<PAGE>
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
Quarterly Report Under Section 13 or 15(d)
of the Securities Exchange Act of 1934
For the quarter ended March 31, 1997 Commission file number 0-6879
CORESTATES FINANCIAL CORP
-------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 23-1899716
- ---------------------------------------- -------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
N.E. Corner Broad and Chestnut Streets
Philadelphia, Pennsylvania 19101
- ---------------------------------------- -------------------------
(Address of principal executive offices) (Zip Code)
215-973-3827
------------
(Registrant's telephone number,
including area code)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the Securities Exchange
Act of 1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes X. No .
----- ------
Number of Shares of Common Stock Outstanding at May 5, 1997: 208,474,605
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
INDEX
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
Page
----
Item 1 - FINANCIAL INFORMATION
<S> <C>
Consolidated Balance Sheets as of March 31, 1997 and
December 31, 1996......................................................................... 3
Consolidated Statements of Income for the Three
Months Ended March 31, 1997 and 1996...................................................... 4
Consolidated Statements of Changes in Shareholders'
Equity for the Three Months Ended March 31, 1997 and 1996................................. 5
Consolidated Statements of Cash Flows for the
Three Months Ended March 31, 1997 and 1996................................................ 6
Notes to the Consolidated Financial Statements............................................ 7-8
Item 2 - Management's Discussion and Analysis of Financial
Condition and Results of Operations....................................................... 9-31
PART II. OTHER INFORMATION
Item 6 - Exhibits and Reports on Form 8-K.......................................................... 32
SIGNATURE............................................................................................. 33
EXHIBITS 10(a), 10(b), 11, 12.1, 12.2, 27
</TABLE>
2
<PAGE>
PART I. FINANCIAL INFORMATION
<TABLE>
<CAPTION>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
March 31, December 31,
1997 1996
------------ --------------
(Unaudited) (Note)
<S> <C> <C>
ASSETS
- ------
Cash and due from banks............................................................... $ 2,664,641 $ 3,462,287
Time deposits, principally Eurodollars................................................ 2,236,950 2,443,154
Federal funds sold and securities purchased under
agreements to resell............................................................. 550,098 509,694
Trading account assets................................................................ 201,324 122,317
Investments available-for-sale, at fair value......................................... 2,219,564 2,394,166
Investments held-to-maturity (fair value:
1997 - $1,615,926; 1996 - $1,692,243)............................................ 1,616,147 1,689,058
Loans, net of unearned discounts of $202,639 in 1997
and $204,521 in 1996 ............................................................ 33,594,530 32,777,032
Less: Allowance for loan losses................................................. (704,060) (710,327)
------------- --------------
Net loans........................................................... 32,890,470 32,066,705
------------- --------------
Due from customers on acceptances..................................................... 719,268 738,077
Premises and equipment................................................................ 626,109 625,876
Other assets.......................................................................... 1,340,042 1,442,860
------------- --------------
Total assets........................................................ $ 45,064,613 $ 45,494,194
============= ==============
LIABILITIES
- -----------
Deposits:
Domestic:
Non-interest bearing....................................................... $ 8,956,472 $ 9,330,445
Interest bearing........................................................... 22,846,340 22,986,955
Overseas branches and subsidiaries............................................... 1,267,799 1,409,756
------------- --------------
Total deposits...................................................... 33,070,611 33,727,156
------------- --------------
Funds borrowed........................................................................ 2,848,999 2,633,157
Bank acceptances outstanding.......................................................... 717,853 727,728
Other liabilities..................................................................... 1,477,506 1,661,162
Long-term debt........................................................................ 3,506,971 3,049,297
------------- --------------
Total liabilities................................................... 41,621,940 41,798,500
------------- --------------
COMMITMENTS AND CONTINGENT LIABILITIES
- --------------------------------------
SHAREHOLDERS' EQUITY
- --------------------
Preferred stock: authorized 10.0 million shares; no
shares issued.................................................................... - -
Common stock: $1 par value; authorized 350.0 million
shares; issued 223.599 million shares in 1997 and
1996 (including treasury shares of 14.789 million in
1997 and 8.900 million in 1996, and unallocated shares
held by the Employee Stock Ownership Plan ("ESOP") of
2.243 million in 1997 and 2.267 million in 1996)................................. 223,599 223,599
Other common shareholders' equity, net................................................ 3,219,074 3,472,095
------------- --------------
Total shareholders' equity.......................................... 3,442,673 3,695,694
------------- --------------
Total liabilities and shareholders' equity.......................... $ 45,064,613 $ 45,494,194
============= ==============
</TABLE>
Note: The balance sheet at December 31, 1996 has been derived from the audited
financial statements at that date.
See accompanying notes to the consolidated financial statements.
3
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(in thousands, except per share amounts)
<TABLE>
<CAPTION>
Three Months Ended
March 31,
---------------------------
1997 1996
--------- ---------
INTEREST INCOME
- ---------------
<S> <C> <C>
Interest and fees on loans:
Taxable income ......................................................... $ 715,676 $ 703,305
Tax exempt income ...................................................... 5,405 7,078
Interest on investment securities:
Taxable income ......................................................... 52,825 72,097
Tax exempt income ...................................................... 4,229 6,143
Interest on time deposits in banks ........................................... 34,562 25,243
Interest on Federal funds sold, securities purchased under
agreements to resell and other ........................................... 4,632 9,852
--------- ---------
Total interest income ...................................... 817,329 823,718
--------- ---------
INTEREST EXPENSE
- ----------------
Interest on deposits ......................................................... 203,879 214,458
Interest on short-term funds borrowed ........................................ 32,964 39,757
Interest on long-term debt ................................................... 54,382 38,849
--------- ---------
Total interest expense ..................................... 291,225 293,064
--------- ---------
NET INTEREST INCOME ........................................ 526,104 530,654
Provision for losses on loans ................................................ 43,000 38,767
--------- ---------
NET INTEREST INCOME AFTER PROVISION
FOR LOSSES ON LOANS ............................ 483,104 491,887
--------- ---------
NON-INTEREST INCOME
- -------------------
Service charges on deposit accounts .......................................... 56,467 57,150
Trust income ................................................................. 44,315 41,174
Fees for international services .............................................. 26,160 22,903
Debit and credit card fees ................................................... 21,670 20,493
Third party processing ....................................................... 20,059 13,832
Income from investment in EPS, Inc. .......................................... 7,299 7,388
Income from trading activities ............................................... 5,908 6,662
Securities gains ............................................................. 4,819 6,948
Other operating income ....................................................... 28,314 32,890
--------- ---------
Total non-interest income .................................. 215,011 209,440
--------- ---------
NON-FINANCIAL EXPENSES
- ----------------------
Salaries, wages and benefits ................................................. 203,589 208,239
Net occupancy ................................................................ 37,238 42,784
Equipment expenses ........................................................... 31,249 30,024
Restructuring and merger-related charges ..................................... -- 14,126
Other operating expenses ..................................................... 119,828 121,009
--------- ---------
Total non-financial expenses ............................... 391,904 416,182
--------- ---------
INCOME BEFORE INCOME TAXES ................................................... 306,211 285,145
- --------------------------
Provision for income taxes ................................................... 108,098 108,001
--------- ---------
NET INCOME ................................................................... $ 198,113 $ 177,144
- ---------- ========= =========
Average common shares outstanding ............................................ 211,276 219,512
======= =======
PER COMMON SHARE DATA
- ---------------------
Net income ................................................................... $0.94 $0.81
===== =====
Cash dividends declared ...................................................... $0.47 $0.42
===== =====
</TABLE>
See accompanying notes to the consolidated financial statements.
4
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
(in thousands)
<TABLE>
<CAPTION>
Common Capital Retained
stock surplus earnings
-------- ---------- ----------
Three Months Ended March 31, 1996
- ---------------------------------
Balances at beginning of year................................. $230,231 $1,225,167 $2,724,298
Net income.................................................... 177,144
Net change in unrealized gain on investments
available-for-sale, net of tax............................. (9,927)
Treasury shares acquired (208 shares).........................
Repurchase and retirement of common stock (1,324 shares)..... (1,324) (43,157) (12,824)
Common stock issued under employee benefit plans
(395 new shares; 1,346 treasury shares).................... 395 2,455 8,380
Common stock issued under dividend reinvestment
plan (125 treasury shares)................................. 125
ESOP shares committed for release (31 shares)................. 533
Foreign currency translation adjustments...................... (25)
Common dividends declared..................................... (86,372)
-------- ---------- ---------
Balances at end of period..................................... $229,302 $1,185,123 $2,800,674
======== ========== ==========
Three Months Ended March 31, 1997
- ---------------------------------
Balances at beginning of year................................. $223,599 $1,234,522 $2,729,310
Net income.................................................... 198,113
Net change in unrealized gain on investments
available-for-sale, net of tax............................. (8,672)
Treasury shares acquired (6,713 shares).......................
Common stock issued under employee benefit plans
(673 treasury shares)...................................... 5,384 (19,711)
Common stock issued under dividend reinvestment plan
(151 treasury shares)...................................... 307
ESOP shares committed for release (24 shares)................. 656
Foreign currency translation adjustments...................... (853)
Common dividends declared..................................... (100,943)
-------- ---------- -----------
Balances at end of period.................................... $223,599 $1,240,869 $ 2,797,244
======== ========== ===========
<CAPTION>
Unallocated
Treasury ESOP
stock shares Total
--------- ------------ ----------
<S> <C> <C> <C>
Three Months Ended March 31, 1996
- ---------------------------------
Balances at beginning of year................................. $(250,465) $(53,666) $3,875,565
Net income.................................................... 177,144
Net change in unrealized gain on investments
available-for-sale, net of tax............................. (9,927)
Treasury shares acquired (208 shares)......................... (8,529) (8,529)
Repurchase and retirement of common stock (1,324 shares)..... (57,305)
Common stock issued under employee benefit plans
(395 new shares; 1,346 treasury shares).................... 18,914 30,144
Common stock issued under dividend reinvestment
plan (125 treasury shares)................................. 3,991 4,116
ESOP shares committed for release (31 shares)................. 706 1,239
Foreign currency translation adjustments...................... (25)
Common dividends declared..................................... (86,372)
--------- -------- ----------
Balances at end of period..................................... $(236,089) $(52,960) $3,926,050
========= ======== ==========
Three Months Ended March 31, 1997
- ---------------------------------
Balances at beginning of year................................. $(437,580) $(54,157) $3,695,694
Net income.................................................... 198,113
Net change in unrealized gain on investments
available-for-sale, net of tax............................. (8,672)
Treasury shares acquired (6,713 shares........................ (373,796) (373,796)
Common stock issued under employee benefit plans
(673 treasury shares)...................................... 38,538 24,211
Common stock issued under dividend reinvestment plan
(151 treasury shares)...................................... 7,380 7,687
ESOP shares committed for release (24 shares)................. 576 1,232
Foreign currency translation adjustments...................... (853)
Common dividends declared..................................... (100,943)
--------- -------- ----------
Balances at end of period.................................... $(765,458) $(53,581) $ 3,442,673
========= ======== ==========
</TABLE>
See accompanying notes to the consolidated financial statements.
5
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
<TABLE>
<CAPTION>
(in thousands) Three Months Ended
March 31,
-------------------------------
Operating Activities 1997 1996
- -------------------- ------------ ------------
<S> <C> <C>
Net income.............................................................................. $ 198,113 $ 177,144
Adjustments to reconcile net income to net cash
provided by operating activities:
Restructuring and merger-related charges........................................... - 14,126
Provision for losses on loans...................................................... 43,000 38,767
Provision for losses and writedowns on OREO........................................ 125 1,501
Depreciation and amortization...................................................... 26,509 34,271
Deferred income tax expense........................................................ 4,842 1,699
Securities gains................................................................... (4,819) (6,948)
(Increase) decrease in trading account assets...................................... (79,007) 71,913
Decrease in due to factored clients................................................ (1,024) (5,715)
(Increase) decrease in interest receivable......................................... (12,309) 26,034
Increase (decrease) in interest payable............................................ 12,521 (21,278)
Other, net......................................................................... (73,296) 137,663
------------ ------------
Net Cash Provided by Operating Activities...................................... 114,655 469,177
------------ ------------
Investing Activities
- --------------------
Net increase in loans................................................................... (784,583) (439,822)
Proceeds from sales of loans............................................................ 161,218 61,070
Loans originated or acquired - non-bank subsidiaries.................................... (9,019,900) (8,730,417)
Principal collected on loans - non-bank subsidiaries.................................... 8,776,735 8,678,829
Net decrease in time deposits, principally Eurodollars.................................. 206,204 150,001
Purchases of investments held-to-maturity............................................... (183,649) (149,372)
Purchases of investments available-for-sale............................................. (125,714) (255,415)
Proceeds from maturities of investments held-to-maturity................................ 255,104 331,808
Proceeds from maturities of investments available-for-sale.............................. 263,497 300,335
Proceeds from sales of investments available-for-sale................................... 25,860 262,521
Net (increase) decrease in Federal funds sold and securities purchased under
agreements to resell............................................................... (40,404) 545,527
Purchases of premises and equipment..................................................... (23,147) (36,103)
Proceeds from sales and paydowns on OREO................................................ 2,419 5,658
Other, net.............................................................................. 5,072 15,405
------------ ------------
Net Cash Provided by (Used in) Investing Activities................................ (481,288) 740,025
------------ ------------
Financing Activities
- --------------------
Net decrease in deposits................................................................ (656,598) (1,412,198)
Proceeds from issuance of long-term debt................................................ 475,650 283,068
Retirement of long-term debt............................................................ (17,632) (31,851)
Net increase (decrease) in short-term funds borrowed.................................... 215,842 (656,979)
Cash dividends paid..................................................................... (100,993) (86,116)
Purchases of treasury stock............................................................. (373,796) (8,529)
Repurchase and retirement of common stock............................................... - (57,305)
Common stock issued under employee benefit plans........................................ 18,827 13,529
Other, net.............................................................................. 7,687 4,116
------------ ------------
Net Cash Used In Financing Activities.............................................. (431,013) (1,952,265)
------------ ------------
Decrease In Cash And Due From Banks................................................ (797,646) (743,063)
------------------------------------
Cash and due from banks at January 1,.............................................. 3,462,287 3,662,143
------------ ------------
Cash and due from banks at March 31,............................................... $ 2,664,641 $ 2,919,080
============ ============
Supplemental Disclosure of Cash Flow Information
- ------------------------------------------------
Cash paid during the period for:
Interest........................................................................... $ 278,704 $ 314,342
============ ============
Income taxes....................................................................... $ 4,033 $ 14,229
============ ============
Net cash received on interest rate swaps................................................ $ 14,986 $ 11,830
============ ============
</TABLE>
See accompanying notes to the consolidated financial statements.
