<PAGE>
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
__________________
FORM 8-K
__________________
CURRENT REPORT
PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES ACT OF 1934
DATE OF REPORT (DATE OF EARLIEST EVENT REPORTED): January 8, 1996
CORESTATES FINANCIAL CORP
(EXACT NAME OF REGISTRANT SPECIFIED IN ITS CHARTER)
<TABLE>
<CAPTION>
<S> <C> <C>
PENNSYLVANIA 0-6879 23-1899716
(STATE OR OTHER (COMMISSION (IRS EMPLOYEE
JURISDICTION OF FILE NUMBER) IDENTIFICATION NO.)
INCORPORATION)
</TABLE>
CENTRE SQUARE WEST,
1500 MARKET STREET
PHILADELPHIA, PENNSYLVANIA 19101
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICERS) (ZIP CODE)
REGISTRANT'S TELEPHONE, INCLUDING AREA CODE: (215) 973-3806
(FORMER NAME AND FORMER ADDRESS, IF CHANGED SINCE LAST REPORT)
<PAGE>
ITEM 5. OTHER EVENTS.
As previously announced, CoreStates Financial Corp ("CoreStates") and Meridian
Bancorp, Inc. ("Meridian") have entered into a definitive agreement, dated
October 10, 1995, providing for CoreStates to acquire Meridian pursuant to an
exchange of stock ("the Merger"). Under the terms of the agreement, each of
Meridian's 55.9 million shares of common stock will be exchanged for 1.225
shares of CoreStates' common stock. CoreStates also has received an option to
purchase up to 19.9% of Meridian's common stock if certain contingencies occur.
In May 1995, Meridian announced a definitive agreement to acquire United
Counties Bancorporation ("UCB") pursuant to an exchange of stock ("the UCB
Proposed Combination"). Under the terms of the agreement, each of UCB's 2.1
million shares of common stock will be exchanged for 5.0 shares of Meridian's
common stock.
The Merger and UCB Proposed Combination, which are both expected to be
accounted for as a pooling of interests, are subject to certain conditions,
including the receipt of regulatory and shareholder approval.
ITEM 7. FINANCIAL STATEMENTS AND EXHIBITS
(a) Pro Forma Financial Information of CoreStates Page
----
Financial Corp and Subsidiaries (Unaudited):
(i) Introductory Note to Pro Forma Financial 3
Information (Unaudited)
(ii) Pro Forma Condensed Combined Balance Sheet 4
(Unaudited) as of September 30, 1995
(iii)Footnotes to Pro Forma Condensed Combined 5-6
Balance Sheet
(iv) Pro Forma Condensed Combined Statement of 7-8
Income (Unaudited) for the nine months ended
September 30, 1995 and 1994
(v) Pro Forma Condensed Combined Statement of 9-11
Income (Unaudited) for the years ended
December 31, 1994, 1993 and 1992
(vi) Footnotes to Pro Forma Condensed Combined 12-13
Statements of Income
CoreStates Financial Corp
(Registrant)
By: /s/ David T. Walker
--------------------------------
David T. Walker
Deputy Chief Counsel
Date: January 8, 1996
<PAGE>
PRO FORMA FINANCIAL INFORMATION
(UNAUDITED)
The following unaudited pro forma condensed combined financial statements
reflect the Merger under the application of the pooling of interests method of
accounting. Under the pooling of interests method of accounting, the historical
book values of the assets, liabilities and shareholders' equity of Meridian as
reported on its Consolidated Balance Sheet, will be carried over onto the
Consolidated Balance Sheet of CoreStates, and no goodwill or other intangible
assets will be created. CoreStates will include in its Consolidated Statement of
Income the consolidated results of operations of Meridian for the entire fiscal
year in which the Effective Date occurs after addressing conformity issues and
will combine and restate its results of operations for prior periods to include
the reported consolidated results of operations of Meridian for prior periods
after addressing conformity issues.
The unaudited pro forma condensed combined financial statements also reflect
Meridian's pending acquisition of UCB, which is expected to be accounted for
under the pooling of interests method of accounting.
This pro forma financial information is based on the estimates and assumptions
set forth in the notes to such statements. The pro forma adjustments made in
connection with the development of the pro forma financial information are
preliminary and have been made solely for purposes of developing such pro forma
financial information as necessary to comply with the disclosure requirements of
the Commission. Where applicable, the pro forma adjustments have been separately
tax effected at the following statutory rates: 1995, 1994 and 1993-35%, and
1992-34%. The pro forma financial information has been prepared using the
historical consolidated financial statements and notes thereto. The unaudited
pro forma condensed combined financial statements do not purport to be
indicative of the combined financial position or results of operations of future
periods or indicative of the results that actually would have been realized had
the entities been a single entity during these periods.
The Merger Agreement provides for an Exchange Ratio of 1.225 shares of
CoreStates Common Stock for each share of Meridian Common Stock. The Exchange
Ratio of 1.225 is subject to possible increase in certain limited circumstances.
The accompanying unaudited pro forma financial information reflects an
equivalent per share of Meridian Common Stock at that Exchange Ratio. The
accompanying unaudited pro forma financial information also assumes that 5.0
shares of Meridian Common Stock will be issued for each share of UCB common
stock in the UCB Proposed Combination.
