SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period
ended September 30, 1994 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period
from __________ to __________.
No. 0-12364
(Commission File Number)
MERIDIAN BANCORP, INC.
(Exact Name of Registrant as Specified in its Charter)
PENNSYLVANIA 23-2237529
(State of Incorporation) (IRS Employer ID Number)
35 NORTH SIXTH STREET, READING, PA 19601
(Address of Principal Executive Offices) (Zip Code)
(610) 655-2000
(Registrant's Telephone Number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Number of Shares Outstanding as of September 30, 1994
COMMON STOCK ($5 Par Value) 57,803,902
(Title of Class) (Outstanding Shares)
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MERIDIAN BANCORP, INC.
FORM 10-Q
For the Quarter Ended September 30, 1994
Contents
PART I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1994 and
September 30 and December 31,
1993 31
Consolidated Statements of Income for
the Three-Month and Nine-Month
Periods Ended September 30, 1994
and 1993 32
Consolidated Statements of Cash Flows
for the Nine-Month Periods Ended
September 30, 1994 and 1993 34
Consolidated Statements of Changes in
Shareholders' Equity for the
Nine-Month Periods Ended
September 30, 1994 and 1993 36
Notes to Consolidated Financial Statements 37
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Management's Discussion and Analysis of
Earnings and Financial Position 1
PART II - OTHER INFORMATION
Item 6. Exhibits and Reports on Form 8-K 40
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PART I
<TABLE>
<CAPTION>
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF EARNINGS AND
FINANCIAL POSITION.
(Dollars in Thousands, Except Per Share Data)
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
1994 1994 1994 1993 1993
------------- ------------- ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest Income........................................ $257,216 $241,942 $221,761 $238,090 $241,574
Interest Expense....................................... 100,799 85,882 75,055 82,553 84,891
Net Interest Income.................................... 156,417 156,060 146,706 155,537 156,683
Provision for Possible Loan Losses..................... 6,121 6,684 8,500 12,480 14,631
Net Interest Income After Provision for
Possible Loan Losses................................ 150,296 149,376 138,206 143,057 142,052
Other Income........................................... 60,796 58,017 60,573 76,127 85,302
Other Expenses......................................... 157,558 147,927 139,606 162,033 178,875
Income Before Income Taxes and Cumulative Effect
of Change in Accounting Principle................... 53,534 59,466 59,173 57,151 48,479
Provision For Income Taxes............................ 16,914 18,682 18,634 15,084 13,850
Income Before Cumulative Effect of Change in
Accounting Principle................................ 36,620 40,784 40,539 42,067 34,629
Cumulative After-Tax Effect of Change in Accounting
Principle .......................................... - - (2,730) - -
Net Income ............................................ $36,620 $40,784 $37,809 $42,067 $34,629
Net Interest Margin (Taxable Equivalent Basis)......... 4.65% 4.85% 4.82% 5.00% 4.97%
Return on Average Assets............................... 0.97% 1.13% 1.10% 1.18% 0.96%
Return on Average Common Shareholders' Equity.......... 11.95% 13.67% 12.91% 14.34% 12.10%
Fully Diluted Earnings Per Share
Income Before Cumulative Effect of Change in
Accounting Principle............................. $0.63 $0.70 $0.70 $0.73 $ .60
Cumulative After-Tax Effect of Change in
Accounting Principle............................. - - (0.05) - -
Net Income ......................................... $0.63 0.70 0.65 0.73 $ .60
Dividends Declared Per Common Share.................... 0.34 0.34 0.32 0.32 0.32
Ratio of Dividends Declared to Net Income.............. 54% 48% 49% 45% 46%
FINANCIAL CONDITION
Average Balances for the Quarter
Securities............................................. $3,476,349 $3,181,511 $3,020,052 $3,090,173 $3,463,329
Loans.................................................. 9,499,372 9,346,014 9,023,567 8,884,350 8,719,725
Assets................................................. 14,996,590 14,451,518 13,905,794 14,110,090 14,371,449
Deposits............................................... 11,380,801 11,165,770 11,092,555 11,164,488 11,278,327
Total Shareholders' Equity............................. 1,215,464 1,196,889 1,188,080 1,163,831 1,135,081
Primary Shares Outstanding............................. 58,301,343 58,170,280 58,187,526 58,002,495 57,917,097
Fully Diluted Shares Outstanding....................... 58,301,343 58,170,280 58,195,971 58,002,495 57,942,128
Total Shareholders' Equity to Assets................... 8.10% 8.28% 8.54% 8.25% 7.90%
At Quarter-End
Securities............................................. $3,475,980 $3,349,682 $3,079,020 $3,060,147 $3,245,765
Loans.................................................. 9,435,170 9,509,716 9,157,827 8,988,044 8,832,862
Assets................................................. 14,782,400 15,196,087 14,009,848 14,084,787 14,334,773
Deposits............................................... 11,310,179 11,678,602 11,127,352 11,346,151 11,171,363
Total Shareholders' Equity............................. 1,231,596 1,214,594 1,193,390 1,185,633 1,146,875
Book Value Per Common Share............................ 21.31 21.01 20.70 20.39 20.00
Market Value per Common Share.......................... 28.75 30.38 29.13 28.50 32.88
Market Value as a Percentage of Book Value............. 135% 145% 141% 140% 164%
Market Capitalization.................................. 1,671,315 1,768,104 1,689,257 1,665,746 1,903,073
Common Shares Outstanding.............................. 57,803,902 57,802,722 57,640,315 58,154,486 57,343,118
Total Shareholders' Equity to Assets................... 8.33% 7.99% 8.52% 8.42% 8.00%
Risk-Based Capital Ratio............................... 13.07% 13.30% 13.81% 13.67% 13.16%
Allowance for Possible Loan Losses..................... 171,126 170,335 171,030 173,388 169,568
Allowance for Possible Loan Losses to Loans............ 1.81% 1.79% 1.87% 1.93% 1.92%
Allowance for Possible Loan Losses to
Non-Performing Loans................................ 182% 165% 143% 136% 130%
Non-Performing Assets as a Percentage of
Total Period-End Loans and
Assets Acquired in Foreclosure...................... 1.33% 1.48% 1.86% 1.98% 2.18%
Non-Performing Assets and Loans Past Due 90 or
more Days as to Interest or Principal as a
Percentage of Loans and Assets Acquired
in Foreclosures..................................... 1.54% 1.85% 2.16% 2.25% 2.48%
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF EARNINGS AND FINANCIAL POSITION
FINANCIAL HIGHLIGHTS
Meridian Bancorp, Inc. (Meridian) reported net income of
$36.6 million in the third quarter of 1994 compared to $34.6
million in the third quarter of 1993, an increase of 6%. On a
fully-diluted per share basis, net income was $.63 in the third
quarter of 1994 compared to $.60 in the third quarter of last
year.
The returns on average assets and on average common
shareholders' equity for the quarter ended September 30, 1994
were .97% and 11.95%, respectively, compared to .96% and 12.10%,
respectively, for the same quarter of last year.
The operating performance of Meridian's securities unit was
significantly lower than expected. Consolidated earnings were
impacted by a loss of $.06 per share in this unit. Financial
market conditions and the current interest rate environment
resulted in reduced trading volumes and a valuation adjustment of
its trading portfolios. Operating income in the securities unit
was $.10 per share in the third quarter of 1993.
The third quarter of 1994 also included additional expenses
of $8.9 million taken as part of the completion of the downsizing
and streamlining of Meridian's mortgage banking activities, and a
gain of $9.0 million on the sale of the company's student loan
portfolio. This portfolio was sold due to the recent
implementation of a federal government program for student loans.
Net interest income was $156.4 million in the third quarter
of 1994 compared to $156.7 million in the third quarter of 1993.
On a taxable equivalent basis, net interest income was $160.8
million compared to $163.0 million in the third quarter of 1993.
The net interest margin was 4.65% in the third quarter of this
year compared to 4.97% a year ago. The net interest margin in
the second quarter of 1994 was 4.85%. The favorable impact on
net interest income of an increase in average loans outstanding
between the third quarters of both years was offset by narrowing
spreads between the yield on interest-earning assets and the cost
of interest-bearing liabilities.
Meridian's provision for possible loan losses was $6.1
million in the third quarter of 1994, down from $6.7 million in
the second quarter of 1994 and $14.6 million in the third quarter
of 1993. The decline over the past year resulted from continued
improvement in loan quality.
Non-performing loans decreased to $94.0 million or 1.00% of
loans at September 30, 1994 compared to $103.2 million or 1.08%
at June 30, 1994 and $130.9 million or 1.48% a year ago. The
ratio of the allowance for possible loan losses to non-performing
loans was 182% at September 30, 1994 compared to 165% at June 30,
1994 and 130% a year ago.
Net loans charged-off in the third quarter of 1994 were $6.4
million compared to $7.5 million in the second quarter of 1994
and $13.0 million in the comparable period a year ago. The
allowance for possible loan losses was 1.81% of total loans at
September 30, 1994 compared to 1.79% at June 30, 1994 and 1.92% a
year ago.
Total non-performing assets also declined to $125.7 million
at September 30, 1994, or 1.33% of loans and assets acquired in
foreclosures, compared to $141.6 million or 1.48% at June 30,
1994 and $193.9 million or 2.18% at September 30, 1993.
Other income decreased by $24.5 million or 29% between the
third quarters of 1994 and 1993. Broker-dealer and investment
banking revenues decreased by $18.8 million, reflecting the
impact of financial market conditions and the current interest
rate environment, which resulted in reduced trading volumes and a
valuation adjustment of the trading portfolios. In addition,
mortgage-banking fees declined by $12.3 million, reflecting a
significant decline in origination volumes due to rising interest
rates and the impact of Meridian's decision to reduce the scope
of its mortgage banking activities. Also, gains from securities
transactions decreased by $7.8 million between the two quarters.
The third quarter of 1994 included a pre-tax gain of $9.0 million
on the sale of the student loan portfolio.
While other operating expenses declined by $21.3 million or
12% between the third quarters of 1994 and 1993, recurring
operating expenses declined by only 1% between those periods.
The third quarter of 1994 included expenses of $8.9 million
related to the completion of the downsizing and streamlining of
Meridian's mortgage banking activities compared to a $17.5
million restructuring charge in the third quarter of last year.
In addition, the third quarter of 1993 included expenses of $11.9
million related to the Commonwealth Bancshares Corporation
merger.
Net income was $115.2 million or $1.98 per fully diluted
share for the first nine months of 1994 compared to $115.7
million or $2.01 per fully diluted share a year ago.
The returns on average assets and on average common
shareholders' equity for the first nine months of 1994 were 1.07%
and 12.89%, respectively, compared to 1.09% and 14.05%,
respectively, for the first nine months of 1993.
