<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 OR 15(d) of the
Securities Exchange Act of 1934 [Fee Required] for the
fiscal year ended December 31, 1993, or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 [No Fee Required] for the
transition period from ______ to ______________.
Commission file number 0-12364
MERIDIAN BANCORP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2237529
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 North Sixth Street, Reading, Pennsylvania 19601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code:
(610) 655-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($5.00 par value)
Preferred Stock Purchase Rights
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
Indicate by check mark if disclosure of delinquent filers
pursuant to Item 405 of Regulation S-K is not contained herein,
and will not be contained, to the best of Registrant's knowledge,
in definitive proxy or information statements incorporated by
reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the shares of Common Stock of
the Registrant held by nonaffiliates, on the basis of the sale
price as of February 15, 1994, was $1,524,513,808. As of
February 15, 1994, the Registrant had 57,662,198 shares of such
Common Stock outstanding.
Documents incorporated by reference. Portions of the
following documents are incorporated herein by reference: Proxy
Statement of the Registrant relating to the Registrant's Annual
Meeting of Shareholders to be held April 26, 1994, Part III.
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PART I
ITEM 1.
Meridian Bancorp, Inc.
Meridian Bancorp, Inc. (the "Registrant"), a multi-bank
holding company registered under the federal Bank Holding Company
Act of 1956, as amended, was incorporated as a Pennsylvania
business corporation as a result of the statutory consolidation
on June 30, 1983 of American Bancorp, Inc. and Central Penn
National Corp. The Registrant's subsidiaries presently engaged
in the business of banking are (i) Meridian Bank, formed in 1986
as a result of the merger of the Registrant's then-existing three
banking subsidiaries (American Bank and Trust Co. of Pa., Central
Penn National Bank and The First National Bank of Allentown),
(ii) Delaware Trust Company, acquired in January 1988, and
(iii) Meridian Bank, New Jersey, which commenced operations in
April 1993 upon the acquisition of Cherry Hill National Bank.
Recent Transactions
On August 31, 1993, the Registrant acquired Commonwealth
Bancshares Corporation ("Commonwealth"), a bank holding company
headquartered in Williamsport, Pennsylvania. The acquisition was
accounted for as a "pooling of interests" and constituted a tax-
free exchange for federal income tax purposes. Concurrently with
the transaction, Commonwealth Bank, the sole banking subsidiary
of Commonwealth, was merged into Meridian Bank. At August 31,
1993, Commonwealth had total consolidated assets of approximately
$2.2 billion and total deposits of approximately $1.6 billion.
On April 26, 1993, in connection with the acquisition of
Commonwealth, the Registrant agreed to a merger of The Grange
National Bank of Susquehanna County ("Grange"), a two-branch
national bank headquartered in New Milford, Pennsylvania, into
Meridian Bank. At December 31, 1993, Grange had approximately
$28.5 million in total assets and $25.3 million in total
deposits. The acquisition is expected to be accounted for as a
"pooling of interests" and to constitute a tax-free exchange for
federal income tax purposes. The acquisition is expected to be
completed in the second quarter of 1994. The Registrant will
issue up to 166,500 shares of Common Stock in connection with the
merger.
In November 1993, Meridian Bank assumed approximately $76
million of deposits of Provident Savings Bank of Jersey City, and
paid a premium of $540 thousand. This acquisition was accounted
for as a purchase.
On December 10, 1993, the Registrant acquired First Bath
Corp. ("FBC"), a bank holding company headquartered in Bath,
Pennsylvania. The acquisition was accounted for as a "pooling of
interests" and constituted a tax-free exchange for federal income
tax purposes. Concurrently with the transaction, The First
National Bank of Bath, FBC's sole subsidiary, was merged into
Meridian Bank. At December 10, 1993, FBC had total consolidated
assets of approximately $120 million and total consolidated
deposits of approximately $110 million.
On December 16, 1993, the Registrant entered into a
definitive agreement to acquire McGlinn Capital Management, Inc.,
an investment advisory firm with $2.8 billion in assets under
direct management, for 500,000 warrants for shares of the
Registrant's Common Stock and cash. The transaction, which is
subject to regulatory approval, is expected to be completed by
the end of the second quarter of 1994.
Bank Subsidiaries - Meridian Bank, Delaware Trust Company and
Meridian Bank, New Jersey
Meridian Bank conducts its business principally through 269
banking offices located in 29 eastern and central Pennsylvania
counties.
Delaware Trust, a Delaware banking corporation, was
incorporated in 1899 under the Delaware General Corporation Law
and acquired banking powers through its merger in 1910 with
Delaware Savings Bank, which was created in 1905 by a special act
of the General Assembly of the State of Delaware. Delaware Trust
operates 26 branches in New Castle, Kent and Sussex Counties,
Delaware.
In January 1993, the Registrant caused the formation of
Meridian Bank, New Jersey, a New Jersey state-chartered banking
institution, to effect the acquisition of Cherry Hill National
Bank, which was completed in April 1993. Meridian Bank, New
Jersey operates 8 branches in Camden and Burlington Counties, New
Jersey.
At December 31, 1993, Meridian Bank, Delaware Trust and
Meridian Bank, New Jersey had total deposits of $10.1 billion,
$1.2 billion and $176 million, respectively, total loans of $8.4
billion, $944 million and $70 million, respectively, and total
assets of $12.3 billion, $1.4 billion and $196 million,
respectively.
Meridian Bank, Delaware Trust and Meridian Bank, New Jersey
provide a wide variety of services, including secured and
unsecured financing, real estate financing, checking, savings and
time deposit accounts, as well as the offering of cash management
and a variety of other specialized financial services to
individuals, businesses, municipalities and other governmental
bodies. In addition, Meridian Capital Markets, Inc. a division
of Meridian Bank, engages in the underwriting of municipal
obligations and various other investment banking, merchant
banking, mortgage banking and related activities permitted by law
for banks.
On July 9, 1992, the Registrant entered into an agreement to
acquire 21 branches in seven counties of central and southern New
Jersey, of Security Savings Bank, SLA ("Security"), a wholly-
owned subsidiary of Security Investments Group, Inc. ("Security
Investments"). Under the terms of the agreement, Meridian Bank,
New Jersey was to have acquired selected non-classified and
performing assets and real estate having, based on June 30, 1992
data and fair values, a book value of approximately $820 million
in exchange for the assumption of deposits and Federal Home Loan
Bank borrowings having an aggregate book value of a like amount
and the payment of a deposit premium based on the amount of
deposit liabilities assumed. On December 4, 1992, Office of
Thrift Supervision declared Security insolvent and placed it in
conservatorship with the Resolution Trust Company ("RTC"). The
RTC, in its capacity as receiver of Security, repudiated the
agreement in the fourth quarter of 1993 in accordance with its
authority under applicable banking law.
Other Subsidiaries of the Registrant
Meridian Life Insurance Company is a wholly-owned subsidiary
of the Registrant that reinsures life insurance and accident and
health insurance issued to borrowers in connection with loans and
other extensions of credit made to such borrowers by the
Registrant's subsidiary banks.
Meridian Funding Corp. is a wholly-owned subsidiary of the
Registrant that issues commercial paper for the use of the
Registrant and its subsidiaries.
Meridian Asset Management, Inc. ("MAM") and its
subsidiaries, Meridian Trust Company, Meridian Trust Company of
California and Meridian Investment Company, provide services
formerly provided by the trust departments of the predecessors of
Meridian Bank. These services include personal and corporate
trust, asset management and related services and investment
advisory services. Meridian Trust Company is a Pennsylvania
trust company with full trust powers. Meridian Investment
Company is an investment advisory firm registered with the
Securities and Exchange Commission and the Pennsylvania
Securities Commission. As of December 31, 1993, assets being
administered in one or more fiduciary capacities by MAM or one of
its subsidiaries had an aggregate market value of approximately
$15.5 billion, of which MAM or one of such subsidiaries had sole
or joint investment responsibility for approximately $4.4
billion. Meridian Trust Company of California, based in San
Francisco, was organized by MAM in 1989 and engages in personal
and corporate trust activities in California.
In addition to fiduciary services provided by MAM and its
subsidiaries, Delaware Trust Capital Management, Inc., a Delaware
bank and trust company and a wholly-owned subsidiary of Delaware
Trust, performs trust and related financial services. Prior to
the commencement of operations by Delaware Trust Capital
Management, Inc. in January 1989, such services were performed by
the Capital Management Group of Delaware Trust. As of
December 31, 1993, assets being administered in one or more
fiduciary capacities by Delaware Trust Capital Management, Inc.
had an aggregate market value of approximately $12 billion, of
which it had sole or joint investment responsibility for
approximately $1.7 billion.
Meridian Securities, Inc. is registered as a broker with the
Securities and Exchange Commission and the Pennsylvania
Securities Commission and is a member of the National Association
of Securities Dealers, Inc.
Meridian Capital Corp., a wholly-owned subsidiary of the
Registrant, is a small business investment company licensed by
the SBA, the business emphasis of which is small businesses
located in the tri-state area of Pennsylvania, Delaware and New
Jersey. This subsidiary is under agreement of sale.
Meridian Acceptance Corp., a wholly-owned subsidiary of the
Registrant, engages in the business of purchasing motor vehicle
installment sale contracts originating in the State of New
Jersey.
Until August 1990, Meridian Mortgage Corporation ("Meridian
Mortgage") operated as a wholly-owned mortgage banking subsidiary
of the Registrant. In August 1990, Meridian Mortgage became a
wholly-owned subsidiary of Meridian Bank. Meridian Mortgage was
incorporated in mid-1983 and provides a full range of real estate
financing services for owners of residential and commercial
properties. Meridian Mortgage originates mortgage loans,
services residential and commercial mortgages through offices in
New Jersey, Pennsylvania, New York, Florida, Washington State and
Delaware and securitizes and sells mortgages and servicing in the
secondary markets. During the third quarter of 1993, the
Registrant decided to significantly reduce the scope of its
mortgage banking business through a sale of substantially all of
the mortgage servicing operations conducted by Meridian Mortgage.
Meridian Delaware Investments, Inc., a wholly-owned
subsidiary of the Registrant, is a Delaware business corporation
that invests in and holds certain investments.
Meridian Leasing, Inc. specializes in leasing office and
business equipment. In October 1991, Meridian Leasing, Inc. was
reorganized as a direct subsidiary of Meridian Bank.
In November 1989, Meridian Bank formed Meridian Auto
Leasing, Inc. This corporation conducts the automobile leasing
activities previously conducted by Meridian Bank.
Meridian Asset Servicing Corp. was formed in 1993 to hold
title to real estate acquired through foreclosure on defaulted
loans.
On June 30, 1992, the Registrant completed the sale of its
title insurance operations to Fidelity National Financial, Inc.,
of Irvine, California.
Supervision and Regulation
Various requirements and restrictions under the laws of the
United States and the states in which the Company and its
subsidiaries do business affect the Registrant and its
subsidiaries.
General
The Registrant is a bank holding company subject to
supervision and regulation by the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") under the
Bank Holding Company Act of 1956, as amended (the "BHCA"). As a
bank holding company, the Registrant's activities and those of
its banking and nonbanking subsidiaries are limited to the
business of banking and activities closely related or incidental
to banking, and the Registrant may not directly or indirectly
acquire the ownership or control of more than 5% of any class of
voting shares or substantially all of the assets of any company,
including a bank, without the prior approval of the Federal
Reserve Board.
The Registrant's subsidiary banks are subject to supervision
and examination by applicable federal and state banking agencies.
All of the Registrant's subsidiary banks are insured by, and
therefore subject to the regulations of, the Federal Deposit
Insurance Corporation (the "FDIC"). In addition, Meridian Bank
is a Pennsylvania bank and trust company and member of the
Federal Reserve System subject to supervision and regulation by
the Pennsylvania Department of Banking and the Federal Reserve
Board. Delaware Trust Company is a Delaware banking corporation
subject to supervision and regulation by the Delaware State Bank
Commissioner. Meridian Bank, New Jersey, is a New Jersey state
bank subject to supervision and regulation by the New Jersey
Department of Banking. The Registrant's subsidiary banks are
also subject to requirements and restrictions under federal and
state law, including requirements to maintain reserves against
deposits, restrictions on the types and amounts of loans that may
be granted and the interest that may be charged thereon, and
limitations on the types of investments that may be made and the
types of services that may be offered. Various consumer laws and
regulations also affect the operations of the Registrant's
subsidiary banks. In addition to the impact of regulation,
commercial banks are affected significantly by the actions of the
Federal Reserve Board as it attempts to control the money supply
and credit availability in order to influence the economy.
Holding Company Structure
The Registrant's subsidiary banks are subject to
restrictions under federal law which limit the transfer of funds
by each of them to the Registrant and its nonbanking
subsidiaries, whether in the form of loans, other extensions of
credit, investments or asset purchases. Such transfers by any
subsidiary bank to the Registrant or any nonbanking subsidiary
are limited in amount to 10% of such subsidiary bank's capital
and surplus and, with respect to the Registrant and all
nonbanking subsidiaries, to an aggregate of 20% of such
subsidiary bank's capital and surplus. Furthermore, such loans
and extensions of credit are required to be secured in specified
amounts.
The Federal Reserve Board has issued regulations under the
BHCA that require a bank holding company to serve as a source of
financial and managerial strength to its subsidiary banks. As a
result, the Federal Reserve Board, pursuant to such regulations,
may require the Registrant to stand ready to use its resources to
provide adequate capital funds to its banking subsidiaries during
periods of financial stress or adversity. This support may be
required at times when, absent such regulations, the bank holding
company might not otherwise provide such support. Under the
Federal Deposit Insurance Corporation Improvement Act of 1991
(the "Improvement Act"), a bank holding company is required to
guarantee the compliance of any insured depository institution
subsidiary that may become "undercapitalized" (as described
below) with the terms of any capital restoration plan filed by
such subsidiary with its appropriate federal banking agency, up
to specified limits. Under the BHCA, the Federal Reserve Board
has the authority to require a bank holding company to terminate
any activity or relinquish control of a nonbank subsidiary (other
than a nonbank subsidiary of a bank) upon the Federal Reserve
Board's determination that such activity or control constitutes a
serious risk to the financial soundness and stability of any bank
subsidiary of the bank holding company.
Under the Financial Institutions Reform, Recovery, and
Enforcement Act ("FIRREA"), a depository institution insured by
the FDIC can be held liable for any loss incurred by, or
reasonably expected to be incurred by, the FDIC in connection
with (i) the default of a commonly controlled FDIC-insured
depository institution or (ii) any assistance provided by the
FDIC to a commonly controlled depository institution in danger of
default.
Regulatory Restrictions on Dividends
Dividend payments by Meridian Bank to the Registrant are
subject to the Pennsylvania Banking Code of 1965 (the "Banking
Code") and the Federal Deposit Insurance Act. Under the Banking
Code, no dividends may be paid except from "accumulated net
earnings" (generally, undivided profits). Under the Federal
Deposit Insurance Act, no dividends may be paid by an insured
bank if the bank is in arrears in the payment of any insurance
assessment due to the FDIC.
The declaration and payment of dividends by Delaware Trust
to the Registrant are subject to the Delaware Banking Code and
the Federal Deposit Insurance Act. Under the Delaware Banking
Code, no dividends may be paid except from "net profits"
(generally, net income as defined under federal regulations and
reported to the State Bank Commissioner). Additional
restrictions apply unless Delaware Trust's surplus fund is equal
to the amount of its common stock.
The declaration and payment of dividends by Meridian Bank,
New Jersey to the Company are subject to the New Jersey Banking
Act of 1948 and the Federal Deposit Insurance Act. Under the New
Jersey Banking Act of 1948, Meridian Bank, New Jersey cannot pay
a cash dividend unless following such dividend, the Bank's
surplus will equal at least fifty percent of the capital stock or
the payment of the dividend will not reduce the Bank's surplus.
State and federal regulatory authorities have adopted
standards for the maintenance of adequate levels of capital by
banks. Adherence to such standards further limits the ability of
banks to pay dividends.
Under these policies and subject to the restrictions
applicable to the Registrant's subsidiary banks, such subsidiary
banks could declare in the remainder of 1994, without prior
regulatory approval, aggregate dividends of $147.1 million, plus
net profits for the remainder of 1994.
The payment of dividends by any subsidiary bank may also be
affected by other regulatory requirements and policies, such as
the maintenance of adequate capital. If, in the opinion of the
applicable regulatory authority a bank under its jurisdiction is
engaged in, or is about to engage in, an unsafe or unsound
practice (which, depending on the financial condition of the
bank, could include the payment of dividends), such authority may
require, after notice and hearing, that such bank cease and
desist from such practice. The Federal Reserve Board and the
FDIC have formal and informal policies which provide that insured
banks and bank holding companies should generally pay dividends
only out of current operating earnings, with some exceptions.
FDIC Insurance Assessments
On January 1, 1993, the FDIC began to implement a
risk-related premium schedule for all insured depository
institutions that will result in the assessment of premiums based
on capital and supervisory measures. The risk-related premium
schedule was implemented during 1993; the FDIC began implementing
a permanent system on January 1, 1994.
Under the risk-related premium schedule, the FDIC, on a
semiannual basis, will assign each institution to one of three
capital groups (well-capitalized, adequately capitalized or
undercapitalized) and further assign such institution to one of
three subgroups within a capital group corresponding to the
FDIC's judgment of its strength based on supervisory evaluations,
including examination reports, statistical analysis and other
information relevant to assessing the risk characteristics of the
institution. Only institutions with a total capital to
risk-adjusted assets ratio of 10% or greater, a Tier 1 capital to
risk-adjusted assets ratio of 6% or greater and a Tier 1 leverage
ratio of 5% or greater, are assigned to the well-capitalized
group. Institutions deemed to have the highest risk would pay up
to $.31 for every $100 of deposits annually while those deemed to
have the least risk would pay $.23 for every $100 of deposits
annually. After the risk-based premium schedule is fully phased
in, the weakest institutions will face semiannual premium
increases until their premium classification is upgraded or they
merge with a stronger institution or fail.
Capital Adequacy
The Federal Reserve Board adopted risk-based capital
guidelines for bank holding companies, such as the Registrant.
The guidelines were phased in over a two-year period ended
December 31, 1992. Currently, the required minimum ratio of
total capital to risk-weighted assets (including off-balance
sheet activities, such as standby letters of credit) is 8%. At
least half of the total capital is required to be "Tier 1
capital," consisting principally of common shareholders' equity,
noncumulative perpetual preferred stock, a limited amount of
cumulative perpetual preferred stock and minority interests in
the equity accounts of consolidated subsidiaries, less goodwill.
The remainder ("Tier 2 capital") may consist of a limited amount
of subordinated debt and intermediate-term preferred stock,
certain hybrid capital instruments and other debt securities,
perpetual preferred stock, and a limited amount of the general
loan loss allowance. During the two-year phase-in period, a
limited portion of Tier 2 capital was permitted to be included as
Tier 1 capital.
In addition to the risk-based capital guidelines, the
Federal Reserve Board established minimum leverage ratio (Tier 1
capital to total assets) guidelines for bank holding companies.
These guidelines provide for a minimum leverage ratio of 3% for
those bank holding companies which have the highest regulatory
examination ratings and are not contemplating or experiencing
significant growth or expansion. All other bank holding
companies are required to maintain a leverage ratio of at least
1% to 2% above the 3% stated minimum.
Each of the Registrant's subsidiary banks is subject to
similar capital requirements adopted by its primary federal
regulator.
In 1993, each of the federal banking agencies, including the
Federal Reserve Board and the FDIC, adopted uniform changes to
the risk-based capital guidelines with respect to intangibles.
Under the new rules, the only types of identifiable intangible
assets that may be included in (i.e., not deducted from) an
institution's capital are readily marketable purchased mortgage
servicing rights ("PMSRs") and purchased credit card
relationships ("PCCRs"), provided that, in the aggregate, the
total amount of PMSRs and PCCRs included in capital does not
exceed 50% of Tier 1 capital. PCCRs are subject to a separate
sublimit of 25% of Tier 1 capital. The amount of PMSRs and PCCRs
that an institution may include in its capital is the lesser of
(i) 90% of such assets' fair market value (as determined under
the guidelines) or (ii) 100% of such assets' book value on a
discounted basis, guidelines) or (iii) 100% of such assets' book
value on a discounted basis, each determined quarterly.
Identifiable intangible assets other than PMSRs and PCCRs,
including core deposit intangibles, acquired for purposes of the
test applicable to bank holding companies on or before
February 19, 1992 (the date the Federal Reserve Board issued its
original proposal for public comment) generally will not be
deducted from capital for supervisory purposes, although they
will continue to be deducted for purposes of evaluating
applications filed by bank holding companies.
Other Provisions of the Improvement Act
The Improvement Act required the federal banking agencies to
promulgate regulations specifying the levels at which an insured
institution would be considered "well capitalized," "adequately
capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." In October
1992, each of the Federal banking agencies issued uniform final
regulations defining such capital levels. Under these
regulations, a bank will be considered "well capitalized" if it
has (i) a total risk-based capital ratio of 10% or greater, (ii)
a Tier 1 risk-based capital ratio of 6% or greater, (iii) a
leverage ratio of 5% or greater and (iv) is not subject to any
order or written directive to meet and maintain a specific
capital level. An "adequately capitalized" bank is defined under
the regulations as one that has (i) a total risk-based capital
ratio of 8% or greater, (ii) a Tier 1 risk-based capital ratio of
4% of greater, (iii) a leverage ratio of 4% or greater (or 3% or
greater in the case of a bank with the highest composite
regulatory examination rating) and (iv) does not meet the
definition of a well capitalized bank. A bank will be considered
(A) "undercapitalized" if it has (i) a total risk-based capital
ratio of less than 8%, (ii) a Tier 1 risk-based capital ratio of
less than 4% or (iii) a leverage ratio of less than 4% (or 3% in
the case of a bank with the highest regulatory examination rating
of 1); (B) "significantly undercapitalized" if the bank has (i) a
total risk-based capital ratio of less than 6%, (ii) a Tier 1
risk-based capital ratio of less than 3% or (iii) a leverage
ratio of less than 3%; and (C) "critically undercapitalized" if
the bank has a ratio of tangible equity to total assets of equal
to or less than 2%. Notwithstanding the foregoing, the
applicable federal bank regulator for a depository institution
could, under certain circumstances, reclassify a "well
capitalized" institution as "adequately capitalized" or require
an "adequately capitalized" or "undercapitalized" institution to
comply with supervisory actions as if it were in the next lower
category. Such a reclassification could be made if the
regulatory agency determines that the institution is in an unsafe
or unsound condition (which could include unsatisfactory
examination ratings).
Undercapitalized institutions, including significantly and
critically undercapitalized institutions, are required to submit
capital restoration plans to the appropriate federal banking
regulator and are subject to restrictions on operations,
including prohibitions on branching, engaging in new activities,
paying management fees, making capital distributions such as
dividends, and growing without regulatory approval.
In May 1992, the FDIC issued regulations implementing
provisions of the Improvement Act regulating brokered deposits.
"Brokered deposits" are defined as deposits solicited through
deposit brokers or deposits which an insured depository
institution attracts by offering significantly above-market
interest rates (as defined). Under the new regulations, "well
capitalized" banks may accept brokered deposits without
restriction, "adequately capitalized" banks may accept brokered
deposits with a waiver from the FDIC (subject to certain
restrictions imposed on payment of rates), while
"undercapitalized" banks may not accept brokered deposits.
The Improvement Act requires each federal banking agency to
review, every two years, its capital standards to prevent or
minimize loss to the Bank Insurance Fund (the "BIF") and the
Savings Association Insurance Fund (the "SAIF"). Each agency
must also revise its risk-based capital standards to ensure that
those standards adequately take into account interest-rate risk,
concentration of credit risk and risks of nontraditional
activities, as well as reflect the actual performance and
expected risk of loss on multi-family mortgages. In September
1993, the Federal Reserve Board and the FDIC issued a joint
notice of proposed rulemaking seeking public comment on a
proposed framework for revisions to the risk-based capital rules
to take account of these factors. The proposal offers two
alternatives to measure interest rate risk and the corresponding
increased capital required as a result thereof. The Registrant
is unable to predict the final form in which these proposed
regulations will ultimately be adopted or the effect such
regulation would have on the operations and capital adequacy of
the Registrant and its subsidiaries.
Prior to December 31, 1992, each federal banking agency was
required to review the accounting procedures it requires
institutions it regulates to utilize in preparing reports or
statements to be filed with such agency to ensure compliance with
generally accepted accounting principles ("GAAP"). Additionally,
certain accounting reforms require the federal banking agencies
to implement regulations to require that "off balance sheet"
assets and liabilities be taken into account in the preparation
of a depository institution's financial statements. Furthermore,
the federal banking agencies must develop a method for and
require disclosure of the fair value of a depository
institution's assets and liabilities in financial statements.
Commencing in fiscal years after December 31, 1992, each
depository institution must submit audited financial statements
to its primary regulator and the FDIC, which reports will be
publicly available. The audit committee of each institution must
consist of outside directors and the audit committee at "large
institutions" (as defined by FDIC regulation) must include
members with banking or financial management expertise. The
audit committee at "large institutions" must have access to
independent outside counsel. In addition, an institution must
notify the FDIC and the institution's primary regulator of any
change in the institution's independent auditor, and annual
management letters must be provided to the FDIC and the
depository institution's primary regulator. The regulations
define a "large institution" as one with over $500 million in
assets. which would include the Company. Also, under the rule,
an institution's independent auditor must examine the
institution's internal controls over financial reporting and
perform agreed-upon procedures to test compliance with laws and
regulations concerning safety and soundness.
In 1993, federal banking agencies prescribed certain
standards for depository institutions and their holding
companies, including ratio of classified assets to capital,
minimum earnings, compensation standards for officers, directors
and employees and, to the extent feasible, a minimum ratio of
market value to book value for publicly traded securities of such
institutions and holding companies.
The Improvement Act authorizes the FDIC to issue obligations
to and to borrow from BIF members in order to recapitalize the
BIF. BIF members may only purchase obligations of or make loans
to the FDIC to the extent of the bank's capital or retained
earnings. In accounting for any investment in an obligation
purchased from, or loan made to, the FDIC, the amount of such
investment or loan will be treated by such bank as an asset.
The Improvement Act gives the FDIC authority to impose
special assessments upon depository institutions to the extent
necessary to repay the obligations of the FDIC. Any such
assessment must be allocated between BIF members and SAIF members
in amounts which reflect the degree to which proceeds borrowed
are used for the benefit of the respective insurance funds.
Provisions of the Improvement Act relax certain requirements
for mergers and acquisitions among financial institutions,
including authorization of mergers of insured institutions that
are not members of the same insurance fund, and provide specific
authorization for a federally chartered savings association or
national bank to be acquired by any insured depository
institution.
Under the Improvement Act, all depository institutions must
provide 90 days notice to their primary federal regulator of
branch closings, and penalties are imposed for false reports by
financial institutions. Commencing in 1993, depository
institutions with assets in excess of $100 million must be
examined on-site annually by their primary federal or state
regulator or the FDIC.
The Improvement Act also sets forth Truth in Savings
disclosure and advertising requirements applicable to all
depository institutions.
Proposed Legislation
The United States Senate and House Banking Committees have
each passed, by strong margins, similar bills that would permit
interstate ownership of banks by bank holding companies, and
interstate branching by a single bank. If one of these bills is
enacted, the effect would be to eliminate present federal and
state law limitations on full interstate banking powers, over a
phase-in period of eighteen months. States would be able to
"opt-out" of the interstate banking provisions by enacting
legislation to that effect. While many similar bills have been
introduced in the past, the two pending bills appear to have
greater support than previous bills. If one of the bills is
enacted, the Registrant believes that industry costs will
decrease as redundant operating structures are eliminated, but
there will also be an increase in competition for banking
customers, as well as an increase in consolidation of the banking
industry. The Registrant is unable to predict whether any such
legislation will be enacted, and what specific effect it might
have on the Registrant.
Legislation has been introduced in Congress, from time to
time, that would repeal portions of the Glass Steagall Act, which
forbids commercial banks from underwriting corporate securities
and certain municipal securities. There is no active
consideration by Congress of such proposed legislation at this
time. In lieu of new legislation regarding the Glass Steagall
Act, bank holding companies have received limited authority to
underwrite and deal in certain securities through orders issued
by the Federal Reserve Board. The Registrant is continuously
evaluating whether it can and should avail itself of these
limited approvals regarding securities powers. In this regard,
the Registrant's various subsidiaries and divisions that engage
in customer securities activities were restructured
organizationally in the fourth quarter of 1988 to centralize
control of all such activities (except for those under the
direction of MAM and its subsidiaries) in anticipation of the
possible expansion of securities trading and underwriting powers.
Competition
Meridian Bank, Delaware Trust, and Meridian Bank, New Jersey
compete with numerous other banking and financial institutions in
their respective markets. Commercial banks, savings and loan
associations and credit unions actively compete for savings and
time deposits and for many types of loans. Such institutions, as
well as an undetermined number of consumer finance companies,
investment counseling firms, insurance companies, stock brokerage
firms, money market funds, equipment leasing companies and
corporate trustees, in addition to retailers of goods and
services who offer consumer credit, may be considered major
competitors of Meridian Bank, Delaware Trust and Meridian Bank,
New Jersey with respect to one or more of the services they
offer.
Pennsylvania law permits a Pennsylvania bank holding company
(such as the Registrant) to expand by acquiring banks located in
any state of the United States or the District of Columbia the
laws of which allow such expansion. Also, bank holding companies
located in another state are permitted by Pennsylvania law to
acquire banks and bank holding companies in Pennsylvania, but
only if the other state has enacted reciprocal legislation.
"Reciprocal" legislation generally means legislation that permits
Pennsylvania bank holding companies to acquire banks in such
states and permits bank holding companies in those states to
acquire Pennsylvania banks. In addition, pending legislation in
the U.S. Congress to amend federal law to permit interstate bank
ownership and branching appears to have such support. As a
result, the Registrant expects the operating environment for
Pennsylvania-based financial institutions to become increasingly
competitive. Additionally, the manner in which banking
institutions conduct their operations may change materially as
the activities in which bank holding companies and their banking
and nonbanking subsidiaries are permitted to engage increase, and
funding and investment alternatives continue to broaden, although
the long-range effects of these changes cannot be predicted, with
reasonable certainty, at this time. These changes most probably
will further narrow the differences and intensify competition
between and among commercial banks, thrift institutions and other
financial service companies.
The marketplace continues to see intense competition from
financial institutions and nonbanks for deposits, credit and
associated services. Further deregulation is expected to open up
opportunities for new product offerings that will replace and
complement existing product lines. The ability of the Registrant
and its subsidiaries to remain competitive with such other
financial institutions offering similar services will depend upon
how successfully the Registrant can respond to the rapidly
evolving competitive, regulatory, technological, and demographic
developments which affect its operations.
Employees
As of December 31, 1993, the Registrant and its subsidiaries
employed 6,917 persons on a full-time equivalent basis. The
Registrant and its subsidiaries provide a full range of
employment benefits and consider their relationships with their
employees to be excellent.
ITEM 2. PROPERTIES
As of December 31, 1993, the Registrant, or a subsidiary of
the Registrant, owned 201 properties in fee and leased 190. The
properties owned in fee were at such date subject to liens,
encumbrances or collateral assignments amounting in the aggregate
to approximately $2.9 million.
The principal office of the Registrant and of Meridian Bank
is owned in fee and is located at 35 North Sixth Street, Reading,
Pennsylvania 19601. The principal office of Delaware Trust is
leased and located at 900 Market Street Mall, Wilmington,
Delaware 19899. The principal office of Meridian Bank, New
Jersey is leased and is located at 176 Route 70, Medford, New
Jersey 08055.
ITEM 3. LEGAL PROCEEDINGS
The Registrant and certain of its subsidiaries are 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 the Registrant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information, including principal occupation during
the past five years, relating to each executive officer of the
Registrant is set forth below:
Principal Occupation
Name Age For Last Five Years
Samuel A. McCullough 55 Chairman and Chief Executive
Officer, Registrant since
February 1988; prior thereto,
President and Chief Executive
Officer, Registrant from June
1983; also, a Director of the
Registrant and Chairman,
Meridian Bank.
Ezekiel S. Ketchum 58 President, Registrant since
February 1988 and Chief
Operating Officer since
December 1992; prior thereto,
Vice Chairman, Registrant from
September 1984; also, a
Director of the Registrant and
President and Chief Executive
Officer, Meridian Bank.
David E. Sparks 49 Vice Chairman and Chief
Financial Officer, Registrant
and Meridian Bank since
February 1991; also a Director
of the Registrant and Meridian
Bank since 1993; prior
thereto, Vice Chairman,
Treasurer and Chief Financial
Officer, Registrant and
Meridian Bank from February
1990; prior thereto, Executive
Vice President, Midlantic
Corporation from 1985.
Russell J. Kunkel 51 Vice Chairman, Registrant
since February 1985; President
and Chief Executive Officer,
Meridian Mortgage Corporation
since December 1992; also,
Vice Chairman, Meridian Bank.
John F. Porter, III 59 Chairman, President and Chief
Executive Officer, Delaware
Trust Company since July 1988;
prior thereto, President,
Delaware Trust Company.
Paul W. McGloin 46 Executive Vice President,
Registrant and Meridian Bank
from July 1985.
Robert J. Unruh 47 Chairman, Meridian Securities,
Inc. since April 1990; also,
Executive Vice President,
Registrant and Meridian Bank
from February 1985.
Jan S. Berninger 37 President, Lehigh Valley
Division, Meridian Bank since
December 1992; prior thereto,
Executive Vice President,
Corporate and Commercial
Banking, Delaware Valley
Division, Meridian Bank, June
1992 to December 1992; prior
thereto, Senior Vice
President, Meridian Bank from
1986.
David R. Bright 55 President, Delaware Valley
Division, Meridian Bank since
February 1988; prior thereto,
Executive Vice President,
Berks/Schuylkill Division,
Meridian Bank since 1987.
Thomas P. Dautrich 45 President, Susquehanna Valley
Division, Meridian Bank since
February, 1990; prior thereto,
Executive Vice President,
Registrant from December 1989;
prior thereto, Senior Vice
President, Registrant and
Meridian Bank from 1986.
Glenn E. Moyer 43 President, Berks/Schuylkill
Division, Meridian Bank since
February 1988; prior thereto,
Senior Vice President,
Delaware Valley Division,
Meridian Bank (or its
predecessor).
Alice D. Flaherty 46 Executive Vice President,
Registrant and Meridian Bank
since December 1991; prior
thereto, Senior Vice
President, Registrant and
Meridian Bank from 1985.
