SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period
ended June 30, 1994 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period
from __________ to __________.
No. 0-12364
(Commission File Number)
MERIDIAN BANCORP, INC.
(Exact Name of Registrant as Specified in its Charter)
PENNSYLVANIA 23-2237529
(State of Incorporation) (IRS Employer ID Number)
35 NORTH SIXTH STREET, READING, PA 19601
(Address of Principal Executive Offices) (Zip Code)
(610) 655-2000
(Registrant's Telephone Number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Number of Shares Outstanding as of June 30, 1994
COMMON STOCK ($5 Par Value) 57,802,722
(Title of Class) (Outstanding Shares)
<PAGE>
MERIDIAN BANCORP, INC.
FORM 10-Q
For the Quarter Ended June 30, 1994
Contents
PART I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Consolidated Balance Sheets as of
June 30, 1994 and
June 30 and December 31,
1993 32
Consolidated Statements of Income for
the Three-Month and Six-Month
Periods Ended June 30, 1994
and 1993 33
Consolidated Statements of Cash Flows
for the Six-Month Periods Ended
June 30, 1994 and 1993 35
Consolidated Statements of Changes in
Shareholders' Equity for the
Six-Month Periods Ended June 30,
1994 and 1993 37
Notes to Consolidated Financial Statements 38
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Management's Discussion and Analysis of
Earnings and Financial Position 3
PART II - OTHER INFORMATION
Item 4. Submission of Matters to Vote of Security
Holders 40
Item 5. Other events 42
Item 6. Exhibits and Reports on Form 8-K 42
<PAGE>
PART I
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF EARNINGS AND
FINANCIAL POSITION.
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
Second First Fourth Third Second
Quarter Quarter Quarter Quarter Quarter
1994 1994 1993 1993 1993
------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest Income........................................ $241,942 $221,761 $238,090 $241,574 $242,968
Interest Expense....................................... 85,882 75,055 82,553 84,891 88,329
Net Interest Income.................................... 156,060 146,706 155,537 156,683 154,639
Provision for Possible Loan Losses..................... 6,684 8,500 12,480 14,631 14,656
Net Interest Income After Provision for
Possible Loan Losses................................ 149,376 138,206 143,057 142,052 139,983
Other Income........................................... 58,017 60,573 76,127 85,302 72,622
Other Expenses......................................... 147,927 139,606 162,033 178,875 151,648
Income Before Income Taxes and Cumulative Effect
of Change in Accounting Principle................... 59,466 59,173 57,151 48,479 60,957
Provision For Income Taxes............................ 18,682 18,634 15,084 13,850 17,417
Income Before Cumulative Effect of Change in
Accounting Principle................................ 40,784 40,539 42,067 34,629 43,540
Cumulative Effect of Change in Accounting
Principle, Net of Taxes............................. - (2,730) - - -
Net Income ............................................ $40,784 $37,809 $42,067 $34,629 $43,540
Net Interest Margin (Taxable Equivalent Basis)......... 4.85% 4.82% 5.00% 4.97% 4.91%
Return on Average Assets............................... 1.13% 1.10% 1.18% 0.96% 1.22%
Return on Average Common Shareholders' Equity.......... 13.67% 12.91% 14.34% 12.10% 15.85%
Fully Diluted Earnings Per Share
Income Before Cumulative Effect of Change in
Accounting Principle............................. $0.70 $0.70 $0.73 $ .60 $ .75
Cumulative Effect of Change in Accounting
Principle, Net of Taxes............................. - (0.05) - - -
Net Income ......................................... 0.70 0.65 0.73 $ .60 $ .75
Dividends Declared Per Common Share.................... 0.34 0.32 0.32 0.32 0.32
Ratio of Dividends Declared to Net Income.............. 48% 49% 45% 46% 39%
FINANCIAL CONDITION
Average Balances for the Quarter
Securities............................................. $3,181,511 $3,020,052 $3,090,173 $3,463,329 $3,665,479
Loans.................................................. 9,346,014 9,023,567 8,884,350 8,719,725 8,595,203
Assets................................................. 14,451,518 13,905,794 14,110,090 14,371,449 14,320,524
Deposits............................................... 11,165,770 11,092,555 11,164,488 11,278,327 11,411,739
Total Shareholders' Equity............................. 1,196,889 1,188,080 1,163,831 1,135,081 1,101,967
Primary Shares Outstanding............................. 58,170,280 58,187,526 58,002,495 57,917,097 57,709,123
Fully Diluted Shares Outstanding....................... 58,170,280 58,195,971 58,002,495 57,942,128 57,834,852
Total Shareholders' Equity to Assets................... 8.28% 8.54% 8.25% 7.90% 7.70%
At Quarter-End
Securities............................................. $3,349,682 $3,079,020 $3,060,147 $3,245,765 $3,597,865
Loans.................................................. 9,509,716 9,157,827 8,988,044 8,832,862 8,626,402
Assets................................................. 15,196,087 14,009,848 14,084,787 14,334,773 14,403,339
Deposits............................................... 11,678,602 11,127,352 11,346,151 11,171,363 11,433,459
Total Shareholders' Equity............................. 1,214,594 1,193,390 1,185,633 1,146,875 1,124,935
Book Value Per Common Share............................ 21.01 20.70 20.39 20.00 19.62
Common Shares Outstanding.............................. 57,802,722 57,640,315 58,154,486 57,343,118 57,324,897
Total Shareholders' Equity to Assets................... 7.99% 8.52% 8.42% 8.00% 7.81%
Risk-Based Capital Ratio............................... 13.30% 13.81% 13.67% 13.16% 13.05%
Allowance for Possible Loan Losses..................... 170,335 171,030 173,388 169,568 167,961
Allowance for Possible Loan Losses to Loans............ 1.79% 1.87% 1.93% 1.92% 1.95%
Allowance for Possible Loan Losses to
Non-Performing Loans................................ 165% 143% 136% 130% 125%
Non-Performing Assets as a Percentage of
Total Period-End Loans and
Assets Acquired in Foreclosure...................... 1.48% 1.86% 1.98% 2.18% 2.26%
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..................................... 1.85% 2.16% 2.25% 2.48% 2.71%
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF EARNINGS AND FINANCIAL POSITION
FINANCIAL HIGHLIGHTS
Meridian Bancorp, Inc. (Meridian) reported net income of
$40.8 million in the second quarter of 1994 compared to $43.5
million in the second quarter of 1993. On a fully-diluted per
share basis, net income was $.70 in the second quarter of 1994
compared to $.75 in the second quarter of last year. Earnings in
the second quarter of 1993 benefitted from an after-tax gain of
$6.1 million, or $.11 per share, from the sale of common stock
that was part of the consideration received from the sale of
Meridian's title insurance operations in 1992.
The returns on average assets and on average common
shareholders' equity for the quarter ended June 30, 1994 were
1.13% and 13.67%, respectively, compared to 1.22% and 15.85%,
respectively, for the same quarter of last year.
Consolidated financial results for the second quarter of
1994 were adversely impacted by $7.6 million after-tax, or $.13
per share, from Meridian's mortgage banking activities compared
to $3.4 million after-tax in the second quarter of 1993. This
negative impact on earnings occurred because of an approximate
65%, or $10.0 million pre-tax, reduction in fees and net interest
income in the quarter compared to last year's quarter, while at
the same time expenses declined approximately 20%, or $4.1
million pre-tax, versus last year's quarter. Operating and
restructuring expenses did not decline quickly enough to offset
lower loan origination and servicing volumes primarily because of
the following factors:
- The decision to reduce the size of Meridian's mortgage
origination and servicing business beyond that which
was announced in the third quarter of 1993 and the
resultant impact on restructuring and related expenses.
- The negative impact on revenues of adverse market
conditions while the mortgage activities are being
restructured.
With respect to the reduction in size of Meridian's mortgage
activities, the mortgage company exited the multi-family and
wholesale origination business during the quarter to focus on the
retail business. As part of the restructuring, retail operations
and administrative functions have undergone consolidation.
Meridian also has sold or closed mortgage offices outside of its
banking markets to concentrate on its core markets in
Pennsylvania, Delaware and New Jersey and continues to evaluate
its activities within these banking markets. Since the beginning
of 1994, Meridian has reduced staffing levels in its mortgage
operations by approximately 300 employees, or about 40% of the
workforce. Based upon market conditions, staffing levels and
overhead costs may be reduced further in the second half of this
year, but there can be no assurance that Meridian will be able to
reduce these levels and costs quickly enough to offset possible
continuation of lower loan origination and servicing volumes.
With respect to market conditions, the rise in interest
rates during 1994 has significantly reduced mortgage loan
refinancing and has begun to slow demand for new home financing.
Meridian's loan originations were down 66% in the second quarter
of 1994 compared to the same period of 1993. This significant
decline in loan volume has an immediate negative impact on
revenues, without a similar immediate reduction in expenses which
tend to decline over a longer period of time.
In addition to the impact described above on the mortgage
banking activities, servicing revenues also declined in the
second quarter. In April, Meridian entered into a subservicing
agreement, which customarily has lower fees, with a purchaser of
a significant portion of its servicing portfolios. These
portfolios will be transferred to the purchaser in the third
quarter of this year.
The mortgage portfolios serviced by Meridian aggregated $4.9
billion at June 30, 1994 compared to $7.2 billion at June 30,
1993. The decline was caused primarily by mortgage loan
refinancing activity and sales of mortgage servicing. Included
in the total at June 30, 1994 is (1) approximately $2.8 billion
of loans on which the servicing has been sold and Meridian is
currently subservicing for the purchaser, as previously
mentioned, and (2) mortgage loan servicing originated and
purchased with recourse totalling approximately $738 million.
Based upon market conditions, Meridian may incur additional
losses in future periods on this recourse portfolio.
Net interest income was $156.1 million in the second quarter
of 1994 compared to $154.6 million in the second quarter of 1993.
On a taxable equivalent basis, net interest income was $160.6
million compared to $160.3 million in the second quarter of 1993.
The net interest margin was 4.85% in the second quarter of this
year compared to 4.91% a year ago. The net interest margin in
the first quarter of 1994 was 4.82%. An increase in average
loans outstanding favorably impacted net interest income between
the two quarters. This was partially offset by narrowing spreads
between the yield on interest-earning assets and the cost of
interest-bearing liabilities.
Meridian's provision for possible loan losses was $6.7
million in the second quarter of 1994, down from $8.5 million in
the first quarter of 1994 and $14.7 million in the second quarter
of 1993. The decline over the past year resulted from continued
improvement in loan quality.
Non-performing loans decreased to $103.2 million or 1.08% of
loans at June 30, 1994 compared to $119.6 million or 1.31% at
March 31, 1994 and $134.9 million or 1.56% a year ago. The ratio
of the allowance for possible loan losses to non-performing loans
was 165% at June 30, 1994 compared to 143% at March 31, 1994 and
125% a year ago.
Net loans charged-off in the second quarter of 1994 were
$7.5 million compared to $10.9 million in the first quarter of
1994 and $14.1 million in the comparable period a year ago. The
allowance for possible loan losses was 1.79% of total loans at
June 30, 1994 compared to 1.87% at March 31, 1994 and 1.95% a
year ago.
Total non-performing assets also declined to $141.6 million
at June 30, 1994, or 1.48% of loans and assets acquired in
foreclosures, compared to $171.5 million or 1.86% at March 31,
1994 and $195.9 million or 2.26% at June 30, 1993.