Total assets at September 30, 1994 were $14.8 billion
compared to $14.3 billion at September 30, 1993. Total loans
were $9.4 billion compared to $8.8 billion a year ago, a 7%
increase. The consumer portfolio, exclusive of the recent sale
of student loans, increased by 12% during the last year and the
commercial portfolio grew by 7%. Total deposits were $11.3
billion compared to $11.2 billion a year ago, a 1% increase.
Meridian continues to fund a significant portion of its assets
with deposits acquired in its local marketplace.
Shareholders' equity increased to $1.2 billion or 8.33% of
total assets at September 30, 1994 compared to $1.1 billion or
8.00% a year ago. The ratio of tangible shareholders' equity to
assets, which excludes $138.8 million of intangible assets, was
7.46% at September 30, 1994 compared to 7.36% at September 30,
1993. Meridian's risk-based capital ratio was 13.07% at
September 30, 1994, well above regulatory requirements. This
ratio was 13.30% at June 30, 1994 and 13.16% at September 30,
1993.
Book value per common share was $21.31 at September 30, 1994
compared to $20.00 at September 30, 1993, an increase of 7%.
Book value per common share at June 30, 1994 was $21.01.
INDUSTRY SEGMENTS
Table 1 presents a summary of the operating results of
Meridian's two industry segments.
The banking unit provides a full range of retail and
corporate banking, and trust and asset management services to
customers in central and eastern Pennsylvania, as well as
Delaware and southern New Jersey.
The banking unit reported operating income of $39.9 million
in the third quarter of 1994 compared to $29.0 million for the
same period of last year, an increase of 38%. Net interest
income was almost unchanged between the two periods as the
positive impact of an increase in average loans outstanding was
offset by narrowing spreads between the yield on interest-earning
assets and the cost of interest-bearing liabilities. The
provision for possible loan losses declined by $8.5 million
between the two quarters, reflecting continued improvement in
loan quality. Other income declined by $5.8 million, or 9%, as
the positive impact of an $9.0 million gain on the sale of the
student loan portfolio was more than offset by declines in
mortgage banking fees and securities gains. Other expenses
declined by $15.3 million, or 9%, between the two quarters. The
third quarter of 1994 included expenses of $8.9 million related
to the completion of the downsizing and streamlining of
Meridian's mortgage banking activities compared to a $17.5
million restructuring charge in the third quarter of last year.
In addition, the third quarter of 1993 included expenses of $11.9
million related to the Commonwealth Bancshares Corporation
merger.
Operating income was $113.0 million in the first nine months
of 1994 compared to $103.2 million in the similar period of 1993.
The same factors that affected the quarter-to-quarter comparison
contributed to the decline between the two nine-month periods.
The securities unit underwrites, brokers and distributes
securities to institutional and individual investors. In
addition, the unit buys, sells and securitizes loans and brokers
loan servicing. The unit also provides investment banking
services by acting as financial advisors in facilitating
municipal and corporate transactions in the capital markets.
The securities unit reported a loss of $3.2 million in the
third quarter of 1994 compared to operating income of $5.7
million in the third quarter of 1993. Financial market
conditions and the current interest rate environment resulted in
reduced trading volumes and a valuation adjustment of the trading
portfolio. The decline in revenues more than offset a decline in
operating expenses, primarily salaries and incentive-related
compensation expense.
For the first nine months of 1994, the securities unit
reported net income of $2.3 million compared to $12.5 million in
the similar period of 1993. The same factors that affected the
quarter-to-quarter comparison contributed to the decline between
the two nine-month periods.
NET INTEREST INCOME AND RELATED ASSETS AND LIABILITIES
Net interest income was $156.4 million in the third quarter
of 1994 compared to $156.7 million in the same quarter of 1993.
Net interest income on a taxable-equivalent basis was $160.8
million in the third quarter of this year compared to $163.0
million in the same period of last year.
The level of net interest income results from the
interaction between the volume of interest-earning assets and the
sources of funds supporting these assets, and the interest rates
earned on the assets and paid on the funding sources. Average
loans outstanding increased between the third quarters of both
years, offsetting narrowing spreads between the yield on
interest-earning assets and the cost of interest-bearing
liabilities.
Average interest-earning assets increased by $685.9 million
or 5% between the third quarter of 1994 and the same period of
last year. Average loans outstanding increased by 9% between the
two periods, with increases reflected in each of the major loan
categories. Average investment securities and investment
securities available for sale increased by $13.0 million, or less
than 1%. Average deposits were $11.4 billion in the third
quarter of 1994, compared to $11.3 billion in the same period of
last year, an increase of 1%. The increase in interest-earning
assets was funded primarily by an increase in short-term
borrowings.
Partially offsetting the positive impact of the increase in
assets was a decline in the net interest margin, from 4.97% in
the third quarter of 1993 to 4.65% in the third quarter of 1994,
a decrease of 32 basis points. The net interest margin is
affected by both the net interest spread and the level of net
non-interest bearing sources of funds.
The net interest spread decreased 39 basis points between
the two quarters, primarily because the yield on interest-earning
assets was unchanged between the two quarters but the rates on
interest-bearing liabilities increased by 39 basis points. The
yield on commercial loans increased by 63 basis points,
reflecting the increase in the national commercial rate over the
last twelve months. However, the yields on consumer loans,
residential mortgage loans and the investment portfolio declined
between the two quarters. The increase in the rates on interest
bearing liabilities reflected higher rates on both deposits and
short-term liabilities.
Interest-free funding sources increased by $108.1 million
between the two periods primarily as a result of higher levels of
demand deposits and shareholders' equity. The increase in these
balances and the recent upward movement in interest rates
increased the beneficial effect that such funds provided to the
overall cost of funds, from .42% in the third quarter of 1993 to
.49% in the third quarter of 1994.
Net interest income for the nine months ended September 30,
1994 was $459.2 million compared to $461.8 million last year, a
decrease of less than 1%. Average loans outstanding increased
between the two periods, but narrowing spreads between the yield
on interest-earning assets and the cost of interest-bearing
liabilities resulted in the decline in net interest income. The
net interest margins were 4.78% and 4.95% for the first nine
months of 1994 and 1993, respectively.
Table 2 presents net interest income, yields and rates on a
taxable-equivalent basis, and average balances for the third
quarters of 1994 and 1993, the second quarter of 1994, and the
nine months ended September 30, 1994 and 1993, respectively.
Two of Meridian's most important performance goals, in
addition to maintaining a strong capital position, are the
achievement of consistent earnings growth and the maintenance of
financial flexibility sufficient to meet customer and corporate
funding needs at an acceptable cost. Two primary means of
accomplishing these goals are the control of overall interest
rate risk and the management of liquidity.
Meridian manages interest-sensitivity by adjusting the mix
and repricing characteristics of assets and liabilities on the
balance sheet through its securities and purchased funding
portfolios and by the use of off-balance sheet derivative
products, mainly interest rate swaps, which are relatively
straightforward and involve little complexity. The notional
amount of interest rate swap contracts, which include forward
interest rate swaps of $100 million, was $2.9 billion at
September 30, 1994 compared to $2.1 billion a year ago.
The majority of the interest rate swap contracts outstanding
at September 30, 1994, or approximately $2.7 billion, represents
contracts on which Meridian receives a fixed rate of interest and
pays a variable rate, thereby favorably impacting net interest
income in periods of declining interest rates. The average
fixed rate received at September 30, 1994 was 5.00% with a
remaining term of approximately 1 year until maturity or
repricing. The average floating rate paid on interest rate swaps
is based on short-term variable rates such as LIBOR (London
Interbank Offered Rate). The average floating rate paid was
4.83% at September 30, 1994.
Meridian uses interest rate swaps as a tool to alter the
repricing characteristics of a portion of the core deposit base.
Interest expense on deposits was reduced by approximately $1.0
million in the third quarter of 1994 compared to $10.0 million a
year ago. This decline is attributable to the maturities of
interest rate swaps over the past year and a higher level of
short-term interest rates in the third quarter of 1994. For the
first nine months of 1994 and 1993, the comparable amounts were
$14.5 million and $34.1 million, respectively.
The favorable impact of Meridian's interest rate swaps on
net interest income is decreasing in the current environment of
rising interest rates. This change should be mitigated by the
anticipated growth in net interest income mainly because of the
anticipated expansion of Meridian's banking business.
Meridian uses income simulation modeling as the primary tool
in measuring interest rate risk and managing interest rate
sensitivity. Simulation modeling considers not only the impact
of changing market rates of interest on future net interest
income, but also such other potential causes of variability as
earning-asset volume and mix, yield curve relationships, customer
preferences and general market conditions.
The objective of liquidity management is to ensure that
sufficient funding is available, at reasonable cost, to meet the
ongoing operational cash needs of Meridian and to take advantage
of income producing opportunities as they arise. While the
desired level of liquidity may vary depending upon a variety of
factors, it is a primary goal of Meridian to maintain a high
level of liquidity in all economic environments.
Management considers the liquidity position of Meridian at
the end of the third quarter of 1994 to be sufficient to meet its
foreseeable cash flow requirements.
Loans. The lending function is Meridian's principal
business activity and it is Meridian's continuing policy to serve
the credit needs of its customer base. Loans were $9.4 billion
at September 30, 1994 compared to $8.8 billion at September 30,
1993, a 7% increase. Consumer loans, mostly home equity loans
and other types of personal loans, increased by $41.5 million, or
2%, despite the fact that student loans aggregating $223 million
were sold during the third quarter of 1994. Commercial loans
increased by $372.9 million, or 7%, reflecting signs of
increasing loan demand. Residential mortgage loans increased by
$187.9 million or 19%, reflecting the decision to retain more of
the loans being originated by the mortgage banking unit.
Table 3 presents a summary of period-end loan balances.
Investment Securities and Investment Securities Available
for Sale. The second largest use of funds for Meridian is the
portfolio of investment securities and investment securities
available for sale. The balance in the combined portfolio was
$3.5 billion at September 30, 1994, almost unchanged from the
balance of a year ago.
Table 4 presents a summary of the amortized cost,
approximate fair value, and gross unrealized gains and losses for
the portfolio at September 30, 1994 and 1993, and December 31,
1993. The increase in interest rates during the past year has
had a negative impact on the approximate fair value of the
combined portfolios, as reflected in this table.
Deposits. Meridian's deposits, the largest source of funds,
amounted to $11.3 billion at September 30,1994 compared to $11.2
billion at September 30, 1993, an increase of 1%. During the
second quarter of 1994, Meridian assumed approximately $487
million of deposits of Security Federal Savings Bank from the
Resolution Trust Corporation. These additional deposits more
than offset the attrition of deposits which has been occurring in
the relatively low interest rate environment, as some depositors
have sought alternative investment opportunities.
