Exhibit (99)(b)
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
(in thousands)
September 30, December 31,
1997 1996
------------- ------------
(Unaudited) (Note)
ASSETS
- ------
Cash and due from banks.............................................. $ 3,166,454 $ 3,462,287
Time deposits, principally Eurodollars............................... 3,043,723 2,443,154
Federal funds sold and securities purchased under
agreements to resell............................................. 138,699 509,694
Trading account assets............................................... 326,717 122,317
Investments available-for-sale, at fair value........................ 2,211,382 2,394,166
Investments held-to-maturity (fair value:
1997 - $1,417,351; 1996 - $1,692,243)............................ 1,413,351 1,689,058
Loans, net of unearned discounts of $220,485 in 1997
and $234,607 in 1996 ............................................ 35,085,285 32,777,032
Less: Allowance for loan losses................................. (679,415) (710,327)
------------ ------------
Net loans.............................................. 34,405,870 32,066,705
------------ ------------
Due from customers on acceptances.................................... 790,548 738,077
Premises and equipment............................................... 626,760 625,876
Other assets ........................................................ 1,467,105 1,442,860
------------ ------------
Total assets........................................... $47,590,609 $ 45,494,194
============ ============
LIABILITIES
- -----------
Deposits:
Domestic:
Non-interest bearing......................................... $ 8,942,224 $ 9,330,445
Interest bearing............................................. 23,401,727 22,986,955
Overseas branches and subsidiaries............................... 1,396,731 1,409,756
------------ ------------
Total deposits......................................... 33,740,682 33,727,156
------------ ------------
Funds borrowed....................................................... 4,239,227 2,633,157
Bank acceptances outstanding......................................... 789,169 727,728
Other liabilities.................................................... 1,924,257 1,661,162
Long-term debt....................................................... 3,784,179 3,049,297
------------ ------------
Total liabilities...................................... 44,477,514 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 23.820 million in 1997 and 8.900 million in 1996, and unallocated
shares held by the Employee Stock Ownership Plan ("ESOP") of 2.182 million
in 1997 and 2.267 million
in 1996)......................................................... 223,599 223,599
Other common shareholders' equity, net............................... 2,889,496 3,472,095
------------ ------------
Total shareholders' equity............................. 3,113,095 3,695,694
------------ ------------
Total liabilities and shareholders' equity............. $ 47,590,609 $ 45,494,194
============ ============
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.
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(in thousands, except per share amounts)
Three Months Ended Nine Months Ended
September 30, September 30,
----------------------- -----------------------
1997 1996 1997 1996
-------- --------- -------- --------
INTEREST INCOME
- ---------------
Interest and fees on loans:
Taxable income ...................................... $ 760,590 $ 716,075 $2,221,554 $2,118,771
Tax exempt income ................................... 5,201 6,009 15,759 19,409
Interest on investment securities:
Taxable income ...................................... 51,890 58,363 157,064 198,952
Tax exempt income ................................... 3,950 5,855 13,006 17,952
Interest on time deposits in banks ....................... 43,234 33,277 112,619 85,969
Interest on Federal funds sold, securities purchased under
agreements to resell and other ....................... 8,169 3,504 20,719 21,503
---------- ---------- ---------- ----------
Total interest income ...................... 873,034 823,083 2,540,721 2,462,556
---------- ---------- ---------- ----------
INTEREST EXPENSE
- ----------------
Interest on deposits ..................................... 229,291 207,391 646,273 629,811
Interest on short-term funds borrowed .................... 53,586 35,780 132,035 111,379
Interest on long-term debt ............................... 59,663 39,564 171,463 116,969
---------- ---------- ---------- ----------
Total interest expense ..................... 342,540 282,735 949,771 858,159
---------- ---------- ---------- ----------
NET INTEREST INCOME ........................ 530,494 540,348 1,590,950 1,604,397
Provision for losses on loans ............................ 50,000 40,000 143,000 188,767
---------- ---------- ---------- ----------
NET INTEREST INCOME AFTER PROVISION
FOR LOSSES ON LOANS ................ 480,494 500,348 1,447,950 1,415,630
---------- ---------- ---------- ----------
NON-INTEREST INCOME
- -------------------
Service charges on deposit accounts ...................... 63,039 57,863 180,958 172,779
Trust income ............................................. 47,453 42,102 137,620 124,877
Fees for international services .......................... 31,445 27,130 84,194 74,805
Debit and credit card fees ............................... 25,261 22,417 70,729 65,041
Third party processing ................................... 19,389 14,075 58,136 42,543
Income from investment in EPS, Inc. ...................... 7,499 7,469 22,109 22,192
Income from trading activities ........................... 9,591 2,763 25,377 15,880
Securities gains ......................................... 5,023 31,135 14,857 55,476
Other operating income ................................... 26,777 31,677 82,872 101,105
---------- ---------- ---------- ----------
Total non-interest income .................. 235,477 236,631 676,852 674,698
---------- ---------- ---------- ----------
NON-FINANCIAL EXPENSES
- ----------------------
Salaries, wages and benefits ............................. 206,467 204,945 614,201 619,725
Net occupancy ............................................ 36,286 39,856 110,876 120,201
Equipment expenses ....................................... 30,320 29,427 92,717 90,360
Restructuring and merger-related charges ................. - 12,298 - 130,100
Other operating expenses ................................. 136,749 145,327 386,906 399,154
---------- ---------- ---------- ----------
Total non-financial expenses ............... 409,822 431,853 1,204,700 1,359,540
---------- ---------- ---------- ----------
INCOME BEFORE INCOME TAXES ............................... 306,149 305,126 920,102 730,788
- --------------------------
Provision for income taxes ............................... 107,335 108,269 323,449 277,190
---------- ---------- ---------- ----------
NET INCOME ............................................... $ 198,814 $ 196,857 $ 596,653 $ 453,598
- ---------- ========== ========== ========== ==========
Average common shares outstanding ........................ 199,817 220,409 205,316 219,802
========== ========== ========== ==========
PER COMMON SHARE DATA
- ---------------------
Net income ............................................... $ 1.00 $ 0.89 $ 2.91 $ 2.06
========== ========== ========== ==========
Cash dividends declared .................................. $ 0.47 $ 0.42 $ 1.41 $ 1.26
========== ========== ========== ==========
See accompanying notes to the consolidated financial statements.
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY (unaudited)
(in thousands)
Common Capital Retained
stock surplus earnings
--------- ---------- -----------
Nine Months Ended September 30, 1996
- ------------------------------------
Balances at beginning of year ................................... $230,231 $1,225,167 $2,724,298
Net income ...................................................... 453,598
Net change in unrealized gain on investments
available-for-sale, net of tax................................ (33,264)
Treasury shares acquired (741 shares)............................
Treasury shares issued in merger (7,300 shares).................. (7,300) (33,288) (192,042)
Repurchase and retirement of common stock (1,340 shares)........ (1,340) (43,559) (12,804)
Common stock issued under employee benefit plans
(1,575 new shares; 928 treasury shares)....................... 1,575 55,521 (14,668)
Common stock issued under dividend reinvestment plan
(31 new shares) (347 treasury shares)......................... 31 1,727 (68)
ESOP shares committed for release (92 shares).................... 1,454
Cash paid for fractional shares issued........................... (341)
Foreign currency translation adjustments......................... 1,037
Common dividends declared........................................ (272,658)
-------- ---------- ----------
Balances at end of period........................................ $223,197 $1,207,022 $2,653,088
======== ========== ==========
Nine Months Ended September 30, 1997
- ------------------------------------
Balances at beginning of year.................................... $223,599 $1,234,522 $2,729,310
Net income....................................................... 596,653
Net change in unrealized gain on investments
available-for-sale, net of tax................................ 8,406
Treasury shares acquired (17,098 shares).........................
Common stock issued under employee benefit plans
(1,734 treasury shares)....................................... 15,510 (49,740)
Common stock issued under dividend reinvestment plan
(444 treasury shares)......................................... 330 (1,058)
ESOP shares committed for release (85 shares).................... 2,587
Foreign currency translation adjustments......................... (1,194)
Common dividends declared........................................ (291,802)
-------- ---------- ----------
Balances at end of period........................................ $223,599 $1,252,949 $2,990,575
======== ========== ==========
Unallocated
Treasury ESOP
Nine Months Ended September 30, 1996 stock shares Total
- ------------------------------------ -------- ----------- -----------
Balances at beginning of year ................................... $ (250,465) $(53,666) $3,875,565
Net income ...................................................... 453,598
Net change in unrealized gain on investments
available-for-sale, net of tax................................ (33,264)
Treasury shares acquired (741 shares)............................ (28,294) (28,294)
Treasury shares issued in merger (7,300 shares).................. 232,630 -
Repurchase and retirement of common stock (1,340 shares)........ (57,703)
Common stock issued under employee benefit plans
(1,575 new shares; 928 treasury shares)....................... 33,079 75,507
Common stock issued under dividend reinvestment plan
(31 new shares) (347 treasury shares)......................... 13,050 14,740
ESOP shares committed for release (92 shares).................... 2,250 3,704
Cash paid for fractional shares issued........................... (341)
Foreign currency translation adjustments......................... 1,037
Common dividends declared........................................ (272,658)
----------- -------- -----------
Balances at end of period........................................ $ - $(51,416) $4,031,891
=========== ======== ==========
Nine Months Ended September 30, 1997
- ------------------------------------
Balances at beginning of year.................................... $ (437,580) $(54,157) $3,695,694
Net income....................................................... 596,653
Net change in unrealized gain on investments
available-for-sale, net of tax................................ 8,406
Treasury shares acquired (17,098 shares)......................... (986,575) (986,575)
Common stock issued under employee benefit plans
(1,734 treasury shares)....................................... 98,986 64,756
Common stock issued under dividend reinvestment plan
(444 treasury shares)......................................... 23,277 22,549
ESOP shares committed for release (85 shares).................... 2,021 4,608
Foreign currency translation adjustments......................... (1,194)
Common dividends declared........................................ (291,802)
----------- -------- ----------
Balances at end of period........................................ $(1,301,892) $(52,136) $3,113,095
=========== ======== ==========
See accompanying notes to the consolidated financial statements.
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited)
(in thousands) Nine Months Ended
September 30,
------------------------------
1997 1996
----------- -----------
Operating Activities
- --------------------
Net income ..................................................................... $ 596,653 $ 453,598
Adjustments to reconcile net income to net cash
provided by operating activities:
Restructuring and merger-related charges.................................... - 130,100
Provision for losses on loans............................................... 143,000 188,767
Provision for losses and writedowns on OREO................................. 2,012 2,753
Depreciation and amortization............................................... 93,459 88,448
Deferred income tax expense (benefit)....................................... 32,250 (10,525)
Securities gains............................................................ (14,857) (55,476)
(Increase) decrease in trading account assets............................... (204,400) 90,418
Increase (decrease) in due to factored clients.............................. 77,028 (16,292)
(Increase) decrease in interest receivable.................................. (13,895) 44,813
Increase (decrease) in interest payable..................................... 8,776 (5,519)
Other, net.................................................................. 80,356 181,460
----------- -----------
Net Cash Provided by Operating Activities................................ 800,382 1,092,545
----------- -----------
Investing Activities
- --------------------
Net increase in loans........................................................... (2,462,447) (1,895,346)
Proceeds from sales of loans.................................................... 491,506 843,260
Loans originated or acquired - non-bank subsidiaries............................ (27,289,355) (28,572,504)
Principal collected on loans - non-bank subsidiaries............................ 26,758,059 28,274,066
Net increase in time deposits, principally Eurodollars.......................... (600,569) (685,213)
Purchases of investments held-to-maturity....................................... (445,244) (372,596)
Purchases of investments available-for-sale..................................... (549,954) (1,430,753)
Proceeds from maturities of investments held-to-maturity........................ 739,006 1,164,746
Proceeds from maturities of investments available-for-sale...................... 678,077 767,581
Proceeds from sales of investments available-for-sale........................... 89,092 856,474
Net decrease in Federal funds sold and securities purchased under
agreements to resell........................................................ 370,995 551,235
Purchases of premises and equipment............................................. (63,050) (77,435)
Proceeds from sales and paydowns on OREO........................................ 12,398 26,536
Other, net...................................................................... 32,187 27,475
----------- -----------
Net Cash Used in Investing Activities.................................... (2,239,299) (522,474)
----------- -----------
Financing Activities
- --------------------
Net increase (decrease) in deposits............................................. 13,312 (1,251,670)
Payment for sale of deposits.................................................... - (368,110)
Proceeds from issuance of long-term debt........................................ 1,138,145 533,070
Retirement of long-term debt.................................................... (402,154) (225,973)
Net increase in short-term funds borrowed....................................... 1,606,070 325,374
Cash dividends paid............................................................. (297,510) (236,987)
Purchases of treasury stock..................................................... (986,575) (28,294)
Repurchase and retirement of common stock....................................... - (57,703)
Common stock issued under employee benefit plans................................ 49,247 48,448
Other, net...................................................................... 22,549 14,399
----------- -----------
Net Cash Provided by (Used in) Financing Activities...................... 1,143,084 (1,247,446)
----------- -----------
Decrease In Cash And Due From Banks...................................... (295,833) (677,375)
------------------------------------
Cash and due from banks at January 1,.................................... 3,462,287 3,662,143
----------- -----------
Cash and due from banks at September 30,................................. $ 3,166,454 $ 2,984,768
=========== ===========
Supplemental Disclosure of Cash Flow Information
- ------------------------------------------------
Cash paid during the period for:
Interest................................................................. $ 940,995 $ 863,678
=========== ===========
Income taxes............................................................. $ 191,007 $ 248,505
=========== ===========
Net cash received on interest rate swaps........................................ $ 44,983 $ 46,253
=========== ===========
See accompanying notes to the consolidated financial statements.
CORESTATES FINANCIAL CORP AND SUBSIDIARIES
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS (unaudited)
September 30, 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 nine-month period ended September 30, 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):
September 30, December 31,
1997 1996
-------------- ------------
Domestic:
Commercial, industrial and other................ $ 15,800,229 $ 13,906,646
Real estate:
Construction and development................. 625,910 554,924
Residential.................................. 4,312,171 4,226,980
Other........................................ 4,284,944 4,541,697
------------ ------------
Total real estate....................... 9,223,025 9,323,601
------------ ------------
Consumer:
Installment.................................. 3,260,034 3,319,970
Credit card.................................. 1,686,941 1,674,921
------------ ------------
Total consumer.......................... 4,946,975 4,994,891
------------ ------------
Financial institutions.......................... 1,362,525 1,153,715
Factoring receivables........................... 564,877 411,280
Lease financing................................. 1,217,578 1,232,213
------------ ------------
Total domestic.......................... 33,115,209 31,022,346
------------ ------------
Foreign ............................................. 1,970,076 1,754,686
------------ ------------
Total loans............................. $ 35,085,285 $ 32,777,032
============ ============
NOTE D -- OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS AND COMMITMENTS
In the normal course of business, there are outstanding commitments and
contingent liabilities which are not reflected in the financial statements.
These include various financial instruments with off-balance sheet risk used in
connection with CoreStates' asset and liability management and to provide for
the needs of customers. These involve varying degrees of credit, interest rate
and liquidity risk, but do not represent unusual risks for the Corporation and
management does not anticipate any significant losses as a result of these
transactions.