6
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
March 31, 1997
NOTE A -- BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of
CoreStates Financial Corp ("CoreStates") have been prepared in accordance with
generally accepted accounting principles for interim financial information.
Accordingly, they do not include all information and footnotes required by
generally accepted accounting principles for complete financial statements. In
the opinion of management, all adjustments (comprising only normal recurring
accruals) necessary for a fair presentation have been included. Certain amounts
in prior periods have been reclassified for comparative purposes. Operating
results for the three-month period ended March 31, 1997 are not necessarily
indicative of the results that may be expected for the year ending December 31,
1997.
NOTE B -- CHANGE IN ACCOUNTING PRINCIPLES
Statement of Financial Accounting Standards No. 128, "Earnings per
Share" ("FAS 128") was issued in February 1997. FAS 128, which must be adopted
on December 31, 1997, requires entities to change the method currently used to
compute earnings per share and to restate earnings per share for all prior
periods presented. Under FAS 128, primary earnings per share will exclude the
dilutive effect of stock options and fully diluted earnings per share must
include the dilutive effect of stock options even if the dilutive effect is
immaterial. The impact of FAS 128 on the calculation of primary earnings per
share and fully diluted earnings per share is not expected to be material.
NOTE C -- LOAN PORTFOLIO
Loans, net of unearned discounts, consist of the following (in
thousands):
<TABLE>
<CAPTION>
March 31, December 31,
Domestic: 1997 1996
----------- -----------
<S> <C> <C>
Commercial, industrial and other....................... $14,724,429 $13,906,646
Real estate:
Construction and development...................... 583,846 554,924
Residential....................................... 4,339,975 4,226,980
Other............................................. 4,421,935 4,541,697
----------- -----------
Total real estate........................... 9,345,756 9,323,601
----------- -----------
Consumer:
Installment....................................... 3,161,803 3,319,970
Credit card....................................... 1,676,496 1,674,921
----------- -----------
Total consumer.............................. 4,838,299 4,994,891
----------- -----------
Financial institutions................................. 1,096,485 1,153,715
Factoring receivables.................................. 482,181 411,280
Lease financing........................................ 1,199,190 1,232,213
----------- -----------
Total domestic.............................. 31,686,340 31,022,346
----------- -----------
Foreign...................................................... 1,908,190 1,754,686
----------- -----------
Total loans................................. $33,594,530 $32,777,032
=========== ===========
</TABLE>
7
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited) -- continued
March 31, 1997
NOTE D -- OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS AND COMMITMENTS
In the normal course of business, there are outstanding commitments and
contingent liabilities which are not reflected in the financial statements.
These include various financial instruments with off-balance sheet risk used in
connection with CoreStates' asset and liability management and to provide for
the needs of customers. These involve varying degrees of credit, interest rate
and liquidity risk, but do not represent unusual risks for the Corporation and
management does not anticipate any significant losses as a result of these
transactions. See tables and discussion under "Interest Rate Risk Management"
beginning on page 23 for more details on off-balance sheet instruments and
derivative activities.
The following is a summary of contractual or notional amounts of
off-balance sheet commitments and derivative financial instruments (in
thousands):
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
----------- ------------
<S> <C> <C>
Standby letters of credit, net of participations............ $ 1,665,592 $ 1,630,621
Commercial letters of credit................................ 1,295,459 1,262,593
Commitments to extend credit................................ 15,570,067 15,396,553
Unused commitments under credit card lines.................. 4,350,003 4,173,013
When-issued securities:
Commitments to purchase............................... 166,023 1,770
Commitments to sell................................... 139,969 75,120
Whole mortgage loans and securities:
Commitments to purchase............................... 17,280 17,280
Commitments to sell................................... 7,139 7,965
Loans sold with recourse and loan servicing
acquired with recourse................................ 347,824 361,410
Interest rate futures contracts:
Commitments to purchase............................... 4,808,100 4,489,800
Commitments to purchase foreign and U. S. currencies........ 2,118,515 1,766,122
Interest rate swaps, notional principal amounts............. 9,742,847 9,850,708
Interest rate caps and floors:
Written............................................... 1,168,154 908,799
Purchased............................................. 2,309,497 2,039,331
Tender option bonds......................................... 132,321 148,711
Treasury float contracts.................................... 263,663 270,358
Other derivatives........................................... 588,230 597,261
</TABLE>
8
<PAGE>
PART I. FINANCIAL INFORMATION -- continued
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
ITEM 2 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
SUMMARY
- -------
Earnings Review - In the first quarter of 1997, CoreStates Financial Corp
---------------
("CoreStates") recorded net income of $198.1 million or $0.94, per share,
compared to $177.1 million or $0.81 per share in the first quarter of 1996.
First quarter net income represents an 8.0% increase on a per share basis when
compared to first quarter of 1996 "operating earnings" of $0.87 per share. The
year-to-year growth in earnings per share primarily resulted from the impact of
the common stock repurchase program announced in October 1996 (see "Capital
Management" on page 22) and from expense reductions. "Operating earnings" for
the first quarter of 1996 have been defined for purposes of the earnings review
discussion as net income excluding net restructuring and merger-related charges
which are discussed on page 10.
Net income, operating earnings, key financial ratios and per share
information are summarized in the following table (in millions, except per
share):
<TABLE>
<CAPTION>
Three Months Ended
March 31, Percentage
---------------------- Increase
1997 1996 (Decrease)
------ ------ ----------
<S> <C> <C> <C>
Net interest income (taxable equivalent basis).. $ 531.3 $ 537.8 (1.2)%
======= =======
Net income ..................................... $ 198.1 $ 177.1 11.9
Exclude after-tax net restructuring and
merger-related charges ...................... - 13.8
------- -------
Operating earnings ............................. $ 198.1 $ 190.9 3.8
======= =======
Operating earnings per share ................... $0.94 $ 0.87 8.0
======= =======
Return on average equity ....................... 21.89% 19.54%(a)
Return on average assets ....................... 1.82 1.75 (a)
Net interest margin ............................ 5.47 5.51
Average common shares outstanding .............. 211.276 219.512
</TABLE>
- ---------------------
(a) Calculated based on "Operating earnings."
The $7.2 million improvement over first quarter of 1996 operating earnings
was primarily due to a $10.2 million, or 2.5%, decrease in non-financial
expenses excluding the 1996 net restructuring and merger-related charges. Also
contributing to the improvement in the first quarter operating earnings was a
$5.6 million, or 2.7% increase in non-interest income. The $10.2 million decline
in non-financial expenses primarily reflects the impact of merger efficiencies.
The $5.6 million increase in non-interest income was mainly due to growth in
revenue from trust activities and international services. Third party processing
fees also contributed to the growth in non-interest income, primarily due to the
addition of five check processing centers in the fourth quarter of 1996.
Partially offsetting the improvement due to lower non-financial expenses and
higher non-interest income was a $6.5 million, or 1.2%, decline in net interest
income. The decline in net interest income was primarily the result of the
common stock repurchase program, a decline in average deposits and one less day
in the quarter. The net interest margin at 5.47% remained strong.
Key performance measures, based on operating earnings, continued to improve
on already strong ratios. Returns on average equity and assets were 21.89% and
1.82%, respectively, in the first quarter of 1997, compared to 19.54% and 1.75%
respectively, in the first quarter of 1996. The return on average equity was
positively affected by the common stock repurchase program.
9
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
SUMMARY - continued
- -------
Restructuring and Merger-Related Charges - On February 23, 1996, CoreStates
----------------------------------------
acquired United Counties Bancorporation, a $1.6 billion asset New Jersey bank
holding company, in a transaction accounted for as a pooling of interests. In
the first quarter of 1996, CoreStates recorded pre-tax net restructuring and
merger-related charges of $14.1 million, $13.8 million or $0.06 per share after
tax, primarily in connection with that transaction. The first quarter of 1996
restructuring and merger-related charges were net of pre-tax credits of $2.5
million related to gains on the curtailment of pension benefits and sales of
branches resulting from prior process redesigns.
The following table summarizes the activity in the restructuring accrual
for the three months ended March 31, 1997 (in millions):
<TABLE>
<CAPTION>
First
Quarter
1997
--------
<S> <C>
Balance at beginning of period................ $ 108
Provision charged against income.............. -
Cash outflow(a)............................... (19)
Writedowns of assets.......................... (8)
-------
Balance at end of period...................... $ 81
=======
</TABLE>
- ---------------------
(a) CoreStates' liquidity has not been significantly affected by these
cashflows.
Cautionary Statement
Certain statements contained herein are not based on historical fact and
are "forward-looking statements" within the meaning of the Private Securities
Litigation Reform Act of 1995. Forward-looking statements which are based on
various assumptions (some of which are beyond CoreStates' control), may be
identified by reference to a future period, or periods, or by the use of
forward-looking terminology such as "may", "will", "believe", "expect",
"estimate","anticipate", "continue", or similar terms or variations on those
terms, or the negative of those terms. Actual results could differ materially
from those set forth in forward-looking statements. Factors that could cause
actual results to differ materially from those in the forward-looking statements
include, but are not limited to: the global, national and regional economies
where CoreStates conducts operations; economic growth; governmental monetary
policy including interest rate policies of the Federal Reserve Board; sources
and costs of funds; levels of interest rates; inflation rates; market capital
spending; technological change; the state of securities and capital markets;
acquisitions; consumer spending and savings; expense levels; and tax,
securities, and banking laws and prospective legislation.
10
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
BUSINESS LINE RESULTS
- ---------------------
CoreStates utilizes a value-based reporting methodology to facilitate
management's analysis of performance by defined business lines. This process
supports CoreStates' strategic objectives of creating superior growth in
shareholder value by focusing on the performance and value creation potential of
CoreStates' component businesses.
CoreStates' five core businesses are: Global and Specialized Banking;
Regional Banking; Retail Credit Services; Trust and Asset Management; and Third
Party Processing. The following table presents the earnings contribution for the
three months ended March 31, 1997 and 1996. Each core business is comprised of
well-defined business lines with market or product-specific missions.
<TABLE>
<CAPTION>
Three Months Ended March 31,
($ in millions, taxable equivalent basis)
Global and Specialized Regional Retail Trust and Asset
Banking Banking Credit Services Management
------------------- ------------------- ------------------- -------------------
1997 1996 1997 1996 1997 1996 1997 1996
------- ------- ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Net interest income .......... $147.8 $ 137.6 $ 278.5 $ 282.4 $ 76.0 $ 73.3 $ 12.2 $ 13.0
Provision for losses on loans. 10.9 7.3 6.6 7.2 26.7 24.9 0.5 0.5
Non-interest income .......... 59.1 56.1 56.6 56.3 19.8 22.3 44.9 41.4
Non-financial expenses ....... 94.5 87.4 184.6 197.4 42.1 46.3 35.1 38.5
------ ------- ------- ------- ------ ------- ------ -------
Income before income taxes ... 101.5 99.0 143.9 134.1 27.0 24.4 21.5 15.4
Income tax expense ........... 38.7 38.7 52.6 48.7 9.7 9.0 7.6 5.5
------ ------- ------- ------- ------ ------- ------ -------
Net income ................... $ 62.8 $ 60.3 $ 91.3 $ 85.4 $ 17.3 $ 15.4 $ 13.9 $ 9.9
====== ======= ======= ======= ====== ======= ====== =======
Return on assets ............. 1.49% 1.73% 2.88% 2.31% 0.93% 0.77% 4.55% 2.57%
Return on equity ............. 24.28 28.77 55.60 44.84 20.10 17.50 61.95 41.48
Average assets ............... $17,112 $14,015 $12,858 $14,901 $7,531 $ 8,085 $1,240 $ 1,549
Average equity ............... 1,049 843 666 766 349 354 91 96
<CAPTION>
Third Party
Processing Corporate Center Total
----------------- ---------------------- -------------------
1997 1996 1997 1996 1997 1996
------ ------ ------ ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Net interest income........... $(1.0) $ (1.3) $ 17.8 $ 32.8 $ 531.3 $ 537.8
Provision for losses on loans. - - (1.7) (1.1) 43.0 38.8
Non-interest income........... 59.1 46.3 (24.5) (a) (12.9) (a) 215.0 209.5
Non-financial expenses........ 54.7 41.7 (19.1) (a) 4.9 (a)(b) 391.9 416.2
----- ------ ------ ------ ------- -------
Income before income taxes.... 3.4 3.3 14.1 16.1 311.4 292.3
Income tax expense............ 1.2 1.1 3.5 12.2 113.3 115.2
----- ------ ------ ------ ------- -------
Net income.................... $ 2.2 $ 2.2 $ 10.6 $ 3.9 $ 198.1 $ 177.1
===== ====== ====== ====== ======= =======
Return on assets.............. 5.10% 6.23% 0.83% 0.31% 1.82% 1.63%
Return on equity.............. 35.69 36.87 2.89 0.85 21.89 18.13
Average assets................ $175 $142 $5,187 $5,112 $44,103 $43,804
Average equity................ 25 24 1,490 1,846 3,670 3,929
</TABLE>
- -------------------
(a) Includes eliminations for intercompany third party processing fees of $27.3
million and $20.6 million in 1997 and 1996, respectively.
(b) Includes net restructuring and merger-related charges of $14.1 million pre-
tax, $13.8 million after tax.
11
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
BUSINESS LINE RESULTS - continued
- ---------------------------------
Corporate overhead, processing and support costs, and the loan loss
provision are allocated along with the impact of balance sheet management and
hedging activities of CoreStates. A matched maturity transfer pricing system is
used to allocate interest income and interest expense. All business lines in the
five core businesses, except for the QuestPoint third party processing units,
are allocated equity utilizing regulatory risk-based capital guidelines as well
as each business line's requirements for fixed assets and other capital
investments. Equity at the QuestPoint processing units has been assigned based
on estimated amounts necessary on a stand-alone company basis. 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 Center includes the income and expense impact of
unallocated equity; unusual or non-recurring items (such as restructuring and
merger-related charges) not attributable to the operating activities of the
major business areas; emerging business activities not directly related to the
five major business areas, eliminations of intercompany business areas
transactions; and miscellaneous items.
