
20
<PAGE>
President (1986 to 1987) of Fidelity Bank;
Senior Executive Vice President and Director
(1987 to March 1991) of First Fidelity
Bancorporation.
Albert W. Mandia 48 President and Chief Operating Officer (January
2, 1996 to present) of CashFlex, a subsidiary
of the Corporation, 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.
21
<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,
leased from One South Broad Limited Partnership pursuant to a lease executed in
1995, and in leased space located at Centre Square West, 16th and Market
Streets, Philadelphia, Pennsylvania. CoreStates and its subsidiaries and
affiliates occupy approximately 308,358 square feet of the PNB Building's
approximately 464,802 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 399,193 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, 1995, CoreStates had 373 additional properties, of which
159 were owned and 214 were leased. The additional owned properties aggregate
approximately 1.7 million square feet, and the leased properties aggregate
approximately 1.5 million square feet. Aggregate leased properties in 1995
required approximately $64,995,000 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 27 CoreStates Bank owned properties.
Item 3 - Legal Proceedings
In the normal course of business, CoreStates and its
22
<PAGE>
subsidiaries are subject to numerous pending and threatened legal actions and
proceedings, in some of 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.
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". 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, and cash dividends declared per share. On February 29, 1996,
there were approximately 39,828 registered holders of Common Stock of
CoreStates.
<TABLE>
<CAPTION>
CORESTATES
-------------------------------
DIVIDEND
HIGH LOW DECLARED
---- --- --------
<S> <C> <C> <C>
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
Year ended December 31, 1995:
First Quarter............. 33 25 5/8 0.34
Second Quarter............ 36 30 1/2 0.34
Third Quarter............. 38 7/8 34 1/4 0.34
Fourth Quarter............ 40 1/8 34 5/8 0.42
</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 future 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
23
<PAGE>
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 CBD can declare dividends to CoreStates of approximately $37
million plus an additional amount equal to CBD's retained net profits for 1996
up to the date of dividend declaration. CoreStates Bank and NJNB will be able
to declare dividends without the approval of the Comptroller of the Currency to
the extent that and when retained net profits for 1996 exceed $2 million and $7
million, respectively.
Item 6 - Selected Financial Data
Pursuant to General Instructions G(2), information required by this Item is
incorporated by reference from pages 62 and 63 of the CoreStates Annual Report
to Shareholders for the fiscal year ended December 31, 1995 (Exhibit 13 pages 85
and 86).
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 34 of the CoreStates Annual
Report to Shareholders for the fiscal year ended December 31, 1995 (Exhibit 13
pages 4 through 43).
Item 8 - Financial Statements and Supplementary Data
Pursuant to General Instructions G(2), information required by this Item is
incorporated by reference from pages 37 through 70 of the CoreStates Annual
Report to Shareholders for the fiscal year ended December 31, 1995 (Exhibit 13
pages 47 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 Part I of this report on Form 10-K.
Set forth below are the names and ages of the directors of CoreStates as of
December 31, 1995, their principal occupations and the year each individual
began continuous service as a director of
24
<PAGE>
CoreStates or one of its predecessors. Each director has held the position or
former position shown or other executive positions with the same or an
affiliated or predecessor entity for at least the past five years, except as
otherwise indicated. Also shown with respect to each director are directorships
held in companies (other than CoreStates) which are required to file reports
with the Securities and Exchange Commission under the Securities Exchange Act of
1934 (the "Exchange Act") or which are registered under the Investment Company
Act of 1940 and certain other business or insurance companies.
George A. Butler, 67, Director since 1990.
Retired; formerly President of CoreStates and CoreStates Bank, N.A.; prior
to March 1990, Chairman and Chief Executive Officer of First Pennsylvania
Corporation and First Pennsylvania Bank; Director of Betz Laboratories,
Inc., General Accident Insurance Company, Peirce Phelps, Inc., and Thomas
Jefferson University.
Nelson G. Harris, 69, Director since 1990.
Retired Chairman of Tasty Baking Company; Chairman of the Executive
Committee and Director of Tasty Baking Company (principally a manufacturer
of bakery products); Director of American Water Works, Inc., PECO Energy
Company, Peirce Phelps, Inc., Penn Fishing Tackle Mfg. Co., and PrimeSource
Corporation.
Carlton E. Hughes, 64, Director since 1978.
Chairman and Director of Stewart-Amos Steel, Inc. (structural steel
fabrication); former President, Treasurer and Director of Stewart-Amos
Equipment Co.; Director of Irex Corporation and Arnold Industries, Inc.
Ernest E. Jones, 51, Director since 1992.
Executive Director of Greater Philadelphia Urban Affairs Coalition.
Terrence A.Larsen, 49, Director since 1986.
Chairman and Chief Executive Officer of CoreStates; Chairman of CoreStates
Bank, N.A.; prior to August 1994, Chairman, President, and Chief Executive
Officer of CoreStates, and CoreStates Bank, N.A.
25
<PAGE>
Herbert Lotman, 62, Director since 1990.
Chairman and Chief Executive Officer of Keystone Foods Corporation (food
manufacturing and distribution); Director of Getty Petroleum Corporation
and PCI Services, Inc.
George V. Lynett, 52, Director since 1995.
Publisher, The Scranton Times (newspaper company); Secretary/Treasurer,
Shamrock Communications, Inc.; President, Towanda Daily Review; and Vice
President, Wyoming County Press, Inc.
Stephanie W. Naidoff, 54, Director since 1994.
Of Counsel, Morgan, Lewis & Bockius (law firm); formerly Vice President and
General Counsel of Thomas Jefferson University (Philadelphia).
Patricia A. McFate, 63, Director since 1976.
Senior Scientist and Program Director, Center for National Security
Negotiations of Science Applications International Corporation (a systems
engineering company); Senior Scientist of System Planning Corporation from
October 1988 to July 1989; prior to October 1988, President and Trustee of
The American-Scandinavian Foundation.
John A. Miller, 68, Director since 1977.
Retired Chairman of Provident Mutual Life Insurance Company of
Philadelphia; Chairman of the Executive Committee and Director of Provident
Mutual Life Insurance Company of Philadelphia; Director of Betz
Laboratories, Inc.; Chairman of the Board of Guaranty Reassurance Corp.,
Jacksonville, FL.
Marlin Miller, Jr., 63, Director since 1988.
President, Chief Executive Officer, and Director of Arrow International,
Inc. (a manufacturer of medical products); Director of Carpenter Technology
Corp.
Seymour S. Preston, III, 62, Director since 1978.
Chairman and Chief Executive Officer of AAC Engineered Systems, Inc.
(manufacturer of equipment to deburr and finish metal parts); Retired
President and Chief Executive Officer of Elf Atochem North America, Inc.
(manufacturer of industrial,
26
<PAGE>
intermediate and specialty chemicals, and commodity and engineering
plastics); Director of Scott Specialty Gases, Inc. (manufacturer and
marketer of specialty gases); Director of ADCO Technologies, Inc.
(manufacturer of adhesives and sealants for the automotive and construction
industries).
James M. Seabrook, 62, Director since 1994.
Chairman and Chief Executive Officer of Seabrook Brothers & Sons, Inc.
(frozen food processor); Director of Bell Atlantic New Jersey, New Jersey
Manufacturers Insurance Company, and New Jersey Re-Insurance Company.
J. Lawrence Shane, 61, Director since 1978.
Retired; Formerly Vice Chairman and Director of Scott Paper Company
(manufacturer of consumer and industrial paper products); Director of 1838
Bond-Debenture Trading Fund.
Raymond W. Smith, 58, Director since 1984.
Chairman, Chief Executive Officer and Director of Bell Atlantic Corporation
(telecommunications and services corporation); and Director of USAir
(commercial aviation).
Harold A. Sorgenti, 61, Director since 1981.
Chairman of Freedom Chemical Company (manufacturer of specialty chemicals);
Partner, The Freedom Group Partnership (chemical industry mergers and
acquisitions); prior to 1991, Vice Chairman and Director of ARCO Chemical
Company; Director of Provident Mutual Life Insurance Company of
Philadelphia and Crown Cork and Seal, Inc.
Peter S. Strawbridge, 57, Director since 1979.
President and Director of Strawbridge & Clothier (regional merchandising
corporation).
Agreement to Reconstitute the Board of Directors. The definitive agreement
- - -------------------------------------------------
between CoreStates and Meridian requires that, at the effective time of the
consummation of the merger or promptly thereafter, the board of directors of
CoreStates will cause the size of the board of directors to be 15, comprised of
10 of the current directors of CoreStates and 5 of the directors of Meridian.
The 5 directors of Meridian are Samuel A. McCullough, Robert Cardy, Lawrence R.
Pugh, George Strawbridge, Jr., and Judith M. Von Seldeneck. The 10 current
directors of CoreStates are Terrence A.
27
<PAGE>
Larsen, Carlton E. Hughes, Ernest E. Jones, Herbert Lotman, George V. Lynett,
Patricia McFate, Marlin Miller, Jr., James M. Seabrook, Raymond W. Smith and
Peter S. Strawbridge. It is expected that, subject to regulatory approvals, the
merger transaction will be consummated during the first half of 1996.
Compliance with Section 16(a) of the Exchange Act
- - -------------------------------------------------
Section 16(a) of the Exchange Act requires CoreStates' officers and
directors, and persons who own more than ten percent of a registered class of
CoreStates' equity securities, to file reports of ownership and changes in
ownership with the Securities and Exchange Commission ("SEC"). Officers,
directors and greater than ten-percent shareholders are required by SEC
regulation to furnish CoreStates with copies of all Section 16(a) forms they
file. There are no ten percent shareholders of CoreStates' equity securities.
Based solely on its review of the copies of such forms received by it, or
written representations from certain reporting persons that no Forms 5 were
required for those persons, CoreStates believes that, during the period January
1, 1995 through December 31, 1995, all filing requirements applicable to its
officers and directors were complied with except that two reports were amended
in October 1995 for Mr. Sorgenti and Mr. Smith for a clerical error in
reporting fractional shares as being owned that were actually sold.
Item 11 - Executive Compensation
Directors' Meetings, Committees and Compensation
In 1995, 12 meetings of the Board of Directors of CoreStates were held.
Each incumbent director who served as a director of CoreStates during 1995
attended more than 75% of the aggregate number of meetings of the Board of
Directors of CoreStates and of the Committees of the Board on which each such
director served. The Board of Directors of CoreStates has certain standing
committees including an Audit Committee, a Human Resources Committee and a
Corporate Governance Committee, the membership and functions of each are
described below.
The Audit Committee presently consists of Dr. McFate and Messrs. Hughes, M.
Miller, Preston (Chairman) and Shane. During 1995, the Audit Committee held 4
meetings. The functions of the Audit Committee include: review and examination
of detailed reports of the internal auditors for CoreStates including reports on
the
28
<PAGE>
fiduciary activities of banking subsidiaries; periodic meetings with the
internal auditors and credit review personnel; review of reports of regulatory
agencies having jurisdiction over CoreStates and certain banking and other
subsidiaries and signing of such reports on behalf of the Board of Directors;
evaluation of internal accounting controls for CoreStates and for the management
of the fiduciary activities of banking subsidiaries; recommending engagement and
continuation of engagement of independent auditors; and meetings with, and
receiving and considering recommendations of, independent auditors of
CoreStates.
The Human Resources Committee presently consists of Messrs. Lotman, M.
Miller, Preston, Smith (Chairman) and Strawbridge. During 1995, the Human
Resources Committee held 2 meetings. The functions of the Human Resources
Committee are to: evaluate the performance of the Chief Executive Officer of
CoreStates and report its assessment to the full Board of Directors; review,
approve and recommend to the full Board changes in base compensation for senior
officers of CoreStates and its banking subsidiaries; review, approve and
recommend to the full Board material changes in CoreStates' benefit plans which
significantly affect CoreStates' liabilities or the benefits provided to
participants; administer the Incentive Compensation Plan for CoreStates
Financial Corp and Participating Subsidiaries and the Long-Term Incentive Plan;
review annually the salary budget with respect to CoreStates and its banking
subsidiaries; review CoreStates' management development plans; and review other
compensation and benefit plans of CoreStates and its subsidiaries.
The Corporate Governance Committee presently consists of Messrs. Hughes
(Chairman), Jones, J. Miller, M. Miller and Dr. McFate. During 1995 the
Corporate Governance Committee held six meetings. The functions of the Corporate
Governance Committee are to make recommendations to the full Board of Directors
with respect to: nominees for election as director at the annual meeting of
shareholders; nominees to fill Board vacancies between annual shareholders'
meetings; and the composition of membership of the various standing committees
of the Board of Directors of CoreStates. The By-laws of CoreStates provide that
a shareholder may nominate a director at the annual meeting only if written
notice of such shareholder's intent is given by the shareholder and received by
the Secretary of CoreStates not less than forty-five days prior to the date
fixed for the annual meeting. The notice shall contain and be accompanied by (a)
the name and residence of such shareholder; (b) a representation that the
shareholder is a holder of CoreStates' voting stock and intends to appear in
person or by proxy at the meeting to nominate the person or persons
29
<PAGE>
specified in the notice; (c) such information regarding each nominee as would
have been required to be included in a proxy statement filed pursuant to
Regulation 14A of the rules and regulations established by the Securities and
Exchange Commission under the Securities Exchange Act of 1934 (or pursuant to
any successor act or regulation) had proxies been solicited with respect to such
nominee by the management or Board of Directors of CoreStates; (d) a description
of all arrangements or understandings among the shareholder and each nominee and
any other person or persons (naming such persons or persons) pursuant to which
such nomination(s) are to be made by the shareholder; and (e) the consent of
each nominee to serve as director of CoreStates if so elected.
CoreStates' Board also has the following additional committees: Executive
Committee, Banking Related Committee, Investment and Funding Committee,
Corporate Community Development Committee (formerly the Urban Affairs Committee)
and Trust Committee.
Directors' Compensation
- - -----------------------
Directors who are also officers of CoreStates or its subsidiaries do not
receive any fees for Board or Committee meetings. For service in 1995 as a
member of the Board of Directors of CoreStates, each director receiving fees was
paid $15,000 in a fixed sum, 200 shares of Common Stock of CoreStates pursuant
to the Stock Compensation Plan for Non-Employee Directors, and a fee of $1,000
for attendance at each meeting of the Board of Directors of CoreStates and, as
applicable, each meeting of all committees of the Board of Directors and certain
meetings attended at the request of CoreStates. In addition, a fixed sum of
$8,000 was paid in 1995 to the Chairman of the Audit Committee, and $1,000 to
the Chairman of each other Committee of the Board of Directors. Each member of
the Audit Committee was paid an annual retainer of $5,000 in addition to
attendance fees.
Directors of CoreStates who are also directors of CoreStates Bank, received
for services rendered to CoreStates Bank in 1995 an annual retainer of $7,500
and a fee of $750 for attendance at each meeting of the Board of Directors and,
as applicable, each meeting of all Committees of the Board of Directors. When
there is a joint meeting of a CoreStates committee and a CoreStates Bank
committee, a single fee is applicable, (which is the higher of the two fees)
except for joint meetings of the Audit Committees. In addition, the sum of
$2,000 was paid in 1995 to the Chairman of the CoreStates Bank Audit Committee
and $1,000 to the Chairman of each other Committee of the CoreStates Bank Board
of Directors. These fees were in addition to those fees described above paid for
services to CoreStates.
30
<PAGE>
Directors of CoreStates who were also advisory directors of the CoreStates
Hamilton Bank region of CoreStates Bank ("Hamilton") received for services
rendered to Hamilton during the first six months of 1995 a fixed sum of $2,500
for that six month period and a fee of $750 for attendance at each meeting of
the Advisory Board of Directors of Hamilton and, as applicable, each meeting of
all committees of the Advisory Board of Directors. During the first six months
of 1995, directors of CoreStates who are also advisory directors of Hamilton
also received a fee of $125 for attendance at each meeting of the Hamilton
Regional Advisory Committees. These fees were in addition to those fees
described above paid for services to CoreStates. As a result of CoreStates'
redesign process, the compensation paid to Advisory Board Directors was changed.
Effective July 1, 1995, Directors of CoreStates who were also Advisory Directors
of the CoreStates Hamilton Bank region of CoreStates Bank received an annual
honorarium of $1,000 to be paid annually in lieu of retainers and attendance
fees.
One Director of CoreStates, who was also a member of the Executive Advisory
Boards of the former Independence Bancorp, Inc. ("Independence"), and the former
Third National Bank and Trust Company of Scranton ("Third of Scranton") received
an annual retainer of $12,000 for services rendered to Independence and an
annual retainer of $13,500 for services rendered to Third of Scranton. These
fees were in addition to those fees described above paid for services to
CoreStates.
Directors of CoreStates who are also directors of New Jersey National
Corporation ("NJNC") and NJNB received for services rendered to such entities in
1995 a fixed sum of $5,000 and a fee of $750 for attendance at each concurrent
meeting of the Boards of Directors of NJNC and NJNB and, as applicable, each
meeting or concurrent meeting of all committees of the Boards of Directors.
These fees were in addition to those fees described above paid for services to
CoreStates.
Under the Deferred Compensation Plan for Directors of CoreStates and
CoreStates Bank (the "Directors' Deferred Plan"), directors of CoreStates and
CoreStates Bank may elect prior to commencement of each term of service to defer
payment of all or part of their directors' compensation. Amounts deferred are
payable, as elected by the director, at the termination of the respective
director's service to CoreStates or CoreStates Bank, the reaching of age 65,
death, or a specified date, such payment to be made in a lump sum, in up to 10
annual installments or other method. Amounts deferred are credited to an
unfunded directors' deferred compensation account. Amounts deferred after April
1, 1988 were credited with interest at an annual rate equal to 60% of the prime
rate of CoreStates Bank (the "CoreStates Bank Prime Rate").
31
<PAGE>
Beginning January 1, 1989, interest is credited on deferrals at a rate
determined by multiplying the CoreStates Bank Prime Rate by a decimal amount
equal to 1 minus 118% of the highest marginal corporate tax rate for Federal
income tax purposes. Amounts deferred on or before April 1, 1988 receive
earnings based on one or more of three hypothetical investments as selected
quarterly by each affected participant. These provide yields equal to the return
on, and appreciate or depreciate to the same extent as, funds invested in the
CoreStates Bond Fund, the CoreStates Liquidity Fund and the CoreStates Equity
Fund, each of which is a collective investment fund managed by CoreStates
Investment Advisers, Inc. The right to receive future payments under the
Directors' Deferred Plan is an unsecured claim against the general assets of
CoreStates or CBNA, as applicable. Payments of deferred compensation may be made
only in cash. Directors of CoreStates who also serve as advisory directors of
Hamilton are entitled to defer fees paid for services rendered to Hamilton under
the Directors' Deferred Plan.
Additionally, in 1980, Hamilton established a directors' deferred
compensation plan whereby participating directors of Hamilton could elect to
forego certain directors' fees or other compensation for a five-year period,
from January 1, 1980 through December 31, 1984, in return for the undertaking of
Hamilton to pay each participating director a specified amount in 120 equal
payments beginning at age 65 or 70, or at death, if earlier. Hamilton has
obtained life insurance, of which Hamilton is the beneficiary, on each
participating director in an amount which will cover Hamilton's obligation to
pay each such director. The directors participating in this plan are Carlton E.
Hughes and Marlin Miller, Jr. Total payments to be made over the 10 year
distribution period or at death, if earlier, to Messrs. Hughes and Miller are
$233,400 and $178,800, respectively. Amounts expensed for 1995 under the plan in
respect to Messrs. Hughes and Miller were, respectively, $12,582 and $9,638.
Executive Compensation
- - ----------------------
HUMAN RESOURCES COMMITTEE REPORT
COMPENSATION POLICIES FOR EXECUTIVE OFFICERS FOR 1995
Compensation policies for executive officers are intended to further the
earnings of CoreStates and facilitate securing, retaining and motivating
management employees of high caliber and potential. The persons eligible to
receive awards under these policies are officers and other employees of
CoreStates and its subsidiaries who are in positions in which their decisions,
actions and counsel significantly impact upon the short and long-term goals and
strategies of CoreStates.
32
<PAGE>
There are three components to executive compensation: base salary, annual
incentive awards, and long-term incentive awards.
Base Salaries
Base salaries for executives are competitive with incumbent salaries for
peer positions in CoreStates' comparator group. The comparator group consists of
25 to 30 companies within the super-regional banking industry that have market,
geographic and size similarities to CoreStates. All of these banks are contained
within the Keefe, Bruyette, & Woods 50 Index, presented in the Comparative 5
Year Cumulative Total Return graph on page 38 of this 10K Annual Report.
CoreStates generally targets base salaries to the median or average rate paid
for each job within the group. Published compensation surveys are utilized to
monitor competitive pay levels, in addition to compensation information reported
in our competitors' proxy statements.
Annual Incentive Awards
Executive officers participate in an annual cash award program, the
Incentive Compensation Plan for CoreStates Financial Corp and Participating
Subsidiaries. The Human Resources Committee of the Board of Directors determines
the awards granted under the Plan. Award opportunity is based on the individual
executive's grade level and a mix of predetermined corporate and individual
performance goals.
Corporate Performance:
One-hundred percent of the annual award for the Chief Executive Officer and
for employees who currently report directly to him is based on corporate
performance. Eighty percent of the annual award for those who report to current
direct reports of the Chief Executive Officer is based on corporate performance,
measured the same way. For 1995 this component of the Plan was paid at 144% of
the payout target. Three measures are used as indices of corporate performance:
net income after capital charge (NIACC), earnings per share, and progress toward
achieving cultural change objectives.
NIACC measures both the quantity and the quality of corporate earnings. If
CoreStates earns more than its required return (and therefore has a positive
NIACC) shareholder value is created. The calculation of NIACC requires three
pieces of data: net income, the amount of capital employed, and the required
return on that capital. The corporate required return of 13% is a risk-adjusted
rate of return related to investors' alternatives in the marketplace. Because
33
<PAGE>
CoreStates has an unusually high equity to asset ratio, NIACC is normalized for
a 5% equity to asset ratio. Five percent is the typical ratio used by the peer
comparator group. The NIACC results exceed 1995's goal.
Growth in earnings per share is a key measure of financial strength
considered by the external financial community. The use of this measure
facilitates external comparison and is easily understood. The earnings per share
results also exceed 1995's goal.
Cultural change improvement is measured based on progress in advancing the
corporate culture with reference to: 1) CoreValues--People, Performance,
Integrity, Teamwork, Diversity, and Communication, 2) customer focus, and 3)
commitment to quality. A combination of quantitative and qualitative measures is
used to track results against these objectives. Quantitative measures include
several routinely tracked statistics, such as the diversity of our workforce at
all levels in our organization, upward and lateral mobility of our people,
employee retention, training and development participation, utilization of
vendors and services owned by women and people of color, and other pertinent
statistics. Qualitative progress on attaining improved implementation of
corporate cultural change is measured through an employee survey of a randomly
selected diverse employee group.
The corporate Incentive Compensation Plan payout for 1995 was determined to
be 144%.
Individual Performance:
Twenty percent of the annual award for employees who report to current
direct reports of the Chief Executive Officer is based on individual
performance. Individual performance goals are designed to reflect a balance
between attainable and "stretch" objectives and are specific to each plan
participant. Individual performance objectives are established at the beginning
of the year based on the functions and responsibilities of each executive's
position (for example, sales targets, income goals, cost reduction objectives,
etc.). Also included in the measure of individual performance are objectives
that champion CoreValues and reflect or measure managerial performance. These
people-focused objectives account for at least one-third of individual
performance.
Target awards are based on a percentage of the midpoint of the salary grade
of each individual. Corporate and individual executive performance are
evaluated, and payout levels are determined independently at zero or 50 to 150%
of the payout targets.
Long-term Incentive Plan
This plan is designed to support the long-term strategic goals of
CoreStates by providing equity opportunities for individual
34
<PAGE>
executives based on their level of responsibility. Ownership aligns the
interests of participating officers and executives with the interests of
CoreStates' shareholders and ties a significant portion of senior officer
compensation to shareholder returns. Under Ownership Guidelines developed in
1993 for achievement by 1998 and approved by the Human Resources Committee, the
suggested number of shares to be owned varies according to the executive's
salary grade, and ranges from one times salary range midpoint for Executive Vice
Presidents up to 2.5 times salary range midpoint for the CEO. Stock held through
the CoreStates Savings Plan is counted toward the guidelines, but unexercised
stock options are not.
The primary award vehicles for 1995 were incentive stock options (ISOs) and
non-qualified stock options (NQSOs). The first $100,000 of each stock option
award was granted in the form of ISOs, with the remaining portion granted in
NQSOs. Stock option grants provide the grantees the opportunity to acquire
common stock at a fixed price (the fair market value on the date of the grant)
for a specified period of time (ten years).
The practice of CoreStates is to keep long-term awards relatively constant
from year-to-year. Stock option plans provide upside earnings potential through
increases in stock value over the long term. Target awards for stock option
grants are expressed as a percentage of the salary range midpoint for each
participant. Actual awards may range from 75% up to 125% of the target award
based on a present assessment of the long-term value of the participant's
ongoing performance contribution to CoreStates. In determining these grants, the
Human Resources Committee did not specifically consider the amount and value of
stock currently held by individuals. For 1995, stock option awards averaged 100%
of target for all participants.
Impact of IRS Pay Cap Regulations
CoreStates' policy is to make every attempt to comply with Section 162(m)
of the Internal Revenue Service Code. Section 162(m) of the Internal Revenue
Service Code permits CoreStates to deduct compensation paid to a named executive
in excess of $1 million only if such excess qualifies as "performance based
compensation".
Summary
Inherent in our effort to create shareholder value are attention to
financial performance and strength, and focused recognition of our people as the
cornerstone of the long-range competitive edge. Performance measures support the
efforts to further corporate earnings and achieve a positive corporate
35
<PAGE>
culture. The ideal culture values all members of the workforce, maintains
customer focus, and achieves excellence through commitment to quality.
HUMAN RESOURCES COMMITTEE'S BASES FOR DETERMINING
THE COMPENSATION OF THE CEO FOR 1995
The CEO's (Chief Executive Officer) base salary, and annual and long-term
incentive award components are consistent with the spirit and objectives of
CoreStates' executive compensation program and is as follows:
Base Salary
The CEO's base salary is a function of CoreStates' financial performance
against goals. The initial rating is then modified as appropriate by the overall
culture/people evaluation, as well as a relative assessment of CoreStates'
performance versus its peer group. Finally, the preceding evaluation is further
modified by the Board of Directors' assessment of the CEO's performance in such
areas as leadership, strategic planning, culture/people initiatives, external
relations, communication, and other important factors. The Human Resources
Committee prepared a formal evaluation of actual results against these annual
goals. The evaluation was supported by documents citing specific reasons for the
rating and included an assessment of response to unplanned events or
circumstances that required a significant commitment of time and resources.
In the Human Resources Committee's evaluation of the CEO's performance, it
was specifically noted that his individual actions and leadership have had a
significant effect on CoreStates' overall financial and cultural change/people
value results, enhancing on-going value to shareholders through stock
appreciation and growth in earnings available for dividends. The Committee's
overall rating of the CEO's performance for the year was outstanding.
Although it is CoreStates' practice to target at the median of the CEO's base
salaries reported in the comparative group, the Human Resources Committee has
chosen to focus on total compensation rather than solely base pay.
Annual Incentive Award
100% of the CEO's annual incentive award is based on corporate performance.
For 1995 this was paid at 144% of target, based on NIACC, earnings per share,
and corporate culture/people objectives as described in the preceding Annual
Incentive Awards--Corporate Performance section on pages 33 and 34 of this Form
10K Annual
36
<PAGE>
Report with respect to other executive officers.
An evaluation of corporate progress against the goals was reviewed and
discussed by the Human Resources Committee, who determined the final payout
levels for the Chairman and the rest of the executive officers.
Long-term Incentive Plan
The CEO participates in the Long-term Incentive Plan described above under
"Compensation Policies for Executive Officers for 1995". In February 1995 Mr.
Larsen was granted options based on 100% of the target for his position.
HUMAN RESOURCES COMMITTEE
Raymond W. Smith, Chairman
Herbert Lotman Seymour S. Preston, III
Marlin Miller, Jr. Peter S. Strawbridge
37
<PAGE>
Five-Year Shareholder Return Comparison
The following line graph compares five-year cumulative total shareholder return
with the Standard & Poor's 500 Composite Index and the Keefe, Bruyette & Woods
50 Index (KBW 50) a published peer-industry index. The KBW 50 is made up of
fifty of the nation's significant banking companies, including money-center and
most major reginal banks, and is considered representative of the price
performance of the nations' largest banks. Both the S&P 500 and the KBW 50 are
market-capitalization-weighted indices. The graph assumes an initial investment
of $100 and reinvestment of quarterly dividends.
Comparative 5 Year Cumulative Total Return
12/31/90 to 12/31/95
CFL v. S&P 500 v. KBW 50
[GRAPH APPEARS HERE]
<TABLE>
<CAPTION>
------------------------------------------------------
1990 1991 1992 1993 1994 1995
<S> <C> <C> <C> <C> <C> <C>
- - -------------------------------------------------------------------------
CoreStates 100 158 196 187 194 294
- - -------------------------------------------------------------------------
S&P 500 100 130 140 154 156 215
- - -------------------------------------------------------------------------
KBW 50 100 158 202 213 202 324
- - -------------------------------------------------------------------------
</TABLE>
<PAGE>
Comparison of Five Year Cumulative Total Return
December 31, 1990 to December 31, 1995
CFL v. S&P 500 Index v. KBW 50 Index
<TABLE>
<CAPTION>
Date CFL S&P 500 KBW 50
---- --- ------- ------
<S> <C> <C> <C>
4Q90 100 100 100
1Q91 116 114 127
2Q91 125 114 134
3Q91 142 120 156
4Q91 158 130 158
1Q92 149 127 169
2Q92 167 129 178
3Q92 171 134 174
4Q92 196 140 202
1Q93 201 146 217
2Q93 202 147 216
3Q93 204 151 223
4Q93 187 154 213
1Q94 188 149 209
2Q94 188 149 225
3Q94 197 156 220
4Q94 194 156 202
1Q95 242 172 229
2Q95 264 188 262
3Q95 282 203 304
4Q95 294 215 324
5 Year Qtr CGR 24.1% 16.5% 26.5%
4 Year Qtr CGR 16.8% 13.3% 19.6%
3 Year Qtr CGR 14.5% 15.3% 17.1%
2 Year Qtr CGR 25.6% 18.0% 23.3%
1995 Qtr CGR 51.4% 37.4% 60.2%
1994 Qtr CGR 4.2% 1.4% -5.1%
1993 Qtr CGR -4.9% 10.0% 5.5%
1992 Qtr CGR 24.2% 7.6% 27.4%
1991 Qtr CGR 58.0% 30.3% 58.3%
</TABLE>
39
<PAGE>
SUMMARY COMPENSATION TABLE
The following table shows, for the fiscal years ending December 31, 1993,
1994 and 1995, the cash compensation paid by CoreStates and its subsidiaries, as
well as certain other compensation paid or accrued for those years, to the chief
executive officer and the other four most highly compensated executive officers
of CoreStates (collectively, the "Named Executives").
<TABLE>
<CAPTION>
Annual Compensation Long Term
--------------------- -----------
Other Annual Awards Payouts
-------- ---------
All Other
Salary Bonus Compensation Options LTIP Compensation
Name and Principal Position Year ($)* ($) ($)** (#)*** ($)**** ($)*****
- - ----------------------------- ---- -------- --------- ------------ ------- -------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Terrence A. Larsen, 1995 $687,981 $595,683 $3,396 148,750 $458,544 $33,750
Chairman and Chief 1994 670,692 527,710 2,578 119,000 293,543 33,535
Executive Officer 1993 647,000 483,068 3,373 101,800 287,100 32,350
Rosemarie B. Greco, 1995 387,308 304,344 76,375 339,073 19,000
President and Chief 1994 358,077 278,982 2,745 91,650 16,923
Executive Officer, 1993 327,500 162,360 2,449 27,600 12,365
CoreStates Bank, N.A.
Charles L. Coltman, III 1995 387,308 304,344 76,375 127,152 19,000
President and Chief 1994 297,692 278,982 91,650 66,969 14,885
Operating Officer 1993 233,923 122,955 2,224 26,750 51,642 11,696
Charles P. Connolly 1995 275,192 155,866 957 35,125 84,768 13,500
Senior Executive Vice 1994 238,269 142,877 2,862 45,150 50,203 11,913
President 1993 206,154 99,590 1,899 18,260 51,642 10,269
Robert N. Gilmore 1995 265,000 118,037 29,625 127,152 13,000
Chief Technology and 1994 246,154 108,200 35,550 66,969 12,308
Processing Services 1993 233,923 113,119 26,750 57,420 11,696
Officer
</TABLE>
* Annual Salary is reported for the calendar year.
** Other Annual Compensation includes Financial Planning.
*** There was a stock split on October 15, 1993. These represent post
split values.
**** Performance Units Awards under prior Long-Term Incentive Plan
. 1/2 of award value net of taxes is paid in cash, the other 1/2 in
stock
The gross value of Performance Units is a function of closing stock
price on December 29, 1995.
The number of shares granted in the half paid in stock is a function
of the closing stock price on February 20, 1996.
***** All Other Compensation consists of compensation from savings and
retirement plans as follows:
. The CoreStates Savings Plan provides investment choices and company
matches to individual contributions. Corporation contributions were
as follows:
40
<PAGE>
1995: Larsen--$7,500, Greco--$7,500, Coltman--$7,500, Connolly--$7,500,
Gilmore--$7,500.
1994: Larsen--$7,500, Greco--$6,519, Coltman--$7,500, Connolly--$7,500,
Gilmore--$7,500.
1993: Larsen--$11,792, Greco--$7,907, Coltman--$11,696, Connolly--
$10,269, Gilmore--$11,696.
. The 401 Excess Plan was adopted in 1992. It mirrors the CoreStates
Savings Plan in that it provides investment choices and company
matches for employees whose salaries are above the ERISA limits for
the savings plan. Corporation contributions were:
1995: Larsen--$26,250, Greco--$11,500, Coltman--$11,500, Connolly--
$6,000, Gilmore--$5,500.
1994: Larsen--$26,035, Greco--$10,400, Coltman---$7,385, Connolly---
$4,413, Gilmore---$4,808.
1993: Larsen--$20,558, Greco--$4,458.
OPTION GRANT TABLE
The following table contains information concerning the grant of stock
options under CoreStates' 1994 Long-Term Incentive Plan to the Named Executives
as of December 31, 1995:
Option Grants in 1995*
<TABLE>
<CAPTION>
Individual Grants Grant Date
------------------- Value
----------
% of Total Black
Options Options Exercise Scholes
Grant Granted Granted to or Base Expiration Grant Date
Name Date (#) Employees Price Date Present
- - ---- ------ -------- in 1994 -------- ---------- Value**
----------- ----------
<S> <C> <C> <C> <C> <C> <C>
Terrence A. Larsen 2/7/95 148,750 8.476% $28.75 2/7/04 $693,188
Rosemarie B. Greco 2/7/95 76,375 4.352 28.75 2/7/04 355,914
Charles L. Coltman, III 2/7/95 76,375 4.352 28.75 2/7/04 355,914
Charles P. Connolly 2/7/95 35,125 2.001 28.75 2/7/04 163,686
Robert N. Gilmore 2/7/95 29,625 1.688 28.75 2/7/04 138,055
</TABLE>
* Options reported in the table above are a combination of incentive and non-
qualified stock options. All grants become exercisable one year from the
date of grant and they must be exercised during employment except in the
case of death, disability, retirement or involuntary termination. The term
of each option is ten years.