The following is a summary of contractual or notional amounts of
off-balance sheet commitments and derivative financial instruments (in
thousands):
September 30, December 31,
1997 1996
------------- ------------
Standby letters of credit, net of participations.................. $ 1,889,145 $ 1,630,621
Commercial letters of credit...................................... 1,503,337 1,262,593
Commitments to extend credit...................................... 17,250,051 15,396,553
Unused commitments under credit card lines........................ 4,493,830 4,173,013
When-issued securities:
Commitments to purchase...................................... 15,990 1,770
Commitments to sell.......................................... 110,000 75,120
Whole mortgage loans and securities:
Commitments to purchase...................................... 17,048 17,280
Commitments to sell.......................................... 41,195 7,965
Loans sold with recourse and loan servicing
acquired with recourse....................................... 316,038 361,410
Interest rate futures contracts:
Commitments to purchase...................................... 1,825,900 4,489,800
Commitments to purchase foreign and U. S. currencies.............. 2,728,984 1,766,122
Interest rate swaps, notional principal amounts................... 11,068,963 9,850,708
Interest rate caps and floors:
Written...................................................... 1,728,073 908,799
Purchased.................................................... 2,802,353 2,039,331
Tender option bonds............................................... 471,395 148,711
Treasury float contracts.......................................... 256,546 270,358
Other derivative financial instruments............................ 864,199 597,261
REPORT OF INDEPENDENT AUDITORS
The Board of Directors and Shareholders
CoreStates Financial Corp
We have audited the accompanying consolidated balance sheets of CoreStates
Financial Corp as of December 31, 1996 and 1995, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the three years in the period ended December 31, 1996. These financial
statements are the responsibility of the Company's management. Our
responsibility is to express an opinion on these financial statements based on
our audits. We did not audit the 1995 or 1994 financial statements of Meridian
Bancorp, Inc. and United Counties Bancorporation, which statements reflect
combined total assets of 35.6% as of December 31, 1995 and combined net interest
income constituting 31.3% and 32.8% of the related consolidated totals for the
years ended December 31, 1995 and 1994, respectively. Those statements were
audited by other auditors whose reports thereon have been furnished to us, and
our opinion, insofar as it relates to data included for Meridian Bancorp, Inc.
and United Counties Bancorporation, is based solely on the reports of other
auditors.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits and the reports of other auditors provide a
reasonable basis for our opinion.
In our opinion, based on our audits and the reports of other auditors, the
financial statements referred to above present fairly, in all material respects,
the consolidated financial position of CoreStates Financial Corp at December 31,
1996 and 1995, and the consolidated results of its operations and its cash flows
for each of the three years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
/s/ Ernst & Young LLP
Philadelphia, Pennsylvania
January 22, 1997
CoreStates Financial Corp and Subsidiaries CONSOLIDATED STATEMENT OF INCOME (in
thousands, except per share amounts)
Year Ended December 31,
---------------------------------------
1996 1995 1994
---------- ---------- ----------
INTEREST INCOME
Interest and fees on loans:
Taxable income ............................................................. $2,845,898 $2,902,265 $2,484,660
Tax exempt income .......................................................... 25,335 30,390 34,023
Interest on investment securities:
Taxable income ............................................................. 254,576 349,138 365,298
Tax exempt income .......................................................... 23,190 31,018 38,180
Interest on time deposits in banks ........................................... 122,752 121,993 70,996
Interest on Federal funds sold,
securities purchased
under agreements to resell and
other ....................................................................... 26,453 40,276 21,402
---------- ---------- ----------
Total interest income ...................................................... 3,298,204 3,475,080 3,014,559
---------- ---------- ----------
INTEREST EXPENSE
Interest on deposits:
Domestic savings ........................................................... 295,650 396,176 280,532
Domestic time .............................................................. 497,956 492,610 370,373
Overseas branches and subsidiaries ......................................... 48,174 52,261 29,602
---------- ---------- ----------
Total interest on deposits .............................................. 841,780 941,047 680,507
Interest on short-term funds
borrowed .................................................................... 153,129 214,119 149,618
Interest on long-term debt ................................................... 161,811 152,989 116,419
---------- ---------- ----------
Total interest expense .................................................. 1,156,720 1,308,155 946,544
---------- ---------- ----------
Net interest income ........................................................ 2,141,484 2,166,925 2,068,015
Provision for losses on loans ................................................ 228,767 144,002 279,195
---------- ---------- ----------
Net interest income after
provision for losses on loans .............................................. 1,912,717 2,022,923 1,788,820
---------- ---------- ----------
NON-INTEREST INCOME
Service charges on deposit accounts .......................................... 243,696 244,439 239,811
Trust income ................................................................. 167,138 162,776 153,214
Fees for international services .............................................. 101,761 94,396 87,364
Debit and credit card fees ................................................... 74,707 83,812 80,482
Income from investment in EPS, Inc. .......................................... 29,902 30,114 31,800
Income from trading activities ............................................... 25,216 35,403 23,360
Securities gains ............................................................. 59,512 31,475 18,283
Other gains .................................................................. 8,200 26,400 --
Other operating income ....................................................... 188,943 173,407 154,173
---------- ---------- ----------
Total non-interest income .................................................. 899,075 882,222 788,487
---------- ---------- ----------
NON-FINANCIAL EXPENSES
Salaries, wages and benefits ................................................. 826,442 904,377 947,903
Net occupancy ................................................................ 157,358 159,530 162,003
Equipment expenses ........................................................... 120,602 118,532 117,659
Restructuring and merger-related
charges ..................................................................... 139,702 138,600 107,119
Other operating expenses ..................................................... 532,724 564,489 583,558
---------- ---------- ----------
Total non-financial expenses ............................................... 1,776,828 1,885,528 1,918,242
---------- ---------- ----------
INCOME BEFORE INCOME TAXES ................................................... 1,034,964 1,019,617 659,065
Provision for income taxes ................................................... 385,820 364,441 225,859
---------- ---------- ----------
NET INCOME ................................................................... $ 649,144 $ 655,176 $ 433,206
========== ========== ==========
PER COMMON SHARE DATA (Based on weighted average shares outstanding of 218.812
million in 1996, 222.268 million in 1995 and 226.234 million in 1994)
Net income ................................................................... $ 2.97 $ 2.95 $ 1.91
========== ========== ==========
Cash dividends declared ...................................................... $ 1.73 $ 1.44 $ 1.24
========== ========== ==========
See accompanying notes to the financial statements.
CoreStates Financial Corp and Subsidiaries
CONSOLIDATED BALANCE SHEET
(in thousands)
December 31,
---------------------------
1996 1995
----------- ----------
ASSETS
Cash and due from banks ...................................................... $ 3,462,287 $ 3,662,143
Time deposits, principally Eurodollars ....................................... 2,443,154 1,909,260
Federal funds sold and securities
purchased under agreements to resell ........................................ 509,694 719,937
Trading account assets ....................................................... 122,317 147,218
Investment securities available-for-sale ..................................... 2,394,166 2,572,315
Investment securities held-to-maturity
(market value: 1996-$1,692,243;
1995-$3,075,964) ............................................................ 1,689,058 3,059,917
Total loans, net of unearned discounts
of $204,521 in 1996 and $232,077 in 1995 .................................... 32,777,032 31,714,152
Less: Allowance for loan losses ............................................. (710,327) (670,265)
------------ ------------
Net loans .............................................................. 32,066,705 31,043,887
------------ ------------
Due from customers on acceptances ............................................ 738,077 560,707
Premises and equipment ....................................................... 625,876 664,279
Other assets ................................................................. 1,442,860 1,657,579
------------ ------------
Total assets ........................................................... $ 45,494,194 $ 45,997,242
============ ============
LIABILITIES
Deposits:
Domestic:
Non-interest bearing ................................................... $ 9,330,445 $ 8,937,147
Interest bearing ....................................................... 22,986,955 23,883,726
Overseas branches and subsidiaries .......................................... 1,409,756 1,142,947
------------ ------------
Total deposits ................................................... 33,727,156 33,963,820
------------ ------------
Short-term funds borrowed .................................................... 2,633,157 3,677,013
Bank acceptances outstanding ................................................. 727,728 549,048
Other liabilities ............................................................ 1,661,162 1,719,697
Long-term debt ............................................................... 3,049,297 2,212,099
------------ ------------
Total liabilities ...................................................... 41,798,500 42,121,677
------------ ------------
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 223.6 million shares in 1996 and 230.2 million
shares in 1995 (including treasury shares of 8.9 million in 1996 and 7.8
million in 1995, and unallocated shares held by Employee Stock Ownership Plan
("ESOP") of 2.3 million in 1996 and
2.3 million in 1995) ........................................................ 223,599 230,231
Other common shareholders' equity, net ....................................... 3,472,095 3,645,334
------------ ------------
Total shareholders' equity ............................................. 3,695,694 3,875,565
------------ ------------
Total liabilities and
shareholders' equity .................................................. $ 45,494,194 $ 45,997,242
============ ============
See accompanying notes to the financial statements
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
Common Capital Retained Treasury Unallocated
stock surplus earnings stock ESOP shares Total
------------ ----------- ------------ ---------- ----------- -----------
Balances at December 31, 1993........... $ 230,050 $1,194,872 $ 2,287,406 $ (7,819) $3,704,509
Net income.............................. 433,206 433,206
Net change in unrealized gain on
investments available-for-sale, net of
tax.................................... (66,095) (66,095)
Acquisition of Germantown Savings Bank
(5,880 treasury shares)................ (8,605) 156,361 147,756
Stock issued in other acquisitions (190
new shares)............................ 190 6,782 6,972
Treasury shares acquired (8,598 shares). (228,963) (228,963)
Repurchase and retirement of common
stock (1,016 shares)................... (1,016) (6,646) (17,226) (24,888)
Common stock issued under employee
benefit plans (567 new shares; 688
treasury shares)....................... 567 6,097 (6,410) 18,456 18,710
Common stock issued under dividend
reinvestment plan (450 treasury shares) (447) (483) 12,306 11,376
Purchase of shares for Employee Stock
Ownership Plan (1,574 shares).......... $(35,568) (35,568)
Conversion of subordinated debt (36 new
shares; 909 treasury shares)........... 36 (2,001) 25,362 23,397
Cash paid for fractional shares......... (83) (83)
Foreign currency translation adjustments 52 52
Common dividends declared............... (259,449) (259,449)
---------- ---------- ---------- ---------- ---------- ----------
Balances at December 31, 1994........... 229,827 1,200,658 2,360,312 (24,297) (35,568) 3,730,932
Net income.............................. 655,176 655,176
Net change in unrealized gain on
investments available-for-sale, net of
tax.................................... 41,187 41,187
Treasury shares acquired (10,307 shares) (335,528) (335,528)
Repurchase and retirement of common
stock (595 shares)..................... (595) (4,093) (12,446) (17,134)
Common stock issued under employee
benefit plans (1,002 new shares;
3,089 treasury shares)............ 999 26,825 (25,483) 96,670 99,011
Common stock issued under dividend
reinvestment plan (417 treasury shares) (9) (2) 12,690 12,679
Purchase of shares for Employee Stock
Ownership Plan (876 shares)............ (20,922) (20,922)
Employee Stock Ownership Plan shares
committed for release (123 shares)..... 1,786 2,824 4,610
Cash paid for fractional shares......... (24) (24)
Foreign currency translation adjustments (29) (29)
Common dividends declared............... (294,393) (294,393)
---------- ---------- ---------- ---------- ---------- ----------
Balances at December 31, 1995........... 230,231 1,225,167 2,724,298 (250,465) (53,666) 3,875,565
(continued)
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(in thousands)
Common Capital Retained Treasury Unallocated
stock surplus earnings stock ESOP shares Total
------------ ----------- ------------ ---------- ----------- -----------
Net income.............................. 649,144 649,144
Net change in unrealized gain on
investments
available-for-sale, net of tax........ (25,070) (25,070)
Treasury shares acquired (11,055 shares) (533,932) (533,932)
Treasury shares issued in merger (7,300
shares)................................ (7,300) (33,288) (192,042) 232,630 -
Repurchase and retirement of
common stock (1,340 shares)............. (1,340) (43,559) (12,804) (57,703)
Common stock issued under employee
benefit plans (1,824 new shares;
2,330 treasury shares)................. 1,824 75,618 (48,119) 100,826 130,149
Common stock issued under dividend
reinvestment plan (184 new shares;
353 treasury shares)................... 184 8,225 (68) 13,361 21,702
Purchase of shares for Employee
Stock Ownership Plan (65 shares)........ (38) (3,509) (3,547)
Employee stock ownership plan shares
committed for release (126 shares)..... 2,397 3,018 5,415
Cash paid for fractional shares......... (342) (342)
Foreign currency translation adjustments 5,448 5,448
Common dividends declared............... (371,135) (371,135)
------------ ----------- ------------ ---------- ----------- -----------
Balances at December 31, 1996........... $ 223,599 $1,234,522 $2,729,310 $(437,580) $(54,157) $3,695,694
============ =========== ============ ========== =========== ===========
See accompanying notes to the financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS (in thousands)
Year Ended December 31,
----------------------------------------------
OPERATING ACTIVITIES 1996 1995 1994
------------- -------------- ---------------
Net income............................................ $ 649,144 $ 655,176 $ 433,206
Adjustments to reconcile net income to net
cash provided by operating activities:
Restructuring and merger-related charges........... 139,702 138,600 107,119
Provision for losses on loans...................... 228,767 144,002 279,195
Provision for losses and writedowns
on other real estate owned....................... 3,387 15,971 14,596
Depreciation and amortization...................... 110,512 122,996 139,305
Deferred income tax expense........................ 9,156 28,420 41,847
Securities gains................................... (59,512) (31,475) (18,283)
Gains on sale of mortgage servicing................ - (2,387) (867)
Other gains........................................ (8,200) (26,400) -
(Increase) decrease in trading account assets...... 24,901 200,833 (18,392)
Increase (decrease) in due to factored clients..... 1,805 (86,921) 41,262
(Increase) decrease in interest receivable......... 45,046 2,009 (33,548)
Increase in interest payable....................... 10,163 45,044 26,026
Other, net......................................... 115,877 (117,411) (102,895)
------------ ------------ ------------
NET CASH PROVIDED BY OPERATING ACTIVITIES............. 1,270,748 1,088,457 908,571
------------ ------------ ------------
INVESTING ACTIVITIES
Net increase in loans................................. (2,896,402) (1,832,179) (1,310,777)
Proceeds from sales of loans.......................... 1,577,270 1,087,732 1,130,918
Loans originated or acquired--non-bank
subsidiaries......................................... (39,054,032) (35,767,440) (33,760,035)
Principal collected on loans--non-bank
subsidiaries......................................... 39,039,627 35,407,667 33,399,764
Net increase in time deposits, principally
Eurodollars.......................................... (533,894) (33,172) (452,747)
Purchases of investments held-to-maturity............. (490,995) (686,652) (2,386,505)
Purchases of investments available-for-sale........... (2,062,012) (589,327) (711,227)
Proceeds from maturities of investments
held-to-maturity..................................... 1,524,670 2,175,780 2,911,632
Proceeds from maturities of investments
available-for-sale................................... 854,898 161,477 386,142
Proceeds from sales of investments
available-for-sale................................... 1,500,504 546,728 767,453
Net (increase) decrease in Federal funds
sold and securities purchased under
agreements to resell................................. 210,243 203,693 (646,409)
Purchases of premises and equipment................... (101,469) (125,216) (147,308)
Proceeds from sales and paydowns on other
real estate owned.................................... 31,465 66,834 78,057
Purchase of Germantown Savings
Bank, net of cash acquired........................... - - (74,053)
Net cash provided by other acquisitions............... - - 379,318
Other, net............................................ 141,063 11,303 39,357
------------ ------------ ------------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES........................................ (259,064) 627,228 (396,420)
------------ ------------ ------------
(continued)
CONSOLIDATED STATEMENT OF CASH FLOWS: continued
(in thousands)
Year Ended December 31,
---------------------------------------------
1996 1995 1994
------------ ------------ ------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits................. 172,155 (660,745) (1,013,622)
Payment for sales of deposits....................... (368,110) (154,360) -
Proceeds from issuance of long-term debt............ 1,340,099 582,251 480,433
Retirement of long-term debt........................ (501,165) (533,480) (306,452)
Net increase (decrease) in short-term
funds borrowed..................................... (1,043,856) 215,764 694,499
Cash dividends paid................................. (328,114) (286,565) (245,962)
Purchases of treasury stock......................... (533,932) (335,528) (228,963)
Purchases of ESOP shares............................ - - (35,568)
Funds transferred to Trust for future
ESOP purchases..................................... - - (24,432)
Repurchase and retirement of common stock........... (57,703) (17,134) (24,888)
Common stock issued under employee benefit
plans.............................................. 87,726 99,011 18,710
Other, net.......................................... 21,360 12,655 11,293
----------- ----------- -----------
NET CASH USED IN FINANCING ACTIVITIES............... (1,211,540) (1,078,131) (674,952)
----------- ----------- -----------
INCREASE (DECREASE) IN CASH AND DUE
FROM BANKS....................................... (199,856) 637,554 (162,801)
Cash and due from banks at January 1,............... 3,662,143 3,024,589 3,187,390
----------- ----------- -----------
CASH AND DUE FROM BANKS AT DECEMBER 31,............. $ 3,462,287 $ 3,662,143 $ 3,024,589
=========== =========== ===========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION Cash paid during the year for:
Interest......................................... $ 1,146,557 $ 1,263,681 $ 918,503
=========== =========== ===========
Income taxes..................................... $ 331,940 $ 284,987 $ 189,918
=========== =========== ===========
See accompanying notes to the financial statements.