Wayne R. Huey, Jr. 49 Executive Vice President,
Registrant and Meridian Bank
since January 1988; prior
thereto, President Lehigh
Valley Division, Meridian Bank
from April 1986.
Richard E. Meyers 48 Executive Vice President,
Registrant since 1983; also,
Executive Vice President,
Meridian Bank.
George W. Millward 44 Executive Vice President,
Registrant since May 1992;
prior thereto, managing
associate, Coopers & Lybrand
January 1987 to April 1992.
Chester Q. Mosteller 41 Executive Vice President,
Registrant and Meridian Bank
since December 1989; prior
thereto, Senior Vice
President, Registrant and
Meridian Bank.
P. Sue Perrotty 40 Executive Vice President,
Registrant and Meridian Bank
since July 1989; prior
thereto, Senior Vice
President, Registrant and
Meridian Bank.
Thomas G. Strohm 44 Executive Vice President,
Registrant since April 1991;
prior thereto Senior Vice
President, Registrant from
1986.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
Shares of the Registrant's Common Stock are traded
nationally in the over-the-counter market under the symbol MRDN
and are quoted on the NASDAQ National Market System. As of
February 15, 1994, the Registrant had 27,349 shareholders of
record holding the Registrant's Common Stock.
The following sets forth the quarterly ranges of high and
low bid prices, and the closing sale price, for shares of the
Registrant's Common Stock for the periods indicated. Such prices
represent quotations between dealers and do not include mark-ups,
mark-downs or commissions, and may not necessarily represent
actual transactions. The table also reflects cash dividends
declared during the periods indicated.
<TABLE>
<CAPTION>
Quarter Dividends High Low Close
--------- --------- ---- --- -----
<S> <C> <C> <C> <C>
1992
----
First.............................. (1) 26-5/8 22-1/8 26-1/4
Second............................. .30 28 23 27-1/2
Third.............................. .30 29-3/8 24-5/8 26-1/8
Fourth............................. .30 32 26-1/8 31-7/8
1993
----
First.............................. .30 35-3/4 29-3/4 33
Second............................. .32 34 26-3/4 32-1/2
Third.............................. .32 34-5/8 30-1/4 32-7/8
Fourth............................. .32 33-1/8 27-3/4 28-1/2
<FN>
- ------------------
(1) Reflects a new dividend payment schedule adopted in the first quarter of
1992.
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth certain selected historical
consolidated financial data of Meridian for the periods
indicated.
<PAGE>
<TABLE>
<CAPTION>
SELECTED HISTORICAL FINANCIAL DATA
(Dollars In Thousands, Except Per Share Data)
1993 1992 1991 1990
----------- ---------- ---------- -------------
(Dollars In Thousands, Except Per Share Data)
<S> <C> <C> <C> <C>
RESULTS OF OPERATIONS FOR THE YEAR
Interest Income........................................... $961,690 $1,016,181 $1,123,711 $1,246,867
Interest Expense.......................................... 344,398 442,998 623,675 775,495
----------- ---------- ---------- -----------
Net Interest Income....................................... 617,292 573,183 500,036 471,372
Provision for Possible Loan Losses........................ 56,101 68,827 106,750 140,746
----------- ---------- ---------- ----------
Net Interest Income After Provision for
Possible Loan Losses.................................... 561,191 504,356 393,286 330,626
Other Income.............................................. 285,270 242,878 261,200 188,227
Other Expenses............................................ 636,853 561,850 486,427 432,380
----------- ---------- ---------- ------------
Income from Continuing Operations Before Income Taxes
and Cumulative Effect of Change in Accounting Principle. 209,608 185,384 168,059 86,473
Provision for Income Taxes................................ 59,068 48,679 43,873 23,806
----------- ---------- ---------- ----------
Income from Continuing Operations Before Cumulative
Effect of Change in Accounting Principle............... 150,540 136,705 124,186 62,667
Loss From Discontinued Operations, Net of Taxes........... -- -- (6,500) (25,983)
----------- ---------- ---------- ----------
Income Before Cumulative Effect of Change in
Accounting Principle................................... 150,540 136,705 117,686 36,684
Cumulative Effect on Prior Years of Change in Method of
Accounting for Income Taxes........................... 7,221 -- -- --
----------- ---------- ---------- ----------
Net Income................................................ 157,761 136,705 117,686 36,684
Less Preferred Dividends.................................. -- -- -- --
----------- ---------- ---------- -----------
Net Income Applicable to Common Stock..................... $157,761 $136,705 $117,686 $36,684
=========== ========== ========== ==========
Net Interest Margin (Taxable Equivalent Basis)............ 4.96% 4.77% 4.47% 4.16%
Return on Average Assets (1).............................. 1.11% 1.00% 0.96% 0.47%
Return on Average Common Shareholders' Equity (1)......... 14.17% 13.63% 14.31% 7.46%
Fully Diluted Earnings Per Share
Income from Continuing Operations Before Cumulative
Effect of Change in Accounting Principle.............. $2.61 $2.44 $2.35 $1.22
Loss from Discontinued Operations, Net of Taxes......... -- -- (0.12) (0.51)
Income Before Cumulative Effect of Change in
Accounting Principle................................ 2.61 2.44 2.23 0.71
Cumulative Effect on Prior Years of Change in Method of
Accounting for Income Taxes.......................... 0.13 -- -- --
Net Income.............................................. 2.74 2.44 2.23 0.71
Dividends Declared Per Common Share....................... 1.26 0.90 (2) 1.20 1.20
Dividends Paid Per Common Share........................... 1.26 1.20 1.20 1.20
Ratio of Dividends Declared to Net Income................. 43% 35% 48% 149%
<CAPTION>
1989 1988
-------------- ------------
<S> <C> <C>
RESULTS OF OPERATIONS FOR THE YEAR
Interest Income........................................... $1,120,165 $892,934
Interest Expense.......................................... 703,116 519,711
----------- --------------
Net Interest Income....................................... 417,049 373,223
Provision for Possible Loan Losses........................ 30,517 35,519
----------- --------------
Net Interest Income After Provision for
Possible Loan Losses.................................... 386,532 337,704
Other Income.............................................. 147,632 129,232
Other Expenses............................................ 383,528 344,064
----------- ------------
Income from Continuing Operations Before Income Taxes
and Cumulative Effect of Change in Accounting Principle. 150,636 122,872
Provision for Income Taxes................................ 33,671 21,530
----------- -----------
Income from Continuing Operations Before Cumulative
Effect of Change in Accounting Principle............... 116,965 101,342
Loss From Discontinued Operations, Net of Taxes........... (11,114) (3,621)
----------- -----------
Income Before Cumulative Effect of Change in
Accounting Principle................................... 105,851 97,721
Cumulative Effect on Prior Years of Change in Method of
Accounting for Income Taxes........................... -- --
----------- -----------
Net Income................................................ 105,851 97,721
Less Preferred Dividends.................................. 1,885 4,064
----------- ------------
Net Income Applicable to Common Stock..................... $103,966 $93,657
=========== ==============
Net Interest Margin (Taxable Equivalent Basis)............ 4.26% 4.44%
Return on Average Assets (1).............................. 1.00% 1.01%
Return on Average Common Shareholders' Equity (1)......... 14.61% 13.51%
Fully Diluted Earnings Per Share
Income from Continuing Operations Before Cumulative
Effect of Change in Accounting Principle.............. $2.30 $1.99
Loss from Discontinued Operations, Net of Taxes......... (0.22) (0.07)
Income Before Cumulative Effect of Change in
Accounting Principle................................ 2.08 1.92
Cumulative Effect on Prior Years of Change in Method of
Accounting for Income Taxes.......................... -- --
Net Income.............................................. 2.08 1.92
Dividends Declared Per Common Share....................... 1.13 1.10
Dividends Paid Per Common Share........................... 1.10 1.08
Ratio of Dividends Declared to Net Income................. 48% 49%
<CAPTION>
1993 1992 1991 1990
---------- ---------- ---------- -------------
<S> <C> <C> <C> <C>
FINANCIAL CONDITION
At Year-End
Securities................................................ $3,060,147 $3,405,727 $2,853,581 $2,153,977
Loans..................................................... 8,988,044 8,551,597 8,498,050 9,440,894
Assets.................................................... 14,084,787 14,290,325 13,205,391 13,444,753
Deposits.................................................. 11,346,151 11,774,702 10,948,133 10,573,972
Total Shareholders' Equity................................ 1,185,633 1,059,319 947,733 817,413
Book Value Per Common Share............................... 20.39 18.75 17.21 15.88
Common Shares Outstanding................................. 58,154,486 56,491,396 55,064,521 51,475,965
Total Shareholders' Equity to Assets...................... 8.42% 7.41% 7.18% 6.08%
Risk-Based Capital Ratio.................................. 13.67% 11.61% 10.37% 8.23%
Allowance for Possible Loan Losses........................ 173,388 165,512 179,167 157,505
Allowance for Possible Loan Losses to Loans............... 1.93% 1.94% 2.11% 1.67%
Allowance for Possible Loan Losses to
Non-Performing Loans.................................... 136% 115% 106% 103%
Non-Performing Assets as Percentage of
Loans and Assets Acquired
in Foreclosures......................................... 1.98% 2.48% 2.87% 1.96%
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......................................... 2.25% 2.96% 3.51% 2.56%
<CAPTION>
1989 1988
-------------- ------------
<S> <C> <C>
FINANCIAL CONDITION
At Year-End
Securities................................................ $2,233,674 $2,138,551
Loans..................................................... 8,976,844 7,110,819
Assets.................................................... 13,411,530 10,934,117
Deposits.................................................. 10,854,666 8,324,755
Total Shareholders' Equity................................ 829,682 774,350
Book Value Per Common Share............................... 16.33 16.27
Common Shares Outstanding................................. 50,808,962 47,599,863
Total Shareholders' Equity to Assets...................... 6.19% 7.08%
Risk-Based Capital Ratio.................................. 8.72% --
Allowance for Possible Loan Losses........................ 97,730 92,494
Allowance for Possible Loan Losses to Loans............... 1.09% 1.30%
Allowance for Possible Loan Losses to
Non-Performing Loans.................................... 110% 167%
Non-Performing Assets as Percentage of
Loans and Assets Acquired
in Foreclosures......................................... 1.04% 0.84%
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......................................... 1.58% 1.08%
<FN>
(1) Calculation is based upon continuing operations.
(2) Reflects new dividend payment schedule adopted in the first quarter of 1992.
</TABLE>
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
FINANCIAL HIGHLIGHTS
Meridian Bancorp, Inc. (Meridian) reported record net income
of $157.8 million in 1993 compared to $136.7 million in 1992, an
increase of 15%. Earnings per fully diluted share were $2.74 in
1993 compared to $2.44 in 1992.
The returns on average assets and on average common
shareholders' equity were 1.11% and 14.17%, respectively, in 1993
compared to 1.00% and 13.63%, respectively, in 1992.
The merger with Commonwealth Bancshares Corporation of
Williamsport, Pa. (Commonwealth) was completed during the third
quarter of 1993. Financial information for all prior periods
presented has been restated to include the results of operations
and financial position of Commonwealth.
<PAGE>
The change in net income between 1993 and 1992 was primarily due
to the following items:
- An increase in net interest income of $44.1 million
($23.5 million after-tax).
- A decrease in the provision for possible loan losses of
$12.7 million ($9.0 million after-tax).
- An after-tax loss of $33.7 million in the mortgage
banking subsidiary.
- Expenses of $11.9 million related to Meridian's merger
with Commonwealth less securities gains of $8.3 million
at Commonwealth, resulting in a reduction in pre-tax
income of $3.6 million ($3.1 million after-tax).
- An increase in other securities gains of $14.2 million
($9.2 million after-tax), and
- Tax benefits of $7.2 million representing the
cumulative effect on prior years of a change in the
method of accounting for income taxes.
Net interest income was $617.3 million in 1993 compared to
$573.2 million in 1992, an increase of 8%. Widening spreads
during the past twelve months between the yield on interest-
earning assets and the cost of interest-bearing liabilities and a
higher level of interest-earning assets resulted in a net
interest margin on a taxable-equivalent basis of 4.96% in 1993
compared to 4.77% in 1992, an increase of 19 basis points.
Meridian's provision for possible loan losses was $56.1
million in 1993, down from $68.8 million in 1992. The decline
over the past year was due to continuing improvement in loan
quality.
Non-performing loans decreased for the eighth consecutive
quarter to $127.6 million at December 31, 1993, or 1.42% of
loans, from $143.6 million or 1.68% at the end of last year. The
ratio of the allowance for possible loan losses to non-performing
loans was 136% at December 31, 1993 compared to 115% a year ago.
Net loans charged-off in 1993 were $51.3 million, or .59% of
average loans, down from $84.6 million, or 1.00% of average
loans, in 1992. The allowance for possible loan losses was 1.93%
of total loans at December 31, 1993 compared to 1.94% a year ago.
Total non-performing assets also declined for the eighth
consecutive quarter to $178.8 million at December 31, 1993, or
1.98% of loans and assets acquired in foreclosures, compared to
$214.2 million or 2.48% at year-end 1992.
The loss in the mortgage banking subsidiary of $33.7 million
($.58 per fully diluted share) compared to a loss of $9.0 million
in 1992 resulted primarily from several factors. A restructuring
charge of $17.5 million in the third quarter of 1993 resulted
from Meridian's decision to refocus its mortgage activities on
the origination of residential mortgage loans and to
substantially reduce the scope of its mortgage servicing
business. Amortization of purchased mortgage servicing rights
and other servicing-related assets increased by $11.6 million
during 1993. The provision for possible credit losses on
mortgage servicing portfolios purchased with recourse increased
by $5.0 million compared to last year. Each of these changes is
more fully explained in the "Mortgage Banking" portion of the
"Primary Business Activities" section.
Net income for the year also was impacted by expenses
related to Meridian's merger with Commonwealth of $11.9 million
less securities gains of $8.3 million at Commonwealth, resulting
in a reduction in pre-tax income of $3.6 million ($3.1 million
after-tax or $.05 per fully diluted share). Expenses include
transaction costs, equipment and related asset write-offs,
various contract terminations and severance. Commonwealth's
balance sheet was restructured in accordance with Meridian's
asset and liability strategy and a reserve was established for
anticipated prepayment penalties on certain long-term borrowings.
Securities gains resulted from the sale of mortgage-backed
investments susceptible to prepayment risk in the current low
interest rate environment.
Other income was $285.3 million in 1993 compared to $242.9
million in 1992. Revenues in Meridian's broker-dealer and
investment banking unit increased by $15.2 million or 28% between
the two years. Service charges on deposits and fees for other
customer services increased by $7.5 million, or 8%, over last
year. Net securities gains, which include gains of $8.3 million
related to Commonwealth, increased by $22.5 million between the
two years, as more fully explained later.
Other expenses were $636.9 million in 1993 compared to
$561.9 million in 1992, an increase of 13%. Factors contributing
to the increase include the mortgage banking restructuring charge
and the increase in the provision for possible mortgage
servicing-related credit losses which aggregated $22.5 million,
one-time expenses of $11.9 million related to the Commonwealth
merger, the continuing expansion of Meridian's broker-dealer and
investment banking area, and increases in operating expenses in
the banking unit partially as a result of several acquisitions
during the year.
Total assets at December 31, 1993 were $14.1 billion
compared to $14.3 billion at the end of 1992. Total loans were
$9.0 billion compared to $8.6 billion a year ago, a 5% increase.
The consumer portfolio increased by 13% between the two years and
the commercial portfolio grew by 4%. This growth was partially
offset by a decline in residential mortgage loans. Total
deposits were $11.3 billion at December 31, 1993 compared to
$11.8 billion a year ago, a 4% decrease. 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 8.42% of
total assets at December 31, 1993 compared to $1.1 billion or
7.41% a year ago. The ratio of tangible shareholders' equity to
assets, which excludes $96.8 million of intangible assets, was
7.78% at December 31, 1993 compared to 6.44% at December 31,
1992. Meridian's risk-based capital ratio was 13.67% of total
risk weighted assets at December 31, 1993, well above regulatory
requirements. The ratio was 11.61% at December 31, 1992. Book
value per common share was $20.39 at December 31, 1993 compared
to $18.75 at December 31, 1992, an increase of 9%.
PRIMARY BUSINESS ACTIVITIES
Table 1 presents a summary of the operating results of
Meridian's primary business activities. Capital is allocated
primarily using regulatory risk-based capital guidelines. Staff
support and product processing costs are allocated to the
business units based on actual usage, with general costs
supporting the entire corporation being retained by the parent
company. Non-bank business units are allocated balance credits
for deposit balances provided to the banking units.
Banking. The banking unit provides a full range of retail
and corporate banking services to customers in central and
eastern Pennsylvania, as well as Delaware and southern New
Jersey.
Net income of the banking unit was $192.4 million in 1993
compared to $143.7 million in 1992, an increase of 34%. An
increase in net interest income, higher levels of securities
gains and a decrease in the provision for possible loan losses
more than offset an increase of 5% in operating expenses.
Net interest income on a taxable-equivalent basis increased
7% from $570.1 million in 1992 to $611.7 million in 1993.
Widening spreads between the yields on interest-earning assets
and the cost of interest-bearing liabilities and an increase in
interest-earning assets produced a net interest margin on a
taxable-equivalent basis of 4.77% in 1993 compared to 4.57% in
1992.
Loans outstanding at December 31, 1993 were $9.4 billion
compared to $9.2 billion at the end of 1992. Increases in the
commercial and consumer loan portfolios more than offset a
decrease in residential mortgage loans. Total deposits at
December 31, 1993 were $11.3 billion compared to $11.7 billion a
year ago, a 3% decrease. Changes in these categories are more
fully explained in the "Loans" and "Deposits" sections.
During 1993, Meridian completed the following four bank
acquisitions:
<TABLE>
<CAPTION>
Deposits Financial
Branches Acquired Accounting
Acquired (in Millions) Treatment
<S> <C> <C> <C>
Cherry Hill
National Bank
(Southern New Jersey) Pooling of
(April) 4 $99.0 Interests
Commonwealth Bancshares
Corporation
(Williamsport, Pooling of
Pennsylvania)(August) 61 1,593.0 Interests
Provident Savings Bank
of Jersey City
(Branches in Southern
New Jersey)(November) 4 76.0 Purchase
First Bath Corporation
(Bath, Pennsylvania) Pooling of
(December) 5 110.0 Interests
Total 74 $1,878.0
</TABLE>
Mortgage Banking. Meridian Mortgage Corporation originates
financing for residential and multifamily properties, provides
servicing for residential, commercial and multifamily mortgages,
and purchases and sells servicing. New loan originations from
both wholesale and retail operations aggregated $2.7 billion in
1993 compared to $2.9 billion in 1992.
The mortgage banking unit incurred a loss of $33.7 million
in 1993 compared to a loss of $9.0 million in 1992. The increase
in the loss from last year resulted primarily from:
- A restructuring charge of $17.5 million, reflecting
write-downs of $9.6 million to estimated fair value of
mortgage servicing intangibles and other related assets
and the establishment of reserves of $7.9 million
associated with substantially reducing the scope of
Meridian's mortgage servicing-related activities. Such
reserves were established primarily for anticipated
cash outflows related to various contract terminations,
severance, and legal and other sale-related costs. As
previously mentioned, Meridian decided in the third
quarter of 1993 to refocus its mortgage activities on
the origination of residential mortgage loans. Assets
related to the sale of mortgage servicing aggregated
$36.0 million at the end of 1993, almost unchanged from
when the decision to sell such servicing was announced.
It is currently expected that the sale will be
completed in the first half of 1994.
- An increase in amortization of $11.6 million for
purchased mortgage servicing rights and other
servicing-related assets.
- An increase of $5.0 million in the provision for
possible credit losses on mortgage servicing portfolios
purchased with recourse.
The impact of these changes was partially lessened by higher
gains on sales of loans and mortgage servicing, which were $19.3
million in 1993, an increase of $3.7 million from a year ago.
Balance credits received by the mortgage banking unit were $6.0
million in 1993 compared to $7.4 million in 1992.
The increase in amortization for purchased mortgage
servicing rights and other servicing-related assets resulted
primarily from a significant increase in prepayments of mortgage
loans that were being serviced, which reduced the value of these
assets. The increase in prepayments resulted from the low level
of long-term interest rates which has existed over the past year.
The increase in the provision for possible credit losses on
mortgage servicing portfolios purchased with recourse resulted
primarily from the continuing delinquencies in such portfolios
and the financial difficulties, including bankruptcies, of the
banks and thrifts in New England from which this servicing was
purchased. Recourse servicing losses result principally from the
inability of sellers to fulfill their obligations with respect to
this servicing, repurchases of loans, indemnification and loss
sharing payments, servicing advances, and costs of collection
which are not reimbursed by third parties.
Meridian is not currently experiencing any material credit
losses on the remainder of the purchased recourse portfolios or
from originated recourse servicing. At December 31, 1993,
aggregate reserves with respect to recourse servicing (both
purchased and originated) were $13.3 million compared to $7.0
million a year ago.
The mortgage portfolio serviced by Meridian Mortgage
Corporation was $7.0 billion at December 31, 1993 compared to
$9.7 billion at the end of 1992. The decline was caused
primarily by mortgage loan refinancing activity and sales of
mortgage servicing during 1993.
Asset Management. Meridian Asset Management combines
traditional bank trust services with investment and money
management products and services for individuals, corporations
and institutions.
Net income from the asset management subsidiary was $2.4
million in 1993 compared to $3.8 million in 1992. Revenues
increased by 7% between the two years. Contributing to the
higher level of revenues were increases in personal trust fees
and employee benefit and investment advisory fees. The increase
in revenues was more than offset by an increase in operating
expenses, such as personnel expense and professional fees,
including payments to outside consultants for enhancements to
operating systems. Balance credits received by the asset
management unit were $1.3 million in 1993 compared to $1.5
million in 1992.
The market value of customers' assets administered by
Meridian increased by 21% during the year from $22.7 billion at
year-end 1992 to $27.5 billion at December 31, 1993. Included in
these totals are assets for which Meridian has investment
management responsibility of $6.1 billion at the end of 1993, an
increase of 11% from last year. Asset growth in corporate trust,
institutional accounts, and corporate services within the
Delaware marketplace accounted for most of the increase in total
assets in 1993.
Securities. Meridian Securities underwrites, brokers and
distributes securities and loan servicing to institutional and
individual investors. In addition, the company buys, sells and
securitizes loans. The company also provides investment banking
services by acting as financial advisors in facilitating
municipal and corporate transactions in the capital market.
The securities unit experienced continued growth in 1993
with net income totaling $18.7 million compared to $15.6 million
in 1992, an increase of 20%. Revenues increased by 27% in 1993,
reflecting the continued expansion of the customer base and an
increase in trading volume. The low interest rate environment
prompted an increase in activity in mortgage related products,
resulting in higher trading gains and commission income on the
sale of securities and mortgage loans. Net interest income also
increased between the two years, primarily because of higher
levels of loans and investments related to the expanded activity
of the securities unit.
Operating expenses increased by 36% in 1993, mostly as a
result of growth and expansion throughout the unit and increases
in volume sensitive expenses such as commissions and other
incentive-related compensation, and brokerage and clearance fees.
Parent Company and Other Units. Staff support expense and
other corporate expenses not allocated by the parent company to
the business units, net of taxes, were $22.1 million in 1993
compared to $17.4 million in 1992. Merger expenses related to
Commonwealth and other acquisitions in 1993 of $11.5 million
(after-tax $8.3 million) were the primary reason for the increase
between the two years.
NET INTEREST INCOME AND RELATED ASSETS AND LIABILITIES
Net interest income is the single largest component of
Meridian's operating income. Net interest income increased 8% to
$617.3 million in 1993 from $573.2 million in 1992. For the same
period, taxable- equivalent net interest income also increased 8%
to $639.3 million from $594.0 million in 1992.
The level of net interest income results from the
interaction among the volume and mix of interest-earning assets,
the funding sources supporting these assets, and the interest
rates earned on assets relative to those paid on the funding
sources. The growth in net interest income in 1993 is
attributable to a 3% increase in average interest-earning assets
and to a 19 basis point improvement in the net interest margin
from 4.77% in 1992 to 4.96% in 1993.
Average interest-earning assets increased to $12.9 billion
in 1993 from $12.5 billion in 1992. The mix of earning assets
remained almost unchanged. Loans accounted for 67% and 68% of
average interest-earning assets in 1993 and 1992, respectively,
while short and long-term investments accounted for 28% in each
period.
Loans accounted for approximately one-half of earning asset
growth, increasing 3% to $8.7 billion from $8.4 billion in 1992.
Average commercial loans increased by 1% in 1993. The lack of
commercial loan growth is reflective of the continued weak loan
demand within Meridian's marketplace throughout 1993. Average
residential mortgage loans declined 14%, the result of
accelerated prepayments of mortgages in the low interest rate
environment that prevailed in 1993. Consumer loan growth was
strong, with average outstandings increasing 16%. Most of this
growth occurred in the home equity and indirect automobile loan
categories, due to the low interest rate environment and enhanced
marketing efforts.
Meridian's securities portfolios accounted for the remainder
of overall earning asset growth. Average securities and short-
term investments increased 4% to $3.6 billion in 1993 from $3.4
billion in 1992. This growth resulted primarily from the
investment of proceeds received from banking acquisitions and
from Meridian Bank's issuance, in March 1993, of $150 million of
6 5/8% subordinated notes due in 2003.
Deposit balances remained almost unchanged in 1993 compared
to 1992, averaging $11.3 billion in both years. Meridian
continued to experience a substantial shift in the mix of its
deposit base, as customers elected to transfer proceeds from
maturing time deposits into more liquid savings and interest-
bearing transaction accounts. The combined average balances of
savings, money market deposit and interest-bearing transaction
accounts increased by $534 million in 1993, while short and long-
term time deposits decreased by $548 million. Continued
increases in demand deposit balances were offset by comparable
declines in large dollar certificates of deposit. These deposit
mix shifts can be attributed to the low interest rate
environment.
Average short-term borrowings increased to $1.0 billion in
1993 from $853 million in 1992. Much of this increase was
temporary and short-term borrowings declined to approximately
$800 million by year-end 1993. Average balances of long-term
debt increased from $241 million in 1992 to $439 million in 1993.
Increases in this category primarily reflect proceeds from
Meridian Bank's issuance of subordinated debt during 1993.
The net interest margin is affected by both the net interest
spread and the level of non-interest bearing sources of funds.
The net interest spread increased by 27 basis points between
the two years. This increase can be attributed to the
substantial shift in Meridian's funding mix from higher costing
time deposits into lower costing savings and interest-bearing
transaction accounts, the wide spread earned on national
commercial rate-based loans relative to their short-term funding
costs, and the favorable yield curve that prevailed throughout
the year. Average yields on loans declined by 62 basis points
between 1992 and 1993, while rates paid on interest-bearing
liabilities declined by 96 basis points.
The amount of interest income not recognized on non-
performing loans was reduced from $13.1 million in 1992 to $9.5
million in 1993. The negative impact on the net interest spread
of carrying non-performing loans was 7 basis points in 1993 and
11 basis points in 1992.
Interest free funding sources increased 14% to $1.8 billion
in 1993. However, the beneficial effect of growth in interest-
free funding on overall funding costs was not sufficient to
offset the reduced value of these funds in the low interest rate
environment. The overall effect of these changes in non-interest
bearing funds reduced the net interest margin by 8 basis points
in 1993 compared to 1992.
Meridian's profitability has benefitted from the favorable
interest rate environment that existed during the past several
years. The spread between the national commercial rate, which
affects variable-rate loan products, and the federal funds rate,
which affects the cost of deposits and borrowings, continues to
be wider than in prior periods. Management cannot predict
whether market conditions will continue to provide similar
opportunities, and currently anticipates future contraction in
the net interest margin. However, management believes that the
negative impact of declining spreads should be mitigated by
anticipated improvement in economic activity and the resultant
anticipated increase in loan demand.
Interest Rate Risk Management. The absolute level and
volatility of interest rates can have a significant impact on
Meridian's profitability. The objective of interest rate risk
management is to identify and manage the sensitivity of net
interest income to changing interest rates and other financial
market factors, in order to achieve overall financial goals.
Based on economic conditions, on and off-balance sheet positions,
asset quality and various other considerations, management
establishes tolerance ranges for interest rate sensitivity and
manages within these ranges.
Meridian generates a mix of loans and deposits that tends to
create an asset sensitive interest rate risk profile primarily
because Meridian's retail core deposit base does not reprice as
quickly as the loan portfolios. An asset sensitive profile
indicates that net interest income would be positively impacted
in periods of rising interest rates and negatively impacted in
periods of declining interest rates. Meridian manages this
tendency towards asset 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. The notional amount of
interest rate swap contracts, which include forward interest rate
swaps of $150 million, was $2.3 billion at December 31, 1993
compared to $2.2 billion a year ago.
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 $43
million in 1993 and $45 million in 1992 as a result of interest
rate swaps.
The majority of the interest rate swap contracts outstanding
at December 31, 1993, or approximately $2.1 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 the end of 1993 was 4.95% with a remaining
term of approximately 1.6 years. Forward interest rate swaps of
$150 million, with a fixed rate of 4.84% and a term of
approximately 1.7 years, were entered into in late 1993 to
replace maturities of swaps in 1994. 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 3.39% at December 31, 1993.
The favorable impact of Meridian's interest rate swaps on
net interest income will decrease in a rising interest rate
environment. This change should be mitigated by the anticipated
growth in net interest income mainly because of the anticipated
expansion of Meridian's banking business.
During 1993, new swap contracts entered into aggregated $1.6
billion and maturities and terminations of contracts aggregated
$1.5 billion. Deferred gains resulting from the termination of
swap contracts were $2.0 million at the end of 1993 and will be
accreted into income over approximately the next two years.
Interest rate swaps involve credit risk as a result of
Meridian's reliance on counterparties to make payments over the
life of the contracts. The credit risk is limited to the
estimated aggregate replacement cost of those agreements in a
gain position (favorably impacting net interest income) and
amounted to approximately $5 million at December 31, 1993.
Meridian has credit policies and procedures addressing
counterparty exposures and operates within established credit
limits.
Meridian uses income simulation modeling as the primary tool
in measuring interest rate risk. Simulation modeling considers
not only the impact of changing interest rates on future net
interest income, but also other potential causes of variability
such as earning-asset volume and mix, yield curve relationships,
loan spreads, customer preferences and general market conditions.
A managerial gap analysis is used to supplement simulation
modeling. The traditional gap analysis considers the contractual
maturity and repricing characteristics of all assets, liabilities
and off-balance sheet positions and identifies mismatches between
these positions at various time intervals.
This traditional analysis indicates a large liability
sensitive position through the one-year time period beginning
December 31, 1993. However, it does not accurately reflect
Meridian's interest rate sensitivity, as previously discussed.
Meridian's net interest income has not been subject to the degree
of sensitivity indicated by this traditional gap analysis because
the analysis does not reflect the fact that the rates on
Meridian's core deposits do not reprice as quickly as market
rates. Consequently, adjustments are made to this analysis to
reflect management's experience and assumptions regarding the
impact of product pricing, interest rate spread relationships and
customer behavior.
These managerial adjustments are necessarily subjective and
will vary over time with loan and deposit changes, customer
preferences and market conditions. However, management believes
the managerial adjusted gap analysis provides a more realistic
picture of the interest rate risk characteristics of Meridian's
balance sheet.
The managerial adjusted gap position at December 31, 1993,
as provided in Table 4, indicates a moderate liability sensitive
position through the one-year time period.
Liquidity. The objective of liquidity management is to
ensure that sufficient funding is available, at reasonable cost,
to meet the ongoing and potential 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 Meridian's liquidity position at the
end of 1993 to be sufficient to meet its foreseeable cash flow
requirements.
Liquidity management is influenced by several key elements,
including Meridian's reputation, asset quality, the maturity
structure of its assets and liabilities, cash flow generated by
assets, and Meridian's ability to access funds in the capital
markets. The single most important source of liquidity for
Meridian is its core deposit base, which consists of deposits
from customers with long-standing relationships. Meridian
continues to promote the acquisition of core deposits through the
capabilities of its retail distribution systems and through
selective banking acquisitions. Long-term debt and shareholders'
equity also contribute to liquidity by reducing the need for
short-term funding. In 1993, Meridian funded approximately 80%
of total assets with deposits acquired within its local
marketplace and approximately 90% of total assets with core
deposits, long-term debt and shareholders' equity.
Meridian places strong emphasis on the maintenance of an
appropriate level of asset liquidity. Liquid assets include
short-term money market investments, securities available for
sale, and interest-bearing deposits with other banks. Cash flow
from mortgage and asset-backed securities also provide a
significant source of liquidity.
Meridian is committed to maintaining additional funding
flexibility through access to the debt and capital markets.
Meridian Bank, Meridian's principal banking subsidiary, has
access to a variety of money market sources of funds, such as
Federal funds purchased and securities sold under agreements to
repurchase, as well as to term funding through the potential
issuance of bank notes, bank deposit notes and subordinated debt.
Additionally, Meridian has the capacity to issue securities under
its shelf registration filed with the Securities and Exchange
Commission. In January, 1993, Meridian increased the
availability under its shelf registration by $150 million. As of
December 31, 1993, Meridian had debt and preferred equity
securities registered but unissued under this registration
totalling $250 million.
The cost and availability of external funding is influenced
by Meridian's credit ratings. The following is a summary of
Meridian's and Meridian Bank's ratings at December 31, 1993, as
issued by various credit rating agencies:
<TABLE>
<CAPTION>
STANDARD
MOODY'S AND POOR'S
<S> <C> <C>
MERIDIAN BANCORP, INC.
Subordinated Debt Baal BBB
Commercial Paper P2 A2
MERIDIAN BANK
Short-Term Deposits P1 A2
Long-Term Deposits A1 A-
Subordinated Debt A3 BBB+
</TABLE>
Reference should also be made to the Statements of Cash
Flows appearing in the Consolidated Financial Statements for
additional information on liquidity. The statement of cash flows
for 1993 reflects $376.2 million of cash provided by operations,
$50.5 million used by investing activities and $459.4 million
used by funding activities. Operating activities include $157.8
million in net income for 1993. Investing activities are
primarily comprised of both proceeds from and purchases of short-
term investments, investment securities, investment securities
available for sale and loans. Financing activities present the
net change in Meridian's various deposit accounts and short-term
borrowings, and also include $197.6 million in net proceeds from
the issuance of long-term debt in 1993. Cash flows from
operations and the issuance of long-term debt were used to fund
the decreases in deposits and short-term borrowings during 1993.