Other income decreased by $14.6 million or 20% between the
second quarters of 1994 and 1993. Mortgage-banking revenues
declined by $7.6 million, reflecting the impact of Meridian's
decision to significantly reduce the scope of its mortgage
banking activities, as previously discussed. Gains from
securities transactions decreased by $8.8 million between the two
quarters.
Other operating expenses declined by $3.7 million or 2%
between the second quarters of 1994 and 1993.
Net income was $78.6 million or $1.35 per fully diluted
share in the first half of 1994 compared to $81.1 million or
$1.41 per fully diluted share a year ago.
The returns on average assets and on average common
shareholders' equity for the first six months of 1994 were 1.12%
and 13.33%, respectively, compared to 1.16% and 15.10%,
respectively, for the first six months of 1993.
Total assets at June 30, 1994 were $15.2 billion compared to
$14.4 billion at June 30, 1993. Total loans were $9.5 billion
compared to $8.6 billion a year ago, a 10% increase. The
consumer portfolio increased by 12% during the last year and the
commercial portfolio grew by 9%. Total deposits were $11.7
billion compared to $11.4 billion a year ago, a 2% increase.
During the second quarter of 1994, Meridian assumed approximately
$487 million of deposits and acquired 29 branches in southern New
Jersey of Security Federal Savings Bank from the Resolution Trust
Corporation. 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 7.99% of
total assets at June 30, 1994 compared to $1.1 billion or 7.81% a
year ago. The ratio of tangible shareholders' equity to assets,
which excludes $98.5 million of intangible assets, was 7.39% at
June 30, 1994 compared to 7.06% at June 30, 1993. Meridian's
risk-based capital ratio was 13.30% at June 30, 1994, well above
regulatory requirements. This ratio was 13.81% at March 31, 1994
and 13.05% at June 30, 1993.
Book value per common share was $21.01 at June 30, 1994
compared to $19.62 at June 30, 1993, an increase of 7%. Book
value per common share at March 31, 1994 was $20.70.
INDUSTRY SEGMENTS
Table 1 presents a summary of the operating results of
Meridian's two industry segments.
The banking unit provides a full range of retail and
corporate banking, and trust and asset management services to
customers in central and eastern Pennsylvania, as well as
Delaware and southern New Jersey.
The securities unit 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 markets.
The banking unit reported net income of $37.6 million in the
second quarter of 1994 compared to $39.1 million for the same
period of last year, a decrease of 4%. Earnings in 1993
benefitted from an after-tax gain of $6.1 million from the sale
of common stock that was part of the consideration received from
the sale of Meridian's title insurance operations in 1992. Net
interest income increased by $1.4 million between the two
periods, as the positive impact of an increase in average loans
outstanding more than offset narrowing spreads between the yield
on interest-earning assets and the cost of interest-bearing
liabilities. The provision for possible loan losses declined by
$8.0 million between the quarters, reflecting continued
improvement in loan quality. Other income declined by $12.9
million, or 23%, between the two quarters, reflecting decreases
in mortgage banking revenues and securities gains, as previously
discussed. Other expenses declined by $3.6 million, or 3%,
between the two quarters, resulting from decreases in such
expense categories as loan origination and servicing expenses in
the mortgage banking unit, expenses related to foreclosed real
estate, and FDIC deposit insurance expense.
Net income was $73.1 million in the first six months of 1994
compared to $74.3 million in the similar period of 1993.
Net income for the securities unit was $3.2 million in the
second quarter of 1994 compared to $4.5 million for the same
period of last year, a decrease of 29%. Declines in net trading
gains, commissions, and fees as a result of lower sales volumes
more than offset a small decrease in operating expenses,
primarily salaries and incentive - related compensation expense.
For the first six months of 1994, the securities unit
reported net income of $5.5 million compared to $6.8 million in
the similar period of 1993, a decrease of 19%. The same factors
that affected the quarter-to-quarter comparison contributed to
the decline between the two six-month periods.
NET INTEREST INCOME AND RELATED ASSETS AND LIABILITIES
Net interest income was $156.1 million in the second quarter
of 1994 compared to $154.6 million in the same quarter of 1993,
an increase of 1%. Net interest income on a taxable-equivalent
basis was $160.6 million in the second quarter of this year
compared to $160.3 million in the same period of last year, an
increase of less than 1%.
The level of net interest income results from the
interaction between the volume of interest-earning assets and the
sources of funds supporting these assets, and the interest rates
earned on the assets and paid on the funding sources. Average
loans outstanding increased between the second quarters of both
years, offsetting narrowing spreads between the yield on
interest-earning assets and the cost of interest-bearing
liabilities, resulting in the increase in net interest income.
Average interest-earning assets increased by $189.2 million
or 1% between the second quarter of 1994 and the same period of
last year. Average loans outstanding increased by 9% between the
two periods, with increases reflected in each of the major loan
categories. Average investment securities and investment
securities available for sale decreased by $484.0 million, or
13%. Average deposits were $11.2 billion in the second quarter
of 1994, compared to $11.4 billion in the same period of last
year, a 2% decline. The increase in interest-earning assets and
the decrease in deposits were funded by increases in short term
borrowings and shareholders' equity.
Partially offsetting the positive impact of the increase in
assets was a decline in the net interest margin, from 4.91% in
the second quarter of 1993 to 4.85% in the second quarter of
1994, a decrease of 6 basis points. The net interest margin is
affected by both the net interest spread and the level of net
non-interest bearing sources of funds.
The net interest spread decreased 9 basis points between the
two quarters, primarily because yields on interest-earning assets
decreased faster than rates on interest-bearing liabilities.
The yield on interest-earning assets declined by 17 basis points,
as declines in the yields on investment securities, residential
mortgage loans and consumer loans more than offset an increase in
yield on commercial loans. The average rate paid on interest-
bearing liabilities decreased by 8 basis points, as the decline
in rates paid on deposits more than offset an increase in the
rates paid on short-term borrowings.
Interest-free funding sources increased by $215.6 million
between the two periods primarily as a result of increases in
demand deposits and shareholders' equity. The increase in these
balances and the recent increase in interest rates increased the
beneficial effect that such funds provided to the overall cost of
funds, from .43% in the second quarter of 1993 to .46% in the
second quarter of 1994.
Net interest income for the six months ended June 30, 1994
was $302.8 million compared to $305.1 million last year, a
decrease of 1%. Average loans outstanding increased between the
two periods, but narrowing spreads between the yield on interest-
earning assets and the cost of interest-bearing liabilities
resulted in the decline in net interest income. The net interest
margins were 4.83% and 4.94% for the first six months of 1994 and
1993, respectively.
Table 2 presents net interest income, yields and rates on a
taxable-equivalent basis, and average balances for the second
quarters of 1994 and 1993, the first quarter of 1994, and the six
months ended June 30, 1994 and 1993, respectively.
Two of Meridian's most important performance goals, in
addition to maintaining a strong capital position, are the
achievement of consistent earnings growth and the maintenance of
financial flexibility sufficient to meet customer and corporate
funding needs at an acceptable cost. Two primary means of
accomplishing these goals are the control of overall interest
rate risk and the management of liquidity.
Meridian manages interest-sensitivity by adjusting the mix
and repricing characteristics of assets and liabilities on the
balance sheet through its securities and purchased funding
portfolios and by the use of off-balance sheet derivative
products, mainly interest rate swaps. The notional amount of
interest rate swap contracts, which include forward interest rate
swaps of $225 million, was $3.0 billion at June 30, 1994 compared
to $2.1 billion a year ago.
The majority of the interest rate swap contracts outstanding
at June 30, 1994, or approximately $2.7 billion, represents
contracts on which Meridian receives a fixed rate of interest and
pays a variable rate, thereby favorably impacting net interest
income in periods of declining interest rates. The average
fixed rate received at June 30, 1994 was 4.91% with a remaining
term of approximately 1.2 years until maturity or repricing. The
average floating rate paid on interest rate swaps is based on
short-term variable rates such as LIBOR (London Interbank Offered
Rate). The average floating rate paid was 4.51% at June 30,
1994.
Meridian uses interest rate swaps as a tool to alter the
repricing characteristics of a portion of the core deposit base.
Interest expense on deposits was reduced by approximately $5.3
million in the second quarter of 1994 compared to $11.0 million a
year ago. This decline is attributable to the maturities of
interest rate swaps over the past year and a higher level of
short-term interest rates in the second quarter of 1994. For the
first half of 1994 and 1993, the comparable amounts were $13.5
million and $24.1 million, respectively.
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.
Meridian uses income simulation modeling as the primary tool
in measuring interest rate risk and managing interest rate
sensitivity. Simulation modeling considers not only the impact
of changing market rates of interest on future net interest
income, but also such other potential causes of variability as
earning-asset volume and mix, yield curve relationships, customer
preferences and general market conditions.
The objective of liquidity management is to ensure that
sufficient funding is available, at reasonable cost, to meet the
ongoing operational cash needs of Meridian and to take advantage
of income producing opportunities as they arise. While the
desired level of liquidity may vary depending upon a variety of
factors, it is a primary goal of Meridian to maintain a high
level of liquidity in all economic environments.
Management considers the liquidity position of Meridian at
the end of the second quarter of 1994 to be sufficient to meet
its foreseeable cash flow requirements.
Loans. The lending function is Meridian's principal
business activity and it is Meridian's continuing policy to serve
the credit needs of its customer base. Loans were $9.5 billion
at June 30, 1994 compared to $8.6 billion at June 30, 1993, a 10%
increase. Consumer loans, mostly home equity loans and other
types of personal loans, increased by $294 million, or 12%,
primarily from successful marketing campaigns in the low interest
rate environment during the period. Commercial loans increased
by $450 million, or 9%, reflecting signs of increasing loan
demand. Residential mortgage loans increased by $139 million or
14.0%, reflecting the decision to retain on the balance sheet
more of the loans being originated by the mortgage banking unit.
Table 3 presents a summary of period-end loan balances.
Investment Securities and Investment Securities Available
for Sale. The second largest use of funds for Meridian is the
portfolio of investment securities and investment securities
available for sale. The balance in the combined portfolio was
$3.3 billion at June 30, 1994, down from $3.6 billion a year ago.
Table 4 presents a summary of the amortized cost,
approximate fair value, and gross unrealized gains and losses for
the portfolio at June 30, 1994 and 1993, and December 31, 1993.
Deposits. Meridian's deposits, the largest source of funds,
amounted to $11.7 billion at June 30,1994 compared to $11.4
billion at June 30, 1993, an increase of 2%. During the second
quarter of 1994, Meridian assumed approximately $487 million of
deposits of Security Federal Savings Bank from the Resolution
Trust Corporation. These additional deposits more than offset
the attrition of deposits which has been occurring in the
relatively low interest rate environment, as some depositors have
sought alternative investment opportunities. There has also been
a planned reduction in certificates of deposit of $100,000 and
more during the past year.
Table 5 presents a summary of period-end deposit balances.
PROVISION FOR POSSIBLE LOAN LOSSES AND RELATED CREDIT QUALITY
The provision for possible loan losses was $6.7 million in
the second quarter of 1994, down from $8.5 million in the first
quarter of 1994 and $14.7 million in the second quarter of 1993.
The provision for the six months ended June 30, 1994 was $15.2
million compared to $29.0 million for the same period of 1993, a
decrease of 48%. The decline over the past year was due to a
continuing improvement in loan quality.
The balance in the allowance for possible loan losses was
$170.3 million or 1.79% of total loans at June 30, 1994, compared
to $171.0 million or 1.87% at March 31, 1994 and $168.0 million
or 1.95% at June 30, 1993.