NOTES TO THE FINANCIAL STATEMENTS
(dollar amounts in thousands)
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
Basis of presentation
The consolidated financial statements include the accounts of CoreStates
Financial Corp ("the Corporation") and all of its subsidiaries, including:
CoreStates Bank, N.A. ("CBNA"); CoreStates Bank of Delaware, N.A. ("CBD");
Congress Financial Corporation; and CoreStates Capital Corp ("CSCC"). All
material intercompany transactions have been eliminated. The financial
statements include the consolidated accounts of Meridian Bancorp, Inc.
("Meridian") which was acquired on April 9, 1996 in a transaction accounted for
under the pooling of interests method of accounting. On February 23, 1996,
Meridian acquired United Counties Bancorporation ("United Counties") in a
transaction accounted for as a pooling of interests. The consolidated accounts
of Meridian include United Counties for all periods presented. Certain amounts
in prior years have been reclassified for comparative purposes.
The Corporation is a bank holding company incorporated under the laws of the
Commonwealth of Pennsylvania, primarily operating in the eastern Pennsylvania,
northern Delaware and the central and southern New Jersey markets. Through its
subsidiaries, the Corporation is engaged in the business of providing global and
specialized banking (including international banking services), regional
banking, retail credit services, trust and asset management and third party
processing services to a diversified customer base.
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amounts reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Changes in accounting principles
Statement of Financial Accounting Standards No. 123, "Accounting for Stock-Based
Compensation" ("FAS 123") was issued in October 1995 to establish accounting and
reporting standards for stock-based employee compensation plans such as stock
option and restricted stock plans ("stock-based plans"). FAS 123 defines a fair
value method of accounting for measuring compensation expense for stock-based
plans and encourages all entities to adopt that method of accounting. However,
FAS 123 also permits entities to continue to measure compensation expense for
stock-based plans using the intrinsic value method prescribed by APB Opinion No.
25, "Accounting for Stock Issued to Employees."
Under the fair value method, compensation expense would be measured as the value
of an award under a stock-based plan on the date the award is granted, and would
be recognized over the vesting period of the award. Under the intrinsic value
method, compensation expense is measured as the excess, if any, of the market
price of the stock underlying the award on the date the award is granted, over
the exercise price. Under the Corporation's stock-based long-term incentive
plan, awards have no intrinsic value on the date of grant as the exercise price
equals the market price on that date. The Corporation did not adopt the fair
value method of accounting for stock-based plans, and will continue to use the
intrinsic value method to measure compensation expense.
Effective January 1, 1995, the Corporation adopted Statement of Financial
Accounting Standards No. 114, "Accounting by Creditors for Impairment of a Loan"
("FAS 114") and Statement No. 118, "Accounting by Creditors for Impairment of a
Loan-Income Recognition and Disclosures" ("FAS 118"). FAS 114 addresses
accounting for impairment of certain loans and requires that impaired loans
within the scope of FAS 114 be measured based on the present value of expected
cash flows discounted at the loan's effective interest rate, or be measured at
the loan's observable market price or the fair value of its collateral. FAS 118
amended the income recognition policies and clarified disclosure requirements of
FAS 114. The adoption of these standards did not have an impact on CoreStates'
provision for loan losses or allowance for loan losses, nor change CoreStates'
methodology for recognizing income on impaired loans.
Income taxes
Under the asset and liability method used by the Corporation to provide for
income taxes, deferred tax assets and liabilities are recognized for the tax
consequences of temporary differences by applying enacted statutory tax rates
applicable to future years to differences between the financial statement
carrying amounts and the tax bases of existing assets and liabilities.
The Corporation and its subsidiaries file a consolidated Federal income tax
return.
Investments
Held-to-maturity securities, consisting primarily of debt securities, are
carried at cost adjusted for amortization of premiums and accretion of
discounts, both computed on the interest method. The Corporation has both the
ability and positive intent to hold these securities until maturity. Trading
account assets are carried at market value. Gains on trading account assets
include both realized and unrealized gains and losses on the portfolio. All
other securities are classified as available-for-sale and are carried at fair
value, with unrealized gains and losses, net of tax, reported as a component of
shareholders' equity. The net unrealized gain on available-for-sale securities
included in retained earnings was $26,555 at December 31, 1996 and $51,625 at
December 31, 1995. Realized securities gains and losses are determined using the
adjusted cost of a specific security sold.
Interest and dividends on investment securities are recognized as income when
earned.
Loans
Interest on commercial loans is recognized on the daily principal amounts
outstanding. Loan fees are generally considered adjustments of interest rate
yields and are amortized into interest income on loans over the terms of the
related loans. Interest on installment loans is principally recognized on the
interest method.
Commercial loans are placed on a non-accrual status, generally recognizing
interest as income when received, when, in the opinion of management, the
collectability of principal or interest payments becomes doubtful or when such
payments are 90 days or more past due, unless the loan is well secured and in
the process of collection. The deferral or non-recognition of interest does not
constitute forgiveness of the borrower's obligation.
Consumer loans, excluding residential mortgage loans and credit card loans, are
charged off after reaching 90 days past due. Residential mortgage loans are
placed on non-accrual status after reaching 120 days past due and are written
down to the fair value of underlying collateral at that time. Credit card loans
are charged off after reaching 150 days past due. Prior to the second quarter of
1996, credit card loans were charged off after reaching 180 days past due.
Other real estate owned
When a property is acquired through foreclosure of a loan secured by real
estate, that property is recorded at the lower of the cost basis in the loan or
the estimated fair value of the property less estimated disposal costs.
Writedowns at the time of foreclosure are charged against the allowance for loan
losses. Subsequent writedowns for changes in the fair value of the property are
charged to other non-financial expense.
Allowance for loan losses
The allowance for loan losses is maintained at a level believed adequate by
management to absorb estimated probable credit losses. Factors included in
management's determination of an adequate level of allowance for loan losses are
a statistical analysis of historical loss levels throughout an economic cycle
and one year of projected charge-offs, establishing a minimum level below which
the allowance for loan losses is considered inadequate and a maximum level above
which is considered inappropriate. A quarterly evaluation of loss potential on
specific credits, products, industries, portfolios and markets, as well as
indicators for loan growth, the economic environment and concentrations assist
in validating the position of the allowance for loan losses within those
boundaries. This evaluation is inherently subjective as it requires material
estimates that may be susceptible to significant change.
The Corporation adopted FAS 114 effective January 1, 1995. Under FAS 114, the
allowance for loan losses related to "impaired loans" is based on discounted
cash flows using the impaired loan's initial effective interest rate as the
discount rate, or the fair value of the collateral for collateral dependent
loans. A loan is impaired when it meets the criteria to be placed on non-
accrual status or is a renegotiated loan. Loans which are evaluated for
impairment pursuant to FAS 114 are assessed on a loan-by-loan basis, and include
only commercial non-accrual and renegotiated loans. Large groups of smaller
balance homogeneous loans, such as credit cards, lease financing receivables,
loans secured by first and second liens on residential properties, and other
consumer loans are evaluated collectively for impairment.
Additions to the allowance arise from the provision for loan losses charged to
operations or from the recovery of amounts previously charged off. Loan charge-
offs reduce the allowance. Loans are charged off when there has been permanent
impairment of the related carrying values.
Premises and equipment
Premises and equipment are stated at cost, less accumulated depreciation and
amortization. The provision for depreciation and amortization is computed,
generally, on the straight-line method at rates based on the following range of
lives: buildings - 10 to 45 years; equipment - 3 to 12 years; and leasehold
improvements - 3 to 15 years.
Retirement plans
The Corporation maintains non-contributory defined benefit pension plans for
substantially all employees. Benefits are primarily based on the employee's
years of credited service, average annual salary and primary social security
benefit, as defined in the plans. It is the Corporation's policy to fund the
plans on a current basis to the extent deductible under existing tax
regulations.
The Corporation provides postretirement health care and life insurance benefits
for substantially all retired employees. In order to participate in the health
care plan, an employee must retire with at least 10 years of service. The
postretirement health care plan is contributory, with retiree contributions
based on years of service. It is the Corporation's policy to fund these plans on
a current basis to the extent deductible under existing tax regulations.
Employee Stock Ownership Plan ("ESOP")
Compensation expense was recognized based on the average fair value of shares
committed to be released to employees. Effective January 1, 1997, the ESOP was
combined with the Corporation's 401(k) Savings Plan. The remaining shares in the
ESOP will be released to substantially all employees and will be recorded as a
portion of the Corporation's match of employee contributions to the 401(k)
Savings Plan.
Foreign exchange/currency
Forward exchange contracts are valued at current rates of exchange. Gains or
losses on forward exchange contracts intended to hedge an identifiable foreign
currency commitment, if any, are deferred and included in the measurement of the
related foreign currency transaction. All other gains or losses on forward
exchange contracts are included in fees for international services.
Currency gains and losses in connection with non-dollar denominated loans and
deposits, which are included in interest income and expenses, are recognized pro
rata over the contract terms. Foreign currency translation adjustments are
recorded directly to retained earnings. The cumulative foreign currency
translation gain (loss) was $3,848, $(1,600) and $(1,571) at December 31, 1996,
1995 and 1994, respectively.
Derivative interest rate contracts
The Corporation uses various interest rate contracts such as, interest rate
swaps, futures, forward rate agreements, caps and floors, tender option bonds,
Treasury float agreements, and forward commitments to purchase and sell loans
and securities, primarily to manage the interest rate risk of specific assets,
liabilities or anticipated transactions, to manage interest rate risk in
securities trading positions and to provide for the needs of its customers. For
contracts held for purposes other than trading, gains or losses are deferred and
recognized as adjustments to interest income or expense of the underlying assets
or liabilities and the interest differentials are recognized as adjustments of
the related interest income or expense. Gains or losses resulting from early
terminations of these contracts are deferred and amortized over the remaining
term of the underlying assets or liabilities. Any fees received or disbursed
which represent adjustments to the yield on interest rate contracts are
capitalized and amortized over the term of the interest rate contracts. If the
underlying assets or liabilities related to a derivative matures, is sold,
extinguished, or terminates, the amount of the previously unrecognized gain or
loss is recognized at that time in the consolidated income statement.
The Corporation's trading and customer-related derivative positions mostly
include tender option bonds, Treasury float agreements, and forward commitments
to purchase and sell loans and securities, and interest rate caps, floors, and
swaps. Tender option bonds represent a contingent liability to purchase
securities. Gains and losses and net interest spread earned on these products
are included in non-interest income. Treasury float agreements represent
purchased option contracts. Forward commitments to purchase and sell loans and
securities consist primarily of forward commitments to sell mortgage-backed
securities, which are used to hedge mortgage loans held in the trading account.
These commitments are marked to fair value with unrealized gains and losses
recorded in income from trading activities. Contracts held or issued for
customers are valued at market with gains or losses included in income from
trading activities.
Earnings per common share
Earnings per common share for all periods presented are based on weighted
average common shares outstanding as dilution from potentially dilutive common
stock equivalents (primarily stock options) does not have a materially dilutive
effect on earnings per share. For purposes of computing earnings per share,
shares committed to be released and shares allocated in the ESOP are considered
outstanding.
Treasury stock
The purchase of the Corporation's common stock is recorded at cost. At the date
of subsequent reissuance, the treasury stock account is reduced by the cost of
shares reissued on a last-in-first-out basis.
Cash dividends declared per share
Cash dividends declared per share for the periods prior to the acquisitions of
Meridian on April 9, 1996, Independence Bancorp, Inc. on June 27, 1994 and
Constellation Bancorp on March 16, 1994 assume that the Corporation would have
declared cash dividends equal to the cash dividends per share actually declared
by the Corporation.
2. ACQUISITIONS
Purchase acquisition
On December 2, 1994, the Corporation purchased Germantown Savings Bank
("Germantown"), a Pennsylvania chartered stock savings bank with $1.6 billion in
assets and $1.4 billion in deposits at the time of the acquisition. Under the
terms of the transaction, each of Germantown's 4.15 million shares of common
stock was exchanged for a combination of the Corporation's common stock, equal
to approximately 55% of the $62 per Germantown share purchase price, and cash,
equal to approximately 45% of the purchase price. As a result of this
acquisition, 5.9 million shares of the Corporation's common stock were issued
out of treasury stock. The transaction had a total value of approximately $260
million and was accounted for under the purchase method of accounting.
Accordingly, the results of operations of Germantown have been included since
the date of acquisition. Under this method of accounting, the purchase price is
allocated to the respective assets acquired and liabilities assumed based on
their estimated fair values, net of applicable income tax effects. Intangible
assets of $183 million, including $140 million of goodwill, were created in this
transaction. Goodwill is being amortized to other operating expense on a
straight-line basis over 15 years.
A summary of unaudited pro forma combined financial information for the year
ended December 31, 1994 for the Corporation and Germantown as if the transaction
had occurred on January 1, 1994 is as follows:
Net interest income..... $2,135,969
Non-interest income..... 797,961
Net income.............. 451,063
Per common share........ $1.94
Average common shares
outstanding........... 232,180
Pooling acquisition
On April 9, 1996, the Corporation acquired Meridian, a Pennsylvania bank holding
company with $15.2 billion in assets and $12.1 billion in deposits. The
Corporation issued approximately 81.1 million shares of common stock to
shareholders of Meridian based on an exchange ratio of 1.225 shares of the
Corporation's common stock for each share of Meridian common stock. At a
February 6, 1996 shareholders' meeting, the Corporation's shareholders approved
an increase in the number of authorized shares from 200 million to 350 million.