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. The economy in Meridian's
primary marketplace is broad-based and diverse and the loan
portfolio reflects that diversity. Lending to individual
consumers in this marketplace accounts for approximately one-
third of total loans. The remainder of the portfolio consists
predominantly of commercial loans and commercial real estate
loans in Meridian's primary marketplace.
Loans were $9.0 billion at December 31, 1993 compared to
$8.6 billion at December 31, 1992, an increase of 5%. Increases
in the commercial and consumer loan portfolios more than offset a
decrease in residential mortgage loans.
Commercial loans amounted to $5.4 billion at December 31,
1993 compared to $5.2 billion at December 31, 1992, a 4%
increase. Meridian's commercial loan portfolio is oriented
toward diversified, small and medium-sized businesses within
Meridian's market area, with limits on the size of loans to any
single borrower according to credit risk. These loans are
predominantly in the services, real estate, and manufacturing
industries. Credit risk associated with these borrowers is
principally influenced by general economic conditions and the
resulting impact on the borrower's operations. Geographical
coverage of Meridian's commercial lending activity extends across
central and eastern Pennsylvania, southern New Jersey and
Delaware.
Real estate-related commercial loans, including real estate
construction and commercial mortgages, totalled $1.9 billion and
represented 21% of total loans at December 31, 1993 compared to
$1.9 billion and 22% at December 31, 1992. Construction loans
decreased by $24.4 million or 9% from year-end 1992 and partially
offset a slight increase in commercial mortgages.
The construction and commercial mortgage real estate
portfolios are located primarily in markets in which Meridian has
a local banking presence. Collateral types are diverse and
include the real estate of borrowers who utilize the property in
their businesses as well as real estate investors. At December
31, 1993, real estate investor outstandings comprised 12% of
total loan outstandings compared to 13% at December 31, 1992.
Construction loans comprised 3% of total loan outstandings at
December 31, 1993, unchanged from the end of 1992.
Commercial, financial and agricultural loans totalled
$3.6 billion and represented 40% of total loans at December 31,
1993 compared to $3.4 billion and 40% at the end of 1992.
Consumer lending includes primarily loans to individuals in
communities served by Meridian. These loans include open-ended
credit arrangements, such as home equity loans, and closed-end
loans subject to specific contractual payment schedules, such as
installment loans and residential mortgages.
Residential mortgage loans decreased from $1,057.6 million
at December 31, 1992 to $993.5 million at December 31, 1993.
This change resulted primarily from mortgage refinancing activity
in the low interest rate environment during the past year.
Management remains committed to serving the residential mortgage
market through both the retail branches of Meridian's commercial
banks and its mortgage banking subsidiary.
Consumer loans, which consist of loans made to individuals
on an installment or revolving credit basis, totalled $2.5
billion at December 31, 1993 compared to $2.2 billion at December
31, 1992, an increase of 13%. The increase in consumer loans
during 1993, mostly home equity loans and other types of personal
loans, resulted primarily from enhanced marketing efforts in the
relatively low interest rate environment during the year.
Investment Securities and Investment Securities Available
for Sale. The classification of securities is determined at the
time of purchase. Securities are classified as investments and
carried at amortized cost if management has the intent and
ability to hold the securities until maturity.
The carrying value of the investment portfolio at December
31, 1993 was $2.8 billion and net unrealized gains totalled $28.6
million. Such gains include gross unrealized gains of $35.7
million and gross unrealized losses of $7.1 million. At the end
of 1992, the carrying value of the investment portfolio was $2.5
billion and net unrealized gains totalled $44.6 million. The
average maturity of the investment portfolio at December 31, 1993
was 2.8 years compared to 2.5 years at December 31, 1992.
Securities expected to be held for an indefinite period of
time are classified as investment securities available for sale
and are carried at the lower of aggregate amortized cost or fair
value. Decisions to purchase or sell these securities are based
on an assessment of economic and financial conditions, including
changes in interest rates and prepayment risks, liquidity and
capital needs, alternative asset and liability management
strategies, regulatory requirements and tax considerations. The
carrying value of this portfolio at December 31, 1993 was $275.7
million, with net unrealized gains of $12.5 million. Such gains
include gross unrealized gains of $12.7 million and gross
unrealized losses of $203 thousand. The carrying value of this
portfolio and net unrealized gains at year-end 1992 were $945.2
million and $28.2 million, respectively. The average maturity of
the investment securities available for sale portfolio, which
includes tax-exempt obligations of states and municipalities, was
5.5 years at December 31, 1993 compared to 5.9 years at December
31, 1992.
The significant decline in investment securities available
for sale is attributable to a restructuring of Commonwealth's
balance sheet in accordance with Meridian's asset and liability
strategy. Securities gains of $8.3 million resulted from the
sale of mortgage-backed investments susceptible to prepayment
risk in the current low interest rate environment. Additionally,
in the first quarter of 1993, Meridian sold $217 million of U.S.
Treasury and federal agency securities with maturities of less
than one year, recognizing gains of $5.5 million.
Meridian's securities portfolios (investment securities and
investment securities available for sale) are comprised of U.S.
Treasury and federal agency securities, mortgage-backed
securities, tax-exempt obligations of states and municipalities,
corporate securities, including privately issued asset-backed
securities, and equity securities.
U.S. Treasury and federal agency securities (other than
mortgage-backed securities) totalled $733 million at year-end
1993 and accounted for approximately 24% of total securities
holdings.
Mortgage-backed securities remain the largest component of
Meridian's securities portfolios, accounting for approximately
55% of the total at year-end 1993. This portfolio is comprised
of federal agency mortgage-backed securities and other
collateralized mortgage obligations which are backed by federal
agency collateral or are AAA rated private issues. Because of
the intent to hold a majority of these securities to maturity,
management evaluates and closely monitors cash flow projections
for all mortgage-backed securities. Investment strategy over the
past several years has focused primarily on the purchase of
mortgage-backed securities which have generally predictable cash
flows. The expected average life of mortgage-backed securities
at December 31, 1993, based on projected prepayment rates, was
2.2 years compared to 2.5 years at year-end 1992.
Meridian's current credit guidelines call for purchases of
securities issued by either the U.S. Treasury or federal
agencies, or by states and municipalities or corporate entities
that are rated A or higher by Moody's Investor Services, Inc. or
Standard and Poor's Corporation. At December 31, 1993, the
carrying value of state and municipal securities was $410
million, 90% of which was rated A or higher by the rating
agencies. Securities rated Baa and below totalled $1.6 million
and $40.9 million were non-rated. In the first quarter of 1994,
$30.5 million of the non-rated securities were called, reducing
the balance to $10.4 million. Generally, non-rated securities
are collateralized by letters of credit or are securities in
which the principal and interest is supported by government
obligations set aside in escrow accounts. At December 31, 1993,
the carrying value of corporate securities, excluding AAA rated
private mortgage-backed and asset-backed securities, was $11.5
million. Corporate securities rated Baa and below totalled $5.2
million and $3.8 million of such securities were non-rated.
Tax-exempt obligations of state and municipalities comprised
13% of the securities portfolios at year-end 1993 compared to 15%
at year-end 1992. The decline is attributable to maturities and
calls of higher-yielding securities in the low interest-rate
environment. Management continues to purchase qualified tax-
exempt securities.
Effective in the first quarter 1994, Meridian will adopt
Statement of Financial Accounting Standards No. 115 "Accounting
for Certain Investments in Debt and Equity Securities" which
requires investments in equity securities with a readily
determinable fair value and investments in all debt securities to
be classified in one of three categories. The three categories
are (1) held to maturity -- carried at amortized cost; (2)
available for sale -- carried at fair value (with unrealized
gains and losses, net of related tax effect, recorded as a
separate component of shareholders' equity); and (3) trading
account - carried at fair value (with unrealized gains and losses
recorded in the income statement). The impact of this accounting
change, had Meridian elected to adopt this statement at December
31, 1993, would have been to increase shareholders' equity by
approximately $8.1 million or less than 1%, representing the
after-tax unrealized gain in the available for sale portfolio.
Deposits. Total deposits were $11.3 billion at December 31,
1993 compared to $11.8 billion at year-end 1992, a decrease of
4%. Approximately 60% of the decline occurred in time deposit
categories and resulted from anticipated runoff of deposits from
recent acquisitions. The lower interest rates on deposits also
resulted in depositors seeking alternative investment
opportunities. The remaining 40% of the decline is attributable
to a planned reduction in certificates of deposit of $100,000 and
more.
Short-Term Borrowings. At December 31, 1993, short-term
borrowings, comprised of Federal funds purchased, securities sold
under agreements to repurchase, and Federal Home Loan Bank and
other borrowings totalled $791.7 million compared to $877.1
million a year earlier, a 10% decrease.
Long-Term Debt and Other Borrowings. This category amounted
to $421.3 million at December 31, 1993 compared to $313.8 million
at December 31, 1992, an increase of 34%. Subordinated debt of
$321.6 million is included in this category, along with
capitalized lease obligations, longer-term borrowings from the
Federal Home Loan Bank, and various other loans and mortgages
payable. The increase is attributable to Meridian Bank's
issuance, in March 1993, of $150 million of 6 5/8% subordinated
notes due in 2003. Proceeds were used by Meridian Bank to retire
$60 million of subordinated notes issued to Meridian and $7
million of outstanding subordinated notes issued to the public.
The remaining net proceeds were used for general corporate
purposes.
Reference should be made to Note 6 of the Notes to
Consolidated Financial Statements for an additional analysis of
short-term borrowings and long-term debt.
PROVISION FOR POSSIBLE LOAN LOSSES AND RELATED CREDIT QUALITY
Meridian manages asset quality and controls credit risk
through diversification of the loan portfolio and the application
of policies designed to foster sound underwriting and loan
monitoring practices. Meridian's loan administration function is
charged with monitoring asset quality, establishing credit
policies and procedures, and enforcing the consistent application
of these policies and procedures across Meridian.
Commercial loans are assigned risk ratings by loan officers.
The appropriateness of these ratings, in addition to the overall
lending process, is reviewed by credit policy personnel. A
quarterly review and reporting process is in place for monitoring
those loans that have been identified as problems or potential
problems. A separate loan workout department is involved with
the collection of problem loans. Because of their relatively
homogeneous nature and small dollar size, consumer and
residential mortgage loans are generally reviewed in the
aggregate.
When establishing the appropriate levels for the provision
and the allowance for possible loan losses, management performs
an analysis of the loan portfolio by considering a variety of
factors. This analysis includes periodic reviews by loan review
and loan workout personnel of all borrowers with aggregate
balances of $250,000 or greater. Meridian also reviews, at least
on a quarterly basis, problem borrowers with balances of $500,000
or greater, as well as selected lower balance loans.
Consideration is given to the impact of current and anticipated
economic conditions, the diversification of the loan portfolio,
historical loss experience, delinquency statistics, reviews
performed by loan officers who are primarily responsible for
compliance with established lending policy, the perceived
financial strength of borrowers, and the perceived adequacy of
underlying collateral. Consideration is also given to
examinations performed by regulatory authorities. Lending
procedures and the loan portfolio are examined periodically by
several banking regulatory agencies as part of their supervisory
activities. For Meridian, the most comprehensive of these
examinations is performed by the Federal Reserve Bank.
To assist in determining the adequacy of the provision and
the allowance, management first sets the allocated portion of the
allowance for possible loan losses. For commercial loans,
allocations of the allowance to individual loans are based on
borrower specific data determined by reviewing individual non-
performing, delinquent, problem, and other loans and by
considering those items described in the preceding paragraph. In
addition, general allocations of the allowance are made to the
commercial loan category. General allocations to commercial
loans also consider the impact of current and anticipated
economic conditions on both individual borrowers and the
commercial loan portfolio taken as a whole. Consumer and
residential mortgage loan allocations are determined in the
aggregate and are based on recent chargeoff history and
delinquency trends, anticipated losses over the foreseeable
future, and the impact of current and anticipated economic
conditions in the local, regional and national economies. The
unallocated portion of the allowance is that amount, which when
added to the allocated allowance, brings the total allowance to
the amount deemed adequate by management at the time. Management
considers the unallocated portion of the allowance, which is
determined by reviewing those items described in the preceding
paragraph, as a subset of the entire allowance and, consequently,
available to absorb losses anywhere within the loan portfolio.
The loan portfolio represents loans made primarily in
Meridian's market area in eastern and central Pennsylvania and in
Delaware and southern New Jersey. Management continues to
monitor the economic conditions in this market area. The
ultimate collectibility of a substantial portion of Meridian's
loans, especially its real estate loans, and the market value of
other real estate owned, is susceptible to changes in economic
conditions in this primary market area, as was especially evident
over the past several years.
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. Although the
economy continues to improve slowly, the balance in the
allowance at December 31, 1993 reflects Meridian's continuing
concerns about the strength and the duration of the current
economic recovery, especially in the commercial and construction
real estate sectors of the economy, in the geographic markets
served by Meridian. In management's opinion, the allowance for
possible loan losses is adequate at December 31, 1993.
The balance in the allowance for possible loan losses was
$173.4 million or 1.93% of total loans at the end of 1993
compared to $165.5 million or 1.94% of total loans at the end of
1992. Although there was an overall improvement in loan quality
in 1993, as evidenced by a decline in non-performing loans, the
relatively high level in the allowance reflects management's
continuing concerns about the strength and the duration of the
current economic recovery.
The provision for possible loan losses represents charges
made to earnings to maintain an adequate allowance for possible
loan losses. The provision for possible loan losses was
$56.1 million in 1993 compared to $68.8 million in 1992. The
decline of $12.7 million resulted primarily from the continuing
improvement in loan quality. The overall improvement in asset
quality was also evident in a decrease of $12.4 million in
writedowns and other expenses associated with foreclosed real
estate, from $23.3 million in 1992 to $10.9 million in 1993.
Net charge-offs were $51.3 million or .59% of average loans
in 1993 compared to $84.6 million or 1.00% of average loans in
1992. Recoveries were $11.2 million in 1993 compared to $10.6
million in 1992. The impact of the recent recession has made it
increasingly more difficult to realize significant recoveries of
previously charged-off loans, especially in the real estate area.
Table 13 presents a summary of various indicators of credit
quality. At December 31, 1993, non-performing assets as a
percentage of period-end loans and assets acquired in
foreclosures were 1.98% compared to 2.48% at the end of last
year. Non-performing assets were $178.8 million at December 31,
1993 and decreased by $35.4 million during the past year from
$214.2 million a year ago. This decrease resulted from an
overall improvement in asset quality during the year and an
increase in payments received, combined with continuing high
levels of loan chargeoffs and writedowns of other real estate.
Real estate-related non-performing assets were 65% of total non-
performing assets at December 31, 1993.
Non-performing loans were 1.42% of total loans at December
31, 1993 compared to 1.68% at the end of last year. Non-
performing loans amounted to $127.6 million at December 31, 1993
and decreased by $16.0 million during the past year from $143.6
million a year ago. Non-performing assets and loans past due 90
or more days as to interest or principal at December 31, 1993
were $203.6 million or 2.25% of loans and assets acquired in
foreclosures compared to $255.3 million or 2.96% one year ago, a
decrease of $51.7 million.
The ratio of the allowance for possible loan losses to non-
performing loans was 136% at December 31, 1993 compared to 115%
at year -end 1992. The coverage of non-performing assets was 97%
at year-end 1993 compared to 77% at December 31, 1992. It should
be noted that any possible future losses on foreclosed real
estate and in-substance foreclosures which are included in non-
performing assets are charged directly to earnings and not to the
allowance for possible loan losses. Foreclosed real estate is
carried at the lower of cost or fair value, less estimated costs
of disposal.
Non-performing assets are comprised of non-accrual loans,
loans categorized as troubled debt restructurings, and assets
acquired in foreclosures which includes in-substance
foreclosures. Non-performing assets do not include loans past
due 90 days or more as to interest or principal which are well
secured and in the process of collection, the majority of which
represent residential mortgage loans.
Generally, a commercial 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.
Residential mortgages which are 180 days or more delinquent
are placed on nonaccrual status when total principal, interest,
and escrow owed exceeds 80% of the property's appraised value.
Properties are re-appraised when foreclosure proceedings are
initiated.
Non-accrual loans totalled $124.3 million at December 31,
1993 compared to $142.7 million one year ago, a decrease of $18.4
million or 13%. The carrying value of non-accrual commercial
loans at December 31, 1993 has already been reduced by charge-
offs and payments to 57% of the aggregate carrying value when
such loans were originally placed into a non-performing status.
Payments of $19.1 million were received on these loans in 1993,
almost all of which was applied as a reduction in the principal
outstanding. Meridian's non-accrual loans include only six loans
with balances in excess of $2.5 million (only one of which is
over $5 million), indicating that a substantial portion of the
risk is spread across a significant number of borrowers. These
six loans aggregated $25.0 million or approximately one-fifth of
total non-accrual loans at December 31, 1993. Table 15
classifies non-accrual loans according to various levels of
payment performance.
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. If restructured
loans are not performing according to revised terms, such amounts
are included in non-accrual loans.
The level of assets acquired in foreclosures (except
consumer related), including in-substance foreclosures, was $50.0
million at December 31, 1993 compared to $68.3 million a year
ago. A loan is classified as an in-substance foreclosure when
the borrower is perceived to have little or no equity in the
project, the borrower appears to be unable or unwilling 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 at December 31, 1993 have
already been reduced by charge-offs and payments to 43% of the
aggregate carrying value when such assets were originally placed
into non-performing status. Assets acquired in foreclosures
include only three properties with balances in excess of
$2.5 million (one of which is over $5 million) at year-end 1993,
aggregating $16.1 million or approximately one-third of the total
of such assets. At present, the marketability of Meridian's
foreclosed real estate remains somewhat limited principally
because of general illiquidity in the commercial real estate
market. If real estate values decline further, additional
writedowns of the current portfolio may be necessary and
foreclosures may increase.
Reference should be made to Table 5 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 except for those changes caused by the
decline in residential mortgage loans and the increase in other
consumer loans, as previously discussed.
In addition, reference should be made to Table 16 for a
breakdown of commercial loans by major industry and to Table 17
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 99%, are
to borrowers for property in Pennsylvania, Delaware, and New
Jersey, of which Pennsylvania has 81%, 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 December 31, 1993, Meridian's
commercial loans and commitments did not have any industry
concentration or other known concentration that exceeded 10% of
total loans and commitments. However, the effect of the recent
recession has had a negative impact on the financial performance
of many companies involved in retail trade. At December 31, 1993
Meridian's loans to companies in retail trade totalled
$721.6 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 $358.9 million and
loans to automobile dealers of $362.7 million. Loans to
companies in retail trade included $16.9 million of loans in a
non-accrual status at December 31, 1993, representing 13% and 18%
of non-performing loans and non-performing commercial loans,
respectively, at that date. Meridian has no foreign loan
exposure.
A leveraged buyout generally produces a new company with a
large amount of debt relative to equity. Such debt is usually
secured primarily by the assets of the acquired company. If
interest rates rise or if economic conditions deteriorate, a
highly leveraged company may have difficulty servicing its debt
obligation.
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 December 31,
1993, Meridian's highly leveraged transactions aggregated
$67.3 million in outstanding balances or less than 1% of total
loans, and an additional $27.7 million in commitments. All such
balances were current as to principal and interest at the end of
1993. Cable television and cellular phone exposures represented
$49.6 million of such loans outstanding and $14.5 million of the
commitments outstanding.
Potential problem loans consist of loans which are included
in performing loans at December 31, 1993, 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 December 31, 1993, such potential
problem loans, not included in Table 13, amounted to
approximately $31 million compared to approximately $34 million
one year ago. No loans to companies in retail trade were
included in potential problem loans at December 31, 1993.
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
Meridian's businesses generate various sources of other
income, such as trust revenues, mortgage banking fee income and
gains on sales of mortgage loans and mortgage servicing, broker-
dealer and investment banking revenues, securities gains, service
charges on deposit accounts, and other service charges,
commissions and fees.
Other income was $285.3 million in 1993 compared to $242.9
million in 1992, an increase of 17%.
Trust revenues were $41.7 million in 1993 compared to $38.5
million in 1992, an increase of 8%. Contributing to the higher
level of revenues were increases in personnel trust, employee
benefit and investment advisory fees.
Mortgage banking revenues were $36.0 million in 1993
compared to $47.7 million in 1992. Net servicing revenues
decreased by $15.5 million between the two years, mainly because
of an increase in amortization of $11.6 million for purchased
mortgage servicing rights and other servicing-related assets.
This amount is recorded as a reduction of mortgage banking
revenues. Servicing revenues also decreased due to the lower
level of mortgage loans being serviced because of loan payoffs in
the declining interest rate environment and sales of servicing.
The negative impact of the decline in net servicing revenues was
partially offset by higher gains on sales of loans and mortgage
servicing, which were $19.3 million in 1993, an increase of $3.7
million from a year ago.
In addition to the changes in mortgage banking revenues
described previously, earnings in the mortgage banking unit were
affected by a $17.5 million restructuring charge, mentioned
previously, which is classified as an other operating expense.
Broker-dealer and investment banking revenues totalled $69.4
million in 1993 compared to $54.2 million in 1992, an increase of
28%. The increase in revenues is due to the continued growth
within the securities unit. This growth is reflected in the
increase in net trading gains resulting from higher levels of
sales of securities and mortgage loans. Net tender option bond
fees increased from the prior year, primarily due to the decline
in interest rates during 1993. Commissions and fees increased
from last year due to the growth in retail brokerage activity.
Because of the continued high level of mortgage loan refinancing
activity during the past two years, revenues were reduced by
charges related to reserves against certain investments in
collateralized mortgage obligation residuals. The impact of
these reserves was lessened by gains from the sales of various
other investments in both years.
Service charges on deposits increased by 10% between the two
years, from $49.0 million in 1992 to $53.8 million in 1993.
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 service charges.
Net securities gains were $25.3 million in 1993 compared to
$2.8 million in 1992. The amount in 1993 included gains of $25.5
million and losses of $203 thousand. These gains are in addition
to gains of $2.0 million from sales primarily of mortgage-related
investments, which are included in broker-dealer and investment
banking revenues. Included in the total for 1993 is a gain of
$8.6 million on the sale of Meridian's common stock investment in
Fidelity National Financial, Inc. This stock was acquired as
part of the sale of Meridian's title insurance operations in
1992. A gain of $5.5 million was recognized from the sale of
investment securities available for sale in the first quarter of
1993, mainly U.S. Treasury and federal agency securities with
maturities of less than one year. Finally, a gain of $8.3
million was recognized from the sale of some of Commonwealth's
mortgage-backed investments which are susceptible to prepayment
risk in the current low interest rate environment.
OTHER EXPENSES
Other expenses were $636.9 million in 1993 compared to
$561.9 million in 1992. The increase resulted primarily from the
following factors:
- A restructuring charge associated with reducing the
scope of Meridian's mortgage servicing-related
activities and an increase in the provision for
possible credit losses on mortgage servicing portfolios
with recourse, which aggregated $22.5 million, as
previously described in the "Primary Business
Activities" section.
- One-time expenses of $11.9 million relating to the
merger with Commonwealth, as previously described in
the "Financial Highlights" section.
Exclusive of these changes in 1993, other expenses would
have increased by $40.6 million or 7% between the two years.
Salaries, which represent the largest component of other
expenses, increased by 13% during the year, from $212.4 million
in 1992 to $239.4 million in 1993. An increase in staff levels,
primarily in the banking unit because of acquisitions over the
past year and in the broker-dealer and investment banking
function because of ongoing expansion, an increase in commissions
and other incentive-related compensation, and merit increases for
employees contributed to the increase in salaries. Full-time
equivalent employment was 6,917 at December 31, 1993 compared to
6,741 a year ago, an increase of 176 or 3%. Higher staff levels
in the banking branch system accounted for one-half of this
increase.
Meridian currently provides postretirement health care and
life insurance benefits to employees. The medical portion is
contributory and life insurance coverage is non-contributory to
the participants. Effective January 1, 1993, Meridian adopted
Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions". The
new accounting rules require the accrual of the expected cost of
these benefits over the period the employee earns the benefits.
Meridian elected to defer and amortize over 20 years the
cumulative obligation for such benefits at the beginning of 1993.
The annual expense of Meridian's postretirement benefits other
than pensions under these new accounting rules was $4.5 million
in 1993 compared to approximately $2.0 million on the cash basis
of accounting previously used, or an increase of $2.5 million.
In November 1992, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits". This
statement, which becomes effective in 1994, establishes
accounting standards for employers who provide benefits to former
employees after employment but before retirement. Such benefits
include, among other things, severance and workers' compensation
benefits. Management is currently evaluating this statement and,
based on the analysis to date, believes that its impact on
Meridian's consolidated results of operations will not be
material.
Net occupancy expense was $42.6 million in 1993 compared to
$41.3 million in 1992, an increase of 3%. Equipment expense
increased from $37.1 million in 1992 to $38.0 million in 1993, an
increase of 2%. The increases in both expense categories were
related to expansion, banking acquisitions and the upgrading of
Meridian's data processing and operations capabilities.
The increase in other operating expenses from $228.0 million
in 1992 to $242.6 million in 1993 resulted from several factors.
Loan related expenses, primarily in Meridian's mortgage banking
subsidiary, increased by $8.4 million or 26% in 1993. Included
in this total was an increase of $5.0 million in the provision
for possible credit losses on mortgage servicing portfolios
purchased with recourse. Higher premium rates increased FDIC
insurance expense by $4.0 million, or 16%, between the two years.
Professional fees, mostly payments to outside consultants for
enhancements to operating systems, increased by $4.0 million, or
22%. Other categories reflecting increases between the two years
included advertising, accounting and legal fees, and educational
development expenses. Partially offsetting these increases was a
decline of $12.3 million in foreclosed real estate expenses.
PROVISION FOR INCOME TAXES
The provision for income taxes for 1993 was $59.1 million
compared to $48.7 million for 1992. The effective tax rate,
which is the ratio of income tax expense to income before income
taxes, was 28% in 1993, up from 26% in 1992. The tax rate for
both periods was less than the federal statutory rate of 35% in
1993 and 34% in 1992 primarily because of tax-exempt investment
and loan income.
Reference should be made to Note 11 of the Notes to
Consolidated Financial Statements for an additional analysis of
the provision for income taxes for 1993.
Effective January 1, 1993, Meridian adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS No. 109), which requires a change from the deferred
method of accounting for income taxes to the liability method.
Under the liability method, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to
temporary differences between the financial statement and tax
bases of existing assets and liabilities. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment
date of the rate change.
As permitted by SFAS No. 109, Meridian has elected not to
restate the financial statements of any prior years. The
implementation of these new tax accounting rules resulted in an
increase in consolidated net income of $7.2 million in the first
quarter of 1993. This amount represents the cumulative effect of
adopting this statement at the beginning of 1993. The impact of
the Statement on future periods is not expected to be material.
At December 31, 1993, deferred tax assets amounted to $105.5
million and deferred tax liabilities amounted to $60.0 million.
No valuation allowance has been established for deferred tax
assets because management believes that it is more likely than
not that the deferred tax assets will be realized. Deferred tax
assets are realizable primarily through carryback of existing
deductible temporary differences to recover taxes paid in prior
years, and through future reversal of existing taxable temporary
differences.
The Omnibus Budget Reconciliation Act of 1993 was signed
into law during August 1993. The most significant change
included in this act is an increase in the marginal tax rate from
34% to 35%, retroactive to the beginning of 1993. This change
resulted in an increase in income tax expense. However, the
benefit from Meridian's deferred tax assets, which are similar to
tax loss carryforwards, was increased to reflect the higher tax
rates, resulting in a one-time reduction in income tax expense.
This change in deferred tax assets partially offset the increase
in tax rates on operating income, resulting in a net increase of
$350 thousand in income tax expense in 1993. Because of the
increase in marginal tax rates on operating income, the new tax
act will also have a negative effect on future periods.
CAPITAL RESOURCES
The maintenance of appropriate levels of capital is a
management priority. Overall capital adequacy and dividend
policy are monitored on an on-going basis and are reviewed
quarterly by the Board of Directors. Meridian's principal
capital planning goals are to maintain a strong capital base to
support the risks inherent in various lines of business, to
retain sufficient earnings to meet capitalization objectives,
especially those related to growth and expansion, and to provide
an adequate return to shareholders. Capital is managed for each
of Meridian's subsidiaries based on their respective risks and
growth opportunities, as well as regulatory requirements.
Meridian is positioned to take advantage of market opportunities
to strengthen capital. A shelf registration with the Securities
and Exchange Commission is available to facilitate the issuance
of an additional $250 million of debt and preferred equity
securities, if and when the need arises for capital and market
conditions warrant.
Capital ratios have increased since December 31, 1992, the
result of the issuance of subordinated debt and the retention of
earnings. In March, 1993, Meridian Bank issued $150 million of 6
5/8% subordinated notes due in March 2003, as previously
described in the "Long-Term Debt" section. These notes qualify
as Tier 2 capital for risk-based capital purposes.
Total shareholders' equity was $1,185.6 million at December
31, 1993 compared to $1,059.3 million at the end of 1992, an
increase of 12%. Net income for the year was $157.8 million and
dividends declared during the year were $67.5 million, resulting
in a common dividend payout ratio of 43%.
Meridian's capital adequacy at December 31, 1993 can be
determined by analyzing the capital ratios presented in Table 20.
As can be seen in this table, Meridian's consolidated ratios at
the end of 1993 exceeded all regulatory requirements. The risk-
based capital ratio was 13.67% at December 31, 1993 compared to
11.61% at December 31, 1992. The ratio of tangible shareholders'
equity to assets, which excludes $96.8 million of intangible
assets (goodwill, core deposit intangibles, and purchased
mortgage servicing rights) was 7.78% at December 31, 1993
compared to 6.44% at December 31, 1992. The risk-based capital
ratios of each of Meridian's commercial banks also exceeded
regulatory requirements at the end of 1993, as shown in the
table.
Federal Reserve Board regulations 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. Consolidated ratios at December 31, 1993
exceeded these guidelines, as did the ratios of each of
Meridian's commercial banks.
The common stock of Meridian is traded in the over-the-
counter market. The monthly average number of common shares
traded in 1993 was 4.0 million compared to 3.4 million in 1992.
Table 22 sets forth the high and low market price quotations for
the periods indicated. Price quotations are available through
the National Market System of the National Association of
Securities Dealers Automated Quotation System. These prices
represent quotations between dealers and do not include retail
markups, markdowns or commissions, and may not represent actual
transactions.
Book value per common share was $20.39 at December 31, 1993
compared to a market value of $28.50 per share. Book value and
market value at the end of 1992 were $18.75 and $31.88,
respectively. The market to book value ratio was 140% at the end
of 1993 compared to 170% one year ago.
Meridian's market capitalization at December 31, 1993 was
approximately $1.7 billion compared to $1.8 billion one year ago,
a decrease of 8.4%. Market capitalization represented 12% of
total assets at year-end 1993 and 13% at year-end of 1992.
Reference should be made to the Statement of Changes in
Shareholders' Equity appearing in the Consolidated Financial
Statements for a summary of the changes in total shareholders'
equity for each of the years in the three-year period ended
December 31, 1993.
In January 1994, Meridian announced the repurchase of up to
one million shares of common stock from time to time in
transactions in the open market or in privately negotiated
transactions. Repurchased shares will be used to satisfy the
obligation under warrants to acquire 500,000 shares of Meridian's
common stock issuable in connection with the acquisition of
McGlinn Capital Management, Inc. announced in the fourth quarter
of 1993, and Meridian's obligations under present and future
employee stock option and other employee benefit plans. These
actions are expected to decrease the risk-based capital ratio by
approximately 25 basis points by the end of 1994.
ANALYSIS OF 1992 COMPARED TO 1991
Financial Highlights. Net income was $136.7 million in 1992
compared to $117.7 million in 1991. The increase in earnings
occurred despite an after-tax gain in 1991 of $26.8 million on
the sale of Meridian's credit card portfolio. Net income in 1991
was reduced by a loss of $6.5 million from Meridian's
discontinued title insurance operations.
The improvement in earnings resulted primarily from the
following factors:
- An increase of $73.2 million in the net interest
income.
- A reduction of $38.0 million in the provision for
possible loan losses.
- An increase in net income of $4.4 million in the
securities unit, from $11.1 million in 1991 to $15.5
million in 1992.
The improvement in earnings was achieved despite a net loss
of $9.0 million from the mortgage banking unit, compared to net
income of $7.6 million in 1991.
Income from continuing operations was $136.7 million in 1992
compared to $124.2 million in 1991. The returns on average
assets and on average common shareholders' equity in 1992 were
1.00% and 13.63%, respectively, compared to .96% and 14.31%,
respectively, in 1991. The improvement in income from continuing
operations between the two years resulted primarily from the
factors described previously.
Total assets at December 31, 1992 were $14.3 billion
compared to $13.2 billion at December 31, 1991. Total loans
increased 1% to $8.6 billion at December 31, 1992. An increase
in consumer loans more than offset declines in the commercial and
residential mortgage loan portfolios. Total deposits increased
by 8% from $10.9 billion at the end of 1991 to $11.8 billion at
December 31, 1992.
The ratio of shareholders' equity to assets was 7.41% at
December 31, 1992 compared to 7.18% at the end of 1991.
Meridian's risk-based capital ratio was 11.61% at December 31,
1992 compared to 10.37% at the end of 1991.
Book value per common share was $18.75 at December 31, 1992
compared to $17.21 at December 31, 1991.
Net Interest Income and Related Assets and Liabilities. Net
interest income on a taxable equivalent basis increased 13% from
$526.2 million in 1991 to $594.0 million in 1992. Widening
spreads between the yields on interest-earning assets and the
cost of interest-bearing liabilities and an increase in interest-
earning assets produced a net interest margin on a taxable-
equivalent basis of 4.77% in 1992 compared to 4.47% in 1991.
Interest-earning assets averaged $12.5 billion in 1992, 6%
above the 1991 level. The increase resulted primarily from three
banking acquisitions which were completed during the year. The
net interest margin improved between the two years, mostly
because rates on interest-bearing liabilities decreased faster
than yields on interest-earning assets in the declining rate
environment during this period.
Average loans outstanding were $8.4 billion in 1992 compared
to $8.8 billion in 1991, a 4% decline. Average commercial loans
decreased by 3% between the two years because of continued weak
loan demand in Meridian's marketplace. Average residential real
estate mortgage loans declined by 20%. Accelerated prepayments
of mortgages in the low interest rate environment during 1992,
together with the decision in late 1991 to securitize and sell
approximately $121 million of mortgage loans, were the main
reasons for this decline. Average consumer loans increased 3%,
with strong growth in installment loans partially offset by the
impact of the sale of Meridian's credit card portfolio in mid-
1991.