<PAGE>
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
SEPTEMBER 30, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CoreStates
CoreStates Meridian Meridian and Meridian
and and Pro Forma Meridian and
Subsidiaries Subsidiaries Adjustments Pro Forma Subsidiaries
-------------- -------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $2,214,933 $610,239 $2,825,172 $610,239
Time deposits 1,755,526 63,556 1,819,082 63,556
Investment securities 2,136,612 2,800,620 4,937,232 2,800,620
Loans 21,168,026 10,246,035 $144,252 (2,9) 31,558,313 10,246,035
Allowance for loan losses (501,392) (174,133) (70,000) (3) (745,525) (174,133)
Federal funds sold and securities
purchased under agreements to resell 294,916 13,996 308,912 13,996
Trading account securities 349 116,249 116,598 116,249
Due from customers on acceptances 493,212 17,960 511,172 17,960
Premises and equipment and other assets 1,283,550 886,608 (81,688) (2,4,8,9) 2,088,470 886,608
-------------- -------------- ------------- ------------ --------------
Total assets $28,845,732 $14,581,130 ($7,436) $43,419,426 $14,581,130
============== ============== ============= ============ ==============
LIABILITIES
Deposits:
Domestic:
Non-interest bearing $6,051,497 $1,782,975 $7,834,472 $1,782,975
Interest bearing 13,718,685 9,321,439 23,040,124 9,321,439
Overseas branches and subsidiaries 923,930 - 923,930 -
-------------- -------------- ------------- ------------ --------------
Total deposits 20,694,112 11,104,414 31,798,526 11,104,414
Funds borrowed 2,245,238 1,362,129 3,607,367 1,362,129
Bank acceptances outstanding 490,520 17,960 508,480 17,960
Other liabilities 1,238,126 315,792 $128,305 (3,8) 1,682,223 315,792
Long-term debt 1,861,946 514,524 2,376,470 514,524
-------------- -------------- ------------- ------------ --------------
Total liabilities 26,529,942 13,314,819 128,305 39,973,066 13,314,819
-------------- -------------- ------------- ------------ --------------
SHAREHOLDERS' EQUITY
Common stock 145,875 291,690 (220,857) (5) 216,708 291,690
Capital surplus 781,905 211,426 205,027 (5) 1,198,358 211,426
Retained earnings (3) 1,606,581 833,397 (135,741) (3,8) 2,304,237 833,397
Treasury Stock (218,571) (15,830) 15,830 (5) (218,571) (15,830)
Unallocated shares held by ESOP - (54,372) (54,372) (54,372)
-------------- -------------- ------------- ------------ --------------
Total shareholders' equity 2,315,790 1,266,311 (135,741) 3,446,360 1,266,311
-------------- -------------- ------------- ------------ --------------
Total liabilities and
shareholders' equity $28,845,732 $14,581,130 ($7,436) $43,419,426 $14,581,130
============== ============== ============= ============ ==============
Book value per share (3) $16.67 $22.65 $16.62 $22.65
============== ============== ============ ==============
<CAPTION>
Pro Forma
UCB UCB Meridian Combined
and Pro Forma and UCB All
Subsidiaries Adjustments Pro Forma Transactions
-------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $75,663 $685,902 $2,900,835
Time deposits - 63,556 1,819,082
Investment securities 1,039,342 3,839,962 5,976,574
Loans 388,600 10,634,635 31,946,913
Allowance for loan losses (11,042) (185,175) (756,567)
Federal funds sold and securities
purchased under agreements to resell 97,460 111,456 386,372 (1)
Trading account securities - 116,249 116,598
Due from customers on acceptances - 17,960 511,172
Premises and equipment and other assets 40,439 $ 1,500 (10) 928,547 2,130,409
-------------- ------------- ------------ --------------
Total assets $1,630,462 $ 1,500 $16,213,092 $45,031,388
============== ============= ============ ==============
LIABILITIES
Deposits:
Domestic:
Non-interest bearing $249,211 $2,032,186 $8,083,683
Interest bearing 1,054,014 10,375,453 24,094,138
Overseas branches and subsidiaries - - 923,930
-------------- ------------- ------------ --------------
Total deposits 1,303,225 12,407,639 33,101,751
Funds borrowed 99,890 1,462,019 3,687,257 (1)
Bank acceptances outstanding - 17,960 508,480
Other liabilities 28,256 $16,000 (10) 360,048 1,726,479
Long-term debt - 514,524 2,376,470
-------------- ------------- ------------ --------------
Total liabilities 1,431,371 16,000 14,762,190 41,400,437
-------------- ------------- ------------ --------------
SHAREHOLDERS' EQUITY
Common stock 2,530 51,170 (6) 345,390 229,865 (7)
Capital surplus 24,244 (73,403) (6) 162,267 1,189,742 (7)
Retained earnings (3) 194,550 (14,500) (10) 1,013,447 2,484,287 (7)
Treasury Stock (22,233) 22,233 (6) (15,830) (218,571)
Unallocated shares held by ESOP (54,372) (54,372)
-------------- ------------- ------------ --------------
Total shareholders' equity 199,091 (14,500) 1,450,902 3,630,951
-------------- ------------- ------------ --------------
Total liabilities and
shareholders' equity $1,630,462 $1,500 $16,213,092 $45,031,388
============== ============= ============ ==============
Book value per share (3) $92.68 $21.77 $16.46
============== ============ ==============
</TABLE>
See footnotes to the Pro Forma Condensed Combined Balance Sheet.
<PAGE>
FOOTNOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
(1) Reflects elimination of intercompany Federal funds transactions between
CoreStates and UCB.
(2) In connection with Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" ("FAS 114"), CoreStates
prospectively adopted effective January 1, 1995 the provisions of FAS 114
as they relate to the classification of loans previously determined to be
"in substance foreclosed." In accordance with FAS 114, loans determined to
be in substance foreclosed should be reclassified to loans and the charges
associated with write downs against in substance foreclosed loans should be
reclassified to the provision for losses on loans from non-financial
expenses. As in substance foreclosed loans are immaterial to CoreStates,
CoreStates' historical financial information reflects in substance
foreclosed loans as a component of other real estate owned ("OREO") in
other assets and the charges associated with write downs against in
substance foreclosed loans in other non-financial expenses.
Meridian adopted FAS 114 on January 1, 1995 and reclassified in substance
foreclosed loans in its historical financial information from OREO/other
assets to loans, and writedowns against in substance foreclosed loans from
other non-financial expenses to the provision for losses on loans.