Net charge-offs were $7.5 million, or .32% of average loans
in the second quarter of 1994 compared to $14.1 million or .66%
of average loans in the second quarter of 1993. Recoveries were
$4.1 million in the second quarter of 1994 compared to $2.4
million in the same period of last year.
Net charge-offs for the six months ended June 30, 1994 were
$18.4 million, compared to $27.9 million in the similar period of
1993. Net charge-offs represented .40% of average loans in the
first half of 1994 compared to .66% last year.
Determining the level of the allowance for possible loan
losses at any given date is difficult, particularly in a
continually changing economy. Management must make estimates,
using assumptions and information which are often subjective and
changing. Management continues to review Meridian's loan
portfolio in light of a changing economy and possible future
changes in the banking and regulatory environment. In
management's opinion, the allowance for possible loan losses is
adequate at June 30, 1994.
Table 6 presents an analysis of the activity in the
allowance for possible loan losses. Table 7 presents a summary
of various indicators of credit quality.
Non-performing assets are comprised of non-accrual loans,
loans categorized as troubled debt restructurings, and assets
acquired in foreclosures, which includes in-substance
foreclosures. Non-performing assets do not include loans past
due ninety days or more as to interest or principal which are
well secured and in the process of collection.
Non-performing assets totalled $141.6 million at June 30,
1994 compared to $171.5 million at March 31, 1994 and $195.9
million a year ago. The decline over the last three months was
partially due to the transfer of non-performing assets to the
assets held for sale portfolio. During the second quarter of
1994, Meridian transferred to assets held for sale non-accrual
residential mortgage loans of approximately $8 million and
foreclosed real estate of approximately $7 million. In addition,
approximately $17 million of delinquent residential mortgage
loans being serviced by Meridian were repurchased from investors
during the second quarter, and also transferred to assets held
for sale. These transfers were related to mortgage servicing
portfolios originally acquired by Meridian with recourse.
Meridian began to sell these assets during the quarter. Meridian
anticipates that as it continues to restructure the mortgage
banking activities, it may be required to repurchase other loans
or to transfer additional loans to assets held for sale.
Generally, a loan is classified as non-accrual when it is
determined that the collection of interest or principal is
doubtful, or when a default of interest or principal has existed
for 90 days or more, unless such loan is well secured and in the
process of collection. When the accrual of interest is
discontinued, unpaid interest is reversed through a charge to
interest income. The majority of non-accrual loans are secured by
various forms of collateral, the ultimate recoverability of which
is, however, subject to economic conditions and other factors.
Meridian's non-accrual loans, which totalled $102.0 million
at June 30, 1994, included eight loans with balances in excess of
$2.5 million. These loans aggregated $28.6 million or 28% of
total non-accrual loans at the end of the second quarter of 1994.
A loan is categorized as a troubled debt restructuring if
the original interest rate on the loan, repayment terms, or both,
were restructured on a below market basis, due to a deterioration
in the financial condition of the borrower.
A loan is classified as an in-substance foreclosure when the
borrower is perceived to have little or no equity in the project,
there is no apparent ability or willingness of the borrower to
rebuild equity or repay the loan in the foreseeable future, and
the bank can reasonably anticipate proceeds for repayment only
from the operation or sale of the collateral. These assets are
carried at the lower of cost or fair value, less estimated
selling expenses.
Assets acquired in foreclosures (except consumer related),
which totalled $36.7 million at the end of the second quarter of
1994, included two properties with balances in excess of $2.5
million. These properties aggregated $10.6 million or 29% of
assets acquired in foreclosures.
Reference should be made to Table 3 for a summary of the
period-end balances in the loan portfolio. There has not been a
significant change in the percentage of each category to total
loans from a year ago.
In addition, reference should be made to Table 8 for a
breakdown of commercial loans by major industry and to Table 9
for a breakdown of commercial real estate loans by category. As
can be seen in these tables, Meridian's portfolio of commercial
loans and commercial real estate loans is diversified and covers
a wide range of borrowers. This diversification generally
characterizes the economy of Meridian's primary market area. Of
Meridian's commercial real estate loans, almost all, or 97%, are
to borrowers for property in Pennsylvania, Delaware, and New
Jersey, of which Pennsylvania has 80%, or the largest single
share. In connection with the decision to extend credit to
particular borrowers, Meridian takes into account, among other
things, asset diversification and particular risks presented by
the different industries in which such borrowers compete, in
light of changing economic circumstances.
Loan concentrations are considered to exist when a multiple
number of borrowers are engaged in similar activities and have
similar economic characteristics which would cause their ability
to meet contractual obligations to be similarly impacted by
economic or other conditions. At June 30, 1994, Meridian did not
have any industry concentration or other known concentration of
commercial loans and commitments that exceeded 10% of total loans
and commitments. However, the effect of the recent recession has
had a negative impact on the financial performance of many
companies involved in retail trade. At June 30, 1994, Meridian's
loans to companies in retail trade totalled $731.9 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 $369.6 million and loans to
automobile dealers of $362.3 million. Loans to companies in
retail trade included $14.3 million of loans in a non-accrual
status at June 30, 1994. This amount represents 14% and 10% of
non-performing loans and non-performing assets, respectively, at
the end of the second quarter of 1994. Meridian has no foreign
loan exposure.
Meridian's policy has been to participate selectively in
large, public, highly leveraged transactions. The majority of
such transactions is currently in the telecommunications industry
and its cable television and cellular phone segments. According
to the guidelines issued by the Federal Reserve Board, loans and
exposures are characterized as highly leveraged transactions if
they meet certain defined leverage criteria and the total
financing package (including all obligations held by all
participants) originally exceeded $20 million. At June 30, 1994,
Meridian's highly leveraged transactions aggregated $57.2 million
in outstanding balances or less than 1% of total loans and an
additional $17.1 million in commitments. All such balances were
current as to principal and interest at June 30, 1994. Cable
television and cellular phone exposures represented $37.4 million
of such loans outstanding and $6.6 million of the commitments
outstanding.
Potential problem loans consist of loans which are included
in performing loans at June 30, 1994 but for which potential
credit problems of the borrowers have caused management to have
concerns as to the ability of such borrowers to comply with
present repayment terms. At June 30, 1994, such potential
problem loans, not included in Table 7, aggregated approximately
$29 million, compared to $31 million at March 31, 1994. No loans
to companies in retail trade were included in potential problem
loans at June 30, 1994. Depending on the state of the economy
and the impact thereof on Meridian's borrowers, as well as other
future events, these loans and others not currently so identified
could be classified as non-performing assets in the future.
OTHER INCOME
Other income decreased by $14.6 million or 20% between the
second quarters of 1994 and 1993. Mortgage-banking revenues
declined by $7.6 million, reflecting the impact of Meridian's
decision to significantly reduce the scope of its mortgage
banking activities, and gains from securities transactions
decreased by $8.8 million between the two quarters.
Mortgage banking revenues were $4.2 million in the second
quarter of 1994, a decrease of $7.6 million from the second
quarter of 1993. Revenues were negatively impacted in the second
quarter of 1993 by amortization of $7.7 million for purchased
mortgage servicing rights, which is recorded as a reduction of
revenues. There was no amortization in the second quarter of
1994 since all purchased mortgage servicing rights have been sold
or are in the process of being sold, and have been written down
to fair value. Exclusive of the change in the amortization of
purchased mortgage servicing rights, mortgage banking revenues
declined by $15.2 million, or 79%, between the two periods.
Servicing fee revenues declined $4.4 million, or 61%, primarily
as a result of a lower mortgage loan servicing portfolio. Gains
on the sale of mortgage loans and mortgage servicing decreased by
$8.5 million between the two periods. Origination fees declined
by $2.8 million, or 67%, between the two quarters, reflecting
lower levels of mortgage loan refinancing and new home financing.
Broker-dealer and investment banking revenues totalled $14.2
million in the second quarter of 1994 compared to $15.8 million
in the same period a year ago, a decrease of 10%. The decrease in
revenues was attributable to a decrease in net trading gains and
lower levels of commissions and related fees.
Trust revenues were $11.2 million in the second quarter of
1994 compared to $9.4 million in the same period of last year, an
increase of 18%. Higher levels of personal fees and corporate
and institutional revenues were responsible for the increase.
Service charges on deposits and fees for other customer
services increased by $1.9 million, or 8%, for the three months
ended June 30, 1994 compared to the same period of last year.
Increases in certain fees for deposit products, as well as
additional deposit accounts because of bank acquisitions over the
past year, contributed to the higher level of fees.
Net securities losses were $49 thousand in the second
quarter of 1994 compared to gains of $8.8 million in the same
period of last year. The amount in 1994 was comprised of gains
of $44 thousand and losses of $93 thousand. These net losses do
not include gains of $5 thousand from sales primarily of certain
mortgage-related investments, which are included in broker-dealer
and investment banking revenues. The gains and losses in both
years resulted mainly from sales of investments classified as
available for sale, calls of investments and, in 1993, the sale
of common stock that was part of the consideration received from
the sale of Meridian's title operations in 1992.
Other income for the first six months of 1994 was $118.6
million compared to $123.8 million a year ago. Except for
mortgage banking revenues, which increased by $3.2 million, or
36%, between the two periods, the same factors that affected the
quarter-to-quarter comparison contributed to the decrease between
the six month periods. Mortgage banking revenues were negatively
impacted in the first half of 1993 by amortization of $27.1
million for purchased mortgage servicing rights. There was no
amortization in the first half of 1994 since all purchased
mortgage servicing rights have been sold or are in the process of
being sold, and have been written down to fair value. Exclusive
of the change in the amortization of purchased mortgage servicing
rights, mortgage banking revenues declined by $23.9 million
between the two periods.
OTHER EXPENSES
Other expenses for the second quarter of 1994 were $147.9
million compared to $151.6 million for the same quarter of 1993,
a decrease of $3.7 million, or 2%. Increases in personnel,
occupancy, and equipment expenses were more than offset by
decreases in several categories of other operating expenses.
Salaries and employee benefits totalled $72.7 million in the
second quarter of 1994 compared to $71.2 million in the second
quarter of 1993, an increase of 2%. 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, and an increase in
commissions and other incentive-related compensation contributed
to the increase in expenses. Pension and medical insurance
expenses were almost unchanged between the two periods.
Net occupancy and equipment expense was $20.9 million in the
second quarter of 1994 compared to $19.9 million in the same
period last year, an increase of 5%. The termination of several
lease obligations in the mortgage banking unit was the main
reason for the increase between the two periods.
Other operating expenses were $54.4 million in the second
quarter of 1994 compared to $60.6 million in the second quarter
of 1993. Contributing to the improvement between the two periods
were decreases in such expense categories as loan origination and
servicing expense in the mortgage banking unit, expenses related
to foreclosed real estate, and FDIC deposit insurance expense.
Other expenses for the six months ended June 30, 1994 were
$287.5 million compared to $295.9 million for the same period of
last year, a decrease of 3%. The same factors that affected the
quarter-to-quarter comparison contributed to the decline between
the six month periods.
PROVISION FOR INCOME TAXES
The effective tax rate was 31% in the second quarter of
1994, up from 29% in the same quarter of 1993. The rate for the
entire year of 1993 was 28%. The tax rate for both periods was
less than the federal statutory rate of 35% primarily because of
tax-exempt investment and loan income.
CAPITAL RESOURCES
Meridian's capital adequacy at June 30, 1994 can be
determined by analyzing the capital ratios presented in Table 10.