Global and Specialized Banking includes the following business lines:
------------------------------
Specialized Banking, Secured Lending, Real Estate, Large Corporate Banking,
Congress Financial Corporation ("Congress Financial"), International Banking,
Investment Banking, and Cash Management. Net income for the first quarter of
1997 was $62.8 million, which was up $2.5 million or 4.1% from the first quarter
of 1996. The favorable variance was due to increases in net interest income and
non-interest income, partially offset by increases in non-financial expenses and
the provision for losses on loans.
Net interest income for the first quarter of 1997 was $10.2 million or
7.4% above the first quarter of 1996 due to the impacts of increases in average
loans, demand deposits, fees on loans, and a decrease in non-performing loans.
Loan fees increased $1.9 million or 24.2% above prior year largely due to
increases in upfront and prepayment fees. Net interest income increased $5.9
million over prior year, due to the impact of an increase in average loan volume
of $2.4 billion or 21.9%, due to growth in Congress Financial, Specialized
Lending, International Banking, and the Healthcare and the Retail & Apparel
Banking Groups within Large Corporate. Non-performing loans declined $6.2
million or 10.2% from the first quarter of 1996. Deposit balances increased $467
million, or 7.8% due to increases in non-interest bearing demand deposits,
overseas time deposits, and money market balances. These deposit increases
contributed $1.9 million to the favorable net interest income variance.
The provision for loan losses increased $3.6 million from the first
quarter of 1996 primarily due to increased loan volume.
Non-interest income increased $3.0 million or 5.3% from the first quarter
of 1996 primarily due to increases in international service fees. International
service fees increased $2.8 million or 12.0% principally due to increased letter
of credit activity in the offshore branches.
Non-financial expenses increased $7.1 million or 8.1% from the first
quarter of 1996 primarily due to increases in costs of outside services hired
and processing costs.
Regional Banking includes Retail Banking and Delivery, Small Business
----------------
Lending, Commercial Business Lending and Middle Market Lending. Net income for
the first quarter of 1997 was $91.3 million, up $5.9 million, or 6.9% from the
first quarter of 1996. The first quarter increase was principally due to
declines in operating expenses resulting from merger synergies and branch
closings/sales, partially offset by a decline in net interest income primarily
resulting from decreases in average deposits and average loan outstandings. Non-
interest income was flat quarter to quarter.
12
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
BUSINESS LINE RESULTS - continued
- ---------------------------------
Net interest income for the first quarter of 1997 decreased $3.9 million,
or 1.4% from the first quarter of 1996. The decrease was mainly attributable to
the impact of a decline in average deposit volumes of $904 million, or 3.5%, and
a decline in average loan outstandings of $615 million, or 5.3%. The deposit
decline resulted from the divestiture of eleven branches in the second quarter
of 1996 and run-off related to both the Meridian Bancorp, Inc. ("Meridian")
merger in 1996 and pricing strategies implemented in 1997. The loan decline
mainly resulted from the securitization of $382 million in home equity loans
during 1996 and run-off in revolving credit, commercial real estate and personal
loans. Commercial real estate loan spreads declined 7 basis points influenced by
aggressive competitor pricing. Positive influences in net interest income
occurred in deposit spreads which increased 13 basis points from the first
quarter of 1996, and consumer and revolving loan spreads which increased 31
basis points and 21 basis points, respectively.
Non-financial expenses for the first quarter of 1997 declined $12.8
million, or 6.5%, from the first quarter of 1996. The decrease from the first
quarter of 1996 was principally due to branch divestitures and operational
efficiencies related to the Meridian merger.
Retail Credit Services includes the following major business lines: Credit
----------------------
Card, Dealer Services, Educational Lending, Mortgage Services, Card Linx
(CoreStates' merchant credit card processing business) and SynapQuest
(CoreStates' consumer and commercial credit card processing company). Net income
for Retail Credit Services was $17.3 million for the first quarter of 1997,
which was $1.9 million, or 12.3% above 1996. The increase in net income was
primarily attributed to loan growth and a reduction in non-financial expenses,
partially offset by a higher provision for losses on loans and a reduction in
non-interest income.
Net interest income for the first quarter of 1997 was $2.7 million or 3.7%
above 1996. This increase was due to the impact of growth in average indirect
auto loans ($225.3 million or 13.5%), credit card loans ($166.7 million or
11.0%), and educational finance loans ($29.2 million or 7.9%). The impact of
narrowing interest rate spreads on these products, along with a reduction in the
average mortgage loan portfolio due to sales ($827 million), has partially
offset the favorable impact of loan growth.
The provision for loan losses increased $1.8 million or 7.2% over 1996. The
increase was primarily due to higher credit card loan charge-offs. Higher credit
card charge-offs is an industry-wide trend also being experienced by CoreStates.
Non-interest income for the first quarter of 1997 decreased by $2.5 million
or 11.2% from 1996. This decline was primarily due to a $2.2 million decrease in
merchant fee income resulting from the effects of second and third quarter of
1996 customer attrition.
Non-financial expenses for the first quarter of 1997 decreased by $4.2
million or 9.1% from 1996. The decline in expenses was primarily due to merger-
related efficiencies that impacted both personnel and occupancy expenses.
Additionally, a reduction in marketing expense contributed to the year-to-year
decline. The expense savings were partially offset by volume related expense
growth.
13
<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 Asset Management is organized into four business lines:
-------------------------------
Personal Trust (including Private Banking), Institutional Trust, Retirement Plan
Services, and Investment Management. CoreStates' remaining Corporate Trust
Business, previously included in Institutional Trust, was sold in the fourth
quarter of 1996. Net income of $13.9 million in the first quarter of 1997
increased $4.0 million, or 40.4%, over the first quarter of 1996. Increased
trust fee income and reduced non-financial expenses contributed to the
improvement in net income.
Net interest income declined $0.8 million, or 6.2%, in the first quarter of
1997 compared to the same period in 1996 as a result of from narrowing spreads
on commercial loans in Private Banking.
Non-interest income increased $3.5 million, or 8.5% in the first quarter of
1997 compared to the same period in 1996. Excluding Corporate Trust fees, non-
interest income increased $3.9 million, or 9.5% in the first quarter of 1997.
This improvement reflects increases in Personal, Institutional and Investment
Management fees primarily due to increased asset values.
Non-financial expenses declined $3.4 million, or 8.8% in the first quarter
of 1997 compared to the same period in 1996. Excluding Corporate Trust in 1996,
expenses would have decreased $3.1 million or 8.0%. The expense reductions are
associated with savings achieved in all business lines related to merger-related
efficiencies.
Third Party Processing consists of the QuestPoint specialty transaction
----------------------
processing units, and earnings from CoreStates' investment in Electronic Payment
Services, Inc. ("EPS"). The QuestPoint processing units include: QuestPoint
Check Services ("Check Services") - a provider of check processing and payment
services to CoreStates and other financial institutions; and QuestPoint
Remittance Services ("Remittance Services") - a leading supplier of remittance
processing services nationwide with processing sites in key markets within the
United States and Canada.
Third Party Processing ("TPP") net income for the first quarter of 1997 was
$2.2 million, level with the first quarter of 1996. Prior year first quarter
results do not reflect the TPP net income contribution that Meridian would have
provided as a TPP customer.
TPP revenue for the first quarter of 1997 totaled $59.1 million including
$27.3 million for the CoreStates intercompany business, $7.3 million for EPS and
$24.5 million of external QuestPoint revenue. This compares to first quarter of
1996 revenue of $46.3 million including $20.6 million for the CoreStates
intercompany business, $7.4 million of EPS revenue and $18.3 million of external
QuestPoint revenue. Total revenue growth for 1997 was $12.8 million or 28%. The
CoreStates intercompany business, which contributes 46% of the TPP revenue base,
increased $6.7 million or 33%. External QuestPoint business accounts for 41% of
the revenue base and increased $6.2 million or 34% for 1997. The investment in
EPS contributes the remaining revenue.
The 1997 revenue growth within the CoreStates intercompany business was a
result of the addition of Meridian processing. The acquisition of five check
processing centers from The Bisys Group, Inc. ("Bisys") in October 1996
contributed $3.3 million to the external revenue growth with the remaining
increase primarily a result of new business within Check Services and Remittance
Services. Income from the investment in EPS reflects CoreStates' share in EPS
net income, interest income on a 6.45% note and income from amortization of a
deferred gain. The decrease from the prior year is primarily due to lower
interest income on the note, which is being paid down at the rate of $6.25
million per quarter by EPS. At March 21,1997 the balance of the note was $169
million.
TPP non-financial expenses for the first quarter of 1997 were $54.7 million
an increase of $13.0 million or 31% from the first quarter of 1996. Most of the
increase supports the addition of new business such as, the processing of
Meridian volume and the acquisition of the Bisys check processing centers by
Check Services and overall Remittance Services volume growth.
14
<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 tax savings on tax exempt assets. Net
interest income on a taxable equivalent basis for the first quarter of 1997 was
$531.3 million, a decrease of $6.5 million, or 1.2%, from the first quarter of
1996. The net interest margin was 5.47% for the first quarter of 1997, a
decrease of 4 basis points compared to the first quarter of 1996. The decrease
in net interest income and the net interest margin was primarily the result of
the impacts of the interest cost of funding the stock repurchase program
announced in October, 1996; a decline in average deposits of $355 million,
primarily due to the branch divestiture in the second quarter of 1996; and one
less day in the quarter, which resulted in a $3.3 million decrease in net
interest income. These decreases were partially offset by the impacts of an
increase in average loan volume of $1.4 billion and favorable repricing of
deposits. 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.
Compared to the fourth quarter of 1996, taxable equivalent net interest
income for the first quarter of 1997 decreased $11.8 million, or 2.2%,
principally reflecting the impact of the stock repurchase program; a decrease in
loan spreads; and two less days in the quarter, which resulted in a $6.6 million
decrease in net interest income. These decreases were partially offset by the
impact of an increase in average loan volume of $183 million.
The following table compares taxable equivalent net interest income for the
three months ended March 31, 1997 versus the first quarter of 1996 and the
fourth quarter of 1996, respectively (in millions):
<TABLE>
<CAPTION>
Taxable Equivalent Net Interest Income
- --------------------------------------
Three Months Ended Increase (decrease)
----------------------------------------- --------------------------
Mar 31, Mar 31, Dec 31, Mar 1997/ Mar 1997/
1997 1996 1996 Mar 1996 Dec 1996
-------- -------- -------- -------- ---------
<S> <C> <C> <C> <C> <C>
Total interest income........................ $ 817.3 $ 823.7 $ 835.7 $ (6.4) $ (18.4)
Tax equivalent adjustment.................... 5.2 7.2 6.0 (2.0) (0.8)
-------- -------- -------- ------- -------
Tax equivalent interest income............... 822.5 830.9 841.7 (8.4) (19.2)
Total interest expense....................... 291.2 293.1 298.6 (1.9) (7.4)
-------- -------- -------- ------- -------
Taxable equivalent net
interest income......................... $ 531.3 $ 537.8 $ 543.1 $ (6.5) $ (11.8)
======== ======== ======== ======= =======
Interest rate spread......................... 4.54% 4.59% 4.51%
Net interest margin.......................... 5.47% 5.51% 5.46%
</TABLE>
15
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
NET INTEREST INCOME - continued
- -------------------------------
The following rate/volume analyses on a taxable equivalent basis
illustrate the underlying factors producing these increases (decreases) in tax
equivalent net interest income (in millions):
<TABLE>
<CAPTION>
Rate/Volume Analysis Increase (decrease) in interest Increase (decrease) in interest
- -------------------- ----------------------------------------- --------------------------------------
Three Months Ended Three Months Ended
March 31, 1997/1996 March 31, 1997/December 31, 1996
----------------------------------------- --------------------------------------
Change attributable to Change attributable to
Income/ ----------------------- Income/ ----------------------
expense Volume Rate expense Volume Rate
-------- -------- ------- -------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Interest earning assets
- -----------------------
Time deposits-Eurodollars........... $ 9.3 $ 9.2 $ 0.1 $ (2.2) $ (1.0) $ (1.2)
Investment securities............... (22.2) (23.7) 1.5 (4.4) (4.0) (0.4)
Federal funds sold.................. (5.3) (4.9) (0.4) (0.1) 0.6 (0.7)
Trading account securities.......... - (0.1) 0.1 (0.2) (0.3) 0.1
Loans:
- Domestic.................... (1.5) 17.3 (18.8) (14.1) (0.7) (13.4)
- Foreign..................... 11.3 13.3 (2.0) 1.8 2.8 (1.0)
------ ------ ------ ------ ------ ------
Total interest income.... (8.4) 11.1 (19.5) (19.2) (2.6) (16.6)
------ ------ ------ ------ ------ ------
Interest bearing funds
- ----------------------
Deposits:
Domestic....................... (15.3) (3.3) (12.0) (8.4) 1.6 (10.0)
Overseas....................... 4.7 4.4 0.3 0.3 0.6 (0.3)
Funds borrowed:
Federal funds purchased........ (5.6) (5.4) (0.2) (5.5) (5.8) 0.3
Other.......................... (1.2) (1.5) 0.3 (3.3) (1.4) (1.9)
Long-term debt...................... 15.5 14.6 0.9 9.5 9.6 (0.1)
------ ------ ------ ------ ------ ------
Total interest expense......... (1.9) 8.8 (10.7) (7.4) 4.6 (12.0)
------ ------ ------ ------ ------ ------
Net interest income................. $ (6.5) $ 2.3 $ (8.8) $(11.8) $ (7.2) $ (4.6)
- ------------------- ====== ====== ====== ====== ====== ======
</TABLE>
- -------------------------------
- - Changes in interest income or expense not arising solely as a result of
volume or rate variances are allocated to rate variances due to the
interest sensitivity of consolidated assets and liabilities.
- - 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.
- - The income effects of off-balance sheet derivatives used for managing
interest rate risk are associated with the interest income or expense of
the related hedged asset or liability.
16
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
NET INTEREST INCOME - continued
- -------------------
The effect of non-performing loans on interest income and net interest
income for the three months ended March 31, 1997 and 1996 was as follows (in
millions):
<TABLE>
<CAPTION>
Three
Months Ended
March 31,
--------------------
1997 1996
------ ------
<S> <C> <C>
Interest income due on non-performing loans in accordance with
their original terms.............................................. $ 4.8 $ 4.9
Interest income on non-performing loans reflected in total
interest income................................................... 2.7 2.1
----- ------
Net reduction in interest income........................................ $ 2.1 $ 2.8
===== ======
</TABLE>
PROVISION AND ALLOWANCE FOR LOAN LOSSES
- ---------------------------------------
The provision for loan losses for the first quarter of 1997, was $43.0
million, up $4.2 million from the provision recorded in the prior year first
quarter, and up $3.0 million over the provision for the fourth quarter of 1996.