As permitted under pooling of interests accounting, the pro forma financial
information is presented as if CoreStates reclassified in substance
foreclosed loans to loans, and write downs against in substance foreclosed
loans from other non-financial expenses to the provision for losses on
loans for all periods presented.
In substance foreclosed loans for UCB are immaterial.
(3) Based on a preliminary review of Meridian's loan portfolio, CoreStates has
decided to take a different approach to the workout of certain assets. It
is CoreStates' philosophy that this change maximizes the total value of the
Merger and allows the Continuing Corporation to concentrate upon new
franchise initiatives and revenue generation. In CoreStates' general
experience, a strategy that involves the accelerated resolution of problem
assets has been more economical than a long-term work out approach. It has
been CoreStates' general experience that the costs of working out assets as
well as other carrying costs typically outweigh any improvement in those
assets' realized value. Furthermore, the process of working out problem
assets diverts resources and management time and attention from building
the business and creating long-term franchise value. CoreStates currently
estimates that in connection with the change in strategic direction and to
conform Meridian's consumer lending charge-off policies to those of
CoreStates, CoreStates will take an addition to the allowance for possible
loan losses of approximately $50 million to $80 million and, accordingly,
has adjusted September 30, 1995 pro forma shareholders' equity by $70.0
million, $45.5 million after-tax, the current estimate based on the
preliminary review. CoreStates currently estimates that the assets related
to $66 million of the $70 million estimated provision will be disposed of
within eighteen months of the Effective Date. The carrying value of these
assets is approximately $225 million and the estimated provision represents
29% of this amount. It is also estimated that the conforming adjustments,
mostly related to consumer lending charge-off policies, will comprise
approximately $4 million of the $70 million estimated provision.
Pro forma shareholders' equity at September 30, 1995 also reflects charges
of approximately $105.0 million, which include: $40.0 million for employee
severance costs; $24.1 million for the costs of consolidating and closing
branches and other duplicate facilities; and $40.9 million for other
expenses directly attributable to the Merger. Accordingly, pro forma
shareholders' equity at September 30, 1995 has been reduced by $75.1
million, the after-tax effect of the charges and expenses directly
attributable to the Merger. The aggregate cash outflow related to these
charges is expected to be approximately $80 million.
(4) Reflects deferred taxes receivable at statutory rates totaling $54.4
million related to the approximately $105.0 million of expenses directly
attributable to the Merger and the $70.0 million addition to Meridian's
allowance for possible loan losses are reflected in other assets.
5
<PAGE>
FOOTNOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
(5) Reflects the conversion of 57.823 million outstanding shares of Meridian
Common Stock on into 70.833 million shares of CoreStates Common Stock on
September 30, 1995 after giving effect to the cancellation of 515 thousand
shares of Meridian Common Stock held as treasury stock.
(6) Reflects the conversion of 2.148 million outstanding shares of UCB Common
Stock into 10.740 million shares of Meridian Common Stock on September 30,
1995 after giving effect to the cancellation of 381 thousand shares of UCB
CommonStock held as treasury stock.
(7) Reflects the conversion of 68.563 million pro forma shares of Meridian
Common Stock into 83.990 million shares of CoreStates Common Stock on
September 30, 1995 after giving effect to the cancellation of 515 thousand
shares of Meridian Common Stock held as treasury stock.
(8) Reflects the pro forma adoption by Meridian of the FAS 106 transitional
liability of $28.8 million, $18.7 million after-tax, effective January 1,
1992. See footnote 3 to Pro Forma Condensed Combined Statements of Income
on page 12.
(9) Loans held for sale in CoreStates' historical financial information have
not exceeded the requirements for separate balance sheet disclosure and
accordingly have been included in total loans. Meridian's historical
financial information reflects loans held for sale as a separate caption on
the balance sheet (or in other assets in a condensed balance sheet). In the
pro forma financial information, combined loans held for sale do not exceed
the requirements for separate balance sheet disclosure and therefore
Meridian's loans held for sale have been reclassified to total loans.
(10) Reflects charges of approximately $16.0 million, $14.5 million after the
related tax effects, which include expenses directly attributable to
Meridian's pending acquisition of UCB. These expenses include $10.3 million
of human resources related costs, including employment contracts and
severance; $1.5 million for elimination of duplicate operations and data
processing facilities; and $4.2 million of other expenses, including
investment banker fees and legal expenses. Deferred taxes receivable, at
statutory rates, totaling $1.5 million are reflected in other assets.