Total shareholders' equity at June 30, 1994 was $1.215
billion compared to $1.125 billion at June 30, 1993, an increase
of 8%. Total shareholders' equity was $1.193 billion at March,
31, 1994. The ratio of total shareholders' equity to total
assets was 7.99% at June 30, 1994 compared to 7.81% one year ago
and 8.52% at March 31, 1993. The decline in the ratio over the
last three months resulted from loan growth and an increase in
asset levels related to the assumption of approximately $487
million of deposits of Security Federal Savings Bank from the
Resolution Trust Corporation.
Meridian's consolidated ratios at June 30, 1994 exceeded all
regulatory requirements. The risk-based capital ratio was 13.30%
at June 30, 1994 compared to 13.05% a year ago and 13.81% at
March 31, 1994. The ratio of tangible shareholders' equity to
assets was 7.39% at June 30, 1994 compared to 7.06% a year ago
and 7.95% at March 31, 1994. The declines in these ratios over
the last three months resulted from the increase in asset levels
described above, and an increase of $38.2 million in intangible
assets related primarily to the acquisition of deposits from
Security Federal Savings Bank. The risk-based capital ratios of
each of Meridian's commercial banks also exceeded regulatory
requirements at June 30, 1994, as shown in the table.
Federal Reserve Board guidelines define a well capitalized
institution as having a Tier 1 capital ratio of 6% or more, a
total risk-based capital ratio of 10% or more, and a leverage
ratio of 5% or more. Meridian's consolidated ratios at June 30,
1994 exceeded these guidelines, as did the ratios of each of
Meridian's commercial banks.
<PAGE>
<TABLE>
<CAPTION>
TABLE 1:INDUSTRY SEGMENTS
(Dollars in Thousands)
Net Income Assets
-------------------------------------- -----------------------------------------
Three Months Ended Six Months Ended
June 30 June 30 June 30 December 31
1994 1993 1994 1993 1994 1993 1993
--------- -------- --------- --------- ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Banking................. $37,578 $39,074 $73,103 $74,272 $14,388,779 $13,946,825 $13,751,699
Securities.............. 3,206 4,466 5,490 6,794 807,308 456,514 333,088
Consolidated............ $40,784 $43,540 $78,593 $81,066 $15,196,087 $14,403,339 $14,084,787
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 2: NET INTEREST INCOME, AVERAGE BALANCES AND RATES
(Dollars in Thousands)
1994 1993
Three Months Ended June 30 Three Months Ended June 30
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------------ --------- ------ ------------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-Earning Assets
Short-Term Investments
Interest-Bearing Deposits in Other Banks..... $101,229 $1,096 4.34% $104,404 $897 3.45%
Federal Funds Sold and Securities Purchased
Under Agreements to Resell................. 110,027 1,010 3.68 29,314 455 6.23
Total Short-Term Investments............... 211,256 2,106 4.00 133,718 1,352 4.06
Trading Account Securities (1)................. 167,541 2,822 6.76 155,104 2,247 5.81
Investment Securities Available for Sale (1)... 307,218 5,788 7.56 768,290 13,710 7.14
Investment Securities
Taxable...................................... 2,544,745 33,730 5.30 2,524,449 36,853 5.84
Non-Taxable (1).............................. 329,548 6,871 8.34 372,740 7,686 8.25
Total Investment Securities................ 2,874,293 40,601 5.65 2,897,189 44,539 6.15
Mortgage Loans Held for Sale................... 354,758 6,727 7.58 522,401 9,538 7.30
Loans
Commercial (1)............................... 5,635,904 112,241 7.99 5,206,692 100,415 7.74
Real Estate-Residential...................... 1,052,070 21,128 8.03 1,017,011 24,136 9.49
Consumer..................................... 2,658,040 55,119 8.32 2,371,500 52,664 8.91
Total Loans (2)............................ 9,346,014 188,488 8.09 8,595,203 177,215 8.26
Total Interest-Earning Assets.............. 13,261,080 246,532 7.45 13,071,905 248,601 7.62
Allowance for Possible Loan Losses............... (175,083) -- -- (171,388) - --
Non-Interest Earning Assets...................... 1,365,521 -- -- 1,420,007 - --
Total Assets, Interest Income.............. $14,451,518 $246,532 6.84% $14,320,524 $248,601 6.95%
LIABILITIES
Interest-Bearing Liabilities
Interest-Bearing Deposits
NOW Accounts................................. $1,476,267 $4,707 1.28% $1,316,739 $6,366 1.94%
Savings Deposits............................. 1,978,187 9,956 2.02 1,764,714 10,040 2.28
Money Market Deposit Accounts................ 2,320,546 13,158 2.27 2,445,388 10,106 1.66
Short-Term Time Deposits..................... 753,259 5,707 3.04 927,184 8,609 3.72
Long-Term Time Deposits...................... 2,427,049 26,197 4.33 2,677,605 29,749 4.46
Certificates of Deposits of $100,000 or More. 468,620 5,657 4.84 591,070 7,106 4.82
Total Interest-Bearing Deposits............ 9,423,928 65,382 2.78 9,722,700 71,976 2.97
Short-Term Borrowings
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase........ 1,223,315 11,590 3.80 916,035 6,797 2.98
Commercial Paper............................. 8,688 76 3.51 -- -- --
Other Short-Term Borrowings.................. 222,532 2,639 4.76 159,782 1,194 3.00
Total Short-Term Borrowings................ 1,454,535 14,305 3.94 1,075,817 7,991 2.98
Long-Term Debt and Other Borrowings............ 364,471 6,195 6.80 470,807 8,363 7.11
Total Interest-Bearing Liabilities......... 11,242,934 85,882 3.06 11,269,324 88,330 3.14
Non-Interest Sources to Fund
Interest-Earning Assets
Non-Interest Bearing Deposits................ 1,741,842 -- -- 1,689,039 -- --
Other Liabilities............................ 269,853 -- -- 260,194 -- --
Shareholders' Equity......................... 1,196,889 -- -- 1,101,967 -- --
Total Non-Interest Sources to Fund
Interest-Earning Assets.................. 3,208,584 -- -- 3,051,200 -- --
Total Liabilities and Shareholders' Equity,
Interest Expense......................... $14,451,518 85,882 2.38% $14,320,524 88,330 2.47%
NET INTEREST INCOME.............................. $160,650 $160,271
NET INTEREST SPREAD (3)........................ 4.39% 4.48%
EFFECT OF NON-INTEREST BEARING FUNDS........... 0.46% 0.43%
NET INTEREST MARGIN (4)........................ 4.85% 4.91%
<CAPTION>
1994
Three Months Ended March 31
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..... $92,179 $768 3.38%
Federal Funds Sold and Securities Purchased
Under Agreements to Resell................. 46,319 381 3.34
Total Short-Term Investments............... 138,498 1,149 3.36
Trading Account Securities (1)................. 114,103 1,883 6.69
Investment Securities Available for Sale (1)... 278,814 4,798 6.98
Investment Securities
Taxable...................................... 2,381,720 31,204 5.24
Non-Taxable (1).............................. 359,518 7,355 8.18
Total Investment Securities................ 2,741,238 38,559 5.63
Mortgage Loans Held for Sale................... 374,116 6,404 6.85
Loans
Commercial (1)............................... 5,456,438 100,840 7.50
Real Estate-Residential...................... 1,010,351 20,690 8.19
Consumer..................................... 2,556,778 51,979 8.24
Total Loans (2)............................ 9,023,567 173,509 7.79
Total Interest-Earning Assets.............. 12,670,336 226,302 7.21
Allowance for Possible Loan Losses............... (177,418) -- --
Non-Interest Earning Assets...................... 1,412,876 -- --
Total Assets, Interest Income.............. $13,905,794 $226,302 6.57%
LIABILITIES
Interest-Bearing Liabilities
Interest-Bearing Deposits
NOW Accounts................................. $1,447,921 $4,500 1.26%
Savings Deposits............................. 1,897,103 8,762 1.87
Money Market Deposit Accounts................ 2,340,774 11,795 2.04
Short-Term Time Deposits..................... 786,081 6,468 3.34
Long-Term Time Deposits...................... 2,472,671 24,770 4.06
Certificates of Deposits of $100,000 or More. 453,402 5,130 4.59
Total Interest-Bearing Deposits............ 9,397,952 61,425 2.65
Short-Term Borrowings
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase........ 663,805 4,813 2.94
Commercial Paper............................. 2,989 18 2.44
Other Short-Term Borrowings.................. 197,620 1,641 3.37
Total Short-Term Borrowings................ 864,414 6,472 3.04
Long-Term Debt and Other Borrowings............ 420,214 7,158 6.81
Total Interest-Bearing Liabilities......... 10,682,580 75,055 2.85
Non-Interest Sources to Fund
Interest-Earning Assets
Non-Interest Bearing Deposits................ 1,694,603 -- --
Other Liabilities............................ 340,531 -- --
Shareholders' Equity......................... 1,188,080 -- --
Total Non-Interest Sources to Fund
Interest-Earning Assets.................. 3,223,214 -- --
Total Liabilities and Shareholders' Equity,
Interest Expense......................... $13,905,794 75,055 2.19%
NET INTEREST INCOME.............................. $151,247
NET INTEREST SPREAD (3)........................ 4.36%
EFFECT OF NON-INTEREST BEARING FUNDS........... 0.46%
NET INTEREST MARGIN (4)........................ 4.82%
<CAPTION>
1994 1993
Six Months Ended June 30 Six Months Ended June 30
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------------ --------- ------ ------------- --------- -----
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-Earning Assets
Short-Term Investments
Interest-Bearing Deposits in Other Banks..... $96,729 $1,864 3.89% $117,665 $2,136 3.66%
Federal Funds Sold and Securities Purchased
Under Agreements to Resell................. 78,350 1,391 3.58 47,607 1,045 4.43
Total Short-Term Investments............... 175,079 3,255 3.75 165,272 3,181 3.88
Trading Account Securities (1)................. 140,970 4,705 6.73 130,914 3,795 5.85
Investment Securities Available for Sale (1)... 293,095 10,586 7.22 805,629 28,862 7.17
Investment Securities
Taxable...................................... 2,468,096 64,934 5.26 2,374,872 70,707 5.95
Non-Taxable (1).............................. 340,036 14,226 8.37 362,487 15,425 8.51
Total Investment Securities................ 2,808,132 79,160 5.64 2,737,359 86,132 6.29
Mortgage Loans Held for Sale................... 364,381 13,131 7.21 474,751 17,869 7.53
Loans
Commercial (1)............................... 5,546,668 213,081 7.75 5,182,335 199,443 7.76
Real Estate-Residential...................... 1,031,326 41,818 8.11 1,032,521 49,088 9.51
Consumer..................................... 2,607,689 107,098 8.28 2,321,277 104,608 9.09
Total Loans (2)............................ 9,185,683 361,997 7.94 8,536,133 353,139 8.33
Total Interest-Earning Assets.............. 12,967,340 472,834 7.33 12,850,058 492,978 7.71
Allowance for Possible Loan Losses............... (176,240) -- -- (171,086) -- --
Non-Interest Earning Assets...................... 1,402,349 -- -- 1,403,343 -- --
Total Assets, Interest Income.............. $14,193,449 $472,834 6.70% $14,082,315 $492,978 7.04%
LIABILITIES
Interest-Bearing Liabilities
Interest-Bearing Deposits
NOW Accounts................................. $1,462,172 $9,207 1.27% $1,286,182 $12,380 1.94%
Savings Deposits............................. 1,937,869 18,718 1.95 1,706,490 20,433 2.41
Money Market Deposit Accounts................ 2,330,604 24,953 2.16 2,445,390 21,256 1.75
Short-Term Time Deposits..................... 769,580 12,175 3.19 945,988 17,451 3.72
Long-Term Time Deposits...................... 2,449,734 50,967 4.20 2,754,666 62,183 4.55
Certificates of Deposits of $100,000 or More. 461,052 10,787 4.72 610,424 14,806 4.89
Total Interest-Bearing Deposits............ 9,411,011 126,807 2.72 9,749,140 148,509 3.07
Short-Term Borrowings
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase........ 945,106 16,403 3.50 785,597 11,806 3.03
Commercial Paper............................. 5,854 94 3.24 1,542 24 3.14
Other Short-Term Borrowings.................. 210,144 4,280 4.11 156,098 2,310 2.98
Total Short-Term Borrowings................ 1,161,104 20,777 3.61 943,237 14,140 3.02
Long-Term Debt and Other Borrowings............ 392,190 13,353 6.81 409,320 14,305 6.99
Total Interest-Bearing Liabilities......... 10,964,305 160,937 2.96 11,101,697 176,954 3.21
Non-Interest Sources to Fund
Interest-Earning Assets
Non-Interest Bearing Deposits................ 1,735,116 -- -- 1,634,869 -- --
Other Liabilities............................ 304,991 -- -- 263,111 -- --
Shareholders' Equity......................... 1,189,037 -- -- 1,082,638 -- --
Total Non-Interest Sources to Fund
Interest-Earning Assets.................. 3,229,144 -- -- 2,980,618 -- --
Total Liabilities and Shareholders' Equity,
Interest Expense......................... $14,193,449 160,937 2.28% $14,082,315 176,954 2.53%
NET INTEREST INCOME.............................. $311,897 $316,024
NET INTEREST SPREAD (3)........................ 4.37% 4.50%
EFFECT OF NON-INTEREST BEARING FUNDS........... 0.46% 0.44%
NET INTEREST MARGIN (4)........................ 4.83% 4.94%
<FN>
(1) The indicated interest income and average yields are
presented on a taxable-equivalent basis. The taxable-
equivalent adjustments included above are $4,590, $5,633,
$4,541, $9,131 and $10,952 for the second quarter of 1994
and 1993, the first quarter of 1994 and the first six months
of 1994 and 1993, respectively.