Table 5 presents a summary of period-end deposit balances.
PROVISION FOR POSSIBLE LOAN LOSSES AND RELATED CREDIT QUALITY
The provision for possible loan losses was $6.1 million in
the third quarter of 1994, down from $6.7 million in the second
quarter of 1994 and $14.6 million in the third quarter of 1993.
The provision for the nine months ended September 30, 1994 was
$21.3 million compared to $43.6 million for the same period of
1993, a decrease of 51%. The decline over the past year was due
to a continuing improvement in loan quality.
The balance in the allowance for possible loan losses was
$171.1 million or 1.81% of total loans at September 30, 1994,
compared to $170.3 million or 1.79% at June 30, 1994 and $169.6
million or 1.92% at September 30, 1993.
Net charge-offs were $6.4 million, or .27% of average loans
in the third quarter of 1994 compared to $13.0 million or .59% of
average loans in the third quarter of 1993. Recoveries were $4.9
million in the third quarter of 1994 compared to $2.0 million in
the same period of last year.
Net charge-offs for the nine months ended September 30, 1994
were $24.7 million, compared to $41.0 million in the similar
period of 1993. Net charge-offs represented .36% of average
loans in the first nine months of 1994 compared to .64% last
year.
Determining the level of the allowance for possible loan
losses at any given date is difficult, particularly in a
continually changing economy. Management must make estimates,
using assumptions and information which are often subjective and
changing. Management continues to review Meridian's loan
portfolio in light of a changing economy and possible future
changes in the banking and regulatory environment. In
management's opinion, the allowance for possible loan losses is
adequate at September 30, 1994.
Table 6 presents an analysis of the activity in the
allowance for possible loan losses. Table 7 presents a summary
of various indicators of credit quality.
Non-performing assets are comprised of non-accrual loans,
loans categorized as troubled debt restructurings, and assets
acquired in foreclosures, which include in-substance
foreclosures. Non-performing assets do not include loans past
due ninety days or more as to interest or principal which are
well secured and in the process of collection.
Non-performing assets totalled $125.7 million at September
30, 1994 compared to $141.6 million at June 30, 1994 and $193.9
million a year ago.
Generally, a loan is classified as non-accrual when it is
determined that the collection of interest or principal is
doubtful, or when a default of interest or principal has existed
for 90 days or more, unless such loan is well secured and in the
process of collection. When the accrual of interest is
discontinued, unpaid interest is reversed through a charge to
interest income. The majority of non-accrual loans are secured by
various forms of collateral, the ultimate recoverability of which
is, however, subject to economic conditions and other factors.
Meridian's non-accrual loans, which totalled $92.8 million
at September 30, 1994, included four loans with balances in
excess of $2.5 million. These loans aggregated $13.8 million or
15% of total non-accrual loans at the end of the third quarter of
1994.
A loan is categorized as a troubled debt restructuring if
the original interest rate on the loan, repayment terms, or both,
were restructured on a below market basis, due to a deterioration
in the financial condition of the borrower.
A loan is classified as an in-substance foreclosure when the
borrower is perceived to have little or no equity in the project,
there is no apparent ability or willingness of the borrower to
rebuild equity or repay the loan in the foreseeable future, and
the bank can reasonably anticipate proceeds for repayment only
from the operation or sale of the collateral. These assets are
carried at the lower of cost or fair value, less estimated
selling expenses.
Assets acquired in foreclosures (except consumer related),
which totalled $30.6 million at the end of the third quarter of
1994, included one property with a balance in excess of $2.5
million. This property had a balance of $7.1 million or 22% of
assets acquired in foreclosures.
Reference should be made to Table 3 for a summary of the
period-end balances in the loan portfolio. There has not been a
significant change in the percentage of each category to total
loans from a year ago.
In addition, reference should be made to Table 8 for a
breakdown of commercial loans by major industry and to Table 9
for a breakdown of commercial real estate loans by category. As
can be seen in these tables, Meridian's portfolio of commercial
loans and commercial real estate loans is diversified and covers
a wide range of borrowers. This diversification generally
characterizes the economy of Meridian's primary market area. Of
Meridian's commercial real estate loans, almost all, or 97%, are
to borrowers for property in Pennsylvania, Delaware, and New
Jersey, of which Pennsylvania has 80%, or the largest single
share. In connection with the decision to extend credit to
particular borrowers, Meridian takes into account, among other
things, asset diversification and particular risks presented by
the different industries in which such borrowers compete, in
light of changing economic circumstances.
Loan concentrations are considered to exist when a multiple
number of borrowers are engaged in similar activities and have
similar economic characteristics which would cause their ability
to meet contractual obligations to be similarly impacted by
economic or other conditions. At September 30, 1994, Meridian
did not have any industry concentration or other known
concentration of commercial loans and commitments that exceeded
10% of total loans and commitments. However, the financial
performance of many companies involved in retail trade has been
negatively impacted in recent periods. At September 30, 1994,
Meridian's loans to companies in retail trade totalled $731.4
million, or 8% of total loans outstanding and 13% of total
commercial loans outstanding. Included in this total were loans
to department stores and other retailers of $374.3 million and
loans to automobile dealers of $357.1 million. Loans to
companies in retail trade included $9.0 million of loans in a
non-accrual status at September 30, 1994. This amount represents
10% and 7% of non-performing loans and non-performing assets,
respectively, at the end of the third quarter of 1994. Meridian
has no foreign loan exposure.
Meridian's policy has been to participate selectively in
large, public, highly leveraged transactions. The majority of
such transactions is currently in the telecommunications industry
and its cable television and cellular phone segments. According
to the guidelines issued by the Federal Reserve Board, loans and
exposures are characterized as highly leveraged transactions if
they meet certain defined leverage criteria and the total
financing package (including all obligations held by all
participants) originally exceeded $20 million. At September,
1994, Meridian's highly leveraged transactions aggregated $35.6
million in outstanding balances or less than .4% of total loans
and an additional $14.0 million in commitments. All such
balances were current as to principal and interest at September
30, 1994. Cable television and cellular phone exposures
represented $15.0 million of such loans outstanding and $4.4
million of the commitments outstanding.
Potential problem loans consist of loans which are included
in performing loans at September 30, 1994 but for which potential
credit problems of the borrowers have caused management to have
concerns as to the ability of such borrowers to comply with
present repayment terms. At September 30, 1994, such potential
problem loans, not included in Table 7, aggregated approximately
$23 million, compared to $29 million at June 30, 1994. No loans
to companies in retail trade were included in potential problem
loans at September 30, 1994. Depending on the state of the
economy and the impact thereof on Meridian's borrowers, as well
as other future events, these loans and others not currently so
identified could be classified as non-performing assets in the
future.
OTHER INCOME
Other income decreased by $24.5 million or 29% between the
third quarters of 1994 and 1993, primarily because of declines in
broker-dealer and investment banking revenue and mortgage banking
revenue.
Mortgage banking revenues were $3.0 million in the third
quarter of 1994, a decrease of $12.3 million from the third
quarter of 1993. Revenues were negatively impacted in the third
quarter of 1993 by amortization of $6.5 million for purchased
mortgage servicing rights, which is recorded as a reduction of
servicing revenues. There was no amortization in the third
quarter of 1994 since all purchased mortgage servicing rights
have been sold or written-off. Exclusive of the change in the
amortization of purchased mortgage servicing rights, mortgage
banking revenues declined by $18.7 million, or 86%, between the
two periods, reflecting the company's decision to reduce the
scope of its mortgage banking activities. Servicing fee revenues
declined $7.8 million, or 87%, primarily as a result of a lower
mortgage loan servicing portfolio. Gains on the sale of mortgage
loans and mortgage servicing decreased by $6.5 million between
the two periods. Origination fees declined by $4.1 million, or
85%, between the two quarters, reflecting lower levels of
mortgage loan refinancing and new home financing.
Broker-dealer and investment banking revenues totalled $1.9
million in the third quarter of 1994 compared to $20.7 million in
the same period a year ago, a decrease of 91%. The decrease in
revenues reflects the impact of financial market conditions and
the current interest rate environment, which resulted in reduced
trading volumes and a valuation adjustment of the trading
portfolios.
Trust revenues were $13.5 million in the third quarter of
1994 compared to $9.7 million in the same period of last year, an
increase of 38%. Each major revenue category evidenced a
significant increase between the two quarters.
Service charges on deposits and fees for other customer
services increased by $1.6 million, or 6%, for the three months
ended September 30, 1994 compared to the same period of last
year. Increases in certain fees for deposit products, as well as
additional deposit accounts because of bank acquisitions over the
past year, contributed to the higher level of fees.
Net securities gains were $2.1 million in the third quarter
of 1994 compared to gains of $9.9 million in the same period of
last year. The amount in 1993 included gains of $8.3 million
related to the sale of investments as part of the Commonwealth
merger. The amount in 1994 was comprised of gains of $2.1
million and losses of $6 thousand. These net gains do not
include losses of $44 thousand from sales primarily of certain
mortgage-related investments, which are included in broker-dealer
and investment banking revenues. The gains and losses in both
years resulted mainly from sales of investments classified as
available for sale and calls of investments.
Other income for the first nine months of 1994 was $179.4
million compared to $209.1 million a year ago. The same factors
that affected the quarter-to-quarter comparison contributed to
the decline between the nine month periods.
OTHER EXPENSES
Other expenses for the third quarter of 1994 were $157.6
million compared to $178.9 million for the same quarter of 1993,
a decrease of $21.3 million, or 12%. The third quarter of 1994
included expenses of $8.9 million related to the completion of
the downsizing and streamlining of Meridian's mortgage banking
activities compared to a $17.5 million restructuring charge in
the third quarter of last year. In addition, the third quarter
of 1993 included expenses of $11.9 million related to the
Commonwealth Bancshares Corporation merger. Exclusive of these
non-recurring items, other operating expenses would have declined
by 1% between the third quarters of 1994 and 1993.
Salaries and employee benefits totalled $75.5 million in the
third quarter of 1994 compared to $78.7 million in the third
quarter of 1993, a decrease of 4%. A decline in commissions and
other incentive-related compensation in the securities unit and
the impact of a significant decline in staff levels in the
mortgage banking function more than offset the effect of
increases in staff levels in the banking unit and in the broker-
dealer and investment banking function because of acquisitions
over the past year.
Net occupancy and equipment expense was $20.5 million in the
third quarter of 1994 compared to $19.8 million in the same
period last year, an increase of 4%. Most of the increase
resulted from the cost of operating additional branch banking
facilities acquired over the past year.