6
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
UNAUDITED
Nine Months Ended September 30, 1995
(in thousands, except per share amounts)
CoreStates
CoreStates Meridian Meridian and Meridian
and and Pro Forma Meridian and
Subsidiaries Subsidiaries Adjustments Pro Forma Subsidiaries
-------------- -------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $1,487,997 $676,172 $2,164,169 $676,172
Interest on investment securities 108,532 136,142 244,674 136,142
Interest on time deposits in banks 89,729 4,365 94,094 4,365
Other interest income 7,689 18,499 26,188 18,499
-------------- -------------- ------------- ------------ --------------
Total interest income 1,693,947 835,178 2,529,125 835,178
-------------- -------------- ------------- ------------ --------------
INTEREST EXPENSE
Interest on deposits 400,622 281,164 681,786 281,164
Interest on funds borrowed 87,284 72,079 159,363 72,079
Interest on long-term debt 92,157 22,605 114,762 22,605
-------------- -------------- ------------- ------------ --------------
Total interest expense 580,063 375,848 955,911 375,848
-------------- -------------- ------------- ------------ --------------
Net interest income 1,113,884 459,330 1,573,214 459,330
Provision for losses on loans 77,500 28,652 $125 (10) 106,277 28,652
-------------- -------------- ------------- ------------ --------------
Net interest income after provision for
losses on loans 1,036,384 430,678 (125) 1,466,937 430,678
-------------- -------------- ------------- ------------ --------------
NON-INTEREST INCOME
Securities gains 8,457 4,671 13,128 4,671
Other operating income 443,740 183,149 626,889 183,149
-------------- -------------- ------------- ------------ --------------
Total non-interest income 452,197 187,820 640,017 187,820
-------------- -------------- ------------- ------------ --------------
NON-FINANCIAL EXPENSES
Restructuring charge (7) 104,563 32,000 136,563 32,000
Other operating expenses 885,620 408,302 (1,205) (3,10) 1,292,717 408,302
-------------- -------------- ------------- ------------ --------------
Total non-financial expenses 990,183 440,302 (1,205) 1,429,280 440,302
-------------- -------------- ------------- ------------ --------------
Income before income taxes 498,398 178,196 1,080 677,674 178,196
Provision for income taxes 183,115 56,660 378 (3) 240,153 56,660
-------------- -------------- ------------- ------------ --------------
Net Income $315,283 $121,536 $702 $437,521 $121,536
============== ============== ============= ============ ==============
Average common shares outstanding 141,427 55,928 209,939 55,928
PER COMMON SHARE DATA (4)
Net Income $2.23 $2.17 $2.08 $2.17
Cash dividends declared (8) $1.02 $1.08 $1.02 $1.08
<CAPTION>
Meridian Pro Forma
UCB UCB and Combined
and Pro Forma UCB All
Subsidiaries Adjustments Pro Forma Transactions (1)
-------------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $24,854 $701,026 $2,189,023
Interest on investment securities 50,215 186,357 294,889
Interest on time deposits in banks - 4,365 94,094
Other interest income 2,717 21,216 28,557 (2)
-------------- ------------- ----------- --------------
Total interest income 77,786 912,964 2,606,563
-------------- ------------- ----------- --------------
INTEREST EXPENSE
Interest on deposits 27,888 309,052 709,674
Interest on funds borrowed 2,610 74,689 161,625 (2)
Interest on long-term debt - 22,605 114,762
-------------- ------------- ----------- --------------
Total interest expense 30,498 406,346 986,061
-------------- ------------- ----------- --------------
Net interest income 47,288 506,618 1,620,502
Provision for losses on loans (500) 28,152 105,777
-------------- ------------- ----------- --------------
Net interest income after provision for
losses on loans 47,788 478,466 1,514,725
-------------- ------------- ----------- --------------
NON-INTEREST INCOME
Securities gains 12,263 16,934 25,391
Other operating income 4,083 187,232 630,972
-------------- ------------- ----------- --------------
Total non-interest income 16,346 204,166 656,363
-------------- ------------- ----------- --------------
NON-FINANCIAL EXPENSES
Restructuring charge (7) - 32,000 136,563
Other operating expenses 26,125 434,427 1,318,842
-------------- ------------- ----------- --------------
Total non-financial expenses 26,125 466,427 1,455,405
-------------- ------------- ----------- --------------
Income before income taxes 38,009 216,205 715,683
Provision for income taxes 12,500 69,160 252,653
-------------- ------------- ----------- --------------
Net Income $25,509 $0 $147,045 $463,030
============== ============= =========== ==============
Average common shares outstanding 2,145 66,653 223,078
PER COMMON SHARE DATA (4)
Net Income $11.89 $2.21 $2.08
Cash dividends declared (8) $3.45 $1.08 $1.02
</TABLE>
See Footnotes to Pro Forma Condensed Combined Statements of Income.
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
UNAUDITED
Nine Months Ended September 30, 1994
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
CoreStates
CoreStates Meridian Meridian and
and and Pro Forma Meridian
Subsidiaries Subsidiaries Adjustments Pro Forma
-------------- -------------- ------------- ------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 1,244,735 $ 576,959 $ 1,821,694
Interest on investment securities 117,069 131,496 248,565
Interest on time deposits in banks 44,911 3,092 48,003
Other interest income 4,856 9,372 14,228
-------------- -------------- ------------- ------------
Total interest income 1,411,571 720,919 2,132,490
-------------- -------------- ------------- ------------
INTEREST EXPENSE
Interest on deposits 258,540 201,393 459,933
Interest on funds borrowed 62,768 40,644 103,412
Interest on long-term debt 60,141 19,699 79,840
-------------- -------------- ------------- ------------
Total interest expense 381,449 261,736 643,185
-------------- -------------- ------------- ------------
Net interest income 1,030,122 459,183 1,489,305
Provision for losses on loans 221,900 22,017 $ 4,092 (10) 248,009
-------------- -------------- ------------- ------------
Net interest income after provision
for losses on loans 808,222 437,166 (4,092) 1,241,296
-------------- -------------- ------------- ------------
NON-INTEREST INCOME
Securities gains 14,143 2,751 16,894
Other operating income 407,136 167,822 574,958
-------------- -------------- ------------- ------------
Total non-interest income 421,279 170,573 591,852
-------------- -------------- ------------- ------------
NON-FINANCIAL EXPENSES
Restructuring and merger-related charges 108,700 - 108,700
Other operating expenses 902,158 435,566 (5,172)(3,10) 1,332,552
-------------- -------------- ------------- ------------
Total non-financial expenses 1,010,858 435,566 (5,172) 1,441,252
-------------- -------------- ------------- ------------
Income before income taxes 218,643 172,173 1,080 391,896
Provision for income taxes 81,326 54,230 378(3) 135,934
-------------- -------------- ------------- ------------
Income before cumulative effect of a change
in accounting principle (5)(6) $ 137,317 $ 117,943 $ 702 $ 255,962
============== ============== ============= ============
Average common shares outstanding 142,581 57,798 213,384
PER COMMON SHARE DATA (4)
Income before cumulative effect of a change
in accounting principle (5)(6) $0.97 $2.05 $1.20
Cash dividends declared (8) $0 90 $1.00 $0.90
<CAPTION>
Meridian Pro Forma
Meridian UCB UCB and Combined
and and Pro FOrma UCB All
Subsidiaries Subsidiaries Agreements Pro Forma Transactions
-------------- -------------- ------------ -------------- --------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $576,959 $23,170 $600,129 $1,844,864