** Results produced by the Black Scholes assumptions, below, are reduced by
10% because the options are nontransferable and 3% for risk of forfeiture:
Expected volatility--15.39%
Risk-free rate of return--5.9%
Dividend yield--3.94%
Time to exercise -- 10 years
Market Price at Grant -- $28.75
41
<PAGE>
OPTION EXERCISES AND YEAR-END TABLE
The following table sets forth information with respect to the Named
Executives, concerning the exercise of options during 1995 and unexercised
options as of December 31, 1995:
Aggregated Option Exercises in Last Fiscal Year, and FY-End Option Value
<TABLE>
<CAPTION>
Value of
--------
Number of Unexercised
Unexercised In-the-Money
Options at Options at
12/30/95 (#) 12/30/95 ($)
--------------- ($37.875/Share)*
---------------------
Shares Acquired Value Exercisable/ Exercisable/
Name on Exercise (#) Realized ($) Unexercisable Unexercisable
- - ---- --------------- ----------- --------------- ---------------------
<S> <C> <C> <C> <C>
Terrence A. Larsen....... 0 $ 0 583,482/148,750 $9,076,943/$1,357,344
Rosemarie B. Greco....... 14,190 307,746 154,132/76,375 1,905,425/696,922
Charles L. Coltman, III.. 8,436 164,634 204,716/76,375 2,197,641/696,922
Charles P. Connolly...... 0 0 106,204/35,125 1,451,638/320,516
Robert N. Gilmore........ 548 10,421 132,180/29,625 1,931,621/270,328
</TABLE>
* Values for Larsen, Greco, Coltman, Connolly and Gilmore respectively
represent 10, 5, 10, 9 & 10 years cumulative impact of stock option grants
and exercises. One stock option grant was awarded per named executive in
each year an award was made to that executive, with the exception of 1994,
in which R. Greco, C. Coltman, C. Connolly and R. Gilmore each received a
second grant, on 8/22/94.
42
<PAGE>
PENSION BENEFITS
The following table shows for various periods of credited service the
estimated annual benefits currently payable upon normal retirement at age sixty-
five to a participating employee, assuming final average compensation equaled
1995 compensation and Social Security covered compensation of $27,576, the
amount for participants who attain Social Security retirement age during 1995.
The plan formula utilizes the Social Security covered compensation as a
component to calculate the pension benefit. The table reflects a straight life
benefit.
Pension Plan Table
<TABLE>
<CAPTION>
Final 15 20 25 30 35
Average -------- -------- -------- -------- --------
Compensation
- - --------------
<S> <C> <C> <C> <C> <C>
$125,000 $ 35,560 $ 47,410 $ 59,260 $ 65,510 $ 71,760
150,000 43,060 57,410 71,760 79,260 86,760
175,000 50,560 67,410 84,260 93,010 101,760
200,000 58,060 77,410 96,760 106,760 116,760
225,000 65,560 87,410 109,260 120,510 131,760
250,000 73,060 97,410 121,760 134,260 146,760
300,000 88,060 117,410 146,760 161,760 176,760
400,000 118,060 157,410 196,760 216,760 236,760
450,000 133,060 177,410 221,760 244,760 266,760
500,000 148,060 197,410 246,760 271,960 296,760
600,000 178,060 237,410 296,760 326,760 356,760
700,000 208,060 277,410 346,760 381,760 416,760
800,000 238,060 317,410 396,760 436,760 476,760
</TABLE>
The Final Average Compensation used in calculating the qualified retirement
plan benefit is the average of the highest 60 consecutive months of base pay
(excluding all incentive and other non-salary cash payments) during the last ten
years of employment, multiplied by 12 to derive an annual salary equivalent. The
Final Average Compensation figure corresponds to the elements summarized in the
Annual (Salary) Compensation shown in the Summary Compensation Table on pages 40
and 41 of this Form 10K Annual Report.
The CoreStates Financial Corp Supplemental Retirement Plan (the "CoreStates
Supplemental Plan") covers the excess over the limitations placed on the
qualified plan by Federal law. If an employee defers salary, the CoreStates
Supplemental Plan also pays the difference between what the employee would have
gotten in the
43
<PAGE>
qualified plan had he or she not deferred salary and the qualified plan benefit
excluding the deferred salary.
The First Pennsylvania Retirement Benefit Supplement Plan (The "FP
Supplemental Plan") provides selected key executive officers with retirement
benefits in addition to those provided to all eligible employees under the
Retirement Plan. The FP Supplemental Plan covers two types of retirement
benefits. Benefit A is equal to the excess of the amount that would be payable
under the Retirement Plan if it did not contain the limitation on the annual
amount of pension benefit payments or the amount of recognizable compensation
imposed by the Internal Revenue Code over the amount actually payable under the
Retirement Plan in accordance with such limitations. Benefit C is equal to 65%
of the participant's average annual base salary for the five consecutive years
immediately preceding the participant's retirement or other termination of
benefit. Benefit C is then reduced by the aggregate of the following amounts:
the benefit under Benefit A, the Social Security benefit, the benefit under the
Retirement Plan, and the benefit under any retirement plan provided by a former
employer, excluding any portion of such benefit attributable to the
participant's own contributions to such plan.
The CoreStates Retirement Plan is not reduced by Social Security or other
offset measures.
As of December 31, 1995, the periods of credited service of the CoreStates'
executive officers named in the Summary Compensation Table above are as follows:
<TABLE>
<CAPTION>
Period of Credited
Service
------------------
<S> <C>
Terrence A. Larsen 17 years, 5 months
Rosemarie B. Greco 4 years, 9 months
Charles L. Coltman, III 25 years,10 months
Charles P. Connolly 23 years, 8 months
Robert N. Gilmore 14 years, 6 months
</TABLE>
TERMINATION OF EMPLOYMENT AND CHANGE-IN-CONTROL ARRANGEMENTS
The Named Executives are covered by an executive severance program. In the
event of termination of employment (other than for cause), each would receive
severance pay based on the base salary paid at the time of termination. Each
executive terminated would receive 3 weeks of pay for each year of service, with
a minimum total payment of 12 months and a maximum of 18 months.
44
<PAGE>
In October 1992, the Human Resources Committee of the Board of Directors
approved a special severance program to take effect upon a change in control of
CoreStates which would involve a 20% change in share ownership and a majority
change in Board membership. In the event of termination of employment due to a
change in control, the Named Executives would receive 24 months' severance pay,
based upon base salary at the time of termination. If after 24 months the
executive is still unable to find gainful employment, contingency pay equal to
12 months' pay or 2 weeks' pay for each year of service (whichever is longer)
may be awarded. The Named Executives would also receive immediate vesting of
long-term incentives and a pro-rata payment of performance units (if any)
awarded under the CoreStates' current or prior Long-Term Incentive Plans. In
addition, if not yet vested in the CoreStates Retirement Plan, the Named
Executives would receive a retirement benefit based upon actual years of service
plus the severance pay period. This benefit would be calculated in accordance
with the retirement benefit formula(s) in effect at the time in the qualified
plan and any supplemental retirement plans that may apply.
Item 12 - Security Ownership of Certain Beneficial Owners and
Management
Set forth below opposite the names of each director is the number of shares of
CoreStates Common Stock ("Shares") beneficially owned as of December 31, 1995.
Except as otherwise indicated in the Notes to the Director Information, the
persons named possess sole voting and investment power with respect to the
Shares shown opposite their names. No director owns 1% or more of the
outstanding Shares.
<TABLE>
<CAPTION>
Name of Director Number of Shares
- - ---------------- ----------------
<S> <C>
Terrence A. Larsen......... 838,188 (1)
George A. Butler........... 10,552
Nelson G. Harris........... 10,000
Carlton E. Hughes.......... 10,521 (2)
Ernest E. Jones............ 753
Herbert Lotman............. 81,914 (3)
George V. Lynett........... 22,512 (4)
Patricia A. McFate......... 4,600
John A. Miller............. 8,227
Marlin Miller, Jr.......... 17,224 (5)
Stephanie W. Naidoff....... 2,195
Seymour S. Preston, III.... 16,600
James M. Seabrook.......... 7,056 (6)
J. Lawrence Shane.......... 5,402
Raymond W. Smith........... 4,596 (7)
Harold A. Sorgenti......... 9,468 (8)
Peter S. Strawbridge 2,152
</TABLE>
45
<PAGE>
Notes to Director Information
(1) This includes 732,232 Shares which Mr. Larsen has the right to acquire
pursuant to unexercised stock options. Of the Shares reported as
beneficially owned by Mr. Larsen, 3,646 are registered in the name of
his son, 1,525 are registered in the name of his daughter, 2,180 are
registered in Mr. Larsen's name as custodian for his daughter; as to
all such Shares, Mr. Larsen disclaims beneficial ownership. 67,025 of
the Shares registered as beneficially owned by Mr. Larsen are
registered in the joint names of Mr. Larsen and his wife.
(2) 718 of the Shares reported as beneficially owned by Mr. Hughes are
held in an irrevocable trust, of which his wife is trustee, for the
benefit of their grandchildren. Mr. Hughes disclaims beneficial
ownership of such Shares.
(3) 40,627 of the Shares reported as beneficially owned by Mr. Lotman are
owned by his wife. Mr. Lotman disclaims beneficial ownership of such
Shares.
(4) 191 of the Shares reported as beneficially owned by Mr. Lynett are
owned by his wife. 8,510 of the Shares reported as beneficially owned
are registered in the name of his children, as to which Mr. Lynett
disclaims beneficial ownership.
(5) 1,600 of the Shares reported as owned by Mr. M. Miller are owned by
his wife. Mr. Miller disclaims beneficial ownership of such Shares.
(6) 2,000 of the Shares reported as beneficially owned by Mr. Seabrook are
registered in the name of his daughter. Mr. Seabrook disclaims
beneficial ownership of such Shares.
(7) 800 of the Shares reported as beneficially owned by Mr. Smith are held
in a charitable trust, of which Mr. Smith and his wife are co-
trustees.
(8) 1,664 of the Shares reported as beneficially owned by Mr. Sorgenti
are owned by his wife.
46
<PAGE>
Beneficial Ownership of Common Stock
The following table shows at December 31, 1995 the number of shares of
CoreStates Common Stock beneficially owned, including shares which may be
purchased through unexercised options, by the executive officers of CoreStates
named in the Summary Compensation Table on page 40 except in respect to Mr.
Larsen whose share ownership is reported above in the information concerning
directors:
Rosemarie B. Greco 244,910 Shares
Charles L. Coltman, III 316,487 Shares
Charles P. Connolly, Jr. 156,937 Shares
Robert N. Gilmore 174,938 Shares
At December 31, 1995, the directors and executive officers of the
CoreStates as a group beneficially owned 2,077,438 shares of CoreStates Common
Stock which represents approximately 1.51% of all outstanding shares. No
director or executive officer beneficially owned more than 1% of the outstanding
shares.
Included in the share amounts shown are 3,673 shares held for Mr. Coltman,
and 2,898 shares held for the executive officers (other than Mr. Larsen, Ms.
Greco, Mr. Coltman, Mr. Connolly and Mr. Gilmore) as a group by CoreStates Bank,
N.A., as trustee under the CoreStates Savings Plan. Also included are options to
acquire shares (exercisable immediately or within 60 days after December 31,
1995) held by: Ms. Greco--230,507; Mr. Coltman--281,091; Mr. Connolly--141,329;
Mr. Gilmore--161,805; and the executive officers (other than Mr. Larsen, Ms.
Greco, Mr. Coltman, Mr. Connolly and Mr. Gilmore) of CoreStates as a group--
129,308. The named individuals have sole voting and investment powers with
respect to the shares owned.
The following table sets forth information as of December 31, 1995
regarding the only persons which to CoreStates' knowledge are the beneficial
owners of more than 5% of CoreStates Common Stock.
<TABLE>
<CAPTION>
Name and Address Amount and Nature Percent of
of Beneficial Owner of Beneficial Common Stock
- - ------------------- ------------- ------------
Ownership
---------
<S> <C> <C>
Wellington Management Company.. 8,294,040(1) 5.96%
75 State Street
Boston, MA 02109
- - ----------------
</TABLE>
(1) Wellington Management Company has reported that it is deemed the owner of
the above Shares in its capacity as investment advisor to a variety of
investment advisory clients.
Item 13 - Certain Relationships and Related Transactions
Indebtedness of Directors and Management
47
<PAGE>
CoreStates' subsidiaries have from time to time made loans to some officers
and directors of CoreStates and to companies with which they are associated.
Such loans were made in the ordinary course of business, on substantially the
same terms, including interest rates and collateral, as those prevailing at the
time for comparable transactions with others, and did not involve more than
normal risk of collectibility or present any other unfavorable features.
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, 1995 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, 1995, 1994 and
1993....................... 37 47
Consolidated Balance Sheets
as of December 31, 1995 and
1994....................... 38 48
Consolidated Statements of
Changes in Shareholders'
Equity for the years ended
December 31, 1995, 1994 and
1993....................... 39 49
Consolidated Statements of
Cash Flows for the years
ended December 31, 1995,
1994 and 1993.............. 40 50-51
Notes to the Consolidated
Financial Statements....... 41-59 52-80
</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
48
<PAGE>
not required under the related instructions or are inapplicable, and therefore
have been omitted.
49
<PAGE>
(a) 3. Exhibits
--------
Exhibit No. Page No.
- - ----------- --------
2.1 Agreement and Plan of Merger dated as of October 10,
1995 by and between CoreStates Financial Corp and
Meridian Bancorp Inc. and filed as Annex I to
Registrant's Report on Form S-4 No. 333-00067 and
incorporated herein by reference.
2.2 Stock Option Agreement dated as of October 10, 1995
by and between CoreStates Financial Corp and Meridian
Bancorp, Inc. Filed as Annex II to the Registrant's
Report on Form S-4 No. 333-00067 and incorporated
herein by reference.
2.3 Meridian Stock Option Agreement dated as of October 10,
1995 by and between Meridian Bancorp, Inc. and
CoreStates Financial Corp filed as Annex III to the
Registrant's Report on Form S-4 No. 333-00067 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.
50
<PAGE>
Exhibit No. Page No.
- - ----------- --------
4.2 Indenture dated as of December 1, 1990 between
CoreStates Financial Corp, CoreStates Capital Corp
and The Bank of New York, as senior trustee and
successor to 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. filed as
Exhibit 4.5 to Registrant's Annual Report on Form 10-K
for the year ended December 31, 1994 and incorporated
herein by reference.
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.
51
<PAGE>
Exhibit No. Page No.
- - ----------- --------
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.
52
<PAGE>
Exhibit No. Page No.
- - ----------- --------
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 * Deferred Compensation Plan for Directors of
CoreStates Financial Corp and CoreStates Bank, N.A. as
amended and restated effective January 1, 1995.
10.4 * 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.
10.5 * 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.
10.6 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
53
<PAGE>
Exhibit No. Page No.
- - ----------- --------
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.
10.7 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.
10.8 * 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.
10.9 * 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.
10.10 * 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.
10.11 * 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.
10.12 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.
54
<PAGE>
Exhibit No. Page No.
- - ----------- --------
10.13 * Incentive Compensation Plan for Designated
Executives of CoreStates Financial Corp and
Participating Subsidiaries filed as Exhibit 10.18 to
Registrant's Annual Report on Form 10-K for the fiscal
year ended December 31, 1994 and incorporated herein by
reference.
10.14 * Independence Bancorp, Inc. Supplemental Executive
Retirement Plan filed as Exhibit 10.19 to Registrant's
Annual Report on Form 10-K for the fiscal year ended
December 31, 1994 and incorporated herein by reference.
10.15 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.
10.16 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 70 of the Registrant's Annual
Report to Shareholders for the fiscal year ended
December 31, 1995.
55
<PAGE>
Exhibit No. Page No.
- - ----------- --------
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.
27 Financial Data Schedule.
99.1 Undertaking - Form S-8 Registration Statements.
* 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, 1995:
A Report on Form 8-K was filed on October 10, 1995 reporting the Agreement and
Plan of Merger with Meridian Bancorp, Inc. dated October 10, 1995.
A Report on Form 8-K was filed on October 18, 1995 reporting that
earnings information contained in the news release of CoreStates Financial Corp
dated October 18, 1995.
A Report on Form 8-K was filed on November 14, 1995 reporting certain events
in connection with the pending merger with Meridian Bancorp, Inc. and Meridian's
proposed merger with United Counties Bancorporation.
56
<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, 1995 and 1994, 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, 1995. 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 financial statements of Constellation Bancorp and Independence
Bancorp. Inc., which statements reflect net interest income constituting
15.6% of the related consolidated total for the year ended December 31,
1993. 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 evaluat-
ing 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, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted
accounting principles.
As discussed in Note 1 to the financial statements, in 1994 the Company
changed its method of accounting for certain investments in debt and
equity securities, and in 1993 the Company changed its method of
accounting for post-employment benefits.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 17, 1996
57
<PAGE>
INDEPENDENT AUDITORS' REPORT
The Board of Directors and Shareholders of
Constellation Bancorp:
We have audited the consolidated statements of operations, changes in
shareholders' equity, and cash flows of Constellation Bancorp and
subsidiaries for the year 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 audit.
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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the results of operations and cash flows of
Constellation Bancorp and subsidiaries for the year 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
58
<PAGE>
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Stockholders of
Independence Bancorp, Inc.
We have audited the consolidated statements of income, changes in stockholders'
equity, and cash flows of Independence Bancorp, Inc. and Subsidiaries for the
year 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 audit.
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 audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the consolidated results of operations and
cash flows of Independence Bancorp, Inc. and Subsidiaries for the year 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.
/s/ Coopers & Lybrand L.L.P.
January 19, 1994
2400 Eleven Penn Center
Philadelphia, Pennsylvania
59
<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
Signature Capacity Date
--------- -------- ----
/s/Terrence A. Larsen Director, Chairman March 26, 1996
- - --------------------------- of the Board and
Terrence A. Larsen Chief Executive
Officer
(principal
executive
officer)
/s/ Albert W. Mandia Executive Vice March 26, 1996
- - --------------------------- President and
Albert W. Mandia principal financial
officer
/s/ Christopher J. Carey Senior Vice President March 26, 1996
- - --------------------------- and Corporate Controller
Christopher J. Carey and principal
accounting officer
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/ George A. Butler Director March 26, 1996
- - ---------------------------
George A. Butler
/s/ Nelson G. Harris Director March 26, 1996
- - ---------------------------
Nelson G. Harris
/s/ Carlton E. Hughes Director March 26, 1996
- - ---------------------------
Carlton E. Hughes
60
<PAGE>
Signature Capacity Date
--------- -------- ----
/s/ Ernest E. Jones Director March 26, 1996
- - ---------------------------
Ernest E. Jones
/s/ Herbert Lotman Director March 26, 1996
- - ---------------------------
Herbert Lotman
/s/ George V. Lynett Director March 26, 1996
- - ---------------------------
George V. Lynett
/s/ Patricia A. McFate Director March 26, 1996
- - ---------------------------
Patricia A. McFate
/s/ John A. Miller Director March 26, 1996
- - ---------------------------
John A. Miller
/s/ Marlin Miller, Jr. Director March 26, 1996
- - ---------------------------
Marlin Miller, Jr.
/s/ Stephanie W. Naidoff Director March 26, 1996
- - ---------------------------
Stephanie W. Naidoff
/s/ Seymour S. Preston, III Director March 26, 1996
- - ----------------------------
Seymour S. Preston, III
/s/ James M. Seabrook Director March 26, 1996
- - ----------------------------
James M. Seabrook
/s/ J. Lawrence Shane Director March 26, 1996
- - ----------------------------
J. Lawrence Shane
/s/ Raymond W. Smith Director March 26, 1996
- - ----------------------------
Raymond W. Smith
- 61 -
<PAGE>
Signature Capacity Date
--------- -------- ----
/s/ Harold A. Sorgenti Director March 26, 1996
- - ----------------------------
Harold A. Sorgenti
/s/ Peter S. Strawbridge Director March 26, 1996
- - ----------------------------
Peter S. Strawbridge
- 62 -
<PAGE>
EXHIBIT INDEX
-------------
10.3 Deferred Compensation Plan for Directors of CoreStates Financial
Corp and CoreStates Bank, N.A. as amended and restated effective
January 1, 1995.
11 CoreStates Financial Corp Statement regarding 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 70 of the Registrant's Annual Report to
Shareholders for the fiscal year ended December 31, 1995.
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.P.P.
27 Financial Data Schedule
99.1 Undertaking - Form S-8 Registration Statement
<PAGE>
Exhibit 10.3
------------
DEFERRED COMPENSATION PLAN FOR DIRECTORS
of
CORESTATES FINANCIAL CORP
and
CORESTATES BANK, N.A.
(As amended and Restated
Effective January 1, 1995)
WHEREAS, CoreStates Financial Corp ("CoreStates") and Corestates Bank, N.A.
(the "Bank") have established and now maintain the Deferred Compensation Plan
For Directors of CoreStates Financial Corp and CoreStates Bank, N.A., most
recently amended and restated effective April 1, 1988, (the "Plan"); and
WHEREAS, prior to its merger into CoreStates, Independence Bancorp, Inc.,
("Independence") established and maintained the Independence Bancorp, Inc.
Deferred Compensation Plan for Directors dated January 17, 1984 (the
"Independence Plan"); and
WHEREAS, prior to their respective mergers into the Bank, (a) Hamilton Bank
("Hamilton") established and maintained the Deferred Compensation Plan for
Director, amended and restated effective July 1, 1988, and containing provisions
substantially the same as in the Plan (the "Hamilton Plan"), (b) Bucks County
Bank and Trust Company ("BCB") established and maintained the Bucks County Bank
and Trust Company Deferred Compensation Plan for Directors dated December
22,1983 (the "BCB Plan"), and (c) Lehigh Valley Bank ("LVB") established and
maintained the Lehigh Valley Bank Deferred Compensation Plan for Directors (the
"LVB Plan"). Herein the Independence Plan, the Hamilton Plan, the BCB Plan, and
the LVB Plan are sometimes called the "Other Plans."
WHEREAS, Independence has merged with and into CoreStates and Hamilton,
BCB, and LVB have merged with and into the Bank; and
WHEREAS, CoreStates and the Bank want to amend and restate in their
entirety each of the Plan and the Other Plans as permitted by each such plan and
to merge the Other Plans with and into the Plan, as set forth herein;
NOW THEREFORE, effective January 1, 1995 (except where other effective
dates are specifically provided) the Plan is hereby amended and restated in its
entirety to provide and continue a method whereby members of the board of
directors (a "Director" or the "Directors") of CoreStates or of the Bank or both
may elect to defer receipt of compensation to be paid to them for their services
as a Director, to merge by amendment and restatement the Other Plans into the
Plan and to provide for the satisfaction by CoreStates and the Bank of the
obligations under the Plan.
<PAGE>
Section 1. Deferred Election and Payment Options. Prior to the beginning
-------------------------------------
of any term of office for which a Director or a new director nominee is to be
elected, a Director may elect to have all or any specified portion of the
compensation to be earned as a Director for that and subsequent terms, payment
of which is conditioned upon services thereafter to be performed, including
compensation for services on committees, plus income as provided in Section 2,
paid to the Director or a designated beneficiary of the Director in one of the
following ways:
(a) Payment in ten approximately equal annual installments beginning at the
earlier of the termination of service as a Director or age 65, with any unpaid
- - -------
balance at death paid in a lump sum to a designated beneficiary.
(b) Payment in ten approximately equal annual installments beginning at the
later of termination of service as a Director or age 65, with any unpaid balance
- - -----
at death paid in a lump sum to a designated beneficiary.
(c) Payment upon death only in a lump sum to a designated beneficiary.
(d) Payment in one lump sum on or as soon as practicable after the date for
payment (the "Deferred Payment Date") specified by the Director at the time of
the election to defer; provided, however, that at any time prior to one year
before the Deferred Payment Date, a Director may elect in writing delivered to
the Secretary of CoreStates or the Bank to receive payment in approximately
equal annual installments over a term not exceeding twenty years, with any
unpaid balance at death paid in a lump sum to a designated beneficiary.
(e) Any other method of payment upon which the Secretary of CoreStates or
the Bank and the Director may agree prior to the time when an election is
required.
Section 2. Deferred Compensation Account. Compensation deferred by a
-----------------------------
Director under the Plan shall be credited quarterly to a deferred compensation
account in the name of the Director ("Director's account"). Earnings on each
Director's account shall be determined in accordance with this Section 2. In
addition, the amounts to be paid pursuant to Section 1 hereof shall be based on
the value of each Director's account at the time payments are made, as
determined in accordance with this Section 2.
2.1 Income on Deferred Compensation. For purposes of hypothetical
-------------------------------
investment under Section 2.2, compensation deferred under this Plan credited to
the Director's account shall be considered to be invested and to begin to earn
income as of the first day of the calendar quarter following the calendar
quarter in which the compensation is earned.
2.2 Hypothetical Investment. Compensation credited to a Director's
-----------------------
account on or before April 1, 1988 will be assumed to be invested, without
charge, in one or more of the following four hypothetical investments but only
the Percentage of Prime Rate hypothetical investment will be available for
compensation created to a Director's account after April 1, 1988.
2
<PAGE>
Further, any compensation credited to a Director's account on or before April 1,
1988 which is allocated to the Percentage of Prime Rate hypothetical investment
may not thereafter be reallocated back to any of the other hypothetical
investments.
(a) Fixed Income Equivalent. Deferred compensation allocated to
-----------------------
the Fixed Income Equivalent hypothetical investment shall be assumed to be
invested in units of participation in the CoreStates Bond Fund of the Bank. The
value of a hypothetically invested unit of participation shall be the same as
the value of a unit of participation in the CoreStates Bond Fund of the Bank.
The income on this hypothetical investment shall be equivalent to and at the
same rate as income paid on units of participation in such fund as of each
Valuation Date (as defined below).
(b) Liquidity Equivalent. Deferred compensation allocated to
--------------------
the Liquidity Fund hypothetical investment shall be assumed to be invested in
units of participation in the CoreStates Liquidity Fund of the Bank. The value
of a hypothetically invested unit of participation shall be the same as the
value of a unit of participation ($1.00) in the CoreStates Liquidity Fund of the
Bank. The income on this hypothetical investment shall be equivalent to and at
the same rate as income paid on units of participation in such fund as of each
Valuation Date (as defined below).
(c) Equity Equivalent. Deferred compensation allocated to the
-----------------
Equity Equivalent hypothetical investment shall be assumed to be invested in
units of participation in the CoreStates Equity Fund of the Bank. The value of a
hypothetically invested unit of participation shall be the same as the value of
a unit of participation in the CoreStates Equity Fund of the Bank. Income on
this hypothetical investment shall be equivalent to and at the same rate as
income paid on units of participation in such fund as of each Valuation Date (as
defined below).
(d) Percentage of Prime Rate Equivalent. Deferred compensation
-----------------------------------
allocated to the Percentage of Prime Rate Equivalent hypothetical investment
shall be deemed to earn, and shall be credited with earnings, at a rate per
annum (rounded off to three decimal places) from time to time determined by
multiplying the prime rate of the Bank by a decimal amount, such decimal amount
(rounded off to three decimal places) to be equal to one minus 118 percent of
the highest marginal corporate tax rate for Federal income tax purposes. For
example, during any time the prime rate of the Bank is 9 1/4% and the highest
marginal corporate tax rate for Federal income tax purposes is 34%, the deemed
per annum rate of earnings credited to an account will be 0.055 determined as
follows: 0.0925 x (1 - 1.18 x 0.34)) = 0.055. The rate of earnings to be
credited to a Director's account in accordance with this paragraph (d) shall
change each time the Bank's prime rate shall change, effective on and as of the
date of such change, and shall also change each time there is a change in the
highest marginal corporate tax rate for Federal income tax purposes, effective
on and as of the date of such change.
2.3 Time and Manner of Hypothetical Investment.
------------------------------------------
3
<PAGE>
(a) The Hypothetical investment of a Director's deferred
compensation in one or more of hypothetical investments (a), (b) and (c)
described in Section 2.2 shall be expressed in units. As of the last business
day of each calendar quarter (a Valuation Date), the value of each such unit
shall be equivalent to the value of a unit in the particular fund to which the
investment is assumed to be invested. The number of units of a particular
hypothetical investment shall be determined by dividing the dollar amount to be
hypothetically invested by the value of a unit in the particular fund in which
the investment is assumed to be made at the time of hypothetical investment.
(b) The income of the hypothetical investment in the Director's
deferred compensation account shall be credited to the Director's account at the
end of the calendar quarter and shall be deemed reinvested as of the first day
of the next calendar quarter in units of the hypothetical investment fund or
funds from which such income derives.
2.4 Allocation of Hypothetical Investment.
-------------------------------------
(a) A Director may allocate compensation credited to the
Director's account on or before April 1, 1988 to any one of the hypothetical
investments or may allocate amounts among two or more of the hypothetical
investments. Deferred compensation allocated to the Percentage of Prime Rate
Equivalent may not thereafter be allocated to another of the hypothetical
investments. The allocation shall be as selected by the Director. Compensation
credited to a Director's account after April 1, 1988 may be allocated only to
the Percentage of Prime Rate Equivalent investment.
(b) An allocation of deferred compensation shall be effective
as of the first day of the quarter following the calendar quarter in which the
compensation is earned and shall be based upon values in effect on the Valuation
Date which immediately precedes the effective date of such allocation. The
Secretary of CoreStates or the Bank must receive the participant's written
notice of the designated allocation prior to the first day of the calendar
quarter following the calendar quarter in which the compensation is earned.
(c) The minimum allocated to any hypothetical investment under
this Section 2.4 shall be one-fourth of the amount to be deferred.
2.5 Reallocation of Hypothetical Investment. A Director may, prior
---------------------------------------
to the end of any calendar quarter, also reallocated among the first three
hypothetical investments the amount then allocated among such hypothetical
investments in the Director's account. The reallocation shall be effective as of
the first day of the calendar quarter following the end of the calendar quarter
in which the Secretary of CoreStates or the Bank receives the Participant's
written notification indicating the amount to be reallocated to the three
hypothetical investments; and shall be based upon unit values existing on the
Valuation Date which immediately precedes the effective date of such
reallocation.
4
<PAGE>
2.6 Statement of Account. A statement of the Director's account
--------------------
shall be sent to the Director at least once a calendar year.
Section 3. Effect of Deferred Elections. An election by a Director or a
----------------------------
new Director nominee to defer compensation for a future term or office for which
the election to defer has been made shall be irrevocable with respect to and for
that term, and shall continue to be effective with respect to compensation in
each succeeding term thereafter until and unless, before the beginning of any
such succeeding term, the Director files a new election or informs the Secretary
of CoreStates or the Bank in writing that the Director wishes to receive
compensation entirely in cash. An election by a Director to defer compensation
with respect to any term of office subsequent to the Director's current term
shall be irrevocable after such term begins and the election shall continue to
be effective with respect to compensation in each succeeding term until and
unless, before the beginning of any such term, the Director files a new election
or informs the Secretary of CoreStates or the Bank in writing that the Director
wishes to receive compensation entirely in cash.
Section 4. Beneficiary Designation. Designations of beneficiary shall be
-----------------------
made only by written instruction filed with the Secretary of CoreStates or the
Bank during the Director's life-time. All designations shall be revocable and
may be changed in the same manner at any time unless expressly stated to be
irrevocable. A revocable beneficiary designation (other than one designating a
trustee as beneficiary) shall be revoked by the death of the beneficiary. The
rights of an irrevocably designated beneficiary (other than a trustee) shall
inure to such beneficiary's estate. The rights of a trustee beneficiary shall
inure to the successor trustee. If no beneficiary designation is in effect at
the death of a Director, payments otherwise due a beneficiary shall be paid to
the Director's estate.
Section 5. Provisions Applicable Only to the Other Plans. Each of the
---------------------------------------------
Other Plans shall be amended and restated to read in its entirety as provided in
this Section 5.
5.1 Benefits of Participants. Each participant who on December 31,
------------------------
1994 was entitled to a benefit under any one or more of the Other Plans (a
"Participants" or the "Participants") shall be entitled on January 1, 1995 to a
benefit hereunder equivalent to the aggregate of such benefits. A deferred
equivalent to the aggregate of such benefits. A deferred compensation account in
the name of each Participant (the "Participants' account") shall be established
and shall credited with an amount equal to the aggregate undistributed
compensation plus earnings thereon accrued to the Participant under the Other
Plans as of December 31, 1994.
5.2 Further Deferrals. Each Participant who on January 11, 1995
-----------------
continues to serve on an Advisory Board of CoreStates or the Bank may elect to
have all or any specified portion of the compensation to be earned as a member
of such Advisory Board after January 1, 1995 deferred and paid under the Plan in
the same manner as applicable to a Director hereunder and subject to all of the
terms, provisions and limitations hereof. Any such deferrals shall be credited
periodically to the Participant's account and thereafter be credited with
earnings and be
5
<PAGE>
distributed to the Participant in accordance with his election, all as
contemplated herein. No further deferrals may be made under an Other Plan.
5.3 Income on Deferred Compensation. The amount credited to a
-------------------------------
Participant's account on January 1, 1995 will be assumed to be invested, without
charge, in the Percentage of Prime Rate Equivalent hypothetical investment and
shall be deemed to earn, and shall be credited with earnings at a rate per annum
determined as set forth in Section 2.2(d) above.
5.4 Statement of Account. A statement of a Participant's account
--------------------
shall be sent to the Participant at least once a calendar year.
5.5 Beneficiary Designation. All designations of a beneficiary
-----------------------
under an Other Plan shall be continue in effect under this Plan until changed by
the Participant in the manner described in Section 4 above.
5.6 Distributions. (a) Distributions or payments to a Participant
-------------
or a designated beneficiary of a Participant shall commence, if they have not
already done so, in 1995 and shall be made in accordance with the form of
distribution selected by the Participant pursuant to the Other Plan; provided,
however, that (i) if a lump sum payment was selected, the Participant may elect
in writing delivered to the Secretary of CoreStates or the Bank at any time
prior to one year before the date on which such lump sum payment is to be made
to receive payment in approximately equal annual installments over a term not
exceeding twenty years, with any unpaid balance at death paid in a lump sum to a
designated beneficiary and (ii) if 120 equal monthly installments was selected,
CoreStates or the Bank, in order to reduce its administrative burden, may make
such payments in approximately equal annual installments rather than monthly
installments over the same period of time, each such annual installment to be
made as soon as reasonably practicable after the value of the Participant's
account is determined at the end of the preceding year and to be in an amount
equal to the sum of what would have been the twelve monthly installments.
(b) Amendments. A Participant may amend his/her form of
----------
distribution designated under the Other Plan to any payment option set forth in
Section 1 above provided that such amendment does not result in an acceleration
of the distributions to the Participant and does not result in a deferral of
distributions already scheduled to be made to the Participant during the
calendar year in which the amendment is made.
(c) Death of a Participant. In the event a Participant should
----------------------
die prior to receiving any payments, such payments shall be made to a designated
beneficiary in the form selected by the Participant for the beneficiary. In the
event of a Participant's death after installment payments have commenced, but
prior to receiving the full amount due the Participant, the unpaid balance will
continue to be paid in installments to the Participant's designated beneficiary
for the unexpired portion of the form of distribution selected by Participant
for himself or herself. In the event, however, that there is no beneficiary
designated, the unpaid balance shall
6
<PAGE>
be paid to the Participant's spouse, if living, otherwise, to the Participant's
executor or administrator, in a lump sum.
(d) No Election on File. If no form of distribution is selected
-------------------
by a Participant for himself/herself or the beneficiary, distribution shall be
made in a lump sum.
(e) Hardship Withdrawal. A Participant may request an early
-------------------
withdrawal of all or a portion of the Participant's account which CoreStates or
the Bank in its discretion may grant if the request is based on severe hardship
resulting from an emergency caused by an event beyond the control of the
Participant and the request is limited to amounts necessary to meet the
hardship. A hardship withdrawal shall be paid in a lump sum as soon as
practicable after approval by CoreStates or the Bank.
5.7 Interpretation. Unless as otherwise specifically provided in
--------------
this Section 5, the provisions of Section 5 are to be interpreted in a manner
consistent with the other provisions of the Plan.
Section 6. Governing Law. All matters pertaining to the construction,
-------------
validity and effect of this Plan shall be determined in accordance with the
laws, other than conflicts of law rules, of the Commonwealth of Pennsylvania.
Section 7. Rights Unsecured. The rights of Directors, Participants and
----------------
designated beneficiaries or others hereunder to receive future payments shall be
an unsecured claim against the general assets of CoreStates or the Bank.