Other operating expenses were $61.6 million in the third
quarter of 1994 compared to $80.4 million in the third quarter of
1993. Exclusive of the non-recurring expenses described above,
other operating expenses were $52.7 million in the third quarter
of 1994 compared to $51.0 million in the third quarter of 1993,
an increase of 3%. Categories contributing to the increase
included expenses related to the automated teller network and
credit card servicing, as well as the amortization of intangible
assets related to recent acquisitions.
Other expenses for the nine months ended September 30, 1994
were $445.1 million compared to $474.8 million for the same
period of last year, a decrease of 6%. The same factors that
affected the quarter-to-quarter comparison contributed to the
decline between the nine month periods.
PROVISION FOR INCOME TAXES
The effective tax rate was 32% in the third quarter of 1994,
up from 29% in the same quarter of 1993. The rate for the entire
year of 1993 was 28%. The tax rate for both periods was less
than the federal statutory rate of 35% primarily because of tax-
exempt investment and loan income. The rate has increased since
last year because of a decline in tax-exempt investment and loan
income.
CAPITAL RESOURCES
Meridian's capital adequacy at September 30, 1994 can be
determined by analyzing the capital ratios presented in Table 10.
Total shareholders' equity at September 30, 1994 was $1.2
billion compared to $1.1 billion at September 30, 1993, an
increase of 7%. Total shareholders' equity was $1.2 billion at
June 30, 1994. The ratio of total shareholders' equity to total
assets was 8.33% at September 30, 1994 compared to 8.00% one year
ago and 7.99% at June 30, 1994.
Meridian's consolidated ratios at September 30, 1994
exceeded all regulatory requirements. The risk-based capital
ratio was 13.07% at September 30, 1994 compared to 13.16% a year
ago and 13.30% at June 30, 1994. The ratio of tangible
shareholders' equity to assets was 7.46% at September 30, 1994
compared to 7.36% a year ago and 7.39% at June 30, 1994. The
risk-based capital ratios of each of Meridian's commercial banks
also exceeded regulatory requirements at September 30, 1994, as
shown in the table.
Federal Reserve Board guidelines define a well capitalized
institution as having a Tier 1 capital ratio of 6% or more, a
total risk-based capital ratio of 10% or more, and a leverage
ratio of 5% or more. Meridian's consolidated ratios at September
30, 1994 exceeded these guidelines, as did the ratios of each of
Meridian's commercial banks.
<PAGE>
<TABLE>
<CAPTION>
TABLE 1:INDUSTRY SEGMENTS
(Dollars in Thousands)
Net Income (Loss) Assets
-------------------------------------- -----------------------------------------
Three Months Ended Nine Months Ended
September 30 September 30 September 30 December 31
1994 1993 1994 1993 1994 1993 1993
--------- -------- --------- --------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Banking................. $39,850 $28,971 $112,953 $103,242 $14,251,308 $13,838,456 $13,751,699
Securities.............. (3,230) 5,658 2,260 12,452 531,092 496,317 333,088
Consolidated............ $36,620 $34,629 $115,213 $115,694 $14,782,400 $14,334,773 $14,084,787
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 2: NET INTEREST INCOME, AVERAGE BALANCES AND RATES
(Dollars in Thousands)
1994 1993
Three Months Ended September 30 Three Months Ended September 30
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------------ --------- ------ ------------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-Earning Assets
Short-Term Investments
Interest-Bearing Deposits in Other Banks..... $104,413 $1,228 4.67% $100,057 $830 3.29%
Federal Funds Sold and Securities Purchased
Under Agreements to Resell................. 80,285 830 4.10 79,351 615 3.07
Total Short-Term Investments............... 184,698 2,058 4.42 179,408 1,445 3.20
Trading Account Securities (1)................. 171,978 3,004 6.99 176,086 4,831 10.88
Investment Securities Available for Sale (1)... 421,923 7,116 6.75 770,241 13,559 7.04
Investment Securities
Taxable...................................... 2,716,866 36,284 5.30 2,291,286 32,254 5.63
Non-Taxable (1).............................. 337,560 6,902 8.18 401,802 8,412 8.37
Total Investment Securities................ 3,054,426 43,186 5.62 2,693,088 40,666 6.04
Loans Held for Sale............................ 407,179 7,868 7.73 515,124 9,174 7.12
Loans
Commercial (1)............................... 5,688,403 120,272 8.39 5,281,480 103,360 7.76
Real Estate-Residential...................... 1,148,129 23,353 8.14 979,450 21,823 8.91
Consumer..................................... 2,662,840 54,702 8.15 2,458,795 53,049 8.56
Total Loans (2)............................ 9,499,372 198,327 8.29 8,719,725 178,232 8.12
Total Interest-Earning Assets.............. 13,739,576 261,559 7.56 13,053,672 247,907 7.56
Allowance for Possible Loan Losses............... (173,795) -- -- (174,314) - --
Non-Interest Earning Assets...................... 1,430,809 -- -- 1,492,091 - --
Total Assets, Interest Income.............. $14,996,590 $261,559 6.93% $14,371,449 $247,907 6.86%
LIABILITIES
Interest-Bearing Liabilities
Interest-Bearing Deposits
NOW Accounts................................. $1,509,477 $5,721 1.50% $1,333,463 $5,448 1.62%
Savings Deposits............................. 2,008,349 11,373 2.25 1,791,779 9,673 2.14
Money Market Deposit Accounts................ 2,310,570 15,238 2.62 2,397,934 10,587 1.75
Short-Term Time Deposits..................... 733,107 5,798 3.14 862,045 7,747 3.57
Long-Term Time Deposits...................... 2,560,325 30,052 4.66 2,575,169 27,486 4.23
Certificates of Deposits of $100,000 or More. 513,199 6,404 4.95 593,045 6,698 4.48
Total Interest-Bearing Deposits............ 9,635,027 74,586 3.07 9,553,435 67,639 2.81
Short-Term Borrowings
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase........ 1,547,730 16,984 4.35 910,532 7,418 3.23
Commercial Paper............................. 2,965 47 6.29 1,418 11 3.08
Other Short-Term Borrowings.................. 194,379 2,836 5.79 240,620 1,634 2.69
Total Short-Term Borrowings................ 1,745,074 19,867 4.52 1,152,570 9,063 3.12
Long-Term Debt and Other Borrowings............ 395,710 6,346 6.41 492,493 8,189 6.65
Total Interest-Bearing Liabilities......... 11,775,811 100,799 3.40 11,198,498 84,891 3.01
Non-Interest Sources to Fund
Interest-Earning Assets
Non-Interest Bearing Deposits................ 1,745,774 -- -- 1,724,892 -- --
Other Liabilities............................ 259,541 -- -- 312,978 -- --
Shareholders' Equity......................... 1,215,464 -- -- 1,135,081 -- --
Total Non-Interest Sources to Fund
Interest-Earning Assets.................. 3,220,779 -- -- 3,172,951 -- --
Total Liabilities and Shareholders' Equity,
Interest Expense......................... $14,996,590 100,799 2.67% $14,371,449 84,891 2.35%
NET INTEREST INCOME.............................. $160,760 $163,016
NET INTEREST SPREAD (3)........................ 4.16% 4.55%
EFFECT OF NON-INTEREST BEARING FUNDS........... 0.49% 0.42%
NET INTEREST MARGIN (4)........................ 4.65% 4.97%
<CAPTION>
1994
Three Months Ended June 30
Interest Average
Average Income/ Yield/
Balance Expense Rate
------------ --------- ------
<S> <C> <C> <C>
ASSETS
Interest-Earning Assets
Short-Term Investments
Interest-Bearing Deposits in Other Banks..... $101,229 $1,096 4.34%
Federal Funds Sold and Securities Purchased
Under Agreements to Resell................. 110,027 1,010 3.68
Total Short-Term Investments............... 211,256 2,106 4.00
Trading Account Securities (1)................. 167,541 2,822 6.76
Investment Securities Available for Sale (1)... 307,218 5,788 7.56
Investment Securities
Taxable...................................... 2,544,745 33,730 5.30
Non-Taxable (1).............................. 329,548 6,871 8.34
Total Investment Securities................ 2,874,293 40,601 5.65
Loans Held for Sale............................ 354,758 6,727 7.58
Loans
Commercial (1)............................... 5,635,904 112,241 7.99
Real Estate-Residential...................... 1,052,070 21,128 8.03
Consumer..................................... 2,658,040 55,119 8.32
Total Loans (2)............................ 9,346,014 188,488 8.09
Total Interest-Earning Assets.............. 13,261,080 246,532 7.45
Allowance for Possible Loan Losses............... (175,083) -- --
Non-Interest Earning Assets...................... 1,365,521 -- --
Total Assets, Interest Income.............. $14,451,518 $246,532 6.84%
LIABILITIES
Interest-Bearing Liabilities
Interest-Bearing Deposits
NOW Accounts................................. $1,476,267 $4,707 1.28%
Savings Deposits............................. 1,978,187 9,956 2.02
Money Market Deposit Accounts................ 2,320,546 13,158 2.27
Short-Term Time Deposits..................... 753,259 5,707 3.04
Long-Term Time Deposits...................... 2,427,049 26,197 4.33
Certificates of Deposits of $100,000 or More. 468,620 5,657 4.84
Total Interest-Bearing Deposits............ 9,423,928 65,382 2.78
Short-Term Borrowings
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase........ 1,223,315 11,590 3.80
Commercial Paper............................. 8,688 76 3.51
Other Short-Term Borrowings.................. 222,532 2,639 4.76
Total Short-Term Borrowings................ 1,454,535 14,305 3.94
Long-Term Debt and Other Borrowings............ 364,471 6,195 6.80
Total Interest-Bearing Liabilities......... 11,242,934 85,882 3.06
Non-Interest Sources to Fund
Interest-Earning Assets
Non-Interest Bearing Deposits................ 1,741,842 -- --
Other Liabilities............................ 269,853 -- --
Shareholders' Equity......................... 1,196,889 -- --
Total Non-Interest Sources to Fund
Interest-Earning Assets.................. 3,208,584 -- --
Total Liabilities and Shareholders' Equity,
Interest Expense......................... $14,451,518 85,882 2.38%
NET INTEREST INCOME.............................. $160,650
NET INTEREST SPREAD (3)........................ 4.39%