(2) Loan fees have been included in interest income. Average
loan balances include non-accrual loans.
(3) Net Interest Spread is the arithmetic difference between the
yield on interest-earning assets and the rate paid on
interest-bearing liabilities.
(4) Net Interest Margin is computed by dividing net interest
income by average interest-earning assets.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 3: LOANS
(Dollars in Thousands)
June 30, 1994 June 30, 1993 December 31, 1993
Amount % Amount % Amount %
------------ ----- ------------ ----- ------------ -----
<S> <C> <C> <C> <C> <C> <C>
Commercial Loans
Real Estate - Commercial Mortgage........... $1,634,826 17% $1,628,469 19% $1,654,690 18%
Real Estate - Construction.................. 296,588 3 282,754 3 292,177 3
Commercial, Financial and Agricultural...... 3,731,294 39 3,301,607 38 3,500,243 40
Total Commercial Loans................... 5,662,708 59 5,212,830 60 5,447,110 61
Real Estate - Residential...................... 1,133,624 12 994,199 12 993,459 11
Consumer Loans
Real Estate - Home Equity................... 720,556 8 669,270 8 680,440 7
Revolving Credit............................ 92,233 1 78,333 1 79,613 1
Other Consumer Loans........................ 1,900,595 20 1,671,770 19 1,787,422 20
Total Consumer Loans..................... 2,713,384 29 2,419,373 28 2,547,475 28
Total Loans, Net of Unearned Discount. $9,509,716 100% $8,626,402 100% $8,988,044 100%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 4: INVESTMENT SECURITIES AND INVESTMENT SECURITIES AVAILABLE FOR SALE
(Dollars In Thousands)
Investment Securities
A summary of the amortized cost and approximate fair value of investment securities is as follows:
June 30, 1994 June 30, 1993 December 31, 1993
Approximate Approximate Approximate
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
------------ ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
United States Government Securities. $710,321 $693,172 $663,819 $676,844 $630,338 $635,047
Mortgage-Backed Securities.......... 1,592,760 1,549,114 1,512,228 1,528,926 1,555,122 1,565,398
State and Municipal Securities...... 411,074 411,699 393,011 402,578 375,582 387,298
Other Securities.................... 284,559 280,922 237,361 240,985 223,442 225,357
Total Investment Securities... $2,998,714 $2,934,907 $2,806,419 $2,849,333 $2,784,484 $2,813,100
<CAPTION>
A summary of gross unrealized gains and losses on investment securities is as follows:
June 30, 1994 June 30, 1993 December 31, 1993
Gross Gross Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses Gains Losses
------------ ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
United States Government Securities. $1,007 $18,156 $13,121 $96 $5,644 $935
Mortgage-Backed Securities.......... 4,088 47,734 19,351 2,653 15,449 5,173
State and Municipal Securities...... 5,353 4,728 10,437 870 11,942 226
Other Securities.................... 724 4,361 5,973 2,349 2,624 709
$11,172 $74,979 $48,882 $5,968 $35,659 $7,043
<CAPTION>
Investment Securities Available for Sale
A summary of the amortized cost and approximate fair value of investment securities available for sale is
as follows:
June 30, 1994 June 30, 1993 December 31, 1993
Approximate Approximate Approximate
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
------------ ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
United States Government Securities. $189,546 $188,180 $29,967 $30,062 $103,086 $105,997
Mortgage-Backed Securities.......... 103,061 101,799 696,912 721,136 125,153 128,836
State and Municipal Securities...... 37,144 38,719 48,494 52,441 34,306 37,029
Other Securities.................... 18,820 22,270 16,073 16,610 13,118 16,290
Total Investment Securities
Available for Sale.......... $348,571 $350,968 $791,446 $820,249 $275,663 $288,152
<CAPTION>
A summary of gross unrealized gains and losses on investment securities available for sale is as follows:
June 30, 1994 June 30, 1993 December 31, 1993
Gross Gross Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses Gains Losses
------------ ----------- ----------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C>
United States Government Securities. $722 $2,088 $95 - $2,998 $87
Mortgage-Backed Securities.......... 289 1,551 24,365 $141 3,782 99
State and Municipal Securities...... 1,634 59 3,947 - 2,723 -
Other Securities.................... 3,627 177 537 - 3,189 17
Total Investment Securities
Available for Sale.......... $6,272 $3,875 $28,944 $141 $12,692 $203
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 5: DEPOSITS
(Dollars In Thousands)
June 30, 1994 June 30, 1993 December 31, 1993
Amount % Amount % Amount %
------------- ----- ------------- ----- ------------ -----
<S> <C> (c) <C> <C> <C> <C>
Non-Interest Bearing Deposits................. $1,957,170 17% $1,784,730 16% $1,849,425 16%
NOW Accounts.................................. 1,509,475 13 1,309,368 11 1,467,758 13
Savings Deposits.............................. 2,068,755 18 1,796,997 16 1,867,011 17
Money Market Deposit Accounts................. 2,326,322 20 2,444,917 21 2,385,937 21
Short-Term Time Deposits...................... 766,194 7 908,254 8 794,012 7
Long-Term Time Deposits....................... 2,577,105 21 2,612,354 23 2,504,231 22
Certificates of Deposit of $100,000 or More... 473,581 4 576,839 5 477,777 4
Total..................................... $11,678,602 100% $11,433,459 100% $11,346,151 100%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 6: ALLOWANCE FOR POSSIBLE LOAN LOSSES
(Dollars In Thousands)
Three Months Ended Six Months Ended
---------------------------------------------------------- ---------------------
June 30, March 31, December 31, September 30 June 30, June 30, June 30,
1994 1994 1993 1993 1993 1994 1993
---------- ---------- ------------ ----------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at Beginning of Period.......... $171,030 $173,388 $169,568 $167,961 $166,044 $173,388 $165,512
Additions (Deductions):
Acquired Allowances.................. 139 - 1,704 - 1,390 139 1,390
Loans Charged-Off:
Commercial (includes
Commercial Real Estate)...... (3,672) (8,400) (9,415) (11,887) (13,029) (12,072) (25,128)
Real Estate - Residential......... (5,165) (2,309) (501) (699) (264) (7,474) (393)
Consumer.......................... (2,750) (2,442) (4,590) (2,472) (3,251) (5,192) (7,424)
Total Loans Charged-Off.. (11,587) (13,151) (14,506) (15,058) (16,544) (24,738) (32,945)
Recoveries on Charged-Off Loans:
Commercial (includes
Commercial Real Estate)...... 2,522 1,270 3,066 884 1,272 3,792 2,620
Real Estate - Residential......... 132 67 91 6 21 199 66
Consumer.......................... 1,415 956 985 1,144 1,122 2,371 2,328
Total Recoveries on
Charged-Off Loans. 4,069 2,293 4,142 2,034 2,415 6,362 5,014
Net Loans Charged-Off................ (7,518) (10,858) (10,364) (13,024) (14,129) (18,376) (27,931)
Provision Charged to
Operating Expense........... 6,684 8,500 12,480 14,631 14,656 15,184 28,990
Balance at End of Period................ $170,335 $171,030 $173,388 $169,568 $167,961 $170,335 $167,961
Net Charge-Offs to Average Loans........ 0.32% 0.49% 0.46% 0.59% 0.66% 0.40% 0.66%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 7: CREDIT QUALITY
(Dollars in Thousands)
June 30, March 31, December 31, September 30, June 30,
1994 1994 1993 1993 1993
----------- ------------ ------------ ------------- ---------
<S> <C> <C> <C> <C> <C>
Non-Accrual Loans
Commercial
Real Estate-Commercial Mortgage...................... $28,631 $28,913 $30,544 $34,623 $38,131
Real Estate-Construction............................. 4,520 3,910 2,834 2,848 2,953
Commercial, Financial and Agricultural............... 52,654 58,846 59,882 60,676 68,178
Total Commercial.................................. 85,805 91,669 93,260 98,147 109,262
Real Estate-Residential................................ 15,472 25,100 29,843 30,412 23,082
Consumer............................................... 758 1,937 1,162 1,425 1,635
Total Non-Accrual Loans........................... 102,035 118,706 124,265 129,984 133,979
Restructured Loans
Real Estate-Commercial Mortgage........................ 10 11 908 13 -
Real Estate-Construction............................... 37 38 1,419 42 44
Commercial, Financial and Agricultural................. 1,086 812 1,004 876 834
Total Restructured Loans.......................... 1,133 861 3,331 931 878
TOTAL NON-PERFORMING LOANS................... 103,168 (1) 119,567 127,596 130,915 134,857
Assets Acquired in Foreclosures and Assets Considered
to be in an In-Substance Foreclosure Status
Foreclosed Real Estate............................... 28,058 36,726 29,497 35,081 27,945
Assets Related to Consumer Loans..................... 1,677 1,438 1,265 1,584 1,592
In-Substance Foreclosures............................ 8,673 13,752 20,454 26,270 31,514
Total Assets Acquired.............................. 38,408 51,916 51,216 62,935 61,051
TOTAL NON-PERFORMING ASSETS.................. $141,576 (1) $171,483 $178,812 $193,850 $195,908
Allowance for Possible Loan Losses as a Percentage of:
Loans.................................................. 1.79% 1.87% 1.93% 1.92% 1.95%
Non-Performing Loans................................... 165% 143% 136% 130% 125%
Non-Performing Assets.................................. 120% 100% 97% 87% 86%
Total Non-Performing Loans as a Percentage
of Loans............................................... 1.08% 1.31% 1.42% 1.48% 1.56%
Total Non-Performing Assets as a Percentage
of Loans and Assets Acquired in Foreclosures........... 1.48% 1.86% 1.98% 2.18% 2.26%
Loans Past Due 90 or more Days as to Interest or Principal
not Included Above (Includes $8,663 of Real Estate-
Residential as of June 30, 1994)....................... $35,036 $27,446 $24,798 $26,692 $39,330