The increase in the provision over the first and fourth quarters of 1996 was due
primarily to increased charge offs in credit card and other consumer loans and
to loan growth.
The following table presents an analysis of changes in the allowance for
loan losses for the three-month period ended March 31, 1997 and 1996 (in
millions):
<TABLE>
<CAPTION>
Three Months Ended
March 31,
-----------------------
1997 1996
-----------------------
<S> <C> <C>
Balance at beginning of period....................................... $ 710.3 $ 670.3
Provision charged to expense ........................................ 43.0 38.8
Loan charge-offs .................................................... (70.9) (64.5)
Recoveries of loans previously charged off .......................... 21.6 21.3
------- --------
Net loan charge-offs ........................................... (49.3) (43.2)
------- --------
Balance at end of period ............................................ $ 704.0 $ 665.9
======= ========
Ratios:
Net charge-offs (annualized) as a percentage of average
total loans ................................................... 0.60% 0.55%
Allowance for loan losses as a percentage of loans at
end of period ................................................. 2.10 2.08
Allowance for loan losses as a percentage of non-
performing loans .............................................. 300.97 268.86
</TABLE>
17
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
PROVISION AND ALLOWANCE FOR LOAN LOSSES - continued
- ---------------------------------------
The following tables reflect the distribution of net loan charge-offs
(recoveries) by loan type for the three-month period ended March 31, 1997 and
1996 (in millions):
<TABLE>
<CAPTION>
Three Months Ended Three Months Ended
March 31, 1997 March 31, 1996
--------------------------------- -----------------------------------
% of % of
% of Total % of Total
Net Average Net Net Average Net
Charge- Loan Charge- Charge- Loan Charge-
offs Type (a) offs offs Type (a) offs
-------- --------- ------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C>
Domestic:
Commercial, industrial and other........... $ 7.6 0.21% 15.4% $10.3 0.31% 23.8%
Real estate:
Construction and development loans...... (0.2) (0.14) (0.4) 0.8 0.54 1.9
Other................................... 4.3 0.19 8.7 5.0 0.20 11.5
Consumer:
Credit card............................. 23.4 5.59 47.5 18.9 5.01 43.8
Installment............................. 13.5 1.73 27.4 5.0 0.68 11.6
Other (b).................................. 0.7 0.14 1.4 3.2 0.64 7.4
-------- ----- ----- -----
Total domestic.......................... 49.3 0.64 100.0 43.2 0.57 100.0
Foreign....................................... - - - - - -
-------- ----- ------ -----
Total net charge-offs................... $ 49.3 0.60 100.0% $43.2 0.55 100.0%
======== ===== ===== =====
</TABLE>
- -----------------------------------
(a) Annualized.
(b) Includes loans to financial institutions and lease financing.
18
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
NON-PERFORMING LOANS AND OTHER REAL ESTATE OWNED
- ------------------------------------------------
Credit quality indicators remained strong during the first quarter of
1997. Non-performing assets at March 31, 1997 were 0.77% of total loans plus
other real estate owned and 0.57% of total assets. Loans which were past due 90
days or more at March 31, 1997 declined from December 31, 1996. While credit
quality indicators remained strong, total non-performing assets at March 31,
1997 increased $13.9 million, or 5.4%, from December 31, 1996 primarily due to
the placement on non-accrual status of a single commercial loan. Compared to
March 31, 1996, non-performing assets decreased $22.2 million or 7.9%.
The following table summarizes non-performing assets at March 31, 1997 and
December 31, 1996 (in millions):
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
--------- ------------
<S> <C> <C>
Non-accrual loans............................................ $233.9 $220.8
Renegotiated loans........................................... - -
------ ------
Total non-performing loans.......................... 233.9 220.8
Other real estate owned (OREO)............................... 25.0 24.2
------ ------
Total non-performing assets......................... $258.9 $245.0
====== ======
</TABLE>
The following table reflects the distribution of non-performing assets
by loan type at March 31, 1997 and December 31, 1996 (in millions):
<TABLE>
<CAPTION>
March 31, 1997 December 31, 1996
------------------------- ----------------------
% of % of
Non- Loan Non- Loan
performing Type performing Type
---------- ---- ---------- ----
<S> <C> <C> <C> <C>
Domestic:
Commercial, industrial and other...................... $ 106.9 0.70% $ 92.6 0.65%
-------
Real estate:
Construction and development ...................... 6.5 1.11 5.6 1.00
Other loans........................................ 117.2 1.34 118.5 1.29
OREO............................................... 25.0 - 24.2 -
------- -------
Total real estate............................... 148.7 1.59 148.3 1.52
------- -------
Other domestic loans (a).............................. 3.3 0.14 4.1 0.17
------- -------
Total domestic non-performing assets............... 258.9 0.82 245.0 0.79
------- -------
Foreign loans.............................................. - - - -
------- -------
Total non-performing assets (b) (c)................ $ 258.9 0.77 $ 245.0 0.75
======= =======
% Total assets..................................... 0.57% 0.54%
==== ====
</TABLE>
- -----------------------------------
(a) Includes loans to financial institutions and lease financing.
(b) Includes non-accrual loans, renegotiated loans and other real estate
owned. The table does not include loans of $99 million and $113 million at
March 31, 1997 and December 31, 1996, 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.
(c) At March 31, 1997 and December 31, 1996, there were no non-performing
consumer loans. Non-performing residential mortgage loans are included in
other real estate loans in the above table.
19
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
NON-PERFORMING LOANS AND OTHER REAL ESTATE OWNED - continued
- ------------------------------------------------
The following table summarizes the components of the change in non-
performing assets for the first quarter of 1997 (in millions):
<TABLE>
<S> <C>
Beginning balance............................... $ 245
Additions....................................... 72
Return to accrual............................... (2)
Payments........................................ (35)
Charge-offs..................................... (21)
-------
Net change................................ 14
-------
Ending balance.................................. $ 259
=======
</TABLE>
NON-INTEREST INCOME
- -------------------
(in millions)
<TABLE>
<CAPTION>
Three Months Ended Percentage
March 31, Increase (decrease)
-------------------------- --------------------
1997 1996
-------- --------
<S> <C> <C> <C>
Service charges on deposit accounts......................... $ 56.5 $ 57.1 (1.1)%
Trust income................................................ 44.3 40.5 9.4
Fees for international services............................. 26.1 22.9 14.0
Debit and credit card fees.................................. 21.7 20.5 5.9
Third party processing fees (a)............................. 20.1 13.8 45.7
Income from investment in EPS, Inc.......................... 7.3 7.4 (1.4)
Income from trading activities.............................. 5.9 6.6 (10.6)
Investment banking fees..................................... 5.0 6.1 (18.0)
Mortgage banking income..................................... 2.3 3.5 (34.3)
Investment securities gains................................. 4.8 7.0
Corporate trust fees (b).................................... - 0.7
Other non-interest income................................... 21.0 23.3 (9.9)
-------- --------
Total non-interest income.............................. $ 215.0 $ 209.4 2.7
======== ========
</TABLE>
- ----------------------------
(a) Includes revenues from QuestPoint lockbox processing and check processing,
and Synapquest credit card and merchant processing.
(b) For presentation purposes, fee income on the corporate trust business was
presented on a separate line. CoreStates' and Meridian's corporate trust
businesses were sold in the fourth quarters of 1995 and 1996, respectively.
20
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
NON-INTEREST INCOME - continued
- -------------------
Non-interest income for the first quarter of 1997 increased 2.7% from
the first quarter of 1996, primarily reflecting increases of $6.3 million, or
45.7%, in third party processing fees, $3.2 million, or 14.0%, in fees for
international services, $3.8 million, or 9.4%, in trust fees and $1.2 million,
or 5.9%, in debit and credit card fees. The increase in third party processing
fees was primarily due to the acquisition of five check processing centers.
Growth in fees for international services resulted from higher transaction
volume, including a new branch office opened during the third quarter of 1996.
Improvements in trust fees primarily related to increased revenues in Personal
and Institutional Trust and Investment Management generated from increased asset
values. These increases in non-interest income were partially offset by
decreases of $1.2 million, or 34.3%, in mortgage banking income, $1.1 million,
or 18.0%, in investment banking fees, and $2.2 million in securities gains.
NON-FINANCIAL EXPENSES
- ----------------------
(in millions)
<TABLE>
<CAPTION>
Three Months Ended Percentage
March 31, Increase (decrease)
------------------------ -------------------
1997 1996
------- -------
<S> <C> <C> <C>
Salaries, wages and benefits......................................... $ 203.6 $ 208.3 (2.3)%
Net occupancy expense................................................ 37.2 42.7 (12.9)
Outside services hired............................................... 32.8 35.4 (7.3)
Equipment expense.................................................... 31.2 30.0 4.0
Amortization of intangible assets.................................... 9.6 10.1 (5.0)
FDIC premiums........................................................ 1.4 1.5 (6.7)
OREO expense (income)................................................ 0.1 (0.8)
Other operating expenses............................................. 76.0 74.9 1.5
------- -------
Non-financial expense before restructuring
and merger-related charges..................................... 391.9 402.1 (2.5)
Restructuring and merger-related charges............................. - 14.1 (a)
------- -------
Total non-financial expenses................................. $ 391.9 $ 416.2 (5.8)
======= =======
</TABLE>
- ---------------------------------
(a) Reflects charges of $16.6 million related to the first quarter of 1996
acquisition of United Counties Bancorporation, partially offset by credits
of $2.5 million related to gains on the curtailment of pension benefits
and sales of branches resulting from prior process redesigns.
Before 1996 restructuring and merger-related charges, total
non-financial expenses for the first quarter of 1997 declined $10.2 million, or
2.5% from the first quarter of 1996. This decrease primarily reflected the
impact of merger-related synergies.
21
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
CAPITAL MANAGEMENT
- ------------------
CoreStates' capital strength provides the resources and flexibility to
capitalize on business growth and acquisition opportunities. CoreStates' capital
position at March 31, 1997 under risk-based capital guidelines was $3.9 billion
or 9.7% of risk-weighted assets, for Tier 1 capital and $5.5 billion, or 13.6%,
for total risk-based capital. Tier 1 capital consists primarily of common
shareholders' equity and cumulative preferred instruments less goodwill and
certain intangible assets, while total risk-based capital adds qualifying
subordinated debt and the allowance for loan losses, within permitted limits, to
Tier 1 capital. Risk-weighted assets are determined by assigning various levels
of risk to different categories of assets and off-balance sheet activities.
On October 21, 1996, the Federal Reserve Board approved the limited use
of certain cumulative preferred instruments ("Trust Capital Securities") as Tier
1 capital for consolidated purposes. While these Trust Capital Securities are
classified as long-term debt on the Consolidated Balance Sheet, CoreStates
intends to utilize these Trust Capital Securities in managing its total capital
mix. CoreStates Bank, N.A. issued $300 million of these securities on December
19, 1996 and an additional $450 million was issued in January 1997. This type of
security issuance provides CoreStates more flexibility in managing its capital.
For bank level risk based capital calculations, Trust Capital Securities qualify
as Tier 2 capital.
Under the Federal Reserve Board's consolidated capital leverage
guidelines, which require a minimum leverage ratio of 3.0% (Tier 1 capital to
quarterly average total assets), CoreStates had a leverage ratio of 9.0% at
March 31, 1997. The minimum 3.0% leverage requirement applies only to top rated
banking organizations without any operating, financial or supervisory
deficiencies. Other organizations (including those experiencing or anticipating
significant growth) are expected to hold an additional capital cushion of at
least 100 to 200 basis points of Tier 1 capital, and in all cases, banking
organizations should hold capital commensurate with the level and nature of all
the risks, including the volume and severity of problem loans, to which they are
exposed.
Substantially the same capital requirements are applied to CoreStates'
banking subsidiaries under guidelines issued by the Office of the Comptroller of
the Currency and the Federal Deposit Insurance Corporation (see Trust Capital
Securities above for an exception). As illustrated in the following table, at
March 31, 1997 CoreStates and its banking subsidiaries were "well capitalized"
as defined by regulatory authorities.
<TABLE>
<CAPTION>
Regulatory Capital Ratios
-------------------------------
Tier 1 Total Leverage
------ ----- --------
<S> <C> <C> <C>
CoreStates Financial Corp and subsidiaries..... 9.7% 13.6% 9.0%
CoreStates Bank, N.A........................... 7.9 12.4 7.2
CoreStates Bank of Delaware, N.A............... 6.1 10.4 5.5
Regulatory Guidelines:
Minimum.................................. 4.0 8.0 3.0
Well-capitalized......................... 6.0 10.0 5.0
</TABLE>
On October 15, 1996, the Board of Directors authorized the management of
CoreStates to repurchase up to 22 million shares of common stock, or
approximately 10% of outstanding shares, through December 31, 1997. Acting under
that authorization, 8.8 million shares of CoreStates' common stock were
repurchased in 1996 and 6.0 million in 1997. Management is also authorized to
repurchase additional shares to fulfill requirements of employee benefit and
dividend reinvestment plans.
CoreStates' dividend on its common stock was $0.47 per share in the
first quarter of 1997 and $0.42 per share in the first quarter of 1996. The
common dividend payout ratio was 50.0% for the first quarter of 1997, compared
to 51.9%, for the first quarter of 1996.
22
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- 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. While present value
sensitivity is used to measure risk in longer time periods, 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 Tier 1 Capital. 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. Potential changes in the spread
between the prime rate and financial market rates are monitored, and when
changes are believed to be interest rate related are subject to the interest
rate risk policy guidelines. CoreStates believes that the prime spread is more a
function of credit conditions than interest rate changes. Estimated changes in
the present value of future income streams are based on a 200 basis point
parallel shift of the yield curve and negative changes are limited to 10% of
Tier 1 Capital.
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 Tier 1
Capital. That level is representative of simulations performed throughout the
last twelve months. 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.
Present value changes are also managed well within policy guidelines and
represented less than 5% of Tier 1 Capital at quarter-end.
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
and money market accounts. This inherent mismatch of longer term fixed-rate
liabilities funding short-term rate sensitive assets generates significant
exposure to declining interest rates if not hedged. CoreStates manages this
position through the use of both on and off-balance sheet discretionary assets
and liabilities. In keeping with CoreStates' interest rate risk discipline, the
combined position is relatively balanced so that there is minimal impact on
earnings from an interest rate move in either direction.
The second major element of CoreStates' interest rate risk is the spread
risk between product rates and financial market rates. These spreads are a
function of competitive and other factors as well as interest rate levels.