EFFECT OF NON-INTEREST BEARING FUNDS........... 0.46%
NET INTEREST MARGIN (4)........................ 4.85%
<CAPTION>
1994 1993
Nine Months Ended September 30 Nine Months Ended September 30
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------------ --------- ------ ------------- --------- ------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-Earning Assets
Short-Term Investments
Interest-Bearing Deposits in Other Banks..... $99,185 $3,092 4.17% $111,298 $2,966 3.56%
Federal Funds Sold and Securities Purchased
Under Agreements to Resell................. 79,002 2,221 3.76 58,291 1,662 3.81
Total Short-Term Investments............... 178,187 5,313 3.99 169,589 4,628 3.65
Trading Account Securities (1)................. 151,419 7,709 6.79 146,137 8,612 7.88
Investment Securities Available for Sale (1)... 334,135 17,702 7.06 790,746 42,363 7.14
Investment Securities
Taxable...................................... 2,549,313 101,218 5.31 2,393,194 102,957 5.74
Non-Taxable (1).............................. 340,257 21,128 8.28 334,240 23,604 9.42
Total Investment Securities................ 2,889,570 122,346 5.66 2,727,434 126,561 6.19
Loans Held for Sale............................ 378,387 20,999 7.40 490,779 27,043 7.35
Loans
Commercial (1)............................... 5,587,387 333,353 7.98 5,215,870 302,620 7.76
Real Estate-Residential...................... 1,070,676 65,171 8.12 1,012,083 70,909 9.34
Consumer..................................... 2,626,273 161,800 8.24 2,367,796 157,674 8.90
Total Loans (2)............................ 9,284,336 560,324 8.07 8,595,749 531,203 8.26
Total Interest-Earning Assets.............. 13,216,034 734,393 7.42 12,920,434 740,410 7.65
Allowance for Possible Loan Losses............... (175,417) -- -- (172,173) -- --
Non-Interest Earning Assets...................... 1,420,023 -- -- 1,438,765 -- --
Total Assets, Interest Income.............. $14,460,640 $734,393 6.78% $14,187,026 $740,410 6.97%
LIABILITIES
Interest-Bearing Liabilities
Interest-Bearing Deposits
NOW Accounts................................. $1,478,064 $14,928 1.35% $1,302,116 $17,832 1.83%
Savings Deposits............................. 1,961,620 30,091 2.05 1,735,233 30,109 2.32
Money Market Deposit Accounts................ 2,324,113 40,191 2.31 2,429,397 31,845 1.75
Short-Term Time Deposits..................... 757,288 17,973 3.17 921,346 25,196 3.66
Long-Term Time Deposits...................... 2,487,002 81,019 4.36 2,690,472 89,671 4.46
Certificates of Deposits of $100,000 or More. 478,282 17,191 4.81 604,625 21,505 4.76
Total Interest-Bearing Deposits............ 9,486,369 201,393 2.84 9,683,189 216,158 2.98
Short-Term Borrowings
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase........ 1,148,189 33,387 3.89 827,652 19,218 3.10
Commercial Paper............................. 4,881 141 3.86 1,500 35 3.12
Other Short-Term Borrowings.................. 212,249 7,116 4.48 210,131 3,938 2.51
Total Short-Term Borrowings................ 1,365,319 40,644 3.98 1,039,283 23,191 2.98
Long-Term Debt and Other Borrowings............ 385,957 19,699 6.81 437,085 22,496 6.86
Total Interest-Bearing Liabilities......... 11,237,645 261,736 3.11 11,159,557 261,845 3.14
Non-Interest Sources to Fund
Interest-Earning Assets
Non-Interest Bearing Deposits................ 1,737,669 -- -- 1,664,945 -- --
Other Liabilities............................ 289,900 -- -- 261,515 -- --
Shareholders' Equity......................... 1,195,426 -- -- 1,101,009 -- --
Total Non-Interest Sources to Fund
Interest-Earning Assets.................. 3,222,995 -- -- 3,027,469 -- --
Total Liabilities and Shareholders' Equity,
Interest Expense......................... $14,460,640 261,736 2.42% $14,187,026 261,845 2.47%
NET INTEREST INCOME.............................. $472,657 $478,565
NET INTEREST SPREAD (3)........................ 4.31% 4.51%
EFFECT OF NON-INTEREST BEARING FUNDS........... 0.47% 0.44%
NET INTEREST MARGIN (4)........................ 4.78% 4.95%
<FN>
(1) The indicated interest income and average yields are
presented on a taxable-equivalent basis. The
taxable-equivalent adjustments included are $4,343, $6,333,
$4,590, $13,474 and $16,810 for the third quarter of 1994
and 1993, the second quarter of 1994 and the first nine
months of 1994 and 1993, respectively.
(2) Loan fees have been included in interest income. Average
loan balances include non-accrual loans.
(3) Net Interest Spread is the arithmetic difference between the
yield on interest-earning assets and the rate paid on
interest-bearing liabilities.
(4) Net Interest Margin is computed by dividing net interest
income by average interest-earning assets.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 3: LOANS
(Dollars in Thousands)
September 30, 1994 September 30, 1993 December 31, 1993
Amount % Amount % Amount %
------------ ----- ------------ ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Commercial Loans
Real Estate - Commercial Mortgage........... $1,670,653 18% $1,595,094 18% $1,654,690 18%
Real Estate - Construction.................. 252,562 3 261,496 3 292,177 3
Commercial, Financial and Agricultural...... 3,810,023 40 3,503,746 40 3,500,243 40
Total Commercial Loans................... 5,733,238 61 5,360,336 61 5,447,110 61
Real Estate - Residential...................... 1,158,381 12 970,515 11 993,459 11
Consumer Loans
Real Estate - Home Equity................... 735,961 8 627,651 7 680,440 7
Revolving Credit............................ 101,513 1 81,714 1 79,613 1
Other Consumer Loans........................ 1,706,077 (1) 18 1,792,646 20 1,787,422 20
Total Consumer Loans..................... 2,543,551 27 2,502,011 28 2,547,475 28
Total Loans, Net of Unearned Discount. $9,435,170 100% $8,832,862 100% $8,988,044 100%
<FN>
(1) Student loans aggregating $223 million were sold during the
third quarter of 1994.
</FN>
</TABLE>
<PAGE>
TABLE 4: INVESTMENT SECURITIES AND INVESTMENT SECURITIES
AVAILABLE FOR SALE
(Dollars In Thousands)
Investment Securities
A summary of the amortized cost and approximate fair value of
investment securities is as follows:
<TABLE>
<CAPTION>
September 30, 1994 September 30, 1993 December 31, 1993
Approximate Approximate Approximate
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
------------ ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
United States Government Securities...... $716,779 $697,324 $639,571 $649,650 $630,338 $635,047
Mortgage-Backed Securities
Collateralized Mortgage Obligations... 1,431,218 1,385,256 1,335,534 1,342,494 1,240,901 1,241,026
All Other Mortgage Backed Securities.. 241,224 236,843 320,837 334,584 314,221 324,372
Total Mortgage-Backed Securities... 1,675,442 1,624,099 1,656,371 1,677,078 1,555,122 1,565,398
State and Municipal Securities........... 345,123 343,761 404,508 417,700 375,582 387,298
Other Securities......................... 286,891 283,710 247,240 249,208 223,442 225,357
Total Investment Securities........ $3,021,235 $2,946,894 $2,947,690 $2,993,636 $2,784,484 $2,813,100
</TABLE>
A summary of gross unrealized gains and losses on investment
securities is as follows:
<TABLE>
<CAPTION>
September 30, 1994 September 30, 1993 December 31, 1993
Gross Gross Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses Gains Losses
------------ ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
United States Government Securities...... $600 $20,055 $10,178 $99 $5,644 $935
Mortgage-Backed Securities
Collateralized Mortgage Obligations... 393 46,355 8,570 1,610 4,957 4,832
All Other Mortgage Backed Securities.. 2,623 7,004 13,779 32 10,492 341
Total Mortgage-Backed Securities... 3,016 53,359 22,349 1,642 15,449 5,173
State and Municipal Securities........... 4,391 5,753 13,310 118 11,942 226
Other Securities......................... 77 3,258 3,547 1,579 2,624 709
Total Investment Securities........ $8,084 $82,425 $49,384 $3,438 $35,659 $7,043
</TABLE>
Investment Securities Available for Sale
A summary of the amortized cost and approximate fair value of
investment securities available for sale is as follows:
<TABLE>
<CAPTION>
September 30, 1994 September 30, 1993 December 31, 1993
Approximate Approximate Approximate
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
------------ ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
United States Government Securities...... $288,147 $284,795 $75,947 $79,361 $103,086 $105,997
Mortgage-Backed Securities
Collateralized Mortgage Obligations... 25,089 24,553 - - 2,856 2,865
All Other Mortgage Backed Securities.. 99,441 96,897 170,618 175,886 122,297 125,971
Total Mortgage-Backed Securities... 124,530 121,450 170,618 175,886 125,153 128,836
State and Municipal Securities........... 29,727 30,907 31,959 34,689 34,306 37,029
Other Securities......................... 15,526 17,593 19,551 22,902 13,118 16,290
Total Investment Securities
Available for Sale.......... $457,930 $454,745 $298,075 $312,838 $275,663 $288,152
</TABLE>
A summary of gross unrealized gains and losses on investment
securities available for sale is as follows:
<TABLE>
<CAPTION>
September 30, 1994 September 30, 1993 December 31, 1993
Gross Gross Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses Gains Losses
------------ ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
United States Government Securities...... $464 $3,816 $3,414 - $2,998 $87
Mortgage-Backed Securities
Collateralized Mortgage Obligations... - 536 - - 9 -
All Other Mortgage Backed Securities.. 198 2,742 5,268 - 3,773 99
Total Mortgage-Backed Securities... 198 3,278 5,268 - 3,782 99
State and Municipal Securities........... 1,240 60 2,730 - 2,723 -
Other Securities......................... 2,192 125 3,351 - 3,189 17
Total Investment Securities
Available for Sale.......... $4,094 $7,279 $14,763 - $12,692 $203
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 5: DEPOSITS
(Dollars In Thousands)
September 30, 1994 September 30, 1993 December 31, 1993
Amount % Amount % Amount %
------------- ----- ------------- ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Non-Interest Bearing Deposits................. $1,811,484 16% $1,758,464 16% $1,849,425 16%