Total Non-Performing Assets and Loans Past Due
90 or more Days as to Interest or Principal............ $176,612 $198,930 $203,610 $220,542 $235,238
Total Non-Performing Assets and Loans Past Due 90 or
more Days as to Interest or Principal as a Percentage
of Loans and Assets Acquired in Foreclosures........... 1.85% 2.16% 2.25% 2.48% 2.71%
<FN>
(1) During the second quarter of 1994, Meridian transferred to
assets held for sale non-accrual residential mortgage loans
of approximately $8 million and foreclosed real estate of
approximately $7 million.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 8: COMMERCIAL LOANS BY MAJOR INDUSTRY CLASSIFICATION
(Dollars in Thousands)
June 30, 1994 June 30, 1993
Loans Non-Accrual Loans Non-Accrual
Outstanding % Loans % Outstanding % Loans %
------------ ----- --------- ---- ------------ ---- ---------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Agriculture......................... $158,380 3% $365 * $131,802 3% $153 *
Mining.............................. 16,117 * 204 * 16,629 * 277 *
Construction........................ 254,768 5 3,861 4% 225,709 5 2,902 3%
Manufacturing....................... 1,114,409 20 22,209 26 932,415 18 22,158 20
Transportation, Communication and
Public Utilities................. 300,848 5 1,148 1 270,584 5 2,168 2
Wholesale Trade..................... 367,031 6 4,829 6 331,589 6 3,005 3
Retail Trade........................ 731,908 13 14,270 17 707,772 14 26,875 25
Finance, Insurance and Real Estate.. 1,223,596 22 20,126 24 1,195,515 23 27,267 25
Services............................ 1,378,465 24 18,633 22 1,271,320 24 23,143 21
Public Administration............... 9,437 * - - 10,400 * - -
Other............................... 107,749 2 160 * 119,095 2 1,314 1
Total............................. $5,662,708 100% $85,805 100% $5,212,830 100% $109,262 100%
* Less than one percent
/TABLE
<PAGE>
<TABLE>
<CAPTION>
TABLE 9: COMMERCIAL REAL ESTATE
(Dollars in Thousands)
Outstanding Loans June 30, 1994 June 30, 1993
Investor-Developer Owner-Occupied Total Total
Commercial Commercial Commercial Commercial
Mortgage Construction Mortgage Construction Mortgage Construction Mortgage Construction
---------- ---------- ---------- ----------- ----------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Apartment Buildings..... $220,574 $4,943 - - $220,574 $4,943 $219,660 $3,719
Office Buildings........ 155,130 21,107 $182,166 $8,311 337,296 29,418 305,824 23,374
Residential Properties.. - 91,994 - - - 91,994 - 97,438
Shopping Centers........ 135,267 33,729 77,217 3,181 212,484 36,910 205,042 30,427
Land.................... - 40,000 - - - 40,000 - 44,124
Industrial Plants....... 79,103 22,977 204,193 4,439 283,296 27,416 306,806 25,260
Hotel/Motel/Restaurant.. 118,423 6,377 - - 118,423 6,377 123,156 5,643
Healthcare Facilities... - - 95,774 30,520 95,774 30,520 97,523 33,302
Other................... 128,015 11,944 238,964 17,066 366,979 29,010 370,458 19,467
Total................. $836,512 $233,071 $798,314 $63,517 $1,634,826 (1) $296,588 (1) $1,628,469 $282,754
<FN>
(1) The geographic distribution by state is as follows:
Pennsylvania $1,546,470 (80%), Delaware $234,526 (12%), New
Jersey $90,779 (5%), and all other states $59,639 (3%).
<CAPTION>
Non-Accrual Loans June 30, 1994 June 30, 1993
Investor-Developer Owner-Occupied Total Total
Commercial Commercial Commercial Commercial
Mortgage Construction Mortgage Construction Mortgage Construction Mortgage Construction
---------- ---------- ---------- ----------- ----------- ---------- ------------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Apartment Buildings..... $6,240 $3,156 - - $6,240 $3,156 $11,801 -
Office Buildings........ 1,022 - $1,386 - 2,408 - 2,406 -
Residential Properties.. - 335 - - - 335 - $1,318
Shopping Centers........ 2,465 - 1,320 - 3,785 - 1,111 -
Land.................... - 736 - - - 736 - 1,324
Industrial Plants....... 1,113 - 3,838 - 4,951 - 8,916 -
Hotel/Motel/Restaurant.. 7,023 293 - - 7,023 293 6,907 311
Other................... 1,886 - 2,338 - 4,224 - 6,990 -
Total................. $19,749 $4,520 $8,882 - $28,631 (2) $4,520 (2) $38,131 $2,953
<FN>
(2) The geographic distribution by state is as follows:
Pennsylvania $29,769, (90%), Delaware $1,748 (5%), New
Jersey $758 (2%), and all other states $876 (3%).
<CAPTION>
Assets Acquired in June 30, June 30,
Foreclosures (3) 1994 1993
---------- ----------
<S> <C> <C>
Apartment Buildings................. $423 $55
Office Buildings.................... 14,077 15,592
Shopping Centers.................... 339 75
Residential Properties.............. 3,784 6,854
Land................................ 4,158 12,401
Industrial Plants................... 5,716 2,629
Hotel/Motel/Restaurant.............. 2,899 4,181
Other............................... 3,324 5,738
Total............................. $34,720 (4) $47,525
<FN>
(3) Includes Assets Considered to be in an In-Substance
Foreclosure status.
(4) The geographic distribution by state is as follows:
Pennsylvania $25,710 (74%), Delaware $388 (1%), New Jersey
$5,305 (15%), and all other states $3,317 (10%).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 10: CAPITAL ADEQUACY
June 30, March 31, December 31, September 30, June 30,
1994 1994 1993 1993 1993
--------- --------- ----------- ------------ ----------
<S> <C> <C> <C> <C> <C>
Consolidated
Total Shareholders' Equity to Assets..... 7.99% 8.52% 8.42% 8.00% 7.81%
Tangible Shareholders' Equity to Assets.. 7.39 7.95 7.78 7.36 7.06
Risk-Based Capital
Tier 1.............................. 9.66 9.73 9.60 9.12 8.95
Tier 2.............................. 3.64 4.08 4.07 4.04 4.10
Total (1,2)....................... 13.30 13.81 13.67 13.16 13.05
Leverage (1,2)........................... 7.84 8.12 7.84 7.41 7.30
Tangible Leverage........................ 7.75 8.03 7.43 7.29 7.18
Banking
Total Risk-Based Capital (1,2)
Meridian Bank........................ 12.66 12.51 12.24 11.71 11.47
Delaware Trust Company............... 13.56 13.12 13.07 12.87 12.88
Meridian Bank, New Jersey............ 16.67 15.19 16.69 16.55 17.42
<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.
</TABLE>
<PAGE>
Item 1. FINANCIAL STATEMENTS.
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
June 30, June 30, December 31,
1994 1993 1993
------------- ------------- -------------
<S> <C> <C> <C>
ASSETS
Cash and Due from Banks...................................... $881,261 $534,118 $587,587
Short-Term Investments
Interest-Bearing Deposits in Other Banks.................. 114,031 113,447 101,860
Federal Funds Sold and Securities Purchased Under
Agreements to Resell................................... 158,719 22,422 14,694
Total Short-Term Investments........................... 272,750 135,869 116,554
Trading Account Securities................................... 220,460 104,038 36,616
Investment Securities Available for Sale
(Fair Value, $350,968, $820,249 and $288,152 at
June 30, 1994, June 30, 1993 and December 31, 1993,
Respectively)......................................... 350,968 791,446 275,663
Investment Securities
(Fair Value $2,934,907, $2,849,333 and $2,813,100 at
June 30, 1994, June 30, 1993 and December 31, 1993,
Respectively).......................................... 2,998,714 2,806,419 2,784,484
Mortgage Loans and Related Assets Held for Sale.............. 381,037 501,255 655,844
Total Loans, Net of Unearned Discount........................ 9,509,716 8,626,402 8,988,044
Less Allowance for Possible Loan Losses................. 170,335 167,961 173,388
Net Loans........................................... 9,339,381 8,458,441 8,814,656
Premises and Equipment....................................... 244,687 236,639 241,584
Accrued Interest Receivable.................................. 106,462 104,841 103,250
Other Assets................................................. 400,367 730,273 468,549
Total Assets..................................... $15,196,087 $14,403,339 $14,084,787
LIABILITIES
Deposits
Non-Interest Bearing Deposits............................. $1,957,170 $1,784,730 $1,849,425
Interest-Bearing Deposits................................. 9,721,432 9,648,729 9,496,726
Total Deposits......................................... 11,678,602 11,433,459 11,346,151
Short-Term Borrowings
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase......................... 1,242,301 817,929 540,255
Commercial Paper.......................................... 14,463 - 2,500
Other Short-Term Borrowings............................... 368,689 212,194 248,968
Total Short-Term Borrowings............................ 1,625,453 1,030,123 791,723
Long-Term Debt and Other Borrowings.......................... 363,646 493,176 421,291
Accrued Interest Payable..................................... 50,605 55,262 59,581
Other Liabilities............................................ 263,187 266,384 280,408
Total Liabilities...................................... 13,981,493 13,278,404 12,899,154
COMMITMENTS AND CONTINGENCIES (Note 4)
SHAREHOLDERS' EQUITY
Preferred Stock (Par Value $25.00)
Authorized - 25,000,000 Shares
Common Stock (Par Value $5.00)
Authorized - 200,000,000 Shares
Issued - 58,316,978 shares at June 30, 1994; Issued
and Outstanding - 57,324,897 and 58,154,486 shares at
at June 30, 1993 and December 31, 1993, Respectively... 291,585 286,625 290,761
Surplus...................................................... 207,271 195,620 205,173
Retained Earnings............................................ 731,369 642,690 689,699
Treasury Stock - 514,256 shares in 1994 at cost.............. (15,631) - -
Total Shareholders' Equity............................. 1,214,594 1,124,935 1,185,633
Total Liabilities and Shareholders' Equity........ $15,196,087 $14,403,339 $14,084,787
See accompanying Notes to Consolidated Financial Statements.