Average deposits were $11.3 billion in 1992 compared to
$10.6 billion in 1991, an increase of 7%, primarily as a result
of three banking acquisitions.
Provision for Possible Loan Losses and Related Credit
Quality. The provision for possible loan losses was $68.8 million
in 1992 compared to $106.8 million in 1991. The decline of $38.0
million resulted primarily from an improvement in loan quality.
While the decline between the two years was significant, its
positive impact on earnings was partially reduced by an increase
of $16.0 million in writedowns and other expenses associated with
foreclosed real estate. Net loans charged-off were $84.6 million
in 1992 compared to $85.1 million in 1991. The balance in the
allowance for possible loan losses was $165.5 million or 115% of
non-performing loans at December 31, 1992 compared to $179.2
million and 106% at the end of 1991.
Other Income. Other income was $242.9 million in 1992
compared to $261.2 million in 1991. The gain of $40.6 million
from the sale of the credit card portfolio is included in this
category in 1991. Without this non-recurring transaction, other
income would have increased by 10% between the two years.
Revenues from the mortgage banking, asset management, and
securities activities were $140.4 million in 1992, an increase of
$24.8 million, or 21%, over revenues of 1991. Most of the
increase was in the securities unit and related to higher levels
of trading gains from sales of securities and mortgage loans and
higher tender option bond fees and commission income. Service
charges on deposits and fees for other customer services
increased by $8.7 million, or 11%, between the two years.
Other Expenses. Other expenses were $561.9 million in 1992
compared to $486.4 million in 1991, an increase of 16%.
Approximately one-half of the increase relates to additional
credit-related reserves, writedowns of foreclosed real estate,
and higher operating expenses in Meridian's mortgage banking
subsidiary. Operating expenses in the broker-dealer and
investment banking unit increased between the two years because
of the ongoing expansion of the unit. In the banking
subsidiaries, increases were experienced in foreclosed real
estate expenses and in operating costs from banking acquisitions
that added fourteen branches to Meridian's network in 1992.
Salaries and employee benefits were $255.5 million in 1992
compared to $235.2 million in 1991, an increase of 9%. Staff
levels increased in all of the major business units, either
because of acquisitions or because of an increase in business
activity.
Net occupancy expense was $41.3 million in 1992 compared to
$39.6 million in 1991, an increase of 4%. Equipment expense
increased from $32.8 million in 1991 to $37.1 million in 1992, or
13%. The increases in both expense categories were related to
expansion, banking acquisitions and the upgrading of Meridian's
data processing and operations capabilities.
The increase in other operating expenses from $178.7 million
in 1991 to $228.0 million in 1992 resulted from several factors.
Loan related expenses, primarily in Meridian's mortgage banking
subsidiary, increased by $16.3 million, or 98%, in 1992.
Included in this total was an increase of $9.6 million in the
provision for possible credit losses on mortgage servicing
portfolios purchased with recourse. These reserves, as well as
$6.3 million of the following increase in expenses related to
foreclosed real estate, resulted mainly from financial
difficulties of certain banks and thrifts from which this
servicing was purchased. Foreclosed real estate expenses,
including writedowns, were $23.3 million in 1992 compared to $7.2
million in 1991. Higher premium rates and deposit levels
increased FDIC insurance expense by $3.3 million, or 15%, between
the two years. Amortization of intangible assets increased by
$2.7 million, mostly because of banking acquisitions.
Provision for Income Taxes. The effective tax rate was 26%
in 1992, unchanged from the rate in 1991. The tax rate for both
periods was less than the federal statutory rate of 34% primarily
because of tax-exempt investment and loan income.
<PAGE>
<TABLE>
<CAPTION>
TABLE 1: PRIMARY BUSINESS ACTIVITIES
(Dollars in Thousands)
Net Income (Loss) Assets at December 31,
1993 1992 1991 1993 1992
--------- --------- ---------- ------------ ------------
<S> <C> <C> <C> <C> <C>
Banking..................................... $192,418 $143,740 $126,590 $13,798,324 $13,998,846
Mortgage Banking............................ (33,709) (8,988) 7,577 594,107 773,903
Asset Management ........................... 2,435 3,834 7,526 33,113 27,394
Securities.................................. 18,725 15,560 11,118 333,088 429,689
Parent Company and All Other
Staff Support Services.................... (4,444) (5,528) (6,799)
Other Corporate Expenses.................. (17,664)(1) (11,913) (21,826)
-------- ------- ------- ---------- ----------
Total Parent Company and All Other(2)....... (22,108) (17,441) (28,625) (673,845) (939,507)
Total from Continuing Operations............ 157,761 136,705 124,186 14,084,787 14,290,325
-------- ------- ------- ---------- ----------
Discontinued Title Insurance Operations..... - - (6,500) - -
-------- ------- ------- ---------- ----------
Consolidated ............................... $157,761 $136,705 $117,686 $14,084,787 $14,290,325
======== ======== ======== =========== ===========
<FN>
(1) Includes primarily merger expenses related to Commonwealth and other acquisitions and interest expense on
parent company borrowings.
(2) Includes consolidating adjustments. Assets are not allocated between staff support and other corporate assets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Banking
-------------------------------------
1993 1992 1991
----------- ------------ ------------
<S> <C> <C> <C>
Net Interest Income (1)............. $611,689 $570,085 $516,021
Provision for Possible Loan Losses.. 54,615 68,587 104,840
Other Income........................ 142,643 113,628 152,209
Other Expenses...................... 415,146 396,707 357,171
Net Interest Margin (1)............. 4.77% 4.57% 4.42%
Return on Average Assets............ 1.39% 1.08% 0.91%
Return on Average Equity............ 17.54% 14.55% 13.59%
Loans
Commercial........................ 5,944,764 5,909,972 5,681,566
Real Estate-Residential........... 976,311 1,053,886 1,304,890
Consumer.......................... 2,547,475 2,244,510 1,990,299
Deposits............................ 11,276,433 11,665,614 10,729,984
Equity.............................. 1,177,588 1,039,049 934,719
Equity to Assets.................... 8.54% 7.42% 7.31%
<CAPTION>
Asset Management
-------------------------------------
1993 1992 1991
----------- ------------ ------------
<S> <C> <C> <C>
Revenues (2)........................ $40,493 $38,019 $40,271
Expenses (2)........................ 36,226 31,875 28,524
Assets Under Management............. 6,085,916 5,467,793 4,968,400
Total Trust Assets.................. 27,473,128 22,666,125 20,408,544
Average Deposit Balances............ 360,572 371,630 347,713
<CAPTION>
Mortgage Banking
-------------------------------------
1993 1992 1991
----------- ------------ ------------
<S> <C> <C> <C>
Revenues (2)........................ $72,868 $97,521 $82,610
Expenses (2)........................ 122,609 110,702 70,981
Residential Loan Closings........... 2,741,969 2,863,230 1,352,952
Residential and Commercial Loan
Servicing Portfolios............ 7,013,164 9,742,752 10,170,928
Average Deposit Balances............ 172,779 145,366 158,828
<CAPTION>
Securities
-------------------------------------
1993 1992 1991
----------- ------------ ------------
<S> <C> <C> <C>
Revenues (2)........................ $93,765 $73,889 $59,712
Expenses (2)........................ 66,218 51,307 43,143
Underwriting........................ 1,121,501 1,675,432 1,005,635
Number of Trades.................... 42,548 38,287 36,306
Tender Option Bonds................. 435,243 535,552 661,767
------------------------------------------------------------------------------
<FN>
(1) Taxable equivalent basis.
(2) Includes all revenues and expenses, such as interest income
and interest expense.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
TABLE 2: NET INTEREST INCOME, AVERAGE BALANCES AND RATES
(Dollars in Thousands)
1993 1992
----------------------------------------------- ----------------------
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...... $110,754 $3,874 3.50% $188,544 $8,326 4.42%
Federal Funds Sold and Securities Purchased
Under Agreements to Resell.................. 53,681 2,262 4.21 23,807 916 3.85
--------- -------- -------- --------- --------- --------
Total Short-Term Investments................ 164,435 6,136 3.73 212,351 9,242 4.35
--------- -------- -------- --------- --------- --------
Investment Securities
Taxable....................................... 2,368,231 135,749 5.73 2,634,918 184,524 7.00
Non-Taxable (1)............................... 378,198 31,640 8.37 339,357 33,042 9.74
--------- -------- -------- --------- --------- --------
Total Investment Securities................. 2,746,429 167,389 6.09 2,974,275 217,566 7.31
--------- -------- -------- --------- --------- ---------
Investment Securities Available for Sale (1).... 668,299 49,202 7.36 245,293 18,137 7.39
Trading Account Securities (1) 148,419 10,989 7.40 84,475 4,634 5.49
Mortgage Loans Held For Sale.................... 499,585 36,405 7.29 502,602 40,630 8.08
Loans
Commercial (1)................................ 5,259,325 409,214 7.78 5,203,832 426,620 8.20
Real Estate-Residential....................... 1,002,361 93,065 9.28 1,160,764 119,974 10.34
Consumer...................................... 2,406,796 211,341 8.78 2,077,618 200,204 9.64
--------- -------- -------- --------- --------- --------
Total Loans (2)............................. 8,668,482 713,620 8.23 8,442,214 746,798 8.85
Total Interest-Earning Assets.................... 12,895,649 983,741 7.63 12,461,210 1,037,007 8.32
Allowance for Possible Loan Losses............. (173,170) -- -- (186,480) -- --
Non-Interest Earning Assets.................... 1,442,773 -- -- 1,349,499 -- --
--------- -------- -------- --------- --------- --------
Total Assets, Interest Income............... $14,165,252 $983,741 6.94% $13,624,229 $1,037,007 7.61%
========= -------- -------- ========= -------- --------
<CAPTION>
1991
-----------------------------------
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...... $90,989 $5,862 6.44%
Federal Funds Sold and Securities Purchased
Under Agreements to Resell.................. 11,815 748 6.33
--------- --------- --------
Total Short-Term Investments................ 102,804 6,610 6.43
--------- --------- --------
Investment Securities
Taxable....................................... 2,001,599 168,014 8.39
Non-Taxable (1)............................... 421,726 43,079 10.21
--------- --------- --------
Total Investment Securities................. 2,423,325 211,093 8.71
--------- --------- --------
Investment Securities Available for Sale (1).... -- -- --
Trading Account Securities (1) 76,516 6,080 7.95
Mortgage Loans Held For Sale.................... 323,226 30,097 9.31
--------- --------- ---------
Loans
Commercial (1)................................ 5,367,463 517,359 9.64
Real Estate-Residential....................... 1,449,908 151,632 10.46
Consumer...................................... 2,022,013 227,050 11.23
--------- --------- --------
Total Loans (2)............................. 8,839,384 896,041 10.14
Total Interest-Earning Assets.................... 11,765,255 1,149,921 9.77
Allowance for Possible Loan Losses............. (173,681) -- --
Non-Interest Earning Assets.................... 1,277,557 -- --
--------- --------- --------
Total Assets, Interest Income............... $12,869,131 $1,149,921 8.94%
========= -------- --------
<CAPTION>
1993 1992
----------------------------------------------- --------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------------ --------- -------- ------------ ----------- -------
<S> <C> <C> <C> <C> <C> <C>
LIABILITIES
Interest-Bearing Liabilities
Interest-Bearing Deposits
NOW Accounts.................................. $1,320,401 $22,904 1.73% $1,128,010 $31,268 2.77%
Savings Deposits.............................. 1,756,208 40,456 2.30 1,347,803 46,091 3.42
Money Market Deposit Accounts................. 2,409,786 43,043 1.79 2,476,316 61,386 2.48
Short-Term Time Deposits...................... 891,432 32,579 3.65 1,057,522 42,632 4.03
Long-Term Time Deposits....................... 2,643,194 116,915 4.42 3,024,980 174,170 5.76
Certificates of Deposits of $100,000 or More.. 587,603 27,925 4.75 748,493 40,628 5.43
--------- -------- -------- --------- -------- --------
Total Interest-Bearing Deposits............. 9,608,624 283,822 2.95 9,783,124 396,175 4.05
--------- -------- -------- --------- -------- --------
Short-Term Borrowings
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase......... 841,257 24,424 2.90 722,100 24,765 3.43
Commercial Paper.............................. 2,342 69 2.95 9,784 374 3.82
Other Short-Term Borrowings................... 188,780 6,025 3.19 121,432 4,220 3.48
--------- -------- -------- --------- -------- --------
Total Short-Term Borrowings................. 1,032,379 30,518 2.96 853,316 29,359 3.44
--------- -------- -------- --------- -------- --------
Long-Term Debt and Other Borrowings............. 439,154 30,058 6.84 240,761 17,464 7.25
--------- -------- -------- --------- -------- --------
Total Interest-Bearing Liabilities.......... 11,080,157 344,398 3.11 10,877,201 442,998 4.07
--------- -------- -------- --------- -------- --------
Non-Interest Sources to Fund Interest-Earning Assets
Non-Interest Bearing Deposits................... 1,694,358 -- -- 1,530,571 -- 0.00
Other Liabilities............................... 277,203 -- -- 213,362 -- 0.00
Shareholders' Equity............................. 1,113,534 -- -- 1,003,095 -- 0.00
--------- -------- -------- --------- -------- --------
Total Non-Interest Sources to Fund
Interest-Earning Assets................... 3,085,095 -- -- 2,747,028 -- --
--------- -------- -------- --------- -------- --------
Total Liabilities and Shareholders' Equity,
Interest Expense.......................... $14,165,252 344,398 2.43% $13,624,229 442,998 3.25%
========= -------- -------- ========= -------- --------
NET INTEREST INCOME............................... $639,343 $594,009
======== ========
NET INTEREST SPREAD (3)......................... 4.52% 4.25%
EFFECT OF NON-INTEREST
BEARING FUNDS.................................. 0.44 0.52
-------- --------
NET INTEREST MARGIN (4)......................... 4.96% 4.77%
======== ========
<CAPTION>
1991
-----------------------------------
Interest Average
Average Income/ Yield/
Balance Expense Rate
------------ --------- --------
<S> <C> <C> <C>
LIABILITIES
Interest-Bearing Liabilities
Interest-Bearing Deposits
NOW Accounts.................................. $940,726 $44,201 4.70%
Savings Deposits.............................. 882,445 41,173 4.67
Money Market Deposit Accounts................. 2,265,628 105,067 4.64
Short-Term Time Deposits...................... 1,226,899 77,123 6.29
Long-Term Time Deposits....................... 3,138,325 228,673 7.29
Certificates of Deposits of $100,000 or More.. 840,786 57,312 6.82
--------- -------- --------
Total Interest-Bearing Deposits............. 9,294,809 553,549 5.96
--------- -------- --------
Short-Term Borrowings
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase......... 903,851 50,596 5.60
Commercial Paper.............................. 18,268 1,267 6.94
Other Short-Term Borrowings................... 122,058 7,104 5.82
--------- -------- --------
Total Short-Term Borrowings................. 1,044,177 58,967 5.65
--------- -------- --------
Long-Term Debt and Other Borrowings............. 151,632 11,159 7.36
--------- -------- --------
Total Interest-Bearing Liabilities.......... 10,490,618 623,675 5.95
--------- -------- --------
Non-Interest Sources to Fund Interest-Earning Assets
Non-Interest Bearing Deposits................... 1,298,762 -- 0.00
Other Liabilities............................... 211,688 -- 0.00
Shareholders' Equity............................. 868,063 -- --
--------- -------- --------
Total Non-Interest Sources to Fund
Interest-Earning Assets................... 2,378,513 -- 0.00
--------- -------- --------
Total Liabilities and Shareholders' Equity,
Interest Expense.......................... $12,869,131 623,675 4.85%
========= -------- --------
NET INTEREST INCOME............................... $526,246
========
NET INTEREST SPREAD (3)......................... 3.82%
EFFECT OF NON-INTEREST
BEARING FUNDS.................................. 0.65
--------
NET INTEREST MARGIN (4)......................... 4.47%
========
<FN>
(1) The indicated interest income and average yields are
presented on a taxable-equivalent basis. The
taxable-equivalent adjustments included above are $22,051,
$20,826, and $26,210 for the years 1993, 1992, and 1991,
respectively. The effective tax rates used for the
taxable-equivalent adjustment were 35% for 1993 and 34% for
1992 and 1991.
(2) Loan fees of $14,616, $15,951, and $13,339 for the years
1993, 1992 and 1991, respectively, are included in interest
income. Average loan balances include non-accruing 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.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 3: VOLUME-RATE ANALYSIS OF CHANGES IN NET
INTEREST INCOME
(Dollars in Thousands)
1993/1992 (2) 1992/1991 (2)
---------------------------------- ---------------------------------
Increase (Decrease) in Interest Income/ Increase (Decrease) in Interest Income/
Expense Due To Changes In Expense Due To Changes In
---------------------------------- ---------------------------------
Volume Rate Total Volume Rate Total
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
---------------
Short-Term Investments
Interest-Bearing Deposits in Other Banks...... ($2,959) ($1,493) ($4,452) $4,750 ($2,286) $2,464
Federal Funds Sold and Securities
Purchased Under Agreements to Resell........ 1,253 93 1,346 544 (376) 168
------- ------- ------- ------- ------- -------
Total Short-Term Investments................ (1,706) (1,400) (3,106) 5,294 (2,662) 2,632
------- ------- ------- ------- ------- -------
Investment Securities
Taxable....................................... (17,466) (31,309) (48,775) 47,358 (30,848) 16,510
Non-Taxable (1)............................... 3,543 (4,945) (1,402) (8,123) (1,914) (10,037)
------- ------- ------- ------- ------- -------
Total Investment Securities (1)............. (13,923) (36,254) (50,177) 39,235 (32,762) 6,473
Investment Securities Available for Sale (1).... 31,139 (74) 31,065 18,137 - 18,137
Trading Account Securities 4,354 2,001 6,355 583 (2,029) (1,446)
Mortgage Loans Held For Sale.................... (244) (3,981) (4,225) 14,930 (4,397) 10,533
Loans
Commercial (1)................................ 4,533 (21,939) (17,406) (15,380) (75,359) (90,739)
Real Estate-Residential....................... (15,366) (11,543) (26,909) (29,936) (1,722) (31,658)
Consumer...................................... 29,987 (18,850) 11,137 6,091 (32,937) (26,846)
------- ------- ------- ------- ------- -------
Total Loans ................................ 19,154 (52,332) (33,178) (39,225) (110,018) (149,243)
------- ------- ------- ------- ------- -------
Total Interest Income ...................... $38,774 ($92,040) ($53,266) $38,954 ($151,868) ($112,914)
------- ------- ------- ------- ------- -------
<CAPTION>
1993/1992 (2) 1992/1991 (2)
---------------------------------- ---------------------------------
Increase (Decrease) in Interest Income/ Increase (Decrease) in Interest Income/
Expense Due To Changes In Expense Due To Changes In
---------------------------------- ---------------------------------
Volume Rate Total Volume Rate Total
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
INTEREST EXPENSE
----------------
Interest-Bearing Deposits
NOW Accounts.................................. $4,716 ($13,080) ($8,364) $7,634 ($20,567) ($12,933)
Savings Deposits.............................. 11,801 (17,436) (5,635) 17,896 (12,978) 4,918
Money Market Deposit Accounts................. (1,615) (16,728) (18,343) 9,023 (52,704) (43,681)
Short-Term Time Deposits...................... (6,282) (3,771) (10,053) (9,574) (24,917) (34,491)
Long-Term Time Deposits....................... (20,137) (37,118) (57,255) (8,002) (46,501) (54,503)
Certificates of Deposit of $100,000 or More... (8,027) (4,676) (12,703) (5,840) (10,844) (16,684)
------- ------- ------- ------- ------- -------
Total Interest-Bearing Deposits............. (19,544) (92,809) (112,353) 11,137 (168,511) (157,374)
------- ------- ------- ------- ------- -------
Short-Term Borrowings
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase.............. 3,777 (4,118) (341) (8,825) (17,006) (25,831)
Commercial Paper.............................. (235) (70) (305) (454) (439) (893)
Other Short-Term Borrowings................... 2,182 (377) 1,805 (36) (2,848) (2,884)
------- ------- ------- ------- ------- -------
Total Short-Term Borrowings................. 5,724 (4,565) 1,159 (9,315) (20,293) (29,608)
------- ------- ------- ------- ------- -------
Long-Term Debt and Other Borrowings............. 13,392 (798) 12,594 6,474 (169) 6,305
------- ------- ------- ------- ------- -------
Total Interest Expense...................... (428) (98,172) (98,600) 8,296 (188,973) (180,677)
------- ------- ------- ------- ------- -------
Increase in Net Interest Income...... $39,202 $6,132 $45,334 $30,658 $37,105 $67,763
======= ======= ======= ======= ======= =======
<FN>
(1) The indicated interest changes are presented on a taxable
equivalent basis, using an effective tax rate of 35% for
1993 and 34% for 1992 and 1991.
(2) The portion of the total change attributable to both volume
and rate changes during the year has been allocated to
volume and rate components based upon the absolute dollar
amount of the change in each component prior to the
allocation.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 4: INTEREST RATE SENSITIVITY
December 31, 1993
(Dollars In Thousands)
Maturity/Repricing Schedule
------------ ------------ ------------ ------------ ------------ ------------
Within Two To Four To Seven To Over
One Three Six Twelve Twelve
Month Months Months Months Months Total
------------ ------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets
Short-Term Investments and Trading Account
Securities.................................... $81,809 $46,234 $25,022 $105 -- $153,170
Investment Securities and Investment Securities
Available for Sale............................ 227,139 256,642 235,591 400,801 $1,939,974 3,060,147
Loans............................................ 4,378,921 880,140 423,134 725,734 3,235,959 9,643,888
------------ ------------ ------------ ------------ ------------ ------------
Total Interest-Earning Assets................. 4,687,869 1,183,016 683,747 1,126,640 5,175,933 12,857,205
------------ ------------ ------------ ------------ ------------ ------------
Funding Sources
NOW and Savings Deposits......................... 3,334,769 -- -- -- -- 3,334,769
Money Market Deposit Accounts.................... 2,385,937 -- -- -- -- 2,385,937
Time Deposits.................................... 736,855 511,917 631,000 623,816 1,272,432 3,776,020
Short-Term Borrowings............................ 791,723 -- -- -- -- 791,723
Long-Term Debt and Other Borrowings.............. 3,300 75,698 992 2,511 338,790 421,291
------------ ------------ ------------ ------------ ------------ ------------
Total Interest-Bearing Liabilities............ 7,252,584 587,615 631,992 626,327 1,611,222 10,709,740
------------ ------------ ------------ ------------ ------------ ------------
Demand Deposits, Shareholders' Equity,
and Other Non-Interest Bearing
Funds, Net...................................... 201,929 (11,736) -- (15,715) 1,972,987 2,147,465
Interest Rate Swaps................................. 625,000 1,285,000 (100,000) (350,000) (1,460,000) --
Tender Option Bonds and Other Off-Balance Sheet
Items............................................ 24,135 58,955 48,435 89,499 (221,024) --
------------ ------------ ------------ ------------ ------------ ------------
Total Funding Sources......................... 8,103,648 1,919,834 580,427 350,111 1,903,185 $12,857,205
------------ ------------ ------------ ------------ ------------ ===========
Interest Sensitivity Gap............................ (3,415,779) (736,818) 103,320 776,529 3,272,748
Managerial Adjustments.............................. 3,110,689 412,386 (149,268) (722,474) (2,651,333)
------------ ------------ ------------ ------------ ------------
Adjusted Interest Sensitivity Gap................... (305,090) (324,432) (45,948) 54,055 $621,415
============ ============ ============ ============ ============
Cumulative Interest Sensitivity Gap................. (3,415,779) (4,152,597) (4,049,277) (3,272,748)
============ ============ ============ ============
Cumulative Adjusted Interest Sensitivity Gap........ ($305,090) ($629,522) ($675,470) ($621,415)
============ ============ ============ ============
Cumulative Adjusted Interest Sensitivity
Gap as a Percent of Interest-Earning Assets.... -2.4% -4.9% -5.3% -4.8%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 5: Loans
December 31,
(Dollars in Thousands)
1993 1992 1991 1990 1989
--------------- --------------- --------------- --------------- ---------------
Amount % Amount % Amount % Amount % Amount %
---------- ---- ---------- ---- ---------- ---- ---------- ---- ---------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial Loans
Real Estate - Commercial Mortgage............ $1,620,876 18% $1,581,188 18% $1,524,219 18% $1,493,751 16% $1,425,212 16%
Real Estate - Construction................... 261,847 3 286,205 3 400,827 4 475,280 5 389,529 4
Commercial, Financial and Agricultural....... 3,564,387 40 3,379,190 40 3,386,655 40 3,418,086 36 3,176,563 36
---------- ---- ---------- ---- ---------- ---- ---------- ---- ---------- ----
Total Commercial Loans.................... 5,447,110 61 5,246,583 61 5,311,701 62 5,387,117 57 4,991,304 56
---------- ---- ---------- ---- ---------- ---- ---------- ---- ---------- ----
Real Estate - Residential...................... 993,459 11 1,057,576 13 1,285,102 15 1,550,483 16 1,523,357 17
Consumer Loans
Real Estate - Home Equity.................... 680,440 7 581,500 7 482,172 5 426,740 4 359,464 4
Revolving Credit............................. 79,613 1 77,847 1 67,257 1 50,334 1 359,362 4
Consumer Loans Held for Sale................. -- - -- - -- - 625,283 7 -- -
Other Consumer Loans......................... 1,787,422 20 1,588,091 18 1,351,818 17 1,400,937 15 1,743,357 19
---------- ---- ---------- ---- ---------- ---- ---------- ---- ---------- ----
Total Consumer Loans...................... 2,547,475 28 2,247,438 26 1,901,247 23 2,503,294 27 2,462,183 27
---------- ---- ---------- ---- ---------- ---- ---------- ---- ---------- ----
Total Loans, Net of Unearned Discount.... $8,988,044 100% $8,551,597 100% $8,498,050 100% $9,440,894 100% $8,976,844 100%
========== === =========== ==== ========== ==== ========== ==== ========== ====
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 6: COMMERCIAL LOAN MATURITIES AND INTEREST SENSITIVITY
- -------------------------------------------------------------
December 31, 1993
(Dollars in Thousands)
One Year One Through Over Total
or Less Five Years Five Years Loans
--------- ---------- ---------- -----------
<S> <C> <C> <C> <C>
Commercial, Financial and Agricultural
(includes Real Estate-Commercial Mortgage).......... $2,488,911 $1,459,909 $1,236,443 $5,185,263
Real Estate Construction.............................. 159,166 102,681 -- 261,847
--------- --------- --------- ---------
Total............................................. $2,648,077 $1,562,590 $1,236,443 $5,447,110
========= ========= ========= =========
Loans with Predetermined Rates........................ $620,349 $773,053 $675,428 $2,068,830
Loans with Variable Rates............................. 2,027,728 789,537 561,015 3,378,280
--------- --------- --------- ---------
Total............................................. $2,648,077 $1,562,590 $1,236,443 $5,447,110
========= ========= ========= =========
<FN>
The maturity of loans is based upon contractual terms. Meridian may, however,
extend the stated maturity at prevailing rates and terms for economic and
market reasons.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 7: SECURITIES YIELDS BY MATURITY
December 31, 1993
(Dollars in Thousands)
After After
One Year Five Years
Within But Within But Within
One Year Five Year Ten Years
Amount Yield Amount Yield Amount Yield
--------- --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C> <C>
Investment Securities
United States Government Securities $194,337 5.92% $428,674 4.96% $7,067 6.15%
Mortgage-Backed Securities 53,063 6.00% 461,334 6.06% 457,022 5.55%
State and Municipal Securities 31,537 6.86% 130,481 7.79% 108,202 8.02%
Other Securities 61,767 (1) 4.08% 120,272 5.76% 27,758 4.91%
--------- --------- ---------- --------- --------- ---------
Total Carrying Value................ 340,704 5.69% 1,140,761 5.81% 600,049 5.97%
========= ========= ========== ========= ========= =========
Investment Securities Available For Sale
United States Government Securities 24,131 7.35% 78,855 5.60% 100 7.87%
Mortgage-Backed Securities - - 71,694 8.00% 18,451 6.22%
State and Municipal Securities 7,894 14.03% 19,178 12.86% 1,000 13.26%
Other Securities 3,947 (1) 4.82% 613 5.23% 24 12.00%
--------- --------- ---------- --------- --------- ---------
Total Carrying Value................ 35,972 8.54% 170,340 7.43% 19,575 6.60%
========= ========= ========== ========= ========= =========
<CAPTION>
After
Ten Years Total
Amount Yield Amount Yield
--------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Investment Securities
United States Government Securities $260 7.63% $630,338 5.27%
Mortgage-Backed Securities 583,703 5.81% 1,555,122 5.81%
State and Municipal Securities 105,362 9.11% 375,582 8.14%
Other Securities 13,645 4.12% 223,442 5.09%
--------- --------- ---------- ---------
Total Carrying Value................ 702,970 6.27% 2,784,484 5.94%
========= ========= ========== =========
Investment Securities Available For Sale
United States Government Securities - - 103,086 6.01%
Mortgage-Backed Securities 35,008 5.11% 125,153 6.93%
State and Municipal Securities 6,234 12.40% 34,306 13.06%
Other Securities 8,534 5.07% 13,118 5.01%
--------- --------- ---------- ---------
Total Carrying Value................ 49,776 6.02% 275,663 7.26%
========= ========= ========== =========
<FN>
(1) Includes primarily stock and other securities with no stated
maturity.