NOW Accounts.................................. 1,469,937 13 1,315,880 12 1,467,758 13
Savings Deposits.............................. 1,949,808 17 1,776,562 16 1,867,011 17
Money Market Deposit Accounts................. 2,244,885 20 2,319,085 21 2,385,937 21
Short-Term Time Deposits...................... 710,805 6 853,506 8 794,012 7
Long-Term Time Deposits....................... 2,547,549 23 2,525,293 22 2,504,231 22
Certificates of Deposit of $100,000 or More... 575,711 5 622,573 5 477,777 4
Total..................................... $11,310,179 100% $11,171,363 100% $11,346,151 100%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 6: ALLOWANCE FOR POSSIBLE LOAN LOSSES
(Dollars In Thousands)
Three Months Ended Nine Months Ended
---------------------------------------------------------- ---------------------
Sept. 30, June 30, March 31, December 31, Sept. 30, Sept. 30, Sept. 30,
1994 1994 1994 1993 1993 1994 1993
---------- ---------- ------------ ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at Beginning of Period.......... $170,335 $171,030 $173,388 $169,568 $167,961 $173,388 $165,512
Additions (Deductions):
Acquired Allowances.................. 1,029 139 - 1,704 - 1,168 1,390
Loans Charged-Off:
Commercial (includes
Commercial Real Estate)...... (7,618) (3,672) (8,400) (9,415) (11,887) (19,690) (37,016)
Real Estate - Residential......... (838) (5,165) (2,309) (501) (699) (8,312) (1,092)
Consumer.......................... (2,808) (2,750) (2,442) (4,590) (2,472) (8,000) (9,896)
Total Loans Charged-Off.. (11,264) (11,587) (13,151) (14,506) (15,058) (36,002) (48,004)
Recoveries on Charged-Off Loans:
Commercial (includes
Commercial Real Estate)...... 3,528 2,522 1,270 3,066 884 7,320 3,504
Real Estate - Residential......... 216 132 67 91 6 415 72
Consumer.......................... 1,161 1,415 956 985 1,144 3,532 3,473
Total Recoveries on
Charged-Off Loans. 4,905 4,069 2,293 4,142 2,034 11,267 7,049
Net Loans Charged-Off................ (6,359) (7,518) (10,858) (10,364) (13,024) (24,735) (40,955)
Provision Charged to
Operating Expense........... 6,121 6,684 8,500 12,480 14,631 21,305 43,621
Balance at End of Period................ $171,126 $170,335 $171,030 $173,388 $169,568 $171,126 $169,568
Net Charge-Offs to Average Loans........ 0.27% 0.32% 0.49% 0.46% 0.59% 0.36% 0.64%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 7: CREDIT QUALITY
(Dollars in Thousands)
Sept. 30, June 30, March 31, December 31, Sept. 30,
1994 1994 1994 1993 1993
----------- ------------ ------------ ------------- ---------
<S> <C> <C> <C> <C> <C>
Non-Accrual Loans
Commercial
Real Estate-Commercial Mortgage...................... $29,759 $28,631 $28,913 $30,544 $34,623
Real Estate-Construction............................. 2,426 4,520 3,910 2,834 2,848
Commercial, Financial and Agricultural............... 46,459 52,654 58,846 59,882 60,676
Total Commercial.................................. 78,644 85,805 91,669 93,260 98,147
Real Estate-Residential................................ 13,304 15,472 25,100 29,843 30,412
Consumer............................................... 822 758 1,937 1,162 1,425
Total Non-Accrual Loans........................... 92,770 102,035 118,706 124,265 129,984
Restructured Loans
Real Estate-Commercial Mortgage........................ 10 10 11 908 13
Real Estate-Construction............................... 34 37 38 1,419 42
Commercial, Financial and Agricultural................. 1,138 1,086 812 1,004 876
Total Restructured Loans.......................... 1,182 1,133 861 3,331 931
TOTAL NON-PERFORMING LOANS................... 93,952 103,168 (1) 119,567 127,596 130,915
Assets Acquired in Foreclosures and Assets Considered
to be in an In-Substance Foreclosure Status
Foreclosed Real Estate............................... 23,519 28,058 36,726 29,497 35,081
Assets Related to Consumer Loans..................... 1,127 1,677 1,438 1,265 1,584
In-Substance Foreclosures............................ 7,082 8,673 13,752 20,454 26,270
Total Assets Acquired.............................. 31,728 38,408 51,916 51,216 62,935
TOTAL NON-PERFORMING ASSETS.................. $125,680 $141,576 (1) $171,483 $178,812 $193,850
Allowance for Possible Loan Losses as a Percentage of:
Loans.................................................. 1.81% 1.79% 1.87% 1.93% 1.92%
Non-Performing Loans................................... 182% 165% 143% 136% 130%
Non-Performing Assets.................................. 136% 120% 100% 97% 87%
Total Non-Performing Loans as a Percentage
of Loans............................................... 1.00% 1.08% 1.31% 1.42% 1.48%
Total Non-Performing Assets as a Percentage
of Loans and Assets Acquired in Foreclosures........... 1.33% 1.48% 1.86% 1.98% 2.18%
Loans Past Due 90 or more Days as to Interest or Principal
not Included Above (Includes $7,700 of Real Estate-
Residential as of September 30, 1994).................. $19,638 $35,036 $27,446 $24,798 $26,692
Total Non-Performing Assets and Loans Past Due
90 or more Days as to Interest or Principal............ $145,318 $176,612 $198,929 $203,610 $220,542
Total Non-Performing Assets and Loans Past Due 90 or
more Days as to Interest or Principal as a Percentage
of Loans and Assets Acquired in Foreclosures........... 1.54% 1.85% 2.16% 2.25% 2.48%
<FN>
(1) During the second quarter of 1994, Meridian transferred to
assets held for sale non-accrual residential mortgage loans
of approximately $8 million and foreclosed real estate of
approximately $7 million.
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 8: COMMERCIAL LOANS BY MAJOR INDUSTRY CLASSIFICATION
(Dollars in Thousands)
September 30, 1994 September 30, 1993
Loans Non-Accrual Loans Non-Accrual
Outstanding % Loans % Outstanding % Loans %
------------ ----- --------- ---- ------------ ---- ---------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Agriculture......................... $155,173 3% $235 * $149,076 3% $740 1%
Mining.............................. 17,678 * 327 * 13,801 * 283 *
Construction........................ 236,541 5 3,911 5% 218,908 4 3,379 3
Manufacturing....................... 1,152,593 20 20,330 26 1,008,273 19 20,360 21
Transportation, Communication and
Public Utilities................. 294,433 5 2,403 3 273,536 5 2,029 2
Wholesale Trade..................... 360,888 6 4,907 6 340,853 6 4,079 4
Retail Trade........................ 731,399 13 8,965 11 718,441 13 16,856 17
Finance, Insurance and Real Estate.. 1,279,084 22 22,801 30 1,142,882 21 23,341 24
Services............................ 1,388,154 24 14,090 18 1,297,074 24 25,221 26
Public Administration............... 14,892 * 621 - 9,742 * - -
Other............................... 102,403 2 54 * 187,750 4 1,859 2
Total............................. $5,733,238 100% $78,644 100% $5,360,336 100% $98,147 100%
* Less than one percent
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 9: COMMERCIAL REAL ESTATE
(Dollars in Thousands)
Outstanding Loans September 30, 1994 September 30, 1993
Investor-Developer Owner-Occupied Total Total
Commercial Commercial Commercial Commercial
Mortgage Construction Mortgage Construction Mortgage Construction Mortgage Construction
---------- ---------- ---------- ----------- ----------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Apartment Buildings..... $216,382 $1,253 - - $216,382 $1,253 $211,957 $2,665
Office Buildings........ 161,877 18,313 $178,777 $6,483 340,654 24,796 328,029 17,488
Residential Properties.. - 89,127 - - - 89,127 - 97,011
Shopping Centers........ 149,204 20,383 78,265 1,415 227,469 21,798 176,491 30,575
Land.................... - 37,469 - - - 37,469 - 44,700
Industrial Plants....... 84,847 21,107 200,752 6,964 285,599 28,071 296,184 21,710
Hotel/Motel/Restaurant.. 118,516 2,810 - - 118,516 2,810 127,777 2,190
Healthcare Facilities... - - 99,075 19,388 99,075 19,388 111,620 23,204
Other................... 139,454 11,593 243,504 16,257 382,958 27,850 343,036 21,953
Total................. $870,280 $202,055 $800,373 $50,507 $1,670,653 (1) $252,562 (1) $1,595,094 $261,496
<FN>
(1) The geographic distribution by state is as follows:
Pennsylvania $1,536,010 (80%), Delaware $236,797 (12%),
New Jersey $95,756 (5%), and all other states $54,652
(3%).
</FN>
</TABLE>
<TABLE>
<CAPTION>
Non-Accrual Loans September 30, 1994 September 30, 1993
Investor-Developer Owner-Occupied Total Total
Commercial Commercial Commercial Commercial
Mortgage Construction Mortgage Construction Mortgage Construction Mortgage Construction
---------- ---------- ---------- ----------- ----------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Apartment Buildings..... $6,572 - - - $6,572 - $9,916 -
Office Buildings........ 1,413 - $2,724 - 4,137 - 3,872 -
Residential Properties.. - $743 - - - $743 - $1,244
Shopping Centers........ 2,261 - 1,094 - 3,355 - 2,899 -
Land.................... - 1,390 - - - 1,390 - 1,309
Industrial Plants....... 5,331 - 3,771 - 9,102 - 1,742 -
Hotel/Motel/Restaurant.. 2,036 293 - - 2,036 293 8,894 295
Other................... 1,544 - 3,013 - 4,557 - 7,300 -
Total................. $19,157 $2,426 $10,602 - $29,759 (2) $2,426 (2) $34,623 $2,848
<FN>
(2) The geographic distribution by state is as follows:
Pennsylvania $23,738, (74%), Delaware $1,606 (5%), New
Jersey $5,053 (16%), and all other states $1,788 (5%).
</FN>
</TABLE>
<TABLE>
<CAPTION>
Assets Acquired in Sept. 30, Sept. 30,
Foreclosures (3) 1994 1993
---------- ----------
<S> <C> <C>
Apartment Buildings................. $401 $23
Office Buildings.................... 12,990 15,400
Shopping Centers.................... 280 -
Residential Properties.............. 3,246 5,557
Land................................ 3,781 12,622
Industrial Plants................... 2,169 8,477
Hotel/Motel/Restaurant.............. 2,273 2,755
Other............................... 2,348 5,042
Total............................. $27,488 (4) $49,876
<FN>
(3) Includes Assets Considered to be in an In-Substance
Foreclosure status.
(4) The geographic distribution by state is as follows:
Pennsylvania $22,013 (80%), Delaware $370 (1%), and New
Jersey $5,105 (19%).