/TABLE
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF INCOME
(Dollars In Thousands, Except Per Share Data)
Three Months Ended Six Months Ended
June 30 June 30
1994 1993 1994 1993
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans.............................. $186,992 $175,249 $359,045 $349,220
Interest on Trading Account Securities.................. 2,567 1,947 4,341 3,495
Interest on Investment Securities Available for Sale.... 5,354 13,070 9,750 27,528
Interest on Investment Securities....................... 38,196 41,812 74,181 80,733
Interest on Mortgage Loans Held for Sale................ 6,727 9,538 13,131 17,869
Other Interest Income................................... 2,106 1,352 3,255 3,181
Total Interest Income................................ 241,942 242,968 463,703 482,026
INTEREST EXPENSE
Interest on Deposits.................................... 65,382 71,976 126,807 148,509
Interest on Short-Term Borrowings....................... 14,305 7,991 20,777 14,140
Interest on Long-Term Debt and Other Borrowings......... 6,195 8,362 13,353 14,305
Total Interest Expense............................... 85,882 88,329 160,937 176,954
NET INTEREST INCOME........................................ 156,060 154,639 302,766 305,072
PROVISION FOR POSSIBLE LOAN LOSSES......................... 6,684 14,656 15,184 28,990
NET INTEREST INCOME AFTER PROVISION FOR
POSSIBLE LOAN LOSSES.................................... 149,376 139,983 287,582 276,082
OTHER INCOME
Trust................................................... 11,165 9,427 21,953 19,905
Mortgage Banking........................................ 4,174 19,416 12,065 35,964
Amortization of and Reserves for Purchased Mortgage
Servicing Rights and Other Servicing-Related Assets. (18) (7,660) (59) (27,135)
Net Mortgage Banking.............................. 4,156 11,756 12,006 8,829
Broker-Dealer and Investment Banking.................... 14,176 15,813 29,485 28,638
Service Charges on Deposit Accounts..................... 13,899 13,333 27,025 25,963
Fees for Other Customer Services ....................... 11,820 10,468 22,133 20,229
Net Securities Gains (Losses)........................... (49) 8,766 641 14,736
Other Operating Income.................................. 2,850 3,059 5,347 5,540
Total Other Income................................... 58,017 72,622 118,590 123,840
OTHER EXPENSES
Salaries and Employee Benefits.......................... 72,657 71,177 147,839 141,806
Net Occupancy Expense................................... 11,154 10,341 23,226 20,849
Equipment Expense....................................... 9,709 9,536 19,432 19,014
Other Operating Expenses................................ 54,407 60,594 97,036 114,275
Total Other Expenses................................. 147,927 151,648 287,533 295,944
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGES IN ACCOUNTING PRINCIPLES.............. 59,466 60,957 118,639 103,978
Provision for Income Taxes................................. 18,682 17,417 37,316 30,133
INCOME BEFORE CUMULATIVE EFFECT OF CHANGES
IN ACCOUNTING PRINCIPLES................................ 40,784 43,540 81,323 73,845
CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGE
IN METHOD OF ACCOUNTING FOR POSTEMPLOYMENT
BENEFITS, NET OF RELATED TAXES OF $1,470................. - - (2,730) -
CUMULATIVE EFFECT ON PRIOR YEARS OF CHANGE
IN METHOD OF ACCOUNTING FOR INCOME TAXES................ - - - 7,221
NET INCOME................................................. $40,784 $43,540 $78,593 $81,066
PER COMMON SHARE
Income Before Cumulative Effects of Changes
in Accounting Principles
Primary.............................................. $0.70 $0.75 $1.40 $1.28
Fully Diluted........................................ $0.70 $0.75 $1.40 $1.28
Cumulative Effects of Changes in Accounting Principles
Primary.............................................. - - ($0.05) $0.13
Fully Diluted........................................ - - ($0.05) $0.13
Net Income
Primary.............................................. $0.70 $0.75 $1.35 $1.41
Fully Diluted........................................ $0.70 $0.75 $1.35 $1.41
Dividends Declared ..................................... $0.34 $0.32 $0.66 $0.62
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
For the Six Months Ended June 30
--------------------------------
1994 1993
------------ -----------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Income from Operating Activities ............................ $78,593 $81,066
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities
Depreciation and Amortization (Including Amortization
of Purchased Mortgage Servicing Rights)................. 25,006 46,279
Deferred Tax Expense (Benefit)............................ 2,356 (2,019)
Cumulative Effect on Prior Years of Change in Method
of Accounting for Income Taxes - (7,221)
Provision for Possible Loan Losses........................ 15,184 28,990
Provision for Other Real Estate Losses and Mortgage
Mortgage Servicing Recourse............................. 6,895 11,684
Net Gains - Investment Securities......................... (410) (10,332)
Net Gains - Investment Securities Available for Sale...... (229) (5,045)
Gains On Sales Of Mortgage Servicing....................... - (15,873)
Increase in Trading Account Securities.................... (183,844) (38,781)
Decrease (Increase) in Mortgage Loans and Related
Assets Held for Sale.................................... 256,352 (4,684)
Decrease (Increase) in Other Assets....................... 58,417 (71,465)
Increase (Decrease) in Other Liabilities.................. (29,918) 52,311
Other, Net................................................ 2,666 (2,962)
Net Cash Provided by Operating Activities 231,068 61,948
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities of Short-Term Investments........... 147,515 188,209
Purchases of Short-Term Investments.......................... (159,688) (135,355)
Proceeds from Maturities, Calls and Paydowns of Securities... 591,274 534,549
Proceeds from Sales of Investment Securities................. 156 101,878
Purchases of Investment Securities........................... (826,281) (951,111)
Proceeds from Sales and Maturities of Investment Securities
Available for Sale......................................... 68,491 456,879
Purchases of Investment Securities Available for Sale........ (123,486) (310,850)
Net Principal Disbursed on Loans to Customers................ (561,602) (130,086)
Proceeds from Sales of Premises and Equipment................ 6,790 1,987
Purchases of Premises and Equipment.......................... (25,502) (14,659)
Proceeds from Sales of Mortgage Servicing.................... 4,804 20,144
Purchases of Mortgage Servicing.............................. - (1,458)
Other, Net................................................... 30,979 32,049
Net Cash Used for Investing Activities.................... (846,550) (207,824)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase (Decrease) in Deposits.......................... 331,623 (339,596)
Net Increase in Short Term Borrowings ....................... 833,730 153,280
Proceeds from Issuance of Long-Term Debt..................... - 185,582
Repayment of Long Term Borrowings............................. (57,821) (8,167)
Purchases of Treasury Stock.................................. (17,690) -
Proceeds from Issuance of Common Stock........................ 1,448 8,093
Cash Dividends Paid to Common Shareholders................... (38,109) (32,798)
Net Cash Provided by (Used for) Financing Activities...... 1,053,181 (33,606)
CASH AND CASH EQUIVALENTS
Net Increase (Decrease) During the Period................. 437,699 (179,482)
Balance at Beginning of the Period........................ 602,281 736,022
Balance at End of the Period.............................. $1,039,980 $556,540
</TABLE>
Cash and cash equivalents include cash and due from banks,
federal funds sold, and securities purchased under agreements to
resell. Income tax payments totaled $18,709 in 1994, and $36,357
in 1993. Interest payments totaled $180,089 in 1994 and $202,719
in 1993. Noncash investing activity consists of net transfers of
loans in liquidation to other real estate aggregating $21,580 in
1994 and $29,243 in 1993, and a transfer of non-accrual
residential mortgage loans of $8,000 and foreclosed real estate
of $7,000 to mortgage loans and related assets held for sale.
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in Thousands)
Common Stock Retained Treasury
Shares Amount Surplus Earnings Stock Total
------------ ---------- ---------- ---------- ---------- ------------
<S> <C> <C> <C> <C> <C> <C>
FOR THE SIX MONTHS ENDED
JUNE 30, 1993
Balance at January 1, 1993 as previously reported........... 45,584,924 $227,925 $177,597 $498,896 - $904,418
Adjustment for merger accounted for as a
pooling of interests.................................... 10,906,472 54,521 2,754 97,626 - 154,901
Balance at January 1, 1993 as restated...................... 56,491,396 282,446 180,351 596,522 - 1,059,319
Net Income.................................................. - - - 81,066 - 81,066
Common Stock Dividends Declared............................. - - - (32,798) - (32,798)
Sales of Stock Under Dividend Reinvestment,
Stock Option and Employee Benefit Plans.................. 356,552 1,783 6,313 - - 8,096
Unrealized Loss on Marketable
Equity Securities........................................ - - - (264) - (264)
Common Stock Issued in Merger............................... 476,949 2,385 8,970 (1,836) - 9,519
Cash in Lieu of Fractional Shares........................... - - (3) - - (3)
Balance at June 30, 1993.................................... 57,324,897 $286,614 $195,631 $642,690 - $1,124,935
FOR THE SIX MONTHS ENDED
JUNE 30, 1994
Balance at January 1, 1994................................... 58,154,486 $290,761 $205,173 $689,699 - $1,185,633
Net Income................................................... - - - 78,593 - 78,593
Common Stock Dividends Declared.............................. - - - (38,109) - (38,109)
Sales of Stock Under Dividend Reinvestment,
Stock Option and Employee Benefit Plans................... 79,774 50 (94) (561) $2,059 1,454
Purchases of Treasury Stock.................................. (586,250) - - - (17,690) (17,690)
Unrealized Gain on Investment Securities Available for Sale.. - - - 1,747 - 1,747
Common Stock Issued in Merger................................ 154,712 774 2,198 - - 2,972
Cash in Lieu of Fractional Shares............................ - - (6) - - (6)
Balance at June 30, 1994..................................... 57,802,722 $291,585 $207,271 $731,369 ($15,631) $1,214,594
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
<PAGE>
Notes to Consolidated Financial Statements
1) Summary of Significant Accounting Policies
The accounting policies and reporting practices of Meridian
Bancorp, Inc., (Meridian) are in accordance with generally
accepted accounting principles and have been followed on a
consistent basis.
This Quarterly Report should be read in conjunction with the
1993 Annual Report. Financial information for the interim
periods is not independently audited. However, the financial
information furnished in this report reflects all adjustments
which are, in the opinion of management, necessary for a fair
presentation of the financial condition and results of operations
of the interim periods. Such adjustments are of a normal
recurring nature.
The results of operations for the interim periods are not
necessarily indicative of the consolidated results to be expected
for the entire year.
The consolidated financial statements include the accounts
of Meridian and its wholly owned subsidiaries. All significant
intercompany accounts and transactions have been eliminated.
Certain amounts in the 1993 financial statements have been
reclassified to conform with the presentation used in the 1994
financial statements. These reclassifications have no effect on
net income.
2) Acquisitions
In June 1994, Meridian Bank, New Jersey, a banking
subsidiary of Meridian, assumed approximately $487 million of
deposits and paid a premium of $42 million to the Resolution
Trust Corporation, in exchange for $14 million in home equity
loans and $431 million in cash in connection with the acquisition
of 29 branches of the former Security Federal Savings Bank. The
transaction was treated as a purchase for financial accounting
purposes.
In July 1994, Meridian acquired 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 was treated as
a purchase for financial accounting purposes.
3) Securities Transactions
Total gains (losses) from securities transactions, which
were included in the following categories in the other income
section of the consolidated statements of income, are as follows:
Three Months Ended
June 30
1994 1993
Broker-Dealer and Investment
Banking $ 5,000 $ 640,000
Net Securities Gains (Losses) ( 49,000) 8,766,000
Total Securities Gains (Losses) ($44,000) $9,406,000
Six Months Ended
June 30
1994 1993
Broker-Dealer and Investment
Banking ($2,000) $ 641,000
Net Securities Gains (Losses) 641,000 14,736,000
Total Securities Gains (Losses) $639,000 $15,377,000
4) Commitments and Contingencies
At June 30, 1994, there were outstanding commitments,
contingent liabilities, and off-balance sheet financial
instruments on which management does not anticipate any material
losses. These include, among other things, commitments to extend
credit, letters of credit undertaken in the normal course of
business, and various off-balance sheet financial instruments
used in conducting Meridian's business activities and in managing
its balance sheet risks.