Section 8. Binding Agreement. This Plan shall be binding on the
-----------------
successors in interest of CoreStates, the Bank, the Directors, the Participants
and all beneficiaries of a Director or Participant.
Section 9. No Assignments. Amounts payable under this Plan may not be
--------------
voluntarily or involuntarily assigned by any Director, Participant or
beneficiary.
Section 10. Termination. Either CoreStates or the Bank may further amend
-----------
or terminate this Plan at any time with respect to its Director's compensation
not yet earned.
7
<PAGE>
Section 11. Effective Date. The effective date of the Plan was January 3,
--------------
1973. The effective date of the Plan as amended and restated herein is January
1, 1995.
CORESTATES FINANCIAL CORP CORESTATES BANK, N.A.
/s/ Les Butler /s/ Les Butler
- - ----------------------------------- -----------------------------------------
Chairman Chairman
/s/ Jackie Ballantine /s/ Jackie Ballantine
- - ----------------------------------- -----------------------------------------
Secretary Secretary
8
<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,
-------------------- ----------------------
1995 1994 1995 1994
--------- --------- ---------- ----------
<S> <C> <C> <C> <C>
(A) Income before cumulative effect of a change
in accounting principle................. $136,954 $111,475 $452,237 $248,792
Cumulative effect of a change in
accounting principle.................... (3,430)
-------- -------- -------- ---------
(B) Net Income................................. $136,954 $111,475 $452,237 $245,362
======== ======== ======== ========
EARNINGS PER SHARE
Based on average common shares outstandings
- - -------------------------------------------
(C) Average shares outstanding................. 138,468 142,252 140,600 142,498
======== ======== ======== ========
(A/C) Income before cumulative effect of a
change in accounting principle.......... $ 0.99 $ 0.78 $ 3.22 $ 1.75
======== ======== ======== ========
(B/C) Net Income................................. $ 0.99 $ 0.78 $ 3.22 $ 1.73
======== ======== ======== ========
Based on average common and common
- - ----------------------------------
equivalent shares outstandings
- - ------------------------------
Primary:
- - --------
(D) Average common equivalent shares........... 1,441 922 1,336 1,207
======== ======== ======== ========
(E) Average common and common
equivalent shares (C + D)............... 139,909 143,174 141,936 143,705
======== ======== ======== ========
(A/E) Income before cumulative effect of a
change in accounting principle (1)...... $ 0.98 $ 0.78 $ 3.19 $ 1.73
======== ======== ======== ========
(B/E) Net Income (1)............................. $ 0.98 $ 0.78 $ 3.19 $ 1.71
======== ======== ======== ========
Fully diluted:
- - --------------
(F) Average common equivalent shares........... 1,449 906 1,696 1,240
======== ======== ======== ========
(G) Average common and common
equivalent shares (C + F)............... 139,917 143,158 142,296 143,738
======== ======== ======== ========
(I) Interest expense on Subordinated
convertible debentures, net of tax...... $ 384 $ 1,821
======== ========
((A+I)/G) Income before cumulative effect of a
change in accounting principle (1)...... $ 0.98 $ 0.78 $ 3.18 $ 1.74
======== ======== ======== ========
((B+I)/G) Net Income (1).......................... $ 0.98 $ 0.78 $ 3.18 $ 1.72
======== ======== ======== ========
</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
Twelve Months Ended December 31, 1995
- - -------------------------------------
<TABLE>
<S> <C> <C>
1. Income from continuing operations before cumulative
effect of change in accounting principle and income taxes............... $ 714,802
==========
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........................ $ 262,860
B. Interest on deposits................................................. 532,703
----------
C. Total fixed charges (line 2A + line 2B)............................... $ 795,563
==========
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).................... $ 977,662
==========
B. Including interest on deposits (line 1 + line 2C).................... $1,510,365
==========
4. Ratio of earnings (as defined) to fixed charges:
A. Excluding interest on deposits (line 3A/line 2A)..................... 3.72x
=====
B. Including interest on deposits (line 3B/line 2C)..................... 1.90x
====
</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, 1995
- - -------------------------------------
<S> <C>
1. Income before income taxes, equity in undistributed income
of subsidiaries and cumulative effect of change in accounting
principle........................................................... $313,581
2. Fixed charges - interest expense, amortization of
debt issuance costs and one-third of rental expenses, net of
income from subleases............................................... 179,283
--------
3. Income before taxes, equity in undistributed income of
subsidiaries and cumulative effect of change in accounting
principle, plus fixed charges....................................... $492,864
========
4. Ratio of earnings (as defined) to fixed charges (line 3/
line 2)............................................................ 2.75x
====
</TABLE>
<PAGE>
Exhibit 13
----------
DRAFT: 03/05/96
1995
ANNUAL REPORT
FINANCIAL SECTIONS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Consolidated Financial Highlights (Inside Cover) 2
Contents of Financial Section 3
MD&A 4 - 43
Management's and Accountants' Reports 44 - 46
Audited Financial Statements 47 - 81
Supplemental Data 81 - 95
</TABLE>
1
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED FINANCIAL HIGHLIGHTS
(dollar amounts in thousands, except per share)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 1994
---------- --------
<S> <C> <C>
EARNINGS AND DIVIDENDS APPLICABLE TO COMMON SHARES
Income before cumulative effect of a
change in accounting principle (a)............................ $ 452,237 $248,792
Net income.................................................... 452,237 245,362
Cash dividends declared....................................... 201,895 175,103
PER SHARE
Income before cumulative effect of a
change in accounting principle (a).......................... $ 3.22 $ 1.75
Net income.................................................... 3.22 1.73
Cash dividends declared....................................... 1.44 1.24
Book value.................................................... 17.24 16.22
SELECTED FINANCIAL RATIOS
Return on average total assets (a)(b)......................... 1.59% 0.90%
Return on average common shareholders' equity (a)(b).......... 19.59 10.96
Net interest margin........................................... 5.97 5.80
Tier 1 leverage ratio......................................... 7.62 7.79
Tier 1 capital ratio.......................................... 8.41 8.64
Total capital ratio........................................... 12.09 12.43
Allowance for loan losses to loans............................ 2.35 2.44
Non-performing assets to loans plus OREO...................... 0.81 1.51
Non-performing assets to total assets......................... 0.58 1.06
Allowance for loan losses to non-performing loans............. 341.8 203.3
FINANCIAL POSITION AT DECEMBER 31, 1995 1994
----------- -----------
Assets........................................................ $29,620,616 $29,325,136
=========== ===========
Loans......................................................... $21,046,535 $20,526,216
=========== ===========
Deposits...................................................... $21,502,433 $22,040,886
=========== ===========
Shareholders' equity.......................................... $ 2,379,419 $ 2,350,114
=========== ===========
</TABLE>
___________________________
(a) Selected financial results, excluding a net after-tax restructuring charge
of $62.5 million, or $0.44 per share related to a process redesign and an
after-tax gain of $11.8 million, or $0.08 per share related to a change in
ownership interests in an affiliate joint venture, both recorded in 1995,
and after-tax merger-related charges of $167.4 million, or $1.17 per
share, recorded in 1994, were as follows:
<TABLE>
<CAPTION>
1995 1994
--------- --------
<S> <C> <C>
Income before cumulative effect of a
change in accounting principle.......................... $ 502,951 $416,239
Per share................................................ $3.58 $2.92
Return on average total assets (b)....................... 1.77% 1.50%
Return on average common shareholders'
equity (b).............................................. 21.78 18.34
</TABLE>
(b) Return on average total assets and return on average common shareholders'
equity are calculated on income before cumulative effect of a change in
accounting principle.
2
<PAGE>
1995 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................................................... 4
FINANCIAL STATEMENTS
Management's Report on Internal Controls Over Financial Reporting............................... 44
Independent Accountants' Report and Report of Independent Auditors.............................. 45-46
Consolidated Statements of Income for the years ended December 31, 1995, 1994 and 1993.......... 47
Consolidated Balance Sheets as of December 31, 1995 and 1994.................................... 48
Consolidated Statements of Changes in Shareholders' Equity for the years ended
December 31, 1995, 1994 and 1993............................................................. 49
Consolidated Statements of Cash Flows for the years ended December 31, 1995, 1994 and 1993...... 50-51
Notes to the Consolidated Financial Statements.................................................. 52-80
SUPPLEMENTAL FINANCIAL DATA
Five Year Average Balance Sheet, Statement of Income and Balance Sheet.......................... 81-86
Rate/Volume Analysis Taxable Equivalent Basis................................................... 87
Loan Portfolio, Risk Elements and Allowance for Loan Losses Data................................ 88-92
Selected Maturity and Interest Sensitivity Data................................................. 92-95
</TABLE>
3
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
OVERVIEW
A primary strategic focus for CoreStates Financial Corp ("CoreStates") in 1995
involved Building Exceptional Service Together ("BEST"), its corporate-wide
process redesign. Another major strategic accomplishment in 1995 was the
signing on October 10, 1995 of a definitive agreement to acquire the $14.8
billion asset Meridian Bancorp, Inc., in a transaction which is expected to
enhance shareholder value, strategic growth in products and markets, and
franchise value. See "Strategic Actions in 1995" beginning on page 7.
EARNINGS - In 1995, CoreStates achieved record earnings due to continued growth
- - --------
in basic banking businesses, driven primarily by an increase in net interest
income and reductions in operating expenses resulting from the implementation of
BEST. CoreStates' "operating earnings" for 1995, defined as net income excluding
the BEST related net restructuring charge and a gain related to a change in
ownership interests in an affiliate joint venture, were $502.9 million, or $3.58
per share, reflecting growth of 22.6% on a per share basis when compared to
operating earnings of $416.2 million, or $2.92 per share in 1994. Operating
earnings for 1994 exclude merger-related charges of $167.4 million after-tax, or
$1.17 per share, and the cumulative effect of a change in accounting principle.
The net restructuring charge, gain on affiliate joint venture and 1994 merger-
related charges are discussed below. CoreStates recorded net income of $452.2
million, or $3.22 per share in 1995, compared to net income of $245.4 million,
or $1.73 per share in 1994.
Operating results, key performance ratios and per share information are
summarized in the following table (in millions, except per share):
<TABLE>
<CAPTION>
Percentage
Increase (Decrease)
----------------------
1995 1994 1993 '95/'94 '94/'93
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Net interest income (taxable equivalent basis)... $1,505.8 $1,410.6 $1,351.8 6.7% 4.4%
======== ======== ========
Income before the cumulative effect of a
change in accounting principle.............. $ 452.2 $ 248.8 $ 362.4 81.8 (31.3)
Exclude after-tax effects of:
Net restructuring charge.................... 62.5 - -
Gain on joint venture....................... (11.8) - -
Merger-related charges...................... - 167.4 -
-------- -------- --------
Operating earnings............................... $ 502.9 $ 416.2 $ 362.4 20.8 14.8
======== ======== ========
Operating earnings per share..................... $ 3.58 $ 2.92 $ 2.49 22.6 17.3
======== ======== ========
Return on average assets (a)..................... 1.77% 1.50% 1.31%
Return on average equity (a)..................... 21.78 18.34 16.49
Net interest margin.............................. 5.97 5.80 5.59
Expense/revenue ratio............................ 56.22 60.99 62.70
Average common shares outstanding................ 140.600 142.498 145.398
</TABLE>
_________________
(a) Calculated based on "Operating earnings."
4
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
OVERVIEW - continued
The largest contributor to the $86.7 million improvement in operating earnings
for 1995 was a $95.2 million, or 6.7% increase in taxable equivalent net
interest income. The net interest margin for 1995 was 5.97%, 17 basis points
above 1994. The increases in taxable equivalent net interest income and net
interest margin were primarily related to improved interest rate spreads on
deposits and prime-based loans, higher earnings on non-interest bearing funding,
reduced non-performing loans, and loan growth, particularly in credit card
outstandings and asset-based lending at Congress Financial Corporation
("Congress Financial"), CoreStates' commercial finance subsidiary. Of
CoreStates' two sources of operating revenue, net interest income and non-
interest income, net interest income is the largest, comprising 71% of total
revenue in both 1995 and 1994. Net interest income and the net interest margin
at CoreStates continue to benefit from the interest rate risk management
strategy of maintaining a relatively neutral interest rate risk sensitivity and
avoiding speculative interest rate positions. For a detailed description of
CoreStates' interest rate risk management practices, see the "Asset and
Liability Management" section beginning on page 25.
Also contributing to the improvement in 1995 operating earnings was a $26.7
million, or 2.2%, decrease in non-financial expenses excluding significant and
unusual items as discussed on page 41, and a $13.7 million, or 2.4%, increase in
non-interest income, excluding the significant and unusual items as discussed on
page 39. The financial impact of those aspects of the process redesign
implemented during 1995 was to increase revenue by $6.1 million and decrease
non-financial expenses by $56.8 million, for an aggregate increase in operating
earnings of $62.9 million pre-tax, or $0.28 per share after-tax.
Key performance measures based on operating earnings improved again in 1995 and
are at their highest in CoreStates history and among the highest in the banking
industry. Returns on average equity and assets were 21.78% and 1.77%,
respectively, in 1995, compared to 18.34% and 1.50%, respectively, in 1994. The
1995 Salomon Brothers Superregional Bank composites for returns on average
equity and assets were 16.90% and 1.33%, respectively. The Salomon Brothers
Superregional Bank composite includes CoreStates and is comprised of 19 U.S.
Superregional banking companies.
CoreStates' expense/revenue ratio (total operating expenses, excluding other
real estate owned expenses, as a percentage of total revenues) was 56.2% in
1995. This compares to an expense ratio of 61.0% in 1994. The expense/revenue
ratio improved throughout each quarter of 1995 as a result of the process
redesign and merger-related efficiencies.
The business line segment experiencing the highest growth in 1995 was Consumer
Financial Services, which generated a $55.7 million, or 45.5%, increase in its
net income for 1995, reflecting a $63.5 million, or 9.4%, increase in net
interest income and a $27.0 million, or 4.5%, decline in non-financial expenses.
Consumer Financial Services' growth in net interest income was primarily driven
by higher average credit card balances and wider deposit spreads. The decline in
non-financial expenses resulted from the impact of the process redesign and
reduced FDIC premiums. The Wholesale Banking segment, the largest contributor to
net income, also made a strong contribution to 1995 operating earnings growth,
improving net income by $43.5 million, or 20.4%. For a more detailed analysis of
the performance of CoreStates' business lines, refer to the "Business Line
Results" section beginning on page 10.
RESTRUCTURING CHARGE - In March 1995, CoreStates completed an intensive
--------------------
review of its operations and businesses and announced a corporate-wide process
redesign plan, which restructured its banking services around customers and
enhanced employees' authority to make decisions to benefit customers. As a
result of this process redesign, CoreStates recorded a $110.0 million pre-tax
restructuring charge, $70.0 million after-tax or $0.49 per share in March 1995.
In subsequent quarters, CoreStates recorded restructuring credits of $11.8
million, $7.5 million after-tax or $0.05 per share, primarily related to gains
on the curtailment of pension benefits associated with employees displaced
during 1995 and gains on the sale of branches which were sold as a result of the
process redesign. For a more detailed discussion of the process redesign and
related restructuring charge, see "Strategic Action in 1995 - Process Redesign"
beginning on page 8.
5
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
OVERVIEW - continued
GAIN ON AFFILIATE JOINT VENTURE - In March 1995, Electronic Payment
-------------------------------
Services, Inc. ("EPS"), an affiliate joint venture formed in 1992 to combine the
consumer electronic transaction processing businesses of CoreStates and three
other partners, admitted a fifth partner and increased the ownership interest of
an existing partner. As a result of the change in its ownership interest,
CoreStates recognized a pre-tax gain of $19.0 million, $11.8 million after-tax
or $0.08 per share, in the first quarter of 1995.
NON-PERFORMING ASSETS - Non-performing assets at December 31, 1995 totaled
---------------------
$171.5 million, a decline of $139.4 million or 44.8% from December 31, 1994.
Non-performing real estate assets were down $78.4 million or 40.5% and non-
performing commercial loans were down $35.1 million or 40.3%. At December 31,
1995 the allowance for loan losses of $495.1 million was 341.8% of non-
performing loans. This compares to $500.6 million and 203.3% at December 31,
1994.
1994 MERGER-RELATED CHARGES - Upon consummation of their respective
---------------------------
acquisitions by CoreStates in 1994, Independence Bancorp, Inc. ("Independence")
and Constellation Bancorp ("Constellation") recorded merger-related charges in
connection with a change in strategic direction related to problem assets and to
conform consumer lending charge-off policies to those of CoreStates, and for
expenses directly attributable to the acquisition. These merger-related charges
totaled $167.4 million after-tax, or $1.17 per share. On a pre-tax basis, the
merger-related charges consisted of a $145.0 million provision for loan losses,
a $32.0 million addition to the OREO reserve, $13.0 million for the writedown of
purchased mortgage servicing rights and related assets, and $63.7 million for
expenses directly attributable to the acquisitions including $13.0 million of
severance costs related to approximately 715 employees.
COMPARISON OF 1994 TO 1993 - CoreStates' operating earnings for 1994 of $416.2
- - --------------------------
million, or $2.92 per share, grew 17.3% on a per share basis when compared to
$362.4 million or $2.49 per share in 1993. The growth in 1994 operating
earnings was primarily due to a $58.8 million, or 4.4% increase in taxable
equivalent net interest income, improved credit quality resulting in a $19.3
million, or 15.9%, reduction in the provision for losses on loans (excluding the
$145.0 million of merger-related provisions recorded in 1994) and a $33.0
million decline in non-financial expenses excluding merger-related charges.
ACCOUNTING CHANGES AFFECTING PRIOR YEARS' INCOME - During the first quarter of
- - ------------------------------------------------
1994, CoreStates recognized a $3.4 million after-tax, or $0.02 per share,
impairment loss on certain mortgage securities as a cumulative effect of a
change in accounting principle. The loss was the result of a writedown to fair
value of these securities, which were deemed to be impaired. This resulted from
the Financial Accounting Standards Board's ("the 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
transitional liability of $20.0 million, $13.0 million after-tax or $0.09 per
share, as the cumulative effect of a change in accounting principle in 1993.
6
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
STRATEGIC ACTIONS IN 1995
ACQUISITIONS
CoreStates' strategy for growth focuses first on servicing existing customers
and second on expanding its businesses and customer base. CoreStates evaluates
merger and acquisition opportunities of both banks and non-banks 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. Emphasis is placed on
opportunities which extend existing markets into adjacent geography and deepen
market share within existing markets. 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.
PENDING ACQUISITION OF MERIDIAN - On October 10, 1995, CoreStates and Meridian
- - -------------------------------
Bancorp, Inc. ("Meridian") announced a definitive agreement to merge. Meridian
is a Pennsylvania bank holding company with approximately $14.8 billion in
assets and $11.2 billion in deposits. Approval by shareholders of both companies
was received on February 6, 1996 and assuming approval by regulators, the
transaction is expected to close during the first half of 1996. For each
Meridian common share outstanding, 1.225 shares of CoreStates common stock will
be issued. Based on the October 9, 1995 closing share price, the transaction
would be valued at approximately $3.2 billion. The transaction is expected to be
accounted for under the pooling of interests method of accounting.
Strategically, this acquisition will: combine two strong performing banking
companies; create a leading market position in the region that includes the
prime economic centers of eastern Pennsylvania, northern Delaware, and central
New Jersey; extend the combined company's market to 47 counties in the three
states; and create a company with $3.7 billion of equity having the resources
and capital to support investments in growth and in improved services to
customers.
Similar to CoreStates, in June 1995 Meridian completed an internal review of its
operations and businesses and announced a company-wide plan ("59.9") designed to
improve its operating performance and competitive position. Implementation of
the Meridian plan began at the end of the second quarter of 1995 and will
continue over approximately the next twelve months from that date. At the end of
that period, this process is expected to reduce net operating expenses on an
annualized pre-tax basis by $55 million, while providing recurring revenue
enhancements of $13 million, increasing Meridian's net income on an annual basis
by $0.78 per Meridian common share.
In addition to the cost efficiencies and revenue enhancements expected from
implementation of BEST and "59.9", CoreStates expects this in-market acquisition
to achieve pre-tax operating efficiencies of approximately $186.0 million, and
to add to earnings per share in 1997. Excluding 1996 credit and merger-related
charges of approximately $175.0 million, this transaction is expected to be
approximately 7% dilutive to 1996 earnings per share.
On February 23, 1996, Meridian acquired United Counties Bancorporation ("United
Counties"), a $1.6 billion asset New Jersey bank holding company in a
transaction accounted for as a pooling of interests. For each United Counties
common share outstanding, 5.0 shares of Meridian's common stock were issued.
Pending regulatory approvals, consolidations of bank subsidiaries and operations
are expected to begin in the third quarter of 1996 with the consolidation of
Meridian's Pennsylvania bank subsidiary into CoreStates' lead Pennsylvania bank,
CoreStates Bank, N.A. ("CBNA"). Other consolidations also scheduled for the
third quarter of 1996 include the combination of Meridian Bank NJ and United
Counties Bank into CoreStates New Jersey National Bank ("NJNB") and the
consolidation of Meridian's Delaware Trust Company into CBNA. The interstate
consolidation of CBNA and NJNB, previously scheduled for January 1996, has been
postponed until the fourth quarter of 1996 in order to accommodate the
consolidations of the Meridian bank subsidiaries.
7
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
STRATEGIC ACTIONS IN 1995 - continued
A summary of 1995 selected unaudited financial information for Meridian and
United Counties follows:
OPERATING RESULTS FOR THE YEAR ENDED DECEMBER 31, 1995
(in thousands, except per share)
<TABLE>
<CAPTION>
United
Meridian Counties
-------- --------
<S> <C> <C>
Net income............................................ $169,814 (a) $32,189 (b)
Per common share...................................... 2.98 (a) 15.00 (b)
Average common shares outstanding..................... 55,951 2,146
Excluding Meridian's restructuring
charge/United Counties' securities gains:
Net income...................................... $199,591 $23,551
Per common share................................ 3.51 10.97
Return on average total assets.................. 1.36% 1.47%
Return on average common
shareholders' equity........................... 16.08 12.2
BALANCE SHEET AT DECEMBER 31, 1995
(in millions, except per share)
Assets................................................ $ 14,758 $ 1,621
Loans................................................. 10,164 387
Deposits.............................................. 11,150 1,312
Shareholders' equity.................................. 1,306 205
Book value per share.................................. 23.24 95.19
</TABLE>
_______________
(a) As a result of "59.9", Meridian recorded a restructuring charge in the
second quarter of 1995 of $32.0 million ($20.8 million after-tax or $0.37
per Meridian common share).
(b) Includes gains of $13.8 million ($8.6 million after-tax or $4.03 per
United Counties share) on the exchange of investment securities.
NATIONWIDE REMITTANCE CENTERS - On January 27, 1995, CoreStates acquired
- - -----------------------------
Nationwide Remittance Centers, Inc. ("NRC"), the largest independent remittance
processor in the United States. Fees earned by NRC were approximately $20
million. NRC was merged into CoreStates' third-party remittance processing
company, CashFlex, a subsidiary of CBNA, creating the second largest lockbox
processor in the country at the time of the acquisition. With the addition of
NRC, CashFlex services more than 60 major financial institutions and processes
approximately 300 million payment items annually. This acquisition affirmed
CoreStates' commitment to growing its fee-based businesses and to building on
its expertise in cash management.
PROCESS REDESIGN
In order to build upon CoreStates' strong financial condition and sustain
previous financial successes in the competitive financial services environment
in which CoreStates operates, management commenced an intensive review of all
aspects of CoreStates' operations and businesses in September 1994. The
objectives of the process redesign were: (i) to enhance CoreStates' customer
focus; (ii) to accelerate the culture change already in progress at CoreStates;
and (iii) to improve productivity. In March 1995, CoreStates completed its
review and approved and announced a corporate-wide process redesign plan, which
restructured its banking services around customers and enhanced employees'
authority to make decisions to benefit customers.
8
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
STRATEGIC ACTIONS IN 1995 - continued
As a result of the process redesign, CoreStates recorded a $110 million
restructuring charge, $70 million after-tax or $0.49 per share, in March 1995.
When complete, the process redesign will result in the elimination of 2,800
positions, or 2,600 full-time equivalent employees. The breakdown of the
eliminated positions is as follows: (i) 450 positions resulting from a hiring
freeze in place from September 1994 to April 1995; (ii) 530 positions resulting
from expected attrition during implementation of the process redesign; (iii) 930
employees who have elected to accept an enhanced severance package; and (iv) 890
layoffs. At December 31, 1995, CoreStates had 13,598 full-time equivalent
employees which includes reductions for the impact of the hiring freeze,
attrition and 1,600 employee displacements. The components of the restructuring
charge and related cash outflow were as follows (in millions):
<TABLE>
<CAPTION>
Restructuring Charge
--------------------------
Requiring Cash
Cash Outflow
Total Outflow To-date(a)
----- ------- ----------
<S> <C> <C> <C>
Severance costs........................ $ 72 $72 $28
Office reconfiguration costs........... 16 7 -
Branch closing costs................... 15 7 2
Outplacement costs..................... 3 3 2
Miscellaneous.......................... 4 2 1
----- --- ---
Total.......................... $ 110 (b) $91 $33
===== === ===
</TABLE>
______________________________________
(a) CoreStates' liquidity has not been significantly affected by these cash
outflows.
(b) Subsequent to recording the $110 million restructuring charge, CoreStates
recorded restructuring credits of $11.8 million, $7.5 million after-tax or
$0.05 per share, primarily related to gains on the curtailment of pension
benefits associated with employees displaced during 1995 and gains on the
sale of branches which were sold as a result of the process redesign plan.
The net restructuring charge recorded in 1995 was $98.2 million, or $0.44
per share.
The severance charge relates to the separation package which will be paid to
those employees who have elected to accept that package and to those employees
laid off. Cash payments under separation packages commenced in April 1995 and
will continue for varying terms. No lump sum severance payments will be made.
The office reconfiguration charge relates to the costs of asset write-offs and
lease buyouts that will be incurred principally in the process of streamlining
and consolidating center city Philadelphia operations. This streamlining and
consolidating process will occur over the 18-month period which began in April
1995. The branch closing charge relates to asset write-offs and lease buyouts
incurred in the process of consolidating and closing 37 branch offices.
Future cash outflows to be incurred in implementing the process redesign plan,
which in accordance with generally accepted accounting principles were not
included in the restructuring charge, will include approximately $12 million for
capital expenditures and approximately $17 million in operating expenses. Since
April 1995, the amount of capital expenditures related to the process redesign
were approximately $8 million and the amount of incremental operating expenses
that were incurred related to the process redesign were approximately $8
million.
The principal themes of the process redesign plan are as follows:
. Redefine the organizational structure around customers, customer
segments and markets, not products;
. Streamline and consolidate functions and processes;
. Vacate 1.2 million square feet of occupied space in 45 buildings,
including the 37 branches;
. Use technology to automate services and processes; and
. Employ tiered pricing strategies and streamline product pricing.
9
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
STRATEGIC ACTIONS IN 1995 - CONTINUED
Implementation of the process redesign plan is expected to occur within an
18-month period which began in April 1995. By mid 1996, the process redesign is
expected to generate cost reductions of approximately $180 million and revenue
enhancements which will yield additional revenue of approximately $30 million,
combining to improve CoreStates' net income at an annual rate of $0.90 per
share. The process redesign was originally expected to have a positive impact on
net income of approximately $0.16 per share in 1995 (excluding the restructuring
charge and subsequent credits) and $0.72 per share in 1996. Due to timing, the
impact of the process redesign on 1995 net income was approximately $0.28 per
share, exceeding the original estimate for 1995 by $0.12 per share. The
favorable variance to original projections for 1995 is principally related to
personnel savings and mostly due to the realization of benefits earlier than
planned. CoreStates does not anticipate exceeding the annual run rate of $0.90
per share. A breakdown of expected expense reductions is as follows: personnel
related - $98 million; professional and outside services - $20 million;
occupancy - $18 million; office supplies - $9 million; telecommunications - $5
million; travel and entertainment - $5 million; furnishings - $4 million; and
all other - $21 million. As with any estimates, there are factors beyond
CoreStates' control that could influence the actual results for 1996, such as
changes in economic conditions. As a result, the actual results could differ
materially from these estimates.
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 and as a result, certain
amounts in prior years have been reclassified for comparative purposes.
The Corporate category includes the income and expense impact of
unallocated equity, unusual or non-recurring items not attributable to the
operating activities of the major business areas, emerging business activities
not directly related to the four major business areas, and miscellaneous items.
The earnings contribution of these core businesses is reflected in the
table below (in millions):
10
<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
(Taxable equivalent basis) BANKING SERVICES MANAGEMENT
----------------------- --------------------------- ----------------------------
1995 1994 1995 1994 1995 1994
------- ------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Net interest income................ $ 666.0 $ 637.5 $ 739.3 $ 675.8 $ 27.4 $ 30.4
Provision for losses on loans...... 44.6 44.2 59.4 56.6 1.0 1.1
Non-interest income................ 229.9 219.9 171.6 175.5 96.6 98.3
Non-financial expenses............. 436.7 462.1 567.5 594.5 100.3 112.9
------- ------- --------- -------- ------- -------
Income before income taxes......... 414.6 351.1 284.0 200.2 22.7 14.7
Income tax expense................. 157.8 137.8 106.0 77.9 8.5 5.5
------- ------- --------- -------- ------- -------
Net income......................... $ 256.8 $ 213.3 $ 178.0 $ 122.3 $ 14.2 $ 9.2
======= ======= ========= ======== ======= =======
Return on average assets........... 1.58 % 1.39% 2.24% 1.66% 2.03 % 1.33%
Return on average equity(a)........ 27.09 25.01 49.86 34.07 54.62 34.07
Average assets..................... $16,261 $15,396 $ 7,953 $ 7,364 $ 699 $ 692
Average equity(a).................. 948 853 357 359 26 27
</TABLE>
<TABLE>
<CAPTION>
EPS, INC.
AFFILIATE CORPORATE TOTAL
------------------------ --------------------------- -----------------------
1995 1994 1995 1994(d) 1995 1994
--------- --------- ---------- ----------- --------- ---------
<S>................................ <C> <C> <C> <C> <C> <C>
Net interest income................ $ (5.3) $ (6.0) $ 78.4 $ 72.9 $1,505.8 $1,410.6
Provision for losses on loans...... - - - 145.0 105.0 246.9
Non-interest income................ 49.1 (b) 31.8 58.4 42.0 605.6 567.5
Non-financial expenses............. - - 169.9 (c) 148.1 (d) 1,274.4 1,317.6
------- ------- ------ -------- -------- --------
Income (loss) before income taxes.. 43.8 25.8 (33.1) (178.2) 732.0 413.6
Income tax expense (benefit)....... 15.8 9.1 (8.3) (65.5) 279.8 164.8
------- ------- ------- -------- -------- --------
Net income (loss).................. $ 28.0 $ 16.7 $ (24.8) $ (112.7) $ 452.2 $ 248.8 (e)
======= ======= ======= ======== ======== ========
Return on assets................... 37.33 % 21.41 % (0.72) % (2.72) % 1.59% .90 %
Return on equity(a)................ 700.00 417.50 (2.55) (10.97) 19.59 10.96
Average assets..................... $75 $78 $ 3,458 $ 4,137 $ 28,446 $ 27,667
Average equity(a).................. 4 4 974 1,027 2,309 2,270
</TABLE>
__________________________
(a) Equity is allocated to business lines in the four core business segments by
applying a factor of 5.0% against average risk-weighted assets and adding
intangible assets.
(b) Includes a gain of $19.0 million pre-tax, $11.8 million after-tax, related
to changes in CoreStates' investment in the EPS, Inc. Affiliate joint
venture.
(c) Includes a net restructuring charge of $98.2 million pre-tax, $62.5
million after-tax, related to a corporate-wide process redesign.
(d) Includes $120.0 million in the provision for losses on loans 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. The combined after-tax impact was $167.4 million.
(e) Based on income before cumulative effect of a change in accounting
principle.
11
<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 for reporting purposes:
Corporate Middle Market, Corporate and Institutional Banking, Investment
Banking, Cash Management, International Banking, and Specialized Banking.
Wholesale Banking continued its strong performance in 1995 as net income
increased $43.5 million or 20.4% above 1994. Contributing to this increase was
growth in net interest income, growth in non-interest income, and a decline in
non-financial expenses. Net interest income was $28.5 million or 4.5% above 1994
due to higher loan volumes, lower levels of non-performing loans, and higher
loan fees. Average loan outstandings increased 6.0% from the prior year. Average
non-performing loans declined 41.3% from the prior year. Cash management
revenues (including international service fees) were 7.2% above 1994. Growth in
international fees, and the value of collected deposits more than offset an $8.3
million decline in service charges. Non-financial expenses declined $25.4
million or 5.5% largely due to a $3.6 million decline in FDIC expense and
expense reductions related to the impact of BEST.
Net income contributed to Wholesale Banking by Congress Financial increased
$11.3 million for 1995, primarily due to an increase in net interest income
resulting from loan growth, partially offset by an increase in the loan loss
provision of Congress Financial.
CONSUMER FINANCIAL SERVICES includes the following business lines: Community
Banking, Specialty Products and Mortgage Banking. Specialty Products ("SPG")
includes Credit Card, Student Lending, CardLinx (CoreStates' merchant credit
card processing business) and SynapQuest (CoreStates' credit card processing
subsidiary). Results for December 1994 and the full year of 1995 include the
acquisition of Germantown Savings Bank ("GSB"). Since the GSB transaction was
accounted for under the purchase method, restatement of financial information
prior to the acquisition was not required.
Net income for Consumer Financial Services of $178.0 million in 1995 was $55.7
million or 45.5% over 1994. The increase was primarily experienced in the
Community Banking and SPG business lines. The growth in net income was driven by
a $63.5 million or 9.4% increase in net interest income along with a $27.0
million or 4.5% decline in non-financial expenses. This growth was partially
offset by a decrease in non-interest income of $3.9 million or 2.2% and an
increase in the loan loss provision related to increased charge-offs in the
credit card portfolio.
The increase in net interest income of $63.5 million in 1995 included a $32.8
million increase related to GSB. Net interest income growth of $14.0 million in
the credit card portfolio resulted from a $195 million, or 15.3% increase in
average credit card outstandings, partially offset by the impact of a 50 basis
point reduction in credit card interest rate spreads. In addition to the growth
due to the GSB acquisition, net interest income in Community Banking increased
$11.4 million, or 2.1%. Favorable deposit spreads in Community Banking, up 24
basis points, generated a $31.8 million increase which was partially offset by
declines due to a $460 million decrease in deposits equating to a $13.2 million
reduction and narrowing loan spreads, down 25 basis points, for a $12.2 million
reduction.
Non-interest income was down $3.9 million, or 2.2%. Mortgage Banking income
declined by $4.2 million primarily the result of the sale of the Constellation
servicing portfolio in 1994. In addition, in March of 1994, Community Banking
sold its Marine lending portfolio at a gain of $1.5 million. Revenue generated
from third-party sales of annuities and mutual funds was down $0.9 million. A
full year of non-interest income in 1995 from the GSB acquisition resulted in an
additional $3.4 million when compared to 1994.
Non-financial expenses declined by $27.0 million, or 4.5%. Ideas implemented
relating to BEST generated savings of $31.9 million. A June 1, 1995 reduction in
FDIC premiums from $0.23 to $0.04 per $100 of deposits resulted in an expense
decrease of approximately $12.0 million. A full year of expenses in 1995 from
the GSB acquisition resulted in an $18.4 million increase in year-to-year
expenses.
12
<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.
The Corporate Trust business, included in Institutional Trust, was divided into
its Pennsylvania and New Jersey components and sold to Mellon Bank and Bank of
New York, respectively, in October 1995. CoreStates recognized a $7.4 million
pre-tax gain on these sales during the fourth quarter of 1995 which is reflected
in the Corporate Category. The Corporate Trust transactions provide for
potential additional gains in 1996, pending determination of customer retention
by the buyers.