On February 23, 1996, Meridian acquired United Counties, a New Jersey bank
holding company with $1.6 billion in assets in a transaction accounted for as a
pooling of interests. Accordingly, the consolidated accounts of Meridian include
United Counties for all periods presented.
The Meridian acquisition was accounted for under the pooling of interests method
of accounting; accordingly, the consolidated financial statements include the
consolidated accounts of Meridian for all periods presented. Financial
information on a separate company basis for the two years ended December 31,
1995 for the Corporation and Meridian (including United Counties) was as
follows:
1995 1994
-------------------------- ----------------------------
The (Unaudited) The (Unaudited)
Corporation Meridian Corporation Meridian
------------ ------------ ------------ --------------
Net interest income..................... $1,488,534 $678,391 $1,389,369 $678,646
Provision for losses on loans........... 105,000 38,877 246,900 27,261
Non-interest income..................... 605,666 276,556 562,264 226,223
Non-financial expenses.................. 1,274,398 612,695 1,317,561 608,736
Provision for income taxes.............. 262,565 101,372 141,810 82,992
Income before cumulative effect of a
change in accounting principle......... 452,237 202,003 245,362 185,880
Cumulative effect of a change in
accounting principle................... - - (2,730)(a)
Net income.............................. 452,237 202,003 245,362 183,150
Income per share before cumulative
effect of a change in accounting
principle.............................. $ 3.22 $ 3.03 $ 1.73 $ 2.72
Net income per share.................... 3.22 3.03 1.73 2.68
Cash dividends declared................. 1.44 1.45 1.24 1.34
- ----------
(a) Meridian adopted FAS 112 on January 1, 1994, the date required under that
statement, and recognized a charge of $4,200, $2,730 after-tax, as the
cumulative effect of a change in accounting principle. CoreStates adopted FAS
112 on January 1, 1993. As permitted under pooling of interests accounting, the
restated consolidated financial statements are prepared as if Meridian also
adopted FAS 112 effective January 1, 1993.
The restated consolidated statements of income for 1995 and 1994 reflect a
conforming accounting adjustment for Statement of Financial Accounting Standards
No. 106, "Employers' Accounting for Postretirement Benefits Other Than Pensions"
("FAS 106"). The Corporation elected to recognize immediately the January 1,
1992 transitional liability of $128,706 pre-tax, $84,946 after-tax, as the
cumulative effect of a change in accounting principle in the first quarter of
1992. Meridian adopted FAS 106 on January 1, 1993, the date required under that
statement. As permitted by FAS 106, Meridian elected to amortize its liability
over 20 years. As permitted under pooling of interests accounting, the restated
financial information is prepared as if Meridian adopted FAS 106 effective
January 1, 1992 and immediately recognized the $28,827, $18,738 after-tax,
transitional liability. Restated salaries, wages and benefits have been adjusted
accordingly.
3. FAIR VALUES OF FINANCIAL INSTRUMENTS
Statement of Financial Accounting Standards No. 107, "Disclosures about Fair
Value of Financial Instruments" ("FAS 107"), requires disclosure of fair value
information about financial instruments, whether or not required to be
recognized in the balance sheet, for which it is practicable to estimate that
value. FAS 107 defines a financial instrument as cash, evidence of ownership
interest in an entity, or a contractual obligation or right that will be settled
with another financial instrument.
In cases where quoted market prices are not available, fair values are based on
estimates using discounted cash flow or other valuation techniques. Those
techniques are significantly affected by the assumptions used, including the
discount rate and estimates of future cash flows. Fair value estimates derived
through those techniques cannot be substantiated by comparison to independent
markets and, in many cases, could not be realized in immediate settlement of the
instrument. FAS 107 excludes certain financial instruments and all nonfinancial
instruments from its disclosure requirements. Accordingly, the aggregate fair
value amounts presented do not represent the underlying value of the
Corporation.
The following table summarizes the carrying amount and fair value estimates of
financial instruments at December 31, 1996 and 1995.
1996 1995
--------------------------------- ---------------------------------
Carrying Carrying
or Notional Fair or Notional Fair
Amount Value Amount Value
--------------- ---------------- --------------- ----------------
Assets:
Cash and short-term assets............... $ 6,415,135 $ 6,415,135 $ 6,291,340 $ 6,291,340
Investment securities.................... 4,083,224 4,086,409 5,632,232 5,648,279
Trading account assets................... 122,317 122,317 147,218 147,218
Net loans, excluding leases.............. 30,834,492 30,837,703 29,876,531 30,293,254
Liabilities:
Demand and savings deposits.............. 22,629,513 22,629,513 23,063,053 23,063,053
Time deposits, including overseas
branches and subsidiaries............... 11,097,643 11,321,471 10,900,767 11,065,260
Short-term borrowings.................... 2,633,157 2,633,157 3,677,013 3,677,013
Long-term debt........................... 3,049,297 3,059,173 2,212,099 2,266,725
Off-balance sheet asset (liability):
Letters of credit........................ 2,893,214 (28,931) 2,873,265 (27,659)
Commitments to extend credit............. 19,569,566 (21,204) 18,438,277 (16,135)
Mortgage loans sold and loan servicing
acquired with recourse................ 361,410 (9,637) 434,628 (12,260)
Derivative financial instruments......... 20,173,225 96,629 16,091,322 237,649
Fair value estimates, methods, and assumptions for the Corporation's financial
instruments are set forth below:
Cash and due from banks and short-term instruments - The carrying amounts
reported in the balance sheet for cash and due from banks and short-term
instruments approximate their fair values. Short-term instruments include: time
deposits; Federal funds sold; and securities purchased under agreements to
resell, all of which generally have original maturities of less than 90 days.
Investment securities - Fair values for investment securities are based on
quoted market prices, where available. If quoted market prices are not
available, fair values are based on quoted market prices of comparable
instruments.
Trading account assets - Fair values for the Corporation's trading account
assets, which also are the amounts recognized in the balance sheet, are based on
quoted market prices where available. If quoted market prices are not available,
fair values are based on quoted market prices of comparable instruments or are
derived from pricing models or formulas using discounted cash flows.
Loans - Fair values are estimated for loans in groups with similar financial and
risk characteristics. Loans are segregated by type including: commercial and
industrial; commercial real estate; residential real estate; credit card and
other consumer; financial institutions; factoring receivables; and foreign. Each
loan type is further segmented into fixed and variable rate interest terms and
by performing and non-performing categories in order to estimate fair values.
The fair value of fixed-rate performing loans is calculated by discounting
scheduled principal and interest cash flows through the estimated maturity using
estimated market discount rates that reflect the credit and interest rate risk
inherent in the loan type at December 31, 1996 and 1995. The estimate of
maturity is based on the Corporation's historical experience with repayments for
each loan type, modified by an estimate of the effect of current economic and
lending conditions. For performing residential mortgage loans, fair value is
estimated by referring to secondary market source pricing.
For credit card loans, cash flows and maturities are estimated based on
contractual interest rates and historical experience and are discounted using
secondary market rates adjusted for differences in servicing and credit costs.
This estimate does not include the benefit that relates to cash flows which
could generate from new loans to existing cardholders over the remaining life of
the portfolio.
For variable rate loans that reprice frequently and which have experienced no
significant change in credit risk, fair values are based on carrying amounts.
Fair value for non-performing loans is based on discounting estimated cash flows
using a rate commensurate with the risk associated with the estimated cash
flows. Assumptions regarding cash flows and discount rates are determined using
available market information and specific borrower information.
Deposit liabilities - The fair values disclosed for demand deposits (non-
interest bearing checking accounts, NOW accounts, savings accounts, and money
market accounts) are, by FAS 107 definition, equal to the amount payable on
demand at the reporting date (i.e., their carrying amounts). The carrying
amounts for variable-rate, fixed-term certificates of deposit approximate their
fair values. Fair values for fixed-rate certificates of deposit are estimated
using a discounted cash flow calculation that applies interest rates offered on
certificates at December 31, 1996 and 1995, respectively, to an estimate of
aggregate expected maturities for those certificates of deposit.
The estimated fair values do not include the benefit that results from funding
provided by core deposit liabilities as compared to the cost of borrowing funds
in the financial markets.
Short-term funds borrowed - The carrying amounts of Federal funds purchased,
securities sold under agreements to repurchase, commercial paper and other
short-term borrowings approximate their fair values.
Long-term debt - The fair values for long-term debt are based on quoted market
prices where available. If quoted market prices are not available, fair values
are estimated using discounted cash flow analyses based on the Corporation's
borrowing rates at December 31, 1996 and 1995 for comparable types of borrowing
arrangements.
Off-balance sheet derivative financial instruments and commitments - Fair values
for the Corporation's futures, forwards, interest rate swaps, options, interest
rate caps and floors, foreign exchange contracts, tender option bonds and
Treasury float contracts are based on quoted market prices (futures); current
settlement values (forwards); quoted market prices of comparable instruments
(foreign currency exchange contracts); or, if there are no directly comparable
instruments, on pricing models or formulas using current assumptions (interest
rate swaps, interest rate caps and floors, tender option bonds, Treasury float
contracts and options). The fair value of commitments to extend credit, other
than credit card lines, is estimated using the fees currently charged to enter
into similar agreements, taking into account the remaining terms of the
agreements and the present credit worthiness of the counterparties. For fixed-
rate loan commitments, fair value also considers the difference between current
levels of interest rates and the committed rates. The value of commitments to
extend credit under credit card lines is embodied in the benefit that relates to
estimated cash flows from new loans expected to be generated from existing
cardholders over the remaining life of the portfolio.
The fair value of standby and commercial letters of credit is based on fees
currently charged for similar agreements or on the estimated cost to terminate
the agreements or otherwise settle the obligations with the counterparties.
4. LOAN PORTFOLIO
The following are summaries of certain loan categories, net of unearned
discounts, for the two years ended December 31, 1996 (in thousands):
1996 1995
Domestic loans:
Commercial, industrial and other....... $13,906,646 $12,597,470
Real estate loans:
Construction and development.......... 554,924 607,845
Residential........................... 4,676,016 5,648,661
Other, primarily commercial mortgages
and commercial loans secured by
owner-occupied real estate........... 4,541,697 4,712,473
----------- -----------
Total real estate loans............. 9,772,637 10,968,979
----------- -----------
Consumer loans:
Installment........................... 2,870,934 2,912,670
Credit card........................... 1,674,921 1,527,447
----------- -----------
Total consumer loans................ 4,545,855 4,440,117
----------- -----------
Financial institutions................. 1,153,715 961,289
Factoring receivables.................. 411,280 557,272
Lease financing........................ 1,232,213 1,167,356
----------- -----------
Total domestic loans............... 31,022,346 30,692,483
=========== ===========
Foreign loans:
Loans to or guaranteed by foreign
banks:
Government owned and central
banks............................... - -
Other foreign banks.................. 1,369,015 615,166
Commercial and industrial.............. 385,426 406,503
Loans to other financial institutions.. 245 -
----------- -----------
Total foreign loans................. 1,754,686 1,021,669
----------- -----------
Total loans....................... $32,777,032 $31,714,152
=========== ===========
The following represents the Corporation's non-accrual loans, renegotiated loans
and other real estate owned for the years ended December 31, 1996 and 1995:
1996 1995
---------- -----------
Non-accrual loans
Domestic............................... $220,770 $223,602
Foreign................................ - -
Total non-accrual loans........... 220,770 223,602
Renegotiated loans (a)................. 18 7,202
-------- --------
Total non-performing loans........ 220,788 230,804
-------- --------
Other real estate owned (OREO)......... 24,175 37,502
-------- --------
Total non-performing assets............ $244,963 $268,306
======== ========
- ---------------
(a) There were no foreign renegotiated loans in any periods presented.
The following reflects the effect of non-accrual and renegotiated loans on both
interest income and net interest income for the three years ended December 31,
1996, 1995 and 1994:
1996 1995 1994
-------- -------- -------
Interest income which would have been recorded in accordance with original
terms:
Domestic.......................... $20,244 $27,452 $35,554
Foreign........................... - 8 9
------- ------- -------
Total......................... 20,244 27,460 35,563
------- ------- -------
Interest income reflected in total
operating income:
Domestic.......................... 8,977 14,354 12,599
------- ------- -------
Total......................... 8,977 14,354 12,599
------- ------- -------
Net reduction in interest income and
net interest income................... $11,267 $13,106 $22,964
======= ======= =======
The Corporation has traditionally maintained limits on industry, market and
borrower concentrations as a way to diversify and manage credit risk. The
Corporation's current policy is to limit industry concentrations to 50% of total
equity and to limit market segment concentrations to 10% of total assets. The
Corporation manages industry concentrations by applying these dollar limits to
industries that have common risk characteristics.
At December 31, 1996 and 1995, the Corporation had loans totaling $110,948 and
$152,436, respectively, to its officers, directors and companies in which the
directors had a 10% or more voting interest. These loans were made on
substantially the same terms, including interest rates and collateral, as those
prevailing at the time for comparable transactions with unrelated persons and do
not involve more than normal risk of collectibility. The 1996 additions and
reductions were $376,984 and $418,472, respectively.
Included in loans at December 31, 1996 and 1995 were $446,000 and $514,000,
respectively, of loans held for sale and carried at lower of cost or market.
The book value of real estate loans transferred to other real estate owned
during 1996, 1995 and 1994 was $19,536, $29,337 and $79,539, respectively.
The following presents information on derivative financial instruments used to
manage interest rate risk associated with loans:
1996 1995
------------ ------------
At December 31,
Notional value................ $9,118,000 $4,251,000
Unrealized gains.............. 64,000 104,000
Unrealized losses............. 19,000 5,000
Effect on loan yield for the
years ended December 31,
From.......................... 8.92% 9.37%
To............................ 9.03% 9.43%
5. INVESTMENT SECURITIES
The carrying and fair values of investment securities at December 31, 1996 and
1995 were as follows:
Gross Gross
Amortized Unrealized Unrealized Fair
Cost Gains Losses Value
----------- ---------- ---------- -----------
1996
Held-to-Maturity
U.S. Treasury and
Government agencies.......... $ 362,736 $ 3,501 $ 815 $ 365,422
State and municipal............. 366,012 8,548 95 374,465
Mortgage-backed................. 463,796 52 1,023 462,825
Other:
Domestic..................... 442,082 340 7,529 434,893
Foreign...................... 54,432 224 18 54,638
---------- ------- ------- ----------
Total held-to-maturity..... $1,689,058 $12,665 $ 9,480 $1,692,243
========== ======= ======= ==========
Available-for-Sale
U.S. Treasury and
Government agencies.......... $1,512,966 $ 9,207 $ 1,061 $1,521,112
State and municipal............. 59,864 468 335 59,997
Mortgage-backed................. 505,527 4,494 4,854 505,167
Other:
Domestic..................... 186,029 14,096 939 199,186
Foreign...................... 87,741 20,974 11 108,704
---------- ------- ------- ----------
Total available-for-sale... $2,352,127 $49,239 $ 7,200 $2,394,166
========== ======= ======= ==========
1995
Held-to-Maturity
U.S. Treasury and
Government agencies.......... $ 978,603 $12,198 $ 1,310 $ 989,491
State and municipal............. 469,330 13,276 552 482,054
Mortgage-backed................. 1,136,486 5,587 4,950 1,137,123
Other:
Domestic..................... 444,090 4,107 12,323 435,874
Foreign..................... 31,408 16 2 31,422
---------- ------- ------- ----------
Total held-to-maturity..... $3,059,917 $35,184 $19,137 $3,075,964
========== ======= ======= ==========
Available-for-Sale
U.S. Treasury and
Government agencies.......... $1,570,689 $17,098 $ 1,744 $1,586,043
State and municipal............. 78,625 1,174 94 79,705
Mortgage-backed................. 620,727 6,508 4,838 622,397
Other:
Domestic..................... 186,409 45,555 955 231,009
Foreign...................... 31,844 21,317 - 53,161
---------- ------- ------- ----------
Total available-for-sale... $2,488,294 $91,652 $ 7,631 $2,572,315
========== ======= ======= ==========
On November 15, 1995, the FASB issued a Special Report, "A Guide to
Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities", which permitted an enterprise to reassess the
appropriateness of the classification of all investment securities held between
November 15, 1995 and December 31, 1995. Based on its reassessment, the
Corporation reclassified $1,726,739 in investment securities previously
classified as held-to-maturity to the available-for-sale category. Unrealized
gains on transferred investments were $12,160, unrealized losses were $8,340,
and the fair value was $1,730,559.