The weighted average yields are based on carrying value with
effective yields weighted for the contractual or expected
maturity of each security. Where applicable, yields are
calculated on a taxable equivalent basis using a 35% tax rate.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 8: Deposits by Major Classification
--------------------------------------
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
December 31,
(Dollars in Thousands)
Non-Interest Bearing Deposits................... $1,849,425 $1,824,878 $1,514,474
NOW Accounts.................................... 1,467,758 1,334,441 1,080,687
Savings Deposits................................ 1,867,011 1,606,985 1,009,094
Money Market Deposit Accounts................... 2,385,937 2,498,290 2,288,650
Short-Term Time Deposits........................ 794,012 952,396 1,162,942
Long-Term Time Deposits......................... 2,504,231 2,901,184 3,040,908
Certificates of Deposit of $100,000 or More..... 477,777 656,528 851,378
------------ ------------ ------------
Total....................................... $11,346,151 $11,774,702 $10,948,133
============ ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 9: DEPOSITS BY TYPE OF DEPOSITOR
---------------------------------------
December 31, 1993 1992 1991
(Dollars in Thousands) ------------- ------------ ------------
<S> <C> <C> <C>
Individuals, Partnerships and Corporations....... $10,755,408 $11,038,400 $10,279,109
United States Government......................... 21,652 31,842 23,095
State and Political Subdivisions................. 400,539 496,207 495,805
Commercial Banks................................. 54,002 61,996 38,994
Other............................................ 114,550 146,257 111,130
------------- ------------ ------------
Total........................................ $11,346,151 $11,774,702 $10,948,133
============= ============ ============
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 10: MATURITY OF CERTIFICATES OF DEPOSIT OF $100,000 OR MORE
----------------------------------
December 31, 1993 1992 1991
(Dollars in Thousands) --------- --------- ----------
<S> <C> <C> <C>
Three Months or Less................ $230,855 $317,538 $428,503
Over Three Through Six Months....... 65,383 104,448 77,435
Over Six Through Twelve Months...... 52,868 95,837 150,367
Over Twelve Months.................. 128,671 138,705 195,073
--------- --------- ----------
Total........................... $477,777 $656,528 $851,378
========= ========= ==========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 11: ALLOWANCE FOR POSSIBLE LOAN LOSSES
(Dollars in Thousands)
1993 1992 1991 1990 1989
------------ ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at Beginning of Period................... $165,512 $179,167 $157,505 $97,730 $92,494
------------ ------------ ------------ ------------ ------------
Additions (Deductions)
Acquired Allowances............................ 3,094 2,154 - 737 -
------------ ------------ ------------ ------------ ------------
Loans Charged-Off
Commercial (includes Commercial Real Estate). (46,431) (80,206) (69,784) (64,760) (16,434)
Real Estate - Residential.................... (1,593) (802) (416) (115) (151)
Consumer..................................... (14,486) (14,178) (21,951) (23,229) (14,944)
------------ ------------ ------------ ------------ ------------
Total Loans Charged-Off.................... (62,510) (95,186) (92,151) (88,104) (31,529)
------------ ------------ ------------ ------------ ------------
Recoveries on Charged-Off Loans
Commercial (includes Commercial Real Estate). 6,570 5,976 2,949 2,788 3,697
Real Estate - Residential.................... 163 57 15 46 5
Consumer..................................... 4,458 4,517 4,099 3,562 2,546
------------ ------------ ------------ ------------ ------------
Total Recoveries on Charged-Off Loans...... 11,191 10,550 7,063 6,396 6,248
------------ ------------ ------------ ------------ ------------
Net Loans Charged-Off.......................... (51,319) (84,636) (85,088) (81,708) (25,281)
------------ ------------ ------------ ------------ ------------
Provision Charged to Operating Expense......... 56,101 68,827 106,750 140,746 30,517
------------ ------------ ------------ ------------ ------------
Balance at End of Period......................... $173,388 $165,512 $179,167 $157,505 $97,730
============ ============ ============ ============ ============
Total Loans
Average........................................ $8,668,482 $8,442,214 $8,839,384 $9,371,994 $7,910,293
Year-End....................................... $8,988,044 $8,551,597 $8,498,050 $9,440,894 $8,976,844
RATIOS
Net Loans Charged-Off To
Average Loans.................................. 0.59% 1.00% 0.96% 0.87% 0.32%
Loans at Year-End.............................. 0.57 0.99 1.00 0.87 0.28
Allowance for Possible Loan Losses............. 29.60 51.14 47.49 51.88 25.87
Provision for Possible Loan Losses............. 91.48 122.97 79.71 58.05 82.84
Allowance for Possible Loan Losses to
Average Loans.................................. 2.00 1.96 2.03 1.68 1.24
Loans at Year-End.............................. 1.93 1.94 2.11 1.67 1.09
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 12: ALLOCATION OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
December 31, 1993 1992 1991
(Dollars in Thousands) ---------- -------- ---------- ------- ---------- --------
Amount % Loans Amount % Loans Amount % Loans
---------- -------- ---------- ------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Commercial................. $98,821 61% $114,933 (1) 61% $62,799 62%
Real Estate - Residential.. 7,000 11 706 13 867 15
Consumer................... 20,958 28 19,941 26 17,953 23
Unallocated................ 46,609 - 29,932 (1) - 97,548 -
---------- -------- ---------- ------- ---------- --------
Total.................. $173,388 100% $165,512 100% $179,167 100%
========== ======== ========== ======= ========== ========
December 31, 1990 1989
---------- -------- ---------- --------
Amount % Loans Amount % Loans
---------- -------- ---------- --------
<S> <C> <C> <C> <C>
Commercial................. $69,634 57% $43,440 56%
Real Estate - Residential.. 1,368 16 1,653 17
Consumer................... 25,319 27 18,095 27
Unallocated................ 61,184 - 34,542 -
---------- -------- ---------- --------
Total.................. $157,505 100% $97,730 100%
========== ======== ========== ========
<FN>
(1) Beginning in 1992, the method of allocating the allowance to individual commercial
loans was charged. Allocations are now based primarily on historical chargeoff
experience for each credit risk category of commercial loans.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 13: CREDIT QUALITY
December 31, 1993 1992 1991 1990 1989
(Dollars in Thousands) --------- ---------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Non-Accrual Loans
Commercial
Real Estate - Commercial Mortgage................ $30,544 $36,326 $35,479 $34,867 $18,495
Real Estate - Construction....................... 2,834 10,283 20,210 26,829 10,800
Commercial, Financial and Agricultural........... 59,882 77,078 95,763 78,014 49,868
--------- ---------- --------- --------- ---------
Total Commercial............................... 93,260 123,687 151,452 139,710 79,163
Real Estate - Residential.......................... 29,843 18,105 10,857 8,168 1,747
Consumer........................................... 1162 957 714 497 508
--------- ---------- --------- --------- ---------
Total Non-Accrual Loans........................ 124,265 142,749 163,023 148,375 81,418
Restructured Loans
Real Estate - Commercial Mortgage................ 908 - 3,127 - -
Real Estate - Construction....................... 1,419 46 53 360 65
Commercial, Financial and Agricultural........... 1,004 846 3,077 4,053 7,042
--------- ---------- --------- --------- ---------
Total Restructured Loans....................... 3,331 892 6,257 4,413 7,107
--------- ---------- --------- --------- ---------
TOTAL NON-PERFORMING LOANS................... 127,596 143,641 169,280 152,788 88,525
--------- ---------- --------- --------- ---------
Assets Acquired in Foreclosures and Assets
considered to be in an In-Substance Foreclosure
Status
Foreclosed Real Estate........................... 29,497 28,811 20,733 8,628 2,422
Assets Related to Consumer Loans................. 1,265 2,235 1,694 2,617 2,427
In-Substance Foreclosures........................ 20,454 39,501 54,773 21,974 -
--------- ---------- --------- --------- ---------
Total Assets Acquired.......................... 51,216 70,547 77,200 33,219 4,849
--------- ---------- --------- --------- ---------
TOTAL NON-PERFORMING ASSETS.................. $178,812 $214,188 $246,480 $186,007 $93,374
========= ========== ========= ========= =========
Allowance for Possible Loan Losses as a Percentage of
Loans.............................................. 1.93% 1.94% 2.11% 1.67% 1.09%
Non-Performing Loans............................... 136% 115% 106% 103% 110%
Non-Performing Assets.............................. 97% 77% 73% 85% 105%
Non-Performing Loans as a Percentage
of Loans........................................... 1.42% 1.68% 1.99% 1.62% 0.99%
Non-Performing Assets as a Percentage
of Loans and Assets Acquired in Foreclosures....... 1.98% 2.48% 2.87% 1.96% 1.04%
Loans Past Due 90 or more Days as to Interest or
Principal not Included Above (Includes $8,033 of
Real Estate Residential as of December 31, 1993).. $24,798 $41,083 $54,666 $56,431 $48,339
Non-Performing Assets and Loans Past Due
90 or more Days as to Interest or Principal........ $203,610 $255,271 $301,146 $242,438 $141,713
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..................................... 2.25% 2.96% 3.51% 2.56% 1.58%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 14: CHANGE IN NON-PERFORMING ASSETS
(Dollars in Thousands)
1993 1992
----------- -----------
<S> <C> <C>
TOTAL NON-PERFORMING ASSETS AT BEGINNING OF PERIOD..... $214,188 $246,480
NON-PERFORMING LOANS AT BEGINNING OF PERIOD............ 143,641 169,280
Additions...................................... 113,132 156,779
Payments....................................... (37,831) (55,605)
Return to Accrual Status....................... (12,620) (14,772)
Charge-offs.................................... (47,198) (76,420)
Transfers to Assets Acquired in Foreclosures... (31,528) (35,621)
-------- -------
Total Non-Performing Loans at End of Period. 127,596 143,641
-------- -------
ASSETS ACQUIRED IN FORECLOSURES AND ASSETS
CONSIDERED TO BE IN AN IN-SUBSTANCE
FORECLOSURE STATUS AT BEGINNING OF PERIOD........... 70,547 77,200
Additions...................................... 31,920 23,219
Payments and Sales............................. (60,461) (39,005)
Transfers from Non-Performing Loans............ 31,528 35,621
Writedowns..................................... (22,318) (26,488)
-------- --------
Total Assets Acquired at End of Period...... 51,216 70,547
-------- --------
TOTAL NON-PERFORMING ASSETS AT
END OF PERIOD................................... $178,812 $214,188
======== ========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 15: Payment Performance of Non-Accrual Loans
December 31, 1993
(Dollars In Thousands) Meridian's Customer's Accumulated
Carrying Contractual Net
Value Balance Charge-Offs
----------- ----------- -----------
<S> <C> <C> <C>
Contractually Past Due With
Substantial Performance (1).... $11,823 $16,313 $1,867
Limited Performance (2)........ 29,531 51,139 16,344
No Performance (3)............. 74,013 110,409 22,127
------- ------- ------
Total...................... 115,367 177,861 40,338
------- ------- ------
Contractually Current, However,
Full Payment is Doubtful (4)..... 8,898 11,501 2,138
------- ------- ------
Total Non-Accrual Loans.... $124,265 $189,362 $42,476
======== ======== =======
<FN>
(1) Borrower has paid at least 85% of contractual obligations over the past
six months.
(2) Borrower has paid between 25% and 85% of contractual obligations over the
past six months.
(3) Borrower has paid less than 25% of contractual obligations over the past
six months.
(4) Although contractually current, the borrower is in a specified period of
demonstrating payment performance or the loan has a prior charge-off.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 16) Commercial Loans by Major Industry Classification
December 31, 1993 1992
(Dollars in Thousands) Total Loans Non-Accrual Total Loans Non-Accrual
Outstanding % Loans % Outstanding % Loans %
----------- ---- --------- ---- ----------- ----- --------- -----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Agriculture........................ $162,581 3% $728 1% $136,171 3% $395 *
Mining............................. 15,837 * 274 * 17,181 * 292 *
Construction....................... 218,104 4 3,211 3 193,552 4 2,348 2%
Manufacturing...................... 1,004,135 18 22,700 24 887,588 17 25,500 21
Transportation, Communication and
Public Utilities................. 301,144 6 1,494 2 342,725 6 2,002 2
Wholesale Trade..................... 330,360 6 3,072 3 310,011 6 4,042 3
Retail Trade........................ 721,615 13 16,869 18 694,639 13 25,228 21
Finance, Insurance and
Real Estate....................... 1,191,568 22 22,182 24 1,250,714 24 37,549 30
Services............................ 1,342,383 25 21,149 23 1,260,108 24 25,183 20
Public Administration............... 9,891 * - - 10,565 * - -
Other............................... 149,492 3 1,581 2 143,329 3 1,148 1
---------- --- ------- --- ---------- --- -------- ---
Total.......................... $5,447,110 100% $93,260 100% $5,246,583 100% $123,687 100%
========== === ======= === ========== === ======== ===
<FN>
* Less than one percent
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 17: COMMERCIAL REAL ESTATE
December 31,
(Dollars in Thousands)
Outstanding Loans
Total Total
Investor-Developer Owner-Occupied 1993 1992
Commercial Commercial Commercial Commercial
Mortgage Construction Mortgage Construction Mortgage Construction Mortgage Construction
--------- ----------- --------- ------------ ----------- ---------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Apartment Buildings...... $215,458 $2,220 - - $215,458 $2,220 $226,884 $2,837
Office Buildings......... 156,278 16,067 $175,010 $4,012 331,288 20,079 310,115 36,414
Residential Properties... 82,581 - - - 82,581 16,814 90,544
Shopping Centers......... 134,960 33,442 52,761 1,185 187,721 34,627 183,625 32,613
Land..................... - 44,170 - - - 44,170 - 43,089
Industrial Plants........ 92,351 20,554 203,837 3,224 296,188 23,778 287,970 31,753
Hotel/Motel/Restaurant... 125,907 2,381 - - 125,907 2,381 130,182 1,546
Healthcare Facilities.... - - 111,147 25,928 111,147 25,928 106,793 15,812
Other.................... 124,204 14,306 228,963 11,777 353,167 26,083 318,805 31,597
-------- -------- -------- ------- ---------- -------- ---------- --------
Total.................. $849,158 $215,721 $771,718 $46,126 $1,620,876(1) $261,847(1) $1,581,188 $286,205
======== ======== ======== ======= ========== ======== ========== ========
<FN>
(1)The geographic distribution by state is as follows: Pennsylvania $1,517,012 (81%), Delaware $248,441 (13%), New Jersey
$85,155 (5%), and all other states $32,115 (1%).
</TABLE>
<TABLE>
<CAPTION>
Non-Accrual Loans
Owner- Total Total
Investor-Developer Occupied 1993 1992
Commercial Commercial Commercial Commercial
Mortgage Construction Mortgage Mortgage Construction Mortgage Construction
--------- ----------- --------- ------------ ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Apartment Buildings...... $6,403 - - $6,403 - $4,901 $386
Office Buildings......... 2,765 - $806 3,571 - 8,900 -
Residential Properties... - $1,346 - - $1,346 - 5,318
Shopping Centers......... 2,996 203 471 3,467 203 4,933 -
Land..................... - 991 - - 991 - 4,268
Industrial Plants........ 545 - 2,730 3,275 - 3,524 -
Hotel/Motel/Restaurant... 7,603 294 2,154 9,757 294 3,318 311
Other.................... 3,524 - 547 4,071 - 10,750 -
--------- ---------- -------- ------- ------ ------- -------
Total.................. $23,836 $2,834 $6,708 $30,544 (2) $2,834 (2) $36,326 $10,283
======= ========== ======== ======= ====== ======= =======
<FN>
(2)The geographic distribution by state is as follows: Pennsylvania $30,028 (90%), Delaware $2,113 (6%), New Jersey $1,237
(4%).
</TABLE>
<TABLE>
<CAPTION>
1993 1992
<S> <C> <C>
Assets Acquired in Foreclosures (3)
Apartment Buildings................. $23 $2,855
Office Buildings.................... 14,722 15,430
Residential Properties.............. 5,227 243
Shopping Centers.................... 105 8,584
Land................................ 8,878 13,026
Industrial Plants................... 7,056 5,514
Hotel/Motel/Restaurant.............. 873 8,023
Other............................... 3,016 5,301
------- -------
Total............................. $39,900(4) $58,976
======= =======
<FN>
(3) Includes Assets Considered to be in an In-Substance Foreclosure status
(4) The geographic distribution by state is as follows: Pennsylvania $29,408 (74%),
New Jersey $6,756 (17%) and all other states $3,736 (9%).
/TABLE
<PAGE>
<TABLE>
<CAPTION>
TABLE 18: Composition of Other Income
(Dollars in thousands)
Percent Change
1993 1992 1991 1993/92 1992/91
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Trust
Personal Fees $14,499 $13,588 $14,716 7% -8%
Corporate and Institutional Fees 19,715 18,188 15,914 8 14
Investment Advisory Services Fees 4,067 3,899 2,542 4 53
Other 3,398 2,831 5,125 20 -45
--------- --------- --------- --------- ---------
Total 41,679 38,506 38,297 8 1
--------- --------- --------- --------- ---------
Mortgage Banking
Servicing Fees 30,052 34,011 33,132 -12 3
Amortization of and Reserves for Purchased Mortgage
Servicing Rights and Other Servicing-Related
Assets (33,713) (22,133) (15,402) 52 44
--------- --------- -------- -------- --------
Net Servicing Fees (3,661) 11,878 17,730 - -33
Origination Fees 16,990 17,366 8,420 -2 106
Other 22,641 18,442 14,893 23 24
--------- --------- --------- --------- ---------
Total 35,970 47,686 41,043 -25 16
Broker-Dealer and Investment Banking
Net Trading Gains 37,226 27,559 13,588 35 103
Net Tender Option Bond Fees 19,608 17,099 11,182 15 53
Commissions and Related Fees 12,126 7,996 5,850 52 37
Other (Includes Net Realized/Unrealized
Gains and Losses on Investments) 411 1,556 5,643 -74 -72
--------- --------- --------- --------- ---------
Total 69,371 54,210 36,263 28 49
--------- --------- --------- --------- ---------
Service Charges on Deposit Accounts 53,827 48,967 39,112 10 25
Fees for Other Customer Services 43,355 40,743 41,928 6 -3
Net Securities Gains 25,280 2,764 3,919 - -29
Gain on Sale of Credit Card Portfolio - - 40,565 - -
Other Operating Income
Gains on Sales of Loans and Other Assets 1,947 229 6,689 - -97
Other 13,841 9,773 13,384 42 -27
--------- --------- --------- --------- ---------
Total 15,788 10,002 20,073 58 -50
--------- --------- --------- --------- ---------
Total Other Income $285,270 $242,878 $261,200 17% -7%
========= ========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 19: Composition of Other Expenses
(Dollars in thousands)
Percent Change
------------------------
1993 1992 1991 1993/92 1992/91
--------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Salaries and Employee Benefits
Salaries $239,354 $212,414 $192,916 13% 10%
Payroll taxes 18,219 16,310 14,794 12 10
Pension and Savings Plans 9,969 6,781 9,365 47 -28
Medical and Other Insurance 27,960 18,180 18,114 54 --
Other 624 1,847 49 -66 --
--------- --------- --------- --------- ---------
Total 296,126 255,532 235,238 16 9
--------- --------- --------- --------- ---------
Full-Time Equivalent Employees
Banking 4,836 4,586 4,367 5 5
Financial Services Companies 1,325 1,358 1,126 -2 21
Parent Company and Other Subsidiaries 756 797 757 -5 5
--------- --------- --------- --------- ---------
Total 6,917 6,741 6,250 3 8
--------- --------- --------- --------- ---------
Net Occupancy Expense 42,578 41,259 39,610 3 4
Equipment Expense 38,005 37,087 32,834 2 13
Provision for Mortgage Banking Restructuring 17,500 -- -- -- --
Other Operating Expenses
Accounting and Legal Fees 7,664 6,811 5,643 13 21
Other Professional Fees and Services 22,607 18,593 16,176 22 15
Advertising and Customer Development 16,400 14,758 12,624 11 17
Communications 20,425 19,067 19,248 7 -1
FDIC Deposit Insurance 29,533 25,552 22,274 16 15
Other Deposit Related Expenses 2,753 2,297 3,051 20 -25
Stationery and Supplies 10,810 10,306 9,656 5 7
Loan Related Expenses 41,488 33,026 16,684 26 98
Foreclosed Real Estate Expenses 10,939 23,258 7,242 -53 --
Taxes-Other Than Income 9,495 8,755 7,974 8 10
Transportation 6,479 5,880 5,341 10 10
Educational Development 5,550 4,513 3,521 23 28
Amortization of Intangibles 11,082 11,202 8,457 -1 32
Automated Teller Network Charges 6,602 5,457 5,023 21 9
Merchant Credit Card Servicing 12,778 11,183 9,049 14 24
Other 28,039 27,314 26,782 3 2
--------- --------- --------- --------- ---------
Total 242,644 227,972 178,745 6 28
--------- --------- --------- --------- ---------
Total Other Expense $636,853 $561,850 $486,427 13% 16%
========= ========= ========= ========= =========
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 20) Capital Adequacy
December 31,
1993 1992 1991
----------- ------------ ------------
<S> <C> <C> <C>
CONSOLIDATED
Total Shareholders' Equity to Assets..... 8.42% 7.41% 7.18%
Tangible Shareholders' Equity to Assets.. 7.78 6.44 6.27
Risk-Based Capital
Tier 1.............................. 9.60 8.78 8.36
Tier 2.............................. 4.07 2.83 2.01
------ ------ ------
Total (1)(2)...................... 13.67 (3) 11.61 10.37
====== ====== ======
Leverage (1)(2).......................... 7.84 (3) 7.15 6.98
Tangible Leverage........................ 7.43 6.46 6.33
BANKING
Total Risk-Based Capital
Meridian Bank.......................... 12.23 (3) 10.59 9.73
Delaware Trust Company................. 13.07 12.44 11.62
Meridian Bank New Jersey............... 15.59 -- --
<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.
(3) Excludes purchased mortgage servicing rights of $36 million.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 21: Risk-Based Capital
(Dollars in Thousands)
1993 1992
------------ ------------
<S> <C> <C>
Risk-Based Capital at Beginning of Period................... $1,318,710 $1,120,313
Net Income for the Year................................... 157,761 136,705
Common Stock Dividends Declared........................... (67,541) (48,359)
Increase in Allowable Portion of Allowance For Possible
Loan Losses............................................. 1,900 6,384
Issuance of Stock Under Mergers, Dividend Reinvestment,
Stock Option and Employee Benefit Plans................. 36,305 22,507
Increase in Subordinated Debt and
Other Transactions, Net................................. 123,294 81,160
------------ ------------
Risk-Based Capital at End of Period (1)..................... $1,570,429 $1,318,710
============ ============
<FN>
(1) Composed of:
</TABLE>
<TABLE>
<CAPTION>
<S> <C> <C>
Tier 1 Capital
Common Stock.............................................. $290,760 $282,445
Surplus................................................... 205,174 180,352
Retained Earnings......................................... 650,378 579,064
------------ ------------
Total Shareholders' Equity.............................. 1,146,312 1,041,861
Less Goodwill............................................. (35,024) (44,004)
Less Certain Core Deposit and Other Intangibles........... (8,880) --
------------ ------------
Total Tier 1 Capital.................................... 1,102,408 997,857
Tier 2 Capital
Allowable Portion of Allowance for Possible Loan Losses.. 144,150 142,250
Allowable Portion of Subordinated Capital Notes.......... 323,871 178,603
------------ ------------
Total Tier 2 Capital.................................... 468,021 320,853
------------ ------------
Total Risk-Based Capital.................................... $1,570,429 $1,318,710
============ ============
Risk-Based Capital in Excess of Regulatory Requirement...... $651,159 $410,618
============ ============
Risk-Weighted Assets and Off-Balance Sheet Items............ $11,490,879 $11,351,145
============ ============
Intangibles and Related Assets
Goodwill.................................................. $35,024 $44,004
Core Deposit and Other Intangibles........................ 25,757 33,146
Purchased Mortgage Servicing Rights....................... 36,000 (2) 70,144
------------ ------------
Total................................................... $96,781 $147,294
============ ============
<FN>
(2) Included in "mortgage loans and other assets held for sale" on the consolidated balance sheets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 22: Price Range of Common Stock
----------------------------------------------------
Quarter High Low Close
--------- ------ ----- -------
<S> <C> <C> <C>
1991
----
First............................... $16 3/4 $9 1/4 $15 3/8
Second.............................. 17 5/8 15 3/8 16
Third............................... 20 1/2 16 19 1/4
Fourth.............................. 24 1/8 19 1/8 23 3/4
1992
----
First................................ 26 5/8 22 1/8 26 1/4
Second............................... 28 23 27 1/2
Third................................ 29 3/8 24 5/8 26 1/8
Fourth............................... 32 26 1/8 31 7/8
1993
----
First................................ 35-3/4 29-3/4 33
Second............................... 34 26-3/4 32-1/2
Third................................ 34-5/8 30-1/4 32-7/8
Fourth............................... 33-1/8 27-3/4 28-1/2
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 23: SUMMARIZED QUARTERLY FINANCIAL DATA
(Dollars In Thousands, Except Per Share Data)
--------------------1993-------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest Income.............................................. $238,090 $241,574 $242,968 $239,058
Interest Expense............................................. 82,553 84,891 88,329 88,625
-------- -------- -------- --------
Net Interest Income.......................................... 155,537 156,683 154,639 150,433
Provision for Possible Loan Losses........................... 12,480 14,631 14,656 14,334
-------- -------- -------- --------
Net Interest Income after
Provision for Possible Loan Losses......................... 143,057 142,052 139,983 136,099
-------- -------- -------- --------
Net Securities Gains......................................... 666 9,943 8,766 5,905
Other Income................................................. 75,461 75,359 63,856 45,313
Other Expenses............................................... 162,033 178,875 (1) 151,648 144,296
-------- -------- -------- --------
Income Before Income Taxes and Cumulative Effect of Change
in Accounting Principle................................... 57,151 48,479 60,957 43,021
Provision for Income Taxes................................... 15,084 13,850 17,417 12,716
-------- -------- -------- --------
Income Before Cumulative Effect of Change in Accounting
Principle................................................. 42,067 34,629 43,540 30,305
Cumulative Effect on Prior Years of Change in Method of
Accounting for Income Taxes............................... - - - 7,221
-------- -------- -------- --------
Net Income................................................... $42,067 $34,629 $43,540 $37,526
======== ======== ======== ========
Fully Diluted Earnings Per Share
Income Before Cumulative Effect of Change in Accounting
Principle............................................. $0.73 $0.60 $0.75 $0.53
Cumulative Effect on Prior Years of Change in Method of
Accounting for Income Taxes........................... - - - 0.13
Net Income............................................... 0.73 0.60 0.75 0.66
Dividends Declared Per Common Share.......................... 0.32 0.32 0.32 0.30
Dividends Paid Per Common Share.............................. 0.32 0.32 0.32 0.30
Ratio of Dividends Declared to Net Income.................... 45% 46% 39% 42%
Net Interest Margin (Taxable Equivalent Basis)............... 5.00% 4.97% 4.90% 4.98%
Return on Average Assets .................................... 1.18% 0.96% 1.22% 1.10%
Return on Average Common Shareholders'
Equity .................................................... 14.34% 12.10% 15.85% 14.24%
At Quarter -End
Loans...................................................... $8,988,044 $8,832,862 $8,626,402 $8,522,252
Assets..................................................... 14,084,787 14,334,773 14,403,339 14,175,835
Deposits................................................... 11,346,151 11,171,363 11,433,459 11,279,275
Total Shareholders' Equity................................. 1,185,633 1,146,875 1,124,935 1,086,898
Total Shareholders' Equity to Assets....................... 8.42% 8.00% 7.81% 7.67%
Risk-Based Capital Ratio................................... 13.67% 13.16% 13.05% 12.91%
Allowance for Possible Loan Losses to Loans................ 1.93% 1.92% 1.95% 1.95%
Allowance for Possible Loan Losses to
Non-Performing Loans..................................... 136% 130% 125% 122%
Non-Performing Assets as a Percentage of
Period-End Loans and
Assets Acquired in Foreclosures.......................... 1.98% 2.18% 2.26% 2.39%
<CAPTION>
------------------1992-----------------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest Income.............................................. $258,701 $248,711 $253,807 $254,962
Interest Expense............................................. 101,789 104,868 114,051 122,290
-------- -------- -------- --------
Net Interest Income.......................................... 156,912 143,843 139,756 132,672
Provision for Possible Loan Losses........................... 15,542 16,165 18,263 18,857
-------- -------- -------- --------
Net Interest Income after
Provision for Possible Loan Losses......................... 141,370 127,678 121,493 113,815
-------- -------- -------- --------
Net Securities Gains......................................... 1,638 344 201 581
Other Income................................................. 65,966 57,264 59,060 57,824
Other Expenses............................................... 163,085 (2) 139,131 131,961 127,673
-------- -------- -------- --------
Income Before Income Taxes and Cumulative Effect of Change
in Accounting Principle................................... 45,889 46,155 48,793 44,547
Provision for Income Taxes................................... 9,792 12,308 14,069 12,510
-------- -------- -------- --------
Income Before Cumulative Effect of Change in Accounting
Principle................................................. 36,097 33,847 34,724 32,037
Cumulative Effect on Prior Years of Change in Method of
Accounting for Income Taxes............................... - - - -
-------- -------- -------- --------
Net Income................................................... $36,097 $33,847 $34,724 $32,037
======== ======== ======== ========
Fully Diluted Earnings Per Share
Income Before Cumulative Effect of Change in Accounting
Principle............................................. $0.64 $0.60 $0.62 $0.58
Cumulative Effect on Prior Years of Change in Method of
Accounting for Income Taxes........................... - - - -
Net Income............................................... 0.64 0.60 0.62 0.58
Dividends Declared Per Common Share.......................... 0.30 0.30 0.30 (3)
Dividends Paid Per Common Share.............................. 0.30 0.30 0.30 0.30
Ratio of Dividends Declared to Net Income.................... 44% 45% 44% 6%
Net Interest Margin (Taxable Equivalent Basis)............... 5.07% 4.69% 4.69% 4.63%
Return on Average Assets .................................... 1.03% 0.97% 1.03% 0.98%
Return on Average Common Shareholders'
Equity .................................................... 13.83% 13.28% 14.09% 13.30%
At Quarter -End
Loans...................................................... $8,551,597 $8,405,704 $8,451,616 $8,479,547
Assets..................................................... 14,290,325 13,956,374 13,900,973 13,534,918
Deposits................................................... 11,774,702 11,411,042 11,699,103 11,452,356
Total Shareholders' Equity................................. 1,059,319 1,024,954 1,004,101 983,031
Total Shareholders' Equity to Assets....................... 7.41% 7.34% 7.22% 7.26%
Risk-Based Capital Ratio................................... 11.61% 11.54% 10.59% 10.53%
Allowance for Possible Loan Losses to Loans................ 1.94% 2.11% 2.12% 2.13%
Allowance for Possible Loan Losses to
Non-Performing Loans..................................... 115% 113% 111% 106%
Non-Performing Assets as a Percentage of
Period-End Loans and
Assets Acquired in Foreclosures.......................... 2.48% 2.90% 2.92% 3.00%
<FN>
Amounts in this Table have been rounded for presentation purposes and therefore may not equal annual totals. The merger
with Commonwealth Bancshares was completed in the third quarter of 1993. Financial information for all prior periods has
been restated to include the result of operations and financial position of Commonwealth.
(1) Third quarter of 1993 includes a mortgage banking restructuring charge and one-time expenses related to the Commonwealth
merger.
(2) The increase in other expenses between the third and fourth quarters of 1992 resulted primarily from additional reserves and
higher operating expenses in the mortgage banking subsidiary.
(3) Reflects new dividend payment schedule adopted in the first quarter of 1992.
</TABLE>
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
December 31,
(Dollars In Thousands)
----------------------------
1993 1992
------------- -------------
<S> <C> <C>
ASSETS
Cash and Due from Banks........................................... $587,587 $685,762
Short-Term Investments
Interest-Bearing Deposits in Other Banks........................ 101,860 166,049
Federal Funds Sold and Securities
Purchased Under Agreements to Resell.......................... 14,694 50,260
------------- -------------
Total Short-Term Investments.................................. 116,554 216,309
Investment Securities ------------- -------------
(Fair Value $2,813,100 and $2,505,146 at December 31,
1993 and 1992, Respectively).................................. 2,784,484 2,460,510
Investment Securities Available for Sale (Fair Value $288,152
and $973,414 at December 31, 1993 and 1992, Respectively).... 275,663 945,217
Trading Account Securities........................................ 36,616 65,257
Mortgage Loans and Other Assets Held for Sale..................... 655,844 497,111
Total Loans, Net of Unearned Discount............................. 8,988,044 8,551,597
Less Allowance for Possible Loan Losses..................... 173,388 165,512
------------- -------------
Net Loans................................................. 8,814,656 8,386,085
------------- -------------
Premises and Equipment............................................ 241,584 235,908
Accrued Interest Receivable....................................... 103,250 101,953
Other Assets...................................................... 468,549 696,213
------------- -------------
TOTAL ASSETS.................................................. $14,084,787 $14,290,325
============= =============
LIABILITIES
Deposits
Non-Interest Bearing Deposits................................... $1,849,425 $1,824,879
Interest-Bearing Deposits....................................... 9,496,726 9,949,823
------------- -------------
Total Deposits................................................ 11,346,151 11,774,702
------------- -------------
Short-Term Borrowings
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase........................... 540,255 711,677
Commercial Paper................................................ 2,500 5,000
Other Short-Term Borrowings..................................... 248,968 160,417
------------- -------------
Total Short-Term Borrowings................................... 791,723 877,094
------------- -------------
Long-Term Debt and Other Borrowings............................... 421,291 313,778
Accrued Interest Payable.......................................... 59,581 60,137
Other Liabilities................................................. 280,408 205,295
------------- -------------
TOTAL LIABILITIES............................................. 12,899,154 13,231,006
------------- -------------
COMMITMENTS AND CONTINGENCIES (Note 12)
SHAREHOLDERS' EQUITY
Preferred Stock (Par Value $25.00)
Authorized - 25,000,000 Shares
Common Stock (Par Value $5.00)
Authorized - 100,000,000 Shares
Issued and Outstanding - 58,154,486 and 56,491,396
shares at December 31, 1993 and 1992, Respectively........... 290,760 282,445
Surplus........................................................... 205,174 180,352
Retained Earnings................................................. 689,699 596,522
------------- -------------
TOTAL SHAREHOLDERS' EQUITY.................................... 1,185,633 1,059,319
------------- -------------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY............... $14,084,787 $14,290,325
============= =============
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
Year Ended December 31,
--------------- --------------- ---------------
1993 1992 1991
--------------- --------------- ---------------
(Dollars in Thousands)
<S> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans............................ $705,893 $738,248 $884,591
Interest on Investment Securities..................... 151,436 206,332 196,446
Interest on Investment Securities Available for Sale.. 51,963 17,095 -
Interest on Trading Account Securities................ 9,857 4,634 5,967
Interest on Mortgage Loans Held for Sale.............. 36,405 40,630 30,097
Other Interest Income................................. 6,136 9,242 6,610
--------------- --------------- ---------------
Total Interest Income............................... 961,690 1,016,181 1,123,711
--------------- --------------- ---------------
INTEREST EXPENSE
Interest on Deposits.................................. 283,822 396,175 553,550
Interest on Short-Term Borrowings..................... 30,518 29,359 58,966
Interest on Long-Term Debt and Other Borrowings....... 30,058 17,464 11,159
--------------- --------------- ---------------
Total Interest Expense.............................. 344,398 442,998 623,675
--------------- --------------- ---------------
NET INTEREST INCOME..................................... 617,292 573,183 500,036
PROVISION FOR POSSIBLE LOAN LOSSES...................... 56,101 68,827 106,750
--------------- --------------- ---------------
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES.................................. 561,191 504,356 393,286
--------------- --------------- ---------------
OTHER INCOME
Trust................................................. 41,679 38,506 38,297
Mortgage Banking...................................... 69,683 69,819 56,445
Amortization of and Reserves for Purchased
Mortgage Servicing Rights and Other
Servicing-Related Assets....................... (33,713) (22,133) (15,402)
--------------- --------------- ---------------
Net Mortgage Banking........................ 35,970 47,686 41,043
Broker-Dealer and Investment Banking.................. 69,371 54,210 36,263
Service Charges on Deposit Accounts................... 53,827 48,967 39,112
Fees for Other Customer Services ..................... 43,355 40,743 41,928
Net Securities Gains.................................. 25,280 2,764 3,919
Gain on Sale of Credit Card Portfolio................. - - 40,565
Other Operating Income................................ 15,788 10,002 20,073
--------------- --------------- ---------------
Total Other Income.................................. 285,270 242,878 261,200
--------------- --------------- ---------------
OTHER EXPENSES
Salaries and Employee Benefits........................ 296,126 255,532 235,238
Net Occupancy Expense................................. 42,578 41,259 39,610
Equipment Expense..................................... 38,005 37,087 32,834
Provision for Mortgage Banking Restructuring.......... 17,500 - -
Other Operating Expenses.............................. 242,644 227,972 178,745
--------------- --------------- ---------------
Total Other Expenses................................ 636,853 561,850 486,427
--------------- --------------- ---------------
INCOME FROM CONTINUING OPERATIONS BEFORE INCOME
TAXES AND CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE.................................. 209,608 185,384 168,059
Provision for Income Taxes.............................. 59,068 48,679 43,873
--------------- --------------- ---------------
INCOME FROM CONTINUING OPERATIONS BEFORE
CUMULATIVE EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE............................................. 150,540 136,705 124,186
LOSS FROM DISCONTINUED OPERATIONS, NET OF TAXES......... - - (6,500)
--------------- --------------- ---------------
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE IN
ACCOUNTING PRINCIPLE.................................. 150,540 136,705 117,686
CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGE IN
METHOD OF ACCOUNTING FOR INCOME TAXES................. 7,221 - -
--------------- --------------- ---------------
NET INCOME.............................................. $157,761 $136,705 $117,686
=============== =============== ===============
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in Thousands) Common Stock
-----------------------
Retained
Shares Amount Surplus Earnings Total
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1, 1991, AS PREVIOUSLY REPORTED............. 40,573,948 $202,869 $115,814 $369,179 $687,862
Adjustment for Merger Accounted for as a Pooling of Interests.. 10,902,017 54,498 2,723 72,330 129,551
----------- ----------- ----------- ----------- -----------
BALANCE AT JANUARY 1, 1991, AS RESTATED........................ 51,475,965 257,367 118,537 441,509 817,413
Net Income..................................................... -- -- -- 117,686 117,686
Common Stock Dividends Declared................................ -- -- -- (56,702) (56,702)
Sales of Stock Under Dividend Reinvestment, Stock Option
and Employee Benefit Plans................................... 138,556 694 1,492 -- 2,186
Common Stock Offering.......................................... 3,450,000 17,250 45,601 -- 62,851
Cash in Lieu of Fractional Shares.............................. -- -- (222) -- (222)
Reversal of Unrealized Loss on Marketable Equity Securities.... -- -- -- 4,521 4,521
----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31,1991.................................... 55,064,521 275,311 165,408 507,014 947,733
Net Income..................................................... -- -- -- 136,705 136,705
Common Stock Dividends Declared................................ -- -- -- (48,359) (48,359)
Sales of Stock Under Dividend Reinvestment, Stock Option
and Employee Benefit Plans................................... 642,174 3,210 7,730 -- 10,940
Common Stock Issued in Acquisitions............................ 784,701 3,924 7,375 429 11,728
Cash in Lieu of Fractional Shares.............................. -- -- (161) -- (161)
Reversal of Unrealized Loss on Marketable Equity Securities.... -- -- -- 733 733
----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1992................................... 56,491,396 $282,445 $180,352 $596,522 $1,059,319
Net Income..................................................... -- -- -- 157,761 157,761
Common Stock Dividends Declared................................ -- -- -- (67,541) (67,541)
Sales of Stock Under Dividend Reinvestment, Stock Option
and Employee Benefit Plans................................... 621,453 3,107 13,261 -- 16,368
Common Stock Issued in Acquisitions............................ 1,041,637 5,208 11,687 3,168 20,063
Cash in Lieu of Fractional Shares.............................. -- -- (126) -- (126)
Unrealized Loss on Marketable Equity Securities................ -- -- -- (211) (211)
----------- ----------- ----------- ----------- -----------
BALANCE AT DECEMBER 31, 1993................................... 58,154,486 $290,760 $205,174 $689,699 $1,185,633
=========== =========== =========== =========== ===========
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
For the Year Ended December 31,
1993 1992 1991
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM CONTINUING AND DISCONTINUED OPERATIONS
Income from Continuing Operations .................................. $157,761 $136,705 $124,186
Adjustments to Reconcile to Net Cash Provided by Continuing
Operations.......................................................