Net income of $14.2 million in 1995 was $5.0 million above 1994. Net interest
income declined by $3.0 million or 9.9% primarily due to lower demand balances
in Institutional Custody and Corporate Trust. During the first six months of
1995, Corporate Trust experienced lower balances compared to 1994 due to higher
levels of refinancings in 1994. As a result of the Corporate Trust sale,
Institutional Trust also experienced lower balances versus 1994 during the last
quarter.
Non-interest income declined by $1.7 million primarily due to the loss of fourth
quarter fee revenues related to the sale of Corporate Trust. Also contributing
to the decline was customer attrition in Institutional Trust and lower non-
recurring fees in Personal Trust. Partially offsetting these shortfalls was new
business and fee growth in Institutional Custody, the impact of 9.6% asset
growth in the CoreFund family of mutual funds and approximately $700 thousand of
BEST revenue enhancements. Expenses were $12.6 million or 11.2% below 1994
levels due principally to the impact of the BEST program and expense savings
related to the sale of Corporate Trust.
ELECTRONIC PAYMENT SERVICES, INC. ("EPS") was formed in December 1992 through
the contribution of the consumer electronic transaction processing businesses of
CoreStates, Banc One Corporation, PNC Bank Corp and KeyCorp. EPS is one of the
nation's leading providers of ATM and POS processing services. CoreStates
received cash, preferred stock and common stock for the contribution of its MAC
ATM network and BUYPASS POS businesses. CoreStates' ownership at formation was
31%.
In December 1993, CoreStates and EPS mutually agreed to enter into a
recapitalization of EPS involving the EPS preferred stock held by CoreStates. In
exchange for substantially all of the preferred stock, CoreStates received from
EPS a ten-year 6.45% note providing for equal principal payments over the life
of the note. The recapitalization did not affect the amount of the deferred gain
generated in the 1992 contribution of the business lines to EPS, but changed the
timing of the recognition of that $138 million deferred gain from a five-year
period beginning in 1996 to a ten-year period which began in 1994.
On March 27, 1995, National City Corp was added as a partner and KeyCorp
increased its investment to become a full partner, resulting in a decrease in
CoreStates' share of ownership in EPS from 31% to 20%. As a direct result of
this change in ownership interests, CoreStates recognized a pre-tax gain of
$19.0 million, $11.8 million after-tax in 1995.
Net income in 1995 from CoreStates' investment in EPS totaled $28.0 million,
including the $11.8 million gain. Excluding the gain, net income in 1995 was
substantially unchanged from net income in 1994 as lower interest income
realized from the promissory note was offset by higher equity earnings. The 1995
results included $30.1 million of non-interest income from CoreStates' equity
interest in EPS' net income, deferred gain recognition, and promissory note
interest income, partly offset by interest carrying charges on the net
investment in EPS.
13
<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 for 1995 includes the net restructuring
charge of $62.5 million after-tax related to BEST. After adjusting for the BEST
restructuring charge and 1994 merger-related costs, the Corporate Category's net
income was below 1994 by $17.0 million. The most noteworthy variances year-to-
year were a $15.2 million decline in securities gains, partially offset by a
$7.4 million gain recognized on the sale of the Corporate Trust business in
1995. Additionally, increases in non-interest income and non-financial expenses,
resulted from growth in CoreStates' third party remittance processing company,
CashFlex, which, as an emerging business, is currently included in the Corporate
Category. The largest contributing factor to CashFlex's growth was the
acquisition of NRC in January 1995. Fees earned by NRC were approximately $20
million and expenses added by NRC were approximately $20 million. In 1994, net
income includes $167.4 million in merger-related charges recorded in the first
half of 1994 for the acquisitions of Constellation and Independence. The merger-
related charges included 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.
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, which is in
place, provides for the issuance of a wide-range of securities 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".
<TABLE>
<CAPTION>
Average Common Equity/Assets
----------------------------
Plotting Points for Graph Average Common
------------------------- Equity/Assets
(in percent) ---------------------------
Superregional
CoreStates Composite *
---------- -------------
<S> <C> <C>
1995 8.12% 7.51%
1994 8.20 7.46
1993 7.94 7.34
1992 7.08 6.67
1991 6.50 6.14
</TABLE>
* The Salomon Brothers Superregional Bank Composite
At December 31, 1995, common shareholders' equity totaled $2,379 million or 8.0%
of total assets, compared with $2,350 million or 8.0% at year-end 1994. The
year-end 1995 equity to assets ratio for the Salomon Brothers Superregional Bank
Composite was 7.7%. CoreStates has achieved steady internal capital generation
throughout the past five years. Common shareholders' equity increased over the
five years ended December 31, 1995 at a compound annual growth rate of 5.4%,
while dividends paid increased at a compound annual growth rate of 7.2%.
During 1995, CoreStates increased its quarterly dividend by 23.5% to $0.42 per
share beginning January 1996. CoreStates declared dividends on its common stock
of $1.44 per share in 1995, $1.24 per share in 1994 and $1.14 per share in
1993. The common dividend payout ratio on an operating earnings basis was 40.2%
for 1995, compared to 42.5% for 1994.
14
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
CAPITAL STRENGTH - CONTINUED
In March 1995, the Board of Directors approved an expansion of CoreStates'
common stock repurchase program from an annual maximum of 2% of outstanding
shares to an annual maximum of 5%, excluding purchases for employee benefit
plans and CoreStates' dividend reinvestment plan. Given the pending acquisition
of Meridian, the common stock repurchase program was suspended indefinitely due
to constraints associated with the pooling of interests method of accounting
that CoreStates expects to utilize to account for the acquisition of Meridian.
During 1995, CoreStates repurchased approximately 10.3 million shares of its
common stock and reissued 3.5 million treasury shares under employee benefit
plans and the dividend reinvestment plan.
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. Internal capital generation continues
to be strong and to exceed internal growth requirements. However, capital
ratios declined slightly in 1995 due to the common stock repurchase program
previously mentioned. The following table illustrates CoreStates' risk-based
and leverage capital ratios at December 31, 1995 and 1994:
RISK-BASED AND LEVERAGE CAPITAL RATIOS
- - --------------------------------------
At December 31,
- - ---------------
(in millions)
<TABLE>
<CAPTION>
1995 1994
---- ----
<S> <C> <C>
CAPITAL
Tier 1 capital (a).............................. $ 2,161 $ 2,129
Tier 2 capital (b).............................. 949 935
Total qualifying capital........................ 3,110 3,064
ASSETS
Risk-adjusted assets............................ 25,714 24,645
Average assets-leverage capital basis........... 28,368 27,316
RATIOS
Tier 1 capital ratio............................ 8.4% 8.6%
Total capital ratio............................. 12.1 12.4
Tier 1 leverage ratio........................... 7.6 7.8
</TABLE>
_______________
(a) Consists primarily of common shareholders' equity, less goodwill and
certain intangible assets.
(b) Consists primarily of qualifying subordinated debt and the allowance for
loan losses, within permitted limits.
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, 1995.
<TABLE>
<CAPTION>
BANK REGULATORY CAPITAL RATIOS Capital Ratios
- - ------------------------------ ---------------------------------
At December 31, 1995 Tier 1 Total Leverage
- - -------------------- ------------ ----- --------
<S> <C> <C> <C>
CoreStates Bank, N.A. ................. 7.6% 10.6% 6.8%
New Jersey National Bank............... 12.1 15.3 7.6
CoreStates Bank of Delaware, N.A....... 6.6 11.2 6.3
</TABLE>
15
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
RISK MANAGEMENT
Risk management at CoreStates encompasses the oversight of a broad range of
risks undertaken by the company including credit, market, product, processing,
systems and general business risk. During 1995, the management of these risks
was further integrated within the Risk Policy Office following the BEST process
redesign. Also as a result of the process redesign, risk officer positions were
created within technology/operations and capital markets to sharpen the focus of
risk management within these areas. CoreStates' ongoing evolution of its risk
management practices takes place within the framework of a corporate risk
management program. The objective of the program is a continued strengthening of
CoreStates' risk management culture and its policies, processes and controls for
managing risk on an integrated basis throughout the company. The discussion of
risk management is covered further 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 and charge-offs, maintaining reserves that are strong, and a credit
advisory team process that provides all lenders in both wholesale and consumer
businesses 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 1995, a
reorganization of the credit process was put into place which moved decision
making closer to the customer while maintaining CoreStates' traditional and
successful quality maintenance processes. One way this was accomplished was
combining the Chief Risk Policy Office and the Chief Lending Offices and by
delegating Chief Lending Office authority to a cadre of CoreStates' most
experienced credit personnel throughout the organization for exercise in each
business group or market. Further, while continuing a successful process of
managing individual credits, greater emphasis has been placed on portfolio
management issues.
In acquiring a company whose businesses include the extension of credit, it is a
priority of CoreStates to extend its credit culture to the newly acquired
institution. In planning for the integration of Meridian into CoreStates in
1996, CoreStates will continue this policy. CoreStates' credit policies,
together with the more informal practices and standards of conduct which define
CoreStates' existing credit culture, will be extended to the combined
organization through a formal communications and training program. The extensive
credit officer structure in place at CoreStates will also be extended to the
combined organization. Each significant market will have at least one assigned
senior credit officer who would be supported by one or more credit officers.
Extension of the CoreStates credit culture to the Meridian organization will
also be facilitated through cross fertilization of key personnel. The loan
quality process in place at CoreStates, which is designed as an early warning
system for problem loan identification and portfolio issues, will be used in the
combined organization. CoreStates' favorable experience with these processes and
their successful use in the integration of other organizations, along with a
stringent due diligence process and early integration of the acquired bank's
portfolio, ensure that CoreStates' credit quality standards continue to be
maintained.
The maintenance of CoreStates' asset quality standards is supported by a
comprehensive and independent assessment of credit quality and portfolio
management by a Credit Review department, which reports to the Audit Committee
of the Board of Directors. The consultative role played by Credit Review with
respect to line management and the Risk Policy Office was further enhanced
during 1995, broadening the nature of counsel provided to lenders in the area of
portfolio review.
WHOLESALE LOAN PORTFOLIO
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 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.
16
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
CREDIT QUALITY - CONTINUED
<TABLE>
<CAPTION>
WHOLESALE LOANS BY INDUSTRY
- - ---------------------------
At December 31, 1995 Outstandings % of
- - --------------------
Plotting Points for a Graph as a % Outstandings
- - ---------------------------
of equity non-performing
------------- --------------
<S> <C> <C>
Non-bank Finance (a).............. 35.8 0.6
Communications.................... 33.8 -
Retail Trade...................... 32.2 0.7
Depository Institutions........... 22.1 -
Healthcare........................ 21.6 0.6
Trucking and Auto Leasing......... 19.5 0.4
Agri-finance...................... 17.5 0.4
Apparel Manufacturing............. 16.7 0.6
Real Estate Construction.......... 15.4 1.9
Chemical.......................... 13.7 0.7
Automobile Dealers................ 13.1 0.3
Paper Manufacturing............... 12.6 -
</TABLE>
_____________
(a) Includes insurance, mortgage, mutual funds and finance companies.
The discussion below highlights the following wholesale portfolios: retailing
and apparel because of the challenges in these industries today; the Congress
Financial portfolio, because of the continued growth in the commercial finance
segment; the international financial institutions portfolio, as this is a
significant growth business; and real estate loans, due to the overall size of
the combined commercial and residential portfolios.
Retailing and Apparel - This specialized lending, which includes the retail
trade, apparel manufacturing and food retailing industries, is directed to
local, regional and national retailing chains and apparel manufacturing. Credit
extensions are a major part of an overall product strategy to develop multi-
faceted relationships and are primarily used to support customers' working
capital requirements. Additionally, emphasis is placed on providing short-term
trade letters of credit to customers who purchase product off-shore. The
largest concentrations in the portfolio are in apparel retailing and
manufacturing, food retailing, specialty stores and general merchandise.
Furthermore, the challenges in these industries today present an excellent
growth opportunity for Congress Financial.
The following table summarizes CoreStates' outstandings in retailing and
apparel at December 31, 1995 and 1994.
<TABLE>
<CAPTION>
RETAILING AND APPAREL
- - ---------------------
At December 31,
(in millions) 1995 1994
-------------------------------------- -------------------------------------
NON- % OF Non- % of
OUTSTANDINGS PERFORMING LOANS Outstandings performing loans
------------ ---------- ----- ------------ ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Congress Financial, various (a)...... $ 647.1 $3.0 0.5% $ 663.3 $ 6.4 1.0%
Apparel.............................. 212.2 1.8 0.8 213.5 32.2 15.1
Food Retailing....................... 124.8 0.5 0.4 137.7 8.5 6.2
Specialty Stores..................... 84.5 2.9 3.4 67.4 3.4 5.0
General Merchandise.................. 48.9 - - 67.2 0.3 0.4
Miscellaneous Retail................. 173.4 0.4 0.2 134.6 0.9 0.7
-------- ---- -------- -----
Total............................ $1,290.9 $8.6 0.7 $1,283.7 $51.7 4.0
======== ==== ======== =====
</TABLE>
_____________
(a) Includes commercial finance outstandings of $173.9 million and factoring
receivables of $473.2 million at December 31, 1995; comparable amounts at
December 31, 1994 were $119.8 million and $543.5 million, respectively.
17
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
CREDIT QUALITY - CONTINUED
CONGRESS FINANCIAL - Congress Financial's loan portfolio is a combination
of factoring receivables and commercial finance, a significant growth business.
The commercial finance portfolio continued to experience strong, geographically
diverse growth, increasing 16.3% on a year-to-year basis. Credit quality
continues to be consistent with Congress Financial's lending philosophy and
historical trends.
The ability to structure and syndicate large, complex transactions
primarily collateralized by accounts receivable and inventory, remains a
mainstay of Congress Financial's loan growth.
<TABLE>
<CAPTION>
CONGRESS FINANCIAL PORTFOLIO
- - ----------------------------
At December 31,
- - ---------------
(in millions) 1995 1994
-------- --------
<S> <C> <C>
Commercial finance portfolio:
Loans......................... $2,068.4 $1,778.7
Non-performing................ 11.4 16.9
% of loans plus OREO......... 0.6% 0.9%
Factoring receivables (a)...... $ 557.3 $ 622.4
</TABLE>
________________
(a) There were no non-performing factoring receivables at December 31, 1995 and
1994.
INTERNATIONAL FINANCIAL INSTITUTIONS - Lending activities within
International Financial Institutions consist principally of dollar-denominated
short-term, trade-related credit transactions aimed at enhancing CoreStates'
cash management-based relationships with correspondents worldwide.
Exposure (which is defined as time balances, loans outstanding, bankers
acceptance and letters of credit) in International Financial Institutions at
December 31, 1995 and 1994 was distributed geographically as follows (in
millions):
<TABLE>
<CAPTION>
1995 1994
-------------------- -----------------
% OF % of
EXPOSURE TOTAL Exposure total
-------- ----- -------- -----
<S> <C> <C> <C> <C>
Europe................. $1,120.8 39% $1,290.0 56%
Asia................... 1,016.6 35 515.1 22
Americas............... 681.1 24 453.0 20
Middle East............ 73.3 2 35.0 2
-------- --- -------- ---
Total exposure.... $2,891.8 100% $2,293.1 100%
======== === ======== ===
</TABLE>
CoreStates' financial analysis focuses on the performance of individual
institutions (liquidity, profitability, asset quality, capitalization,
management and ownership), the unique attributes of individual markets (banking
regulations, central bank support, the domestic economic and political context,
balance of payment flows and reserve levels) and the interdependencies of those
markets. In higher risk markets, CoreStates' exposure is mitigated through
insurance or guarantees of the U.S. Export-Import Bank. The increase in Asia and
the Americas was due to the improved political and economic situations in some
countries, as well as a concerted and focused marketing effort through our Asian
branch network.
The following table summarizes CoreStates' exposure by type to international
financial institutions at December 31, 1995 and 1994. There were no non-
performing loans for the periods presented.
18
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
CREDIT QUALITY - CONTINUED
<TABLE>
<CAPTION>
INTERNATIONAL FINANCIAL INSTITUTIONS' EXPOSURE
- - ----------------------------------------------
At December 31,
- - ---------------
(in millions)
1995 1994
-------- --------
<S> <C> <C>
Time deposits............ $1,538.8 $1,396.0
Acceptances.............. 510.3 261.1
Loans outstanding........ 535.3 395.0
Letters of credit........ 307.4 241.0
-------- --------
Total.................. $2,891.8 $2,293.1
======== ========
</TABLE>
REAL ESTATE LOANS - Although continuing to improve, the regional real
estate market in which CoreStates operates is still experiencing some problems,
particularly in the commercial segment. In this segment, tenant downsizing
continues to plague the office building market raising particular concern with
current and future office building usage and values. Also, the retail sector
continues to require close monitoring due to problems in the retail industry. In
the residential market, although home sales leveled off in late 1995 after a
surge in mid-year, sales continue at a sufficient pace and the multi-family
market continues to be strong.
Total real estate related loans outstanding were $5,516 million at December
31, 1995, compared to $6,491 million at December 31, 1994. The decline from
year-end 1994 was principally due to the sale of residential mortgage loans.
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 $367 million or
1.7% of total loans at December 31, 1995. At December 31, 1995, 2.2% of
CoreStates' construction and development loan portfolio was non-performing,
compared to 1.6% for the remaining real estate loan portfolio. The table below
summarizes CoreStates' real estate loans outstanding.
<TABLE>
<CAPTION>
REAL ESTATE LOANS
- - -----------------
At December 31, Completed
- - --------------- projects/ Total
(in millions) Construction/ investment real
development properties (a) Residential Other (b) estate
----------- -------------- ----------- --------- ---------
<S> <C> <C> <C> <C> <C>
1995
- - ----
Year-end outstandings.............. $ 367 $ 800 $2,572 $1,777 $5,516
Average loans outstanding.......... 340 933 2,751 1,870 5,894
Non-performing loans............... 8 5 29 47 89
% of year-end loans.............. 2.2% 0.6% 1.1% 2.6% 1.6%
Net charge-offs.................... $ 1 $ 10 $ 9 $ 9 $ 29
% of average loans............... 0.2% 1.1% 0.3% 0.5% 0.5%
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% 0.9% 2.5% 1.8%
</TABLE>
_______________________
(a) Completed projects/investment properties included $214 million at December
31, 1995 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.
19
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
CREDIT QUALITY - continued
The largest category within real estate loans is residential mortgages,
which includes home equity loans of $1,465 million and multi-family residential
mortgages of $82 million. Total residential mortgages were $2,572 million or
12.2% of total loans at December 31, 1995. Loans in the Other real estate loans
category, primarily commercial loans collateralized by owner-occupied real
estate, accounted for 32.2% of total real estate loans and 8.4% of total loans.
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/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
1995 outstanding performing outstanding performing outstanding performing
- - ---- ----------- ---------- ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C>
Residential development.................. $149.3 2.6% $ 149.3 2.6%
------ --------
Commercial:
Land and site development.............. 41.6 - 41.6 -
Apartments............................. 1.3 - $ 114.8 0.2% 116.1 0.2
Light industrial....................... 14.2 19.0 92.2 - 106.4 2.5
Hotels................................. - - 21.0 6.7 21.0 6.7
Office buildings....................... 34.1 - 279.6 0.5 313.7 0.4
Shopping centers....................... 31.0 - 211.3 0.2 242.3 0.2
Miscellaneous.......................... 95.2 0.2 80.8 1.6 175.9 0.9
------ -------- --------
Total commercial.................... 217.3 1.3 799.7 0.6 1,017.0 0.7
------ -------- --------
Total........................... $366.6 1.9 $ 799.7 0.6 $1,166.3 1.0
====== ======== ========
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............................. 0.9 - $ 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 buildings....................... 6.4 - 352.3 2.4 358.7 2.3
Shopping centers....................... 1.7 - 242.3 0.9 244.0 0.9
Miscellaneous.......................... 55.0 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
====== ======== ========
</TABLE>
Geographically, $1,115.8 million or 96% of CoreStates'
construction/development loans and completed projects/investment properties at
December 31, 1995 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
CONSUMER LENDING PORTFOLIO
Consumer loan outstandings (excluding credit card) decreased by $97.5 million or
2.7% from year-end 1994 and 1.0% on average. The declines primarily reflect
sales of approximately $87 million of student loans and approximately $136
million of home equity loans on the secondary market. The home equity loans
were sold for asset and liability management purposes.
Net loan charge-offs as a percentage of the average portfolio outstandings
increased from 23 basis points in 1994 to 38 basis points in 1995. Although
higher in 1995, net credit losses in this portfolio are below the average of our
competitors. This is an indication of the fundamental strength of CoreStates'
credit policies and ability to identify and mitigate risk factors in these
retail loan products.
CONSUMER LENDING PORTFOLIO
- - --------------------------
At December 31,
- - ---------------
(in millions)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Year-end outstandings:
Home equity.................. $1,465.2 $1,534.6
Indirect installment......... 857.0 891.8
Direct installment........... 474.4 495.0
Auto leasing................. 737.6 710.3
-------- --------
Total....................... $3,534.2 $3,631.7
======== ========
Average loans outstanding........ $3,463.8 $3,499.6
Net charge-offs.................. 13.1 8.1
% of average loans............ 0.38% 0.23%
</TABLE>
CREDIT CARD PORTFOLIO
- - ---------------------
At December 31,
- - ---------------
(in millions)
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Year-end outstandings............ $1,546.9 $1,374.6
Average loans outstanding........ 1,472.0 1,277.0
Net charge-offs.................. 54.3 29.3
% of average loans............ 3.7% 2.3%
</TABLE>
Credit card outstandings increased 12.5% from $1,374.6 million at 1994 year end
to $1,546.9 million at 1995 year end. Average balance per active account
increased by 14.9% to $2,547. Beginning in the fall of 1994, marketing
campaigns shifted from pre-approved to invitations-to-apply, to further control
risk within the portfolio.
Economic conditions have negatively impacted credit card delinquency, bankruptcy
and credit losses. Net charge-offs have increased to 3.7% of average loans,
which is consistent with industry averages. CoreStates' credit policies and
procedures related to the credit card portfolio have been strengthened in
anticipation of the economic slowdown.
21
<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, recovering approximately 38% of prior year loan charge-offs in 1995 and
approxiamtely 31% in 1994.
In May 1993, the FASB issued Statement of Financial Accounting Standards
No. 114, "Accounting by Creditors for Impairment of a Loan" ("FAS 114") and in
October 1994, the FASB issued Statement No. 118, "Accounting by Creditors for
Impairment of a Loan-Income Recognition and Disclosures" ("FAS 118"). FAS 114
addresses accounting for impairment of certain loans and requires that impaired
loans within the scope of FAS 114 be measured based on the present value of
expected cash flows discounted at the loan's effective interest rate, or be
measured at the loan's observable market price or the fair value of its
collateral. FAS 118 amended FAS 114's income recognition policies and clarifies
FAS 114's disclosure requirements. As required, CoreStates adopted FAS 114 and
118 in the first quarter of 1995. The adoption of these standards did not have
an impact on CoreStates' provision for loan losses or allowance for loan losses,
nor change CoreStates' methodology for recognizing income on impaired loans.
The year-end 1995 allowance for loan losses totaled $495.1 million and
represented 2.35% of loans. This compares with a loan loss allowance at year-end
1994 of $500.6 million, or 2.44% of loans. The December 31, 1995 and 1994
Salomon Brothers Superregional Bank Composites for allowance for loan losses as
a percentage of loans were 2.16% and 2.40%, respectively. The allowance for loan
losses at year-end 1995 was 341.8% of non-performing loans, an increase over the
year-end 1994 coverage ratio of 203.3% and a reflection of the lower level of
non-performing loans at year-end 1995.
CoreStates' provision for loan losses in 1995 was $105.0 million, an
increase of $3.1 million from the $101.9 million, excluding $145.0 million of
Constellation and Independence merger-related provisions for losses on loans
provided in 1994. The increase in the provision for losses on loans was in
response to loan growth and higher charge-offs on credit card outstandings. Net
loan charge-offs in 1995 were $110.6 million or 0.5% of average loans. Net
charge-offs in 1994, excluding $103.1 million of loan charge-offs recorded in
the second quarter of 1994 related to problem assets acquired with
Constellation, were $117.8 million or 0.6% of average loans.
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.
22
<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 1995 and 1994 net charge-
offs by loan type:
DISTRIBUTION OF NET CHARGE-OFFS
- - -------------------------------
For the Year Ended December 31,
- - -------------------------------
<TABLE>
<CAPTION>
(in millions) 1995 1994
---------------------------------- ----------------------------------
% 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................. $ 13.9 0.1 % 12.6 % $ 75.1 0.9% 34.0%
Real estate:
Construction................... 0.7 0.2 0.6 9.7 2.9 4.4
Other.......................... 28.2 0.5 25.5 102.9 1.7 46.6
Consumer:
Credit card.................... 54.3 3.7 49.1 29.3 2.3 13.3
Installment.................... 10.5 0.8 9.5 5.8 0.4 2.6
Other (a)........................ 3.3 0.2 3.0 0.7 - 0.3
------ ------ ------ -----
Total domestic............... 110.9 0.6 100.3 223.5 1.2 101.2
Foreign........................... (0.3) - (0.3) (2.6) (0.4) (1.2)
------ ------ ------ -----
Total net charge-offs......... $110.6 0.5 100.0 % $220.9 1.1 100.0%
====== ====== ====== =====
</TABLE>
___________________________
(a) Includes loans to financial institutions and lease financing.
NON-PERFORMING ASSETS
Non-performing assets at year-end 1995 were $171.5 million, or 0.8% of
total loans plus other real estate owned ("OREO") and 0.6% of total assets.
These levels compared to total non-performing assets at year-end 1994 of $310.9
million, 1.5% of total loans plus OREO and 1.1% of total assets.
At year-end 1995, total non-performing assets were comprised of $143.2
million of non-accrual loans, $1.6 million of renegotiated loans and $26.7
million of OREO. The $139.4 million, or 44.8%, decline in total non-performing
assets as compared to year-end 1994 was principally experienced in CoreStates'
two largest portfolios; the commercial loan portfolio, declining $35.1 million,
or 40.3%, and the real estate portfolio which declined $78.4 million, or 40.5%.
Most of the decline in non-performing assets in these two portfolios was
attributable to improved credit quality and the receipt of payment against two
large non-performing credits.
CoreStates monitors the movements within the non-performing portfolio
closely. The following table illustrates the components of the changes in non-
performing assets during 1995, 1994 and 1993:
23
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
CREDIT QUALITY - continued
CHANGES IN NON-PERFORMING ASSETS
- - --------------------------------
(in millions)
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Balance January 1,........... $ 311 $ 439 $ 672
Additions.................... 170 393 247
Return to accrual............ (12) (53) (83)
Payments..................... (224) (226) (236)
Charge-offs.................. (73) (242) (161)
----- ----- -----
Net change................... (139) (128) (233)
----- ----- -----
Balance December 31,....... $ 172 $ 311 $ 439
===== ===== =====
</TABLE>
The following table reflects the distribution of non-performing assets by loan
type at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
DISTRIBUTION OF NON-PERFORMING ASSETS
- - -------------------------------------
At December 31,
- - ---------------
(in millions) 1995 1994
----------------------------------- -------------------------------
% 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............. $ 52.1 0.5% 30.3% $ 87.2 1.0% 28.1%
Real estate:
Construction....................... 8.0 2.2 4.7 10.7 3.2 3.4
Other loans........................ 80.5 1.6 46.9 118.2 1.9 38.0
OREO............................... 26.7 - 15.6 64.7 - 20.8
Consumer............................... - - - 0.7 - 0.2
Other domestic loans (a)............... 4.2 0.2 2.5 29.2 2.1 9.4
------ ----- ------ -----
Total domestic..................... 171.5 0.9 100.0 310.7 1.6 99.9
Foreign loans.......................... - - - 0.2 - 0.1
------ ----- ------ -----
Total non-performing assets (b).... $171.5 0.8 100.0% $310.9 1.5 100.0%
====== ===== ====== =====
% of total assets.................. 0.6% 1.1 %
=== ===
</TABLE>
________________________
(a) Includes loans to financial institutions and lease financing.
(b) The table does not include loans of $59 million and $53 million at December
31, 1995 and 1994, respectively, that are past due 90 days or more as to
principal or interest, but which remain on full accrual since such loans
are well secured and in the process of collection.
Non-performing assets at year-end 1994 declined $127.8 million, or 29.1%, as
compared to year-end 1993. The 1994 decline primarily reflected decreases in
non-performing assets in 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.
24
<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. 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".
Net Interest Margin
- - -------------------
Plotting Points for a Graph
- - ---------------------------
(In percent)
<TABLE>
<CAPTION>
Net interest margin
--------------------------
Superregional
CoreStates Composite *
---------- -------------
<S> <C> <C>
1995 5.97% 4.62%
1994 5.80 4.72
1993 5.59 4.86
1992 5.32 4.82
1991 5.16 4.45
</TABLE>
* The Salomon Brothers Superregional 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 portion of loans and a large
base of non-interest bearing funds. (See Charts "Earning Asset Mix" and "Funding
Mix" on pages 36.) Areas of business such as credit card, middle market lending,
specialized lending and commercial finance at Congress Financial 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.
25
<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 near term interest rate risk focuses
on potential changes in net interest income identified through computer
simulations against both rising and falling interest rates. Longer term
repricing risks are measured using potential changes in the present value of
future income streams inherent in current positions. Gap analysis is used to
manage strategy execution. 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 in either direction 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. Estimated changes
in the present value are based on a 200 basis point parallel shift of the yield
curve and negative changes are limited to 10% of equity.
As a matter of practice, positions are generally managed to produce
significantly lower volatility than policy guidelines would permit. Current net
interest income 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 the simulation process is based on a variety of
assumptions, 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 94 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.
26
<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, 1995
- - --------------------
(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......................... $15,031 $ 1,240 $ 1,077 $ 1,432 $ 1,871 $ 396 $21,047
Total consumer
deposits, net non-
interest funding.............. 6,800 1,516 2,732 2,271 2,950 4,068 20,337
Adjustments......................... 727 (726) (586) (655) (1,977) 3,217 0
------- ------- ------- ------- ------- ------ -------
Relationship gap.................. 8,958 (1,002) (2,241) (1,494) (3,056) (455) 710
------- ------- ------- ------- ------- ------ -------
DISCRETIONARY PORTFOLIOS:
Assets.............................. 2,906 1,390 2,480 1,576 3,227 1,039 12,618
Liabilities......................... 11,738 402 248 74 236 630 13,327
------- ------- ------- ------- ------- ------ -------
Discretionary gap................. (8,832) 988 2,232 1,502 2,991 409 (710)
------- ------- ------- ------- ------- ------ -------
Combined gap...................... $ 126 $ (14) $ (9) $ 8 $ (65) $ (46) $ 0
======= ======= ======= ======= ======= ====== =======
Cumulative gap.................... $ 126 $ 112 $ 103 $ 111 $ 46 $ 0 $ 0
======= ======= ======= ======= ======= ====== =======
</TABLE>
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. Rates on
savings and similar products have not risen as much as other financial market
rates, suggesting less room to lower rates if market rates decline. During 1995,
deposit balances shifted from more liquid products to certificates and non-bank
alternatives with higher rates. Looking ahead, the spread on total consumer
deposits is subject to continued 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, such as
LIBOR, is also an important component of net interest income. That spread has
widened 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 $7.3
billion in loans subject to changes in prime, excluding $1.5 billion in credit
card outstandings which historically have been priced with a prime-related
formula. CoreStates currently is in the process of revising the basis for
pricing credit cards from prime to LIBOR, to reduce exposure to the prime
spread.
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
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
coordinated 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.
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, 1995, the current cost to replace
CoreStates' derivatives portfolio was $236 million. This assumes that only
counterparties for whom it would be favorable to default would do so.
INTEREST RATE RISK RELATED DERIVATIVE ACTIVITIES - CoreStates' use of
derivatives for interest rate risk management falls into three categories:
interest sensitivity adjustments, spread protection and the hedging of
anticipated asset sales. The following schedule reflects by interest rate risk
management category, the outstanding derivative positions as of December 31,
1995, the major balance sheet category to which they relate, and the associated
unrealized gains/losses:
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>
OUTSTANDING INTEREST RATE RISK RELATED DERIVATIVES
- - --------------------------------------------------
At December 31, 1995 INTEREST INTEREST INTEREST
- - --------------------
(in millions) RATE RATE RATE CAPS OTHER
SWAPS FUTURES AND FLOORS DERIVATIVES TOTAL
------ ------- ---------- ----------- -----
<S> <C> <C> <C> <C> <C>
Interest Sensitivity Adjustment:
Assets (primarily loans):
Notional amount........................ $3,115 $619 $ 10 $3,744
Unrealized gains....................... 117 1 118
Unrealized losses...................... (1) (1)
Deposits and other borrowings:
Notional amount........................ 3,762 3,762
Unrealized gains....................... 72 72
Unrealized losses...................... (5) (5)
Long-term debt:
Notional amount........................ 589 25 614
Unrealized gains....................... 24 24
Unrealized losses...................... (8) (8)
Spread Protection:
Assets (primarily loans)
Notional amount........................ 426 426
Unrealized gains....................... 2 2
Unrealized losses...................... (1) (1)
Deposits and other borrowings:
Notional amount........................ 100 100
Unrealized gains....................... 1 1
Unrealized losses......................
Anticipated Asset Sales:
Notional amount........................ 75 $106 181
Unrealized gains.......................
Unrealized losses...................... (1) (2) (3)
Total:
Notional amount........................ $7,541 $619 $561 $106 $8,827
====== ==== ==== ==== ======
Unrealized gains....................... $ 213 $ 1 $ 3 $ - $ 217
====== ==== ==== ==== ======
Unrealized losses...................... $ (15) $ - $ (1) $ (2) $ (18)
====== ==== ==== ==== ======
Net unrealized gains (losses).......... $ 198 $ 1 $ 2 $ (2) $ 199
====== ==== ==== ==== ======
</TABLE>
Although the value of the various derivative instruments will change with
interest rates, CoreStates does not consider changes in individual portfolio
values to be significant given that the portfolios are used to offset specific
risks. As of December 31, 1995, CoreStates' use of off-balance sheet derivative
instruments which carry a leveraged exposure to either rising or falling rates
or have other complex features is not material.
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
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.
CoreStates also uses derivative instruments to protect spreads on certain
balance sheet products. CoreStates' loan and securities portfolios include
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 $326 million of interest rate caps which offset that
risk by limiting the potential increase in funding costs.
For accounting purposes, the income effects of futures or swaps used to adjust
interest sensitivity or to protect a product spread are associated with either
the asset or the liability being managed. The amount recorded in net interest
income related to derivative financial instruments was $41.3 million in 1995 and
$82.1 million in 1994. The following table shows the impact of derivatives
income on average interest rates:
IMPACT OF DERIVATIVES INCOME ON YIELDS AND COSTS
- - ------------------------------------------------
<TABLE>
<CAPTION>
For the Years Ended December 31, 1995 1994
----------------------------------------------- -------------------------------------------
(in millions) REPORTED IMPACT Reported Impact
AVERAGE YIELD/ PRODUCT OF Average Yield/ Product of
BALANCE COST RATE DERIVATIVES Balance Cost Rate Derivatives
-------- -------- ------- ----------- ------- -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
EARNING ASSETS
Time deposits........................ $ 1,843 6.33% 6.33% $ 1,520 4.37% 4.37%
Federal funds sold & trading
account............................ 231 6.31 6.31 168 4.72 4.72
Investment Securities................ 2,367 6.11 5.96 0.15% 3,014 5.50 5.53 (0.03)%
Loans................................ 20,770 9.65 9.56 0.09 19,601 8.73 8.59 0.14
------- -------
TOTAL EARNING ASSETS................. $25,211 9.04 8.95 0.09 $24,303 8.02 7.92 0.10
======= =======
INTEREST BEARING FUNDS
Savings, NOW, regular MMA............ $ 6,028 1.81 1.94 (0.13) $ 6,653 1.17 1.75 (0.58)
Premium MMA.......................... 2,143 3.92 3.92 - 2,140 2.89 2.89 -
Certificates......................... 5,529 5.17 5.33 (0.16) 4,361 4.28 4.36 (0.08)
------- -------
Total retail...................... 13,700 3.47 3.59 (0.12) 13,154 2.48 2.80 (0.32)
------- -------
Commercial & foreign deposits........ 1,191 4.78 4.97 (0.19) 1,073 3.58 3.63 (0.05)
Federal funds purchased &
short-term borrowings.............. 2,073 5.77 5.75 0.02 1,928 4.42 4.42 -
Long-term debt....................... 1,814 6.69 6.71 (0.02) 1,657 5.54 6.32 (0.88)
------- -------
Total wholesale................... 5,078 5.87 5.91 (0.04) 4,658 4.59 4.92 (0.33)
------- -------
TOTAL INTEREST BEARING FUNDS......... $18,778 4.12 4.22 (0.10) $17,812 3.03 3.35 (0.32)
======= =======
</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
It is important to note that derivatives usage, its impact on individual balance
sheet items and fluctuations in fair value should be viewed in the context of
overall risk management. As previously stated, if CoreStates did not use
derivatives, it would adjust cash positions to create the same interest
sensitivity position with approximately the same income results. However, if
cash transactions were used, the income of those activities would not be carried
as an income adjustment to other balance sheet products. Fluctuations in the
impact of derivatives shown on the above table are a function of market
conditions and do not indicate changes in risk positions.