</FN>
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 10: CAPITAL ADEQUACY
Sept. 30, June 30, March 31, December 31, September 30,
1994 1994 1994 1993 1993
--------- --------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Consolidated
Total Shareholders' Equity to Assets.... 8.33% 7.99% 8.52% 8.42% 8.00%
Tangible Shareholders' Equity to Assets. 7.46 7.39 7.95 7.78 7.36
Risk-Based Capital
Tier 1............................. 9.44 9.66 9.73 9.60 9.12
Tier 2............................. 3.63 3.64 4.08 4.07 4.04
Total (1,2)...................... 13.07 13.30 13.81 13.67 13.16
Leverage (1,2).......................... 7.47 7.84 8.12 7.84 7.41
Tangible Leverage....................... 7.37 7.75 8.03 7.43 7.29
Banking
Total Risk-Based Capital (1,2)
Meridian Bank....................... 12.53 12.66 12.51 12.24 11.71
Delaware Trust Company.............. 13.58 13.56 13.12 13.07 12.87
Meridian Bank, New Jersey........... 15.88 16.67 15.19 16.69 16.55
<FN>
(1) The minimum ratios required by the Federal Reserve
Board guidelines are 4% for Tier 1 capital, 8% for
total risk-based capital, and a leverage ratio of 3%
plus an additional cushion of 100 to 200 basis points.
(2) Federal Reserve Board guidelines define a
well-capitalized institution as having a Tier 1 capital
ratio of 6% or more, a total risk-based capital ratio
of 10% or more, and a leverage ratio of 5% or more.
</FN>
</TABLE>
<PAGE>
Item 1. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
Sept. 30, Sept. 30, December 31,
1994 1993 1993
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
Cash and Due from Banks...................................... $614,200 $606,060 $587,587
Short-Term Investments
Interest-Bearing Deposits in Other Banks.................. 113,314 90,449 101,860
Federal Funds Sold and Securities Purchased Under
Agreements to Resell................................... 48,965 64,614 14,694
Total Short-Term Investments........................... 162,279 155,063 116,554
Trading Account Securities................................... 71,763 118,648 36,616
Investment Securities Available for Sale
(Fair Value, $454,745, $312,838 and $288,152 at
September 30, 1994, September 30, 1993 and
December 31, 1993, Respectively)...................... 454,745 298,075 275,663
Investment Securities
(Fair Value $2,946,894, $2,993,636 and $2,813,100 at
September 30, 1994, September 30, 1993 and
December 31, 1993, Respectively)...................... 3,021,235 2,947,690 2,784,484
Loans and Other Assets Held for Sale......................... 422,010 430,788 655,844
Total Loans, Net of Unearned Discount........................ 9,435,170 8,832,862 8,988,044
Less Allowance for Possible Loan Losses................. 171,126 169,568 173,388
Net Loans........................................... 9,264,044 8,663,294 8,814,656
Premises and Equipment....................................... 258,267 234,467 241,584
Accrued Interest Receivable.................................. 103,444 98,233 103,250
Other Assets................................................. 410,413 782,455 468,549
Total Assets..................................... $14,782,400 $14,334,773 $14,084,787
LIABILITIES
Deposits
Non-Interest Bearing Deposits............................. $1,811,484 $1,758,464 $1,849,425
Interest-Bearing Deposits................................. 9,498,695 9,412,899 9,496,726
Total Deposits......................................... 11,310,179 11,171,363 11,346,151
Short-Term Borrowings
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase......................... 1,371,412 917,351 540,255
Commercial Paper.......................................... - 3,000 2,500
Other Short-Term Borrowings............................... 271,648 288,783 248,968
Total Short-Term Borrowings............................ 1,643,060 1,209,134 791,723
Long-Term Debt and Other Borrowings.......................... 372,546 484,997 421,291
Accrued Interest Payable..................................... 48,826 46,199 59,581
Other Liabilities............................................ 176,193 276,205 280,408
Total Liabilities...................................... 13,550,804 13,187,898 12,899,154
COMMITMENTS AND CONTINGENCIES (Note 6)
SHAREHOLDERS' EQUITY
Preferred Stock (Par Value $25.00)
Authorized - 200,000,000 Shares
Common Stock (Par Value $5.00)
Authorized - 200,000,000 Shares
Issued - 58,316,978 shares at September 30, 1994; Issued
and Outstanding - 57,343,118 and 58,154,486 shares at
September 30, 1993 and December 31, 1993, Respectively. 291,585 286,716 290,761
Surplus...................................................... 211,142 198,797 205,173
Retained Earnings............................................ 744,511 661,362 689,699
Treasury Stock - 513,076 shares in 1994 at cost.............. (15,642) - -
Total Shareholders' Equity............................. 1,231,596 1,146,875 1,185,633
Total Liabilities and Shareholders' Equity........ $14,782,400 $14,334,773 $14,084,787
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(Dollars In Thousands, Except Per Share Data)
Three Months Ended Nine Months Ended
September 30 September 30,
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans.............................. $196,915 $176,079 $555,960 $525,300
Interest on Trading Account Securities.................. 2,810 4,211 7,151 7,692
Interest on Investment Securities Available for Sale.... 6,795 13,110 16,545 40,637
Interest on Investment Securities....................... 40,770 37,570 114,951 118,300
Interest on Loans Held for Sale......................... 7,868 9,174 20,999 27,043
Other Interest Income................................... 2,058 1,430 5,313 4,628
Total Interest Income................................ 257,216 241,574 720,919 723,600
INTEREST EXPENSE
Interest on Deposits.................................... 74,586 67,639 201,393 216,158
Interest on Short-Term Borrowings....................... 19,867 9,063 40,644 23,191
Interest on Long-Term Debt and Other Borrowings......... 6,346 8,189 19,699 22,496
Total Interest Expense............................... 100,799 84,891 261,736 261,845
NET INTEREST INCOME........................................ 156,417 156,683 459,183 461,755
PROVISION FOR POSSIBLE LOAN LOSSES......................... 6,121 14,631 21,305 43,621
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES.................................... 150,296 142,052 437,878 418,134
OTHER INCOME
Trust................................................... 13,476 9,734 35,429 29,639
Mortgage Banking........................................ 2,972 21,687 15,037 57,651
Amortization of and Reserves for Purchased Mortgage
Servicing Rights and Other Servicing-Related Assets. (18) (6,477) (77) (33,612)
Net Mortgage Banking.............................. 2,954 15,210 14,960 24,039
Broker-Dealer and Investment Banking.................... 1,934 20,690 31,419 49,328
Service Charges on Deposit Accounts..................... 14,391 13,311 41,416 39,261
Fees for Other Customer Services ....................... 11,896 11,394 34,029 31,611
Net Securities Gains ................................... 2,110 9,943 2,751 24,614
Other Operating Income.................................. 14,035 5,020 19,382 10,651
Total Other Income................................... 60,796 85,302 179,386 209,143
OTHER EXPENSES
Salaries and Employee Benefits.......................... 75,459 78,746 223,298 220,553
Net Occupancy Expense................................... 11,104 10,693 34,330 31,545
Equipment Expense....................................... 9,401 9,081 28,833 28,103
Provision for Mortgage Banking Restructuring............ - 17,500 - 17,500
Other Operating Expenses................................ 61,594 62,855 158,630 177,119
Total Other Expenses................................. 157,558 178,875 445,091 474,820
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES.............. 53,534 48,479 172,173 152,457
Provision for Income Taxes................................. 16,914 13,850 54,230 43,984
INCOME BEFORE CUMULATIVE EFFECT OF CHANGES
IN ACCOUNTING PRINCIPLES................................ 36,620 34,629 117,943 108,473
CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGE
IN METHOD OF ACCOUNTING FOR POSTEMPLOYMENT
BENEFITS, NET OF RELATED TAXES OF $1,470................. - - (2,730) -
CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGE
IN METHOD OF ACCOUNTING FOR INCOME TAXES................ - - - 7,221
NET INCOME................................................. $36,620 $34,629 $115,213 $115,694
PER COMMON SHARE
Income Before Cumulative Effect of Changes
in Accounting Principles
Primary.............................................. $0.63 $0.60 $2.03 $1.88
Fully Diluted........................................ $0.63 $0.60 $2.03 $1.88
Cumulative Effect of Changes in Accounting Principles
Primary.............................................. - - ($0.05) $0.13
Fully Diluted........................................ - - ($0.05) $0.13
Net Income
Primary.............................................. $0.63 $0.60 $1.98 $2.01
Fully Diluted........................................ $0.63 $0.60 $1.98 $2.01
Dividends Declared ..................................... $0.34 $0.32 $1.00 $0.94
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOW
(Dollars in Thousands)
For the Nine Months Ended
September 30
--------------------------------
1994 1993
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income................................................... $115,213 $115,694
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities
Depreciation and Amortization (Including Amortization
of Purchased Mortgage Servicing Rights)................. 37,554 62,039
Deferred Tax Expense (Benefit)............................ 8,152 (4,793)
Cumulative Effect on Prior Years of Change in Method
of Accounting for Income Taxes............................ - (7,221)
Provision for Possible Loan Losses........................ 21,305 43,621
Provision for Other Real Estate Losses and Mortgage
Servicing Recourse...................................... 14,421 20,284
Net Gains - Investment Securities......................... (416) (10,464)
Net Gains - Investment Securities Available for Sale...... (2,069) (14,150)
Gains On Sales Of Mortgage Servicing...................... (210) (21,615)
Gain on Sale of Student Loans............................. (8,984) -
Increase in Trading Account Securities.................... (35,147) (53,391)
Decrease in Loans and Other Assets Held for Sale.......... 283,361 106,938
Decrease (Increase) in Other Assets....................... 11,599 (16,988)
Increase (Decrease) in Other Liabilities.................. (125,241) 35,193
Other, Net................................................ 3,735 4,310
Net Cash Provided by Operating Activities............. 323,273 259,457
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities of Short-Term Investments........... 198,058 260,925
Purchases of Short-Term Investments.......................... (209,511) (185,325)
Proceeds from Maturities, Calls and Paydowns of Securities... 845,014 858,869
Proceeds from Sales of Investment Securities................. - 102,231
Purchases of Investment Securities........................... (1,104,428) (1,147,129)
Proceeds from Sales of Investment Securities Available
for Sale................................................... 37,421 502,023
Proceeds from Maturities, Calls, Paydowns of Investment
Securities Available for sale............................. 50,799 172,232
Purchases of Investment Securities Available for Sale........ (249,985) (432,939)
Net Principal Disbursed on Loans to Customers................ (757,726) (370,946)
Proceeds from Sale of Student Loans.......................... 231,984 -
Proceeds from Sales of Premises and Equipment................ 11,009 22,041
Purchases of Premises and Equipment.......................... (42,836) (39,541)
Proceeds from Sales of Mortgage Servicing.................... 6,776 17,198
Purchases of Mortgage Servicing.............................. - (2,736)
Other, Net................................................... 38,914 55,856
Net Cash Used for Investing Activities.................... (944,511) (187,241)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Decrease in Deposits..................................... (37,035) (601,470)
Net Increase in Short Term Borrowings ....................... 851,337 332,040
Proceeds from Issuance of Long-Term Debt..................... 2,223 197,607
Repayment of Long Term Borrowings............................ (60,061) (28,371)
Purchases of Treasury Stock.................................. (18,484) -
Proceeds from Issuance of Common Stock....................... 1,909 11,361
Cash Dividends Paid to Common Shareholders................... (57,767) (48,731)
Net Cash Provided by (Used for) Financing Activities...... 682,122 (137,564)
CASH AND CASH EQUIVALENTS
Net Increase (Decrease) During the Period................. 60,884 (65,348)
Balance at Beginning of the Period........................ 602,281 736,022
Balance at End of the Period.............................. $663,165 $670,674
</TABLE>
Cash and cash equivalents include cash and due from banks,
federal funds sold, and securities purchased under agreements to
resell. Income tax payments totaled $36,098 in 1994, and $44,937
in 1993. Interest payments totaled $272,490 in 1994 and $275,783
in 1993. Noncash investing activity consists of net transfers of
loans in liquidation to other real estate aggregating $24,986 in
1994 and $49,952 in 1993, and a transfer of non-accrual
residential mortgage loans of $8,000 and foreclosed real estate
of $7,000 to loans and other assets held for sale in 1994.