CoreStates simulates the behavior of individual products under various rate
scenarios to determine an appropriate investment or funding strategy to provide
a stable spread.
Off-balance Sheet Instruments and Derivative Activities
CoreStates uses off-balance sheet derivative instruments primarily to
manage CoreStates' interest rate risk. CoreStates believes that interest rate
risk management must be 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.
23
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
INTEREST RATE RISK MANAGEMENT - continued
- -----------------------------
Credit risk exists in a derivative transaction to the extent that there is a
favorable move in interest rates and the counterparty fails to perform. The
current credit exposure in a derivative transaction is the estimated cost to
replace the transaction at current market rates, while potential exposure is the
estimated cost to replace the transaction at future interest rates. CoreStates
monitors both the current and potential risk. CoreStates evaluates the credit
worthiness of all off-balance sheet counterparties using the same standards
applied in any other loan or credit transaction. In addition, CoreStates uses
collateral agreements to manage credit risk in its derivatives portfolio. Under
those agreements, collateral is transferred between counterparties when exposure
exceeds an agreed upon threshold. Collateral agreements and thresholds are
determined based on the quality of individual counterparties. As of March 31,
1997, the current cost to replace CoreStates' derivatives portfolio was $129
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 March 31, 1997,
the major balance sheet category to which they relate, and the associated
unrealized gains/losses:
<TABLE>
<CAPTION>
Outstanding Interest Rate Risk Related Derivatives
- --------------------------------------------------
At March 31, 1997 Interest Interest Interest
- ----------------- rate rate rate caps Other
(in millions) swaps futures and floors derivatives Total
------- ------- ---------- ----------- ------
<S> <C> <C> <C> <C> <C>
Interest Sensitivity Adjustment:
Assets (primarily loans):
Notional amount....................... $ 4,304 $4,715 $ 9 $ 40 $ 9,068
Unrealized gains...................... 37 - - - 37
Unrealized losses..................... (52) (1) - - (53)
Deposits and other borrowings:
Notional amount....................... 3,646 - 925 100 4,671
Unrealized gains...................... 16 - 7 - 23
Unrealized losses..................... (35) - - - (35)
Long-term debt:
Notional amount....................... 894 - - 150 1,044
Unrealized gains...................... 8 - - 4 12
Unrealized losses..................... (37) - - - (37)
Spread Protection:
Assets (primarily loans)
Notional amount....................... 49 - 516 - 565
Unrealized gains...................... - - 2 - 2
Unrealized losses..................... - - - - -
Deposits and other borrowings:
Notional amount....................... - - 101 - 101
Unrealized gains...................... - - 4 - 4
Unrealized losses..................... - - - - -
Anticipated Asset Sales:
Notional amount....................... - - - 78 78
Unrealized gains...................... - - - 1 1
Unrealized losses..................... - - - - -
Total:
Notional amount....................... $ 8,893 $ 4,715 $ 1,551 $ 368 $ 15,527
=========== ========= ========= ======= ===========
Unrealized gains...................... $ 61 $ - $ 13 $ 5 $ 79
=========== ========= ========= ======= ===========
Unrealized losses..................... $ (124) $ (1) $ - $ - $ (125)
=========== ========= ========= ======= ===========
Net unrealized gains (losses)......... $ (63) $ (1) $ 13 $ 5 $ (46)
=========== ========= ========= ======= ===========
</TABLE>
24
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
INTEREST RATE RISK MANAGEMENT - continued
- -----------------------------
Although the value of the various derivative instruments will change with
interest rates, CoreStates does not consider changes in individual portfolio
values to be significant given that the portfolios are used to offset specific
risks. As of March 31, 1997, 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.
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. The risks in certain products, particularly
non-contractual deposits, are sometimes greater in one direction of rate change
than the other. To the extent that marginal amounts of deposits need protection
from falling rates but are likely to shift to higher rate instruments as
interest rates rise, caps and/or floors are a more appropriate hedge. CoreStates
has used interest rate floors in this manner to augment the risk protection
provided by the swaps and futures portfolios. 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 $469 million of interest rate caps which offset that
risk by limiting the potential increase in funding costs. CoreStates has issued
retail certificates of deposits with floating rates which carry a guaranteed
minimum rate. CoreStates has used caps and floors to offset that risk.
25
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
INTEREST RATE RISK MANAGEMENT - continued
- -----------------------------
For accounting purposes, the income effects of derivatives 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 $19.8 million in the
quarter ended March 31, 1997 and $18.7 million in the quarter ended March 31,
1996. The following table shows the impact of derivatives income on average
interest rates:
Impact of Derivatives Income on Yields and Costs
- ------------------------------------------------
For the Quarter Ended March 31,
- -------------------------------
(in millions)
<TABLE>
<CAPTION>
1997 1996
-------------------------------------------- -------------------------------------------
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........................ $ 2,457 5.70% 5.70% - $ 1,799 5.64% 5.64% -
Federal funds sold & trading account
assets............................. 317 5.93 5.93 - 680 5.86 5.86 -
Investment securities................ 3,842 6.26 6.19 0.07% 5,357 6.12 6.06 0.06%
Loans................................ 32,803 8.95 8.82 0.13 31,430 9.14 9.03 0.11
------- -------
Total Earning Assets................. $39,419 8.46 8.34 0.12 $39,266 8.51 8.42 0.09
======= =======
Interest Bearing Funds
Savings, NOW, regular MMA............ $ 9,254 1.24 1.49 (0.25) $10,550 1.77 1.94 (0.17)
Premium MMA.......................... 3,990 3.82 3.82 - 3,416 3.85 3.85 -
Certificates......................... 8,797 5.15 5.21 (0.06) 9,015 5.22 5.35 (0.13)
------- -------
Total retail....................... 22,041 3.27 3.40 (0.13) 22,981 3.45 3.58 (0.13)
------- -------
Commercial & foreign deposits........ 2,183 4.95 4.95 - 1,598 4.95 4.94 0.01
Federal funds purchased &
short-term borrowings.............. 2,545 5.25 5.26 (0.01) 3,028 5.28 5.45 (0.17)
Long-term debt....................... 3,355 6.57 6.75 (0.18) 2,439 6.41 6.57 (0.16)
------- -------
Total wholesale.................... 8,083 5.72 5.80 (0.08) 7,065 5.59 5.72 (0.13)
------- -------
Total Interest Bearing Funds ........ $30,124 3.92 4.03 (0.11) $30,046 3.92 4.05 (0.13)
======= =======
</TABLE>
26
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
INTEREST RATE RISK 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 interest rate 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 in the preceding 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. 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
March 31, 1997, 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. CoreStates' use of interest rate futures is a function of the
mix of maturities/resets on short term lending portfolios, volumes and terms of
short term retail certificates and market funding sources and the availability
and attractiveness of other short term assets. These portfolios include
significant volumes and the terms are subject to maturity shifts between one
month and one year.
The following repricing schedule summarizes the notional amount and
associated interest rate of CoreStates' interest rate swaps categorized by
whether CoreStates receives or pays the rate shown. The swaps are stratified by
repricing date or maturity depending on whether the payments are floating or
fixed, respectively. Floating rates included in the repricing schedule are based
on the rates in effect on March 31, 1997.
27
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
INTEREST RATE RISK MANAGEMENT - continued
- -----------------------------
Repricing Schedule of Interest Rate Swaps
- -----------------------------------------
At March 31, 1997
- -----------------
(in millions)
<TABLE>
<CAPTION>
Years
--------------------------------------------------------------------
0-1 1-2 2-3 3-4 4-5 over 5 Total
-------- -------- -------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C> <C> <C>
Receive Fixed/Pay Floating:
Receive Notional........... $1,477 $1,491 $1,386 $1,528 $1,127 $1,040 $8,049
Rate............... 6.25% 6.30% 6.88% 6.42% 6.57% 6.70% 6.50%
Pay Notional........... $8,049 $8,049
Rate............... 5.61% 5.61%
Pay Fixed/Receive Floating:
Pay Notional........... $ 10 $ 34 $ 44
Rate............... 8.60% 8.95% 8.87%
Receive Notional........... $ 44 $ 44
Rate............... 5.60% 5.60%
Receive Floating/Pay Floating:
(Basis Swaps)
Notional........... $ 274 $ 274
Receive Rate............... 5.57% 5.57%
Pay Rate............... 5.54% 5.54%
Receive Fixed/Pay Floating(a):
(Forward Start)
Receive Notional........... $ 101 $ 320 $ 70 $ 35 $ 526
Rate............... 7.03% 6.47% 7.18% 7.47% 6.74%
Start Date Notional........... $ 159 $ 247 $ 120 $ 526
</TABLE>
- ----------------------------------------
(a) Pay rate will be determined on forward start date.
The following schedule illustrates CoreStates' interest rate risk related
derivative activity during the first quarter of 1997:
Activity in Derivatives Products
- --------------------------------
For the Quarter Ended March 31, 1997
- ------------------------------------
(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, 1996................... $9,143 $4,451 $1,540 $ 417 $15,551
Additions................................. 330 3,956 32 43 4,361
Terminated/restructured contracts(a)...... (7) (3,692) - - (3,699)
Maturities/amortization................... (573) - (21) (92) (686)
------ ------ ------ ----- -------
As of March 31, 1997...................... $8,893 $4,715 $1,551 $ 368 $15,527
====== ====== ====== ===== =======
</TABLE>
- --------------------
(a) Gains and losses resulting from early termination of these contracts are
deferred and amortized over the remaining term of the underlying assets or
liabilities. As of March 31, 1997, CoreStates had $2.8 million of deferred
gains and $8.5 million of deferred losses related to terminated derivative
contracts.
28
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS -- continued
INTEREST RATE RISK MANAGEMENT - continued
There were no significant changes in CoreStates' overall position during
the quarter ended March 31, 1997. There was a modest decline in interest rate
swaps as the need for fixed rate asset sensitivity declined slightly.
Trading and Customer Related Derivative Activities - CoreStates also
engages in derivative market activities to provide risk management services for
its customers and to manage securities trading positions in the securities unit.
The securities unit underwrites, brokers and distributes securities to
municipalities, institutional and individual investors. In addition, the unit
buys, sells and securitizes mortgage loans and brokers loan servicing
portfolios. The following schedule details the outstanding notional amounts and
related fair values of trading and customer related derivative transactions as
of March 31, 1997.
Trading and Customer Related Derivatives
- ----------------------------------------
At March 31, 1997
- -----------------
(in millions)
<TABLE>
<CAPTION>
Notional Net assets Positive Negative
amount (liability)(a) Market Value Market Value
-------- -------------- ------------ ------------
<S> <C> <C> <C> <C>
Interest Rate Swaps:
CoreStates receives fixed............. $ 405 $(2.9) $ 0.9 $ (3.8)
CoreStates pays fixed................. 445 3.9 4.7 (0.8)
Rate Locks:
CoreStates receives fixed............. 20 0.2 0.2 -
CoreStates pays fixed................. 80 (1.0) - (1.0)
Interest Rate Caps/Floors:
Sold.................................. 964 (2.4) - (2.4)
Purchased............................. 963 2.4 2.4 -
Futures.................................. 93 0.9 0.9 -
Commitments to purchase/sell
whole mortgage loans and
securities (including when-issued
securities):
Sold............................... 147 0.2 0.2 -
Purchased.......................... 183 - - -
Other Options:
Sold.................................. 189 5.2 5.8 (0.6)
Purchased............................. 327 0.6 0.7 (0.1)
Foreign exchange contracts............... 2,119 1.9 39.9 (38.0)
------ ------ ----- ------
Total Trading and Customer Related
Derivatives........................... $5,935 $ 9.0 $55.7 $(46.7)
====== ====== ===== ======
</TABLE>
- --------------------
(a) Average net assets (liabilities) during 1997 were substantially the same as
the net assets (liabilities) at March 31, 1997.