Interest on investment securities 131,496 49,700 181,196 298,265
Interest on time deposits in banks 3,092 - 3,092 48,003
Other interest income 9,372 2,296 11,668 15,849(2)
-------------- -------------- ------------ -------------- --------------
Total interest income 720,919 75,166 796,085 2,206,981
-------------- -------------- ------------ -------------- --------------
INTEREST EXPENSE
Interest on deposits 201,393 23,818 225,211 483,751
Interest on funds borrowed 40,644 1,583 42,227 104,320(2)
Interest on long-term debt 19,699 19,699 79,840
-------------- -------------- ------------ -------------- --------------
Total interest expense 261,736 25,401 287,137 667,911
-------------- -------------- ------------ -------------- --------------
Net interest income 459,183 49,765 508,948 1,539,070
Provision for losses on loans 22,017 (825) 21,192 247,184
-------------- -------------- ------------ -------------- --------------
Net interest income after provision
for losses on loans 437,166 50,590 487,756 1,291,886
-------------- -------------- ------------ -------------- --------------
NON-INTEREST INCOME
Securities gains 2,751 2,751 16,894
Other operating income 167,822 4,497 172,319 579,455
-------------- -------------- ------------ -------------- --------------
Total non-interest income 170,573 4,497 175,070 596,349
-------------- -------------- ------------ -------------- --------------
NON-FINANCIAL EXPENSES
Restructuring and merger-related charges - - 108,700
Other operating expenses 435,566 28,773 464,339 1,361,325
-------------- -------------- ------------ -------------- --------------
Total non-financial expenses 435,566 28,773 464,339 1,470,025
-------------- -------------- ------------ -------------- --------------
Income before income taxes 172,173 26,314 198,487 418,210
Provision for income taxes 54,230 8,595 62,825 144,529
-------------- -------------- ------------ -------------- --------------
Income before cumulative effect of a
change in accounting principle (5)(6) $117,943 $17,719 $0 $135,662 $273,681
============== ============== ============ ============= ==============
Average common shares outstanding 57,798 2,136 68,478 226,467
PER COMMON SHARE DATA (4)
Income before cumulative effect of a change
in accounting principle (5)(6) $2.04 $8.30 $1.98 $1.21
Cash dividends declared (8) $1.00 $2.30 $1.00 $0.90
</TABLE>
See Footnotes to Pro Forma Condensed Combined Statements of Income
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
UNAUDITED
TWELVE MONTHS ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CoreStates
CoreStates Meridian Meridian and
and and Pro Forma Meridian
Subsidiaries Subsidiaries Adjustments Pro Forma
-------------- -------------- ------------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $1,698,350 $789,290 $2,487,640
Interest on investment securities 156,931 179,568 336,499
Interest on time deposits in banks 66,389 4,607 70,996
Other interest income 7,857 11,575 19,432
-------------- -------------- ------------- -----------
Total interest income 1,929,527 985,040 2,914,567
-------------- -------------- ------------- -----------
INTEREST EXPENSE
Interest on deposits 364,858 283,256 648,114
Interest on funds borrowed 85,123 63,126 148,249
Interest on long-term debt 90,177 26,242 116,419
-------------- -------------- ------------- -----------
Total interest expense 540,158 372,624 912,782
-------------- -------------- ------------- -----------
Net interest income 1,389,369 612,416 2,001,785
Provision for losses on loans 246,900 28,086 $5,034 (10) 280,020
-------------- -------------- ------------- -----------
Net interest income after
provision for losses on loans 1,142,469 584,330 (5,034) 1,721,765
-------------- -------------- ------------- -----------
NON-INTEREST INCOME
Securities gains 18,753 2,998 21,751
Other operating income 548,787 225,028 773,815
-------------- -------------- ------------- -----------
Total non-interest income 567,540 228,026 795,566
-------------- -------------- ------------- -----------
NON-FINANCIAL EXPENSES
Restructuring and merger related
charges 108,700 - 108,700
Other operating expenses 1,208,861 579,668 (6,474) (3,10) 1,782,055
-------------- -------------- ------------- -----------
Total non-financial expenses 1,317,561 579,668 (6,474) 1,890,755
-------------- -------------- ------------- -----------
Income before income taxes 392,448 232,688 1,440 626,576
Provision for income taxes 143,656 70,600 504 (3) 214,760
-------------- -------------- ------------- -----------
Income before cumulative effect
of a change in accounting
principle (5)(6) $248,792 $162,088 $936 $411,816
============== ============== ============= ===========
Average common shares outstanding 142,498 57,661 213,133
PER COMMON SHARE DATA (4)
Income before cumulative effect
of a change in accounting
principle (5,6) $1.75 $2.81 $1.93
Cash dividends declared (8) $1.24 $1.34 $1.24
<CAPTION>
Meridian Pro Forma
Meridian UCB UCB and Combined
and and Pro Forma UCB All
Subsidiaries Subsidiaries Adjustments Pro Forma Transactions
-------------- -------------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $789,290 $31,196 $820,486 $2,518,836
Interest on investment securities 179,568 66,637 246,205 403,136
Interest on time deposits in banks 4,607 - 4,607 70,996
Other interest income 11,575 2,977 14,552 21,591 (2)
-------------- -------------- ------------- ----------- --------------
Total interest income 985,040 100,810 1,085,850 3,014,559
-------------- -------------- ------------- ----------- --------------
INTEREST EXPENSE
Interest on deposits 283,256 32,393 315,649 680,507
Interest on funds borrowed 63,126 2,187 65,313 149,618 (2)
Interest on long-term debt 26,242 - 26,242 116,419
-------------- -------------- ------------- ----------- --------------
Total interest expense 372,624 34,580 407,204 946,544
-------------- -------------- ------------- ----------- --------------
Net interest income 612,416 66,230 678,646 2,068,015
Provision for losses on loans 28,086 (825) 27,261 279,195
-------------- -------------- ------------- ----------- --------------
Net interest income after
provision for losses on loans 584,330 67,055 651,385 1,788,820
-------------- -------------- ------------- ----------- --------------
NON-INTEREST INCOME
Securities gains 2,998 - 2,998 21,751
Other operating income 225,028 6,101 231,129 779,916
-------------- -------------- ------------- ----------- --------------
Total non-interest income 228,026 6,101 234,127 801,667
-------------- -------------- ------------- ----------- --------------
NON-FINANCIAL EXPENSES
Restructuring and merger related
charges - - - 108,700
Other operating expenses 579,668 38,326 617,994 1,820,381
-------------- -------------- ------------- ----------- --------------
Total non-financial expenses 579,668 38,326 617,994 1,929,081
-------------- -------------- ------------- ----------- --------------
Income before income taxes 232,688 34,830 267,518 661,406
Provision for income taxes 70,600 11,038 81,638 225,798
-------------- -------------- ------------- ----------- --------------
Income before cumulative effect
of a change in accounting
principle (5)(6) $162,088 $23,792 $0 $185,880 $435,608
============== ============== ============= =========== ==============
Average common shares outstanding 57,661 2,139 68,356 226,234
PER COMMON SHARE DATA (4)
Income before cumulative effect
of a change in accounting
principle (5,6) $2.81 $11.12 $2.72 $1.93
Cash dividends declared (8) $1.34 $3.29 $1.34 $1.24
</TABLE>
See Footnotes to Pro Forma Condensed Combined Statements of Income.