Depreciation and Amortization (Including Amortization of
Purchased Mortgage Servicing Rights)........................... 81,855 60,197 48,540
Deferred Tax Benefit............................................. (626) (6,645) (5,609)
Cumulative Effect on Prior Years of Change in Method of
Accounting for Income Taxes................................... (7,221) - -
Provision for Possible Loan Losses............................... 56,101 68,827 106,750
Provision for Other Real Estate Losses and Mortgage Servicing
Recourse...................................................... 19,618 31,263 4,488
Provision for Mortgage Banking Restructuring..................... 17,500 - -
Net Gains - Investment Securities................................ (12,694) (18,132) (5,616)
Net Gains - Investment Securities Available for Sale............. (14,632) - -
Gains on Sales of Mortgage Servicing............................. (21,606) (15,131) (6,200)
Gain on Sale of Credit Card Portfolio............................ - - (40,565)
Decrease (Increase) in Trading Account Securities................ 28,641 (31,193) 11,175
Increase in Mortgage Loans and Other Assets Held for Sale........ (123,848) (204,945) (76,507)
Decrease (Increase) in Other Assets.............................. 115,748 (246,072) 66,314
Increase in Other Liabilities.................................... 65,262 28,000 38,950
Other, Net....................................................... 14,380 862 (9,550)
-------- --------- ---------
Net Cash Provided by (Used for) Continuing Operations........ 376,239 (196,264) 256,356
-------- --------- ---------
Loss from Discontinued Operations............................... - - (6,500)
Adjustments to Reconcile to Net Cash Provided by Discontinued
Operations...................................................
Provision for Title Insurance Losses....................... - 3,343 15,099
Other, Net................................................. - (3,536) (1,884)
-------- --------- ---------
Net Cash Provided by (Used for) Discontinued Operations. - (193) 6,715
-------- --------- ---------
Net Cash Provided by (Used for) Continuing and Discontinued
Operations................................................ 376,239 (196,457) 263,071
-------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities of Short-Term Investments.................. 310,925 701,723 512,913
Purchases of Short-Term Investments................................. (246,736) (645,328) (640,816)
Proceeds from Maturities, Calls and Paydowns of Securities.......... 1,319,468 1,078,147 615,538
Proceeds from Sales of Securities................................... 109,156 474,673 707,521
Purchases of Securities............................................. (1,320,142) (2,087,489) (2,012,273)
Proceeds from Sales and Maturities of Securities Available for Sale. 907,096 - -
Purchases of Securities Available for Sale.......................... (642,886) - -
Net Principal Collected (Disbursed) on Loans to Customers........... (522,815) (169,709) 61,194
Proceeds from Sales of Automobile Loans, Credit Cards, and
Other Loans...................................................... - 9,669 801,491
Proceeds from Sales of Premises and Equipment....................... 5,386 5,838 4,964
Purchases of Premises and Equipment................................. (36,948) (31,980) (20,135)
Proceeds from Sale of Discontinued Title Operations................. - 15,601 -
Proceeds from Sales of Mortgage Servicing........................... 18,528 12,591 6,160
Purchases of Mortgage Servicing..................................... (2,116) (21,286) (38,501)
Other, Net.......................................................... 50,546 9,242 (2,913)
-------- --------- ---------
Net Cash Used for Investing Activities........................... (50,538) (648,308) (4,857)
-------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase (Decrease) in Deposits................................. (426,208) 826,077 375,906
Net Decrease in Short-Term Borrowings............................... (85,371) (39,173) (761,484)
Proceeds from Issuance of Long-Term Debt............................ 197,607 184,017 10,068
Repayment of Long-Term Borrowings................................... (92,077) (15,415) (34,138)
Proceeds from Issuance of Common Stock.............................. 16,242 10,779 64,815
Cash Dividends Paid to Common Shareholders.......................... (69,635) (61,594) (55,640)
-------- --------- ---------
Net Cash Provided by (Used for) Financing Activities............. (459,442) 904,691 (400,473)
-------- --------- ---------
CASH AND CASH EQUIVALENTS
Net Increase (Decrease) During the Period........................ (133,741) 59,926 (142,259)
Balance at Beginning of the Period............................... 736,022 676,096 818,355
-------- --------- ---------
Balance at End of the Period..................................... $602,281 $736,022 $676,096
======== ========= =========
Composed of:
Continuing Operations......................................... $602,281 $736,022 $619,833
Discontinued Operations....................................... - - 56,263
-------- --------- ---------
Total Cash and Cash Equivalents............................... $602,281 $736,022 $676,096
======== ========= =========
<FN>
Cash and cash equivalents include cash and due from banks, federal funds sold, and securities purchased under agreements
to resell. Income tax payments totaled $66,072 in 1993, $52,319 in 1992 and $39,500 in 1991. Interest payments totaled
$344,954 in 1993, $469,932 in 1992 and $630,467 in 1991. Noncash investing activity consists of net transfers of loans
in liquidation to other real estate aggregating $45,824 in 1993, $24,025 in 1992 and $45,870 in 1991, transfers of
investment securities to investment securities available for sale of $415,000 in 1993 and $945,217 in 1992, and a noncash
transfer of purchased mortgage servicing rights and related assets of $36,000 from other assets to mortgage loans and
other assets held for sale. Noncash financing activity consists of stock aggregating $20,063 issued as a result of mergers.
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
1) Summary of Significant Accounting Policies
The following is a description of the more significant
accounting policies and reporting practices of Meridian Bancorp,
Inc. and its subsidiaries (Meridian). They are in accordance
with generally accepted accounting principles and have been
followed on a consistent basis, except for the accounting changes
described in Notes 8 and 11.
Basis of Presentation
The consolidated financial statements include the accounts
of Meridian Bancorp, Inc. and its wholly owned subsidiaries. All
significant intercompany accounts and transactions have been
eliminated.
On August 31, 1993, Meridian acquired Commonwealth
Bancshares Corporation (Commonwealth). The acquisition of
Commonwealth was accounted for as a pooling of interests and
resulted in the issuance of 10,946,000 shares of Meridian's
common stock. Commonwealth had assets of $2.2 billion and
deposits of $1.6 billion at August 31, 1993. Financial
information for all prior periods presented has been restated to
include the results of operations and financial position of
Commonwealth.
Certain other amounts in prior period financial statements
have been reclassified to conform with the presentation used in
the 1993 financial statements. These reclassifications have no
effect on net income.
Cash and Cash Equivalents
In the accompanying Consolidated and Parent Company
Statements of Cash Flows, cash and cash equivalents include cash
on hand, amounts due from banks, federal funds sold, and
securities purchased under agreements to resell. The original
maturities of such instruments are less than 90 days. Federal
funds are sold and securities are purchased under agreements to
resell for generally one-day periods.
Investment Securities
Securities, other than securities classified as available
for sale and marketable equity securities, are carried at
amortized cost when Meridian has the intent and the ability at
the time of purchase to hold such securities until maturity.
Securities to be held for indefinite periods of time and not
intended to be held to maturity are classified as available for
sale and carried at the lower of aggregate amortized cost or fair
value. Decisions to dispose of these securities are based on an
assessment of economic and financial conditions affecting
Meridian's financial position, including interest rate risk and
the resultant prepayment risk, liquidity, capital adequacy, an
evaluation of alternative asset and liability management
strategies, regulatory requirements, and tax considerations.
This category of securities was established during the third
quarter of 1992.
The amortization of premiums and accretion of discounts to
the expected maturity date of the related debt obligations are
based on a method which approximates a constant yield.
Marketable equity securities are carried at the lower of
aggregate cost or fair value. Unrealized losses on marketable
equity securities that are considered temporary in nature are
recorded as a reduction of shareholders' equity.
When a determination is made that the decline in fair value
below cost for a marketable equity or debt security is other than
temporary, the cost basis of the individual security is written
down to a new cost basis and the amount of the write-down is
accounted for as a realized loss.
Gains and losses on the sale of securities are computed on
the specific identification method.
Trading account securities are carried at fair value and
unrealized gains or losses are included in the Consolidated
Statements of Income.
Effective in the first quarter 1994, Meridian will adopt
Statement of Financial Accounting Standards No. 115 "Accounting
for Certain Investments in Debt and Equity Securities",which
requires investments in equity securities with a readily
determinable fair value and investments in all debt securities to
be classified, at the date of adoption, in one of three
categories. The three categories are (1) held to maturity --
carried at amortized cost; (2) available for sale -- carried at
fair value (with unrealized gains and losses, net of related tax
effect, recorded as a separate component of shareholders'
equity); and (3) trading account - carried at fair value (with
unrealized gains and losses recorded in the income statement).
The impact of this accounting change, had Meridian elected to
adopt this statement at December 31, 1993, would have been to
increase shareholders' equity by approximately $8.1 million, or
less than 1%, representing the after-tax unrealized gain in the
available for sale portfolio.
Interest Rate Swaps
Interest rate swaps, the principal derivative product used
by Meridian, are a tool used mainly to alter the repricing
characteristics of a portion of the core deposit base. There is
no effect on the recorded total assets or liabilities of
Meridian. Net amounts receivable or payable under agreements
designated as hedges are recorded as adjustments to the interest
income or expense related to the hedged asset or liability.
Related fees are deferred and amortized over the term of the swap
agreement. Gains or losses resulting from the termination of
interest rate swaps are deferred and amortized over the remaining
term of the hedged asset or liability.
Loans
Loans are stated net of deferred fees and costs and unearned
discount. Loan interest income is accrued using various methods
which approximate a constant yield.
Interest income is not accrued on commercial loans where
management has determined that borrowers may be unable to meet
contractual principal or interest payments, or where such
payments are 90 or more days past due unless the loan is well
secured and in the process of collection. Interest on loans that
have been restructured is recognized according to the
renegotiated terms.
Residential mortgages which are 180 days or more delinquent
are placed on nonaccrual status when total principal, interest,
and escrow owed exceeds 80% of the property's appraised value.
Properties are re-appraised when foreclosure proceedings are
initiated.
Loan origination and commitment fees and direct loan
origination costs are deferred and recognized over the life of
the related loans as an element of the yield.
Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" requires that
impaired loans be measured based on the present value of expected
future cash flows discounted at the loan's effective interest
rate or the fair value of the underlying collateral. This
statement is effective for fiscal years beginning after December
15, 1994 and, based on the analysis to date, management believes
that the impact on Meridian's consolidated results will not be
material.
Allowance for Possible Loan Losses
The allowance for possible loan losses is established
through provisions for possible loan losses charged against
income. Loans deemed to be uncollectible are charged against the
allowance. Subsequent recoveries, if any, are credited to the
allowance.
The balance in the allowance is based on a periodic
evaluation of the loan portfolio and reflects an amount that in
management's opinion is adequate to absorb losses inherent in the
portfolio.
When establishing the appropriate levels for the provision
and the allowance for possible loan losses, management performs
an analysis of the loan portfolio by considering a variety of
factors. This analysis includes periodic reviews by loan review
and loan workout personnel of all borrowers with aggregate
balances of $250,000 or greater. Meridian also reviews, at least
on a quarterly basis, problem borrowers with balances of $500,000
or greater, as well as selected lower balance loans.
Consideration is given to the impact of current and anticipated
economic conditions, the diversification of the loan portfolio,
historical loss experience, delinquency statistics, reviews
performed by loan officers who are primarily responsible for
compliance with established lending policy, the perceived
financial strength of borrowers, and the perceived adequacy of
underlying collateral. Consideration is also given to
examinations performed by regulatory authorities.
Premises and Equipment
Premises and equipment are stated at cost less accumulated
depreciation and amortization. Depreciation is computed on the
straight line method and is charged to operations over the
estimated useful lives of the related assets. Leasehold
improvements are amortized on a straight line basis over the
terms of the respective leases or the estimated useful lives of
the improvements, whichever is shorter.
Other Assets
Goodwill is the excess of the purchase price over the fair
value of net assets of companies acquired through business
combinations accounted for as purchases. Included in other
assets is $35.0 million of goodwill that is being amortized using
the straight line method over various periods not exceeding 18
years.
Core deposit intangibles are a measure of the value of
consumer demand and savings deposits acquired in business
combinations accounted for as purchases. Included in other
assets is $21.9 million of core deposit intangibles which are
being amortized on an accelerated method, with at least two-
thirds of the original balance being amortized within seven years
following the date of acquisition.
The recoverability of the carrying value of intangible
assets is evaluated on an ongoing basis and permanent declines in
value, if any, are charged to expense.
Assets acquired in foreclosures consist of real estate
acquired through foreclosure or in settlement of debt and loans
considered to be in an in-substance foreclosure status. These
assets are carried at the lower of cost or fair value less
estimated costs of disposal.
Trust Assets
Assets held by Meridian in a fiduciary or agency capacity
for customers are not included in the consolidated financial
statements since such items are not assets of Meridian or its
subsidiaries. Trust income is reported on the accrual method.
Mortgage Banking
Mortgage servicing fees received from permanent investors
for servicing their loan portfolios are recorded as income when
received. Mortgage loan servicing includes collecting monthly
mortgagor payments, forwarding payments and related accounting
reports to investors, collecting escrow deposits for the payment
of mortgagor property taxes and insurance, and paying taxes and
insurance from escrow funds when due.
In the third quarter of 1993 Meridian decided to refocus its
mortgage activities on the origination of residential loans and
to substantially reduce the scope of its mortgage servicing
business. Mortgage servicing intangibles and other related
assets are carried at fair value and are included in mortgage
loans and other assets held for sale in the consolidated balance
sheets.
Acquisition costs of mortgage servicing rights purchased
prior to the third quarter of 1993 were capitalized and amortized
in proportion to, and over the period of, estimated net servicing
revenue (undiscounted servicing revenues in excess of
undiscounted servicing costs). In estimating future servicing
revenues, management takes into consideration a number of factors
including the current rate of anticipated prepayments of the
underlying mortgage loans. Changes in the assumptions used could
significantly affect management's estimates. If actual results
differed significantly from those estimated by management,
adjustments to the carrying value of purchased mortgage servicing
rights could occur.
Excess servicing fees are computed as the present value of
the difference between the estimated future net revenues and
normal servicing revenues as established by the federally
sponsored secondary market makers. Resultant premiums are
deferred and amortized over the estimated life of the related
mortgages using the constant yield method.
The amortization of both purchased mortgage servicing rights
and excess servicing fees is recorded as a reduction of servicing
revenue.
Mortgage loans and other assets held for sale are carried at
the lower of aggregate cost or fair value, with resulting gains
and losses included in other income. The fair value calculation
includes consideration of all open positions, outstanding
commitments from investors and related fees paid.
Securities Operations
Forward rate agreements (commitments to sell securities) and
tender option bonds (commitments to purchase securities) are off-
balance sheet items that represent contingent liabilities and are
therefore not included in the consolidated financial statements.
Realized gains and losses and net interest spread income on these
instruments are included in other income. Securities designated
to cover forward rate agreements are included in trading account
securities and are carried at the lower of cost or contract
price. Collateralized mortgage obligation residuals, rights
acquisition contracts and guaranteed interest rate contracts are
other financial instruments and are included in the consolidated
financial statements in investment securities, investment
securities available for sale and interest-bearing deposits,
respectively.
Income Taxes
Certain items of income and expense are included in one
reporting period for financial accounting purposes and another
reporting period for income tax purposes. Under the liability
method, deferred tax assets and liabilities are recognized for
the future tax consequences attributable to temporary differences
between the financial statement and tax bases of existing assets
and liabilities.
Postretirement Benefits
Meridian has a non-contributory defined benefit pension plan
covering substantially all employees who qualify as to age and
length of service. The plan benefits are based on years of
service and an earnings formula that considers average salaries
during a defined period prior to retirement.
The projected unit credit method is used to measure net
periodic pension cost over employees' service lives. The plan is
funded using the entry age actuarial cost method to the extent
deductible under existing federal income tax regulations.
Meridian currently provides postretirement health care and
life insurance benefits to its employees. The medical portion is
contributory and life insurance coverage is non-contributory to
the participants. The expected cost of these benefits is accrued
over the period the employee earns the benefits. There are
currently no plan assets attributable to these postretirement
benefits.
Preferred Stock
Meridian has 25 million shares of preferred stock authorized
that carries a $25.00 par value per share. No shares of
preferred stock were issued and outstanding as of December 31,
1993. Meridian's Board of Directors has the authority to issue
the preferred stock from time to time as a class without series,
or in one or more series.
Common Stock Dividends
Meridian adopted a new dividend payment schedule effective
in 1992. In addition to the dividend of $.30 per share paid on
January 1, 1992 (declared November 1991), the Board of Directors
also declared dividends of $.30 per share in April, July and
October 1992 for payment on June 1, September 1 and December 1,
1992, respectively. Accordingly, a dividend was not declared in
the quarter ended March 31, 1992.
Earnings Per Share
Primary earnings per share is computed by dividing net
income after deduction of any preferred stock dividends by the
weighted average number of common stock and common stock
equivalents outstanding during the year. Stock options are
considered common stock equivalents and are included in the
computation of the number of outstanding shares using the
treasury stock method, unless such options are anti-dilutive
Fully diluted earnings per share gives effect to the assumed
conversion of any convertible preferred stock as well as to the
exercise of stock options.
Net income and dividends per common share and average shares
outstanding for the last three years are as follows:
<TABLE>
<CAPTION>
Per Common Share 1993 1992 1991
<S> <C> <C> <C>
Income from Continuing Operations Before
Cumulative Effect of Change in Accounting
Principle
Primary $2.61 $2.45 $2.36
Fully Diluted 2.61 2.44 2.35
Loss from Discontinued Operations, Net of Taxes
Primary -- -- (.12)
Fully Diluted -- -- (.12)
Income Before Cumulative Effect of Change in
Accounting Principle
Primary 2.61 2.45 2.24
Fully Diluted 2.61 2.44 2.23
Cumulative Effect on Prior Years of Change in
Method of Accounting for Income Taxes
Primary .13 -- --
Fully Diluted .13 -- --
Net Income
Primary 2.74 2.45 2.24
Fully Diluted 2.74 2.44 2.23
Dividends Declared 1.26 .90(1) 1.20
Dividends Paid 1.26 1.20 1.20
<CAPTION>
<S> <C> <C> <C>
Average Shares Outstanding 1993 1992 1991
Primary 57,674,058 55,596,748 52,594,138
Fully Diluted 57,674,058 55,810,810 52,793,025
<FN>
(1) Reflects new dividend payment schedule adopted first quarter 1992.
</TABLE>
<PAGE>
2) ACQUISITIONS
The merger with Commonwealth on August 31, 1993 was
accounted for as a pooling-of-interests and resulted in the
issuance of 10,946,000 shares of Meridian common stock.
Financial information for all prior periods presented has been
restated to include the results of operations and financial
position of Commonwealth. A reconciliation of amounts, as
previously reported for 1992 and 1991, to the consolidated
amounts reported in the accompanying financial statements is as
follows (dollars in thousands, except per share data):
<TABLE>
<CAPTION>
For the Year Ended December 31,
1992
Meridian
as previously Common- Meridian
(Dollars in Thousands) reported wealth as restated
<S>
Net Interest Income..................... $494,657 $78,526 $573,183
Provision for Possible Loan Losses...... 59,676 9,151 68,827
Other Income............................ 229,365 13,513 242,878
Other Expenses.......................... 509,921 51,929 561,850
Income before Income
Taxes............................. 154,425 30,959 185,384
Provision for Income
Taxes............................. 39,690 8,989 48,679
Net Income.............................. $114,735 $21,970 $136,705
Return on Average Assets................ 0.99% --- 1.00%
Return on Average Common
Shareholders' Equity.............. 13.44% --- 13.63%
Earnings Per Share
Primary........................... $ 2.55 ($0.10) $ 2.45
Fully Diluted..................... $ 2.54 ($0.10) $ 2.44
<CAPTION>
For the Year Ended December 31,
1991
Meridian
as previously Common- Meridian
(Dollars in Thousands) reported wealth as restated
<S> <C> <C> <C>
Net Interest Income..................... $431,581 $68,455 $500,036
Provision for Possible Loan Losses...... 99,419 7,331 106,750
Other Income............................ 247,300 13,900 261,200
Other Expenses.......................... 435,634 50,793 486,427
Income before Income
Taxes............................. 143,828 24,231 168,059
Provision for Income
Taxes............................. 36,774 7,099 43,873
Income from Continuing Operations....... 107,054 17,132 124,186
Loss from Discontinued Operations....... (6,500) --- (6,500)
________ _______ ________
Net Income.............................. $100,554 $17,132 $117,686
Return on Average Assets................ 0.96% --- 0.96%
Return on Average Common
Shareholders' Equity.............. 14.63% --- 14.31%
Earnings Per Share
Primary........................... $ 2.41 ($0.17) $ 2.24
Fully Diluted..................... $ 2.40 ($0.17) $ 2.23
</TABLE>
In April 1993, Meridian acquired all of the outstanding
common shares of Cherry Hill National Bank of Medford, New
Jersey. The acquisition was accounted for as a pooling-of-
interests and resulted in the issuance of 477,000 shares of
Meridian's common stock. Cherry Hill had assets of $113 million
and deposits of $101 million at the time of the merger.
In November 1993, Meridian Bank assumed approximately $76
million of deposits of Provident Savings Bank of Jersey City, and
paid a premium of $540 thousand. This acquisition was accounted
for as a purchase.
In December 1993, Meridian, acquired all of the outstanding
common shares of First Bath Corp. The acquisition was accounted
for as a pooling-of-interests and resulted in the issuance of
565,000 shares of Meridian's common stock. First Bath had assets
of approximately $120 million and deposits of $110 million at the
time of the merger.
The above four acquisitions added 74 new branches to
Meridian's branch network.
On July 9, 1992 Meridian entered into an agreement to
acquire 21 branches in seven counties of central and southern New
Jersey of Security Savings Bank, SLA, a wholly-owned subsidiary
of Security Investments Group, Inc. Under the terms of the
agreement, Meridian was to have acquired selected nonclassified
and performing assets and real estate. On December 4, 1992, the
Office of Thrift Supervision declared Security insolvent and
placed it in receivership with the Resolution Trust Corporation
which, in its capacity as receiver of Security, repudiated the
agreement with Meridian during the fourth quarter of 1993.
On December 16, 1993, Meridian entered into a definitive
agreement to acquire McGlinn Capital Management, Inc., an
investment advisory firm with $2.8 billion in assets under direct
management, for 500,000 warrants for shares of Meridian common
stock and cash. The transaction, which is subject to regulatory
approval, is expected to be completed by the end of the second
quarter of 1994.<PAGE>
3) INVESTMENT SECURITIES, INVESTMENT SECURITIES AVAILABLE FOR
SALE AND SECURITIES GAINS
A summary of the carrying value and approximate fair value
of investment securities included in the Consolidated Balance
Sheets is as follows:
<TABLE>
<CAPTION>
1993
Approximate
Carrying Fair
(Dollars in Thousands) Value Value
---------- -----------
<S> <C> <C>
United States Government Securities........... $630,338 $635,047
Mortgage-Backed Securities.................... 1,555,122 1,565,398
State and Municipal Securities................ 375,582 387,298
Other Securities.............................. 223,442 225,357
---------- ----------
Total Investment Securities............... $2,784,484 $2,813,100
========== ==========
<CAPTION>
1992
Approximate
Carrying Fair
Value Value
---------- -----------
<S> <C> <C>
United States Government Securities........... $549,275 $561,897
Mortgage-Backed Securities.................... 1,296,028 1,314,769
State and Municipal Securities................ 356,718 364,155
Other Securities.............................. 258,489 264,325
---------- ----------
Total Investment Securities............... $2,460,510 $2,505,146
========== ==========
<CAPTION>
1991
Approximate
Carrying Fair
Value Value
---------- -----------
<S> <C> <C>
United States Government Securities........... $1,158,142 $1,192,499
Mortgage-Backed Securities.................... 1,049,588 1,071,386
State and Municipal Securities................ 360,648 369,953
Other Securities.............................. 275,810 278,471
---------- ----------
Total Investment Securities............... $2,844,188 $2,912,309
========== ==========
</TABLE>
A summary of the gross unrealized gains and losses on
investment securities is as follows:
<TABLE>
<CAPTION>
1993
Gross Gross
Unrealized Unrealized
(Dollars in Thousands) Gains Losses
---------- -----------
<S> <C> <C>
United States Government Securities........... $5,644 $935
Mortgage-Backed Securities.................... 15,449 5,173
State and Municipal Securities................ 11,942 226
Other Securities.............................. 2,624 709
---------- ----------
Total Investment Securities............... $35,659 $7,043
========== ==========
<CAPTION>
1992
Gross Gross
Unrealized Unrealized
Gains Losses
---------- -----------
<S> <C> <C>
United States Government Securities........... $13,007 $385
Mortgage-Backed Securities.................... 20,248 1,507
State and Municipal Securities................ 8,426 989
Other Securities.............................. 10,265 4,429
---------- ----------
Total Investment Securities............... $51,946 $7,310
========== ==========
<CAPTION>
1991
Gross Gross
Unrealized Unrealized
Gains Losses
---------- -----------
<S> <C> <C>
United States Government Securities........... $35,270 $913
Mortgage-Backed Securities.................... 36,683 14,885
State and Municipal Securities................ 10,745 1,440
Other Securities.............................. 3,546 885
---------- ----------
Total Investment Securities............... $86,244 $18,123
========== ==========
</TABLE>
The carrying value and approximate fair value of
investment securities at December 31, 1993 by contractual
maturity are shown below. Expected maturities may differ from
contractual maturities because certain borrowers have the right
to call or prepay obligations.
<TABLE>
<CAPTION>
Approximate
Carrying Fair
(Dollars in Thousands) Value Value
---------- -----------
<S> <C> <C>
Other Than Mortgage-Backed Securities
Due in one year or less....................... $287,641 $290,986
Due after one year but within five years...... 679,427 687,342
Due after five years but within ten years..... 143,027 147,522
Due after ten years........................... 119,267 121,852
---------- ----------
Total..................................... 1,229,362 1,247,702
Mortgage-Backed Securities........................... 1,555,122 1,565,398
---------- ----------
Total Investment Securities............... $2,784,484 $2,813,100
========== ==========
</TABLE>
Investment securities carried at approximately $1.8 billion
at December 31, 1993 were pledged as collateral for public
deposits, trust deposits, repurchase agreements, and certain
other deposits as required by law. No securities of an
individual issuer aggregated more than 10% of shareholders'
equity at December 31, 1993. Tax-free income on investment
securities for 1993, 1992 and 1991 amounted to $20.6 million,
$21.8 million and $28.4 million, respectively.
INVESTMENT SECURITIES AVAILABLE FOR SALE
A summary of the carrying value, approximate fair value and
gross unrealized gains and losses of investment securities
available for sale included in the Consolidated Balance Sheets
is as follows. This category of securities was established
during the third quarter of 1992.
<TABLE>
<CAPTION>
1993
Gross
Carrying Unrealized
(Dollars in Thousands) Value Gains
---------- -----------
<S> <C> <C>
United States Government Securities........... $103,086 $2,998
Mortgage-Backed Securities.................... 125,153 3,782
State and Municipal Securities................ 34,306 2,723
Other Securities.............................. 13,118 3,189
---------- ----------
Total Investment Securities Available for
Sale................................... $275,663 $12,692
========== ==========
<CAPTION>
1993
Gross Approximate
Unrealized Fair
Losses Value
---------- -----------
<S> <C> <C>
United States Government Securities........... $87 $105,997
Mortgage-Backed Securities.................... 99 128,836
State and Municipal Securities................ -- 37,029
Other Securities.............................. 17 16,290
---------- ----------
Total Investment Securities Available for
Sale................................... $203 $288,152
========== ==========
caption>
1992
Gross
Carrying Unrealized
Value Gains
---------- -----------
<S> <C> <C>
United States Government Securities........... $220,233 $4,331
Mortgage-Backed Securities.................... 558,559 14,832
State and Municipal Securities................ 146,803 8,091
Other Securities.............................. 19,622 1,397
---------- ----------
Total Investment Securities Available for
Sale................................... $945,217 $28,651
========== ==========
<CAPTION>
1992
Gross Approximate
Unrealized Fair
Losses Value
---------- -----------
<S> <C> <C>
United States Government Securities........... - $224,564
Mortgage-Backed Securities.................... $454 572,937
State and Municipal Securities................ - 154,894
Other Securities.............................. - 21,019
---------- ----------
Total Investment Securities Available for
Sale................................... $454 $973,414
========== ==========
</TABLE>
The carrying value and approximate fair value of investment
securities available for sale at December 31, 1993 by contractual
maturity are shown below. Expected maturities may differ from
contractual maturities because certain borrowers have the right
to call or prepay obligations.
<TABLE>
<CAPTION>
Approximate
Carrying Fair
(Dollars in Thousands) Value Value
---------- -----------
<S> <C> <C>
Other Than Mortgage-Backed Securities
Due in one year or less................... $35,972 $39,446
Due after one year but within five years.. 98,646 102,978
Due after five years but within ten years. 1,124 1,230
Due after ten years....................... 14,768 15,662
---------- ----------
Total................................. 150,510 159,316
Mortgage-Backed Securities....................... 125,153 128,836
---------- ----------
Total Investment Securities Available
for Sale........................... $275,663 $288,152
========== ==========
</TABLE>
TOTAL SECURITIES GAINS
Total gains 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>
1993
----------
<S> <C>
Broker-Dealer and Investment Banking Income....... $2,046
Net Securities Gains.............................. 25,280
------
Total Securities Gains.................... $27,326
=======
<CAPTION>
1992
----------
<S> <C>
Broker-Dealer and Investment Banking Income....... $15,368
Net Securities Gains.............................. 2,764
-------
Total Securities Gains.................... $18,132
=======
<CAPTION>
1991
----------
<S> <C>
Broker-Dealer and Investment Banking Income....... $1,697
Net Securities Gains.............................. 3,919
------
Total Securities Gains.................... $5,616
======
</TABLE>
Net securities gains included gross gains of $25.5 million,
$6.1 million, $9.8 million and gross losses of $203 thousand,
$3.4 million and $5.9 million during 1993, 1992 and 1991,
respectively. Securities gains in 1993 include a gain of $8.6
million on the sale of Meridian's common stock investment in
Fidelity National Financial, Inc. This stock was acquired as
part of the sale of Meridian's title insurance operations in
1992. Exclusive of this gain, securities gains in 1993 resulted
primarily from sales of investments classified as available for
sale.
<PAGE>
4) Loans
A summary of loans included in the Consolidated Balance
Sheets is as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
(Dollars in Thousands) 1993 1992
------------- -------------
<S> <C> <C>
Commercial Loans
Real Estate - Commercial Mortgage.......... $1,620,876 $1,581,188
Real Estate - Construction................. 261,847 286,205
Commercial, Financial and Agricultural..... 3,591,370 3,405,204
--------- ---------
Total Commercial Loans................... 5,474,093 5,272,597
--------- ---------
Real Estate - Residential................... 993,753 1,057,968
Consumer Loans
Real Estate - Home Equity.................. 680,440 581,500
Revolving Credit........................... 79,613 77,847
Other Consumer Loans....................... 1,871,648 1,673,319
--------- ---------
Total Consumer Loans..................... 2,631,701 2,332,666
--------- ---------
Total Loans, Gross.......................... 9,099,547 8,663,231
Less Unearned Discount.................... 111,503 111,634
--------- ---------
Total Loans, Net of
Unearned Discount......................... $8,988,044 $8,551,597
======== ========
</TABLE>
Included within the loan portfolio are restructured loans
and loans on which Meridian has discontinued the accrual of
interest. Such loans amounted to $127.6 million, $143.6
million, and $169.3 million at December 31, 1993, 1992, and 1991,
respectively. If these non-performing loans had been current in
accordance with their original terms and had been outstanding
throughout the period, gross interest income for 1993, 1992, and
1991 would have increased $9.5 million, $13.5 million, and $19.2
million, respectively. Interest income on these non-performing
loans included in income for 1993, 1992, and 1991 amounted to
$706.0 thousand, $3.1 million, and $1.5 million, respectively.
Tax-free income on loans for 1993, 1992, and 1991 amounted
to $14.4 million, $16.6 million, and $22.2 million, respectively.
The aggregate amount of loans by Meridian to its directors
and executive officers, including loans to related persons and
entities, was $37.1 million at December 31, 1993 and $54.9
million at December 31, 1992. These loans were made in the
ordinary course of business at substantially the same terms and
conditions as those with other borrowers and did not involve more
than the normal risk of collectibility. An analysis of the
activity in 1993 for these loans follows:
<TABLE>
<CAPTION>
(Dollars in Thousands)
<S> <C>
Balance January 1, 1993..................... $54,893
New Loans................................. 6,920
Repayments ............................... (23,684)
Other, Net................................ (1,076)
------------
Balance December 31, 1993................... $37,053
============
</TABLE>
Other, Net includes the addition of loans to new directors and
officers and the reductions in loans because of persons who no
longer meet the criteria for classification as a related person
or entity.