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. Therefore,
CoreStates will enter into an interest rate swap or a forward rate agreement
which will increase in value if rates rise. The increased value on the
derivative is used to offset the decline in value of the cash asset.
Gains/losses on the derivative are deferred until the asset sale and recognized
as part of the sale transaction. In 1995, CoreStates sold fixed rate mortgages;
those sales were hedged primarily with fixed-pay mortgage swaps which amortized
with a reference portfolio of mortgage-backed securities. These swaps were
terminated as the mortgages were sold. CoreStates securitizes and sells its
longer term fixed-rate home equity loans and fixed-rate mortgages on a recurring
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.
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, 1995, the rates CoreStates has contracted to receive are fixed
for longer time periods than the rates CoreStates has contracted to pay.
Therefore, if interest rates fall, this portfolio will provide higher interest
income, offsetting a decline in interest income in relationship portfolios;
conversely if rates rise, the swap portfolio will produce less interest income
which will be offset by increased interest income in the relationship
portfolios. CoreStates also uses interest rate futures in a similar manner.
While swaps are used in both short and long term maturities, futures are used
primarily to extend the rate sensitivity of short-term assets to periods less
than one year. CoreStates' use of financial futures is largely concentrated in
Eurodollar and LIBOR contracts. Given the direction of its natural interest
sensitivity, CoreStates has not historically paid fixed rates on interest rate
swaps or used off-balance sheet instruments to extend its liabilities.
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, 1995.
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
REPRICING SCHEDULE OF INTEREST RATE SWAPS
- - -----------------------------------------
At December 31, 1995
- - --------------------
(in millions)
<TABLE>
<CAPTION>
YEARS
-----------------------------------------------------------
0-1 1-2 2-3 3-4 4-5 OVER 5 TOTAL
--- --- --- --- --- ------ -----
<S> <C> <C> <C> <C> <C> <C> <C>
Receive Fixed/Pay Floating:
Receive Notional................ $2,646 $1,054 $ 774 $ 969 $ 605 $ 902 $6,950
Rate.................... 6.92% 6.62% 6.46% 7.11% 6.62% 7.08% 6.84%
Pay Notional................ $6,950 $6,950
Rate.................... 5.96% 5.96%
Pay Fixed/Receive Floating:
Pay Notional................ $ 105 $ 20 $ 25 $ 150
Rate.................... 7.57% 8.60% 9.24% 7.99%
Receive Notional................ $ 150 $ 150
Rate.................... 5.48% 5.48%
Receive Floating/Pay Floating:
(Basis Swaps)
Notional................ $ 31 $ 31
Receive Rate.................... 4.77% 4.77%
Pay Rate.................... 5.38% 5.38%
Receive Fixed/Pay Floating(a):
(Forward Start)
Receive Notional................ $ 205 $ 30 $ 175 $ 410
Rate.................... 6.32% 6.38% 7.03% 6.62%
Start Date Notional................ $ 260 $ 100 $ 50 $ 410
</TABLE>
_____________________________________
(a) Pay rate will be determined on forward start date.
32
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
ASSET AND LIABILITY MANAGEMENT - continued
The following schedule illustrates CoreStates' interest rate risk related
derivative activity during 1995:
ACTIVITY IN DERIVATIVES PRODUCTS
- - --------------------------------
Year Ended December 31, 1995
- - ----------------------------
(in millions)
<TABLE>
<CAPTION>
INTEREST INTEREST INTEREST
RATE RATE RATE CAPS OTHER
Notional Amounts SWAPS FUTURES AND FLOORS DERIVATIVES TOTAL
- - ---------------- -------- -------- ---------- ----------- --------
<S> <C> <C> <C> <C> <C>
As of December 31, 1994............. $ 7,850 $ 1,043 $1,053 $ 295 $10,241
Additions........................... 1,875 3,688 58 246 5,867
Terminated contracts(a)............. (580) (4,112) - (125) (4,817)
Maturities/amortization............. (1,604) - (550) (310) (2,464)
------- ------- ------ ----- -------
As of December 31, 1995............. $ 7,541 $ 619 $ 561 $ 106 $ 8,827
======= ======= ====== ===== =======
</TABLE>
(a) As of December 31, 1995, CoreStates had no material deferred gains or
losses related to terminated derivative contracts.
CoreStates' use of off-balance sheet instruments declined during 1995. As
various asset sales were consummated (primarily mortgage assets), the related
interest rate swaps and/or other derivatives used to protect the sales value
were terminated or allowed to expire. In addition, during the latter half of
1995, shifts in funding mix and increased loan volumes resulted in reduced need
for fixed rate asset sensitivity. Therefore, matured swaps were not fully
replaced and certain interest rate swaps were terminated.
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 and related fair values of customer related
derivative transactions as of December 31, 1995 and 1994.
CUSTOMER RELATED DERIVATIVES
- - ----------------------------
At December 31,
- - --------------
(in millions)
<TABLE>
<CAPTION>
1995 1994
------------------------------ --------------------------
NOTIONAL NET ASSETS Notional Net assets
Interest Rate Swaps: AMOUNT (LIABILITY)(a) amount (liability)(a)
-------- -------------- -------- --------------
<S> <C> <C> <C> <C>
CoreStates receives fixed................... $ 115 $ 1 $ 192 $(4)
CoreStates pays fixed....................... 115 (1) 192 4
Rate Locks:
CoreStates receives fixed................... 15 - - -
CoreStates pays fixed....................... 15 - - -
Interest Rate Caps/Floors:
Sold........................................ 517 (1) 424 (5)
Purchased................................... 517 1 424 5
Foreign exchange contracts.................... 1,660(b) 2(c) 1,817 2
----- ---- ------ ---
Total Customer Related Derivatives............ $2,954 $2 $3,049 $ 2
====== ==== ====== ===
</TABLE>
_______________________________
(a) Average net assets (liabilities) during 1995 and 1994 was substantially the
same as the net assets (liabilities) at December 31, 1995 and 1994,
respectively.
(b) Foreign exchange contracts purchased and sold at December 31, 1995 were
$834 million and $826 million, respectively.
(c) Gross assets and (liabilities) on foreign exchange contracts at December
31, 1995 were $16 million and $(14) million, respectively.
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 68.6% of assets
in 1995 compared to 69.7% in 1994.
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 Financial. In addition
to commercial paper, Congress Financial is funded through the issuance of
medium-term notes and long-term debt. Growth in loans at Congress Financial
during 1995 accounted for most of the growth in discretionary funding sources.
At December 31, 1995, CoreStates had a $650 million revolving credit facility
from unrelated banks. The facility was established in support of commercial
paper borrowings, medium-term notes and general corporate purposes. There were
no borrowings under this facility at year-end 1995. 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 filed with the Securities and Exchange
Commission ("the SEC"), CoreStates had a broad range of debt and capital
securities that were registered but unissued of approximately $294 million at
December 31, 1995. During 1995, approximately $430 million of debt having
various terms and interest rates was issued under the shelf registration.
Maturities and retirements of long-term debt during 1995 were approximately $520
million. A new shelf registration statement will be filed with the SEC in the
first half of 1996 increasing registered but unissued debt and capital
securities to $1.75 billion.
The tables on pages 93, 95 and 96 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.
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
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. The investment securities portfolio at
December 31, 1995 consisted of investments held-to-maturity with a carrying
value of $1,016 million and investments available-for-sale with a carrying value
of $975 million, compared to $2,455 million and $426 million, respectively on
December 31, 1994. Most of the decline in the investment portfolio from 1994
resulted from maturities. Late in 1995, the FASB permitted all institutions to
reassess the appropriateness of the designation of investment securities as
held-to-maturity, and reclassify such securities to available-for-sale.
CoreStates reclassified $607 million in securities to available-for-sale. The
net unrealized gain on the securities reclassified was $0.3 million, for a $0.2
million net of tax increase to shareholders' equity. The available-for-sale
portfolio also includes a bank stock portfolio and other marketable equity
securities. The accumulated net unrealized gain on available-for-sale securities
was $35 million at December 31, 1995, compared to $11 million at December 31,
1994. The increase in the net unrealized gain was primarily due to the decline
in interest rates and appreciation in the bank stock portfolio.
SOURCES AND USES OF FUNDS
Total assets were $29.6 billion at year-end 1995, an increase of $295
million, or 1.0% , from year-end 1994. The increase in year-end 1995 assets
principally reflects the net $520 million, or 2.5%, growth experienced in the
loan portfolio, particularly in asset-based loans at Congress Financial and
credit card outstandings. Loan growth at banking subsidiaries was funded by
maturities of investment securities, as the investment portfolio was reduced by
$890 million, or 30.9%, from year-end 1994. The book value of loans sold during
1995 was approximately $750 million and was comprised of approximately $530
million of residential mortgages and $136 million of fixed-rate home equity
loans. The impact of loan sales on results of operations was not material.
Total deposits declined $538 million, or 2.4%, from year-end 1994. Domestic
interest-bearing deposits declined $903 million, or 6.2%, from year-end 1994
principally as a result of merger-related attrition and the impact of lower
interest rates. Domestic demand deposits increased $338 million, or 5.3%,
reflecting a year-end 1995 increase in customer activity. The net decline in
deposits was offset by loan sales, the decline in the investment portfolio and a
$546 million, or 35.3%, increase in short-term borrowings. The increase in
short-term borrowings was also used to fund loan growth at Congress Financial.
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
Total assets averaged $28.4 billion in 1995, up $779 million, or 2.8%, from
1994. Average loans increased $1.2 billion, or 6.0%, while average investment
securities decreased $647 million or 21.5%. As reflected in the chart on
"Earning Asset Mix", loans comprised 82.4% of CoreStates' average earning assets
in 1995, compared to 80.7% in 1994. A $664 million, or 4.7% increase in average
interest bearing deposits resulted primarily from the GSB acquisition in
December 1994.
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>
1995 8.2% 9.4% 82.4%
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
</TABLE>
The accompanying table on Funding Mix illustrates that 59.2% of CoreStates'
funds were derived from consumer deposits in 1995, compared with 58.2% in 1994.
Funding to accommodate current business needs and future growth at non-bank
subsidiaries will continue to be supported by the previously discussed 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>
1995 59.2% 13.0% 27.8%
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
</TABLE>
* excluding short-term money market investments
36
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
REVIEW AND ANALYSIS OF EARNINGS
OPERATING REVENUE
Operating revenue has two primary sources, net interest income and non-
interest income. On the accompanying chart ("Operating Revenue"), net interest
income is presented excluding the earnings benefit of balances maintained by
commercial customers as compensation for transaction oriented non-credit
products. Non-interest income and the previously mentioned earnings benefit of
balances maintained are presented separately. 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>
1995 $1,346.4 $159.4 $605.7 $2,111.5
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
</TABLE>
Operating revenue for 1995, as adjusted for significant an d unusual items,
increased 6.0% over 1994, primarily due to a $95.2 million, or 6.7%, increase in
total net interest income. The growth in net interest income for 1995 was
primarily experienced in Consumer Financial Services, which experienced growth
of 9.4%. The items excluded from the 1995 to 1994 operating revenue comparison
were: a $19.0 million 1995 gain related to changes in CoreStates' investment in
the EPS affiliate joint venture, a $7.4 million 1995 gain on the sale of the
Corporate Trust business, a $1.9 million 1994 gain on the sale of two Virgin
Islands branches, and investment securities gains in both years.
Operating revenue for 1994 adjusted for significant and unusual items,
experienced a 3.6% improvement over 1993, principally in the Wholesale Banking
business. The items excluded from the 1994 to 1993 comparison were: a $1.9
million gain from the sale of two Virgin Islands branches in 1994, a gain of
$9.1 million on the prepayment of long-term debt in 1993, an $11.0 million gain
on the sale of five Virgin Islands branches in 1993, and net securities gains in
both years.
37
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
NET INTEREST INCOME
The largest source of CoreStates' operating revenue is net interest income.
For analytical purposes, net interest income is adjusted to a taxable equivalent
basis to recognize the income from tax exempt assets as if the interest were
taxable. Net interest income on a taxable equivalent basis increased $95.2
million, or 6.7% in 1995, compared to an increase of $58.8 million, or 4.4% in
1994. The strength of CoreStates' net interest income and net interest margin
stems from the combination of wide spreads on both loans and deposits and a
balance sheet which has a relatively high portion of loans and a large base of
non-interest bearing funding. The following table compares taxable equivalent
net interest income for the years ended December 31, 1995, 1994 and 1993.
Taxable Equivalent Net Interest Income
- - --------------------------------------
For the Years Ended December 31,
(in millions)
<TABLE>
<CAPTION>
Percentage
increase(decrease)
-----------------
1995 1994 1993 '95/'94 '94/'93
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
Total interest income................. $2,262.4 $1,929.5 $1,841.9 17.3% 4.8%
Tax equivalent adjustment............. 17.2 21.3 26.5 (19.2) (19.6)
-------- -------- --------
Tax equivalent interest income........ 2,279.6 1,950.8 1,868.4 16.9 4.4
Total interest expense................ 773.8 540.2 516.6 43.2 4.6
-------- -------- --------
Tax equivalent net interest income.... $1,505.8 $1,410.6 $1,351.8 6.7 4.4
======== ======== ========
Interest rate spread.................. 4.92% 4.99% 4.85%
==== ==== ====
Net interest margin................... 5.97% 5.80% 5.59%
==== ==== ====
</TABLE>
The increase in net interest income for 1995 was driven by improved spreads
earned on both deposits and prime-based loans and by improved earnings on non-
interest bearing funding sources in 1995's comparatively higher interest rate
environment. Also contributing to the increase in 1995 net interest income was
the growth in relatively higher yielding loans, particularly commercial finance
lending at Congress Financial and credit card outstandings. Average commercial
finance loans at Congress Financial grew by $274 million, or 12.2%, in 1995 and
credit card outstandings grew by $195 million, or 15.3%, on average.
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 17 basis
points in 1995 to 5.97%, following a 21 basis point increase in 1994. The 1995
increase was driven by improved product spreads, increased volumes in higher
spread loan categories and improved earnings on non-interest bearing funding
sources. The 1994 net interest margin increase was principally attributable to
higher yields on loans due to a change in asset mix and the increase in the
prime rate during that year, partially offset by a lower yield on the investment
portfolio during 1994 as compared to 1993. 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 increase in net interest income in 1994 resulted primarily from an
improvement in interest rate spreads. While average total earning assets
experienced 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 in 1994 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.
38
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
NET INTEREST INCOME - continued
For further detailed information regarding average balances, yields and
costs, see the consolidated average balance sheet on pages 82-85, and the
rate/volume analysis on page 88.
NON-INTEREST INCOME
For the Years Ended December 31,
(in millions)
<TABLE>
<CAPTION>
Percentage
increase(decrease)
-------------------
1995 1994 1993 '95/'94 '94/'93
---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
Basic banking transactional
services(a)................................ $427.4 $422.3 $412.4 1.2% 2.4%
Income from investment in
EPS, Inc .................................. 30.1 31.8 13.1 (5.3) 142.7
Third party processing fees(b)............... 47.7 23.5 17.5 103.0 34.3
Securities gains............................. 9.4 18.7 16.1
Other operating income....................... 64.7 69.3 93.4 (6.6) (25.8)
------ ------ ------
Non-interest income before
significant and unusual items.............. 579.3 565.6 552.5 2.4 2.4
Significant and unusual
items...................................... 26.4(c) 1.9(d) 21.5(e)
------ ------ ------
Total non-interest income.................... $605.7 $567.5 $574.0 6.7 (1.1)
====== ====== ======
</TABLE>
_________________________
(a) Comprised of debit and credit card fees, service charges on deposit
accounts, trust income, and fees for international services.
(b) Includes revenues for CashFlex lockbox processing, Transys check
processing, and SynapQuest credit card and merchant processing.
(c) Reflects the $19.0 million pre-tax gain related to changes in the
investment in the EPS, Inc. affiliate joint venture and the $7.4 million
pre-tax gain recorded on the sale of the Corporate Trust business.
(d) Includes pre-tax gain of $1.9 million recorded on the sale of two Virgin
Islands branches.
(e) 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.
Non-interest income for 1995, excluding significant and unusual items,
increased 2.4% from 1994, primarily reflecting an increase in third-party
processing fees. Third-party processing fee income for 1995 increased $24.2
million, or 103.0%, principally as a result of the January 27, 1995 acquisition
of Nationwide Remittance Centers, Inc. ("NRC"). Revenues in CoreStates' basic
banking transactional businesses (discussed in detail below) experienced modest
growth in 1995, as a $12.4 million, or 15.6%, increase in fees for international
services was partially offset by declines of $4.7 million or 2.6%, in services
charges on deposits and $1.6 million, or 1.7% in trust income. The decline in
service charges on deposits reflects moderate growth in transaction volume and
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.
For 1994, reported total non-interest income decreased $6.5 million or
1.1%, but total non-interest income in 1994 before significant and unusual items
increased $13.1 million or 2.4% over 1993. The growth for 1994 reflects
increases in income from CoreStates' investment in EPS, Inc., international
service charges and third-party processing fees, partially offset by 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.
39
<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 modestly in
1995, 1.2%, following growth of 2.4% in 1994. The components of basic banking
transactional services are discussed in the following paragraphs:
. Service charges on deposit accounts, paid in fees, decreased $4.7
million, or 2.6%, in 1995, compared to an increase of $1.2 million, or
0.7%, in 1994. 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 1995 was $335.4 million, up $6.6 million, or 2.0%, from
1994 reflecting moderate growth in transaction volume. Total service
charge compensation on this basis for 1994 was $328.8 million, an
increase of $9.0 million or 2.8% over 1993.
. Fees for international services increased $12.4 million, or 15.6%, in
1995, following an increase of $10.3 million, or 14.8%, in 1994. The
growth in revenues for 1995 and 1994 reflects a continuing emphasis on
non-credit products and international transaction processing services and
resulting volume increases at overseas branches which were opened in
recent years. For 1995, foreign exchange fees increased $3.1 million, or
16.5%, and fees on other international transaction processing services
increased $9.3 million, or 15.3%.
. Trust income decreased $1.6 million, or 1.7%, in 1995 and $4.4 million,
or 4.4%, in 1994. The 1995 decline in trust income reflects the impact of
CoreStates' October 1995 sale of its Corporate Trust business. Revenues
recorded on Corporate Trust services were $6.5 million, $8.4 million and
$8.1 million for 1995, 1994 and 1993, respectively. The pre-tax gain
recorded in 1995 on the sale of Corporate Trust was $7.4 million. The
Corporate Trust transaction provides for potential additional gains in
1996, pending determination of customer retention by the buyers.
Excluding Corporate Trust revenues in 1995 and 1994, trust income for
1995 was level with 1994, reflecting the impact of past customer
attrition. The 1994 decline in trust income was caused by declines in the
financial markets which generated lower asset values and some customer
attrition.
. Debit and credit card fees decreased $1.0 million, or 1.5% in 1995,
following an increase of $2.9 million, or 4.6%, in 1994. Credit card fees
for 1995 were $25.5 million, level with 1994 fees. Competitive pricing
pressures adversely impacted fee income for this product in 1995. At
year-end 1995, CoreStates' credit card portfolio included approximately
614,000 active accounts, compared to 601,000 active accounts at year-end
1994. Debit card fees were down $0.9 million or 2.2% from 1994 primarily
due to price sensitivity.
CoreStates recorded net securities gains of $9.4 million in 1995, compared
to $18.7 million in 1994 and $16.1 million in 1993. Investment securities gains
for 1995 included $7.8 million of gains recorded on sales of equity securities
acquired in connection with prior loan arrangements. 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.
Other operating income in 1995 decreased by $4.6 million, or 6.6%,
primarily as a result of gains on sales of loans (other than mortgages) in 1994.
Other operating income in 1994 decreased by $24.1 million, or 25.8% principally
as a result of mortgage banking activity which was adversely impacted in 1994 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. Gains on trading account securities were $2.3 million in
1995, 1994 and 1993, respectively.
40
<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
For the Years Ended December 31, increase(decrease)
------------------
(in millions) 1995 1994 1993 '95/'94 '94/'93
---- ---- ---- ------- -------
<S> <C> <C> <C> <C> <C>
Salaries, wages and benefits............. $ 600.9 $ 631.1 $ 623.0 (4.8)% 1.3%
Net occupancy expense.................... 113.5 114.5 115.0 (0.9) (0.4)
Equipment expense........................ 78.5 77.1 74.8 1.8 3.1
Amortization of intangible assets........ 28.1 14.1 19.5 99.3 (27.7)
FDIC premiums............................ 23.1 43.7 46.2 (47.1) (5.4)
Other operating expenses................. 332.1 322.4 318.6 3.0 1.2
-------- -------- --------
Non-financial expenses before
significant and unusual items......... 1,176.2 1,202.9 1,197.1 (2.2) 0.5
Significant and unusual
items................................. 98.2(a) 114.7(b) 44.8(c)
-------- --------- ---------
Total non-financial expenses............. $1,274.4 $1,317.6 $1,241.9 (3.3) 6.1
======== ======== ========
</TABLE>
_____________________________
(a) Reflects a net restructuring charge of $98.2 million related to the
corporate-wide process redesign. See "Process Redesign" on page 8 for more
detail regarding the net restructuring charge. The impact of other real
estate owned ("OREO") on non-financial expenses in 1995 was not
significant.
(b) Includes merger-related costs of $75.0 million and $33.7 million for the
Constellation and Independence acquistions, respectively, OREO writedowns
of $2.3 million and $3.7 million related to Germantown branch closings and
signage.
(c) Comprised of OREO writedowns totaling $26.6 million, writedowns of
purchased mortgage servicing rights of $8.2 million and $10.0 million
related to the establishment of Transys, a check processing business.
Total non-financial expenses for 1995, excluding the significant and
unusual items as noted in the above table, were $1,176.2 million, a decrease of
$26.7 million, or 2.2% from 1994. This decline reflects the impacts of a hiring
freeze, the benefits of those aspects of the process redesign implemented to
date, merger-related synergies and the approximately $20.6 million impact of
reduced Federal Deposit Insurance Corporation ("FDIC") premiums. A further
reduction in FDIC premiums is effective January 1, 1996. If that reduced rate is
maintained by the FDIC throughout 1996, CoreStates would expect FDIC premium
expense for 1996 to be less than $0.5 million. Most of the reduction in FDIC
premiums will be used to fund investments in technology to support improved
products and services and increased volume. Affecting comparability of expenses
period-to-period are the acquisitions of GSB on December 2, 1994 and NRC on
January 27, 1995. Excluding the amortization of intangible assets created in the
acquisitions, in 1995 GSB added approximately $21.3 million to non-financial
expenses and NRC added approximately $19.9 million. Expense for amortization of
intangible assets created in the two acquisitions added $13.7 million to 1995
expenses. Excluding the significant and unusual items as noted in the above
table and the impact of GSB and NRC related expenses, non-financial expenses for
the 1995 declined 6.8% from the prior year.
Salaries, wages and benefits decreased 4.8% in 1995 reflecting reduced
staff levels resulting from the hiring freeze, the process redesign and full-
year impact of merger consolidations, partially offset by increases of $11.4
million and $11.0 million for GSB and NRC, respectively. For 1995, salaries and
wages declined 4.1%, while benefits expense declined 7.1%. Contributing to the
higher decline in benefits expense for 1995 was reduced employee medical costs
arising from efficiencies associated with CoreStates transition to managed care
plans in the beginning of the year. The number of full-time equivalent employees
at December 31, 1995, 1994 and 1993 was: 13,598; 15,076; and 16,017,
respectively.
In 1995, net occupancy expense declined $1.0 million or 0.9%, and
equipment expense increased $1.4 million, or 1.8%. The decline in net occupancy
expense was primarily due to the process redesign and merger-related synergies.
The increase in equipment expense reflects investments in technology and NRC
expenses.
41
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
NON-FINANCIAL EXPENSES - CONTINUED
COMPARISON OF 1994 TO 1993 - 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 level with 1993. Salaries,
wages and benefits increased 1.3% in 1994. 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. Net occupancy expense
decreased 0.4% in 1994. Equipment expenses increased 3.1% in 1994, as
technological improvements were made in delivery systems and support areas.
Other operating expenses decreased 1.2% in 1994, largely due to reductions in
amortization of mortgage servicing rights intangibles which was $8.2 million
less than 1993.
PROVISION FOR INCOME TAXES
The provision for income taxes was $262.6 million in 1995 compared to
$143.7 million in 1994 and $173.8 million in 1993. The $118.9 million increase
in 1995 tax expense was primarily due to higher pre-tax income. The provision
for income taxes for 1995, 1994 and 1993 were at effective rates of 36.7%, 36.6%
and 32.4%, respectively.
FOURTH QUARTER RESULTS
In the fourth quarter of 1995, CoreStates recorded net income of $137.0
million or $0.99 per share. "Operating earnings" for the fourth quarter of 1995,
defined as net income excluding a fourth quarter restructuring credit, were
$132.9 million, or $0.96 per share. This represents a 23.1% increase on a per
share basis when compared to fourth quarter of 1994 operating earnings and net
income of $111.5 million, or $0.78 per share. The restructuring credit of $6.4
million, $4.1 million after-tax or $0.03 per share, relates to the process
redesign which is discussed on page 8.
The $21.4 million improvement in operating earnings for the fourth quarter
of 1995, as compared to the fourth quarter of 1994, was primarily due to a 3.9%
increase in taxable equivalent net interest income coupled with a $16.1 million
or 5.2% decrease in expenses excluding the restructuring credit. The net
interest margin for the fourth quarter of 1995 was 5.97% compared to 5.89% for
the fourth quarter of 1994. The increase in the level of taxable equivalent net
interest income was primarily related to improved interest rate spreads on
deposits and prime-based loans, higher earnings on non-interest bearing funding
and loan growth. Also contributing to the improvement in fourth quarter
operating earnings was a $7.2 million, or 4.9% increase in non-interest income
reflecting the $7.4 million gain on the sale of the Corporate Trust business.
The financial impact of those aspects of the process redesign implemented since
March 31, 1995 resulted in an increase in the fourth quarter of 1995 operating
earnings of $33.4 million pre-tax, or $0.15 per share after-tax as compared to
the fourth quarter of 1994. This impact principally related to expense savings
and exceeded original projections by $0.06 per share due to the realization of
benefits earlier than planned.
Based on operating earnings, returns on average equity and assets were
22.52% and 1.84%, respectively, in the fourth quarter of 1995 compared to 19.50%
and 1.60%, respectively, in the fourth quarter of 1994.
ACCOUNTING STANDARDS EFFECTIVE IN 1996
FAS 121 - Statement of Financial Accounting Standards No. 121, "Accounting
for the Impairment of Long-Lived Assets and for Long-Lived Assets to Be Disposed
Of" ("FAS 121") was issued in March 1995. FAS 121, which is effective beginning
with 1996, addresses the accounting for and the measurement of the impairment of
long-lived assets that either will be held and used in operations or that will
be disposed of. The impact that FAS 121 will have on CoreStates' future results
of operations cannot be estimated with certainty at the current time. However,
the adoption of FAS 121 is not expected to have a material impact on CoreStates'
financial condition.
42
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS: CONTINUED
ACCOUNTING STANDARDS EFFECTIVE IN 1996 - continued
FAS 122 - Statement of Financial Accounting Standards No. 122, "Accounting
for Mortgage Servicing Rights - an amendment of FASB Statement No. 65" ("FAS
122") was issued in May 1995 to modify the treatment of capitalized mortgage
servicing rights by mortgage banking enterprises. FAS 122, which is effective
beginning with 1996, amends FASB Statement No. 65 to eliminate the separate
treatment of servicing rights acquired through loan originations versus those
acquired through purchase. The adoption of FAS 122 is not expected to have a
material impact on CoreStates' results of operations or financial condition.
FAS 123 - Statement of Financial Accounting Standards No. 123, "Accounting
for Stock-Based Compensation" ("FAS 123") was issued in October 1995 to
establish accounting and reporting standards for stock-based employee
compensation plans such as stock option and restricted stock plans ("stock-based
plans"). FAS 123 defines a fair value based method of accounting for measuring
compensation expense for stock-based plans and encourages all entities to adopt
that method of accounting. However, FAS 123 also permits entities to continue to
measure compensation expense for stock-based plans using the intrinsic value
based method prescribed by APB Opinion No. 25, "Accounting for Stock Issued to
Employees." Entities electing to remain with the intrinsic value based method
must make pro forma disclosures of net income and earnings per share as if the
fair value based method defined by FAS 123 was applied.
Under the fair value based method, compensation expense would be measured
as the value of an award under a stock-based plan on the date the award is
granted, and would be recognized over the vesting period of the award. Under the
intrinsic value based method, compensation expense is measured as the excess, if
any, of the market price of the stock underlying the award on the date the award
is granted, over the exercise price. Under CoreStates' stock-based long-term
incentive plan, awards have no intrinsic value on the date of grant as the
exercise price equals the market price on that date. Currently, CoreStates does
not expect to adopt the FAS 123 fair value based method of accounting for its
stock-based plans, but will provide the required pro forma disclosures in the
December 31, 1996 financial statements.
43
<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, 1995,
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, 1995. 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, 1995.
Principal Financial Officer
/s/ Albert W. Mandia
Chairman and Chief Executive Officer
/s/ Terrence A. Larsen
44
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
INDEPENDENT ACCOUNTANTS' REPORT
The Board of Directors and Shareholders
CoreStates Financial Corp
We have examined management's assertion that CoreStates Financial Corp
maintained an effective internal control structure over financial reporting as
of December 31, 1995 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 1995 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, 1995, insofar as management's assertion relates to the internal control
structure over the annual financial reporting in the 1995 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
January 17, 1996
45
<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, 1995 and 1994, 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,
1995. 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 financial
statements of Constellation Bancorp and Independence Bancorp, Inc., which
statements reflect net interest income constituting 15.6% of the related
consolidated total for the year ended December 31, 1993. 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, 1995 and 1994, and the consolidated results of its
operations and its cash flows for each of the three years in the period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
As discussed in Note 1 to the financial statements, in 1994 the Company
changed its method of accounting for certain investments in debt and equity
securities, and in 1993 the Company changed its method of accounting for
post-employment benefits.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 17, 1996
46
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
INTEREST INCOME 1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Interest and fees on loans:
Taxable income...................................... $1,973,085 $1,675,532 $1,553,865
Tax exempt income................................... 19,851 22,818 31,150
Interest on investment securities:
Taxable income...................................... 125,941 140,379 185,866
Tax exempt income................................... 12,169 16,552 19,304
Interest on time deposits in banks.................... 116,689 66,389 44,340
Interest on Federal funds sold, securities
purchased under agreements to resell and other...... 14,570 7,857 7,339
---------- ---------- ----------
Total interest income............................... 2,262,305 1,929,527 1,841,864
---------- ---------- ----------
INTEREST EXPENSE
Interest on deposits:
Domestic savings.................................... 189,942 139,703 149,094
Domestic time....................................... 299,264 196,869 212,471
Overseas branches and subsidiaries.................. 43,497 28,286 18,248
---------- ---------- ----------
Total interest on deposits.......................... 532,703 364,858 379,813
Interest on short-term funds borrowed................. 119,667 85,123 67,001
Interest on long-term debt............................ 121,401 90,177 69,779
---------- ---------- ----------
Total interest expense.............................. 773,771 540,158 516,593
---------- ---------- ----------
NET INTEREST INCOME................................. 1,488,534 1,389,369 1,325,271
Provision for losses on loans......................... 105,000 246,900 121,201
---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION FOR
LOSSES ON LOANS.................................. 1,383,534 1,142,469 1,204,070
---------- ---------- ----------
NON-INTEREST INCOME
Service charges on deposit accounts................... 175,991 180,676 179,428
Trust income.......................................... 95,747 97,362 101,793
Fees for international services....................... 92,075 79,682 69,432
Debit and credit card fees............................ 63,619 64,585 61,717
Income from investment in EPS, Inc.................... 30,114 31,800 13,159
Gains on trading account securities................... 2,339 2,347 2,254
Securities gains...................................... 9,388 18,753 16,110
Other gains........................................... 26,400 1,900 11,000
Other operating income................................ 109,993 90,435 119,137
---------- ---------- ----------
Total non-interest income........................... 605,666 567,540 574,030
---------- ---------- ----------
NON-FINANCIAL EXPENSES
Salaries, wages and benefits.......................... 600,925 631,134 622,969
Net occupancy......................................... 113,478 117,516 114,951
Equipment expenses.................................... 78,482 77,098 74,844
Restructuring and merger-related charges.............. 98,175 108,700 -
Other operating expenses.............................. 383,338 383,113 429,098
---------- ---------- ----------
Total non-financial expenses........................ 1,274,398 1,317,561 1,241,862
---------- ---------- ----------
INCOME BEFORE INCOME TAXES............................ 714,802 392,448 536,238
Provision for income taxes............................ 262,565 143,656 173,809
---------- ---------- ----------
INCOME BEFORE CUMULATIVE EFFECT OF A
CHANGE IN ACCOUNTING PRINCIPLE...................... 452,237 248,792 362,429
Cumulative effect of a change in accounting
principle, net of income tax benefits of
$1,846 in 1994, and $7,005 in 1993.................. - (3,430) (13,010)
---------- ---------- ----------
NET INCOME............................................ $ 452,237 $ 245,362 $ 349,419
========== ========== ==========
PER COMMON SHARE DATA (Based on weighted average
shares outstanding of 140.600 million in 1995,
142.498 million in 1994 and 145.398 million
in 1993)............................................
Income before cumulative effect of a
change in accounting principle...................... $3.22 $1.75 $2.49
===== ===== =====
Net Income............................................ $3.22 $1.73 $2.40
===== ===== =====
Cash dividends declared............................... $1.44 $1.24 $1.14
===== ===== =====
</TABLE>
See accompanying notes to the financial statements.