29
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEETS AND TAXABLE EQUIVALENT INCOME/EXPENSE AND
RATES
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------------
March 31, 1997 December 31, 1996
--------------------------------- ----------------------------------
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)....... $ 2,457 5.70% $ 34,562 $ 2,528 5.79% $ 36,783
Investment securities (b):
U.S. Government............................... 2,440 6.10 36,699 2,733 5.99 41,176
State and municipal........................... 409 7.68 7,851 444 7.96 8,833
Other......................................... 993 6.04 14,779 914 5.95 13,671
-------- -------- -------- --------
Total investment securities................ 3,842 6.26 59,329 4,091 6.19 63,680
-------- -------- -------- --------
Federal funds sold............................... 178 4.80 2,106 141 6.23 2,209
Trading account securities....................... 139 7.27 2,526 160 6.88 2,752
Loans (b) (c) (d):
Domestic:
Commercial, industrial and other........... 14,225 8.86 310,728 14,001 9.06 318,832
Real estate................................ 9,450 8.32 193,958 9,559 8.48 203,848
Consumer................................... 4,790 12.01 141,846 4,784 11.14 133,954
Financial institutions..................... 797 6.62 13,015 873 7.74 16,984
Factoring receivables...................... 430 10.74 11,387 502 9.19 11,591
Lease financing............................ 1,214 7.89 23,935 1,180 8.05 23,736
Foreign....................................... 1,897 6.23 29,120 1,721 6.31 27,296
-------- -------- -------- --------
Total loans, net of discounts......... 32,803 8.95 723,989 32,620 8.98 736,241
-------- -------- -------- --------
Total interest earning assets (d)..... $ 39,419 8.46 822,512 $ 39,540 8.47 841,665
======== ----- -------- ======== ----- --------
FUNDING SOURCES
- ---------------
Interest Bearing Liabilities (b):
Deposits in domestic offices:
Commercial................................. $ 885 5.31 11,587 $ 613 5.21 8,021
NOW accounts (e)........................... 439 0.84 819 513 1.34 1,613
Money Market Accounts (e).................. 8,610 2.37 50,104 8,469 2.49 52,891
Consumer savings........................... 4,195 1.40 14,511 4,303 1.70 18,339
Consumer certificates...................... 8,797 5.15 111,818 8,950 5.17 116,340
Time deposits of overseas branches
and subsidiaries........................... 1,298 4.70 15,040 1,251 4.70 14,765
-------- -------- -------- --------
Total interest bearing deposits (e)... 24,224 3.42 203,879 24,099 3.51 211,969
-------- -------- -------- --------
Short-term funds borrowed:
Federal funds purchased.................... 1,214 5.20 15,557 1,675 4.99 20,995
Commercial paper........................... 728 5.46 9,798 863 5.49 11,911
Other...................................... 603 5.12 7,609 574 6.13 8,844
-------- -------- -------- --------
Total short-term funds borrowed....... 2,545 5.25 32,964 3,112 5.34 41,750
-------- -------- -------- --------
Long-term debt................................ 3,355 6.57 54,382 2,762 6.46 44,842
-------- -------- -------- --------
Total interest bearing liabilities.... 30,124 3.92 291,225 29,973 3.96 298,561
Portion of non-interest bearing funding sources.. 9,295 9,567
-------- -------- -------- --------
Total funding sources................. $ 39,419 2.99 291,225 $ 39,540 3.01 298,561
======== ----- -------- ======== ----- --------
Net interest income and net interest margin...... 5.47% $ 531,287 5.46% $543,104
===== ========= ===== ========
<CAPTION>
-------------------------------
March 31, 1996
-------------------------------
Average Income/
balance Rate expense
------- ------ -------
(000,000) (000)
<S> <C> <C> <C>
INTEREST EARNING ASSETS
- -----------------------
Time deposits, principally Eurodollars (a) ...... $ 1,799 5.64% $ 25,243
Investment securities (b):
U.S. Government .............................. 3,986 6.03 59,750
State and municipal .......................... 566 7.62 10,778
Other ........................................ 805 5.50 11,017
-------- --------
Total investment securities ............... 5,357 6.12 81,545
-------- --------
Federal funds sold .............................. 534 5.56 7,383
Trading account securities ...................... 146 6.91 2,523
Loans (b) (c) (d):
Domestic:
Commercial, industrial and other .......... 12,771 9.10 289,027
Real estate ............................... 10,654 8.67 229,616
Consumer .................................. 4,450 11.61 128,442
Financial institutions .................... 796 5.94 11,763
Factoring receivables ..................... 501 10.86 13,533
Lease financing ........................... 1,172 8.20 24,015
Foreign ...................................... 1,086 6.59 17,795
-------- --------
Total loans, net of discounts ........ 31,430 9.14 714,191
-------- --------
Total interest earning assets (d) .... $ 39,266 8.51 830,885
======== ----- --------
FUNDING SOURCES
- ---------------
Interest Bearing Liabilities (b):
Deposits in domestic offices:
Commercial ................................ $ 687 5.43 9,281
NOW accounts (e) .......................... 2,895 1.22 7,989
Money Market Accounts (e) ................. 6,323 2.97 46,568
Consumer savings .......................... 4,748 1.97 23,289
Consumer certificates ..................... 9,015 5.22 116,964
Time deposits of overseas branches
and subsidiaries .......................... 911 4.58 10,367
-------- --------
Total interest bearing deposits (e) .. 24,579 3.55 214,458
-------- --------
Short-term funds borrowed:
Federal funds purchased ................... 1,625 5.24 21,164
Commercial paper .......................... 1,045 5.52 14,331
Other ..................................... 358 4.79 4,262
-------- --------
Total short-term funds borrowed ...... 3,028 5.28 39,757
-------- --------
Long-term debt ............................... 2,439 6.41 38,849
-------- --------
Total interest bearing liabilities ... 30,046 3.92 293,064
Portion of non-interest bearing funding sources . 9,220
-------- --------
Total funding sources ................ $ 39,266 3.00 293,064
======== ----- --------
Net interest income and net interest margin ..... 5.51% $537,821
===== ========
</TABLE>
(a) Yields and income on deposits include net Eurodollar trading profits.
(b) The net impact of off-balance sheet derivatives used for managing interest
rate risk is recognized as an adjustment to interest income or expense of
the related hedged asset or liability.
(c) Yields and income on loans include fees on loans.
(d) Non-performing loans are included in interest earning assets.
(e) Average interest bearing demand deposits in domestic offices are reduced by
specified reserve amounts for purposes of rate calculations.
30
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED AVERAGE BALANCE SHEETS AND TAXABLE EQUIVALENT INCOME/EXPENSE AND
RATES - continued
<TABLE>
<CAPTION>
Three Months Ended
-----------------------------------------------------------------
March 31, 1997 December 31, 1996
------------------------------- -----------------------------
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.................................................... $ 2,796 $ 2,892
Allowance for loan losses............................... (707) (708)
Other assets............................................ 2,595 2,639
--------- ---------
Total non-interest earning assets.................. $ 4,684 $ 4,823
========= =========
TOTAL AVERAGE ASSETS.................................... $ 44,103 $ 44,363
- -------------------- ========= =========
NON-INTEREST BEARING FUNDING
- ----------------------------
SOURCES
- -------
Demand deposits:
Domestic ......................................... $ 7,737 $ 7,838
Foreign ......................................... 395 388
Other liabilities....................................... 2,177 2,350
Shareholders' equity.................................... 3,670 3,814
Non-interest bearing funding sources used to fund
earning assets..................................... (9,295) (9,567)
--------- ---------
Total net non-interest bearing funding
sources...................................... $ 4,684 $ 4,823
========= =========
SUPPLEMENTARY AVERAGES
- ----------------------
Net Federal funds purchased............................. $ 1,036 5.27% $13,451 $ 1,534 4.87% $18,786
Certificates of deposit in domestic
offices over $100,000.............................. 1,481 5.37 19,620 1,046 5.20 13,666
Average prime rate...................................... 8.27 8.25
<CAPTION>
-------------------------------
March 31, 1996
-------------------------------
Average Income/
balance Rate expense
------- ------ -------
(000,000) (000)
<S> <C> <C> <C>
NON-INTEREST EARNING ASSETS
- ---------------------------
Cash.................................................... $ 2,896
Allowance for loan losses............................... (675)
Other assets............................................ 2,317
-------
Total non-interest earning assets.................. $ 4,538
=======
TOTAL AVERAGE ASSETS.................................... $43,804
- -------------------- =======
NON-INTEREST BEARING FUNDING
- ----------------------------
SOURCES
- -------
Demand deposits:
Domestic ......................................... $ 7,627
Foreign ......................................... 395
Other liabilities....................................... 1,807
Shareholders' equity.................................... 3,929
Non-interest bearing funding sources used to fund
earning assets..................................... (9,220)
-------
Total net non-interest bearing funding
sources...................................... $ 4,538
=======
SUPPLEMENTARY AVERAGES
- ----------------------
Net Federal funds purchased............................. $ 1,091 5.08% $13,781
Certificates of deposit in domestic
offices over $100,000.............................. 1,206 5.25 15,734
Average prime rate...................................... 8.34
</TABLE>
31
<PAGE>
PART II. OTHER INFORMATION
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
Item 6: EXHIBITS AND REPORTS ON FORM 8-K
------
(a) Exhibits - The following exhibits are filed herewith in
connection with registration statements filed from time to
time by the Corporation:
10(a) Amended and Restated Stock Compensation Plan for
Non-Employee Directors (1997)
10(b) Amended and Restated Long-Term Incentive Plan
(1997)
11 Computation of Per Share Earnings
12.1 Computation of Ratio of Earnings to Fixed Charges
(Consolidated)
12.2 Computation of Ratio of Earnings to Fixed Charges
(Combined CoreStates Parent Company and CoreStates
Capital Corporation)
27 Financial Data Schedule
(b) The following Reports on Form 8-K were filed by CoreStates
Financial Corp during the quarter:
1. Date of Report: January 22, 1997
--------------
Item(s) Reported: Reporting under Item 5 the
----------------
information set forth in the earnings news release
of CoreStates Financial Corp and the consolidated
financial highlights (unaudited) of CoreStates
Financial Corp.
32
<PAGE>
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
SIGNATURE
- ---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CORESTATES FINANCIAL CORP
Date: May 12, 1997 By: /s/ Christopher J. Carey
-------------------------------------------
Christopher J. Carey
Senior Vice President and Controller
(Principal Accounting Officer)
33
<PAGE>
EXHIBIT 10.A
CORESTATES FINANCIAL CORP
AMENDED AND RESTATED
STOCK COMPENSATION PLAN
FOR
NON-EMPLOYEE DIRECTORS
(1997)
1. PURPOSE
1.1 CoreStates Financial Corp (the "Company") has established the CoreStates
Financial Corp Amended and Restated Stock Compensation Plan for Non-Employee
Directors (the "Plan") to further its long-term financial success by providing
for stock awards to non-employee directors of the Company and to non-employee
directors of CoreStates Bank, N.A. ( the "Bank"), the Company's primary
subsidiary. The Plan is intended to increase the proprietary interest of such
persons by providing further opportunity for ownership of the Company's Common
Stock ("Stock"), to more closely align the interests of such persons with the
interests of the Company's shareholders, to attract and retain non-employee
directors of exceptional ability, and to motivate non-employee directors to
contribute to the success of the Company's and the Bank's business.
1.2 All elections and transactions under the Plan by persons subject to
Section 16 of the Securities Exchange Act of 1934, as amended (the "Exchange
Act") involving shares of Stock are intended to comply with all exemptive
conditions under Rule 16b-3. The Board may establish and adopt written
administrative guidelines, designed to facilitate compliance with Section 16
(b) of the Exchange Act, as it may deem necessary or proper for the
administration and operation of the Plan and the transaction of business
thereunder. To the extent that any provision of the Plan, the administrative
guidelines, or any action or omission with respect to the Plan (including any
action by an Eligible Director, as hereinafter defined, that does not satisfy
the exemptive conditions under Rule 16b-3 or otherwise) is inconsistent with
Section 16, the provision, guidelines or act or omission shall be deemed null
and void, as permitted by applicable law.
2. ADMINISTRATION
2.1 The Plan shall be administered by the Board of Directors of CoreStates
Financial Corp (the "Board").
2.2 The Board may make such rules and establish such procedures for the
administration of the Plan as it deems appropriate to carry out the purpose of
the Plan. The interpretation and application of the Plan or of any rule or
procedure, and any other matter relating to or necessary to the administration
of the Plan, shall be determined in the sole discretion of the Board, and any
such determination shall be final and binding on all persons. All
determinations of the Board shall be made by a majority of its members at a
meeting duly called pursuant to the provisions of the By-laws of the Company.
The Board may delegate to one or more of its members or to one or more agents
such administrative duties as it may deem advisable.
2.3 All costs and expenses involved in administering the Plan shall be borne
by the Company.
2.4 For purposes of the Plan, an "Eligible Director" shall be a member of
the Board or a member of the Board of Directors of the Bank who is not an
employee of the Company or any subsidiary or affiliate of the Company. If any
Eligible Director at any time becomes such an employee, he or she shall
thereupon cease to be an Eligible Director.
3. SHARES OF STOCK
3.1 Shares Reserved. Shares of Stock which may be issued under the Plan may
be either authorized and unissued shares or issued shares which have been
reacquired by the Company, provided that the total amount of Stock which may
be issued under the Plan shall not exceed 150,000 shares, subject to
adjustment in accordance with Section 3.2 hereof.
A-1
<PAGE>
3.2 Capital Adjustments. In the event that the Board shall determine that
any reorganization, recapitalization, stock split, stock dividend, combination
of shares, merger, consolidation, spin-off or a similar corporate transaction
affects the Stock such that an adjustment is appropriate in order to prevent
dilution or enlargement of the rights of Eligible Directors under the Plan,
then the Board shall make such equitable changes or adjustments as it deems
necessary to the maximum number or class of shares available under the Plan,
and the number or class of shares of Stock to be delivered hereunder.
4. DELIVERY OF SHARES OF STOCK
4.1 Mandatory Portion. For each calendar year commencing with the calendar
year beginning January 1, 1997, each Eligible Director who is a director of
the Company or the Bank on or before the date of an annual meeting of
shareholders shall receive a whole number of shares of Stock equal in value to
50% of his or her retainer fee payable for services as a director during such
calendar year (including any additional retainer fee payable for service as a
chairperson of a committee of the Board or Board of Directors of the Bank) in
lieu of payment of such percentage of retainer fee in cash. Such shares shall
be issued to each such Eligible Director on June 1 (or if such date is not a
business day, the next succeeding business day) of such calendar year (the
"Stock Payment Date").
Each such share shall be valued at the average of the high and low prices of
a share of Stock on the Composite Tape for New York Stock Exchange Listed
Stocks, as reported in The Wall Street Journal on the last business day
preceding the Stock Payment Date (the "Share Value Price"). The value of
fractional shares shall be paid to the Eligible Director in cash.
4.2 Elective Portion. For each calendar year commencing with the calendar
year beginning January 1, 1998, each person who will be an Eligible Director
on January 1 of such year may elect to receive a whole number of shares of
Stock equal in value (based on the Share Value Price) to up to 100 percent of
his or her retainer fee payable for services as a director during such
calendar year (including any additional retainer fee payable for serving as a
chairperson of a committee of the Board or Board of Directors of the Bank) in
lieu of payment of such percentage of retainer fee in cash. Such election may
be made in incremental amounts of 5 percent of the total retainer fee. Such
shares shall be delivered to each Eligible Director on the Stock Payment Date.
The value of fractional shares shall be paid to the Eligible Director in cash.
Any such election shall be irrevocable and shall be made in writing no later
than December 31 of the year preceding such year, and shall apply on a pro
rata basis with respect to the entire amount of retainer fees earned, or on
such other basis as may be agreed to by the Company.
4.3 Withholding Taxes. The Company shall have the right to make such
provisions as it deems necessary or appropriate to satisfy any obligations it
may have to withhold federal, state, or local income or other taxes incurred
by reason or payments pursuant to the Plan. In lieu thereof, the Company shall
have the right to withhold the amount of such taxes from any other sums due or
to become due from the Company to an Eligible Director upon such terms and
conditions as the Company may prescribe.
5. TERM OF PLAN
5.1 The Plan is subject to approval by the shareholders of the Company at
the 1997 Annual Meeting of Shareholders. In no event shall any delivery of
shares of Stock be made to any director or other person under the Plan until
such time as shareholder approval of the Plan is obtained.
5.2 The Plan shall remain in effect until June 1, 2007, unless sooner
terminated by the Board.
6. AMENDMENT; TERMINATION
6.1 The Board may at any time and from time to time alter, amend, suspend,
or terminate the Plan in whole or in part; provided, however, no amendment
which requires shareholder approval under applicable Pennsylvania law, under
the rules of any securities exchange on which the shares may be listed, or in
order for the Plan to continue to comply with Rule 16b-3 shall be effective
unless the same shall be approved by the requisite vote of the shareholders of
the Company.
A-2
<PAGE>
7. MISCELLANEOUS
7.1 Nothing in this Plan shall be construed as conferring any right upon any
director to continuance as a member of the Board or the Board of Directors of
the Bank.