Marketable equity securities are carried in the available-for-sale portfolio and
have been written up by $34,808 at December 31, 1996 and $66,061 at December 31,
1995, the aggregate of their excess fair values over cost, through after-tax
credits to retained earnings. The Corporation recorded pre-tax gains of $13,210
in 1996, $7,654 in 1995 and $14,167 in 1994 on sales of certain domestic equity
securities. During 1996 and 1995, the Corporation recorded pre-tax gains of
$28,656 and $13,596, on the exchange of certain domestic equity securities.
During 1996, 1995 and 1994, the Corporation recorded pre-tax gains of $18,924,
$939 and $2,567 on sales of foreign equity securities.
Included in mortgage-backed securities available-for-sale at December 31, 1996
were mortgage residual securities with an amortized cost and fair value of
$5,989 and $7,569, respectively. Pre-tax write-downs of $5,276 were recognized
in 1994 on these investments and were included in securities gains and losses.
At December 31, 1996 and 1995, there were no investments in securities of any
single, non-Federal issuer in excess of 10% of shareholders' equity.
Securities with a carrying value of $1,734,355 were pledged at December 31, 1996
to secure public deposits, trust deposits, and for certain other purposes as
required by law.
The amortized cost and estimated fair value of debt securities at December 31,
1996, by contractual maturity, are shown below. Expected maturities will differ
from contractual maturities because borrowers may have the right to prepay
obligations without prepayment penalties.
Amortized Fair
Cost Value
----------- -----------
Held-to-Maturity
Due in one year or less.................. $ 220,553 $ 221,808
Due after one year through five years.... 595,215 599,835
Due after five years through ten years... 94,845 97,802
Due after ten years...................... 46,533 49,385
Mortgage-backed securities............... 463,796 462,825
---------- ----------
$1,420,942 $1,431,655
========== ==========
Available-for-Sale
Due in one year or less.................. $ 562,884 $ 564,608
Due after one year through five years.... 1,100,626 1,106,603
Due after five years through ten years... 11,591 11,627
Due after ten years...................... 26,130 26,161
Mortgage-backed securities............... 505,527 505,167
---------- ----------
$2,206,758 $2,214,166
========== ==========
Proceeds from sales of investments in debt securities during 1996, 1995, and
1994 were $1,411,398, $560,022, and $739,457,respectively. Gross gains of $4,100
in 1996, $11,180 in 1995, and $14,646 in 1994, and gross losses of $5,378 in
1996, $1,894 in 1995, and $5,005 in 1994 were realized on those sales.
6. REGULATORY AND CAPITAL MATTERS
The Corporation and its subsidiaries are subject to the regulations of certain
Federal and state agencies including minimum risk-based and leverage capital
guidelines issued by the Federal Reserve Board and Comptroller of the Currency.
Failure to meet minimum capital requirements can initiate certain mandatory and
possibly additional discretionary actions by regulators that, if undertaken,
could have a direct material effect on the Corporation's financial statements.
Under capital adequacy guidelines and the regulatory framework for prompt
corrective action, the Corporation must meet specific capital guidelines that
involve quantitative measures of the Corporation's assets, liabilities, and
certain off-balance-sheet items as calculated under regulatory accounting
practices. The Corporation's capital amounts and classification are also subject
to qualitative judgments by the regulators about components, risk weightings,
and other factors.
At December 31, 1996, management believes that the Corporation and its principal
bank subsidiary, CBNA, meet all capital adequacy requirements to which they are
subject. The following table illustrates the Corporation's and CBNA's risk-
based and leverage capital ratios at December 31, 1996 and 1995:
Per Regulatory Guidelines
---------------------------------------------------------------
Actual Minimum "Well-Capitalized"
------------------------ ----------------------------- --------------------------------
December 31, 1996 Amount Ratio Amount Ratio Amount Ratio
-------------- -------- --------------- ------------ ----------------- ---------
Tier 1 capital (a):
Consolidated .................... $3,725,318 9.45% $1,576,914 4% $2,365,372 6%
CBNA ............................ 3,270,045 8.90 1,471,992 4 2,207,987 6
Total capital (b):
Consolidated .................... 5,215,789 13.23 3,153,829 8 3,942,286 10
CBNA ............................ 4,206,434 11.43 2,943,983 8 3,679,979 10
Tier 1 leverage ratio:
Consolidated .................... 3,725,318 8.46 1,321,090 3 2,201,817 5
CBNA ............................ 3,270,045 7.80 1,257,745 3 2,096,241 5
December 31, 1995 Tier 1 capital (a):
Consolidated .................... 3,534,144 9.20 1,537,225 4 2,305,838 6
CBNA ............................ 1,404,622 7.57 742,217 4 1,113,326 6
Total capital (b):
Consolidated .................... 4,890,929 12.71 3,074,450 8 3,843,063 10
CBNA ............................ 1,966,829 10.60 1,484,434 8 1,855,543 10
Tier 1 leverage ratio:
Consolidated .................... 3,534,144 7.99 1,327,425 3 2,212,374 5
CBNA ............................ 1,404,622 6.83 616,934 3 1,028,223 5
(a) Consists primarily of common shareholders' equity and Trust Capital
Securities, less goodwill and certain intangible assets.
(b) Consists of Tier 1 capital plus qualifying subordinated debt and the
allowance for loan losses, within permitted limits.
The primary source of funds for cash dividend payments by the Corporation to its
shareholders is dividends received from its banking subsidiaries. The approval
of the Comptroller of the Currency is required for a nationally chartered bank
to pay dividends if the total of all dividends declared in any calendar year
exceeds the bank's net profits (as defined by national banking regulations) for
that year combined with its retained net profits for the preceding two calendar
years. Under this formula, CBNA and CBD can declare dividends without approval
of the Comptroller of the Currency of approximately $112,000 and $18,000,
respectively, plus an additional amount equal to CBNA's and CBD's retained net
profits for 1997 up to the date of any such dividend declaration. The Federal
Reserve Act requires that extensions of credit by CBNA to certain affiliates,
including the Corporation, be secured by specified amounts and types of
collateral, that extensions of credit to any such affiliate generally be limited
to 10% of capital and surplus (as defined in that Act) and that extensions of
credit to all such affiliates be limited to 20% of capital and surplus.
The Corporation's banking subsidiaries are required to maintain reserve balances
with the Federal Reserve Bank. The average amount of those reserve balances for
the years ended December 31, 1996 and 1995 were approximately $257,000 and
$429,000, respectively.
7. ALLOWANCE FOR LOAN LOSSES
The following represents an analysis of changes in the allowance for loan losses
for the years ended December 31, 1996, 1995 and 1994:
1996 1995 1994
--------- --------- ---------
Balance at beginning of period................. $ 670,265 $ 681,124 $ 636,915
Provision charged to operating expense......... 228,767 144,002 279,195
Recoveries of loans previously charged off..... 92,985 85,226 83,914
Loan charge-offs............................... (281,690) (240,087) (341,454)
Allowance for loans sold at date of sale....... - - (2,377)
Allowance for loans purchased at date
of purchase................................. - - 1,192
Allowance for loans of bank acquired
under purchase method of accounting........... - - 23,739
--------- --------- ---------
Balance at end of period....................... $ 710,327 $ 670,265 $ 681,124
========= ========= =========
The following presents information on loans that are considered impaired under
FAS 114:
At December 31, 1996 1995
--------- ---------
Recorded investment in impaired loans......... $183,330 $203,399
Impaired loans against which a portion
of the allowance for loan losses is
specifically allocated..................... 74,609 88,973
Amount of allowance for loan losses
specifically allocated to impaired loans... 15,105 24,445
For the years ended December 31,
Average recorded investment in impaired
loans...................................... 197,854 257,746
Interest income recognized on impaired
loans...................................... 8,977 14,354
8. PREMISES AND EQUIPMENT
Premises and equipment on the consolidated balance sheet is presented net of
accumulated depreciation and amortization of $667,412 and $711,830 at December
31, 1996 and 1995, respectively. Depreciation and amortization of premises and
equipment for the years ended December 31, 1996, 1995, and 1994, was $95,897,
$98,033 and $95,240, respectively.
9. OPERATING LEASES
Rental expense, reduced by sublease rental income, charged to operations was
$90,982, $85,419 and $85,554 for 1996, 1995 and 1994, respectively.
10. DEPOSITS
The following presents a breakdown of deposits at December 31, 1996 and 1995:
1996 1995
----------- -----------
Domestic:
Non-interest bearing checking.... $ 9,330,445 $ 8,937,147
Savings, NOW and money
market accounts................ 13,299,068 14,125,906
Time deposits.................... 9,687,887 9,757,820
----------- -----------
Total domestic deposits....... 32,317,400 32,820,873
Overseas branches and subsidiaries.. 1,409,756 1,142,947
----------- -----------
Total deposits................ $33,727,156 $33,963,820
=========== ===========
Domestic time deposits in denominations of $100 or more at December 31, 1996,
1995, and 1994 were:
1996 1995 1994
----------- ---------- ----------
Commercial certificates of deposit.. $ 754,437 $ 695,970 $ 611,206
Other domestic time deposits,
principally savings certificates... 613,126 501,058 533,336
----------- ---------- ----------
Total........................... $ 1,367,563 $1,197,028 $1,144,542
=========== ========== ==========
Interest expense on domestic time deposits in denominations of $100 or more for
the years ended December 31, 1996, 1995, and 1994 was:
1996 1995 1994
----------- ---------- ----------
Interest expense:
Commercial certificates of
deposit........................... $ 30,857 $ 36,520 $ 22,499
Other domestic time deposits,
principally savings certificates.. 25,451 30,057 24,138
----------- ---------- ----------
Total........................... $ 56,308 $ 66,577 $ 46,637
=========== ========== ==========
Substantially all of the deposits of overseas branches and subsidiaries were
time deposits in denominations of $100 or more for each of the three years
presented.
The following presents information on derivative financial instruments used to
manage interest rate risk associated with deposits:
1996 1995
----------- -----------
At December 31,
Notional value................. $5,314,000 $6,962,000
Unrealized gains............... 50,000 106,000
Unrealized losses.............. 16,000 8,000
Effect on deposit cost for the
year ended December 31,
From........................... 3.62% 3.75%
To............................. 3.49% 3.76%
11. SHORT-TERM FUNDS BORROWED
Short-term funds borrowed at December 31, 1996 and 1995 include the following:
1996 1995
------------ -----------
Federal funds purchased (a)................ $ 532,334 $1,129,432
Securities sold under agreements to
repurchase (b)............................ 656,397 812,281
Commercial paper (c)....................... 675,181 1,255,656
Other short-term funds borrowed (d)........ 769,245 479,644
---------- ----------
Total short-term funds borrowed (e)..... $2,633,157 $3,677,013
========== ==========
(a) Federal funds purchased generally represent the overnight Federal funds
transactions of banking subsidiaries with correspondent banks. The weighted
average interest rate paid was 5.54% in 1996, 6.02% in 1995 and 4.58% in 1994.
The maximum amount outstanding at any month-end was $1,977,950 during 1996,
$2,060,375 during 1995, and $1,646,440 during 1994.
(b) Securities sold under agreements to repurchase usually mature within one to
thirty days or are due on demand. The weighted average interest rate paid was
4.52% in 1996, 5.03% in 1995 and 3.44% in 1994. The maximum amount outstanding
at any month-end was $836,722 during 1996, $863,937 during 1995, and $1,025,217
during 1994.
(c) Commercial paper issued by CSCC is used to finance the short-term borrowing
requirements of certain banking-related activities. Commercial paper is issued
with maturities of not more than nine months and there are no provisions for
extension, renewal or automatic rollover. The weighted average interest rate on
commercial paper borrowings was 5.44% in 1996, 5.94% in 1995, and 4.24% in 1994.
The maximum amount outstanding at any month-end was $1,106,078 during 1996,
$1,388,927 during 1995, and $919,292 during 1994.
At December 31, 1996, the Corporation had a $700,000 revolving credit
facility from unaffiliated banks. The facility was established in support of
commercial paper borrowings, Medium Term Note (see Note 12) issuance and general
corporate purposes. Unless extended by the Corporation in accordance with the
terms of the facility agreement, the facility expires February 2000. There were
no borrowings under this facility at December 31, 1996. The interest rate
charged for usage of these lines varies with money market conditions.
(d) Other short-term funds borrowed include term Federal funds purchased,
short-term Bank Notes and demand notes payable to the U.S. Treasury.
(e) The aggregate average short-term funds borrowed were $2,958,655 in 1996,
$3,751,518 in 1995, and $3,435,972 in 1994. The weighted average interest rate
was 5.18% in 1996, 5.71% in 1995 and 4.35% in 1994. The average interest rate is
calculated primarily on a daily average of short-term funds borrowed.
12. LONG-TERM DEBT
Long-term debt at December 31, 1996 and 1995 includes the following:
CoreStates Financial Corp: 1996 1995
------------ ------------
6 5/8% Notes due 2000 (a)......................... $ 150,000 $ 150,000
7 7/8% Subordinated Notes due 2002 (b)............ 100,000 100,000
7 7/8% Subordinated Notes due 1996................ - 75,000
8 5/8% Mortgages due 2001......................... 6,603 8,823
Unamortized Discounts............................. (271) (325)
---------- ----------
256,332 333,498
---------- ----------
CSCC:
6 3/4% Guaranteed Subordinated
Notes due 2006 (c).............................. 200,000 -
5 7/8% Guaranteed Subordinated
Notes due 2003 (c).............................. 200,000 200,000
6 5/8% Guaranteed Subordinated
Notes due 2005 (c).............................. 175,000 175,000
9 5/8% Guaranteed Subordinated
Notes due 2001 (c).............................. 150,000 150,000
9 3/8% Guaranteed Subordinated
Notes due 2003 (c).............................. 100,000 100,000
Medium Term Notes (d)............................. 1,509,000 1,036,035
Unamortized Discounts............................. (4,990) (3,631)
---------- ----------
2,329,010 1,657,404
---------- ----------
CoreStates Capital I:
8% Trust Capital Securities due 2026(e)........... 300,000
Unamortized Discounts............................. (6,491)
----------
293,509
----------
Other subsidiaries:
6 5/8% Subordinated Notes due 2003 (f)............ 150,000 150,000
Federal Home Loan Bank Borrowings (g)............. 2,888 42,888
Various other..................................... 18,175 29,022
Unamortized Discounts............................. (617) (713)
---------- ----------
170,446 221,197
---------- ----------
Total long-term debt (h).......................... $3,049,297 $2,212,099
========== ==========
(a) The Notes are unsecured and senior in right of payment to all subordinated
indebtedness of the Corporation. The Notes are not redeemable by the Corporation
or the holders prior to the maturity date and are not entitled to the benefit of
any sinking fund.