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
UNAUDITED
TWELVE MONTHS ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CoreStates
CoreStates Meridian Meridian and Meridian
and and Pro Forma Meridian and
Subsidiaries Subsidiaries Adjustments Pro Forma Subsidiaries
-------------- -------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $1,585,015 $742,298 $2,327,313 $742,298
Interest on investment securities 205,170 203,399 408,569 203,399
Interest on time deposits in banks 44,340 3,874 48,214 3,874
Other interest income 7,339 12,119 19,458 12,119
-------------- -------------- ------------- ------------ --------------
Total interest income 1,841,864 961,690 2,803,554 961,690
-------------- -------------- ------------- ------------ --------------
INTEREST EXPENSE
Interest on deposits 379,813 283,822 663,635 283,822
Interest on funds borrowed 67,001 30,518 97,519 30,518
Interest on long-term debt 69,779 30,058 99,837 30,058
-------------- -------------- ------------- ------------ --------------
Total interest expense 516,593 344,398 860,991 344,398
-------------- -------------- ------------- ------------ --------------
Net interest income 1,325,271 617,292 1,942,563 617,292
Provision for losses on loans 121,201 58,781 $9,215 (10) 189,197 58,781
-------------- -------------- ------------- ------------ --------------
Net interest income after provision for
losses on loans 1,204,070 558,511 (9,215) 1,753,366 558,511
-------------- -------------- ------------- ------------ --------------
NON-INTEREST INCOME
Securities gains, (losses) 16,110 25,280 41,390 25,280
Other operating income 557,920 249,343 807,263 249,343
-------------- -------------- ------------- ------------ --------------
Total non-interest income 574,030 274,623 848,653 274,623
-------------- -------------- ------------- ------------ --------------
NON-FINANCIAL EXPENSES
Restructuring charge - 17,500 17,500 17,500
Other operating expenses 1,241,862 606,026 (10,636)(3,10) 1,837,252 606,026
-------------- -------------- ------------- ------------ --------------
Total non-financial expenses 1,241,862 623,526 (10,636) 1,854,752 623,526
-------------- -------------- ------------- ------------ --------------
Income before income taxes 536,238 209,608 1,421 747,267 209,608
Provision for income taxes 173,809 59,068 497 (3) 233,374 59,068
-------------- -------------- ------------- ------------ --------------
Income before cumulative effect of a
change in accounting principle (5,9) $362,429 $150,540 $924 $513,893 $150,540
============== ============== ============= ============ ==============
Average common shares outstanding 145,398 57,194 215,461 57,194
PER COMMON SHARE DATA (4)
Income before cumulative effect of a
change in accounting principle (5,9) $2.49 $2.63 $2.39 $2.63
Cash dividends declared (8) $1.14 $1.26 $1.14 $1.26
<CAPTION>
Meridian Pro Forma
UCB UCB and Combined
and Pro Forma UCB All
Subsidiaries Adjustments Pro Forma Transactions
-------------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $31,666 $773,964 $2,358,979
Interest on investment securities 68,207 271,606 476,776
Interest on time deposits in banks - 3,874 48,214
Other interest income 2,099 14,218 20,980 (2)
-------------- ------------- ----------- --------------
Total interest income 101,972 1,063,662 2,904,949
-------------- ------------- ----------- --------------
INTEREST EXPENSE
Interest on deposits 31,652 315,474 695,287
Interest on funds borrowed 1,747 32,265 98,689 (2)
Interest on long-term debt - 30,058 99,837
-------------- ------------- ----------- --------------
Total interest expense 33,399 377,797 893,813
-------------- ------------- ----------- --------------
Net interest income 68,573 685,865 2,011,136
Provision for losses on loans 175 58,956 189,372
-------------- ------------- ----------- --------------
Net interest income after provision for
losses on loans 68,398 626,909 1,821,764
-------------- ------------- ----------- --------------
NON-INTEREST INCOME
Securities gains (losses) (172) 25,108 41,218
Other operating income 7,190 256,533 814,453
-------------- ------------- ----------- --------------
Total non-interest income 7,018 281,641 855,671
-------------- ------------- ----------- --------------
NON-FINANCIAL EXPENSES
Restructuring charge - 17,500 17,500
Other operating expenses 39,556 645,582 1,876,808
-------------- ------------- ----------- --------------
Total non-financial expenses 39,556 663,082 1,894,308
-------------- ------------- ----------- --------------
Income before income taxes 35,860 245,468 783,127
Provision for income taxes 11,667 70,735 245,041
-------------- ------------- ----------- --------------
Income before cumulative effect of a
change in accounting principle (5,9) $24,193 $0 $174,733 $538,086
============== ============= =========== ==============
Average common shares outstanding 2,142 67,904 228,580
PER COMMON SHARE DATA (4)
Income before cumulative effect of a
change in accounting principle (5,9) $11.29 $2.57 $2.35
Cash dividends declared (8) $2.60 $1.26 $1.14
</TABLE>
See Footnotes to Pro Forma Condensed Combined Statements of Income
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
UNAUDITED
TWELVE MONTHS ENDED DECEMBER 31, 1992