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in Thousands)
Common Stock Retained Treasury
Shares Amount Surplus Earnings Stock Total
------------ ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE NINE MONTHS ENDED
September 30, 1993
Balance at January 1, 1993 as previously reported........... 45,584,924 $227,925 $177,597 $498,896 - $904,418
Adjustment for merger accounted for as a
pooling of interests.................................... 10,904,183 54,521 2,754 97,626 - 154,901
Balance at January 1, 1993 as restated...................... 56,489,107 282,446 180,351 596,522 - 1,059,319
Net Income.................................................. - - - 115,694 - 115,694
Common Stock Dividends Declared............................. - - - (48,731) - (48,731)
Sales of Stock Under Dividend Reinvestment,
Stock Option and Employee Benefit Plans.................. 377,062 1,885 9,523 - - 11,408
Unrealized Loss on Marketable
Equity Securities........................................ - - - (287) - (287)
Common Stock Issued in Merger............................... 476,949 2,385 8,970 (1,836) - 9,519
Cash in Lieu of Fractional Shares........................... - - (47) - - (47)
Balance at September 30, 1993............................... 57,343,118 $286,716 $198,797 $661,362 - $1,146,875
<CAPTION>
FOR THE NINE MONTHS ENDED
September 30, 1994
<S> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994................................... 58,154,486 $290,761 $205,173 $689,699 - $1,185,633
Net Income................................................... - - - 115,213 - 115,213
Common Stock Dividends Declared.............................. - - - (57,767) - (57,767)
Sales of Stock Under Dividend Reinvestment,
Stock Option and Employee Benefit Plans................... 105,204 50 (222) (754) $2,842 1,916
Purchases of Treasury Stock.................................. (610,500) - - - (18,484) (18,484)
Unrealized Gain on Investment Securities Available
for Sale, Net of Taxes.................................. - - - (1,880) - (1,880)
Common Stock Warrants Issued In Merger....................... 4,000 4,000
Common Stock Issued in Merger................................ 154,712 774 2,198 - - 2,972
Cash in Lieu of Fractional Shares............................ - - (7) - - (7)
Balance at September 30, 1994................................ 57,803,902 $291,585 $211,142 $744,511 ($15,642) $1,231,596
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
Notes to Consolidated Financial Statements
1) Summary of Significant Accounting Policies
The accounting policies and reporting practices of Meridian
Bancorp, Inc., (Meridian) are in accordance with generally
accepted accounting principles and have been followed on a
consistent basis.
This Quarterly Report should be read in conjunction with the
1993 Annual Report. Financial information for the interim
periods is not independently audited. However, the financial
information furnished in this report reflects all adjustments
which are, in the opinion of management, necessary for a fair
presentation of the financial condition and results of operations
of the interim periods. Such adjustments are of a normal
recurring nature.
The results of operations for the interim periods are not
necessarily indicative of the consolidated results to be expected
for the entire year.
The consolidated financial statements include the accounts
of Meridian and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Certain amounts in the 1993 financial statements have been
reclassified to conform with the presentation used in the 1994
financial statements. These reclassifications have no effect on
net income.
2) Acquisitions
In July 1994, Meridian acquired McGlinn Capital Management,
Inc., an investment advisory firm with $2.8 billion in assets
under direct management, for warrants for 500,000 shares of
Meridian common stock and cash. The transaction was recorded as
a purchase for financial accounting purposes.
In August 1994, Meridian announced a letter of intent to
acquire United Counties Bancorporation, of Cranford, New Jersey
in a stock-for-stock exchange valued at $376 million. Under
terms of the letter of intent, each share of United Counties'
common stock would be exchanged for 5.25 shares of Meridian
common stock. The transaction is expected to be accounted for as
a pooling of interests. United Counties is a $1.7 billion bank
holding company with 36 branches in five New Jersey counties.
The letter of intent, which expires on December 12, 1994, is
subject to the execution of a definitive agreement. Subject to
shareholder and regulatory approvals, it is anticipated that the
transaction would be consummated in the first half of 1995.
3) Securities Transactions
Total gains (losses) from securities transactions, which
were included in the following categories in the other income
section of the consolidated statements of income, are as follows:
<TABLE>
<CAPTION>
Three Months Ended
September 30
1994 1993
<S> <C> <C>
Broker-Dealer and Investment
Banking $( 44,000) $ (97,000)
Net Securities Gains 2,110,000 9,943,000
Total Securities Gains $2,066,000 $9,846,000
<CAPTION>
Nine Months Ended
September 30
1994 1993
<S> <C> <C>
Broker-Dealer and Investment
Banking ($46,000) $ 103,000
Net Securities Gains 2,751,000 24,614,000
Total Securities Gains $2,705,000 $24,717,000
</TABLE>
4) Employee Stock Ownership Plan
In August 1994 the Board of Directors authorized the
repurchase of approximately 2 million shares of common stock as
part of the adoption of an employee stock ownership plan (ESOP).
Repurchased shares will be used for distribution to employees of
Meridian and certain of its affiliated companies as an additional
qualified plan of deferred compensation.
5) Recently Issued Accounting Standards
During the second quarter of 1993, the Financial Accounting
Standards Board issued Statement of Financial Accounting
Standards No. 114 "Accounting by Creditors for Impairment of a
Loan" (SFAS 114). SFAS 114 requires that certain impaired loans
be measured based on the present value of expected future cash
flows discounted at the loan's effective interest rate.
In October 1994, SFAS No. 118 "Accounting by Creditors for
Impairment of a Loan - Income Recognition and Disclosures" was
issued. SFAS No. 118 amends SFAS 114 to allow a creditor to use
existing methods for recognizing interest income on an impaired
loan.
In October 1994, SFAS No. 119 "Disclosure about Derivative
Financial Instruments and Fair Value of Financial Instruments"
was issued. SFAS No. 119 requires disclosures about derivative
financial instruments - futures, forward, swap, and option
contracts, and other financial instruments with similar
characteristics. It also amends existing requirements of SFAS
No. 105, "Disclosure of Information about Financial Instruments
with Off-Balance-Sheet Risk and Financial Instruments with
Concentrations of Credit Risk" and SFAS No. 107, "Disclosures
about Fair Value of Financial Instruments".
The effective dates for SFAS 114, SFAS 118 and SFAS 119 are
fiscal years 1995, 1995 and 1994, respectively, although earlier
adoption is permitted. Management is currently analyzing the
impact of both SFAS 114 and SFAS 118 and has not yet determined
their impact on Meridian's consolidated financial position and
results of operations.
6) Commitments and Contingencies
At September 30, 1994, there were outstanding commitments,
contingent liabilities, and off-balance sheet financial
instruments on which management does not anticipate any material
losses. These include, among other things, commitments to extend
credit, letters of credit undertaken in the normal course of
business, and various off-balance sheet financial instruments
used in conducting Meridian's business activities and in managing
its balance sheet risks.
Meridian and certain of its subsidiaries were party
(plaintiff or defendant) to a number of lawsuits. While any
litigation has an element of uncertainty, management after
reviewing these actions with its legal counsel, is of the opinion
that the liability, if any, resulting from all legal actions will
not have a material effect on the consolidated financial
condition or results of operations of Meridian.
<PAGE>
PART II
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
27 Financial Data Schedule
(b) Reports on Form 8-K
The Company filed a Current Report on Form 8-K
dated August 30, 1994 to report the signing of a
letter of intent between Meridian Bancorp, Inc.
and United Counties Bancorporation, providing for
the merger of United Counties Bancorporation with
and into Meridian Bancorp, Inc.<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
November 14, 1994 /s/ Michael J. Mizak, Jr.
Michael J. Mizak, Jr.,
Senior Vice President and Controller
(Authorized Officer and Principal
Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> SEP-30-1994
<CASH> 614,200
<INT-BEARING-DEPOSITS> 113,314
<FED-FUNDS-SOLD> 48,965
<TRADING-ASSETS> 71,763
<INVESTMENTS-HELD-FOR-SALE> 454,745
<INVESTMENTS-CARRYING> 3,021,235
<INVESTMENTS-MARKET> 2,946,894
<LOANS> 9,435,170
<ALLOWANCE> 171,126
<TOTAL-ASSETS> 14,782,400
<DEPOSITS> 11,310,179
<SHORT-TERM> 1,643,060
<LIABILITIES-OTHER> 225,019
<LONG-TERM> 372,546
<COMMON> 291,585
0
0
<OTHER-SE> 940,011
<TOTAL-LIABILITIES-AND-EQUITY> 14,782,400
<INTEREST-LOAN> 555,960
<INTEREST-INVEST> 138,647
<INTEREST-OTHER> 26,312
<INTEREST-TOTAL> 720,919
<INTEREST-DEPOSIT> 201,393
<INTEREST-EXPENSE> 261,736
<INTEREST-INCOME-NET> 459,183
<LOAN-LOSSES> 21,305
<SECURITIES-GAINS> 2,751
<EXPENSE-OTHER> 445,091
<INCOME-PRETAX> 172,173
<INCOME-PRE-EXTRAORDINARY> 117,943
<EXTRAORDINARY> 0
<CHANGES> (2,730)
<NET-INCOME> 115,213
<EPS-PRIMARY> 1.98
<EPS-DILUTED> 1.98
<YIELD-ACTUAL> 4.78
<LOANS-NON> 92,770
<LOANS-PAST> 19,638
<LOANS-TROUBLED> 1,182
<LOANS-PROBLEM> 23,000
<ALLOWANCE-OPEN> 173,388
<CHARGE-OFFS> 36,002
<RECOVERIES> 11,267
<ALLOWANCE-CLOSE> 171,126
<ALLOWANCE-DOMESTIC> 171,126
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