(b) The Notes are unsecured and subordinate in right of payment to all present
and future senior indebtedness of the Corporation. The Notes are not redeemable
by the Corporation or the holders prior to the maturity date and are not
entitled to the benefit of any sinking fund.
(c) The Notes are not subject to redemption prior to maturity and are
unconditionally guaranteed, on a subordinated basis, as to payment of principal
and interest by the Corporation. The Notes are subordinated to all existing and
future senior CSCC indebtedness and the guarantee is subordinated to all
outstanding senior Corporation indebtedness.
(d) CSCC can issue Medium Term Notes (Senior and Subordinated) with maturities
of nine months or greater from date of issue. The interest rate or interest rate
formula on each Note is established by CSCC at the time of issuance. The Senior
Notes are unconditionally guaranteed as to payment of principal and interest by
the Corporation. The Subordinated Notes are unconditionally guaranteed, on a
subordinated basis, as to payment of principal and interest by the Corporation.
The Subordinated Notes are subordinated to all existing and future senior CSCC
indebtedness and the guarantee is subordinated to all existing and future senior
Corporation indebtedness. At December 31, 1996, $1,509,000 of debt is
outstanding with maturities up to five years. Interest rates are predominately
variable.
Under an existing shelf registration statement filed with the
Securities and Exchange Commission, the Corporation had debt and capital
securities that were registered but unissued of approximately $1,085,000 at
December 31, 1996.
(e) The Trust Capital Securities evidence a preferred ownership interest in a
trust, of which 100% of the common equity is owned by CBNA. The Trust Capital
Securities are unconditionally guaranteed by CBNA. The proceeds from issuance of
the Trust Capital Securities are invested in 8% Junior Subordinated Deferrable
Interest Debentures of CBNA due 2026. These Subordinated Debt Securities have
provisions enabling certain actions such as redemption or the deferment of the
semiannual payments of interest, which will impact the Trust Capital Securities.
CBNA may redeem the Subordinated Debt Securities in whole or in part, on or
after December 15, 2006. In addition, Subordinated Debt Securities may be
redeemed by CBNA at any time upon the occurrence of certain events. In the event
of such a redemption of the Subordinated Debt Securities, the proceeds of such
payment or repayment shall concurrently be applied to redeem the Trust Capital
Securities.
(f) The Notes were issued by CBNA and are unsecured and subordinate to the
claims of depositors and other creditors. The Notes are not redeemable by CBNA
or the holders prior to the maturity date and are not entitled to the benefit of
any sinking fund.
(g) The borrowing matures in July 2016 and carries a fixed interest rate of
6.66%. These borrowings require membership in the Federal Home Loan Bank of
Pittsburgh and the maintenance of available collateral with a fair value which
approximates the total amount of the outstanding debt.
(h) The consolidated aggregate maturities for long-term debt for the years
ending December 31, 1997 through 2001 are: $376,637; $528,562; $395,740;
$216,672; and $298,203, respectively.
The following presents information on derivative financial instruments used to
manage interest rate risk associated with long-term debt:
1996 1995
---------- --------
At December 31,
Notional value........................... $1,019,000 $614,000
Unrealized gains......................... 16,000 24,000
Unrealized losses........................ 13,000 8,000
Effect on long-term debt cost for
the years ended December 31,
From..................................... 6.53% 6.78%
To....................................... 6.38% 6.76%
13. RETIREMENT AND BENEFIT PLANS
The fair value of the assets in the Corporation's defined benefit pension plans
exceeded the projected benefit obligation by $57,158 at December 31, 1996, based
on current and estimated future salary levels. The excess of the fair value of
plan assets is reconciled to the accrued pension cost included in other
liabilities as follows:
December 31,
-----------------------
1996 1995
--------- --------
Plan assets at fair value(a)...................... $902,947 $815,621
-------- --------
Present value of benefit obligation:
Accumulated benefits based on salaries to date,
including vested benefits of $667,536 in 1996
and $611,077 in 1995.......................... 688,102 647,743
Additional benefits based on estimated future
salary levels................................. 157,687 175,454
-------- --------
Projected benefit obligation...................... 845,789 823,197
-------- --------
Amount the fair value of plan assets exceeds (is
less than) the projected benefit obligation at
December 31,................................... 57,158 (7,576)
Reconciliation:
Unrecognized prior service cost................ 30,770 11,676
Unrecognized net asset from date of initial
application................................... (20,016) (25,357)
Net deferred actuarial loss (gain)............. (91,835) 22,151
-------- --------
Prepaid (accrued) pension expense included in
other liabilities................................ $(23,923) $ 894
======== ========
- ---------------
(a) Primarily U.S. Government securities, U.S. agency securities, fixed income
securities, common stock, and commingled funds managed by subsidiary banks.
Net pension cost for the years ended December 31, 1996, 1995 and 1994 included
the following expense (income) components:
1996 1995 1994
--------- --------- --------
Service cost benefits earned during
the period.......................... $ 29,020 $ 24,492 $ 30,411
Interest cost on projected benefit
obligation.......................... 60,793 54,497 51,881
Actual (return) loss on plan assets... (121,868) (162,143) 22,038
Net amortization and deferral......... 53,887 96,484 (80,394)
--------- --------- --------
Net pension cost.................... $ 21,832 $ 13,330 $ 23,936
========= ========= ========
The weighted average discount rate used in determining the actuarial present
value of the projected benefit obligation for the Corporation was 7.5% and
7.0%-7.5%; respectively, at December 31, 1996 and 1995. The rate of increase on
future compensation levels was 5.0% to 6.0% in both 1996 and 1995. The expected
long-term rate of return on plan assets was 7.5%-9.5% in both 1996 and 1995.
The Corporation sponsors a 401(k) savings plan for substantially all its
employees. Contributions to the savings plan for the employer's match were
$18,955 in 1996, $18,192 in 1995, and $23,140 in 1994.
The ESOP is a leveraged plan funded through a direct loan from the Corporation.
The ESOP has acquired a total of 2,450,000 shares of common stock for
distribution to eligible employees ratably over a 20 year period. Compensation
cost has been recognized based on the fair market value of the shares committed
to be released to employees. Total compensation cost recognized was $5,378 in
1996 and $3,600 in 1995. Dividends on allocated shares are paid to participants
and are charged to retained earnings. Dividends on unallocated shares are used
by the ESOP to reduce its loan. Effective January 1, 1997 the ESOP was combined
with the Corporation's 401(k) savings plan.
The Corporation and its subsidiaries provide postretirement health care and life
insurance benefits for substantially all retired employees. Postretirement
benefits are provided through an insurance company whose premiums are based on
the benefits paid during the year. The postretirement health care plan is
contributory, with retiree contributions based on years of service.
The liability for postretirement benefits included in other liabilities at
December 31, 1996 and 1995 was as follows:
1996 1995
--------- ---------
Accumulated postretirement benefit obligation:
Retirees...................................... $ (68,702) $(125,502)
Fully eligible active plan participants....... (1,827) (3,864)
Other active plan participants................ (29,748) (39,709)
--------- ---------
Accumulated postretirement benefit obligation.... (100,277) (169,075)
Plan assets at fair value (a).................... 52,591 46,974
--------- ---------
Unfunded obligation at December 31,.............. (47,686) (122,101)
Unrecognized prior service cost.................. (45,239) 115
Unrecognized net gain............................ (51,157) (22,638)
--------- ---------
Accrued postretirement benefit obligation
included in other liabilities................... $(144,082) $(144,624)
========= =========
- ------------------
(a) Primarily municipal bonds and short-term investments.
Net periodic postretirement benefit cost for the years ended December 31, 1996,
1995 and 1994 included the following expense (income) components:
1996 1995 1994
------- ------- -------
Service cost benefits earned during
the period............................. $ 2,769 $ 3,044 $ 3,602
Interest cost on accumulated
postretirement benefit obligation...... 7,947 11,932 11,931
Actual return on plan assets............. (1,527) (1,107) (461)
Net amortization and deferral............ (6,069) (1,436) (730)
------- ------- -------
Net periodic postretirement benefit
cost................................... $ 3,120 $12,433 $14,342
======= ======= =======
For measurement purposes, the rate of increase in the per capita cost of covered
health care benefits was assumed to be 5.5% per year and remains at that level
until a predetermined benefit cap is reached. This fixed dollar cap was
established as the per capita projected cost level in 1997 associated with the
Corporation's indemnity medical plan. The health care cost trend rate assumption
has an effect on the amounts reported. To illustrate, increasing the
assumed health care cost trend rates by 1 percentage point in each year would
increase the accumulated postretirement benefit obligation as of December 31,
1996 by $4,479 and the aggregate of the service and interest cost components of
net periodic postretirement benefit cost for the year then ended by $745.
The expected long-term rate of return on plan assets was 6.0%. The weighted-
average discount rate used in determining the Corporation's accumulated
postretirement benefit obligation was 7.5% and 7.0%, respectively, at December
31, 1996 and 1995.
14. LONG-TERM INCENTIVE PLAN
The Corporation has outstanding options granted under the Corporation's long-
term incentive plan (the "Plan"). As provided in the Plan, a variety of
incentives can be issued to eligible participants including restricted stock
awards, incentive stock options, non-qualified stock options, stock appreciation
rights, performance units and cash awards. Meridian, Constellation,
Independence, United Counties and Germantown had maintained similar plans.
Options granted under those plans were assumed by the Corporation upon
consummation of their respective acquisitions. The Plan provides for a maximum
number of options available to be granted each year equal to 2% of outstanding
common shares as of January 1 of that year. Options under the Plan are granted
to purchase the Corporation's common shares at market value on the date of grant
and are exercisable one year from the date of grant for a period not exceeding
ten years from the date of grant. Stock appreciation rights may be granted in
conjunction with the granting of an option.
Information on option activity for 1996 follows:
Shares under Weighted-Average
Option Exercise Price
------------ ----------------
Balance at January 1, 1996....... 8,581,554 $23.86
Options granted.................. 1,968,001 (a) 41.49
Options exercised................ (4,519,411) 23.27
Options canceled................. (241,080) 31.84
----------
Balance at December 31, 1996..... 5,789,064 29.98
==========
- -----------------
(a) The fair value of options granted during 1996 was $12.6 million.
The following table summarizes information about options outstanding at December
31, 1996:
Options Outstanding Options Exercisable
------------------------------------------------- ------------------------------
Weighted-Average
Range of Number Remaining Weighted-Average Number Weighted-Average
Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- --------------- ----------- ---------------- ---------------- ----------- ----------------
$ 3.99 to $15.67 293,947 2.69 years $13.34 293,947 $13.34
$16.12 to $23.27 912,288 6.20 21.51 912,288 21.51
$25.41 to $29.95 2,977,462 7.94 27.74 2,977,462 27.74
$37.96 to $42.63 1,605,367 9.13 41.98 221,843 37.96
--------- ---------
$ 3.99 to $42.63 5,789,064 7.73 29.98 4,405,540 25.37
========= =========
The Corporation uses the intrinsic value method of accounting to measure
compensation expense. If the fair value method had been used to measure
compensation expense, net income would have been reduced by $7.4 million, or
$0.04 per share and $7.2 million, or $0.03 per share, to $641.8 million, or
$2.93 per share, and $647.9 million, or $2.92 per share, for the years ended
December 31, 1996 and 1995, respectively.
The fair value of options granted in 1996 and 1995 was estimated at the date of
grant using a Black-Scholes option pricing model with the following weighted-
average assumptions, respectively: risk-free interest rates of 5.49% to 7.80%,
dividend yield of 4.0%, volatility factors of the expected market price of the
Corporation's common stock of .148 to .223, and a weighted-average expected life
of the options of 6 years.
The Black-Scholes option valuation model was developed for use in estimating the
fair value of traded options which have no vesting restrictions and are fully
transferable. In addition, option valuation models require the input of highly
subjective assumptions including the expected stock price volatility. Because
the Corporation's employee stock options have characteristics significantly
different from those of traded options, and because changes in the subjective
input assumptions can materially affect the fair value estimate, in management's
opinion, the existing models do not necessarily provide a reliable single
measure of the fair value of its employee stock options.
15. OFF-BALANCE SHEET DERIVATIVE FINANCIAL INSTRUMENTS, COMMITMENTS AND
CONTINGENT LIABILITIES
In the normal course of business, there are outstanding commitments and
contingent liabilities which are not reflected in the financial statements.
These include various financial instruments with off-balance sheet risk used in
connection with the Corporation's asset and liability management, the management
of interest rate risk in securities trading positions and to provide for the
needs of customers. These involve varying degrees of credit, interest rate and
liquidity risk, but do not represent unusual risks for the Corporation and
management does not anticipate any significant losses as a result of these
transactions.
Derivative Financial Instruments Held or Issued for Purposes Other Than Trading
The Corporation uses off-balance sheet derivative financial instruments, such as
interest rate swaps, futures and caps, to manage interest rate risk. The
Corporation's exposure to interest rate risk stems from the mismatch between the
sensitivity to movements in interest rates of the Corporation's assets and
liabilities and from the spread risk between the rates on those assets and
liabilities and financial market rates. The use of derivatives to manage
interest rate risk falls into three categories: interest sensitivity
adjustments, interest rate spread protection and hedging anticipated asset
sales.
Interest rate swaps and futures are generally used to lengthen the interest rate
sensitivity of short-term assets and to shorten the repricing characteristics of
longer term liabilities. Interest rate caps are used to manage spread risk.
Interest rate caps are also used to offset the risk of upward interest rate
movement on adjustable rate mortgages and other products with imbedded caps as
well as to reduce the risk that interest rate spreads narrow on prime based
products. Gains or losses are used to adjust the basis of the related asset or
liability and interest differentials are adjustments of the related interest
income or expense.
In connection with anticipated sales of longer term assets acquired through
merger or generated in the loan origination process, the Corporation uses
interest rate swaps, rate locks and option agreements to reduce interest rate
sensitivity as the assets are readied for sale. Hedge gains or losses are used
to adjust the basis of the assets held for sale.