47
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEET
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
--------------------------------------
1995 1994
----------- ------------
<S> <C> <C>
ASSETS
Cash and due from banks............................................... $ 2,755,636 $ 2,262,512
Time deposits, principally Eurodollars................................ 1,841,799 1,750,458
Federal funds sold and securities purchased under
agreements to resell................................................ 594,868 731,820
Trading account securities............................................ 1,336 1,206
Investment securities available-for-sale.............................. 974,711 426,047
Investment securities held-to-maturity (market value:
1995-$1,017,019; 1994-$2,423,830)................................... 1,015,621 2,454,584
Total loans, net of unearned discounts of
$123,672 in 1995 and $146,305 in 1994............................... 21,046,535 20,526,216
Less: Allowance for loan losses..................................... (495,075) (500,631)
----------- ------------
Net loans........................................................ 20,551,460 20,025,585
Due from customers on acceptances..................................... 549,557 342,211
Premises and equipment................................................ 406,279 423,832
Other assets.......................................................... 929,349 906,881
----------- ------------
Total assets..................................................... $29,620,616 $ 29,325,136
=========== ============
LIABILITIES
Deposits:
Domestic:
Non-interest bearing............................................. $ 6,700,599 $ 6,362,470
Interest bearing................................................. 13,661,766 14,565,051
Overseas branches and subsidiaries.................................. 1,140,068 1,113,365
----------- ------------
Total deposits................................................... 21,502,433 22,040,886
Short-term funds borrowed............................................. 2,091,722 1,546,201
Bank acceptances outstanding.......................................... 549,048 336,103
Other liabilities..................................................... 1,399,660 1,260,722
Long-term debt........................................................ 1,698,334 1,791,110
----------- ------------
Total liabilities................................................ 27,241,197 26,975,022
----------- ------------
COMMITMENTS AND CONTINGENT LIABILITIES
SHAREHOLDERS' EQUITY
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 1995 and 145.9
million shares in 1994 (including treasury shares of
7.8 million in 1995 and 1.0 million in 1994)........................ 145,875 145,878
Other common shareholders' equity, net................................ 2,233,544 2,204,236
----------- ------------
Total shareholders' equity....................................... 2,379,419 2,350,114
----------- ------------
Total liabilities and shareholders' equity....................... $29,620,616 $ 29,325,136
=========== ============
</TABLE>
See accompanying notes to the financial statements.
48
<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, 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.................. 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 available-for-sale,
net of tax...................................... (52,951) (52,951)
Acquisition of Germantown Savings Bank
(5,880 treasury shares)......................... (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
Net income........................................ 452,237 452,237
Net change in unrealized gain on investments
available-for-sale, net of tax.................. 23,969 23,969
Treasury shares acquired (10,307 shares).......... (335,528) (335,528)
Common stock issued under employee
benefit plans (3,089 treasury shares)........... (3) 11,388 (30,728) 96,670 77,327
Common stock issued under dividend
reinvestment plan (417 treasury shares)......... 560 (2) 12,690 13,248
Cash paid for fractional shares................... (24) (24)
Foreign currency translation adjustments.......... (29) (29)
Common dividends declared......................... (201,895) (201,895)
----------- ------------ ------------ ------------ ------------
Balances at December 31, 1995..................... $ 145,875 $ 793,714 $ 1,690,295 $ (250,465) $ 2,379,419
=========== ============ ============ ============ ============
</TABLE>
See accompanying notes to the financial statements.
49
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES PAGE 1 OF 2
CONSOLIDATED STATEMENT OF CASH FLOWS (IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------
OPERATING ACTIVITIES 1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Net income....................................................... $ 452,237 $ 245,362 $ 349,419
Adjustments to reconcile net income to net
cash provided by operating activities:
Restructuring and merger-related charges....................... 98,175 108,700 -
Cumulative effect of a change in
accounting principle, net of tax............................. - 3,430 13,010
Provision for losses on loans.................................. 105,000 246,900 121,201
Provision for losses and writedowns
on other real estate owned................................... 7,097 12,538 26,614
Depreciation and amortization.................................. 65,735 76,277 84,998
Deferred income tax expense (benefit).......................... 34,047 16,393 (10,656)
Securities gains............................................... (9,388) (18,753) (16,110)
Other gains.................................................... (26,400) (1,900) (11,000)
Increase (decrease) in due to factored clients................. (86,921) 41,262 147,072
(Increase) decrease in interest receivable..................... (123) (25,625) 3,646
Increase (decrease) in interest payable........................ 23,674 23,551 (7,738)
Other, net..................................................... 26,892 (21,819) 43,789
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES........................ 690,025 706,316 744,245
------------ ------------ ------------
INVESTING ACTIVITIES
Net increase in loans............................................ (1,205,051) (633,013) (1,483,539)
Proceeds from sales of loans..................................... 753,345 897,528 790,193
Loans originated or acquired--non-bank subsidiaries.............. (35,767,440) (33,760,035) (24,712,336)
Principal collected on loans--non-bank subsidiaries.............. 35,622,742 33,399,764 24,411,312
Net (increase) decrease in time deposits,
principally Eurodollars........................................ (89,322) (431,001) 495,615
Purchases of investments held-to-maturity........................ (490,548) (1,030,404) -
Purchases of investments available-for-sale...................... (179,658) (422,894) -
Proceeds from maturities of investments
held-to-maturity............................................... 1,318,571 1,655,885 -
Proceeds from maturities of investments
available-for-sale............................................. 83,040 308,598 -
Proceeds from sales of investments available-for-sale............ 207,655 690,343 -
Purchases of investment securities............................... - - (2,252,933)
Proceeds from sales of investment securities..................... - - 581,101
Proceeds from maturities of investment securities................ - - 1,819,500
Net (increase) decrease in Federal funds sold and
securities purchased under agreements to resell................ 136,952 (549,293) 105,363
Purchases of premises and equipment.............................. (103,616) (92,232) (107,275)
Proceeds from sales and paydowns on other
real estate owned.............................................. 41,007 59,947 84,389
Purchase of Germantown Savings Bank, net of
cash acquired.................................................. - (74,053) -
Other, net....................................................... 1,675 19,617 6,689
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES................................................... 329,352 38,757 (261,921)
------------ ------------ ------------
</TABLE>
(continued)
50
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES PAGE 2 OF 2
CONSOLIDATED STATEMENT OF CASH FLOWS: CONTINUED
(IN THOUSANDS)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------
FINANCING ACTIVITIES 1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Net decrease in deposits.......................... (542,224) (536,836) (540,605)
Long-term debt issued............................. 430,140 478,048 916,519
Retirement of long-term debt...................... (520,646) (242,432) (683,399)
Net increase (decrease) in short-term
funds borrowed.................................. 545,521 (337,924) (19,919)
Cash dividends paid............................... (194,067) (160,122) (143,334)
Purchase of treasury stock........................ (335,528) (228,963) (29,449)
Common stock issued under employee
benefit plans................................... 77,327 11,900 17,648
Other, net........................................ 13,224 12,092 11,890
---------- ----------- ----------
NET CASH USED IN FINANCING ACTIVITIES............ (526,253) (1,004,237) (470,649)
---------- ----------- ----------
INCREASE (DECREASE) IN CASH AND DUE
FROM BANKS.................................... 493,124 (259,164) 11,675
Cash and due from banks at January 1,......... 2,262,512 2,521,676 2,510,001
---------- ----------- ----------
CASH AND DUE FROM BANKS AT DECEMBER 31,........... $2,755,636 $ 2,262,512 $2,521,676
========== =========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest...................................... $ 750,097 $ 513,773 $ 524,565
========== =========== ==========
Income taxes.................................. $ 189,732 $ 130,904 $ 167,216
========== =========== ==========
</TABLE>
See accompanying notes to the financial statements.
51
<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 ("CSCC"). All material intercompany transactions have been
eliminated. Certain amounts in prior years have been reclassified for
comparative purposes.
The Corporation is a regional bank holding company incorporated under the laws
of the Commonwealth of Pennsylvania, primarily operating in the eastern
Pennsylvania, northern Delaware and central New Jersey markets. Through its
subsidiaries, the Corporation is engaged in the business of providing wholesale
banking services (including international banking services), consumer financial
services, trust and investment management services and electronic payment
services to a diversified customer base.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
CHANGES IN ACCOUNTING PRINCIPLES
Effective January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan"
("FAS 114") and Statement No. 118, "Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosures" ("FAS 118"). FAS 114 addresses
accounting for impairment of certain loans and requires that impaired loans
within the scope of FAS 114 be measured based on the present value of expected
cash flows discounted at the loan's effective interest rate, or be measured at
the loan's observable market price or the fair value of its collateral. FAS 118
amended FAS 114's income recognition policies and clarifies FAS 114's disclosure
requirements. The adoption of these standards did not have an impact on
CoreStates' provision for loan losses or allowance for loan losses, nor change
CoreStates' methodology for recognizing income on impaired loans.
During the first quarter of 1994, the Corporation recognized a $3,430
after-tax, or $0.02 per share, impairment loss on certain mortgage securities as
a cumulative effect of a change in accounting principle. The loss was the result
of a write-down to fair value of these securities, which were deemed to be
impaired. This resulted from a Financial Accounting Standards Board ("the 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 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 $0.09 per share, as
the cumulative effect of a change in accounting principle.
52
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
INCOME TAXES
Under the asset and liability method used by the Corporation to provide for
income taxes, 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, consisting primarily of debt securities, are
carried at cost adjusted for amortization of premiums and accretion of
discounts, both computed on the interest method. The Corporation has both the
ability and positive intent to hold these securities until maturity. Trading
account securities are carried at market value. Gains on trading account
securities include both realized and unrealized gains and losses on the
portfolio. All other securities are classified as available-for-sale and 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 $35,075 at
December 31, 1995 and $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 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 payments becomes doubtful or when such
payments are 90 days or more past due unless the loan is well secured and in the
process of collection. 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.
Consumer loans, including residential mortgage loans, are not automatically
placed on non-accrual status when principal or interest payments are 90 days
past due, but are charged off when deemed uncollectible or after reaching 120
days past due.
OTHER REAL ESTATE OWNED
When a property is acquired through foreclosure of a loan secured by real
estate, that property is recorded at the lower of the cost basis in the loan or
the estimated fair value of the property less estimated disposal costs.
Writedowns at the time of foreclosure are charged against the allowance for loan
losses. Subsequent writedowns for changes in the fair value of the property are
charged to other non-financial expense.
ALLOWANCE FOR LOAN LOSSES
The allowance for loan losses is maintained at a level believed adequate by
management to absorb estimated probable credit losses. Factors included in
management's determination of an adequate level of allowance for loan losses 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
the allowance for loan losses 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 allowance for loan losses within those
boundaries. This evaluation is inherently subjective as it requires material
estimates that may be susceptible to significant change.
53
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
The Corporation adopted FAS 114 effective January 1, 1995. Under FAS 114 the
allowance for loan losses related to "impaired loans" is based on discounted
cash flows using the impaired loan's initial effective interest rate as the
discount rate, or the fair value of the collateral for collateral dependent
loans. A loan is impaired when it meets the criteria to be placed on non-
accrual status or is a renegotiated loan. Loans which are evaluated for
impairment pursuant to FAS 114 are assessed on a loan-by-loan basis, and include
only commercial non-accrual and renegotiated loans. Large groups of smaller
balance homogeneous loans, such as credit cards, lease financing receivables,
loans secured by first and second liens on residential properties, and other
consumer loans are evaluated collectively for impairment.
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.
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.
FOREIGN EXCHANGE/CURRENCY
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 non-dollar denominated loans and
deposits, 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 loss was $1,600, $1,571 and $1,623 at December 31, 1995, 1994 and
1993, 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. If the
underlying assets or liabilities related to a derivative matures, is sold,
extinguished, or terminates, the amount of the previously unrecognized gain or
loss is recognized at that time in the consolidated income statement. Contracts
held or issued for customers are valued at market with gains or losses included
in the consolidated income statement.
EARNINGS PER COMMON SHARE
Earnings per common share for all periods presented were based on weighted
average common shares outstanding as dilution from potentially dilutive common
stock equivalents (primarily stock options) did not have a materially dilutive
effect on earnings per share.
54
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES - continued
CASH DIVIDENDS DECLARED PER SHARE
Cash dividends declared per share for the periods prior to the acquisitions of
Independence on June 27, 1994 and Constellation on March 16, 1994 assume that
the Corporation would have declared cash dividends equal to the cash dividends
per share actually declared by the Corporation.
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 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 $183 million, including $140 million of goodwill, were created in this
transaction. Goodwill is being 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 as if the transaction had occurred on January 1, 1993
is as follows:
<TABLE>
<CAPTION>
Year Ended December 31,
------------------------
1994 1993
----------- -----------
<S> <C> <C>
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.
55
<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 on a separate company basis for the year ended December 31, 1993
was as follows:
<TABLE>
<CAPTION>
1993 Corporation Constellation Independence
- - ---- ------------ -------------- -------------
(Unaudited) (Unaudited)
<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 $0.61 $1.98
Net income per share....................................... 2.69 0.61 1.98
Cash dividends declared.................................... 1.14 - 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 effect of reducing 1993 restated net income by $5,076, or $0.03 per
share, and December 31, 1993 common shareholders' equity by $39,924.
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 totaled $127.8 million after-tax, or $0.89 per share. On a pre-tax
basis, the merger-related charges consisted of a $120.0 million provision for
loan losses, a $28.0 million addition to the OREO reserve, $13.0 million for the
writedown of purchased mortgage servicing rights and related assets, and $34.0
million for expenses directly attributable to the acquisition 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 totaled $39.6 million after-tax, or $0.28 per share. On a pre-tax basis,
the merger-related charges consisted of a $25.0 million provision for loan
losses, a $4.0 million addition to the OREO reserve, and $29.7 million for
expenses directly attributable to the acquisition including severance costs of
$5.0 million related to approximately 345 employees.
On October 10, 1995, the Corporation announced a definitive agreement to acquire
Meridian Bancorp, Inc. ("Meridian") in a transaction expected to be accounted
for under the pooling of interests method of accounting. For each Meridian
common share outstanding, 1.225 shares of the Corporation's common stock will be
issued. As a result of this transaction, approximately 71.2 million new shares
will be issued. This agreement has been approved by the shareholders of both
the Corporation and Meridian and, pending receipt of approval by certain
regulatory authorities, is expected to close during the first half of 1996.
Also at the February 6, 1996 shareholders' meeting, the Corporation's
shareholders approved an increase in the number of authorized shares from 200
million to 350 million.
56
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
2. ACQUISITIONS - continued
In May 1995, Meridian announced a definitive agreement to acquire United
Counties Bancorporation ("United Counties"), a $1.6 billion asset New Jersey
bank holding company in a transaction to be accounted for as a pooling of
interests. For each United Counties common share outstanding, 5.0 shares of
Meridian's common stock will be issued. As a result of Meridian's acquisition of
United Counties, approximately 13.2 million additional shares of the
Corporation's common stock will be issued. This transaction closed on February
23, 1996.
A summary of selected unaudited historical financial information for Meridian
and United Counties on a combined basis reflecting pooling of interests
accounting follows:
<TABLE>
<CAPTION>
Meridian and United Counties Combined
-------------------------------------
YEAR ENDED DECEMBER 31, 1995 (a) (b) 1994 1993
-------------- ---------- ---------
Operating results:
<S> <C> <C> <C>
Net interest income.......................... $678,394 $678,646 $685,865
Non-interest income.......................... 275,717 234,127 281,641
Income before cumulative effect of a
change in accounting principle............ 202,003 185,880 174,733
Per common share data:
Income before cumulative effect of a
change in accounting principle............ $ 3.03 $ 2.72 $ 2.57
Average common shares outstanding............ 66,682 68,356 67,904
AT DECEMBER 31, 1995
(in millions, except per share amount)
Assets.......................................... $ 16,391
Loans........................................... 10,675
Deposits........................................ 12,461
Common shareholders' equity..................... 1,511
Book value per common share..................... 22.57
</TABLE>
_____________
(a) In June 1995, Meridian completed an internal review of its operations and
businesses and announced a company-wide plan designed to improve its
operating performance and competitive position. As a result of this review,
Meridian recorded a restructuring charge in the second quarter of 1995 of
$32.0 million ($20.8 million after-tax or $0.31 per Meridian share).
(b) Includes a gain of $13.8 million ($8.6 million after-tax or $0.13 per
Meridian share) on the exchange of investment securities.
A summary of unaudited pro forma financial information for the Corporation,
Meridian and United Counties as if both transactions had occurred on January 1,
1993 is as follows:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31, 1995 1994 1993
-------- -------- --------
(in millions, except per share amounts)
<S> <C> <C> <C>
Net interest income........................... $ 2,167 $ 2,068 $ 2,011
Non-interest income........................... 881 801 856
Income before cumulative effect of a
change in accounting principle............. 655 436 538
Per common share.............................. $ 2.95 $ 1.93 $ 2.35
Average common shares outstanding............. 222.285 226.234 228.580
</TABLE>
57
<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, 1995 and 1994.
<TABLE>
<CAPTION>
1995 1994
--------------------------------- ---------------------------------
CARRYING Carrying
OR NOTIONAL FAIR or Notional Fair
AMOUNT VALUE Amount Value
--------------- ---------------- --------------- ----------------
<S> <C> <C> <C> <C>
ASSETS:
Cash and short-term assets.............. $ 5,192,303 $ 5,192,303 $ 4,744,790 $ 4,744,790
Investment securities................... 1,990,332 1,991,730 2,880,631 2,849,877
Trading account securities.............. 1,336 1,336 1,206 1,206
Net loans, excluding leases............. 19,813,829 19,978,986 19,315,247 19,856,330
LIABILITIES:
Demand and savings deposits............. 14,741,389 14,741,389 15,213,517 15,213,517
Time deposits, including overseas....... 6,761,044 6,910,864 6,827,369 6,898,093
branches and subsidiaries
Short-term borrowings................... 2,091,722 2,091,722 1,546,201 1,546,201
Long-term debt.......................... 1,698,334 1,740,311 1,791,110 1,741,345
OFF-BALANCE SHEET ASSET (LIABILITY):
Letters of credit....................... 2,271,585 (22,716) 2,369,426 (5,923)
Commitments to extend credit............ 14,092,523 (15,177) 11,802,714 (13,310)
Derivative financial instruments........ 11,781,073 200,610 13,289,463 (204,183)
</TABLE>
Fair value estimates, methods, and assumptions for the Corporation's financial
instruments are set forth below:
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.
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.
58
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
3. FAIR VALUES OF FINANCIAL INSTRUMENTS - continued
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.
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, 1995 and 1994. 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.
This estimate does not include the benefit that relates to cash flows which
could generate from new loans to existing cardholders over the remaining life of
the portfolio.
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.
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, 1995 and 1994, respectively, to an estimate of
aggregate expected maturities for those certificates of deposit.
The estimated fair values 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.
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, 1995 and 1994 for comparable types of borrowing
arrangements.
59
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
3. FAIR VALUES OF FINANCIAL INSTRUMENTS - continued
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 lines, 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.
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, 1995 and 1994 were approximately $366,000 and
$326,000, respectively.
60
<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, 1995 and
1994 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
COST GAINS LOSSES VALUE
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
1995
- - ----
Held-to-Maturity
- - ----------------
U.S. Treasury............................ $ 7,947 $ 229 $ 8,176
U.S. Government agencies................. 578,802 4,652 $ 969 582,485
State and municipal...................... 180,378 7,766 375 187,769
Other:
Domestic.............................. 217,111 2,254 12,175 207,190
Foreign............................... 31,383 16 - 31,399
---------- ------- ------- ----------
Total held-to-maturity............. $1,015,621 $14,917 $13,519 $1,017,019
========== ======= ======= ==========
Available-for-Sale
- - ------------------
U.S. Treasury............................ $ 553,268 $ 3,563 $ 349 $ 556,482
U.S. Government agencies................. 170,406 1,346 190 171,562
State and municipal...................... 55,345 683 84 55,944
Other:
Domestic.............................. 111,164 32,687 1,434 142,417
Foreign............................... 26,989 21,317 - 48,306
---------- ------- ------- ----------
Total available-for-sale........... $ 917,172 $59,596 $ 2,057 $ 974,711
========== ======= ======= ==========
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
========== ======= ======= ==========
</TABLE>
On November 15, 1995, the FASB issued a Special Report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities", which permitted an enterprise to reassess the
appropriateness of the classification of all investment securities held between
November 15, 1995 and December 31, 1995. Based on its reassessment, the
Corporation reclassified $606,552 in investment securities previously classified
as held-to-maturity to the available-for-sale category. Unrealized gains on
transferred investments were $2,001, unrealized losses were $1,659, and the fair
value was $606,894.
61
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
5. INVESTMENT SECURITIES - continued
Marketable equity securities are carried in the available-for-sale portfolio and
have been written up by $53,385 at December 31, 1995 and $43,989 at December 31,
1994, the aggregate of their excess fair values over cost, through after-tax
credits to retained earnings. The Corporation recorded pre-tax gains of $7,654
in 1995, $11,926 in 1994 and $13,594 in 1993 on sales of certain domestic equity
securities. During 1995, 1994 and 1993, the Corporation recorded pre-tax gains
of $939, $2,567 and $8,617 on sales of foreign equity securities.
Included in other domestic securities available-for-sale at December 31, 1995
were mortgage residual securities with an amortized cost and fair value of
$3,072 and $3,513, 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 $5,276 pre-tax, $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 1995, which provided more
definitive criteria for recognition of impairment losses on these types of
securities.
At December 31, 1995 and 1994, 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 $1,018,170 were pledged at December 31, 1995
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,
1995, 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............................ $184,790 $185,794
Due after one year through five years.............. 173,584 176,388
Due after five years through ten years............. 98,500 89,191
Due after ten years................................ 48,050 51,280
Mortgage-backed securities......................... 382,671 385,525
-------- --------
$887,595 $888,178
======== ========
Available-for-Sale
- - ------------------
Due in one year or less............................ $292,738 $293,726
Due after one year through five years.............. 397,708 400,159
Due after five years through ten years............. 12,974 13,064
Due after ten years................................ 40,225 40,169
Mortgage-backed securities......................... 130,405 131,086
-------- --------
$874,050 $878,204
======== ========
</TABLE>
Proceeds from sales of investments in debt securities available-for-sale during
1995, 1994, and 1993 were $194,525, $657,361 and $535,267, respectively. Gross
gains of $1,948 in 1995, $9,625 in 1994, and $6,069 in 1993, and gross losses of
$1,153 in 1995, $4,739 in 1994, and $200 in 1993 were realized on those sales.
62
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
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 89 and 91).
The Corporation has traditionally maintained limits on industry, market and
borrower concentrations as a way to diversify and manage credit risk. The
Corporation's current policy is to limit industry concentrations to 50% of total
equity and to limit market segment concentrations to 10% of total assets. The
Corporation manages industry concentrations by applying these dollar limits to
industries that have common risk characteristics.
Derivative financial instruments of $4,251,000 notional value at December 31,
1995 were used to manage interest rate risk associated with loans. At December
31, 1995, unrealized gains on these derivative financial instruments were
$104,000 and unrealized losses were $5,000. The effect of these derivative
financial instruments on the yield of the loan portfolio for the year ended
December 31, 1995 was to increase the yield from 9.56% to 9.65%.
The book value of real estate loans transferred to other real estate owned
during 1995, 1994 and 1993 was $5,388, $32,215 and $48,124, respectively.
At December 31, 1995 and 1994, the Corporation had loans totaling $162,070 and
$147,465, 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 1995 additions and
reductions were $1,461,953 and $1,447,348, respectively.
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.
Included in loans at December 31, 1995 and 1994 were $389,000 and $530,000,
respectively, of loans accounted for as held for sale and carried at lower of
cost or market.
63
<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, 1995, 1994 and 1993:
<TABLE>
<CAPTION>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Balance at beginning of period.................... $ 500,631 $ 450,823 $ 442,267
Allowance for loans sold at date of sale.......... - - (353)
Allowance for loans purchased at date
of purchase.................................... - 24 -
Allowance for loans of bank acquired under
purchase method of accounting.................. - 23,739 2,703
Provision charged to operating expense............ 105,000 246,900 121,201
Recoveries of loans previously charged off........ 68,641 63,059 86,738
Loan charge-offs.................................. (179,197) (283,914) (201,733)
--------- --------- ---------
Balance at end of period.......................... $ 495,075 $ 500,631 $ 450,823
========= ========= =========
</TABLE>
At December 31, 1995, the recorded investment in loans that are considered to be
impaired under FAS 114 was $121,960. Included in total impaired loans is $47,834
against which $14,145 of the allowance for loan losses is allocated. During
1995, impaired loans averaged approximately $170,107. For the year ended
December 31, 1995, the Corporation recognized interest income of approximately
$13,509 on impaired loans.
64
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
8. PREMISES AND EQUIPMENT
Premises and equipment on the consolidated balance sheet is net of accumulated
depreciation and amortization of $523,226 and $535,126 at December 31, 1995 and
1994, respectively. Depreciation and amortization of premises and equipment for
the years ended December 31, 1995, 1994, and 1993, was $67,413, $64,549 and
$67,557, respectively.
9. DEPOSITS
The following presents a breakdown of deposits at December 31, 1995 and 1994:
<TABLE>
<CAPTION>
1995 1994
------------ ------------
<S> <C> <C>
Domestic:
Non-interest bearing checking..................... $ 6,700,599 $ 6,362,470
NOW accounts...................................... 1,715,831 1,875,391
Savings accounts.................................. 3,924,841 4,354,829
Money market accounts............................. 2,400,119 2,620,827
Time deposits..................................... 5,620,977 5,714,004
----------- -----------
Total domestic deposits....................... 20,362,365 20,927,521
Overseas branches and subsidiaries.................. 1,140,068 1,113,365
----------- -----------
Total deposits................................ $21,502,433 $22,040,886
=========== ===========
</TABLE>
Domestic time deposits in denominations of $100 or more at December 31, 1995,
1994, and 1993 were:
<TABLE>
<CAPTION>
1995 1994 1993
----------- -------- --------
<S> <C> <C> <C>
Commercial certificates of deposit.................. $ 220,032 $268,402 $295,835
Other domestic time deposits,
principally savings certificates................ 366,487 371,771 145,195
---------- -------- --------
Total................................... $ 586,519 $640,173 $441,030
========== ======== ========
</TABLE>
Interest expense on domestic time deposits in denominations of $100 or more for
the years ended December 31, 1995, 1994, and 1993 was:
<TABLE>
<CAPTION>
1995 1994 1993
----------- -------- --------
Interest expense:
<S> <C> <C> <C>
Commercial certificates of deposit............. $ 12,554 $ 9,547 $ 13,908
Other domestic time deposits, principally
savings certificates....................... 20,910 13,231 9,434
---------- -------- --------
Total................................... $ 33,464 $ 22,778 $ 23,342
========== ======== ========
</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
presented.
Derivative financial instruments of $3,862,000 notional value at December 31,
1995 were used to manage interest rate risk associated with deposits. At
December 31, 1995, unrealized gains on these derivative financial instruments
were $73,000 and unrealized losses were $5,000. The effect of derivative
financial instruments on the cost of deposits for the year ended December 31,
1995 was to decrease the cost from 3.74% to 3.61%.
65
<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, 1995 and 1994 include the following:
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
Federal funds purchased (a)........................ $ 482,932 $ 252,340
Securities sold under agreements to
repurchase (b).................................... 129,145 139,923
Commercial paper (c)............................... 1,255,656 853,947
Other short-term funds borrowed (d)................ 223,989 299,991
---------- ----------
Total short-term funds borrowed (e)............. $2,091,722 $1,546,201
========== ==========
</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 6.11% in 1995, 4.58% in 1994 and 3.15% in
1993. The maximum amount outstanding at any month-end was $1,141,271
during 1995, $961,634 during 1994, and $1,160,951 during 1993.
(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 4.82% in 1995, 2.61% in 1994 and 2.73% in 1993. The maximum amount
outstanding at any month-end was $190,492 during 1995, $281,327 during
1994, and $386,368 during 1993.
(c) Commercial paper issued by CSCC 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 5.94% in 1995,
4.24% in 1994, and 3.14% in 1993. The maximum amount outstanding at any
month-end was $1,388,927 during 1995, $919,292 during 1994, and $714,439
during 1993.
At December 31, 1995, the Corporation had a $650,000 revolving credit
facility from unaffiliated banks. The facility was established in support
of commercial paper borrowings, Medium Term Note (see Note 11) issuance and
general corporate purposes. Unless extended by the Corporation in
accordance with the terms of the facility agreement, the facility expires
January 1999. There were no borrowings under this facility at December 31,
1995. 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 $2,073,000 in 1995,
$1,928,000 in 1994, and $1,962,000 in 1993. The weighted average interest
rate was 5.77% in 1995, 4.42% in 1994 and 3.42% in 1993. The average
interest rate is calculated primarily on a daily average of short-term
funds borrowed.
66
<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, 1995 and 1994 includes the following:
<TABLE>
<CAPTION>
CoreStates Financial Corp: 1995 1994
------------ ------------
<S> <C> <C>
8 5/8% Mortgages due 2001........................... $ 8,823 $ 9,997
---------- ----------
CSCC:
5 7/8% Guaranteed Subordinated
Notes due 2003 (a)................................ 200,000 200,000
6 5/8% Guaranteed Subordinated
Notes due 2005 (a)................................ 175,000 175,000
9 5/8% Guaranteed Subordinated
Notes due 2001 (a)................................ 150,000 150,000
9 3/8% Guaranteed Subordinated
Notes due 2003 (a)................................ 100,000 100,000
Medium Term Notes (b)............................... 1,036,035 1,099,585
Unamortized Discounts............................... (3,631) (3,785)
---------- ----------
1,657,404 1,720,800
---------- ----------
Other subsidiaries:
Federal Home Loan Bank
Borrowings (c).................................... 30,000 55,000
Various other....................................... 2,107 5,313
---------- ----------
32,107 60,313
---------- ----------
Total long-term debt (d)............................ $1,698,334 $1,791,110
========== ==========
</TABLE>
____________________
(a) 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.
(b) 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, 1995, $1,036,035 of debt was outstanding with
terms up to five years. Interest rates are predominately variable, but
include several issues at fixed interest rates ranging from 5.30% to 5.50%.
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 $294,000 at December 31,
1995. A new shelf registration statement will be filed in the first half of
1996 increasing registered but unissued debt and capital securities to
$1,750,000.
(c) The borrowings range in maturity from February 1996 to June 1996 at fixed
interest rates from 4.58% to 4.82%.
(d) The consolidated aggregate maturities and sinking fund requirements for
long-term debt for the years ending December 31, 1996 through 2000 are:
$305,469; $275,497; $326,653; $137,356; and $26,322, respectively.
67
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
11. LONG-TERM DEBT - continued
Derivative financial instruments of $614,000 notional value at December 31, 1995
were used to manage interest rate risk associated with long-term debt. At
December 31, 1995, unrealized gains on these derivative financial instruments
were $24,000 and unrealized losses were $8,000. The effect of these derivative
financial instruments on the cost of long-term debt for the year ended December
31, 1995 was to decrease the interest rate from 6.71% to 6.69%.
12. RETIREMENT AND BENEFIT PLANS
The projected benefit obligation under the Corporation's defined benefit pension
plans exceeded plan assets at fair value by $23,696 at December 31, 1995, 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,
----------------------
1995 1994
---------- ----------
<S> <C> <C>
Plan assets at fair value(a)........................................... $588,640 $456,293
-------- --------
Present value of benefit obligation:
Accumulated benefits based on salaries to date, including
vested benefits of $464,912 in 1995 and $371,570
in 1994............................................................ 492,394 402,772
Additional benefits based on estimated future salary levels......... 119,942 97,867
-------- --------
Projected benefit obligation........................................... 612,336 500,639
-------- --------
Amount projected benefit obligation exceeds
plan assets at fair value at December 31,.......................... (23,696) (44,346)
Reconciliation:
Unrecognized prior service cost.................................... 11,806 5,879
Unrecognized net asset from date of initial application............ (22,336) (27,538)
Net deferred actuarial loss........................................ 29,006 19,299
-------- --------
Accrued pension expense included in other liabilities.................. $ (5,220) $(46,706)
======== ========
</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, 1995, 1994 and 1993 included
the following expense (income) components:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ -------------
<S> <C> <C> <C>
Service cost benefits earned during the period...................... $ 16,615 $ 21,260 $ 16,117
Interest cost on projected benefit obligation....................... 40,997 38,773 35,186
Actual (return) loss on plan assets................................. (112,879) 17,746 (49,401)
Net amortization and deferral....................................... 69,591 (57,389) 10,105
--------- -------- --------
Net pension cost................................................ $ 14,324 $ 20,390 $ 12,007
========= ======== ========
</TABLE>
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation for the Corporation was 7.0% and 8.0%,
respectively, at December 31, 1995 and 1994. 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 $13,192 in 1995, $13,133 in 1994, and
$13,576 in 1993.
Prior to its acquisition by the Corporation, Independence maintained a defined
contribution plan which covered all employees who met age and service
requirements. Expense related to this plan was $2,407 in 1994 and $2,636 in
1993. Vested contributions were rolled into the Corporation's savings plan.
68
<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.
The liability for postretirement benefits included in other liabilities at
December 31, 1995 and 1994 was as follows:
<TABLE>
<CAPTION>
1995 1994
---------- ----------
<S> <C> <C>
Accumulated postretirement benefit obligation:
Retirees...................................................................... $(110,642) $ (93,547)
Fully eligible active plan participants....................................... (1,818) (2,979)
Other active plan participants................................................ (28,445) (32,420)
--------- ---------
Accumulated postretirement benefit obligation.................................. (140,905) (128,946)
Plan assets at fair value (a).................................................. 46,974 24,467
--------- ---------
Unfunded obligation at December 31,............................................ (93,931) (104,479)
Unrecognized prior service cost................................................ 115 -
Unrecognized net (gain) loss................................................... (18,722) (27,247)
--------- ---------
Accrued postretirement benefit obligation included in other liabilities........ $(112,538) $(131,726)
========= =========
</TABLE>
_____________________
(a) Primarily municipal bonds and short-term investments.
Net periodic postretirement benefit cost for the years ended December 31, 1995,
1994 and 1993 included the following expense (income) components:
<TABLE>
<CAPTION>
1995 1994 1993
------- -------- --------
<S> <C> <C> <C>
Service cost benefits earned during the period.......... $ 2,173 $ 2,323 $ 2,160
Interest cost on accumulated postretirement benefit
obligation........................................... 9,638 9,261 10,108
Actual return on plan assets............................ (1,107) (461) (6)
Net amortization and deferral........................... (1,436) (736) 6
------- ------- -------
Net periodic postretirement benefit cost................ $ 9,268 $10,387 $12,268
======= ======= =======
</TABLE>
For measurement purposes, a 10.5% annual rate of increase in the per capita
cost of covered health care benefits was assumed for 1995; 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, 1995 by $9,662 and the aggregate of the service and interest cost
components of net periodic postretirement benefit cost for the year then ended
by $663.
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 7.0% and 8.0%, respectively, at December 31, 1995 and 1994.
69
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
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 1995 follows:
<TABLE>
<CAPTION>
SHARES UNDER OPTION PRICE
OPTION PER SHARE
------------- ------------
<S> <C> <C>
Balance at January 1, 1995........... 7,235,699 $ 3.99 - $54.70
Options granted...................... 1,754,977 28.75 - 28.75
Options exercised.................... (3,069,893) 3.99 - 28.16
Options canceled..................... (118,737) 7.64 - 54.70
----------
Balance at December 31, 1995......... 5,802,046 3.99 - 28.75
----------
</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 preceding option table does not reflect 122,800 performance unit awards
outstanding at December 31, 1995, 214,062 at December 31, 1994 and 280,190 at
December 31, 1993. 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 1995, 1994 and
1993, respectively, $1,258, $867 and $1,051 was expensed in connection with
performance unit awards.
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123") was issued in October 1995 to establish accounting and
reporting standards for stock-based employee compensation plans such as stock
option and restricted stock plans ("stock-based plans"). FAS 123 defines a fair
value based method of accounting for measuring compensation expense for stock-
based plans and encourages all entities to adopt that method of accounting.
However, FAS 123 also permits entities to continue to measure compensation
expense for stock-based plans using the intrinsic value based method prescribed
by APB Opinion No. 25, "Accounting for Stock Issued to Employees." Entities
electing to remain with the intrinsic value based method must begin to make pro
forma disclosures of net income and earnings per share in fiscal years beginning
after December 31, 1995 as if the fair based method defined by FAS 123 was
applied.
Under the fair value based method, compensation expense would be measured as the
value of an award under a stock-based plan on the date the award is granted, and
would be recognized over the vesting period of the award. Under the current
intrinsic value based method, compensation expense is measured as the excess, if
any, of the market price of the stock underlying the award on the date the award
is granted, over the exercise price. Under CoreStates' stock-based long-term
incentive plan, awards have no intrinsic value on the date of grant as the
exercise price equals the market price on that date. Currently, CoreStates does
not expect to adopt the FAS 123 fair value based method of accounting for stock-
based plans but will provide the required pro forma disclosures in the December
31, 1996 financial statements.