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CoreStates
CoreStates Meridian Meridian and
and and Pro Forma Meridian
Subsidiaries Subsidiaries Adjustments Pro Forma
------------- ------------ ----------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $1,647,763 $ 778,878 $2,426,641
Interest on investment
securities 238,851 223,427 462,278
Interest on time deposits
in banks 58,613 8,326 66,939
Other interest income 16,611 5,550 22,161
------------- ------------ ---------- -----------
Total interest income 1,961,838 1,016,181 2,978,019
------------- ------------ ---------- -----------
INTEREST EXPENSE
Interest on deposits 570,455 396,175 966,630
Interest on funds borrowed 60,480 29,359 89,839
Interest on long-term debt 78,425 17,464 95,889
------------- ------------ ---------- -----------
Total interest
expense 709,360 442,998 1,152,358
------------- ------------ ---------- -----------
Net interest income 1,252,478 573,183 1,825,661
Provision for losses on
loans 160,250 81,096 $ 17,936(10) 259,282
------------- ------------ ---------- -----------
Net interest income after
provision for losses on
loans 1,092,228 492,087 (17,936) 1,566,379
------------- ------------ ---------- -----------
NON-INTEREST INCOME
Securities gains 13,805 2,764 16,569
Other operating income 596,859 230,849 827,708
------------- ------------ ---------- -----------
Total non-interest
income 610,664 233,613 844,277
------------- ------------ ---------- -----------
NON-FINANCIAL EXPENSES
Other operating expenses 1,306,593 540,316 (17,936)(10) 1,828,973
------------- ------------ ---------- -----------
Total non-financial
expenses 1,306,593 540,316 (17,936) 1,828,973
------------- ------------ ---------- -----------
Income before income taxes 396,299 185,384 581,683
Provision for income taxes 128,165 48,679 176,844
------------- ------------ ---------- -----------
Income before cumulative
effect of a change in
accounting principle (3) $ 268,134 $ 136,705 $ 0 $ 404,839
============== ============ ========== ===========
Average common shares
outstanding 135,813 55,201 203,434
PER COMMON SHARE DATA (4)
Income before cumulative
effect of a change in
accounting principle (3) $1.97 $2.48 $1.99
Cash dividends declared (8) $1.02 $0.90 $1.02
<CAPTION>
Meridian Pro Forma
Meridian UCB UCB and Combined
and and Pro Forma UCB All
Subsidiaries Subsidiaries Adjustments Pro Forma Transactions
------------- ------------ ----------- ----------- ------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 778,878 $ 35,094 $ 813,972 $2,461,735
Interest on investment
securities 223,427 70,453 293,880 532,731
Interest on time deposits
in banks 8,326 - 8,326 66,939
Other interest income 5,550 2,506 8,056 24,217 (2)
------------- ----------- ----------- ----------- ------------
Total interest
income 1,016,181 108,053 1,124,234 3,085,622
------------- ----------- ----------- ----------- ------------
INTEREST EXPENSE
Interest on deposits 396,175 43,572 439,747 1,010,202
Interest on funds borrowed 29,359 1,926 31,285 91,315 (2)
Interest on long-term debt 17,464 - 17,464 95,889
------------- ----------- ----------- ----------- ------------
Total interest
expense 442,998 45,498 488,496 1,197,406
------------- ----------- ----------- ----------- ------------
Net interest income 573,183 62,555 635,738 1,888,216
Provision for losses on
loans 81,096 1,527 82,623 260,809
------------- ----------- ----------- ----------- ------------
Net interest income after
provision for losses on
loans 492,087 61,028 553,115 1,627,407
------------- ----------- ----------- ----------- ------------
NON-INTEREST INCOME
Securities gains 2,764 69 2,833 16,638
Other operating income 230,849 7,698 238,547 835,406
------------- ----------- ----------- ----------- ------------
Total non-interest
income 233,613 7,767 241,380 852,044
------------- ----------- ----------- ----------- ------------
NON-FINANCIAL EXPENSES
Other operating expenses 540,316 36,946 577,262 1,865,919
------------- ----------- ----------- ----------- ------------
Total
non-financial
expenses 540,316 36,946 577,262 1,865,919
------------ ---------- ----------- ----------- ------------
Income before income taxes 185,384 31,849 217,233 613,532
Provision for income taxes 48,679 10,256 58,935 187,100
------------ ---------- ----------- ----------- ------------
Income before cumulative
effect of a change in
accounting principle (3) $ 136,705 $ 21,593 $ 0 $ 158,298 $ 426,432
============ ========== =========== =========== ============
Average common shares
outstanding 55,201 2,167 66,036 216,707
PER COMMON SHARE DATA (4)
Income before cumulative
effect of a change in
accounting principle (3) $2.48 $9.96 $2.40 $1.97
Cash dividends declared (8) $0.90 $2.85 $0.90 $1.02
See Footnotes to Pro Forma Condensed Combined Statements of Income
</TABLE>
<PAGE>
FOOTNOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(UNAUDITED)
(1) The Pro Forma Condensed Combined Statements of Income do not reflect the
estimated $70.0 million provision for losses on loans related to Meridian's
loan portfolio, or charges and expenses of approximately $105.0 million
directly attributable to the Merger since these charges are non-recurring.