Derivative financial instruments used in the management of interest rate risk at
December 31, 1996 are summarized below (in millions):
Interest Interest Interest
rate rate rate caps Other
swaps futures and floors derivatives Total
Interest Sensitivity Adjustment:
Assets (primarily loans):
Notional amount $4,092 $4,451 $ 8 $ 80 $ 8,631
Unrealized gains 64 2 - - 66
Unrealized losses (19) - - - (19)
Deposits and other borrowings:
Notional amount 4,132 925 150 5,207
Unrealized gains 35 13 2 50
Unrealized losses (16) - - (16)
Long-term debt:
Notional amount 869 150 1,019
Unrealized gains 13 3 16
Unrealized losses (13) - (13)
Spread Protection:
Assets (primarily loans):
Notional amount 50 500 550
Unrealized gains 3 2 5
Unrealized losses - - -
Deposits and other borrowings:
Notional amount 107 107
Unrealized gains - -
Unrealized losses - -
Anticipated Asset Sales:
Notional amount 37 37
Unrealized gains - -
Unrealized losses - -
Total
Notional amount $9,143 $4,451 $1,540 $ 417 $15,551
------- ------ ------ ------ --------
Unrealized gains $ 115 $ 2 $ 15 $ 5 $ 137
------- ------ ------ ------ --------
Unrealized losses $ (48) $ - $ - $ - $ (48)
------- ------ ------ ------ --------
Net unrealized gains $ 67 $ 2 $ 15 $ 5 $ 89
------- ------ ------ ------ --------
A summary of interest rate swap contracts categorized by whether the Corporation
receives or pays fixed rates and stratified by repricing or maturity date is
below (in millions):
Years
0-1 1-2 2-3 3-4 4-5 over 5 Total
Receive Fixed/Pay Floating:
Receive Notional $1,775 $1,271 $1,346 $1,402 $1,538 $1,050 $8,382
Rate 6.32% 6.30% 6.79% 6.41% 6.50% 6.74% 6.50%
Pay Notional $8,382 $8,382
Rate 5.68% 5.68%
Pay Fixed/Receive Floating:
Pay Notional $ 15 $ 9 $ 25 $ 49
Rate 8.60% 8.09% 9.26% 8.84%
Receive Notional $ 49 $ 49
Rate 5.60% 5.60%
Receive Floating/Pay Floating:
(Basis Swaps)
Notional $ 230 $ 230
Receive Rate 5.54% 5.54%
Pay Rate 5.58% 5.58%
Receive Fixed/Pay Floating(a):
(Forward Start)
Receive Notional $ 160 $ 275 $ 47 $ 482
Rate 7.07% 6.48% 7.05% 6.73%
Start Date Notional $ 115 $ 132 $ 235 $ 482
(a) Pay rate will be determined on forward start date.
Foreign currency derivatives used for hedging activities
have not had a material impact on income or liquidity of the Corporation for any
of the years presented.
Derivative Financial Instruments Held or Issued for Trading Purposes
In its business of providing risk management services for its customers, the
Corporation purchases and sells certain derivatives including interest rate
swaps, caps and floors. In addition, as part of its international business, the
Corporation enters into foreign exchange contracts on behalf of customers. These
contracts are matched against forward sale or purchase contracts. Customer
related derivative financial instrument transactions are generally marked to
market and any gains or losses are recorded in the income statement. The
Corporation also holds derivatives in connection with its securities trading
activities and, at times, as a position taken in the expectation of profiting
from favorable movements in interest rates. These products include tender option
bonds and Treasury float contracts. Included in the income statement are trading
revenues from derivatives of $29,242 of which $22,557 represents net foreign
exchange gains included in fees for international services.
Outstanding notional amounts and related fair values of trading and customer
related derivative financial instruments at December 31, 1996 and 1995 are
summarized by type of instrument below (in millions):
1996 1995
Positive Negative
Notional Net assets Market Market Notional Net assets
amount (liability)(a) Value Value amount (liability)(a)
Interest Rate Swaps:
CoreStates receives fixed $ 355 $ 1.5 $ 2.7 $ (1.2) $ 115 $ 2
CoreStates pays fixed 353 (1.0) 1.3 (2.3) 115 (2)
Futures 39 0.4 0.4 - 2 -
Rate Locks:
CoreStates receives fixed 30 (0.1) - (0.1) 15 -
CoreStates pays fixed 30 0.1 0.1 - 15 -
Interest Rate Caps/Floors:
Sold 705 (2.7) - (2.7) 517 (1)
Purchased 704 2.7 2.7 - 517 1
Commitments to purchase/ sell whole mortgage
loans and securities (including when-issued
securities):
Sold 83 (0.2) 0.1 (0.3) 117 (2)
Purchased 19 - - - 106 2
Other Options:
Sold 206 6.5 7.1 (0.6) 247 6
Purchased 334 0.8 0.8 624 1
Foreign exchange contracts (b) 1,766 (0.5) 28.0 (28.5) 1,695 2 (c)
--------- --------- ---------- ---------- --------- --------
Total Trading and Customer Related
Derivatives $ 4,624 $ 7.5 $ 43.2 $ (35.7) $ 4,085 $ 9
---------- ----------- ----------- --------- ---------- ---------
_____________________________________
(a) Average net assets (liabilities) during 1996 and 1995 were substantially the same as the net assets (liabilities)
at December 31, 1996 and 1995, respectively.
(b) Foreign exchange contracts purchased and sold at December 31, 1996 were $836 million and $930 million, respectively,
and at December 31, 1995 were $853 million and $842 million, respectively.
(c) Gross assets and (liabilities) on foreign exchange contracts at December 31, 1995 were $16 million and
$14 million, respectively.
The following is a summary of off-balance sheet commitments and derivative
financial instruments as of December 31, 1996 and 1995, including fair values.
See Note 3 for a discussion of fair value.
1996 1995
------------------------- ----------------------------
Notional Fair Notional Fair
or Value or Value
Contractual of Asset Contractual of Asset
Amount (Liability) Amount (Liability)
----------- ----------- ----------- -----------
Standby letters of credit, net of participations (a) ................ $ 1,630,621 $ (16,306) $ 1,548,551 $ (14,502)
Commercial letters of credit ........................................ 1,262,593 (12,625) 1,324,714 (13,157)
Commitments to extend credit (b) .................................... 15,396,553 (21,204) 14,565,636 (16,135)
Unused commitments under credit card lines .......................... 4,173,013 -- 3,872,641 --
When-issued securities (c):
Commitments to purchase .......................................... 1,770 -- 500 --
Commitments to sell .............................................. 75,120 (140) 145,000 (1,411)
Commitments to purchase/sell whole mortgage loans and securities (c):
Commitments to purchase .......................................... 17,280 30 109,714 2,071
Commitments to sell .............................................. 7,965 (70) 47,259 (1,738)
Mortgage loans sold and loan servicing acquired with
recourse (d) ...................................................... 361,410 (9,637) 434,628 (12,260)
Interest rate futures contracts (e):
Commitments to purchase .......................................... 4,489,800 2,781 621,000 658
Commitments to purchase foreign and U.S. currencies (f) ............ 1,766,122 (488) 1,695,148 1,567
Interest rate swaps, notional principal amounts (g) ................. 9,850,708 67,673 9,945,840 206,186
Interest rate caps and floors (h):
Written .......................................................... 908,799 (2,842) 847,323 (1,229)
Purchased ........................................................ 2,039,331 17,383 1,673,023 25,021
Tender option bonds (i) ............................................. 148,711 5,976 208,103 4,995
Treasury float contracts (j) ........................................ 270,358 682 623,738 884
Other derivatives ................................................... 597,261 5,644 174,674 645
(a) Standby letters of credit ("SBLC") are used in various transactions to
enhance the credit standing of the Corporation's customers and are subjected to
the same risk, credit review and approval process as loans. SBLC's are
irrevocable assurances that the Corporation will make payment in the event that
a customer cannot perform its contractual obligations to third parties.
(b) Commitments to extend credit represent the Corporation's obligation to fund
various types of loans, including home equity lines, lines of credit, revolving
lines of credit and other types of commitments.
(c) The Corporation has commitments to purchase/sell mortgage-backed securities
or loans with delivery at a future date but typically within 120 days. The fair
value of these instruments is affected by interest rates. In a declining
interest rate environment, commitments to sell mortgage-backed securities or
loans will decline in value. In a rising interest rate environment, commitments
to buy mortgage-backed securities or loans will increase in value.
Forward agreements to sell securities are used in transactions with
municipalities that generally have a debt payment due in the future. Under these
agreements, the Corporation agrees to deliver primarily United States Treasury
securities that will mature on or before the required payment date. The type and
associated interest rate of these securities is established when the agreement
is entered. The primary risk associated with forward agreements is interest rate
risk to the extent the required securities have not been purchased. If interest
rates fall, securities yielding the higher agreed upon fixed rate will be more
expensive for the Corporation to purchase.
Included in when-issued securities and commitments to purchase/sell whole
mortgage loans and securities are customer and trading-related products with a
notional value of $102,135 and $223,873 at December 31, 1996 and 1995,
respectively.
(d) The Corporation originates and sells residential mortgage loans as part of
various mortgage-backed security programs sponsored by the United States
government agencies or government-sponsored agencies, such as the Government
National Mortgage Association, Federal Home Loan Mortgage Corporation and the
Federal National Mortgage Association. Certain sales and other servicing
acquired are subject to recourse provisions in the event of default by the
borrower. The Corporation provides for potential losses under these recourse
provisions by establishing reserves at the time of sale and evaluates the
adequacy of these reserves on an ongoing basis.
(e) Exchange traded futures contracts represent agreements to exchange dollar
amounts at a specified future date for interest rate differentials between an
agreed interest rate and a reference rate, computed on a notional amount. Credit
and market risk exist with respect to these instruments. Exchange traded futures
contracts entail daily cash settlement; therefore, the credit risk amount
represents a one-day receivable.
(f) Commitments to purchase foreign and U.S. currencies are primarily executed
for the needs of customers. These foreign exchange contracts are structured
similar to interest rate futures and forward contracts. The risk associated with
a foreign exchange contract arises from the counterparty's ability to make
payment at settlement and that the value of a foreign currency might change in
relation to the U.S. dollar. The Corporation's exposure, if any, to counterparty
failure equals the current market value of the contract, which at December 31,
1996 and 1995 was $27,962 and $16,434, respectively. Included in fees for
international services are net foreign exchange gains of $22,557, $22,943, and
$19,783 for the years ended December 31, 1996, 1995 and 1994, respectively.
(g) Interest rate swaps generally represent the contractual exchange of fixed
and variable rate interest payments based on a notional principal amount and an
interest reference rate. Credit risk exists with respect to these instruments
arising from the possible failure of the counterparty to make required payments
on those contracts which are favorable to the Corporation. The Corporation's
exposure to counterparty failure equals the current replacement cost of the
contract. At December 31, 1996 and 1995, the replacement cost of the
Corporation's interest rate swap contracts was $118,929 and $225,140,
respectively. The risk of counterparty failure is controlled by limiting
transactions to an approved list of counterparties and requiring collateral in
certain instances. Net cash received on interest rate swaps during 1996 and 1995
totaled $68,103 and $7,493, respectively.
(h) Interest rate caps and floors are written by the Corporation to enable
customers to transfer, modify or reduce their interest rate risk. Interest rate
caps and floors are similar to interest rate swaps except that payments are made
only if current interest rates move above or below a predetermined rate. The
risk associated with interest rate caps and floors is an unfavorable change in
interest rates. As a writer of interest rate caps and floors, the Corporation
receives a premium in exchange for bearing the risk of an unfavorable change in
interest rates. The Corporation generally reduces risk by entering into
offsetting cap and floor positions that essentially counterbalance each other.
The Corporation also enters interest rate caps to offset the risk of upward
interest rate movement on assets with embedded caps as well as to limit spread
risk. As a purchaser of interest rate caps, the Corporation pays a premium in
exchange for the right to receive payments if interest rates rise above
predetermined levels. The Corporation has also purchased interest rate floors in
which the Corporation has paid a fee for the right to receive payments if rates
fall below a predetermined level. Similar to interest rate swaps, credit risk
exists with respect to the possible failure of the counterparty to make required
payments on those contracts which are favorable to the Corporation. Exposure to
counterparty failure equals the current replacement cost of the
contract which totaled $17,383 and $26,384, respectively, at December 31, 1996
and 1995.
(i) Tender option bonds are instruments associated with municipalities. A
municipality generally issues a tax-free, fixed rate, long-term security in
order to finance the origination of single family residential mortgages. The
municipality enters into a tender option bond program with the Corporation,
which converts the fixed rate long-term instrument into a variable rate
short-term product.
(j) A Treasury float contract is created because a municipality, which has
defeased a bond issue with government securities, has a mismatch in the timing
of the maturity of the securities and the date the funds are needed to pay the
debt service. The Corporation will pay an up-front fee for the right to sell
government securities to the municipality, generally at par. The Corporation
retains any profit between the sales price and the price at which the
Corporation acquired the securities.
Contingent Liabilities
In the normal course of business, the Corporation and its subsidiaries are
subject to numerous pending and threatened legal actions and proceedings, some
for which the relief or damages sought are substantial. Management does not
believe the outcome of these actions and proceedings will have a materially
adverse effect on the consolidated financial position of the Corporation.
16. PROVISION FOR INCOME TAXES
The provision for income taxes for the years ended December 31, 1996, 1995, and
1994 consists of the following:
1996 1995 1994
--------- --------- ---------
Current:
Federal.............................. $344,142 $303,647 $158,771
State................................ 20,401 24,134 19,683
-------- -------- --------
Total domestic.................. 364,543 327,781 178,454
Foreign.............................. 12,121 8,240 5,558
-------- -------- --------
Total current................... 376,664 336,021 184,012
Deferred Federal and state expense...... 9,156 28,420 41,847
-------- -------- --------
Total provision for income taxes $385,820 $364,441 $225,859
======== ======== ========
The significant components of the Corporation's deferred tax assets and
liabilities at December 31, 1996 and 1995 are as follows:
1996 1995
-------- --------
Deferred tax assets:
Allowance for loan losses............... $261,180 $241,487
Postretirement and postemployment
benefits............................... 57,191 54,127
Reserves................................ 56,489 54,779
Other................................... 77,181 70,928
-------- --------
Total deferred tax assets.............. 452,041 421,321
-------- --------
Deferred tax liabilities:
Auto leasing portfolio.................. 142,196 119,894
FAS 115 fair value accounting........... 14,298 15,596
Partnership investments................. 3,781 3,980
Tax over book depreciation.............. 38,446 30,626
Affiliate income........................ 32,873 30,404
Other................................... 71,802 59,405
-------- --------
Total deferred tax liabilities......... 303,396 259,905
-------- --------
Net deferred tax assets.................. $148,645 $161,416
======== ========
At December 31, 1996, cumulative deductible temporary differences related to the
deferred tax asset are approximately $1,292,000. Cumulative taxable temporary
differences related to deferred tax liabilities at December 31, 1996 are
estimated at $867,000.
At December 31, 1996, the Corporation has determined that it is not required to
establish a valuation allowance for the deferred tax asset since it is more
likely than not that the deferred tax asset of $452,041 will be realized
principally through carryback to taxable income in prior years, future reversals
of existing taxable temporary differences, future taxable income and to a lesser
extent, tax planning strategies. The Corporation's conclusion that it is "more
likely than not" that the deferred tax asset will be realized is based on a
history of growth in earnings and the prospects for continued growth, including
an analysis of potential uncertainties that may affect future operating results.
The Corporation will continue to review the tax criteria of "more likely than
not" for the recognition of deferred tax assets on a quarterly basis.
The consolidated effective tax rates are reconciled to the statutory rate as
follows:
1996 1995 1994
----- ------ -----
Statutory rate.................................... 35.0% 35.0% 35.0%
Difference resulting from:
Tax-exempt income............................... (1.6) (2.0) (3.6)
State, local and foreign income tax............. 1.6 1.5 1.9
Other, net...................................... 2.3 1.2 1.0
---- ----- ----
Effective tax rate................................ 37.3% 35.7 % 34.3%
==== ===== ====
Foreign earnings of certain subsidiaries would be taxed only upon their transfer
to the United States. No transfers or dividends are contemplated at this time.