7.2 This Plan and all rights hereunder shall be construed in accordance with
and governed by the laws of the Commonwealth of Pennsylvania.
7.3 This Plan shall not be construed to require the Company to fund any
amount payable under the Plan, to create a trust of any kind or to set aside
or earmark any monies or other assets specifically for payments under the
Plan.
7.4 Notwithstanding any other provision of this Plan, the Company shall not
be required to award or deliver any certificate for shares of Common Stock
under this Plan prior to fulfillment of all of the following conditions:
a. Any required listing or approval or notice of issuance of such shares
on any securities exchange on which the Common Stock may then be traded;
b. Any registration or other qualification of such shares under any state
or federal law or regulation or other qualification which the Board shall
upon the advice of counsel deem necessary or advisable; and
c. The obtaining of any other required consent or approval or permit from
any state or federal government agency.
7.5 No right under this Plan shall be transferable or otherwise subject to
anticipation, sale, assignment, pledge, encumbrance or charge except by will
or the law of descent and distribution.
A-3
<PAGE>
EXHIBIT 10.B
CORESTATES FINANCIAL CORP
AMENDED AND RESTATED
LONG-TERM INCENTIVE PLAN
(1997)
1. PURPOSE. The purpose of the CoreStates Financial Corp Long-Term Incentive
Plan (l997), as amended and restated, (the "Plan") is to support the business
goals of CoreStates Financial Corp ("CoreStates")and its subsidiaries
(together, the "Corporation") by providing incentives and rewards to associate
more closely the interests of certain officers and key executives with the
interests of CoreStates' stockholders.
2. EFFECTIVE DATE AND DURATION OF THE PLAN. The effective date of the Plan
is February 18, 1997, subject to its approval by the stockholders of
CoreStates at the annual meeting to be held on April 15, 1997, or any
adjournment thereof. The Plan shall remain in effect until all awards under
the Plan have been satisfied by the issuance of shares or the payment of cash,
but no award shall be granted more than ten years after the effective date of
the Plan or the date the Plan is approved by the stockholders of CoreStates,
whichever is earlier.
3. ADMINISTRATION. The Plan shall be administered by a committee (the
"Committee") of not less than two directors of CoreStates, each of whom
qualifies as both a "non-employee director" under Rule 16b-3 of the Securities
and Exchange Act of 1934, as amended (the "Exchange Act"), and also as an
"outside director" as that term is defined under Section 162(m) of the
Internal Revenue Code of 1986, as amended (the "Code") and the rules and
regulations thereunder. Without limiting the foregoing, the Committee shall
have full and final authority in its discretion to conclusively interpret the
provisions of the Plan and to decide all questions of fact arising in its
application; to determine the employees to whom awards shall be made under the
Plan; to determine the type of award to be made and the amount, size and terms
of each such award; to determine the time when awards will be granted; and to
make all other determinations necessary or advisable for the administration of
the Plan. The Committee may designate persons other than its members to carry
out its responsibilities under such conditions or limitations as it may set,
other than its authority with regard to benefits granted to employees who are
officers or directors of CoreStates for purposes of Section 16 of the Exchange
Act. A majority of the Committee shall constitute a quorum, and the action of
a majority of members of the Committee present at any meeting at which a
quorum is present, or acts unanimously adopted in writing without the holding
of a meeting, shall be the acts of the Committee. All actions of the Committee
shall be final, conclusive and binding upon any participant. No member of the
Committee shall be liable for any action taken or decision made in good faith
relating to the Plan or any award thereunder.
4. SHARES SUBJECT TO PLAN. The number of shares for which options or awards
may be issued under the Plan during any calendar year shall not exceed in the
aggregate 1.5 percent of the issued shares of common stock of CoreStates
including treasury shares, determined as of the first day of such calendar
year. Any unused portion of this percentage limit in any calendar year shall
be carried forward and available for awards in succeeding calendar years. Such
shares may be authorized and unissued shares or treasury shares. Except as
otherwise provided herein, any shares subject to an option or right which for
any reason expires or is terminated unexercised as to such shares shall again
be available under the Plan. Furthermore, shares of stock subject to an award
under the Plan that is cancelled, expired, forfeited, settled in cash or
otherwise terminated without a delivery of shares to the participant,
including (i) the number of shares withheld in payment of any exercise or
purchase price of an award or taxes relating to awards, and (ii) the number of
shares surrendered in payment of any exercise or purchase price of an award or
taxes relating to any award, will again be available for awards under the
Plan, except that if any such shares could not again be available for awards
to a particular participant under any applicable law or regulation, such
shares shall be available exclusively for awards to participants who are not
subject to such limitation.
B-1
<PAGE>
5. PARTICIPANTS. Persons eligible to participate shall be limited to those
officers and other key employees of the Corporation and its subsidiaries who
are in positions in which their decisions, actions and counsel significantly
contribute to the success of the Corporation. Directors of the Corporation who
are not otherwise officers or employees of the Corporation or its subsidiaries
shall not be eligible to participate in the Plan.
6. AWARDS UNDER THE PLAN. Awards under the Plan may be in the form of non-
qualified stock options, incentive stock options under Section 422 of the
Code, stock appreciation rights, restricted stock, or such other forms as the
Committee may in its discretion deem appropriate, including any combination of
the above. In each calendar year during any part of which the Plan is in
effect, a participant may not be granted awards relating to more than
1,000,000 shares of common stock of CoreStates, subject to adjustment as
provided in paragraph 16, under each of paragraphs 7, 8, and 9. Total awards
to all participants under paragraph 10 shall not exceed 500,000 shares of
common stock of CoreStates during the term of the Plan, subject to adjustment
as provided in paragraph 16.
7. STOCK OPTIONS. Options shall be evidenced by stock option agreements in
such form and not inconsistent with the Plan as the Committee shall approve
from time to time, which agreements shall contain in substance the following
terms and conditions:
(a) Option Price. The purchase price per share of stock deliverable upon
the exercise of an option shall not be less than 100% of the fair market
value of the stock on the day the option is granted, as determined by the
Committee, but in no event less than the par value of such stock.
(b) Exercise of Option. Each stock option agreement shall state the
period or periods of time within which the option may be exercised by the
optionee, in whole or in part, which shall be such period or periods of
time as may be determined by the Committee, provided that the exercise
period shall not end later than ten years after the date of the grant of
the option.
(c) Payment for Shares. Stock purchased pursuant to an option agreement
shall be paid for in full in cash, common stock of CoreStates at fair
market value, or a combination thereof, in an amount or having a combined
value equal to the aggregate purchase price for the shares subject to the
option or portion thereof being exercised.
(d) Rights Upon Termination of Employment. In the event that an optionee
ceases to be an employee of the Corporation for any cause other than death,
disability, retirement or involuntary separation without cause, all options
granted to such optionee shall lapse forthwith. In the event employment
ceases because an optionee dies, retires, or becomes disabled prior to
expiration of his option without having fully exercised his option, the
optionee (or his successor if he has died) shall have the right to exercise
the option during its term within a period of twelve months after the date
employment so ceased, to the extent that the option was exercisable on the
date employment ceased due to death, disability or retirement, or during
such other period and subject to such terms as may be determined by the
Committee. In the event employment ceases because an optionee is
involuntarily separated without cause prior to expiration of his option
without having fully exercised his option, the optionee (or his successor
if he dies in the interim) shall have the right to exercise the option
during its term within a period of three months after the date employment
so ceased, to the extent that the option was exercisable on the date
employment ceased due to involuntary separation without cause, or during
such other period and subject to such terms as may be determined by the
Committee. As used in the Plan, the phrase "involuntary separation without
cause" means a termination of employment by the Corporation at will for
reasons other than substantial failure to perform duties, material
violation of Corporation policies, unethical activities, misconduct, fraud,
or illegal act; provided that, an "involuntary separation without cause"
does not include a resignation or a voluntary separation from employment,
in either case initiated by the optionee.
8. INCENTIVE STOCK OPTIONS. Incentive stock options are options to purchase
shares of common stock of CoreStates which are intended to satisfy
requirements for tax qualified status under the Code. The shares that may be
issued pursuant to incentive stock options under the Plan shall not exceed in
the aggregate four million (4,000,000) shares of the common stock of
CoreStates, subject to adjustment as provided in paragraph 16. Incentive stock
options shall be evidenced by incentive stock option agreements in such form
and not
B-2
<PAGE>
inconsistent with the Plan as the Committee shall approve from time to time,
which agreements shall contain in substance the following terms and
conditions:
(a) Option Price. The purchase price per share of stock deliverable upon
the exercise of an incentive stock option shall not be less than 100% of
the fair market value of the stock on the day the option is granted, as
determined by the Committee, but in no event less than the par value of
such stock.
(b) Exercise of Option. Each incentive stock option agreement shall state
the period or periods of time within which the option may be exercised by
the optionee, in whole or in part, which shall be such period or periods of
time as may be determined by the Committee, provided that the exercise
period shall not end later than ten years after the date of the grant of
the option. The Committee shall have the power to permit in its discretion
an acceleration of the previously determined exercise terms, subject to the
terms set forth herein, under such circumstances and upon such terms and
conditions as it deems appropriate.
(c) Nontransferability. Each incentive stock option agreement shall state
that the option is not transferable other than by will or the laws of
descent and distribution, and during the lifetime of the optionee is
exercisable only by him.
(d) Payment for Shares. Stock purchased pursuant to an incentive stock
option shall be paid for in full in cash, common stock of CoreStates at
fair market value, or a combination thereof, in an amount or having a
combined value equal to the aggregate purchase price for the shares subject
to the option or portion thereof being exercised.
(e) Rights Upon Termination of Employment. In the event that an optionee
ceases to be an employee of the Corporation for any cause other than death,
disability, retirement or involuntary separation without cause, all options
granted to such optionee shall lapse forthwith. In the event employment
ceases because an optionee dies, retires, or becomes disabled prior to
termination of his option without having fully exercised his option, the
optionee (or his successor if he has died) shall have the right to exercise
the option during its term within a period of twelve months after the date
employment so ceased, to the extent that the option was exercisable on the
date employment ceased due to death, disability or retirement, or during
such other period and subject to such terms as may be determined by the
Committee. In the event employment ceases because an optionee is
involuntarily separated without cause prior to expiration of his option,
the optionee (or his successor if he dies in the interim) shall have the
right to exercise the option during its term within a period of three
months after the date employment so ceased, to the extent that the option
was exercisable on the date employment ceased due to involuntary separation
without cause, or during such other period and subject to such other terms
as may be determined by the Committee.
(f) Individual Limitations.
(i) Notwithstanding anything herein to the contrary, to the extent
that the aggregate fair market value (determined as of the time the
option is granted) of stock for which any employee is granted incentive
stock options first exercisable during any calendar year (under all
such plans of the Corporation) shall exceed $100,000 (such excess to be
determined by taking options into account in the order in which
granted), such options shall be treated as options which are not
incentive stock options.
(ii) Notwithstanding anything herein to the contrary, no incentive
stock option shall be granted to any individual if at the time the
option is to be granted the individual owns stock possessing more than
ten percent of the total combined voting power of all classes of stock
of the employer corporation or of its parent or subsidiary corporation
unless at the time such option is granted the option price is at least
110 percent of the fair market value of the stock subject to option and
such option by its terms is not exercisable after the expiration of
five years from the date such option is granted.
(g) Other terms. Each incentive stock option agreement shall contain such
other terms, conditions and provisions as the Committee may determine to be
necessary or desirable in order to qualify such option as a tax-favored
option within the meaning of Section 422 of the Code, or regulation
thereunder. Subject to the limitations of paragraph 17, and without
limiting any other provisions hereof, the Committee shall have
B-3
<PAGE>
the power without further approval to amend the terms of the Plan or any
awards or agreements thereunder for such purpose.
9. STOCK APPRECIATION RIGHTS. Awards may be made from time to time in the
form of stock appreciation rights. Stock appreciation rights shall be
evidenced by stock appreciation rights agreements in such form and not
inconsistent with the Plan as the Committee shall approve from time to time,
which agreements shall contain in substance the following terms and
conditions:
(a) Award. A stock appreciation right shall entitle the grantee, subject
to such terms and conditions determined by the Committee, to receive upon
exercise thereof all or a portion of the excess of (i) the fair market
value of a specified number of shares of common stock of CoreStates at the
time of exercise, as determined by the Committee, over (ii) a specified
price which shall not be less than 100 percent of the fair market value of
the stock at the time the appreciation right was granted, or, if connected
with a previously issued stock option, not less than 100 percent of the
fair market value of the stock at the time such option was granted. A stock
appreciation right may be granted in connection with all or any portion of
a previously or contemporaneously granted stock option or not in connection
with a stock option.
(b) Term. Stock appreciation rights shall be granted for a period of not
more than ten years, and shall be exercisable in whole or in part, at such
time or times and subject to such other terms and conditions as shall be
prescribed by the Committee, subject to the following:
(i) In the event that a grantee ceases to be an employee of the
Corporation for any cause other than death, disability, retirement or
involuntary separation without cause, all stock appreciation rights
granted to such grantee shall lapse forthwith. In the event employment
ceases because a grantee dies, becomes disabled or retires without
having fully exercised his stock appreciation rights, the grantee (or
his successor if he has died) shall have the right to exercise the
stock appreciation rights during their term within a period of twelve
months after the date employment ceased due to death, disability or
retirement to the extent that the right was exercisable on the date
employment so ceased, or during such other period and subject to such
terms as may be determined by the Committee. In the event employment
ceases because a grantee is involuntarily separated without cause prior
to expiration of his award, the grantee (or his successor if he dies in
the interim) shall have the right to exercise the stock appreciation
rights during their term within a period of three months after the date
employment so ceased, to the extent that the stock appreciation rights
were exercisable on the date employment ceased due to involuntary
separation without cause, or during such other period and subject to
such other terms as may be determined by the Committee. The Committee
in its sole discretion may reserve the right to accelerate previously
determined exercise terms, within the terms of the Plan, under such
circumstances and upon such terms and conditions as it deems
appropriate; and
(ii) The Committee shall establish such additional terms and
conditions without limiting the foregoing, as it determines to be
necessary or desirable to avoid "insider-trading" liability in
connection with a stock appreciation right under Section 16(b) of the
Exchange Act.
(c) Payment. Upon exercise of a stock appreciation right, payment shall
be made in cash or common stock of CoreStates, as determined by the
Committee.