<PAGE>
5) Allowance for Possible Loan Losses
A summary of activity in the allowance for possible loan
losses follows:
<TABLE>
<CAPTION>
1993 1992 1991
(Dollars in Thousands) -------- -------- --------
<S> <C> <C> <C>
Balance at Beginning of Period...... $165,512 $179,167 $157,505
Additions (Deductions)
Acquired Allowances............... 3,094 2,154 --
Loans Charged-Off................. (62,510) (95,186) (92,151)
Recoveries on
Charged-Off Loans............... 11,191 10,550 7,063
-------- -------- --------
Net Loans Charged-Off............... (51,319) (84,636) (85,088)
-------- -------- --------
Provision Charged to
Operating Expense................. 56,101 68,827 106,750
-------- -------- --------
Balance at End of Period............ $173,388 $165,512 $179,167
======== ======== ========
</TABLE>
<PAGE>
6) SHORT-TERM BORROWINGS AND LONG-TERM DEBT AND OTHER BORROWINGS
Short-term borrowings consisted of the following:
<TABLE>
<CAPTION>
December 31, 1993 1992
-------- --------
(Dollars in Thousands)
<S> <C> <C>
Federal Funds Purchased................................. $ 29,930 $232,749
Securities Sold Under Agreements to Repurchase.......... 510,325 478,928
Treasury Tax and Loan Notes............................. 245,174 130,166
Commercial Paper........................................ 2,500 5,000
Federal Home Loan Bank and Other Short-Term Borrowings.. 3,794 30,251
-------- --------
Total.............................................. $791,723 $877,094
======== ========
</TABLE>
Meridian had unused lines of credit of $30 million and $202
million at December 31, 1993 and 1992, respectively.
The table below provides outstanding balances and related
information for federal funds purchased and securities sold under
repurchase agreements. Average interest rates for the year are
computed by dividing interest expense by the respective average
daily balances.
<TABLE>
<CAPTION>
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase
(Dollars in Thousands) 1993
---------
<S> <C>
Balance at December 31.................................. $540,255
Average Interest Rate at December 31.................... 2.59%
Maximum Amount Outstanding at Any
Month-End During the Year............................. $917,351
Average Amount Outstanding During the Year.............. $841,257
Average Interest Rate During the Year................... 2.90%
<CAPTION>
1992
---------
<S> <C>
Balance at December 31.................................. $711,677
Average Interest Rate at December 31.................... 2.57%
Maximum Amount Outstanding at Any
Month-End During the Year............................. $977,902
Average Amount Outstanding During the Year.............. $722,320
Average Interest Rate During the Year................... 3.43%
<CAPTION>
1991
---------
<S> <C>
Balance at December 31.................................. $735,030
Average Interest Rate at December 31.................... 3.60%
Maximum Amount Outstanding at Any
Month-End During the Year............................. $1,158,045
Average Amount Outstanding During the Year.............. $908,938
Average Interest Rate During the Year................... 5.61%
</TABLE>
Long-term debt and other borrowings consisted of the
following:
<TABLE>
<CAPTION>
December 31, 1993 1992
(Dollars in Thousands) --------- ---------
<S> <C> <C>
Floating Rate Subordinated Notes, Due 1996.............. $75,000 $75,000
6.625% Subordinated Notes, Due 2003..................... 147,723 --
7.875% Subordinated Notes, Due 2002..................... 98,852 98,727
8.00% Subordinated Notes, Due 1996 (repaid in 1993)..... -- --
9.00% Subordinated Notes, Due through 1994
in Annual Installments (repaid in 1993)............... -- 1,221
Other Term Loans, Due 1993-2005 in Annual
and Quarterly Installments............................ 4,167 11,453
Mortgages Payable and Capitalized Lease
Obligations (See Note 9).............................. 10,462 14,616
Federal Home Loan Bank Advances Due 1993-2000
with Fixed Rates from 5.09% to 7.77%.................. 75,000 95,000
4.80% Fixed Rate Note, Due 1996......................... 8,400 8,400
11% Fixed Rate Note, Due 1994........................... 869 3,115
Other Borrowings........................................ 818 570
-------- --------
Total.............................................. $421,291 $313,778
======== ========
</TABLE>
The floating rate subordinated notes bear interest at a rate
of 1/8 of 1% above the arithmetic mean of London interbank
offering quotations for three-month Eurodollar deposits,
determined quarterly. The notes carry a floor interest rate of 5
1/8%. The notes are subordinate and junior in right of payment
of senior indebtedness of Meridian. Since December 1, 1988,
Meridian has had the option to exchange of the notes for capital
securities, or under certain circumstances, cash, prior to
maturity of the notes on December 1, 1996. The effect of the
capital securities which may be issued in connection with these
notes has not been included in the computation of earnings per
share. In December, 1993, Meridian received approval from the
Federal Reserve Bank to revoke its obligation to exchange the
notes for capital securities at maturity.
During 1993, Meridian Bank, Meridian's principal banking
subsidiary, sold $150 million of 6.625% fixed rate subordinated
notes due March 15, 2003. The net proceeds are being used for
general corporate purposes, including possible branch
acquisitions and other acquisitions of all or portions of failed
institutions from the Resolution Trust Corporation or the
Federal Deposit Insurance Corporation.
Meridian has long-term borrowings from the Federal Home Loan
Bank which total $75 million. These borrowings require Meridian
to maintain membership in the Federal Home Loan Bank of
Pittsburgh and to maintain collateral with a fair value which
approximates the total amount of the outstanding debt.
The remaining long-term debt consists of debt of Meridian's
banking subsidiaries and is subordinated in the right of payment
to the depositors of such subsidiaries. Substantially all of the
notes are redeemable prior to maturity at certain amounts based
on sinking fund provisions or, when applicable, approval of the
appropriate regulatory agency.
<PAGE>
7) DIVIDEND, CAPITAL AND OTHER REGULATORY RESTRICTIONS
Various laws restrict the amount of dividends that can be
paid to Meridian by its subsidiary banks without regulatory
approval. Under current regulations, Meridian's subsidiary
banks, without prior approval of bank regulators, may declare
dividends to Meridian in 1994 totalling approximately $147.1
million plus additional amounts equal to the net profits earned
by such subsidiary banks for the period from January 1, 1994,
through the date of declaration, less dividends previously paid
in 1994.
Meridian is required to maintain minimum amounts of capital
to total "risk weighted" assets, as defined by the banking
regulators. Meridian is required to have minimum Tier 1 and
total capital ratios of 4.00% and 8.00%, respectively.
Meridian's actual ratios at December 31, 1993 were 9.60% and
13.67%, respectively, well above regulatory requirements.
Meridian is also required to maintain a leverage ratio of 3%
plus an additional cushion of 100 to 200 basis points.
Meridian's leverage ratio at December 31, 1993 was 7.84%.
The Federal Reserve Act also places restrictions on the
amount of credit that may be extended to Meridian by its
subsidiary banks. During 1993, there were no loans or advances
made to Meridian by any of its subsidiary banks.
Meridian's banking subsidiaries are required to maintain
reserve balances with the Federal Reserve. These balances
totalled $94.3 million at December 31, 1993 and averaged $91.6
million for the year then ended.
<PAGE>
8) EMPLOYEE BENEFIT PLANS
Pension Plans
Total pension expense for 1993, which includes several
informal pension arrangements in addition to the Meridian and
Commonwealth plans, was $2.9 million. Total pension expense for
1992 and 1991 was $59 thousand and $2.5 million, respectively.
Pension expense in 1992 reflects significantly better than
expected investment returns on plan assets.
Net periodic pension expense (credit) of the Meridian and
Commonwealth plans includes the following components:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1993 1992 1991
<S> <C> <C> <C>
Service Cost-Benefits $ 7,299 $ 6,353 $ 5,375
Earned During the Year
Interest Cost on Projected
Benefit Obligation 11,167 9,645 7,802
Actual Return on
Plan Assets (15,985) (14,622) (41,610)
Amortization of Unrecognized
Net Assets and Other
Deferred Amounts - Net (530) (1,617) 29,751
NET PERIODIC PENSION
EXPENSE (CREDIT) $ 1,951 $ (241) $ 1,318
</TABLE>
The following table sets forth the funded status of the Meridian
and Commonwealth plans and amounts recognized in the Consolidated
Balance Sheets at December 31.
<TABLE>
<CAPTION>
(Dollars In Thousands) 1993 1992
<S> <C> <C>
Projected Benefit Obligation
Accumulated Benefit Obligation
Vested Benefits $ 101,574 $ 80,458
Non-Vested Benefits 4,986 4,807
Effect of Projected Future
Compensation Increases 56,193 44,741
PROJECTED BENEFIT OBLIGATION 162,753 130,006
Less Fair Value of Plan Assets 178,658 165,932
PLAN ASSETS IN EXCESS OF
PROJECTED BENEFIT OBLIGATION 15,905 35,926
Less Unrecognized Net Gain Due
to Past Experience Different
from Assumptions Made 4,491 22,481
Less Unrecognized Net Transition Asset
Amortized Over Employee
Service Lives 4,731 5,591
NET PENSION ASSET RECOGNIZED
IN BALANCE SHEET AT DECEMBER 31 $ 6,683 $ 7,854
</TABLE>
Net periodic pension expense is determined using certain
assumptions as of the beginning of the year whereas the funded
status of the plan is determined using assumptions as of the end
of the year.
The discount rate used in determining the actuarial present
value of Meridian's projected benefit obligation was 7.0% in 1993
and 8.0% in 1992 and 1991. The expected long-term rate of return
on plan assets was 9.5% in 1993, 1992 and 1991. The rate of
increase in future compensation levels was 5.3% in 1993 and 6.3%
in 1992 and 1991.
The discount rate used in determining the actuarial present
value of Commonwealth's projected benefit obligation was 7.0% in
1993, 7.5% in 1992 and 8.0% in 1991. The expected long-term rate
of return on plan assets was 9.5% in 1993, 8.0% in 1992 and 9.0%
in 1991. The rate of increase in future compensation levels was
5.3% in 1993 and 5.25% in 1992 and 1991.
The assets of the Meridian and Commonwealth plans are
administered by Meridian Asset Management, Inc., and consist
primarily of common stock, fixed income securities such as
obligations of the United States government and corporations, and
units of certain common trust funds.
Meridian provides postretirement health care and life
insurance plans to its employees. The medical portion is
contributory and life insurance coverage is noncontributory to
the participants. Effective January 1, 1993, Meridian adopted
Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions". The
new accounting rules require the accrual of the expected cost of
these benefits over the period the employee earns the benefits.
Meridian elected to defer and amortize over 20 years the
cumulative obligation for such benefits at the beginning of 1993.
The annual expense of Meridian's postretirement benefits
other than pensions under these new accounting rules was $4.5
million in 1993 compared to approximately $2.0 million on the
cash basis of accounting previously used, or an increase of $2.5
million. The health care trend rate assumption used to determine
accumulated benefit obligations applicable to these benefits was
11% for 1993 decreasing over time to an annual rate of 5.5% and
remaining at that level thereafter. The discount rate used in
determining the present value of the projected benefit obligation
was 7%.
Net periodic expense of the Meridian and Commonwealth
postretirement healthcare and life insurance plans includes the
following components:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1993
<S> <C>
Service Cost-Benefits $ 824
Earned During the Year
Interest Cost on Accumulated Postretirement
Benefit Obligation 2,280
Amortization of Unrecognized
Net Transition Obligation Amortized Over 20 Years 1,421
NET PERIODIC EXPENSE
$ 4,525
</TABLE>
The following table sets forth the funded status of the
Meridian and Commonwealth postretirement healthcare and life
insurance plans and amounts recognized in the Consolidated
Balance Sheets at December 31. There are currently no plan
assets attributable to these postretirement benefits.
<TABLE>
<CAPTION>
(Dollars In Thousands) 1993
<S> <C>
Accumulated Postretirement Benefit
Obligation $ 31,484
Less Fair Value of Plan Assets -
ACCUMULATED BENEFIT OBLIGATION
IN EXCESS OF PLAN ASSETS 31,484
Less Unrecognized Net Loss Due
to Past Experience Different
from Assumptions Made 1,061
Less Unrecognized Net Transition
Obligation 27,407
NET LIABILITY RECOGNIZED IN BALANCE
SHEET AT DECEMBER 31 $ 3,016
</TABLE>
A change in the health care trend rate assumption of one
percent would increase annual service cost by approximately
$100,000 and the accumulated postretirement benefit obligation at
December 31, 1993 by approximately $800,000.
In November 1992, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 112,
"Employers' Accounting for Postemployment Benefits". This
statement, which becomes effective in 1994, establishes
accounting standards for employers who provide benefits to former
employees after employment but before retirement. Such benefits
include, among other things, severance and workers' compensation
benefits. Management is currently evaluating this statement and,
based on the analysis to date, believes that its impact on
Meridian's consolidated results of operations will not be
material.
Savings Plan
Meridian also offers a savings plan which covers
substantially all employees who qualify as to age and length of
service. A participating employee must contribute at least 1%
and may contribute a maximum of 10% of his or her compensation.
Meridian will match up to the first 6% that each employee
contributes. Investment options include Meridian common stock.
Contributions are charged to current expense. The total expense
relating to the Meridian savings plan was $7.1 million in 1993,
$6.5 million in 1992 and $5.7 million in 1991.
Stock Option Plan
Under Meridian's stock option plan, options to acquire a
maximum of 3,500,000 shares of common stock may be granted to key
officers. The plan provides for the granting of options at the
fair market value of Meridian's common stock at the time the
options are granted. Each option granted under the plan may be
exercised within a period of ten years from the date of the
grant; however, no option may be exercised within one year from
the date of grant.
A stock appreciation rights (SARs) plan grants SARs in
tandem with stock option grants, up to a maximum of 750,000
units. The exercise of SARs reduces the stock options otherwise
exercisable; similarly, the exercise of stock options cancels the
corresponding SARs. There were no SARs outstanding at December
31, 1993.
Under Meridian's stock option plan, the exercisable option
prices ranged from $10.50 to $31.12 at December 31, 1993. An
analysis of the activity in this plan for the last three years
follows:
<TABLE>
<CAPTION>
Number of Common Shares 1993 1992 1991
<S> <C> <C> <C>
Outstanding, January 1 1,521,507 1,552,574 1,723,858
Granted 1,279,658 422,550 --
Exercised (468,463) (443,917) (54,648)
Lapsed ( 14,670) ( 9,700) (116,636)
Outstanding, December 31 2,318,032 1,521,507 1,552,574
Exercisable, December 31 1,770,632 1,098,957 1,552,574
/TABLE
<PAGE>
9) LEASES
Meridian and its subsidiaries are committed under a number
of capital and non-cancelable operating leases for facilities and
equipment with initial or remaining terms in excess of one year.
The minimum annual rental commitments under these leases at
December 31, 1993 are summarized as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- --------
(Dollars in Thousands)
<S> <C> <C>
1994........................ $3,901 $15,751
1995........................ 1,756 11,588
1996........................ 1,038 9,768
1997........................ 679 8,603
1998........................ 678 8,093
1999 and Subsequent......... 509 50,576
-------- --------
Total Minimum Lease
Payments.................. 8,561 $104,379
-------- ========
Amounts Representing
Interest.................. 1,277
--------
Present Value of Net Minimum
Lease Payments............ $7,284
========
</TABLE>
Total rental expense for all operating leases for 1993, 1992
and 1991 amounted to $20.5 million, $18.2 million, and $16.4
million, respectively.
<PAGE>
10) OTHER OPERATING EXPENSES
The following represents the most significant categories
of other operating expenses for the years ended December 31:
<TABLE>
<CAPTION>
(Dollars In Thousands) 1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
Accounting and Legal Fees.............. $7,664 $6,811 $5,643
Other Professional Fees and Services... 22,607 18,593 16,176
Advertising and Customer Development... 16,400 14,758 12,624
Communications......................... 20,425 19,067 19,248
FDIC Deposit Insurance................. 29,533 25,552 22,274
Other Deposit Related Expenses......... 2,753 2,297 3,051
Stationery and Supplies................ 10,810 10,306 9,656
Loan Related Expenses.................. 41,488 33,026 16,684
Foreclosed Real Estate Expenses........ 10,939 23,258 7,242
Taxes - Other Than Income.............. 9,495 8,755 7,974
Transportation......................... 6,479 5,880 5,341
Educational Development................ 5,550 4,513 3,521
Amortization of Intangibles............ 11,082 11,202 8,457
Automated Teller Network Charges....... 6,602 5,457 5,023
Merchant Credit Card Servicing......... 12,778 11,183 9,049
Other Expenses......................... 28,039 27,314 26,782
-------- -------- --------
Total............................... $242,644 $227,972 $178,745
======== ======== ========
</TABLE>
<PAGE>
11) INCOME TAXES
Effective January 1, 1993, Meridian adopted Statement of
Financial Accounting Standards No. 109, "Accounting for Income
Taxes" (SFAS No. 109),which requires a change from the deferred
method of accounting for income taxes to the liability method.
Under the liability method, deferred tax assets and liabilities
are recognized for future tax consequences attributable to
temporary differences between the financial statement and tax
bases of existing assets and liabilities. Deferred tax assets
and liabilities are measured using enacted tax rates expected to
apply to taxable income in the years in which those temporary
differences are expected to be recovered or settled. The effect
on deferred tax assets and liabilities of a change in tax rates
is recognized in income in the period that includes the enactment
date of the rate change.
As permitted by SFAS No. 109, Meridian has elected not to
restate the financial statements of any prior years. The
implementation of these new tax accounting rules resulted in an
increase in consolidated net income of $7.2 million in the first
quarter of 1993. This amount represents the cumulative effect of
adopting SFAS No. 109 at the beginning of 1993. The impact of
SFAS No. 109 on future periods is not expected to be material.
At December 31, 1993, deferred tax assets amounted to $105.5
million and deferred tax liabilities amounted to $60 million. No
valuation allowance has been established for deferred tax assets
because management believes that it is more likely than not that
the deferred tax assets will be realized. Deferred tax assets are
realizable primarily through carryback of existing deductible
temporary differences to recover taxes paid in prior years and
through future reversal of existing taxable temporary
differences.
The Omnibus Budget Reconciliation Act of 1993 was signed
into law during August 1993. The most significant change
included in this act is an increase in the marginal tax rate from
34% to 35%, retroactive to the beginning of 1993. This change
resulted in an increase in income tax expense. However, the
benefit from Meridian's deferred tax assets, which are similar to
tax loss carryforwards, was increased to reflect the higher tax
rates, resulting in a one-time reduction in income tax expense.
This change in deferred tax assets partially offset the increase
in tax rates on operating income, resulting in a net increase of
$350 thousand in income tax expense in 1993. Because of the
increase in marginal tax rates on operating income, the new tax
act will also have a negative effect on future periods.
The provision for income taxes on continuing operations
consists of the following:
<TABLE>
<CAPTION>
1993
____________________________________________________________ _________
(Dollars in Thousands)
<S> <C>
Current Expense - Federal $57,017
State Tax Expense 2,677
Deferred Benefit - Federal (626)
---------
TOTAL INCOME TAX EXPENSE $59,068
=========
<CAPTION>
1992
____________________________________________________________ _________
<S> <C>
Current Expense - Federal $53,600
State Tax Expense 1,724
Deferred Benefit - Federal (6,645)
---------
TOTAL INCOME TAX EXPENSE $48,679
=========
<CAPTION>
1991
____________________________________________________________ _________
<S> <C>
Current Expense - Federal $47,701
State Tax Expense 1,781
Deferred Benefit - Federal (5,609)
---------
TOTAL INCOME TAX EXPENSE $43,873
=========
</TABLE>
The effective tax rate is less than the federal statutory rate in
each year as a result of the following items:
<TABLE>
<CAPTION> 1993
% Of
Pre-Tax
Amount Income
____________________________________________________________ _________ _________
(Dollars in Thousands)
<S> <C> <C>
Federal Income Tax at Statutory Rate $73,355 35.0%
Increase (Decrease) in Tax Rates Resulting from
Tax-Exempt Interest Income on Investment Securities (9,218) (4.4%)
Tax-Exempt Interest Income on Loans (5,022) (2.4%)
Interest Disallowance on Tax-Exempt Assets 1,457 0.7%
Other, Net (1,504) (0.7%)
--------- ---------
TOTAL INCOME TAX EXPENSE $59,068 28.2%
========= =========
<CAPTION>
1992
% Of
Pre-Tax
Amount Income
____________________________________________________________ _________ _________
<S> <C> <C>
Federal Income Tax at Statutory Rate $63,029 34.0%
Increase (Decrease) in Tax Rates Resulting from
Tax-Exempt Interest Income on Investment Securities (7,967) (4.3%)
Tax-Exempt Interest Income on Loans (5,611) (3.0%)
Interest Disallowance on Tax-Exempt Assets 1,454 0.8%
Other, Net (2,226) (1.2%)
--------- ---------
TOTAL INCOME TAX EXPENSE $48,679 26.3%
========= =========
<CAPTION>
1991
% Of
Pre-Tax
Amount Income
____________________________________________________________ _________ _________
<S> <C> <C>
Federal Income Tax at Statutory Rate $57,278 34.0%
Increase (Decrease) in Tax Rates Resulting from
Tax-Exempt Interest Income on Investment Securities (9,649) (5.7%)
Tax-Exempt Interest Income on Loans (7,460) (4.4%)
Interest Disallowance on Tax-Exempt Assets 1,765 1.0%
Other, Net 1,939 1.1%
--------- ---------
TOTAL INCOME TAX EXPENSE $43,873 26.0%
========= =========
</TABLE>
The significant components of deferred income tax expense
attributable to income from continuing operations for the year
ended December 31, 1993 are as follows:
<TABLE>
<CAPTION>
1993
____________________________________________________________ _________
(Dollars In Thousands)
<S> <C>
Increase in Deferred Tax Assets Resulting from Tax Benefits
from an Acquisition $(330)
Adjustments to Deferred Tax Assets and Liabilities for
Increase in Tax Rates (1,120)
Deferred Tax Expense 824
---------
Deferred Tax Benefit $(626)
=========
</TABLE>
For the years ended December 31, 1992 and 1991, deferred income
tax benefit of $6.6 and $5.6 million, respectively, results from
timing differences in the recognition of income and expense for
income tax and financial reporting purposes. The sources and tax
effects of those timing differences are presented below:
<TABLE>
<CAPTION>
1992 1991
____________________________________________________________ _________ _________
(Dollars In Thousands)
<S> <C> <C>
Provision for Possible Credit Related Losses in Excess
of Charge-offs $ (4,312) $ (7,165)
Differences Related to the Financial and Tax Treatment of
Leasing Activities 6,221 5,269
Accelerated Tax Depreciation Expense (2,766) (549)
Interest Income on Non-accrual Loans (1,526) (34)
Other, Net (4,262) (3,130)
--------- ---------
TOTAL DEFERRED TAX PROVISION $(6,645) $(5,609)
========= =========
</TABLE>
The components of the deferred tax asset and liabilities are as follows:
<TABLE>
<CAPTION>
December 31, 1993
____________________________________________________________ _________
(Dollars in thousands)
<S> <C>
DEFERRED TAX ASSET
Provision for Possible Credit Related Losses in Excess
of Charge-offs $63,902
Interest Income on Non-Accrual Loans 5,975
Deferred Compensation 3,789
Deferred Fees for Financial Statement Purposes
Recognized for Tax Purposes 7,340
Expense Accruals not Deductible Until
Paid for Tax Purposes 17,701
Differences Related to the Financial and Tax Treatment
of Other Real Estate Owned 6,734
Other Deferred Tax Assets 70
---------
Total Deferred Tax Assets 105,511
---------
DEFERRED TAX LIABILITIES
Differences Related to the Financial and Tax 29,917
Treatment of Leasing Activities
Accelerated Tax Depreciation 9,951
Differences Related to the Financial and Tax
Treatment of Investment Activities 4,972
Differences Related to the Financial and Tax
Treatment of Mortgage Banking Operations 924
Expenses Accelerated for Tax Purposes 7,541
Other Deferred Tax Liabilities 6,684
---------
Total Deferred Tax Liabilities 59,989
---------
NET DEFERRED TAX ASSET $45,522
=========
</TABLE>
<PAGE>
12) Commitments and Contingencies
Financial Instruments with Off-Balance-Sheet Risk
Meridian uses various financial instruments in conducting
its business activities and in managing its balance sheet risks.
These instruments are properly not included in the accompanying
consolidated financial statements. The instruments involve, to
varying degrees, elements of credit risk, interest rate risk, and
liquidity risk.
A summary of the contractual or notional amounts of these
financial instruments along with a discussion of the instruments
and their underlying risk characteristics is as follows:
<TABLE>
<CAPTION>
December 31,
___________________________
1993 1992
____ ____
(Dollars in Thousands)
<S> <C> <C>
Financial Instruments Whose Contract Amounts
Represent Potential Credit Risk
Commitments to Extend Credit $3,396,741 $3,009,466
Standby and Commercial Letters of Credit 539,366 468,994
Mortgage Loans Sold and Loan Servicing
Acquired with Recourse 975,196 1,298,096
Forward Rate Agreements 53,497 115,479
Financial Instruments Whose Notional or
Contract Amounts Exceed the Amount of
Potential Credit Risk
Commitments to Sell
Mortgage-Backed Securities 552,500 687,855
Tender Option Bonds and Other
Commitments to Purchase Securities 499,995 593,332
Interest Rate Swap Agreements 2,167,000 1,902,000
Forward Interest Rate Swap Commitments 150,000 275,000
Other Interest Rate Contracts 253,572 238,704
</TABLE>
Meridian extends binding loan commitments to prospective
borrowers. Such commitments assure the borrower of financing for
a specified period of time or at a specified rate and usually
require the payment of a fee. The risk to Meridian in an undrawn
loan commitment is limited by the terms of the contract. For
example, Meridian may not be obligated to advance funds if the
customer's financial condition deteriorates or if the customer
fails to meet specific covenants. An undrawn loan commitment
represents both a potential credit risk once the funds are
advanced to the customer and liquidity risk since the customer
may demand immediate cash that would require a funding source.
Meridian's credit review and approval process for loan
commitments is the same as the process used for loans. In
addition, Meridian's Credit Policy Committee reviews customer
requests for loan commitments and monitors outstanding
commitments on an ongoing basis. Meridian's current liquidity
position continues to satisfy its needs for funds. In addition,
since a portion of these loan commitments normally expire unused,
the total amount of outstanding commitments at any point in time
will not require a funding source.
A standby letter of credit is an instrument issued by a bank
that represents an obligation to guarantee payments on certain
transactions of its customers. Meridian evaluates the
creditworthiness of each of its letter of credit customers, using
the same review and approval process that is used for loans. In
addition, Meridian has established guidelines limiting the amount
of total outstanding standby letters of credit to a specified
percentage of its shareholders' equity. Compliance with these
guidelines is monitored on a monthly basis.
The amount of collateral received on loan commitments and on
standby letters of credit is dependent upon the individual
transaction and the creditworthiness of the customer.
Meridian originates and sells residential mortgage loans as
part of various mortgage-backed security programs sponsored by
United States government agencies or government-sponsored
agencies, such as the Government National Mortgage Association,
Federal Home Loan Mortgage Corporation and the Federal National
Mortgage Association. These sales are often subject to certain
recourse provisions in the event of default by the borrower.
Meridian provides for potential losses against these mortgage-
backed securities by establishing reserves at the time of sale
and evaluates the adequacy of these reserves on an ongoing basis.
Forward rate agreements are used in transactions with
municipalities that generally have a debt payment due in the
future. Under these agreements, Meridian agrees to deliver
primarily securities, usually United States Treasury securities,
that will mature on or before the required payment date. The
type and associated interest rate of these securities is
established when the agreement is entered into.
The principal risk associated with forward rate agreements
is interest rate risk to the extent the required securities have
not been purchased. If interest rates fall, securities yielding
the higher agreed upon fixed rate will be more expensive for
Meridian to purchase.
Meridian has commitments to sell mortgage-backed securities
or loans with delivery at a future date but typically within 120
days. The risk associated with these instruments consists
primarily of loans not closing in sufficient volumes and at
appropriate yields to meet mandatory obligations. Meridian is
also subject to interest rate risk in a decreasing rate
environment. Hedges are used to decrease the impact of such
risk.
Tender option bonds are also instruments associated with
municipalities. A municipality generally issues a tax-free,
fixed rate, long-term security in order to finance the
origination of single family residential mortgages. The
municipality enters into a tender option bond program with
Meridian, which converts the fixed rate long-term instrument into
a variable rate short-term product. Under the terms of this
agreement, the municipality will pay a fixed rate to Meridian
over the life of the underlying bond. Meridian, in turn, pays a
short-term variable rate to the ultimate bondholder, who has the
option to sell the bonds back to Meridian. Meridian also
receives the right to remarket any purchased bonds at a short-
term, tax-exempt, variable rate.
The risk to Meridian in tender option bonds is one of
interest rate risk in a rising rate environment. If interest
rates increase, the rate paid on the short-term instrument will
also increase and the spread between the fixed rate that Meridian
receives and the short-term rate Meridian pays to bondholders
will decrease. If short-term rates exceed the fixed rate on the
long-term instrument, then the short-term instrument will be sold
at a discount and Meridian would incur a loss.
Meridian's position in forward rate agreements and tender
option bonds is sometimes hedged through the use of other
interest rate sensitive financial instruments such as options.
In addition, these two instruments have interest rate
sensitivities that move in opposite directions.
Interest rate swap agreements involve the exchange of fixed
and floating rate interest payments without the exchange of the
underlying contractual or notional amounts. Interest rate
options, caps, and floors involve the receipt of a fee by
Meridian in exchange for assumption of the risk of interest rate
movements beyond a predetermined level. Interest rate caps or
floors are written to enable customers to manage their interest
rate risks.
Interest rate swaps, the principal derivative product used
by Meridian, are used as part of the asset and liability
management program to alter the repricing characteristics of a
portion of the core deposit base. Risk in these transactions
involves the risk of counterparty nonperformance under the terms
of the contract. The notional or contract amount does not
represent the risks inherent in these agreements. The risk of
loss can be approximated by estimating the cost, on a present
value basis, of replacing an instrument at current market
interest rates. Credit risk is managed by performing credit
reviews and through ongoing credit monitoring procedures.
Reference should be made to Note 14 of the Notes to
Consolidated Financial Statements for a discussion of contingent
liabilities related to the discontinued title insurance
operations.
Concentrations of Credit Risk
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 December 31, 1993, Meridian's
commercial loans and commitments did not have any industry
concentration or other known concentration that exceeded 10% of
total loans and commitments. However, the effect of the recent
recession has had a negative impact on the financial performance
of many companies involved in retail trade. At December 31, 1993
Meridian's loans to companies in retail trade totalled $721.6
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 $358.9 million and
loans to automobile dealers of $362.7 million.
Legal
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>
13) FAIR VALUES OF FINANCIAL INSTRUMENTS
In December 1991, the Financial Accounting Standards Board
issued Statement of Financial Accounting Standards No. 107,
"Disclosures about Fair Value of Financial Instruments," (SFAS
No. 107). SFAS No. 107 requires disclosure of the fair value of
all financial instruments, whether or not recognized on the
balance sheet, for which it is practicable to estimate such
value. Fair value estimates and assumptions are presented below
for Meridian's financial instruments.
Fair value estimates are made at a point in time, based on
relevant market information and available information about the
financial instrument. Fair values are based on quoted market
prices for financial instruments where prices exist in the
market. In cases where quoted market prices are not available,
fair values are derived from estimates using present value or
other valuation techniques. Because a quoted market price does
not exist for a significant portion of Meridian's financial
instruments, fair value estimates are based on judgments
regarding future cash flow expectations, perceived credit risk,
interest rate risk, prepayment risk, economic conditions, and
other factors. The estimates are therefore subjective and may
not reflect the amount that could be realized upon immediate sale
of the instrument. Changes in the assumptions could also
significantly affect the estimates. Also, the estimates do not
reflect any additional premium or discount that could result from
the sale of Meridian's entire holdings of a particular financial
instrument.
Only existing on and off-balance sheet financial instruments
are subject to fair value estimates. A value is not assigned to
fee-based businesses such as Meridian's asset management and
trust operations, with customers' assets of approximately $27.0
billion, and the mortgage banking business, where Meridian
services approximately $7 billion in residential and commercial
loans. In addition, core deposits represent the intangible value
derived from retaining low-cost deposits for an expected future
period of time. The positive value of core deposits held by
Meridian is not reflected in these fair value estimates because
it is not a requirement of SFAS No. 107. The value of other non-
financial instruments, such as property, plant and equipment, and
deferred tax assets is also not considered. In addition, tax
implications related to the realization of unrealized gains and
losses can significantly affect fair value and have not been
considered in these estimates.
Because of these reasons, the aggregate fair values
disclosed in this footnote to the financial statements are not
meant to represent an estimate of the underlying value of
Meridian Bancorp, Inc. taken as a whole.
At December 31, 1993 and 1992, the carrying, contract, or
notional values and estimated fair values of financial
instruments of Meridian are as follows: <PAGE>
<TABLE>
<CAPTION>
1993 1992
On-Balance Sheet
(in millions)
Carrying Approximate Carrying Approximate
Value Fair Value Value Fair Value
________ ___________ ________ ___________
Financial Assets
<S> <C> <C> <C> <C>
Cash and Due from Banks $ 587.6 $ 587.6 $ 685.8 $ 685.8
Short-term Investments 153.2 153.2 281.6 281.6
(Including Trading Account Securities)
Investment Securities
United States Government Securities 630.3 635.0 549.3 561.8
Mortgage-Backed Securities 1,555.1 1,565.4 1,296.0 1,314.7
State and Municipal Securities 375.6 387.3 356.7 364.2
Other Securities 223.4 225.3 258.5 264.4
Investment Securities Available 275.7 288.1 945.2 973.4
for Sale
Mortgage Loans and Other Assets 655.8 658.0 497.1 497.8
Held for Sale
Loans
Commercial 5,353.6 5,362.2 5,135.6 5,121.7
Real Estate - Residential 998.4 1,014.7 1,084.3 1,121.6
Consumer 2,471.8 2,508.9 2,127.8 2,167.1
Allowance for Possible Loan
Losses (173.4) -- (165.5) --
_______ _______ _______ _______
Net Loans 8,650.4 8,885.8 8,182.2 8,410.4
Other Assets 134.0 134.0 132.1 132.1
Financial Liabilities
Deposits 11,346.1 11,438.4 11,774.7 11,882.7
Short-Term Borrowings 791.7 791.7 877.1 877.1
Long-Term Debt and Other 416.5 435.3 297.1 308.6
Borrowings
Other Liabilities 59.6 59.6 60.2 60.2
</TABLE>
<PAGE>
Off-Balance Sheet Financial Instruments
Meridian uses various off-balance sheet financial
instruments in conducting its business activities and in managing
its balance sheet risks. The value of these instruments is based
on their respective settlement values, or the amount that
Meridian would either pay or receive to assume Meridian's
position in these contracts.