See footnote 3 on page 5. The Pro Forma Condensed Combined Statements of
Income also do not reflect the $16.0 million of charges and expenses
directly attributable to Meridian's pending acquisition of UCB. Were these
expenses reflected in the Pro Forma Condensed Combined Statement of Income
for the nine months ended September 30, 1995, net income would decrease by
$135.1 million, or $0.61 per share.
(2) Reflects the elimination of intercompany interest on Federal funds
transactions between CoreStates and UCB.
(3) Reflects the adoption of FAS 106, "Employers Accounting for Postretirement
Benefits Other Than Pensions." As permitted under FAS 106, CoreStates
elected to recognize immediately the January 1, 1992 transitional liability
of $128.7 million pre-tax, $84.9 million after-tax, as the cumulative
effect of a change in accounting principle in the first quarter of 1992.
Meridian adopted FAS 106 on January 1, 1993, the date required under that
statement. As permitted by FAS 106, Meridian elected not to recognize
immediately its $28.8 million transitional liability, but to amortize that
liability over 20 years. As permitted under pooling of interests
accounting, the pro forma financial information is prepared as if Meridian
adopted FAS 106 effective January 1, 1992 and immediately recognized the
$28.8 million, $18.7 million after-tax, transitional liability. Pro forma
salaries, wages and benefits have been adjusted accordingly.
UCB adopted FAS 106 effective January 1, 1992 and elected to recognize
immediately the transitional liability of $6.2 million, $4.0 million after-
tax, as the cumulative effect of a change in accounting principle.
(4) CoreStates, Meridian, UCB and pro forma earnings per common share for the
nine months ended September 30, 1995 and 1994 and for the years ended
December 31, 1994, 1993 and 1992 were based on weighted average common
shares outstanding as dilution from potentially dilutive common stock
equivalents was less than 3% for each period.
(5) Effective January 1, 1993, CoreStates adopted FAS 112, "Employers'
Accounting for Postemployment Benefits." CoreStates recognized the January
1, 1993 FAS 112 transitional liability of $20.0 million, $13.0 million
after-tax as the cumulative effect of a change in accounting principle.
Meridian adopted FAS 112 on January 1, 1994, the date required under the
statement. The adoption of FAS 112 resulted in a charge of $4.2 million,
$2.7 million after-tax, in the first quarter of 1994. As permitted under
pooling of interests accounting, the pro forma information is prepared as
if Meridian adopted FAS 112 effective January 1, 1993.
The impact of FAS 112 on UCB is immaterial.
(6) During the first quarter of 1994, CoreStates recognized a $3.4 million
after-tax impairment loss on certain mortgage securities. The loss was the
result of a write-down to fair value of these securities which were deemed
to be impaired. This resulted from a recent Financial Accounting Standards
Board ("FASB") interpretation of FAS 115. The interpretation, reached by a
consensus of the FASB Emerging Issues Task Force in March 1994, requires
more definitive criteria for recognition of impairment losses on these
types of securities.
12
<PAGE>
FOOTNOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(UNAUDITED) (con't)
(7) In March 1995, CoreStates completed an intensive review of its operations
and businesses and announced a corporate-wide process redesign plan, which
restructures its banking services around customers and enhances employees'
authority to make decisions to benefit customers. As a result of this
process redesign, CoreStates recorded a $110.0 million pre-tax
restructuring charge, $70.0 million after-tax or $0.49 per share, in March
1995. CoreStates recorded restructuring credits of $3.0 million, $1.9
million after-tax or $0.01 per share in the second quarter of 1995 and $2.4
million, $1.5 million after-tax or $0.01 per share in the third quarter of
1995, related to gains on the curtailment of future pension benefits
associated with employees terminated during the second and third quarters.
In June 1995, Meridian completed an internal review of its operations and
businesses and announced a company-wide plan designed to improve its
operating performance and competitive position. As a result of this review
Meridian recorded a restructuring charge in the second quarter of 1995 of
$32.0 million ($20.8 million after-tax or $0.37 per share).
(8) Cash dividends declared per share for the respective periods prior to
CoreStates' acquisition of First Peoples Corporation (on September 3,
1992), Constellation Bancorp (on March 16, 1994), Independence Bancorp,
Inc. (on June 27, 1994) and Meridian assume that CoreStates would have
declared cash dividends per share equal to the cash dividends per share
actually declared by CoreStates.
Cash dividends declared per share for the respective periods prior to
Meridian's acquisition of Commonwealth Bancshares Corporation on August 31,
1993 and UCB assume that Meridian would have declared cash dividends per
share equal to the cash dividends declared per share actually declared by
Meridian.
Meridian's historical cash dividends declared per share for the year ended
December 31, 1992, reflect a new dividend payment schedule adopted in the
first quarter of 1992. Dividends paid in 1992 aggregated $1.20 per share.
(9) CoreStates retroactively adopted FAS 109 in the first quarter of
1992, effective January 1, 1987. Meridian and UCB elected to prospectively
adopt FAS 109 on January 1, 1993 and recognize a cumulative
benefit/(expense) of $7.2 million and $(579) thousand, respectively, as the
cumulative effect of a change in accounting principle. As permitted under
pooling of interests accounting, the pro forma financial information is
prepared as if Meridian and UCB also retroactively adopted FAS 109
effective January 1, 1987.
(10) CoreStates historical Condensed Combined Statements of Income reflect the
charges associated with writedowns against in substance foreclosed loans in
other non-financial expenses. In connection with its adoption of FAS 114,
Meridian elected to reclassify writedowns against in substance foreclosed
loans from other non-financial expenses to the provision for losses on
loans. As permitted under pooling of interests accounting, the pro forma
financial information for all periods presented is prepared as if
CoreStates reclassified writedowns against in substance foreclosed loans
from other non-financial expenses to the provision for losses on loans for
all periods presented prior to 1995.
In substance foreclosed loans for UCB are immaterial.
13