(d) Incentive Stock Options. Stock appreciation rights may be granted in
connection with an incentive stock option, but shall not be granted in a
manner or form which will result in the failure of such option to qualify
as an incentive stock option under Section 422 of the Code, or regulation
thereunder. Stock appreciation rights may not be granted, in connection
with a grant of incentive stock options, during the term of the incentive
stock option.
10. RESTRICTED STOCK AWARDS. Restricted stock awards under the Plan shall be
in the form of shares of common stock of CoreStates, restricted as to transfer
and subject to forfeiture, and shall be evidenced by restricted stock
agreements in such form and not inconsistent with the Plan as the Committee
shall approve from time to time, which agreements shall contain in substance
the following terms and conditions:
B-4
<PAGE>
(a) Restriction Period. Shares awarded pursuant to the Plan shall be
subject to such terms, conditions, and restrictions, including without
limitation prohibitions against transfer, substantial risks of forfeiture
and attainment of performance objectives, and for such period or periods of
time as shall be determined by the Committee. The Committee shall have the
power, in its discretion, to permit an acceleration of the expiration of
the applicable restriction period with respect to any part or all of the
shares awarded to a participant.
(b) Restriction Upon Transfer. Shares awarded, and the right to vote such
shares and to receive dividends thereon, may not be sold, assigned,
transferred, exchanged, pledged, hypothecated, or otherwise encumbered,
except as herein provided, during the restriction period applicable to such
shares. Notwithstanding the foregoing, and except as otherwise provided in
the Plan, the participant shall have all the other rights of a stockholder
including but not limited to, the right to received dividends and the right
to vote such shares.
(c) Certificates. Each certificate issued in respect of shares awarded to
a participant shall be deposited with CoreStates Bank, N.A., or its
designee, and shall bear the following legend:
"This certificate and the shares of stock represented hereby are
subject to the terms and conditions (including forfeiture and
restrictions against transfer) contained in the CoreStates Financial
Corp Long-Term Incentive Plan and an Agreement entered into between the
registered owner and CoreStates Financial Corp. Release from such terms
and conditions shall obtain only in accordance with the provisions of
the Plan and Agreement, a copy of each of which is on file in the
office of the Secretary of CoreStates Financial Corp."
(d) Lapse of Restrictions. Each restricted stock agreement shall specify
the terms and conditions upon which any restrictions upon shares awarded
under the Plan shall lapse, as determined by the Committee. Upon the lapse
of such restrictions, certificates(s) free of any restrictive legend shall
be issued to the participant or his legal representative.
(e) Termination Prior to Lapse of Restrictions. In the event of a
particpant's termination of employment prior to the lapse of restrictions
applicable to any shares awarded to such participant, all shares as to
which there still remains unlapsed restrictions shall be forfeited by such
participant to CoreStates Financial Corp without payment of any
consideration by CoreStates Financial Corp, and neither the participant nor
any successors, heirs, assigns or personal representatives of such
participant shall thereafter have any further rights or interest in such
shares or certificates.
11. GENERAL RESTRICTIONS. Each award under the Plan shall be subject to the
requirement that, if at any time the Committee shall determine that (i) the
listing, registration or qualification of the shares of common stock subject
or related thereto upon any securities exchange or under any state or federal
law, or (ii) the consent or approval of any government regulatory body, or
(iii) an agreement by the recipient of an award with respect to the
disposition of shares of common stock, is necessary or desirable as a
condition thereunder, such award may not be consummated in whole or in part
unless such listing registration, qualification, consent, approval or
agreement shall have been effected or obtained free of any conditions not
acceptable to the Committee.
12. RIGHTS TO TERMINATE EMPLOYMENT. Nothing in the Plan or in any agreement
entered into pursuant to the Plan shall confer upon any participant the right
to continue in the employment of the Corporation or affect any right which the
Corporation may have to terminate the employment of such participant.
13. WITHHOLDING. Whenever the Corporation proposes or is required to issue
or transfer shares of common stock under the Plan, the Corporation shall have
the right to require the recipient to remit to the Corporation an amount
sufficient to satisfy any federal, state and/or local withholding tax
requirements prior to the delivery of any certificate for such shares or the
Corporation may withhold from the shares to be delivered shares sufficient to
satisfy all or a portion of such withholding tax requirements. Whenever under
the Plan payments are to be made in cash, such payments shall be net of an
amount sufficient to satisfy any federal, state and/or local withholding tax
requirements.
B-5
<PAGE>
14. NON-ASSIGNABILITY. No benefit under the Plan shall be assignable or
transferable by the participant other than by will or by the laws of descent
and distribution or pursuant to a qualified domestic relations order as
defined by the Code, or Title I of the Employee Retirement Income Security
Act, or the rules thereunder. During the life of the participant, such award
shall be exercisable only by such person or by such person's guardian or legal
representative.
15. NON-UNIFORM DETERMINATION. The Committee's determinations under the Plan
(including without limitation determinations of the person to receive awards,
the form, amount and timing of such awards, the terms and provisions of such
awards, the agreements evidencing same, and the establishment of values and
performance targets) need not be uniform and may be made by it selectively
among persons who receive, or are eligible to receive, awards under the Plan,
whether or not such persons are similarly situated.
16. ADJUSTMENTS. In the event that any dividend or other distribution
(whether in the form of cash, stock, or other property), recapitalization,
forward or reverse split, reorganization, merger, consolidation, spin-off,
combination, repurchase, share exchange, liquidation, dissolution or other
similar corporate transaction or event affects the stock such that an
adjustment is determined by the Committee to be appropriate under the Plan,
then the Committee shall, in such manner as it may deem equitable, adjust any
or all of (i) the number and kind of shares of stock which may be delivered in
connection with awards granted thereafter, (ii) the number and kind of shares
of stock by which annual per- person award limitations are measured under
paragraph 6 hereof, (iii) the number and kind of shares of stock subject to or
deliverable in respect of outstanding awards and (iv) the exercise price,
grant price or purchase price relating to any award and/or make any provision
for payment of cash or other property in respect of any outstanding award.
17. AMENDMENT OR TERMINATION OF THE PLAN. The Committee or the board of
directors of CoreStates (the "Board") may at any time terminate the Plan or
any part thereof and may from time to time amend the Plan as it may deem
advisable. Any such action of the Board or the Committee may be taken without
the approval of CoreStates' shareholders, but only to the extent that such
shareholder approval is not required by applicable law or regulation,
including specifically Rule 16b-3, or the Rules of any stock exchange on which
the Common Stock is listed. However, the Board or the Committee may not
increase the maximum number of shares which may be issued pursuant to
paragraph 8 of the Plan without shareholder approval. The termination or
amendment of the Plan shall not, without the consent of the participant,
adversely affect such participant's rights under an award previously granted.
18. CHANGE OF CONTROL. (a) If there is a Change of Control, as defined
below, of CoreStates, all outstanding options and stock appreciation rights
shall become exercisable immediately prior to the consummation of the Change
of Control.
(b) "Change of Control" of CoreStates shall be deemed to have occurred
upon the happening of any of the following events:
(i) the acquisition, other than from CoreStates, by any individual,
entity or group (within the meaning of Section 13(d)(3) or 14(d)(2) of
the Exchange Act) of beneficial ownership (within the meaning of Rule
13d-3 promulgated under the Exchange Act) of 20% or more of either the
then outstanding shares of common stock of CoreStates or the combined
voting power of the then outstanding voting securities of CoreStates
entitled to vote generally in the election of directors, but excluding,
for this purpose, any such acquisition by CoreStates or any of its
subsidiaries, or any employee benefit plan (or related trust) of the
Corporation, or any corporation with respect to which, following such
acquisition, more than 50% of, respectively, the then outstanding
shares of common stock of such corporation and the combined voting
power of the then outstanding voting securities of such corporation
entitled to vote generally in the election of directors is then
beneficially owned, directly or indirectly, by all or substantially all
of the individuals and entities who were the beneficial owners,
respectively, of the common stock and voting securities of CoreStates
immediately prior to such acquisition in substantially the same
proportion as their ownership, immediately prior to such acquisition,
of the then outstanding shares of common stock of CoreStates or the
combined voting
B-6
<PAGE>
power of the then outstanding voting securities of CoreStates entitled
to vote generally in the election of directors, as the case may be;
(ii) individuals who, as of February 18, 1997, constitute the board
of directors of CoreStates (as of such date the "Incumbent Board")
cease for any reason to constitute at least a majority of the board,
provided that any individual becoming a director subsequent to such
date whose election, or nomination for election by CoreStates'
shareholders, was approved by a vote of at least a majority of the
directors then comprising the Incumbent Board shall be considered as
though such individual were a member of the Incumbent Board, but
excluding, for this purpose, any such individual whose initial
assumption of office is in connection with an actual or threatened
election contest relating to the election of the directors of
CoreStates (as such terms are used in Rule 14a-11 of Regulation 14A
promulgated under the Exchange Act); or
(iii) approval by the stockholders of CoreStates of a reorganization,
merger or consolidation of CoreStates, in each case, with respect to
which all or substantially all of the individuals and entities who were
the respective beneficial owners of the common stock and voting
securities of CoreStates immediately prior to such reorganization,
merger or consolidation do not, following such reorganization, merger
or consolidation, beneficially own, directly or indirectly, more then
50% of, respectively, the then outstanding shares of common stock and
the combined voting power of the then outstanding voting securities
entitled to vote generally in the election of directors, as the case
may be, of the corporation resulting from such reorganization, merger
or consolidation, or of a complete liquidation or dissolution of
CoreStates or of the sale or other disposition of all or substantially
all of the assets of CoreStates.
19. EFFECT ON OTHER PLANS. Participation in the Plan shall not affect an
employee's eligibility to participate in any other benefit or incentive plan
of the Corporation and any awards made pursuant to the Plan shall not be used
in determining the benefits provided under any other plan of the Corporation
unless specifically provided.
20. GOVERNING LAW. To the extent that federal laws do not otherwise control,
the Plan shall be governed by the law of the Commonwealth of Pennsylvania.
B-7
<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
March 31,
-------------------------------
1997 1996
-------- --------
<S> <C> <C>
(A) Net Income ............................................. $198,113 $177,144
======== ========
EARNINGS PER SHARE
Based on average common shares outstanding
- ------------------------------------------
(B) Average shares outstanding.............................. 211,276 219,512
======= =======
(A/B) Net income.............................................. $0.94 $0.81
===== =====
Based on average common and common
- ----------------------------------
equivalent shares outstanding
- -----------------------------
Primary:
(C) Average common equivalent shares........................ 1,886 2,481
===== =====
(D) Average common and common equivalent
shares (B + C)....................................... 213,162 221,993
======= =======
(A/D) Net income.............................................. $0.93 (1) $0.80 (1)
===== =====
Fully diluted:
(E) Average common equivalent shares........................ 1,886 2,615
===== =====
(F) Average common and common equivalent
shares (B + E)....................................... 213,162 222,127
======= =======
(A/F) Net Income ............................................. $0.93 (1) $0.80 (1)
===== =====
</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
<TABLE>
<CAPTION>
CONSOLIDATED
Three Months Ended March 31, 1997
- ---------------------------------
(in thousands)
<S> <C>
1. Income from continuing operations before extraordinary items and
income taxes........................................................................... $ 306,211
=========
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................................................................ $ 94,620
B. Interest on deposits.......................................................... 203,879
---------
C. Total fixed charges (line 2A + line 2B)....................................... $ 298,499
=========
3. Income from continuing operations before extraordinary items and income
taxes, plus total fixed charges of continuing operations:
A. Excluding interest on deposits (line 1 + line 2A)............................. $ 400,831
=========
B. Including interest on deposits (line 1 + line 2C)............................. $ 604,710
=========
4. Ratio of earnings (as defined) to fixed charges:
A. Excluding interest on deposits (line 3A/line 2A).............................. 4.24x
B. Including interest on deposits (line 3B/line 2C).............................. 2.03x
</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>
Three Months ended March 31, 1997
- ---------------------------------
(in thousands)
<S> <C>
1. Income before income taxes and equity in undistributed income
of subsidiaries........................................................................... $191,570
2. Fixed charges - interest expense, amortization of debt issuance costs and
one-third of rental expenses, net of income from subleases................................ 49,549
--------
3. Income before taxes and equity in undistributed income of
subsidiaries, plus fixed charges.......................................................... $241,119
========
4. Ratio of earnings (as defined) to fixed charges (line 3/line 2)........................... 4.87x
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<LEGEND>
This schedule contains summary financial information extracted from the
CoreStates Financial Corp consolidated balance sheet as of March 31, 1997,
and the related consolidated statement of income, changes in shareholders'
equity, and other financial data included within management's discussion
and analysis of financial condition and results of operations for the three
months ended March 31, 1997 and is qualified in its entirety by reference to
such financial statements.
</LEGEND>
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> MAR-31-1997
<CASH> 2,664,641
<INT-BEARING-DEPOSITS> 2,236,950
<FED-FUNDS-SOLD> 550,098
<TRADING-ASSETS> 201,324
<INVESTMENTS-HELD-FOR-SALE> 2,219,564
<INVESTMENTS-CARRYING> 1,616,147
<INVESTMENTS-MARKET> 1,615,926
<LOANS> 33,594,530
<ALLOWANCE> 704,060
<TOTAL-ASSETS> 45,064,613
<DEPOSITS> 33,070,611
<SHORT-TERM> 2,848,999
<LIABILITIES-OTHER> 1,477,506
<LONG-TERM> 3,506,971
0
0
<COMMON> 223,599
<OTHER-SE> 3,219,074
<TOTAL-LIABILITIES-AND-EQUITY> 45,064,613
<INTEREST-LOAN> 721,081
<INTEREST-INVEST> 57,054
<INTEREST-OTHER> 39,194
<INTEREST-TOTAL> 817,329
<INTEREST-DEPOSIT> 203,879
<INTEREST-EXPENSE> 291,225
<INTEREST-INCOME-NET> 526,104
<LOAN-LOSSES> 43,000
<SECURITIES-GAINS> 4,819
<EXPENSE-OTHER> 391,904
<INCOME-PRETAX> 306,211
<INCOME-PRE-EXTRAORDINARY> 198,113
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 198,113
<EPS-PRIMARY> 0.94
<EPS-DILUTED> 0.94
<YIELD-ACTUAL> 5.47
<LOANS-NON> 233,900
<LOANS-PAST> 99,000
<LOANS-TROUBLED> 0
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 710,300
<CHARGE-OFFS> 70,900
<RECOVERIES> 21,600
<ALLOWANCE-CLOSE> 704,000
<ALLOWANCE-DOMESTIC> 669,000
<ALLOWANCE-FOREIGN> 35,000
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