70
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
14. OPERATING LEASES
Rental expense, reduced by sublease rental income, charged to operations was
$64,995, $63,901 and $63,055 for 1995, 1994 and 1993, 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.
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, 1995 are summarized by category in the table on page 29. 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 trading at
December 31, 1995 and 1994 are summarized by type of instrument in the table on
page 33.
71
<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
The following is a summary of off-balance sheet commitments and derivative
financial instruments as of December 31, 1995 and 1994, including fair values:
<TABLE>
<CAPTION>
1995 1994
--------------------------- ---------------------------
NOTIONAL FAIR Notional Fair
OR VALUE or Value
CONTRACTUAL OF ASSET Contractual of Asset1
AMOUNT (LIABILITY)(1) Amount (Liability)(1)
----------- -------------- ----------- --------------
<S> <C> <C> <C> <C>
Standby letters of credit, net of participations (a)............. $ 1,005,261 $(10,053) $1,125,262 $ (2,813)
Commercial letters of credit..................................... 1,266,324 (12,663) 1,244,164 (3,110)
Commitments to extend credit (b)................................. 10,219,882 (15,177) 8,223,261 (13,310)
Unused commitments under credit card lines....................... 3,872,641 - 3,579,453 -
Interest rate futures contracts (c):
Commitments to purchase....................................... 619,000 538 1,043,000 (1,185)
Commitments to purchase foreign and
U.S. currencies (d)........................................... 1,659,925 1,545 1,816,549 1,702
Interest rate swaps, notional principal
amounts (e)................................................... 7,770,802 198,531 8,234,400 (210,300)
Interest rate caps and floors (f):
Written....................................................... 647,323 (2,592) 749,857 (15,000)
Purchased..................................................... 948,023 4,235 1,150,657 20,200
Other derivatives................................................ 136,000 (1,647) 295,000 400
</TABLE>
_________________________
(1) See Note 3 for discussion of fair value.
72
<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 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, 1995 and 1994 was $16,394 and $2,275, respectively.
Included in fees for international services are net foreign exchange gains
of $21,884, $18,863 and $15,979 for the years ended December 31, 1995, 1994
and 1993, 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, 1995 and 1994,
the replacement cost of the Corporation's interest rate swap contracts was
$214,943 and $17,093, respectively. The risk of counterparty failure is
controlled by limiting transactions to an approved list of counterparties
and requiring collateral in certain instances. Net cash received on
interest rate swaps during 1995 and 1994 totaled $32,080 and $99,928,
respectively.
(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 totaled $4,235 and $20,200, respectively, at December 31,
1995 and 1994.
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.
73
<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>
1995 1994 1993
--------- --------- ---------
<S> <C> <C> <C>
Current:
Federal.......................................... $200,567 $106,053 $155,972
State............................................ 19,928 15,652 18,209
-------- -------- --------
Total domestic.............................. 220,495 121,705 174,181
Foreign.......................................... 8,023 5,558 10,284
-------- -------- --------
Total current............................... 228,518 127,263 184,465
Deferred Federal and state expense
(benefit)......................................... 34,047 16,393 (10,656)
-------- -------- --------
Total provision for income taxes............ $262,565 $143,656 $173,809
======== ======== ========
</TABLE>
The significant components of the Corporation's deferred tax assets and
liabilities at December 31, 1995 and 1994 are as follows:
<TABLE>
<CAPTION>
1995 1994
--------- ----------
<S> <C> <C>
Deferred tax assets:
Allowance for loan losses....................... $171,756 $171,176
Postretirement and postemployment benefits...... 47,612 65,743
Reserves........................................ 43,523 26,616
Other........................................... 53,667 61,108
-------- --------
Gross deferred tax asset........................ 316,558 324,643
Valuation allowance............................. - (9,102)
-------- --------
Total deferred tax assets................... 316,558 315,541
-------- --------
Deferred tax liabilities:
Auto leasing portfolio.......................... 103,258 88,570
FAS 115 fair value accounting................... 18,888 5,981
Partnership investments......................... 3,282 744
Tax over book depreciation...................... 16,985 18,040
Affiliate income................................ 30,404 17,716
Other........................................... 10,064 9,984
-------- --------
Total deferred tax liabilities.............. 182,881 141,035
-------- --------
Net deferred tax assets............................ $133,677 $174,506
======== ========
</TABLE>
At December 31, 1995 cumulative deductible temporary differences are
approximately $904,000 and the related deferred tax asset is $316,558. The major
components of the temporary differences include $491,000 related to the
allowance for loan losses and $136,000 related to pension, and other post
retirement and post employment benefits. Cumulative taxable temporary
differences related to deferred tax credits at December 31, 1995 are estimated
at $522,000 and are primarily related to leasing, FAS 115 fair value accounting,
affiliate income and depreciation. The related deferred tax liability is
$182,881.
74
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS
(DOLLAR AMOUNTS IN THOUSANDS)
16. PROVISION FOR INCOME TAXES - continued
At December 31, 1995, the Corporation has determined that it is not required to
establish a valuation allowance for the deferred tax asset since it is more
likely than not that the deferred tax asset of $316,558 will be realized
principally 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. 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.
The Corporation has reversed the $9,102 valuation allowance for the deferred tax
asset related to pre-affiliation state income taxes. An estimated $4,000 state
benefit for tax purposes will be obtained in future periods. No further benefit
will be obtained on the remaining $5,102.
The consolidated effective tax rates are reconciled to the statutory rate as
follows:
<TABLE>
<CAPTION>
1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Statutory rate...................................... 35.0% 35.0% 35.0%
Difference resulting from:
Tax-exempt income................................. (1.5) (3.4) (3.1)
State, local and foreign income tax............... 1.8 2.6 2.4
Other, net........................................ 1.4 2.4 (1.9)
---- ---- ----
Effective tax rate.................................. 36.7% 36.6% 32.4%
==== ==== ====
</TABLE>
Foreign earnings of certain subsidiaries would be taxed only upon their transfer
to the United States. No transfers or dividends are contemplated at this time.
Taxes payable upon remittance of such accumulated earnings of $21,323 at
December 31, 1995 would approximate $7,065.
Taxes, other than income taxes, included in other operating expenses for the
years ended December 31, 1995, 1994 and 1993 are $72,013, $70,505 and $76,608,
respectively.
75
<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>
1995
- - ----
Interest income................................................ $ 568,358 $ 566,368 $576,592 $550,987
============ ========== ======== ========
Interest expense............................................... $ 193,708 $ 195,980 $197,964 $186,119
============ ========== ======== ========
Net interest income............................................ $ 374,650 $ 370,388 $378,628 $364,868
============ ========== ======== ========
Provision for losses on loans.................................. $ 27,500 $ 27,500 $ 25,000 $ 25,000
============ ========== ======== ========
Securities gains............................................... $ 931 $ 470 $ 1,592 $ 6,395
============ ========== ======== ========
Net income..................................................... $ 136,954(b) $ 133,946(b) $125,970(b) $ 55,367(a)
============ ========== ======== ========
Net income per common share.................................... $0.99(b) $0.96(b) $0.89(b) $0.38(a)
===== ===== ===== =====
Average common shares outstanding.............................. 138,468 139,176 140,914 144,246
======= ======= ======= =======
Common Stock Market Bid Information:
High......................................................... $ 40 1/8 $ 38 7/8 $ 36 $ 33
Low.......................................................... 34 5/8 34 1/4 30 1/2 25 5/8
Quarter-end.................................................. 37 7/8 36 5/8 34 5/8 32
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............................. $0.78 $0.74 $0.44(d) $(0.21)(c)(d)
===== ===== ===== ======
Average common shares outstanding.............................. 142,252 141,033 142,139 144,612
======= ======= ======= =======
Common Stock Market Bid Information:
High......................................................... $ 27 5/8 $ 29 1/8 $ 28 $ 27 1/8
Low.......................................................... 22 7/8 25 7/8 25 24 1/2
Quarter-end.................................................. 26 26 5/8 25 3/4 26
</TABLE>
______________________
(a) Includes the impact of an after-tax restructuring charge of $70.0 million,
or $0.49 per share related to a process redesign and an after-tax gain of
$11.8 million, or $0.08 per share related to a change in ownership
interests in a joint venture.
(b) Includes the impact of after-tax restructuring credits of $1.9 million or
$0.01 per share, $1.5 million or $0.01 per share, and $4.1 million or $0.03
per share recorded in the second, third and fourth quarters of 1995,
respectively.
(c) Based on income before cumulative effect of a change in accounting
principle.
(d) Reflects after-tax merger-related charges of $0.89 per share recorded in
the first quarter of 1994 for the Constellation acquisition and $0.28 per
share recorded in the second quarter of 1994 for the Independence
acquisition.
76
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS: CONTINUED
(DOLLAR AMOUNTS IN THOUSANDS)
18. INTERNATIONAL OPERATIONS
International operations include the international activities of CBNA and its
five 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:
<TABLE>
<CAPTION>
Domestic International
Operations Operations Total
------------ ------------- ------------
<S> <C> <C> <C>
DECEMBER 31, 1995
Assets(a)......................................... $27,222,121 $2,398,495 $29,620,616
=========== ========== ===========
Total operating income............................ $ 2,657,357 $ 210,614 $ 2,867,971
=========== ========== ===========
Income before income taxes........................ $ 670,728 $ 44,074 $ 714,802
=========== ========== ===========
Net income........................................ $ 423,589 $ 28,648 $ 452,237
=========== ========== ===========
DECEMBER 31, 1994
Assets(a)......................................... $27,581,360 $1,743,776 $29,325,136
=========== ========== ===========
Total operating income............................ $ 2,302,798 $ 194,269 $ 2,497,067
=========== ========== ===========
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
=========== ========== ===========
</TABLE>
____________________
(a) The Corporation had no material foreign currency positions at December 31,
1995, 1994 and 1993. Assets primarily consist of Eurodollar time deposit
placements, loans and acceptances with maturities of one year or less.
77
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENT OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
19. JOINT VENTURE
In December 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.
At the formation of EPS, the Corporation had equal ownership with two partners
in the joint venture, each with 31%. The fourth partner owned 7%. As part of the
1992 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 1992 pre-tax gain to the Corporation
of $41,072, $25,670 after-tax. The exchange also generated a deferred gain of
approximately $138,000.
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 did not
affect the amount of deferred gain, but changed the timing of deferred gain
income recognition from a five-year period beginning in 1996 to a ten-year
period which began in 1994.
On March 27, 1995, EPS added a new partner and increased the ownership interests
of an existing partner to that of a full partner, resulting in a decrease in the
Corporation's share of ownership from 31% to 20%. As a direct result of this
change in ownership interests, the Corporation recognized a pre-tax gain of
$19,000, $11,800 after-tax or $0.08 per share, in 1995. Included in the pre-tax
gain amount was $4,000 related to the acceleration of deferred gain recognition.
The Corporation's investment in EPS at December 31, 1995, net of $117,000
deferred gain, is $72,632 and is included in other assets. "Income from
investment in EPS, Inc.", which is included in non-interest income, reflects the
Corporation's share in EPS net income for all periods presented, interest income
on the 6.45% note in 1995 and 1994, dividends on the preferred stock in 1993 and
amortization of the deferred gain in 1995 and 1994.
20. RESTRUCTURING CHARGE
The Corporation recorded a restructuring charge of $110,000, $70,000 after-tax
or $0.49 per share, in the first quarter of 1995 in connection with a process
redesign which commenced March 1995 and will continue into 1996. The objectives
of the process redesign are : (i) to enhance the Corporation's customer focus;
(ii) to accelerate "cultural changes" which were already in progress; and (iii)
to improve productivity. The charge included direct and incremental costs
associated with the process redesign. The components of the restructuring charge
were as follows:
<TABLE>
<CAPTION>
REQUIRING 1995
CASH CASH
TOTAL OUTFLOW OUTFLOW
--------- --------- --------
<S> <C> <C> <C>
Severance costs................................ $ 72,000 $72,000 $28,306
Office reconfiguration costs................... 16,000 7,000 -
Branch closing costs........................... 15,000 7,000 1,669
Outplacement costs............................. 2,500 2,500 1,821
Miscellaneous.................................. 4,500 2,500 1,474
-------- ------- -------
Total..................................... $110,000 $91,000 $33,270
======== ======= =======
</TABLE>
Subsequent to recording the March 1995 restructuring charge, the Corporation
recorded restructuring credits of $11,825, $7,525 after-tax or $0.05 per share,
related to gains on the curtailment of pension benefits associated with
employees displaced during 1995 and gains on the sale of branches which were
sold as a result of the process redesign.
The following table summarizes the activity in the restructuring accrual for the
year ended December 31, 1995:
<TABLE>
<S> <C>
Balance at beginning of year.............. $ -
Provision charged against income.......... 110,000
Cash outflow.............................. (33,270)
Writedowns of assets...................... (7,442)
--------
Balance at December 31, 1995.............. $ 69,288
========
</TABLE>
78
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS: Continued
(DOLLAR AMOUNTS IN THOUSANDS)
21. FINANCIAL STATEMENTS OF THE PARENT COMPANY
<TABLE>
<CAPTION>
STATEMENT OF INCOME Year Ended December 31,
-------------------------------------
1995 1994 1993
---------- ---------- ---------
<S> <C> <C> <C>
REVENUES
- - --------
Dividends from subsidiaries:
Banks.............................................................. $ 248,131 $ 240,370 $ 204,393
Other subsidiaries................................................. 90,267 20,375 14,648
---------- ---------- ---------
Total dividends from subsidiaries............................... 338,398 260,745 219,041
Management fees and other income from subsidiaries................... 146,011 144,583 143,776
Securities (losses).................................................. - (2) (380)
Other income......................................................... 784 119 721
---------- ---------- ---------
Total revenues.................................................. 485,193 405,445 363,158
---------- ---------- ---------
EXPENSES
- - --------
Interest on:
Funds borrowed..................................................... 19,685 9,709 5,525
Long-term debt..................................................... 927 1,020 8,405
---------- ---------- ---------
Total interest expense.......................................... 20,612 10,729 13,930
Other operating expenses............................................. 151,000 173,157 137,468
---------- ---------- ---------
Total expenses.................................................. 171,612 183,886 151,398
---------- ---------- ---------
Income before income tax benefit and equity in
undistributed income of subsidiaries.............................. 313,581 221,559 211,760
Income tax benefit................................................... (8,272) (13,715) (2,882)
---------- ---------- ---------
Income before equity in undistributed income of subsidiaries......... 321,853 235,274 214,642
Equity in undistributed income (loss) of subsidiaries:
Banks.............................................................. 111,996 (52,590) 89,743
Other subsidiaries................................................. 18,388 62,678 45,034
---------- ---------- ---------
Total equity in undistributed income of subsidiaries............ 130,384 10,088 134,777
---------- ---------- ---------
NET INCOME........................................................... $ 452,237 $ 245,362 $ 349,419
========== ========== =========
<CAPTION>
BALANCE SHEET December 31,
------------------------
1995 1994
---------- ----------
<S> <C> <C>
ASSETS
- - ------
Cash................................................................. $ 1,254 $ 3,893
Time deposit......................................................... - 300
Investments: securities available-for-sale........................... 9,982 69,566
Investments and receivables-subsidiaries:
Investments in subsidiaries at equity in underlying net assets:
Banks.............................................................. 2,255,495 2,279,541
Other subsidiaries................................................. 337,048 308,130
---------- ----------
Total investments in subsidiaries............................... 2,592,543 2,587,671
Other................................................................ 3,995 9,165
---------- ----------
Total investments and receivables-subsidiaries.................. 2,596,538 2,596,836
Other assets......................................................... 34,066 31,579
---------- ----------
Total assets.................................................... $2,641,840 $2,702,174
========== ==========
LIABILITIES
- - -----------
Funds borrowed - subsidiaries........................................ $ 176,551 $ 246,609
Dividends payable and other liabilities.............................. 76,012 94,200
Long-term debt....................................................... 9,858 11,251
---------- ----------
Total liabilities............................................... 262,421 352,060
---------- ----------
SHAREHOLDERS' EQUITY
- - --------------------
Total shareholders' equity...................................... 2,379,419 2,350,114
---------- ----------
Total liabilities and shareholders' equity...................... $2,641,840 $2,702,174
========== ==========
</TABLE>
79
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE FINANCIAL STATEMENTS: Continued
(DOLLAR AMOUNTS IN THOUSANDS)
21. FINANCIAL STATEMENTS OF THE PARENT COMPANY - CONTINUED
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 by national banking
regulations) for that year combined with its retained net profits for the
preceding two calendar years. Under this formula, CBD can declare dividends
without approval of the Comptroller of the Currency of approximately $37
million, plus an additional amount equal to CBD's retained net profits for 1996
up to the date of any such dividend declaration. CBNA and NJNB will be able to
declare dividends without the approval of the Comptroller of the Currency to the
extent that and when 1996 retained net profits exceed $2 million and $7 million,
respectively.
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 in that Act) 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, 1995 in the amount of $2,916,691, which includes $1,255,656 for
commercial paper.
The maturities for parent company long-term debt for the years ending December
31, 1996 through 2000 are: $1,234; $1,345; $1,466; $1,596; and $1,741,
respectively.
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS
Year Ended December 31,
-------------------------------------------
1995 1994 1993
--------- ---------- ---------
OPERATING ACTIVITIES
<S> <C> <C> <C>
Net income.......................................................... $ 452,237 $ 245,362 $ 349,419
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed income of subsidiaries............................. (130,384) (10,088) (143,393)
Securities losses................................................ - 2 380
Deferred income tax expense (benefit)............................ (953) (5,428) 1,692
Net (increase) decrease in other assets.......................... (1,895) - 96
Net increase (decrease) in other liabilities..................... (2,020) (419) 1,082
Other, net....................................................... 661 (8,142) (3,147)
--------- ---------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES 317,646 221,287 206,129
--------- ---------- ---------
INVESTING ACTIVITIES
Net capital returned from (contributed to) subsidiaries............. 149,000 (15,860) 37,119
(Increase) decrease in receivables from subsidiaries................ 5,170 53,862 (16,962)
Purchases of investment securities.................................. (58,001) (202,309) (483,551)
Proceeds from maturities and sales of investment securities......... 117,585 188,028 453,002
Purchase of Germantown Savings Bank................................. - (108,061) -
Other, net.......................................................... 417 - (188)
--------- --------- ---------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES....................................................... 214,171 (84,340) (10,580)
--------- --------- ---------
FINANCING ACTIVITIES
Retirement of long-term debt........................................ (1,393) (45,488) (20,940)
Net increase (decrease) in financing from and due to subsidiaries... (94,054) 270,587 (75,967)
Cash dividends paid................................................. (194,067) (160,122) (143,334)
Purchase of treasury stock.......................................... (335,528) (228,963) (29,449)
Other, net.......................................................... 90,586 22,178 29,538
--------- --------- ---------
NET CASH USED IN FINANCING ACTIVITIES............................. (534,456) (141,808) (240,152)
--------- --------- ---------
DECREASE IN CASH AND DUE FROM BANKS............................. (2,639) (4,861) (44,603)
Cash and due from banks at January 1,............................. 3,893 8,754 53,357
--------- --------- ---------
CASH AND DUE FROM BANKS AT DECEMBER 31,........................... $ 1,254 $ 3,893 $ 8,754
========= ========= =========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest........................................................... $ 20,810 $ 10,884 $ 10,712
========= ========= =========
Income taxes...................................................... - - -
========= ========= =========
</TABLE>
80
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA
CONSOLIDATED AVERAGE BALANCE SHEET AND TAXABLE EQUIVALENT INCOME/EXPENSE AND
RATES
<TABLE>
<CAPTION>
1995 1994
--------------------------------- --------------------------------
AVERAGE INCOME/ Average Income/
BALANCE RATE EXPENSE balance Rate expense
--------- ----- ------------- --------- ----- ------------
(000,000) (000) (000,000) (000)
INTEREST EARNING ASSETS
<S> <C> <C> <C> <C> <C> <C>
Time deposits, principally Eurodollars (a)......... $ 1,843 6.33% $ 116,689 $ 1,520 4.37% $ 66,389
Investment securities (b):
U.S. Government................................... 1,661 5.72 94,994 2,235 5.06 112,990
State and municipal............................... 278 8.43 23,428 365 7.65 27,921
Other............................................. 428 6.13 26,235 414 6.02 24,925
--------- ---------- --------- ----------
Total investment securities................... 2,367 6.11 144,657 3,014 5.50 165,836
Federal funds sold................................. 229 6.34 14,527 165 4.70 7,754
Trading account securities......................... 2 2.45 49 3 5.63 169
Loans (b)(c)(d):
Domestic:
Commercial, industrial and other................. 9,338 9.83 917,635 8,222 8.56 703,985
Real estate...................................... 5,894 8.93 526,163 6,265 8.01 502,048
Consumer......................................... 2,764 12.26 338,839 2,572 11.78 302,951
Financial institutions........................... 708 7.00 49,594 618 8.02 49,571
Factoring receivables............................ 543 10.63 57,747 587 9.95 58,389
Lease financing.................................. 734 7.90 57,988 750 8.27 61,999
Foreign........................................... 789 7.05 55,650 587 5.40 31,683
--------- ---------- --------- ----------
Total loans, net of discounts................ 20,770 9.65 2,003,616 19,601 8.73 1,710,626
--------- ---------- --------- ----------
Total interest earning assets (d)(e)......... $ 25,211 9.04 2,279,538 $ 24,303 8.02 1,950,774
========= ----- ---------- ========= ------ ----------
FUNDING SOURCES
Interest bearing liabilities (b):
Deposits in domestic offices (f):
Commercial....................................... $ 247 5.42 13,382 $ 269 3.76 10,125
NOW accounts..................................... 1,715 1.09 17,199 1,829 .68 11,470
Money Market Accounts............................ 3,649 3.25 118,010 3,935 2.12 83,167
Consumer savings................................. 2,807 1.95 54,733 3,029 1.49 45,066
Consumer certificates............................ 5,529 5.17 285,882 4,361 4.28 186,744
Time deposits of overseas branches
and subsidiaries................................. 944 4.61 43,497 804 3.52 28,286
--------- ---------- --------- ----------
Total interest bearing deposits.............. 14,891 3.61 532,703 14,227 2.59 364,858
--------- ---------- --------- ----------
Short-term funds borrowed:
Federal funds purchased.......................... 758 5.88 44,546 861 4.08 35,162
Commercial paper................................. 1,051 5.94 62,459 753 4.24 31,948
Other............................................ 264 4.80 12,662 314 5.74 18,013
--------- ---------- --------- ----------
Total short-term funds borrowed.............. 2,073 5.77 119,667 1,928 4.42 85,123
--------- ---------- --------- ----------
Long-term debt (g)................................ 1,814 6.69 121,401 1,657 5.44 90,177
--------- ---------- --------- ----------
Total interest bearing liabilities........... 18,778 4.12 773,771 17,812 3.03 540,158
Portion of non-interest bearing funding sources.... 6,433 6,491
--------- ---------- --------- ----------
Total funding sources (e).................... $ 25,211 3.07 773,771 $ 24,303 2.22 540,158
========= ----- ---------- ========= ------ ----------
Net interest income and net interest margin........ 5.97% $1,505,767 5.80% $1,410,616
===== ========== ====== ==========
1993
--------------------------------
Average Income/
balance Rate expense
--------- ----- ------------
(000,000) (000)
INTEREST EARNING ASSETS
<S> <C> <C> <C>
Time deposits, principally Eurodollars (a)......... $ 1,312 3.38% $ 44,340
Investment securities (b):
U.S. Government................................... 2,759 5.80 159,950
State and municipal............................... 414 8.28 34,261
Other............................................. 410 5.21 21,347
--------- ----------
Total investment securities................... 3,583 6.02 215,558
Federal funds sold................................. 235 3.10 7,282
Trading account securities......................... 2 4.15 83
Loans (b)(c)(d):
Domestic:
Commercial, industrial and other................. 7,378 8.07 595,114
Real estate...................................... 6,795 7.89 536,234
Consumer......................................... 2,399 11.93 286,134
Financial institutions........................... 707 6.15 43,475
Factoring receivables............................ 554 9.62 53,312
Lease financing.................................. 658 9.06 59,609
Foreign........................................... 544 5.01 27,258
--------- ----------
Total loans, net of discounts................ 19,035 8.41 1,601,136
--------- ----------
Total interest earning assets (d)(e)......... $ 24,167 7.73 1,868,399
========= ----- ----------
FUNDING SOURCES
Interest bearing liabilities (b):
Deposits in domestic offices (f):
Commercial....................................... $ 419 3.74 15,656
NOW accounts..................................... 1,793 .94 15,442
Money Market Accounts............................ 4,142 2.13 88,061
Consumer savings................................. 2,982 1.54 45,792
Consumer certificates............................ 4,499 4.37 196,614
Time deposits of overseas branches
and subsidiaries................................. 711 2.57 18,248
--------- ----------
Total interest bearing deposits.............. 14,546 2.64 379,813
--------- ----------
Short-term funds borrowed:
Federal funds purchased.......................... 1,129 3.05 34,444
Commercial paper................................. 604 3.14 18,982
Other............................................ 229 5.93 13,575
--------- ----------
Total short-term funds borrowed.............. 1,962 3.42 67,001
--------- ----------
Long-term debt (g)................................ 1,455 4.80 69,779
--------- ----------
Total interest bearing liabilities........... 17,963 2.88 516,593
Portion of non-interest bearing funding sources.... 6,204
---------
Total funding sources (e).................... $ 24,167 2.14 516,593
========= ----- ----------
Net interest income and net interest margin........ 5.59% $1,351,806
===== ==========
</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 1995-1991, 7%, 7%, 7%, 10%, and 9% 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
81
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA
CONSOLIDATED AVERAGE BALANCE SHEET AND TAXABLE EQUIVALENT INCOME/EXPENSE AND
RATES
<TABLE>
<CAPTION>
1995 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............................................ $ 2,118 $ 2,256
Allowance for loan losses....................... (501) (506)
Other assets.................................... 1,618 1,614
-------- ---------
Total non-interest earning assets............. $ 3,235 $ 3,364
======== =========
TOTAL AVERAGE ASSETS............................ $ 28,446 $ 27,667
======== =========
NON-INTEREST BEARING FUNDING SOURCES
Demand deposits:
Domestic...................................... $ 5,404 $ 5,708
Foreign....................................... 420 417
Other liabilities............................... 1,535 1,460
Shareholders' equity............................ 2,309 2,270
Non-interest bearing funding sources used
to fund earning assets......................... (6,433) (6,491)
-------- ---------
Total net non-interest bearing
funding sources.......................... $ 3,235 $ 3,364
========= =========
SUPPLEMENTARY AVERAGES
Net demand deposits............................. $ 4,569 $ 4,525
Net Federal funds purchased..................... 529 5.68% $ 30,019 696 3.94% $27,408
Commercial certificates of deposit in domestic
offices over $100,000.......................... 247 5.08 12,554 261 3.66 9,547
Average prime rate.............................. 8.84 6.60
<CAPTION>
1993
----------------------------
Average Income/
balance Rate expense
------- ---- -------
(000,000) (000)
<S> <C> <C> <C>
NON-INTEREST EARNING ASSETS
Cash............................................ $ 2,263
Allowance for loan losses....................... (457)
Other assets.................................... 1,727
--------
Total non-interest earning assets............. $ 3,533
========
TOTAL AVERAGE ASSETS............................ $ 27,700
========
NON-INTEREST BEARING
FUNDING SOURCES
Demand deposits:
Domestic...................................... $ 5,714
Foreign....................................... 369
Other liabilities............................... 1,456
Shareholders' equity............................ 2,198
Non-interest bearing funding sources used
to fund earning assets.........................
(6,204)
Total net non-interest bearing --------
funding sources.......................... $ 3,533
========
SUPPLEMENTARY AVERAGES
Net demand deposits............................. $ 4,579
Net Federal funds purchased..................... 894 3.04% $27,162
Commercial certificates of deposit in domestic
offices over $100,000.......................... 373 3.73 13,908
Average prime rate.............................. 6.00
</TABLE>
82
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA
CONSOLIDATED AVERAGE BALANCE SHEET AND TAXABLE EQUIVALENT INCOME/EXPENSE AND
RATES: CONTINUED
<TABLE>
<CAPTION>
1992 1991
---------------------------------- --------------------------------
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)............. $ 1,435 4.08% $ 58,613 $ 1,213 6.52% $ 79,125
Investment securities (b):
U.S. Government....................................... 2,321 6.97 161,760 2,061 8.04 165,700
State and municipal................................... 423 9.40 39,766 466 10.44 48,664
Other.................................................. 550 7.82 43,024 671 9.23 61,945
-------- ---------- -------- -----------
Total investment securities...................... 3,294 7.42 244,550 3,198 8.64 276,309
Federal funds sold..................................... 510 4.43 22,611 450 6.40 28,813
Trading account securities............................. 1 7.20 72 1 5.10 51
Loans (b)(c)(d):
Domestic:
Commercial, industrial and other.................... 7,234 8.31 601,294 7,993 9.71 776,261
Real estate......................................... 6,854 8.51 583,562 6,571 9.47 622,340
Consumer............................................ 2,471 12.35 305,193 3,653 14.35 524,058
Financial institutions.............................. 832 6.24 51,903 900 8.71 78,420
Factoring receivable................................ 486 9.70 47,154 480 10.69 51,327
Lease financing..................................... 562 8.87 49,848 546 9.50 51,876
Foreign................................................ 429 6.53 28,018 431 8.68 37,429
-------- ---------- -------- -----------
Total loans, net of discounts.................... 18,868 8.83 1,666,972 20,574 10.41 2,141,711
-------- ---------- -------- -----------
Total interest earning assets (d)(e)............. $ 24,108 8.26 1,992,818 $ 25,436 9.93 2,526,009
======== ----- ---------- ======== ---- -----------
FUNDING SOURCES
Interest bearing liabilities (b):
Deposits in domestic offices (f):
Commercial........................................... $ 796 4.40 34,996 $ 1,466 6.42 94,181
NOW accounts......................................... 1,671 2.44 36,858 1,444 4.54 58,450
Money Market Accounts................................ 4,225 2.89 122,086 3,947 4.91 193,621
Consumer savings..................................... 2,612 2.74 71,495 2,024 4.62 93,408
Consumer certificates................................ 5,446 5.08 276,701 6,449 6.73 433,790
Time deposits of overseas branches
and subsidiaries.................................... 756 3.75 28,319 1,227 6.27 76,929
-------- ---------- -------- -----------
Total interest bearing deposits.................. 15,506 3.72 570,455 16,557 5.79 950,379
-------- ---------- -------- -----------
Short-term funds borrowed:
Federal funds purchased............................. 990 3.41 33,735 1,321 5.58 73,742
Commercial paper.................................... 539 3.72 20,030 791 6.28 49,657
Other............................................... 128 5.25 6,715 700 6.89 48,206
-------- ---------- -------- -----------
Total short-term funds borrowed.................. 1,657 3.65 60,480 2,812 6.10 171,605
-------- ---------- -------- -----------
Long-term debt (g).................................... 1,312 6.06 78,425 1,168 7.86 90,363
-------- ---------- -------- -----------
Total interest bearing liabilities............... 18,475 3.84 709,360 20,537 5.90 1,212,347
Portion of non-interest bearing funding sources........ 5,633 4,899
-------- --------
Total funding sources (e)........................ $ 24,108 2.94 709,360 $ 25,436 4.77 1,212,347
======== ---- ---------- ======== ---- -----------
Net interest income and net interest margin............ 5.32% $1,283,458 5.16% $ 1,313,662
==== ========== ==== ===========
</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 include in interest earning assets.
(e) For the years 1995-1991, 7%, 7%, 7%, 10%, and 9%, 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.
83
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA
CONSOLIDATED AVERAGE BALANCE SHEET AND TAXABLE EQUIVALENT INCOME/EXPENSE AND
RATES: CONTINUED
<TABLE>
<CAPTION>
1992 1991
--------------------------- --------------------------------
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 EARNING ASSETS
Cash.................................... $ 2,114 $ 1,973
Allowance for loan losses............... (463) (512)
Other assets............................ 1,795 1,746
--------- --------
Total non-interest earning assets. $ 3,446 $ 3,207
========= ========
TOTAL AVERAGE ASSETS.................... $ 27,554 $28,643
========= ========
NON-INTEREST BEARING FUNDING SOURCES
Demand deposits:
Domestic.............................. $ 5,437 $ 4,752
Foreign............................... 324 308
Other liabilities....................... 1,368 1,184
Shareholders' equity.................... 1,950 1,862
Non-interest bearing funding sources
used to fund earning assets............ (5,633) (4,899)
--------- --------
Total net non-interest bearing
funding sources................ $ 3,446 $ 3,207
========= ========
SUPPLEMENTARY AVERAGES
Net demand deposits..................... $ 3,998 $ 3,306
Net Federal funds purchased............. 480 2.32% $11,124 871 5.16% $44,929
Commercial certificates of deposit in
domestic offices over $100,000......... 702 4.38 30,739 1,310 6.47 84,812
Average prime rate...................... 6.25 8.46
</TABLE>
84
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA: CONTINUED
CONDENSED CONSOLIDATED STATEMENT OF INCOME
AND SELECTED FINANCIAL DATA
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
Year Ended December 31,
--------------------------------------------------------------------------
CONDENSED CONSOLIDATED STATEMENT OF INCOME 1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Interest income and fees........................ $2,262,305 $1,929,527 $1,841,864 $1,961,838 $2,485,277
Interest expense................................ 773,771 540,158 516,593 709,360 1,212,367
---------- ---------- ---------- ---------- ----------
Net interest income.......................... 1,488,534 1,389,369 1,325,271 1,252,478 1,272,910
Provision for losses on loans................... 105,000 246,900 121,201 160,250 291,261
---------- ---------- ---------- ---------- ----------
Net interest income after
provision for losses on loans.............. 1,383,534 1,142,469 1,204,070 1,092,228 981,649
Non-interest income............................. 605,666 567,540 574,030 610,664 615,565
Non-financial expenses.......................... 1,274,398 1,317,561 1,241,862 1,306,593 1,319,465
---------- ---------- ---------- ---------- ----------
Income before income taxes...................... 714,802 392,448 536,238 396,299 277,749
Provision for income taxes...................... 262,565 143,656 173,809 128,165 97,432
---------- ---------- ---------- ---------- ----------
Income before cumulative
effect of a change in accounting
principle..................................... 452,237 248,792 362,429 268,134 180,317
Cumulative effect of a change in
accounting principle, net of tax.............. - (3,430) (13,010) (84,946) -
---------- ---------- ---------- ---------- ----------
Net income...................................... $ 452,237 $ 245,362 $ 349,419 $ 183,188 $ 180,317
========== ========== ========== ========== ==========
PER COMMON SHARE DATA:
Income before cumulative effect of a
change in accounting principle................ $3.22(a) $1.75(b) $2.49 $1.97 $1.35
Net income..................................... 3.22(a) 1.73(b) 2.40 1.35 1.35
Dividends paid................................. 1.36 1.20 1.11 1.00 0.96
Dividends declared............................. 1.44 1.24 1.14 1.02 0.97
Average common shares outstanding............... 140,600 142,498 145,398 135,813 133,237
OPERATING RATIOS:
Income before cumulative effect of a change in
accounting principle as a percent of:
Average common shareholders equity.......... 19.59(a) % 10.96(b)% 16.49% 13.7% 9.68%
Average total assets........................ 1.59(a) 0.90(b) 1.31 0.97 0.63
Average total shareholders equity as a percent of
average total assets.......................... 8.12 8.20 7.94 7.08 6.50
Dividends declared as a percent of income from
continuing operations......................... 44.72(a) 70.86(b) 45.78 51.78 71.85
FULL TIME EQUIVALENT STAFF...................... 13,598 15,076 16,017 16,271 16,571
</TABLE>
______________________
(a) Includes the impact of an after-tax net restructuring charge of $62.5
million, or $0.44 per share and an after-tax gain of $0.08 per share
related to a change in ownership interests in a joint venture. Excluding
the impact of these items, net income per common share was $3.58, return on
average common shareholders' equity was 21.78%, and return on average total
assets was 1.77%.