<TABLE>
<CAPTION>
December 31
(in millions)
1993 1992
____ ____
Contract Contract
or Approximate or Approximate
Notional Net Payable Notional Net Payable
Amount (Receivable) Amount (Receivable)
________ ____________ ________ ____________
<S> <C> <C> <C> <C>
Commitments to Extend Credit $3,396.7 $ 2.1 $3,009.5 $ 2.5
Standby and Commercial Letters 539.4 4.7 469.0 4.3
of Credit
Mortgage Loans Sold and Loan
Servicing Acquired with Recourse 975.2 2.6 1,298.1 3.4
Forward Rate Agreements 53.5 2.5 115.5 3.4
Commitments to Sell Mortgage-
Backed Securities 552.5 .2 687.9 .2
Tender Option Bonds and Other
Commitments to Purchase Securities 500.0 (25.9) 593.3 (17.6)
Interest Rate Swap Agreements 2,167.0 (5.3) 1,902.0 (27.1)
Forward Interest Rate Swap
Agreements 150.0 .3 275.0 1.2
Other Interest Rate Contracts 253.6 -- 238.7 .6
</TABLE>
The following methods and assumptions were used by Meridian
in estimating the fair value of its financial instruments:
Cash and Due from Banks. The carrying amounts reported in
the balance sheet approximate fair value due to the short-term
nature of these assets.
Short-Term Investments. Short-term investments include
trading account securities which are marked-to-market for
financial reporting purposes and therefore already approximate
fair value. The carrying amounts of other short-term investments
on Meridian's balance sheet approximate fair value since the
maturity of these instruments is generally 90 days or less. For
short-term investments with maturities of greater than 90 days,
fair value estimates are based on market quotes for similar
instruments, adjusted for such differences between the quoted
instruments and the instruments being valued as maturity and
credit quality.
Investment Securities and Investment Securities Available
for Sale. The fair values of investment securities and
investment securities available for sale are based on quoted
market prices as of the balance sheet date, where available. In
cases where a market price is not available, external pricing
services that approximate fair value are used. For certain
instruments, fair value is estimated by obtaining quotes from
independent securities dealers.
Loans. Fair values are estimated for portfolios of loans
with similar financial characteristics. Loans are aggregated by
commercial, residential real estate, and consumer categories.
Each loan portfolio is further classified by variable rate or
fixed rate loans and by performing or nonperforming loans.
For performing variable-rate loans, fair values are based on
carrying amounts, as these loans reprice frequently as market
rates change. Additionally, most variable rate loans are
reviewed and extended on at least an annual basis. At the time
of that review, these loans are repriced to reflect the current
credit risk inherent in the loan. For performing fixed-rate
loans, the fair value methodology varies according to each loan
portfolio. Fair values for residential real estate and consumer
loans are estimated using quoted market prices, where available.
Where quoted market prices are not available, quotations are
obtained for similar instruments and adjusted for such
differences in loan characteristics as maturity and credit
quality. The fair value of performing fixed-rate commercial
loans is estimated by discounting the expected cash flows by a
discount rate that reflects the interest rate and credit risk
inherent in the loan. The estimated maturity of these loans
reflects both contractual maturity and management's assessment of
prepayments, economic conditions, and other factors that may
affect the maturity of the portfolio. The discount rate is based
on the rate that would be currently offered for loans with
similar terms to borrowers of similar credit quality.
Nonperforming loans are included in each of the loan
portfolios previously described. The fair value of nonperforming
loans is estimated by discounting the expected return of
principal over the period of time Meridian anticipates receiving
principal payments on the loan. The discount rate used is a rate
reflective of the higher risk surrounding these assets compared
to a performing loan.
Accrued Interest Receivable and Other Assets. The carrying
value of certain financial instruments included in these
categories, such as accrued interest receivable, approximates
fair value. For other financial instruments, such as assets
related to servicing certain loans, fair value is estimated by
discounting the scheduled cash flows through estimated maturity
by a discount rate that reflects the interest rate and credit
risk inherent in the instrument.
Deposits. The fair value of deposits with no stated
maturity, such as non-interest bearing deposits, NOW accounts,
savings, and money market deposit accounts, is the amount
payable on demand as of year end. The fair value of low-cost
core deposits is not considered in the value of deposits nor is
it recorded as an intangible asset in the balance sheet, as
previously discussed.
For time deposits, fair value is estimated by discounting
the contractual cash flows using a discount rate equal to the
rate currently offered for similar deposits of similar
maturities.
Short-Term Borrowings. The carrying values of federal funds
purchased, securities sold under agreements to repurchase, and
other short-term borrowings approximate fair values.
Long-Term Debt and Other Borrowings. The fair values of
long-term debt and other borrowings are estimated by discounting
the contractual cash flows for each instrument. The discount
rate applied is based on the current incremental borrowing rates
for similar arrangements with similar maturities.
Accrued Interest Payable and Other Liabilities. The
carrying value of certain financial instruments included in these
categories, such as accrued interest payable, approximates fair
value.
Off-Balance Sheet Financial Instruments. Fair values for
Meridian's off-balance sheet financial instruments are calculated
based on market prices (forward rate agreements and interest rate
swaps); market prices for comparable instruments, adjusted for
such differences between the two instruments as maturity or
credit quality (mortgage loans sold or loan servicing acquired
with recourse, commitments to purchase or sell securities, tender
option bonds and other interest rate contracts); and fees
currently charged to enter into similar agreements, taking into
account the remaining term of the agreement and the present
credit risk assessment of the counterparty (commitments to extend
credit and standby letters of credit).
<PAGE>
14) Discontinued Operations
The sale of Meridian's title insurance operations to
Fidelity National Financial, Inc. of Irvine, California was
completed on June 30, 1992.
Meridian retained an investment of $20 million in preferred
stock of American Title Insurance Company. This investment is
mandatorily redeemable by American Title in 2004 and is included
in other assets in the consolidated balance sheets. However, the
redemption price and carrying value of the preferred stock on the
books of Meridian is subject, under certain circumstances, to
reduction to the extent that claims accruals or payments on title
policies issued prior to year-end 1991 by American Title and
certain other general litigation accruals or payments, net of
recoveries, exceed reserves (approximately $46 million) on the
books of American Title at December 31, 1991. Meridian is also
obligated to pay an amount, up to $11 million, to the extent that
claims payments, net of recoveries, by both Meridian Title
Insurance Company and American Title on policies issued prior to
year-end 1991 exceed the preferred stock redemption price of $20
million plus reserves (approximately $53 million) on the books of
both Meridian Title and American Title at December 31, 1991.
<PAGE>
15) MERIDIAN BANCORP, INC.
(PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
Condensed Balance Sheets
December 31, 1993 1992
(Dollars in Thousands) ----------- -----------
<S> <C> <C>
Assets
Cash $2,469 $136
Investment in Subsidiaries
Banking............................... 1,152,620 1,031,765
Non-Banking........................... 111,143 91,429
Short-Term Investments.................. 48,043 32,610
Investment Securities................... 525 3,504
Premises and Equipment.................. 14,220 12,327
Intercompany Note Receivable............ 47,009 75,000
Other Assets............................ 38,633 17,172
---------- ----------
Total Assets........................ $1,414,662 $1,263,943
========== ==========
Liabilities and Shareholders' Equity
Long-Term Debt and Other Borrowings..... $174,394 $174,320
Dividends Payable....................... -- 2,094
Accrued Interest Payable................ 3,970 5,777
Other Liabilities....................... 50,665 22,433
Shareholders' Equity.................... 1,185,633 1,059,319
---------- ----------
Total Liabilities and
Shareholders' Equity............... $1,414,662 $1,263,943
========== ==========
<CAPTION>
Condensed Statements of Income
Year ended December 31, 1993 1992 1991
(Dollars in Thousands) ---------- --------- ---------
<S> <C> <C> <C>
Income
Interest Income from
Subsidiaries.......................... $4,570 $2,425 $505
Management Fees From
Subsidiaries.......................... 57,383 46,014 40,932
Interest and Fees on Loans.............. 4,160 873 987
Investment Securities Income............ 955 516 596
Net Securities Gains.................... 607 1,132 177
Intercompany Service Fees............... 578 5,940 25,553
Other Income............................ 1,414 307 181
-------- -------- --------
Total Income.......................... 69,667 57,207 68,931
Expenses
Interest on Long-Term Debt
and Other Borrowings.................. 12,489 8,609 6,554
Salaries and Benefits................... 35,627 27,992 33,480
Net Occupancy Expense................... 5,528 5,539 8,148
Equipment Expense....................... 3,446 3,605 10,843
Other Expenses.......................... 30,808 21,864 26,537
-------- -------- --------
Total Expenses........................ 87,898 67,609 85,562
-------- -------- --------
Loss Before Taxes....................... (18,231) (10,402) (16,631)
Credit For Income Taxes................. (6,288) (2,848) (2,238)
-------- -------- --------
Loss Before Earnings
of Subsidiaries....................... (11,943) (7,554) (14,393)
Dividend Income from Subsidiaries
Banking Subsidiaries.................. 68,101 52,853 59,230
Non-Banking Subsidiaries.............. 850 250 4,850
Undistributed Earnings(Losses) of
Subsidiaries
Continuing Operations.............. 100,753 91,156 74,499
Discontinued Operations............ - - (6,500)
-------- -------- --------
Net Income............................ $157,761 $136,705 $117,686
======== ======== ========
<CAPTION>
Condensed Statements of Cash Flows
Year ended December 31, 1993 1992 1991
(Dollars in Thousands) --------- --------- ---------
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net Income.............................. $157,761 $136,705 $117,686
Adjustments to Reconcile to Net Cash
Provided by Operating Activities
Earnings of Subsidiaries.............. (169,704) (141,957) (135,140)
Cash Dividends Received from
Subsidiaries....................... 68,951 53,103 64,080
Depreciation and Amortization....... 5,309 4,214 8,571
Other,Net........................... (2,072) (1,165) 331
(Increase) Decrease in Other Operating
Assets........................... (24,738) (3,960) 8,797
Increase in Other Operating
Liabilities...................... 29,536 15,984 4,886
-------- -------- --------
Net Cash Provided by
Operating Activities........ 65,043 62,924 69,211
======== ======== ========
Cash Flows from Investing Activities
Sales of Investment Securities......... 64,508 10,072 6,134
Purchases of Investment Securities..... (1,529) (87,081) (7,388)
Capital Contributions and Advances
to Subsidiaries....................... (53,036) (4,067) (64,787)
Purchases of Premises and Equipment.... (3,803) (4,695) (3,716)
Proceeds from Sales of
Premises and Equipment................ 19 - 132
-------- -------- --------
Net Cash Provided by (Used for)
Investing Activities........ 6,159 (85,771) (69,625)
-------- -------- --------
Cash Flows from Financing Activities
Cash Dividends Paid to Common
Shareholders......................... (69,635) (61,256) (55,639)
Proceeds from Issuance of Common
Stock................................ 16,242 10,779 64,815
Decrease in Short
Term Borrowings...................... - - (560)
Repayment of Long Term Debt
and Other Borrowings................. (43) (305) (5,315)
Proceeds from Issuance of
Long Term Debt....................... - 98,675 -
-------- -------- --------
Net Cash Provided by (Used for)
Financing Activities........ (53,436) 47,893 3,301
-------- -------- --------
Cash and Cash Equivalents
Net Increase During the Year........... 17,766 25,046 2,887
Balance at Beginning of Year........... 32,746 7,700 4,813
-------- -------- --------
Balance at End of Year................. $50,512 $32,746 $7,700
======== ======== ========
<FN>
Interest payments totaled $10,682, $6,456 and $6,439 in 1993,
1992 and 1991, respectively. Noncash investing activity
consisted of a contribution of $18,812 of premises and equipment
to a banking subsidiary in 1991. Noncash financing activity
consisted of the issuance of $11,728 of stock as a result of a
merger, the transfer of capitalized lease obligations of $10,318
to a banking subsidiary in 1991, and the capitalization of leases
of $2,850 in 1991.
</TABLE>
<PAGE>
16) Industry Segment Reporting
Meridian operates principally in two business segments -
banking and securities. Reference should be made to the
discussion and tables appearing under "Banking" and "Securities"
in the section "Primary Business Activities" in Management's
Discussion and Analysis of Earnings and Financial Position for
financial information on each of these business segments.
<PAGE>
Opinion of Independent Auditors
The Board of Directors
Meridian Bancorp, Inc.
We have audited the accompanying consolidated balance sheets
of Meridian Bancorp, Inc. and its subsidiaries as of December 31,
1993 and 1992, and the related consolidated statements of income,
changes in shareholders' equity, and cash flows for each of the
years in the three-year period ended December 31, 1993. These
consolidated financial statements are the responsibility of
management. Our responsibility is to express an opinion on these
consolidated financial statements based on our audits.
We conducted our audits in accordance with generally
accepted auditing standards. Those standards require that we
plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements
referred to above present fairly, in all material respects, the
financial position of Meridian Bancorp, Inc. and its subsidiaries
as of December 31, 1993 and 1992, and the results of their
operations and their cash flows for each of the years in the
three-year period ended December 31, 1993, in conformity with
generally accepted accounting principles.
As discussed in Notes 8 and 11, respectively, to the
consolidated financial statements, the Company adopted the
provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 106, Employers'
Accounting for Postretirement Benefits Other Than Pensions, and
Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes, in 1993.
KPMG PEAT MARWICK
January 19, 1994
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference is the following information
included in the Proxy Statement relating to the Registrant's
Annual Meeting of Shareholders to be held on April 26, 1994 (the
"Proxy Statement"), filed by the Registrant with the Securities
and Exchange Commission: with respect to the directors of the
Registrant, the section captioned "Election of Directors (Matter
No. 1); General." Information regarding executive offices of the
Registrant is presented in Part I, Item 4A of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference is the information included in the
Proxy Statement under the headings "Election of Directors (Matter
No. 1); Compensation Paid to Executive Officers." "Election of
Directors (Matter No. 1); Executive Employment Agreements" and
"Election of Directors (Matter No. 1); Compensation Committee
Interlocks and Insider Participation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND
MANAGEMENT
Incorporated by reference is the following information
included in the Proxy Statement: (1) with respect to shares
owned by certain beneficial owners, the section captioned
"General; Principal Shareholders" and (2) with respect to shares
owned by directors and executive officers, the section captioned
"Election of Directors (Matter No. 1); Security Ownership of
Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference is the information included in the
Proxy Statement under the heading "Election of Directors (Matter
No. 1); Certain Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON
FORM 8-K
The following documents are filed as part of this report:
A.1. Financial Statements (included under Item 8)
(a) Meridian Bancorp, Inc. and Subsidiaries
- Management's Statement of Responsibility for
Financial Information
- Consolidated Balance Sheets
- Consolidated Statements of Income
- Consolidated Statements of Changes in
Shareholders' Equity
- Consolidated Statements of Cash Flows
- Notes to Consolidated Financial Statements
- Opinion of Independent Auditors
2. All financial schedules are omitted because they are
not applicable, the data are not significant or the required
information is shown in the Annual Report. (The information that
would be shown in Meridian Bancorp, Inc.'s (Parent Company Only)
Statements of Changes in Shareholders' Equity is identical to the
information supplied in the Consolidated Statements of Changes in
Shareholders' Equity which appears herein.)
3. Exhibits (numbered as in Item 601 of Regulation S-K)
(3.1) Articles of Incorporation of Meridian
Bancorp, Inc., as amended, incorporated
herein by reference to Exhibit 3.1 of the
Annual Report on Form 10-K of the Registrant
for the year ended December 31, 1988.
(3.2) By-laws of Meridian Bancorp, Inc., as
amended, incorporated herein by reference to
Exhibit 3.2 of the Annual Report on Form 10-K
of the Registrant for the year ended
December 31, 1991.
(4) Agreement to furnish instruments defining the
rights of holders of long-term debt of
Meridian Bancorp, Inc. and its consolidated
subsidiaries, incorporated herein by
reference to Exhibit 4 of the Annual Report
on Form 10-K of the Registrant for the year
ended December 31, 1991.
(9) Voting Trust Agreement (none).
(10.1) Meridian Bancorp, Inc. Executive Annual
Incentive Plan, as amended, incorporated
herein by reference to Exhibit 10.1 of the
Annual Report on Form 10-K of the Registrant
for the year ended December 31, 1991.*
(10.2) Meridian Bancorp, Inc. Retirement Restoration
Plan, as amended, incorporated herein by
reference to Exhibit 10.2 of the Annual
Report on Form 10-K of the Registrant for the
year ended December 31, 1991.*
(10.3) Meridian Bancorp, Inc. Stock Option Plan, as
amended, incorporated herein by reference to
Exhibit 10.3 of the Annual Report on Form
10-K of the Registrant for the year ended
December 31, 1991.*
(10.4) Meridian Bancorp, Inc. Stock Appreciation
Rights Plan, incorporated herein by reference
to Exhibit 10.4 of the Annual Report on Form
10-K of the Registrant for the year ended
December 31, 1992.*
(10.5) Meridian Bancorp, Inc. Directors' Deferred
Compensation Plan dated July 1, 1983,
incorporated herein by reference to Exhibit
10.8 of the Annual Report on Form 10-K of the
Registrant for the year ended December 31,
1990.*
(10.6) Form of Deferred Compensation Agreements
entered into on January 12, 1987 between
Meridian Bancorp, Inc. and Samuel A.
McCullough, incorporated herein by reference
to Exhibit 10.6 of the Annual Report on Form
10-K of the Registrant for the year ended
December 31, 1991.*
(10.7) Form of Directors' Deferred Compensation
Agreement, incorporated herein by reference
to Exhibit 10.7 of the Annual Report on Form
10-K of the Registrant for the year ended
December 31, 1991.*
(10.8) Termination Agreement between Meridian
Bancorp, Inc. and Samuel A. McCullough dated
as of July 1, 1986, incorporated herein by
reference to Exhibit 10.8 of the Annual
Report on Form 10-K of the Registrant for the
year ended December 31, 1991.*
(10.9) Termination Agreement between Meridian
Bancorp, Inc. and Ezekiel S. Ketchum dated as
of July 1, 1986, incorporated herein by
reference to Exhibit 10.9 of the Annual
Report on Form 10-K of the Registrant for the
year ended December 31, 1991.*
(10.10) Termination Agreement between Meridian
Bancorp, Inc. and Russell J. Kunkel dated as
of July 1, 1986, incorporated herein by
reference to Exhibit 10.11 of the Annual
Report on Form 10-K of the Registrant for the
year ended December 31, 1991.*
(10.11) Termination Agreement between Meridian
Bancorp, Inc. and David E. Sparks dated as of
January 23, 1990, incorporated herein by
reference to Exhibit 10.22 of the Annual
Report on Form 10-K of the Registrant for the
year ended December 31, 1990.*
(10.12) Meridian Bancorp, Inc. Supplemental Salary
Reduction Plan, as amended, incorporated
herein by reference to Exhibit 10.14 of the
Annual Report on Form 10-K of the Registrant
for the year ended December 31, 1991.*
(10.13) Meridian Bancorp, Inc. Supplemental Executive
Retirement Plan, incorporated herein by
reference to Exhibit 10.15 of the Annual
Report on Form 10-K of the Registrant for the
year ended December 31, 1991.*
(10.14) Meridian Bancorp, Inc. Executive Intermediate
Performance Plan adopted January 1, 1990,
incorporated herein by reference to Exhibit
10.23 of the Annual Report on Form 10-K of
the Registrant for the year ended
December 31, 1990.*
(10.15) Rights Agreement dated as of July 25, 1989
between Meridian Bancorp, Inc. and Meridian
Trust Company, incorporated by reference to
Exhibit 4 of the Current Report on Form 8-K
of the Registrant dated August 11, 1989.
(10.16) Lease of The First National Bank of Allentown
building dated August 6, 1984, as amended by
First Amendment to Lease dated September 25,
1984, incorporated herein by reference to
Exhibit 10.9 of the Annual Report on Form
10-K of the Registrant for the year ended
December 31, 1990.
(10.17) Purchase and Assumption Agreement dated
October 13, 1989 between Resolution Trust
Corporation, Receiver of Hill Financial
Savings Association and Meridian Financial
Savings Association, F.A., incorporated by
reference to Exhibit 1 of the Current Report
on Form 8-K of the Registrant dated
October 27, 1989.
(10.18) Preferred Stock Purchase Agreement, dated
August 23, 1991, among Meridian Bank,
American Title Insurance Company and First
Title Insurance Company, incorporated herein
by reference to Exhibit 2.2 of the Current
Report on Form 8-K of the Registrant dated
August 23, 1991.
(10.19) Agreement, dated as of March 30, 1993,
between Commonwealth Bancshares Corporation
and the Registrant, incorporated by reference
to Exhibit 2.1 to Registration Statement No.
33-65780 on Form S-4 of the Registrant.
(11) Statement regarding Computation of Per Share
Earnings (included herein).
(12) Statement regarding Computation of Ratios
(not applicable).
(18) Letter regarding Change in Accounting
Principles (not applicable).
(19) Previously Unfiled Documents (none).
(21) List of Subsidiaries of the Registrant
(included herein).
(22) Published Report Regarding Matters Submitted
to a Vote of Security Holders (none).
(23) Consent of KPMG Peat Marwick (included
herein).
(24) Power of Attorney (none).
(28) Information from reports furnished to state
insurance regulatory authorities (not
applicable).
(99) Additional Exhibits (none).
________________________
*Denotes compensatory plan or arrangement.
B.1 Reports on Form 8-K.
On November 14, 1993, the Registrant filed an amendment to a
Current Report on Form 8-K dated August 31, 1993 for the purpose
of filing under Item 7 of the Current Report the following
financial statements relating to the Registrant's acquisition of
Commonwealth Bancshares Corporation:
1. Consolidated Statements of Condition as of
December 31, 1992 and 1991, and the Consolidated
Statements of Income, Consolidated Statements of
Changes in Shareholders' Equity and Consolidated
Statements of Cash Flows for the years ended
December 31, 1992, 1991 and 1990 of Commonwealth
Bancshares Corporation, and the related Notes to
Consolidated Financial Statements.
2. Unaudited Consolidated Statement of Condition as
of June 30, 1993, the Unaudited Consolidated
Statements of Income for the three-month and six-
month periods ended June 30, 1993 and 1992, and
the Unaudited Consolidated Statements of Cash
Flows for the six-month periods ended June 30,
1993 and 1992 of Commonwealth Bancshares
Corporation, and the related Notes to Unaudited
Consolidated Financial Statements.
3. Pro forma financial statements of the Registrant
and Commonwealth Bancshares Corporation.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the
Securities Exchange Act of 1934, the Registrant has duly caused
this report to be signed on its behalf by the undersigned,
thereunto duly authorized.
MERIDIAN BANCORP, INC.
(Registrant)
/s/ Samuel A. McCullough
Samuel A. McCullough, Chairman and
Chief Executive Officer
Date: March 22, 1994
Pursuant to the requirements of the Securities Exchange Act
of 1934, this report has been signed by the following persons on
behalf of the Registrant and in the capacities and on the dates
indicated.
Signature Title Date
/s/ Samuel A. McCullough Chairman, Chief March 22, 1994
Samuel A. McCullough Executive Officer
and Director
(Principal Executive
Officer)
/s/ David E. Sparks Vice Chairman, March 22, 1994
David E. Sparks Chief Financial
Officer and Director
(Principal
Financial Officer)
/s/ Michael J. Mizak, Jr. Senior Vice March 22, 1994
Michael J. Mizak, Jr. President and
Controller
(Principal
Accounting Officer)
/s/ Delight E. Breidegam, Jr. Director March 22, 1994
DeLight E. Breidegam, Jr.
/s/ Thomas F. Burke, Jr. Director March 22, 1994
Thomas F. Burke, Jr.
/s/ Robert W. Cardy Director March 22, 1994
Robert W. Cardy
/s/ Harry Corless Director March 22, 1994
Harry Corless
/s/ William D. Davis Director March 22, 1994
William D. Davis
_____________________________ Director March 22, 1994
Julius W. Erving
/s/ Fred D. Hafer Director March 22, 1994
Fred D. Hafer
/s/ Joseph H. Jones Director March 22, 1994
Joseph H. Jones
_________________________ Director March 22, 1994
Lawrence C. Karlson
/s/ Ezekiel S. Ketchum Director March 22, 1994
Ezekiel S. Ketchum
/s/ Sidney D. Kline, Jr. Director March 22, 1994
Sidney D. Kline, Jr.
/s/ George W. Leighow Director March 22, 1994
George W. Leighow
/s/ Joseph F. Paquette, Jr. Director March 22, 1994
Joseph F. Paquette, Jr.
/s/ Daniel H. Polett Director March 22, 1994
Daniel H. Polett
_____________________________ Director March 22, 1994
Lawrence R. Pugh
/s/ Paul R. Roedel Director March 22, 1994
Paul R. Roedel
/s/ Wilmer R. Schultz Director March 22, 1994
Wilmer R. Schultz
/s/ Robert lB. Seidel Director March 22, 1994
Robert B. Seidel
/s/ Judith M. von Seldeneck Director March 22, 1994
Judith M. von Seldeneck
_____________________________ Director March 22, 1994
George Strawbridge, Jr.
/s/ Anita A. Summers Director March 22, 1994
Anita A. Summers
/s/ Earle A. Wootton Director March 22, 1994
Earle A. Wootton
<PAGE>
EXHIBIT INDEX
<TABLE>
<CAPTION>
Page Number
Sequentially
Numbered
Number Description Original
- ------ ----------- ------------
<C> <C> <C>
(3.1) Articles of Incorporation of Meridian
Bancorp, Inc., as amended, incorporated
herein by reference to Exhibit 3.1 of
the Annual Report on Form 10-K of the
Registrant for the year ended
December 31, 1988.
(3.2) By-laws of Meridian Bancorp, Inc., as
amended, incorporated herein by
reference to Exhibit 3.2 of the Annual
Report on Form 10-K of the Registrant
for the year ended December 31, 1991.
(4) Agreement to furnish instruments
defining the rights of holders of long-
term debt of Meridian Bancorp, Inc. and
its consolidated subsidiaries,
incorporated herein by reference to
Exhibit 4 of the Annual Report on
Form 10-K of the Registrant for the
year ended December 31, 1991.
(9) Voting Trust Agreement (none).
(10.1) Meridian Bancorp, Inc. Executive Annual
Incentive Plan, as amended, incorporated
herein by reference to Exhibit 10.1 of
the Annual Report on Form 10-K of the
Registrant for the year ended
December 31, 1991.*
(10.2) Meridian Bancorp, Inc. Retirement
Restoration Plan, as amended,
incorporated herein by reference to
Exhibit 10.2 of the Annual Report on
Form 10-K of the Registrant for the
year ended December 31, 1991.*
(10.3) Meridian Bancorp, Inc. Stock Option
Plan, as amended, incorporated herein
by reference to Exhibit 10.3 of the
Annual Report on Form 10-K of the
Registrant for the year ended
December 31, 1991.*
(10.4) Meridian Bancorp, Inc. Stock Appreciation
Rights Plan, incorporated herein by
reference to Exhibit 10.4 of the Annual
Report on Form 10-K of the Registrant
for the year ended December 31, 1992.*
(10.5) Meridian Bancorp, Inc. Directors'
Deferred Compensation Plan dated July 1,
1983, incorporated herein by reference
to Exhibit 10.8 of the Annual Report on
Form 10-K of the Registrant for the year
ended December 31, 1990.*
(10.6) Form of Deferred Compensation Agreements
entered into on January 12, 1987 between
Meridian Bancorp, Inc. and Samuel A.
McCullough, incorporated herein by
reference to Exhibit 10.6 of the Annual
Report on Form 10-K of the Registrant
for the year ended December 31, 1991.*
(10.7) Form of Directors' Deferred Compensation
Agreement, incorporated herein by
reference to Exhibit 10.7 of the Annual
Report on Form 10-K of the Registrant
for the year ended December 31, 1991.*
(10.8) Termination Agreement between Meridian
Bancorp, Inc. and Samuel A. McCullough
dated as of July 1, 1986, incorporated
herein by reference to Exhibit 10.8 of
the Annual Report on Form 10-K of the
Registrant for the year ended
December 31, 1991.*
(10.9) Termination Agreement between Meridian
Bancorp, Inc. and Ezekiel S. Ketchum
dated as of July 1, 1986, incorporated
herein by reference to Exhibit 10.9 of
the Annual Report on Form 10-K of the
Registrant for the year ended
December 31, 1991.*
(10.10) Termination Agreement between Meridian
Bancorp, Inc. and Russell J. Kunkel
dated as of July 1, 1986, incorporated
herein by reference to Exhibit 10.11 of
the Annual Report on Form 10-K of the
Registrant for the year ended
December 31, 1991.*
(10.11) Termination Agreement between Meridian
Bancorp, Inc. and David E. Sparks dated
as of January 23, 1990, incorporated
herein by reference to Exhibit 10.22 of
the Annual Report on Form 10-K of the
Registrant for the year ended
December 31, 1990.*
(10.12) Meridian Bancorp, Inc. Supplemental
Salary Reduction Plan, as amended,
incorporated herein by reference to
Exhibit 10.14 of the Annual Report on
Form 10-K of the Registrant for the year
ended December 31, 1991.*
(10.13) Meridian Bancorp, Inc. Supplemental
Executive Retirement Plan, incorporated
herein by reference to Exhibit 10.15 of
the Annual Report on Form 10-K of the
Registrant for the year ended
December 31, 1991.*
(10.14) Meridian Bancorp, Inc. Executive
Intermediate Performance Plan adopted
January 1, 1990, incorporated herein by
reference to Exhibit 10.23 of the Annual
Report on Form 10-K of the Registrant
for the year ended December 31, 1990.*
(10.15) Rights Agreement dated as of July 25,
1989 between Meridian Bancorp, Inc. and
Meridian Trust Company, incorporated by
reference to Exhibit 4 of the Current
Report on Form 8-K of the Registrant
dated August 11, 1989.
(10.16) Lease of The First National Bank of
Allentown building dated August 6, 1984,
as amended by First Amendment to Lease
dated September 25, 1984, incorporated
herein by reference to Exhibit 10.9 of
the Annual Report on Form 10-K of the
Registrant for the year ended
December 31, 1990.
(10.17) Purchase and Assumption Agreement
dated October 13, 1989 between
Resolution Trust Corporation, Receiver
of Hill Financial Savings Association
and Meridian Financial Savings
Association, F.A., incorporated by
reference to Exhibit 1 of the Current
Report on Form 8-K of the Registrant
dated October 27, 1989.
(10.18) Preferred Stock Purchase Agreement,
dated August 23, 1991, among Meridian
Bank, American Title Insurance Company
and First Title Insurance Company,
incorporated herein by reference to
Exhibit 2.2 of the Current Report on
Form 8-K of the Registrant dated
August 23, 1991.
(10.19) Agreement, dated as of March 30, 1993,
between Commonwealth Bancshares
Corporation and the Registrant,
incorporated by reference to
Exhibit 2.1 to Registration Statement
No. 33-65780 on Form S-4 of the
Registrant.
(11) Statement regarding Computation of Per
Share Earnings (included herein).
(12) Statement regarding Computation of
Ratios (not applicable).
(18) Letter regarding Change in Accounting
Principles (not applicable).
(19) Previously Unfiled Documents (none).
(21) List of Subsidiaries of the Registrant
(included herein).
(22) Published Report Regarding Matters
Submitted to a Vote of Security Holders
(none).
(23) Consent of KPMG Peat Marwick (included
herein).
(24) Power of Attorney (none).
(28) Information from reports furnished to
state insurance regulatory authorities
(not applicable).
(99) Additional Exhibits (none).
/TABLE
<PAGE>
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Long Document Name: FORM 10-K/MERIDIAN BANCORP, INC.
System Document Name: C:\DMS\RDG\WJR\0003006.WP
Document Location: Reading
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BANCORP, INC.
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EXHIBIT 11
<TABLE>
<CAPTION>
COMPUTATION OF EARNINGS PER SHARE
Year Ended December 31,
1993 1992 1991 1990 1989 1988
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 157,761$ 136,705$ 117,686$ 36,684$ 105,851$ 97,721
Average Common
Shares Outstanding 57,194,411 55,201,126 52,052,879 51,014,585 48,975,367 47,563,949
Stock options
considered to be
common stock
equivalents, net
of shares assumed
to be repurchased
under the treasury
stock method, and
convertible pre-
ferred stock 479,647 609,684 740,146 340,929 1,835,067 3,285,578
Total stock and stock
equivalents 57,674,058 55,810,810 52,793,025 51,355,514 50,810,434 50,849,527
Net income per common
share $2.74 $2.44 $2.23 $0.71 $2.08 $1.92
</TABLE>
EXHIBIT 21
LIST OF SUBSIDIARIES
Name State of Incorporation
____ ______________________
Meridian Acceptance Corporation New Jersey
Meridian Asset Acceptance Corporation Delaware
Meridian Asset Management, Inc. Pennsylvania
Meridian Trust Company Pennsylvania
Meridian Investment Company Pennsylvania
Meridian Trust Company of California California
Meridian Asset Servicing Corp. New Jersey
Meridian Securities, Inc. Pennsylvania
Meridian Capital Corp. Pennsylvania
Meridian Delaware Investments, Inc. Delaware
Meridian Funding Corp. Pennsylvania
Meridian Life Insurance Company Arizona
Delaware Trust Company Delaware
Delaware Trust Capital Management, Inc. Delaware
Meridian Bank Pennsylvania
Meridian Auto Leasing, Inc. Pennsylvania
Meridian Community Partnership
Development Corporation Pennsylvania
Limited Holdings Corporation Pennsylvania
Meridian Leasing, Inc. Pennsylvania
Meridian Mortgage Corporation Pennsylvania
Meridian Properties, Inc. Pennsylvania
Meridian Bank, New Jersey New Jersey
EXHIBIT 23
The Board of Directors
Meridian Bancorp, Inc.
We consent to the incorporation by reference in the Registration
Statement on Form S-3 (Registration No. 33-45562), Form S-3
(Registration No. 33-35228), Form S-3 (Registration No. 2-94325),
Form S-3 (Registration No. 33-58690), Form S-8 (Registration No.
33-40616), Form S-8 (Registration No. 33-12292) and Form S-4
(Registration No. 33-52703) of Meridian Bancorp, Inc. of our
report dated January 19, 1994 relating to the consolidated
balance sheets of Meridian Bancorp, Inc. and subsidiaries as of
December 31, 1993 and 1992, and the related consolidated
statements of income, changes in shareholders' equity, and cash
flows for each of the years in the three-year period ended
December 31, 1993, which report appears in the December 31, 1993
annual report on Form 10-K of Meridian Bancorp, Inc.
KPMG Peat Marwick
March 22, 1994