Taxes payable upon remittance of such accumulated earnings of $21,323 at
December 31, 1996 would approximate $7,065.
Taxes, other than income taxes, included in other operating expenses for the
years ended December 31, 1996, 1995 and 1994 are $101,109, $105,913 and
$104,805, respectively.
17. QUARTERLY FINANCIAL DATA (UNAUDITED)
The following represents summarized quarterly financial data of the Corporation,
which, in the opinion of management, reflects all adjustments (comprising only
normal recurring accruals) necessary for a fair presentation:
Three Months Ended
----------------------------------------------------------------------------------
Dec. 31 Sept. 30 June 30 March 31
------- -------- ------- --------
1996
- ----
Interest income....................... $835,649 $823,082 $815,755 $823,718
======== ======== ======== ========
Interest expense...................... $298,561 $282,735 $282,360 $293,064
======== ======== ======== ========
Net interest income................... $537,088 $540,347 $533,395 $530,654
======== ======== ======== ========
Provision for losses on loans......... $ 40,000 $ 40,000 $110,000(a) $ 38,767
======== ======== ======== ========
Securities gains...................... $ 4,036 $ 31,135 $ 17,393 $ 6,948
======== ======== ======== ========
Net income............................ $195,546 $196,857 $ 79,597(a) (b) $177,144
======== ======== ======== ========
Net income per common share........... $0.91 $0.89 $0.36(a) (b) $ 0.81
======== ======== ======== ========
Average common shares
outstanding.......................... 215,866 220,409 219,478 219,512
======== ======== ======== ========
Common Stock Price Information:
High................................. $ 55 3/8 $ 44 $ 43 1/8 $ 44
Low.................................. 42 3/4 35 1/2 35 3/4 36 1/8
Quarter-end.......................... 51 7/8 43 1/4 38 1/2 42 3/8
1995
- ----
Interest income....................... $868,521 $871,164 $884,807 $850,588
======== ======== ======== ========
Interest expense...................... $322,095 $329,592 $337,203 $319,265
======== ======== ======== ========
Net interest income................... $546,426 $541,572 $547,604 $531,323
======== ======== ======== ========
Provision for losses on loans......... $ 38,225 $ 38,050 $ 34,661 $ 33,066
======== ======== ======== ========
Securities gains...................... $ 5,729 $ 2,230 $ 5,512 $ 18,004
======== ======== ======== ========
Net income............................ $192,145 $194,712 $158,150 (c) $110,169 (c)
======== ======== ======== ========
Net income per common share........... $0.87 $0.88 $0.71 (c) $ 0.49 (c)
======== ======== ======== ========
Average common
shares
outstanding.......................... 219,915 220,718 222,440 226,091
======== ======== ======== ========
Common Stock Price Information:
High................................. $ 40 1/8 $ 38 7/8 $ 36 $ 33
Low.................................. 34 5/8 34 1/4 30 1/2 25 5/8
Quarter-end.......................... 37 7/8 36 5/8 34 5/8 32
- -------------------------------
(a) Includes a provision for loan losses of $70.0 million, $45.5 million after-
tax or $0.20 per share, related to the Meridian acquisition.
(b) Includes net restructuring and merger-related charges of $139.7 million,
$105.3 million after-tax or $0.48 per share, primarily recorded in the second
quarter and related to costs associated with the Meridian acquisition.
(c) Includes restructuring charges of $110.0 million pre-tax, $70.0 million
after-tax or $0.31 per share, recorded by CoreStates, and $32.0 million pre-tax,
$20.8 million after-tax or $0.09 per share, recorded by Meridian related to
corporate-wide process redesigns in the first and second quarters, respectively.
18. JOINT VENTURE
In December 1992, the Corporation entered into a joint venture with three other
banking companies creating Electronic Payment Services, Inc. ("EPS"). The joint
venture combines the partners' separate consumer electronic transaction
processing businesses and provides automated teller machine ("ATM") and
electronic point-of-sale ("POS") processing services. The Corporation
contributed to EPS its wholly-owned subsidiaries of Money Access Service Inc.
("MAC"), a regional ATM network, and BUYPASS Corporation, a third-party
processor of electronic POS transactions.
At the formation of EPS, the Corporation had equal ownership with two partners
in the joint venture, each with 31%. The fourth partner owned 7%. As part of the
1992 transaction, the Corporation received a cash payment of $79,350 and
$245,400 of EPS 5% cumulative redeemable preferred stock. The exchange of assets
involved in the transaction resulted in a 1992 pre-tax gain to the Corporation
of $41,072, $25,670 after-tax. The exchange also generated a deferred gain of
approximately $138,000.
In December 1993, the Corporation and EPS mutually agreed to enter into a
recapitalization of EPS involving the EPS preferred stock held by the
Corporation. In exchange for substantially all of the preferred stock, the
Corporation received from EPS a ten-year 6.45% note providing for equal
principal payments over the life of the note. The recapitalization did not
affect the amount of deferred gain, but changed the timing of deferred gain
income recognition from a five-year period beginning in 1996 to a ten-year
period which began in 1994.
On March 27, 1995, EPS added a new partner and increased the ownership interests
of an existing partner to that of a full partner, resulting in a decrease in the
Corporation's share of ownership from 31% to 20%. As a direct result of this
change in ownership interests, the Corporation recognized a pre-tax gain of
$19,000, $11,800 after-tax or $0.05 per share, in 1995. Included in the pre-tax
gain amount was $4,000 related to the acceleration of deferred gain recognition.
The Corporation's investment in EPS at December 31, 1996, net of $104,000
deferred gain, is $65,304 and is included in other assets. "Income from
investment in EPS, Inc.", which is included in non-interest income, reflects the
Corporation's share in EPS net income, interest income on the 6.45% note and
amortization of the deferred gain.
19. RESTRUCTURING AND MERGER-RELATED CHARGES
A summary of restructuring and merger-related charges for the years ended
December 31, 1996 and 1995 were as follows:
1996 1995
---------- ----------
Meridian and United Counties merger-related
restructuring charges.............................. $161,598 $ 10,000
Meridian merger-related implementation costs........ 29,019 -
Process redesign restructuring charges.............. - 142,000
Gains on sales of branches.......................... (43,064) (3,988)
Pension curtailment gains........................... (7,851) (9,412)
-------- --------
Total............................................ $139,702 $138,600
======== ========
In 1996, the Corporation recorded merger-related restructuring charges of
$161,598, $120,150 after-tax or $0.55 per share, in connection with the
acquisitions of Meridian and United Counties. The charges included direct and
incremental costs associated with these acquisitions. The components of the
merger-related restructuring charges were as follows:
Requiring 1996
Cash Cash
Provision Outflow Outflow
--------- --------- ----------
Severance costs........................... $ 70,469 $ 70,469 $33,939
Branch closing costs...................... 33,469 15,102 3,815
Office reconfiguration costs.............. 19,059 2,792 21
Merger transaction costs.................. 14,624 14,624 13,328
System consolidation writedowns........... 6,391 - -
Miscellaneous............................. 17,586 17,593 9,634
-------- -------- -------
Total................................... $161,598 $120,580 $60,737
======== ======== =======
Restructuring and merger-related charges in 1996 also included $29,019, $18,263
after-tax or $0.07 per share, of implementation costs that were incurred in the
process of consolidating Meridian and United Counties businesses and operations.
The Corporation recorded restructuring credits of $50,915, $33,096 after-tax or
$0.14 per share and $13,400, $8,549 after-tax or $0.03 per share in 1996 and
1995, respectively, related to gains on the curtailment of pension benefits
associated with employees displaced during 1996 and 1995 and gains on the sale
of branches which were sold as a result of consolidating the Meridian and United
Counties branches and the process redesigns.
Upon consummation of the merger, the Corporation recorded a $70 million
provision for loan losses in connection with a change in strategic direction
related to Meridian's problem assets and to conform its consumer lending charge-
off policies to those of the Corporation.
In 1995, the Corporation recorded restructuring charges of $142,000, $90,800
after-tax or $0.40 per share, in connection with process redesigns commenced
during that year. The objectives of the process redesigns were: (i) to enhance
customer focus; (ii) to accelerate "cultural changes" which were already in
progress; and (iii) to improve productivity. The charges included direct and
incremental costs associated with the process redesigns. The components of the
process redesign restructuring charges were as follows:
Requiring Cash
Cash Outflow
Provision Outflow to Date
---------- --------- ---------
Severance costs............................... $ 87,900 $ 87,900 $74,944
Office reconfiguration and branch
closing costs.............................. 44,300 16,600 3,881
Outplacement costs............................ 2,500 2,500 2,002
Miscellaneous................................. 7,300 5,300 4,464
-------- -------- -------
Total...................................... $142,000 $112,300 $85,291
======== ======== =======
The following table summarizes the activity in the restructuring and merger-
related accrual for the year ended December 31, 1996:
1996
----------
Balance at beginning of year..................... $ 82,772
Provision charged against income................. 161,598
Cash outflow..................................... (100,258)
Writedowns of assets............................. (35,907)
---------
Balance at December 31,.......................... $ 108,205
=========
20. FINANCIAL STATEMENTS OF THE PARENT COMPANY
STATEMENT OF INCOME Year Ended December 31,
-------------------------------------------
1996 1995 1994
------------- -------------- ------------
REVENUES
- --------
Dividends from subsidiaries:
Banks...................................................... $657,744 $373,023 $389,733
Other subsidiaries......................................... 27,217 91,917 27,575
-------- -------- --------
Total dividends from subsidiaries........................ 684,961 464,940 417,308
Management fees and other income from subsidiaries............ 178,179 190,027 186,092
Securities gains (losses)..................................... (22) 16,343 259
Other income.................................................. 3,054 3,241 1,483
-------- -------- --------
Total revenues........................................... 866,172 674,551 605,142
-------- -------- --------
EXPENSES
- --------
Interest on:
Funds borrowed............................................. 5,606 19,685 11,613
Long-term debt............................................. 22,843 21,578 13,137
-------- -------- --------
Total interest expense................................. 28,449 41,263 24,750
Other operating expenses...................................... 245,836 219,463 210,629
-------- -------- --------
Total expenses........................................... 274,285 260,726 235,379
-------- -------- --------
Income before income tax benefit and equity in
undistributed income of subsidiaries....................... 591,887 413,825 369,763
Income tax benefit............................................ (14,911) (11,977) (15,357)
-------- -------- --------
Income before equity in
undistributed income of subsidiaries......................... 606,798 425,802 385,120
Equity in undistributed income (excess dividends) -------- -------- --------
of subsidiaries:
Banks.................................................... (52,497) 203,909 (9,827)
Other subsidiaries....................................... 94,843 25,465 57,913
-------- -------- --------
Total equity in
undistributed income of
subsidiaries........................................ 42,346 229,374 48,086
-------- -------- --------
NET INCOME.................................................... $649,144 $655,176 $433,206
======== ======== ========
BALANCE SHEET December 31,
-------------------------
1996 1995
------------ -----------
ASSETS
- ------
Cash........................................... $ 1,374 $ 1,340
Time deposits.................................. 887 -
Investment-securities available-for-sale....... 97,786 148,009
Investments and receivables-subsidiaries:
Investments in subsidiaries at equity
in underlying net assets:
Banks...................................... 3,389,148 3,769,779
Other subsidiaries......................... 558,062 427,451
---------- ----------
Total investments in subsidiaries......... 3,947,210 4,197,230
Receivables - subsidiaries................... 40,814 108,827
---------- ----------
Total investments and
receivables-subsidiaries................. 3,988,024 4,306,057
Other assets................................... 80,039 76,453
---------- ----------
Total assets.............................. $4,168,110 $4,531,859
========== ==========
LIABILITIES
- -----------
Funds borrowed - subsidiaries.................. $ - $ 177,827
Dividends payable and other liabilities........ 214,925 143,575
Long-term debt................................. 257,491 334,892
---------- ----------
Total liabilities......................... 472,416 656,294
---------- ----------
SHAREHOLDERS' EQUITY
- --------------------
Total shareholders' equity................ 3,695,694 3,875,565
---------- ----------
Total liabilities and
shareholders' equity..................... $4,168,110 $4,531,859
========== ==========
The Corporation has guaranteed certain borrowings of its subsidiaries
at December 31, 1996 in the amount of $3,259,181, which includes $675,181 for
commercial paper.
The maturities for parent company long-term debt for the years ending
December 31, 1997 through 2001 are: $1,475; $1,607; $1,751; $1,908; and $697,
respectively.
Statement of Cash Flows
Year Ended December 31,
--------------------------------------
1996 1995 1994
---------- ---------- ----------
OPERATING ACTIVITIES
Net income....................................................... $ 649,144 $ 655,176 $ 433,206
Adjustments to reconcile net income to net cash
provided by operating activities:
Undistributed income of subsidiaries......................... (42,346) (229,374) (48,086)
Securities (gains) losses.................................... 22 (16,343) (259)
Deferred income tax expense (benefit)........................ 180 (785) (3,895)
Net (increase) decrease in other assets...................... (6,969) 24,265 6,360
Net increase (decrease) in other liabilities................. 8,454 (22,761) 13,921
Other, net................................................... 7,288 7,840 (8,865)
---------- ---------- ----------
NET CASH PROVIDED BY OPERATING ACTIVITIES..................... 615,773 418,018 392,382
---------- ---------- ----------
INVESTING ACTIVITIES
Net capital returned from (contributed to) subsidiaries.......... 270,226 190,900 (99,903)
(Increase) decrease in receivables from subsidiaries............. 107,069 (3,593) 53,862
Purchases of investment securities............................... (707,008) (170,988) (202,424)
Proceeds from maturities and sales of investment
securities...................................................... 717,536 118,483 188,028
Purchase of Germantown Savings Bank.............................. - - (108,061)
Other, net....................................................... - (1,380) (1,428)
---------- ---------- ----------
NET CASH PROVIDED BY (USED IN) INVESTING
ACTIVITIES.................................................... 387,823 133,422 (169,926)
---------- ---------- ----------
FINANCING ACTIVITIES
Issuance (repayment) of funds borrowed........................... - (75,000) 75,000
Retirement of long-term debt..................................... (77,401) (1,471) (45,568)
Proceeds from issuance of long-term debt......................... - 149,877 -
Net increase (decrease) in financing from and due to
subsidiaries.................................................... (115,498) (94,054) 270,587
Cash dividends paid.............................................. (328,114) (286,565) (245,962)
Purchases of treasury stock...................................... (533,932) (335,528) (228,963)
Purchases of ESOP shares......................................... - - (35,568)
Repurchase and retirement of common stock........................ (57,703) (17,134) (24,888)
Common stock issued under employee benefit plans................. 87,726 99,011 18,710
Funds transferred to Trust for future ESOP purchases............. - - (24,432)
Other, net....................................................... 21,360 6,777 11,294
---------- ---------- ----------
NET CASH USED IN FINANCING ACTIVITIES.............................. (1,003,562) (554,087) (229,790)
---------- ---------- ----------
INCREASE (DECREASE) IN CASH AND DUE FROM BANKS.................... 34 (2,647) (7,334)
Cash and due from banks at January 1,............................. 1,340 3,987 11,321
---------- ---------- ----------
CASH AND DUE FROM BANKS AT DECEMBER 31,........................... $ 1,374 $ 1,340 $ 3,987
========== ========== ==========
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest....................................................... $ 25,267 $ 40,745 $ 24,500
========== ========== ==========
Income taxes................................................... $ - $ 43 $ (626)
========== ========== ==========