(b) Includes the impact of after-tax merger-related charges of $0.89 per share
recorded for the acquisition of Constellation Bancorp and $0.28 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).
85
<PAGE>
CORESTATES FINANCIAL CORP AND
SUBSIDIARIES SUPPLEMENTAL FINANCIAL DATA: CONTINUED
CONDENSED CONSOLIDATED BALANCE SHEET
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
December 31,
-----------------------------------------------------------------------
1995 1994 1993 1992 1991
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks......................... $ 2,755,636 $ 2,262,512 $ 2,521,676 $ 2,510,001 $ 2,210,383
Time deposits, principally Eurodollars.......... 1,841,799 1,750,458 1,319,457 1,815,394 1,673,553
Federal funds sold.............................. 594,868 731,820 161,527 266,890 376,300
Trading account securities...................... 1,336 1,206 6,393 2,796 1,255
Investment securities........................... 1,990,332 2,880,631 3,599,166 3,588,348 3,298,107
Loans........................................... 21,046,535 20,526,216 19,776,258 18,940,402 19,418,084
Allowance for loan losses....................... (495,075) (500,631) (450,823) (442,267) (473,301)
Due from customers on acceptances............... 549,557 342,211 332,234 632,976 212,024
Premises, equipment and other assets............ 1,335,628 1,330,713 1,168,729 1,418,177 1,467,492
----------- ----------- ----------- ----------- -----------
Total assets............................... $29,620,616 $29,325,136 $28,434,617 $28,732,717 $28,183,897
=========== =========== =========== =========== ===========
LIABILITIES
Deposits:
Domestic:
Non-interest bearing......................... $ 6,700,599 $ 6,362,470 $ 6,649,367 $ 6,460,415 $ 5,930,296
Interest bearing............................. 13,661,766 14,565,051 13,686,027 14,446,043 15,147,941
Overseas branches and subsidiaries............ 1,140,068 1,113,365 796,902 766,119 839,327
----------- ----------- ----------- ----------- -----------
Total deposits............................. 21,502,433 22,040,886 21,132,296 21,672,577 21,917,564
Short-term funds borrowed....................... 2,091,722 1,546,201 1,884,125 1,904,044 2,069,451
Bank acceptances outstanding.................... 549,048 336,103 337,180 635,544 213,613
Other liabilities............................... 1,399,660 1,260,722 1,123,342 1,068,395 814,888
Long-term debt.................................. 1,698,334 1,791,110 1,589,290 1,357,598 1,240,970
----------- ----------- ----------- ----------- -----------
Total liabilities.......................... 27,241,197 26,975,022 26,066,233 26,638,158 26,256,486
----------- ----------- ----------- ----------- -----------
SHAREHOLDERS' EQUITY
Preferred....................................... - - - - -
Common.......................................... 2,379,419 2,350,114 2,368,384 2,094,559 1,927,411
----------- ----------- ----------- ----------- -----------
Total shareholders' equity................. 2,379,419 2,350,114 2,368,384 2,094,559 1,927,411
----------- ----------- ----------- ----------- -----------
Total liabilities and
shareholders equity.................... $29,620,616 $29,325,136 $28,434,617 $28,732,717 $28,183,897
=========== =========== =========== =========== ===========
Book value per common share..................... $17.24 $16.22 $16.29 $14.48 $14.40
====== ====== ====== ====== ======
</TABLE>
86
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA: CONTINUED
RATE/VOLUME ANALYSIS TAXABLE EQUIVALENT BASIS
(in thousands)
<TABLE>
<CAPTION>
1995 VS. 1994 1994 vs. 1993
------------------------------------- -----------------------------------
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................................ $ 50,300 $ 14,115 $ 36,185 $ 22,049 $ 7,030 $ 15,019
Investment securities........................ (21,179) (34,857) 13,678 (49,722) (34,241) (15,481)
Federal funds sold........................... 6,773 3,008 3,765 472 (2,170) 2,642
Trading account securities................... (120) (56) (64) 86 42 44
Loans:
Domestic.................................. 269,023 99,464 169,559 105,065 52,969 52,096
Foreign................................... 23,967 10,908 13,059 4,425 2,154 2,271
-------- -------- -------- -------- -------- --------
Total interest income.................. 328,764 92,582 236,182 82,375 25,784 56,591
-------- -------- -------- -------- -------- --------
INTEREST BEARING FUNDS
- - ----------------------
Deposits:
Domestic................................... 152,634 38,958 113,676 (24,993) (14,796) (10,197)
Overseas................................... 15,211 4,928 10,283 10,038 2,390 7,648
Short-term funds borrowed:
Federal funds purchased.................... 9,384 (4,202) 13,586 718 (8,174) 8,892
Other...................................... 25,160 9,765 15,395 17,404 9,720 7,684
Long-term debt............................... 31,224 8,541 22,683 20,398 9,696 10,702
-------- -------- -------- -------- -------- --------
Total interest expense................. 233,613 57,990 175,623 23,565 (1,164) 24,729
-------- -------- -------- -------- -------- --------
NET INTEREST INCOME.......................... $ 95,151 $ 34,592 $ 60,559 $ 58,810 $ 26,948 $ 31,862
- - ------------------- ======== ======== ======== ======== ======== ========
</TABLE>
NOTES TO RATE/VOLUME ANALYSIS
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 $58.7 million, $66.2 million, $62.1 million of
loan fees for the years ended 1995, 1994 and 1993, 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.
87
<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, 1995 (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Domestic loans:
Commercial, industrial and other...... $ 9,440,727 $ 8,688,733 $ 7,879,451 $ 7,354,666 $ 7,503,223
----------- ----------- ----------- ----------- -----------
Real estate loans:
Construction and development........ 366,576 331,369 367,364 501,404 754,089
Residential......................... 2,571,788 3,180,227 3,121,008 3,314,111 3,106,984
Other, primarily commercial
mortgages and commercial loans
secured by owner-occupied
real estate....................... 2,577,755 2,979,053 3,175,284 3,212,582 2,984,798
----------- ----------- ----------- ----------- -----------
Total real estate loans......... 5,516,119 6,490,649 6,663,656 7,028,097 6,845,871
----------- ----------- ----------- ----------- -----------
Consumer loans:
Installment......................... 1,331,442 1,386,776 1,356,633 1,379,760 1,762,210
Credit card......................... 1,546,900 1,374,598 1,178,972 957,168 979,327
----------- ----------- ----------- ----------- -----------
Total consumer loans............ 2,878,342 2,761,374 2,535,605 2,336,928 2,741,537
----------- ----------- ----------- ----------- -----------
Financial institutions................ 950,943 668,119 870,489 783,125 996,500
Factoring receivables................. 557,272 622,380 555,211 454,244 402,752
Lease financing....................... 737,631 710,338 728,764 583,187 536,836
----------- ----------- ----------- ----------- -----------
Total domestic loans........... 20,081,034 19,941,593 19,233,176 18,540,247 19,026,719
----------- ----------- ----------- ----------- -----------
Foreign loans:
Loans to or guaranteed by foreign
banks:
Government owned and central
banks........................... - - - 257 1,506
Other foreign banks............... 614,901 300,590 332,149 203,103 130,308
----------- ----------- ----------- ----------- -----------
614,901 300,590 332,149 203,360 131,814
Commercial and industrial............. 350,600 274,720 210,573 196,795 242,098
Loans to other financial institutions. - 9,313 360 - 17,453
----------- ----------- ----------- ----------- -----------
Total foreign loans............. 965,501 584,623 543,082 400,155 391,365
----------- ----------- ----------- ----------- -----------
Total loans............. $21,046,535 $20,526,216 $19,776,258 $18,940,402 $19,418,084
=========== =========== =========== =========== ===========
</TABLE>
88
<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, 1995, 1994 and 1993, there were no aggregate foreign outstandings
(defined as loans, investments, acceptances and time deposits) to borrowers in a
foreign country that exceeded 1% of total assets. Outstandings below 1%, but
over .75% of total assets were $239,000 in France and $232,000 in Germany at
December 31, 1995, and $223,000 in the United Kingdom at December 31, 1994.
There were no outstandings below 1%, but over .75% at December 31, 1995.
89
<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, 1995 (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
NON-ACCRUAL LOANS
Domestic......................... $ 143,240 $ 244,406 $ 246,512 $ 411,120 $ 565,644
Foreign.......................... - 158 171 3,047 8,797
--------- --------- --------- --------- ---------
Total non-accrual loans..... 143,240 244,564 246,683 414,167 574,441
--------- --------- --------- --------- ---------
RENEGOTIATED LOANS (a)........... 1,615 1,657 56,457 63,074 46,611
--------- --------- --------- --------- ---------
Total non-performing loans.. 144,855 246,221 303,140 477,241 621,052
--------- --------- --------- --------- ---------
OTHER REAL ESTATE OWNED (OREO)... 26,647 64,663 135,528 194,312 181,546
--------- --------- --------- --------- ---------
Total non-performing assets...... $ 171,502 $ 310,884 $ 438,668 $ 671,553 $ 802,598
========= ========= ========= ========= =========
Non-performing assets as a
percentage of loans plus OREO.. 0.81% 1.51% 2.20% 3.51% 4.09%
==== ==== ==== ==== ====
Non-performing assets as a
percentage of total assets..... 0.58% 1.06% 1.54% 2.34% 2.85%
==== ==== ==== ==== ====
</TABLE>
_______________________
(a) There were no foreign renegotiated loans in any periods presented.
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,
1995 (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Interest income which would have been
recorded in accordance with original
terms:
Domestic............................... $ 19,022 $ 25,347 $ 30,838
Foreign................................ 8 9 38
-------- -------- --------
Total................................. 19,030 25,356 30,876
-------- -------- --------
Interest income reflected in total
operating income:
Domestic............................... 13,509 12,003 17,300
Foreign................................ - - -
-------- -------- --------
Total................................. 13,509 12,003 17,300
-------- -------- --------
Net reduction in interest income and
net interest income.................... $ 5,521 $ 13,353 $ 13,576
======== ======== ========
</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, 1995 were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Total (a)............................... $58,942 $53,104 $53,524 $95,866 $110,143
======= ======= ======= ======= ========
</TABLE>
______________________
(a) There were no foreign loans past due 90 days or more in any periods
presented.
90
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL 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, 1995 (in
thousands):
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
--------- -------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Balance at beginning 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
-------- -------- -------- -------- --------
Allowance for loans purchased at date of purchase:
Domestic........................................ - 23,763 2,703 1,028 -
-------- -------- -------- -------- --------
Allowance for loans sold at date of sale:
Domestic........................................ - - - (14,700) (27,486)
Foreign......................................... - - (353) - -
-------- -------- -------- -------- --------
- - (353) (14,700) (27,486)
-------- -------- -------- -------- --------
Recoveries, by type of loan:
Domestic:
Commercial, industrial and other.............. 31,637 25,893 45,207 25,865 26,636
Real estate................................... 19,087 13,596 8,470 6,438 5,874
Consumer...................................... 17,393 20,300 18,170 21,852 20,729
Financial institutions........................ 231 654 2,246 2,776 1,966
Foreign....................................... 293 2,616 12,645 13,138 26,586
-------- -------- -------- -------- --------
Total recoveries............................ 68,641 63,059 86,738 70,069 81,791
-------- -------- -------- -------- --------
Charge-offs, by type of loan:
Domestic:
Commercial, industrial and other.............. 45,555 101,313 91,785 103,000 136,363
Real estate................................... 47,934 126,189 59,191 69,896 99,650
Consumer...................................... 83,656 56,371 49,941 71,585 130,981
Financial institutions........................ 2,052 41 816 3,195 14,669
Foreign......................................... - - - 5 2,890
-------- -------- -------- -------- --------
Total loans charged off..................... 179,197 283,914 201,733 247,681 384,553
-------- -------- -------- -------- --------
Total net charge-offs............................... 110,556 220,855 114,995 177,612 302,762
-------- -------- -------- -------- --------
Provision charged to operating expense:
Domestic........................................ 100,293 239,516 133,493 173,383 321,470
Foreign......................................... 4,707 7,384 (12,292)(a) (13,133)(a) (30,209)(a)
-------- -------- --------- --------- ---------
105,000 246,900 121,201 160,250 291,261
-------- -------- -------- -------- --------
Balance at end of year:
Domestic........................................ 470,075 480,631 440,823 432,267 463,301
Foreign......................................... 25,000 20,000 10,000 10,000 10,000
-------- -------- -------- -------- --------
$495,075 $500,631 $450,823 $442,267 $473,301
======== ======== ======== ======== ========
RATIOS
Net charge-offs as a percentage
of average loans outstanding...................... 0.53% 1.13% 0.60% 0.94% 1.47%
==== ==== ==== ==== ====
Allowance for loan losses as a
percentage of year-end loans...................... 2.35% 2.44% 2.28% 2.34% 2.44%
==== ==== ==== ==== ====
</TABLE>
________________________
(a) Reflects reallocation of the foreign allowance for loan losses to the
domestic allowance for loan losses.
91
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA: CONTINUED
DISTRIBUTION OF ALLOWANCE FOR LOAN LOSSES (a)
The distribution of the allowance for loan losses and the percentage of each
loan type to total loans for the five years ended December 31, 1995 is
illustrated in the table below (in millions):
December 31,
<TABLE>
<CAPTION>
1995 1994 1993
--------------------------- ---------------------------- --------------------------
% % %
OF LOAN OF LOAN OF LOAN
CATEGORY CATEGORY CATEGORY
TO TO TO
TOTAL TOTAL TOTAL
ALLOWANCE LOANS ALLOWANCE LOANS ALLOWANCE LOANS
--------- -------- --------- -------- --------- --------
<S> <C> <C> <C> <C> <C> <C>
Loan type
- - ---------
Domestic:
Commercial and industrial $230.0 47% $212.9 45% $208.3 42%
Real estate:
Construction.......... 30.0 2 55.9 2 69.0 2
Other................. 70.0 24 79.9 30 63.4 32
Consumer................. 120.5 14 101.9 13 83.1 13
Other domestic loans..... 19.6 8 30.0 7 17.0 8
Foreign.................... 25.0 5 20.0 3 10.0 3
------ --- ------ --- ------ ---
Total................. $495.1 100% $500.6 100% $450.8 100%
====== === ====== === ====== ===
<CAPTION>
1992 1991
--------------------------- ---------------------------
% %
OF LOAN OF LOAN
CATEGORY CATEGORY
TO TO
TOTAL TOTAL
ALLOWANCE LOANS ALLOWANCE LOANS
--------- -------- --------- --------
<S> <C> <C> <C> <C>
Loan type
- - ---------
Domestic:
Commercial and industrial $206.7 42% $238.1 41%
Real estate:
Construction.......... 94.7 3 88.0 4
Other................. 36.9 34 45.5 31
Consumer................. 73.8 12 79.6 14
Other domestic loans..... 20.2 7 12.1 8
Foreign.................... 10.0 2 10.0 2
------ --- ------ ---
Total................. $442.3 100% $473.3 100%
====== === ====== ===
</TABLE>
________________
(a) This portfolio. 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
(in thousands)
<TABLE>
<CAPTION>
DECEMBER 31,
----------------------------------------------
1995 1994
--------------------- --------------------
AMOUNT PERCENT AMOUNT PERCENT
------ ------- ------ -------
<S> <C> <C> <C> <C>
MATURITY DISTRIBUTION
3 months or less........... $177,411 80.6% $225,348 84.0%
3 through 6 months......... 17,531 8.0 24,016 8.9
6 through 12 months........ 15,808 7.2 16,432 6.1
Over 12 months............. 9,282 4.2 2,606 1.0
-------- ----- -------- -----
Total................... $220,032 100.0% $268,402 100.0%
======== ===== ======== =====
</TABLE>
92
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA: CONTINUED
INTEREST SENSITIVITY ANALYSIS AT DECEMBER 31, 1995
(in millions)
<TABLE>
<CAPTION>
Rate Maturity Period
--------------------------------------------------------------------
1-90 91-181 182-365 1-2 2-5 greater than 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............... $ 596 $ 596
Time deposits............................... 996 $ 408 $ 438 1,842
Investment securities....................... 452 155 381 $ 430 $ 439 $ 133 1,990
Interest rate swaps......................... 862 812 1,279 1,125 2,788 906 7,771
Asset financial futures..................... - 15 383 21 - - 419
------- -------- -------- ------ ------- ------- --------
Total discretionary assets............. 2,906 1,390 2,481 1,576 3,227 1,039 12,619
Total loans(a).............................. 15,030 1,240 1,076 1,432 1,871 396 21,046
------- -------- -------- ------ ------- ------- --------
Total earning assets........................ 17,936 2,630 3,558 3,009 5,097 1,435 33,665
------- -------- -------- ------ ------- ------- --------
FUNDING SOURCES
Federal funds purchased, repurchase
agreements and other short-term funds
borrowed................................. 1,990 102 - - - - 2,092
Domestic and foreign time deposits(b)....... 1,312 18 12 1 5 - 1,348
Long-term debt.............................. 1,023 20 21 2 7 625 1,698
Interest rate swaps......................... 7,246 25 200 71 224 4 7,771
Liability financial futures................. 167 237 15 - - - 419
------- -------- -------- ------ ------- ------- --------
Total discretionary liabilities........ 11,738 402 248 74 236 630 13,327
------- -------- -------- ------ ------- ------- --------
Savings certificates........................ 1,382 933 1,724 599 453 255 5,347
Money market, savings and NOW accounts(c)... 2,347 584 1,008 1,672 2,497 - 8,108
Net non-interest bearing funds(d)(e)........ 3,070 - - - - 3,813 6,883
------- -------- -------- ------ ------- ------- --------
Total savings certificates and
indefinite
maturity liabilities................... 6,800 1,516 2,732 2,271 2,950 4,068 20,337
------- -------- -------- ------ ------- ------- --------
Total net funding sources................... 18,538 1,919 2,980 2,345 3,185 4,698 33,665
------- -------- -------- ------ ------- ------- --------
Period gap.................................. (602) 711 577 664 1,912 (3,263) -0-
Cumulative gap.............................. (602) 110 687 1,351 3,263 - -0-
Adjustments(f).............................. 727 (726) (586) (656) (1,977) 3,217 -0-
------- -------- -------- ------ ------- ------- --------
Adjusted period gap......................... $ 125 $ (14) $ (9) $ 8 $ (64) $ (46) $ -0-
======= ======== ======== ====== ======= ======= ========
Cumulative gap.............................. $ 125 $ 111 $ 102 $ 110 $ 46 $ -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, 1995 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.
93
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA: CONTINUED
LOAN MATURITY AND INTEREST SENSITIVITY, NET OF UNEARNED DISCOUNTS
The contractual maturity of loans outstanding at December 31, 1995 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........ $ 8,941,922 $1,652,337 $354,683 $10,948,942
----------- ---------- -------- -----------
Real estate loans:
Construction and development.................. 209,826 117,896 38,854 366,576
Other, primarily permanent commercial
mortgages............... 965,932 1,247,158 446,908 2,659,998
----------- ---------- -------- -----------
Total real estate loans................. 1,175,758 1,365,054 485,762 3,026,574
----------- ---------- -------- -----------
Foreign loans................................. 913,874 43,646 7,981 965,501
----------- ---------- -------- -----------
Total loans (excluding loans to
individuals)(a)............................. $11,031,554 $3,061,037 $848,426 $14,941,017
=========== ========== ======== ===========
</TABLE>
_________________________
(a) Loans due after one-year totaling $2,187,140 have fixed interest rates. The
remaining 43% of such loans or $1,647,254 have floating or adjustable rates.
94
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SUPPLEMENTAL FINANCIAL DATA: CONTINUED
INVESTMENT SECURITIES
(in thousands)
CARRYING VALUE AT DECEMBER 31,
<TABLE>
<CAPTION>
1995(a) 1994(a) 1993(a)
----------- ----------- -----------
<S> <C> <C> <C>
U.S. Treasury........................... $ 564,429 $ 914,009 $ 972,076
U.S. Government agencies and
corporations....................... 750,364 1,246,780 1,767,212
State and municipal..................... 236,322 306,117 356,438
Other................................... 439,217 413,725 503,440
---------- ---------- ----------
Total............................... $1,990,332 $2,880,631 $3,599,166
========== ========== ==========
</TABLE>
_____________________
(a) Held-to-maturity and available-for-sale portfolios combined.
MATURITY DISTRIBUTION AND WEIGHTED AVERAGE YIELD AT DECEMBER 31, 1995(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.......................... $ 262,139 $ 244,245 $ 90,957 $ 22,884 $ 620,225 6.21%
1 year through 5 years.................. 301,933 335,616 106,975 69,490 814,014 6.15%
5 years through 10 years................ 357 75,522 16,767 76,849 169,495 6.53%
After 10 years.......................... - 94,981 21,623 269,994 386,598 6.39%
---------- ---------- ---------- ---------- ----------
Total.............................. $ 564,429 $ 750,364 $ 236,322 $ 439,217 $1,990,332 6.25%
========== ========== ========== ========== ==========
</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 - $2,371; 1 year to 5
years-$2,888; 5 years to 10 years - $482 and after 10 years - $3,188.
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:
<TABLE>
<CAPTION>
EDGAR VERSION TYPESET VERSION
------------- ---------------
<S> <C>
Page 14 contains the plotting points for the Page 16
AVERAGE COMMON EQUITY TO ASSETS GRAPH The Average Common Equity to Assets graph is a
five year, vertical bar graph with the years 1991,
1992, 1993, 1994 and 1995 listed along the x axis.
Lines numbering 0 to 9 are drawn along the 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 Salomon Brothers
Superregional Bank Composite Index ratio.
Page 17 contains the plotting points for the Page 17
WHOLESALE LOANS BY INDUSTRY GRAPH The Wholesale Loans by Industry graph is a
horizontal bar graph with 12 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,
1995 loan outstandings as a percentage of December
31, 1995 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 25 contains the plotting points for the Page 23
NET INTEREST MARGIN GRAPH The Net Interest Margin graph is a five year,
vertical bar graph with the years 1991, 1992,
1993, 1994 and 1995 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 Salomon Brothers
Superregional Bank Composite Index margin.
</TABLE>
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
GRAPHICS APPENDIX LIST TO EXHIBIT 13 - (CONTINUED)
Narrative description of graphs from the Management's Discussion and Analysis of
Financial Condition and Results of Operations:
<TABLE>
<CAPTION>
EDGAR VERSION TYPESET VERSION
------------- ---------------
<S> <C>
Page 36 contains the plotting points for the Page 30
EARNING ASSET MIX GRAPH The Earning Asset Mix graph is a five year,
vertical bar graph with the years 1991, 1992,
1993, 1994 and 1995 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 30
FUNDING MIX GRAPH The Funding Mix graph is a five year, vertical bar graph
with the years 1991, 1992, 1993, 1994 and 1995 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 37 contains the plotting points for the Page 31
OPERATING REVENUE GRAPH The Operating Revenue graph is a five year,
vertical bar graph with the years 1991, 1992,
1993, 1994 and 1995 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.
</TABLE>
<PAGE>
Exhibit 21
----------
List of Subsidiaries of CoreStates Financial Corp
as of December 31, 1995
<TABLE>
<S> <C> <C>
Congress Financial Corporation California 87%
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)
Laundry, Inc. California 100%
Congress Talcott Corporation Pennsylvania 100%
</TABLE>
1
<PAGE>
List of Subsidiaries of CoreStates Financial Corp
as of December 31, 1995
<TABLE>
<S> <C> <C>
Congress Talcott Corporation California 100%
(Western)
CoreStates Bank of Delaware, N.A. U.S.A. 100%
SynapQuest, Inc. (formerly Delaware 100%
Synapsis, Inc.)
CoreStates Bank, N.A. U.S.A. 100%
Bala Development, Inc. Pennsylvania 100%
Centre Properties, Inc. Pennsylvania 100%
Clymer Realty Corporation Pennsylvania 100%
CoreStates Bank International U.S.A. 100%
Philadelphia International Hong Kong 100%
Finance Co - Hong Kong Limited
Philadelphia National LTDA Brazil 100%
CoreStates Dealer Services Corp Pennsylvania 100%
CoreStates Enterprise Capital, Inc. Pennsylvania 100%
CoreStates Investment Advisers, Delaware 100%
Inc.
CoreStates Mortgage Services Pennsylvania 100%
Corporation
Corporate Trust Services, Inc. Pennsylvania 100%
DMR Realty Corp Pennsylvania 100%
</TABLE>
2
<PAGE>
List of Subsidiaries of CoreStates Financial Corp
as of December 31, 1995
<TABLE>
<S> <C> <C>
Fifth and Market Corporation Pennsylvania 100%
First Penco Realty Inc. Pennsylvania 100%
First Pennsylvania Financial Delaware 100%
Services, Inc.
GSB Investment, Inc. Pennsylvania 100%
Philadelphia International U.S.A. 100%
Investment Corporation
Corporacion Financiera Columbia less than 1%
del Norte Columbia
Established Holdings Ltd United Kingdom 100%
Internationale Bank fur Austria 10%
Aussenhandel, A.G.
Joh. Berenberg Gossler & Germany 15%
Co.
New World Development Bahamas 100%
Corporation Ltd.
New World Group Canada 37.5%
Holdings Ltd
Philadelphia National England 100%
Ltd
Philadelphia International Delaware 100%
Equities, Inc.
</TABLE>
3
<PAGE>
List of Subsidiaries of CoreStates Financial Corp
as of December 31, 1995
<TABLE>
<S> <C> <C>
Aberdeen Trust PLC United Kingdom 14.5%
Accel Group Llc Czech Republic 17.25%
Banco Internacional Panama 20%
de Panama
Banco Mello Portugal 3.0%
Banco Surinvest Uruguay 13.41%
Bank of East Asia Hong Kong less than .5%
BR & Associes Luxembourg 10.4%
Banquiers S.A.
Canadian Venture Canada 25M non-voting preferred shs
Capital Corp
Empresa Minera Chile 1.1%
De Mantos Blancos
Hana Bank Korea 0.5%
Heritable Group PLC United Kingdom 50.1%
Multi-Credit Corp of Thailand 7.5%
Thailand
Multi-Risk Thailand 10%
Consultants (Thailand) Ltd.
Norinvest Bank Grand Cayman 13.41%
TI Remnaco, Inc. Canada 39.8%
Philadelphia National Corporation Pennsylvania 100%
PNB Leasing Corporation Delaware 100%
QuestPoint Holdings, Inc. Delaware 100%
(formerly Financial Telesis, Inc.)
Centillion Holdings, Inc. Delaware 100%
National Remittance Delaware 100%
Centers, Inc.
QuestPoint G. P., Inc. Delaware 100%
QuestPoint L. P., Inc. Pennsylvania 100%
QuestPoint, L.P. Delaware 100%
</TABLE>
4
<PAGE>
List of Subsidiaries of CoreStates Financial Corp
as of December 31, 1995
<TABLE>
<S> <C> <C>
CashFlex, L.P. Delaware 100%
Centillion, L.P. Delaware 100%
Transys, L.P. Delaware 100%
Two APM Plaza, Inc. Delaware 89%
CoreStates Capital Corp Pennsylvania 100%
CoreStates Community Development Pennsylvania 51%
Corporation, Inc. Bd maj
Partnership Homes Pennsylvania 1/2 Bd
CoreStates Delaware, N.A. Delaware 100%
CoreStates Export Trading Company Pennsylvania 100%
CoreStates Financial Corp (DE) Delaware 100%
CoreStates Holdings, Inc. Delaware 100%
Electronic Payment Services, Inc. Delaware 20%
Electronic Payment Services 1, Inc. Delaware 80.6%
Electronic Payment Services 2, Inc. Delaware 80%
Electronic Payment Service Corp Delaware 100%
MAS Inco Corporation Delaware 100%
Metroteller Security, Inc. New York 100%
Money Access Service, Inc. Delaware 100%
Money Access Service Corp. Ohio 100%
BUYPASS Corporation Georgia 100%
BUYPASS Electronic Georgia 100%
Transaction Systems, Inc.
BUYPASS Inco Corporation Delaware 100%
BUYPASS Petroleum Georgia 100%
Systems, Inc.
Data NOW National Delaware 100%
</TABLE>
5
<PAGE>
List of Subsidiaries of CoreStates Financial Corp
as of December 31, 1995
<TABLE>
<S> <C> <C> <C>
Services, Inc.
EPS Network Services Corp. Georgia 100%
CoreStates Services Corp. Pennsylvania 100%
CoreStates Securities Corp Pennsylvania 100%
First Pennsylvania Insurance Services, Inc. Virginia 100%
First Pennsylvania International Capital Delaware 100%
Corporation
First Pennsylvania Investments Company Pennsylvania 100%
First Pennsylvania Leasing, Inc. Delaware 100%
Home Investors Mortgage Co. New Jersey 100%
IBI Capital Corp. Pennsylvania 100%
Independence Life Insurance Company Arizona 100%
Independence Resources, Inc. Pennsylvania 100%
New Jersey National Corporation New Jersey 100%
Bancorps International Trading New Jersey 33.33%
Company
New Jersey National Bank U.S.A. 100%
Badeal, Inc. New Jersey 100%
North Towne Village, Inc. Pennsylvania 100%
Bamegat Hills Corporation New Jersey 50%
Blazing Star Realty Corp. New Jersey 100%
BOMAST Corporation New Jersey 100%
Citizens Investments of Delaware 100%
Delaware
Eagle 1851, Inc. New Jersey 100%
First Leasing Company New Jersey 100%
Five Hundred Ridgecreek Georgia 50%
</TABLE>
6
<PAGE>
List of Subsidiaries of CoreStates Financial Corp
as of December 31, 1995
<TABLE>
<S> <C> <C> <C>
Properties
Four Hundred Ridgefield Georgia 50%
Properties, Inc.
First Peoples Investment Co. Delaware 100%
J.V. Del Ran, Inc. New Jersey 100%
Lin Park Properties, Inc. New Jersey 100%
Mercer Development Co., Inc. New Jersey 100%
Morris Avenue Corporation New Jersey 50%
NSB Investment Co. Delaware 100%
Ocean Pointe Properties, Inc. New Jersey 100%
One Hundred Avondale Estates Georgia 50%
Properties, Inc.
Seven Hundred Town Lake Georgia 54%
Properties, Inc
Sungate Boulevard Corporation New Jersey 50%
TGTG Corporation New York 100%
Three Hundred Paces Mill Georgia 37%
Properties, Inc.
2021 Properties, Inc. New Jersey 100%
Two Hundred Henderson Place Georgia 37%
Properties, Inc.
United Armored Services, Inc. New Jersey 100%
Vikings Terrace Corporation New Jersey 100%
Westpark Walk, Inc. Georgia 50%
Yerac Liquors New Jersey 100%
New Jersey National Leasing New Jersey 100%
Corporation
Underwood Mortgage and Title New Jersey 100%
Company
PENNAMCO, Inc. Delaware 100%
Pennco Life Insurance Company Arizona 100%
Princeton Life Insurance Company Pennsylvania 100%
Servilease Corporation Pennsylvania 100%
</TABLE>
7
<PAGE>
List of Subsidiaries of CoreStates Financial Corp
as of December 31, 1995
<TABLE>
<S> <C> <C>
Signal Financial Corporation Pennsylvania 100%
Grabuck Agency, Inc. Pennsylvania 100%
Signal Finance Corporation Delaware 100%
Signal Finance Corporation Pennsylvania 100%
Signal Finance of Maryland, Inc. Maryland 100%
Signal Management Corporation Delaware 100%
</TABLE>
8
<PAGE>
Exhibit 23.1
Consent of Independent Auditors
We consent to the incorporation by reference in the following registration
statements of our report dated January 17, 1996 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, 1995:
(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-3 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,
<PAGE>
(f) 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,
(g) The Registration Statement (Form S-3, as amended by Post Effective
Amendment No. 2, No. 33-40717) and prospectus relating to shares of
the Corporation Common Stock issuable pursuant to the CoreStates
Dividend Reinvestment and Share Purchase Plan,
(h) 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 obligations in
respect to which were assumed by the Corporation in connection with
the acquisition of Constellation Bancorp,
(i) 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.,
(j) 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, and
(k) The Registration Statement (Form S-4, No. 333-00067) 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
Meridian Bancorp, Inc.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
March 25, 1996
<PAGE>
Exhibit 23.2
INDEPENDENCE 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 (From 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, 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, (g) the
Registration Statement (Form S-3, as amended by Post-Effective Amendment No.
2, No. 33-40717) and prospectus relating to shares of the Corporation Common
Stock issuable pursuant to the CoreStates Dividend Reinvestment and Share
Purchase Plan, (h) 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, (i) 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., (j) 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, and (k) the Registration
Statement (Form S-4, No. 333-00067 and prospectus relating to shares of the
Corporation Common Stock issuable upon the exercise of stock options, the
obligations in to which were assumed by the Corporation in connection with the
acquisition of Meridian Bancorp, Inc. 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 statements of operations,
changes in shareholders' equity and cash flows of Constellation Bancorp and
subsidiaries for the year ended December 31, 1993.
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 the 1995 Annual Report on Form 10-K of CoreStates
Financial Corp.
/s/ KPMG Peat Marwick LLP
Short Hills, New Jersey
March 25, 1996
<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, and Capital
Securities, issuable by the Corporation, (f) 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, (g) the Registration
Statement on Form S-3, as amended by Post Effective Amendment No. 2 (No.
33-40717) and prospectus relating to shares of the Corporation Common Stock
issuable pursuant to the CoreStates Dividend Reinvestment and Share Purchase
Plan, (h) 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, (i) 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 on Independence Bancorp, Inc., (j) 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 (k) the
Registration Statement Form S-4 (No. 333-00067) 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 Meridian Bancorp, Inc., of our report, which
includes an explanatory paragraph related to changes in the method of accounting
for investments in 1993, dated January 19, 1994, on our audit of the
consolidated financial statements of Independence Bancorp, Inc. as of and for
the year ended December 31, 1993, incorporated by reference in CoreStates Annual
Report on Form 10-K for the year ended December 31, 1995.
/s/ Coopers & Lybrand L.L.P.
Philadelphia, Pennsylvania
March 25, 1996
<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, 1995,
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, 1995 and is qualified in its entirety by reference
to such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-START> JAN-01-1995
<PERIOD-END> DEC-31-1995
<CASH> 2,755,636
<INT-BEARING-DEPOSITS> 1,841,799
<FED-FUNDS-SOLD> 594,868
<TRADING-ASSETS> 1,336
<INVESTMENTS-HELD-FOR-SALE> 974,711
<INVESTMENTS-CARRYING> 1,015,621
<INVESTMENTS-MARKET> 1,017,019
<LOANS> 21,046,535
<ALLOWANCE> 495,075
<TOTAL-ASSETS> 29,620,616
<DEPOSITS> 21,502,433
<SHORT-TERM> 2,091,722
<LIABILITIES-OTHER> 1,399,660
<LONG-TERM> 1,698,334
0
0
<COMMON> 145,875
<OTHER-SE> 2,233,544
<TOTAL-LIABILITIES-AND-EQUITY> 29,620,616
<INTEREST-LOAN> 1,992,936
<INTEREST-INVEST> 138,110
<INTEREST-OTHER> 131,259
<INTEREST-TOTAL> 2,262,305
<INTEREST-DEPOSIT> 532,703
<INTEREST-EXPENSE> 773,771
<INTEREST-INCOME-NET> 1,488,534
<LOAN-LOSSES> 105,000
<SECURITIES-GAINS> 9,388
<EXPENSE-OTHER> 1,274,398
<INCOME-PRETAX> 714,802
<INCOME-PRE-EXTRAORDINARY> 452,237
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 452,237
<EPS-PRIMARY> 3.22
<EPS-DILUTED> 3.22
<YIELD-ACTUAL> 5.97
<LOANS-NON> 143,240
<LOANS-PAST> 58,942
<LOANS-TROUBLED> 1,615
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 500,631
<CHARGE-OFFS> 179,197
<RECOVERIES> 68,641
<ALLOWANCE-CLOSE> 495,075
<ALLOWANCE-DOMESTIC> 470,075
<ALLOWANCE-FOREIGN> 25,000
<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.