Meridian and certain of its subsidiaries were party
(plaintiff or defendant) to a number of lawsuits. While any
litigation has an element of uncertainty, management after
reviewing these actions with its legal counsel, is of the opinion
that the liability, if any, resulting from all legal actions will
not have a material effect on the consolidated financial
condition or results of operations of Meridian.
<PAGE>
PART II
Item 4. SUBMISSION OF MATTERS TO VOTE OF SECURITY HOLDERS
The 1994 Annual Meeting of Shareholders (the "Meeting") of the
Company was held on April 26, 1994. Notice of the Meeting was
mailed to shareholders on or about March 25, 1994, together with
proxy solicitation materials prepared in accordance with
Section 14(a) of the Securities Exchange Act of 1934, as amended,
and the regulations promulgated thereunder.
The Meeting was held for the following purposes:
1. to elect eight Class II directors to hold office
for three years from the date of election and until their
successors are elected and qualified (Matter No. 1);
2. to consider and act upon a proposal to amend the
Company's Articles of Incorporation to increase the number of
authorized shares of common stock from 100,000,000 shares to
200,000,000 shares (Matter No. 2);
3. to ratify the appointment by the Company's Board
of Directors of KPMG Peat Marwick as the Company's independent
auditors for the fiscal year ending December 31, 1994 (Matter
No. 3); and
4. to consider and act upon a shareholder proposal to
provide for cumulative voting in the election of directors
(Matter No. 4).
There was no solicitation in opposition to the nominees of the
Board of Directors for election to the Board of Directors. All
nominees of the Board of Directors were elected. The number of
votes cast for or withheld, as well as the number of abstentions
and broker nonvotes for each of the nominees for election to the
Board of Directors were as follows:
Abstentions and
Nominee For Withheld Broker Nonvotes
Thomas F. Burke, Jr. 48,415,970 264,644 0
Julius W. Erving 48,372,000 308,614 0
Fred D. Hafer 48,404,639 275,975 0
Joseph H. Jones 48,357,652 322,962 0
Ezekiel S. Ketchum 48,431,859 248,755 0
Daniel H. Polett 48,410,181 270,433 0
Wilmer R. Schultz 48,434,646 245,968 0
Robert B. Seidel 48,406,346 274,268 0
Matter Nos. 2 and 3 were approved by shareholders at the
Meeting. Matter No. 4 was not approved by shareholders at the
Meeting. The votes cast on each of these Matters were as
follows:
Abstentions and
Matter For Against Broker Nonvotes
No. 2 45,431,240 2,879,050 370,324
No. 3 48,381,759 133,906 164,949
No. 4 8,733,234 33,186,066 6,761,314<PAGE>
Item 5. OTHER EVENTS.
The Company and Meridian Trust Company, as Rights Agent, are
parties to a certain Rights Agreement dated as of July 25, 1989
(the "Rights Agreement") relating to the Company's shareholder
rights plan (the "Plan"). A description of the Plan and a copy
of the Rights Agreement are included in the Company's Current
Report on Form 8-K, dated July 25, 1989. On June 28, 1994, the
Board of Directors of the Company approved certain amendments to
the Plan. As a result, the Company and Meridian Trust Company,
as the Rights Agent, have executed an Amendment to Rights
Agreement dated as of June 28, 1994 (the "Amendment"). The
Amendment (i) extends the term of the Rights Agreement to
July 25, 1999; (ii) deletes from the Rights Agreement a provision
that required a shareholder vote on whether to redeem Rights
under certain limited circumstances; and (iii) increases the
exercise price for Rights from $85.00 to $110.00.
The description of the Amendment included herein is
qualified in its entirety by reference to the copy of the
Amendment filed as Exhibit 4.1 hereof.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
4.1 Amendment to Rights Agreement dated as of
June 28, 1994 between Meridian Bancorp, Inc.
and Meridian Trust Company.
(b) Reports on Form 8-K
None.<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
August 12, 1994 /s/ Michael J. Mizak, Jr.
Michael J. Mizak, Jr.,
Senior Vice President and Controller
(Authorized Officer and Principal
Accounting Officer)
<PAGE>
EXHIBIT INDEX
Exhibit No. Description
4.1 Amendment to Rights
Agreement dated as of
June 28, 1994 between
Meridian Bancorp, Inc.
and Meridian Trust
Company
AMENDMENT TO RIGHTS AGREEMENT
Amendment, dated as of June 28, 1994, to the Rights
Agreement, dated as of July 25, 1989 (the "Rights Agreement"),
between MERIDIAN BANCORP, INC., a Pennsylvania business
corporation (the "Company") and MERIDIAN TRUST COMPANY, a
Pennsylvania trust company, as Rights Agent (the "Rights Agent").
WITNESSETH
WHEREAS, the existing Rights Agreement between the
Company and the Rights Agent expires by its terms on July 25,
1994;
WHEREAS, no Distribution Date (as defined in the Rights
Agreement) has occurred;
WHEREAS, the Board of Directors deems it advisable and
in the best interests of the Company to extend the expiration
date of the Rights Agreement to July 25, 1999, and to make
certain other changes in the Rights Agreement as set forth
herein; and
WHEREAS, the Board of Directors of the Company has
adopted, in accordance with Section 27 of the Rights Agreement, a
resolution approving this Amendment and directing the appropriate
officers of the Company to take all appropriate steps to execute
and put into effect this Amendment and an appropriate officer of
the Company has provided a certificate to the Rights Agent as
provided for in such Section 27.
NOW, THEREFORE, in consideration of the premises and
covenants set forth in the Rights Agreement and this Amendment,
the parties hereby agree as follows:
1. Sections 7(a) and 7(b) of the Rights Agreement are
hereby amended to read in their entirety as follows:
"(a) Subject to Section 7(e) hereof, the
registered holder of any Rights Certificate may
exercise the Rights evidenced thereby (except as
otherwise provided herein including, without
limitation, the restrictions on exercisability set
forth in Section 9(c), Section 11(a)(iii), and Section
23(a) hereof) in whole or in part at any time after the
Distribution Date upon surrender of the Rights
Certificate, with the form of election to purchase and
the certificate on the reverse side thereof duly
executed, to the Rights Agent at the principal office
or offices of the Rights Agent designated for such
purpose, together with payment of the aggregate
Purchase Price with respect to the total number of one
one-hundredths of a share (or other securities, cash,
or other assets, as the case may be) as to which such
surrendered Rights are then exercisable, at or prior to
the earliest of (i) the close of business on July 25,
1999 (the "Final Expiration Date"), (ii) the time at
which the Rights are redeemed as provided in Section 23
hereof (the earlier of (i) and (ii) being herein
referred to as the "Expiration Date"), or (iii) the
time at which such Rights are exchanged as provided in
Section 24 hereof.
(b) The Purchase Price for each one one-
hundredth of a share of Preferred Stock pursuant to the
exercise of a Right shall initially be $110.00, and
shall be subject to adjustment from time to time as
provided in Sections 11 and 13(a) hereof and shall be
payable in accordance with paragraph (c) below."
2. Section 23 of the Rights Agreement is hereby
amended to read in its entirety as follows:
"Section 23. Redemption and Termination.
(a) The Board of Directors of the
Company may, at its option, at any time prior to the
earlier of (i) the close of business on the tenth
Business Day following the Stock Acquisition Date (or
such later date as may be determined by a majority of
the Continuing Directors; provided, however, that such
date shall not be extended at such time as the Rights
are not then redeemable), or (ii) the Final Expiration
Date, redeem all but not less than all the then
outstanding Rights at a redemption price of $.001 per
Right, as such amount may be appropriately adjusted to
reflect any stock split, stock dividend, or similar
transaction occurring after the date hereof (such
redemption price being hereinafter referred to as the
"Redemption Price"); provided, however, that if,
following the occurrence of the Stock Acquisition Date
and following the expiration of the right of redemption
hereunder but prior to any Triggering Event, (i) a
Person who is an Acquiring Person shall have
transferred or otherwise disposed of a number of shares
of Common Stock in one transaction or series of
transactions, not directly or indirectly involving the
Company or any of its Subsidiaries, such that such
Person is thereafter a Beneficial Owner of 10% or less
of the outstanding shares of Common Stock or Voting
Securities representing 10% or less of Total Voting
Power, and (ii) there are no other Persons, immediately
following the occurrence of the event described in
clause (i), who are Acquiring Persons, then the right
of redemption shall be reinstated and thereafter be
subject to the provisions of this Section 23.
Notwithstanding the foregoing, the Board of Directors
may not redeem any Rights following a determination
pursuant to Section 11(a)(ii)(B) that any Person is an
Adverse Person.
(b) Notwithstanding anything contained
in this Agreement to the contrary, the Rights shall not
be exercisable after the first occurrence of a Section
11(a)(ii) Event until such time as the Company's right
of redemption hereunder has expired. The Company may,
at its option, pay the Redemption Price in cash, shares
of Common Stock (based on the "current market price,"
as defined in Section 11(d)(i) hereof, of the Common
Stock at the time of redemption), or any other form of
consideration deemed appropriate by the Board of
Directors. Immediately upon the action of the Board of
Directors of the Company ordering the redemption of the
Rights, and without any further action and without any
notice, the right to exercise the Rights will terminate
and the only right thereafter of the holders of Rights
shall be to receive the Redemption Price for each Right
so held. The Company shall promptly give public notice
of such redemption and notice to the Rights Agent;
provided, however, the failure to give, or any defect
in, any such notice shall not affect the validity of
such redemption. Within 10 days after such action of
the Board of Directors ordering the redemption of the
Rights, the Company shall mail a notice to all holders
of the then outstanding Rights at each holder's last
address as it appears upon the registry books of the
transfer agent for the Common Stock. Any notice which
is mailed in the manner herein provided shall be deemed
given, whether or not the holder receives the notice.
Each such notice of redemption will state the method by
which the payment of the Redemption Price will be
made."
3. Section 27 of the Rights Agreement is hereby
amended to change the word "penultimate" appearing therein to
"last."
4. Section 1(p) of the Agreement (relating to the
definition of "Offer") is hereby amended to read in its entirety
as follows:
"(p) Intentionally omitted."
5. The seventh full paragraph of Exhibit B to the
Rights Agreement (relating to redemption of Rights by stockholder
vote) is hereby deleted.
6. On or after the date hereof, each reference in the
Rights Agreement (including the Exhibits thereto) to "This
Agreement," "hereunder," "herein" or words of like import shall
mean and be a reference to the Rights Agreement as amended hereby
and all Exhibits thereto shall be deemed to be amended to reflect
the amendments made hereby.
7. This Amendment shall be effective as of the date
of its execution and, except as set forth herein, the Rights
Agreement shall remain in full force and effect and shall be
otherwise unaffected hereby.
8. Capitalized terms which are used but not defined
herein shall have the meaning ascribed to such terms in the
Rights Agreement.
9. If any term, provision, covenant, or restriction
of this Amendment is held by a court of competent jurisdiction or
other authority to be invalid, void, or unenforceable, the
remainder of the terms, provisions, covenants, and restrictions
of this Amendment shall remain in full force and effect and shall
in no way be affected, impaired, or invalidated.
10. This Amendment shall be deemed to be a contract
made under the laws of the Commonwealth of Pennsylvania and for
all purposes shall be governed by and construed in accordance
with the laws of the Commonwealth applicable to contracts made
and to be performed entirely within the Commonwealth.
11. This Amendment may be executed in any number of
counterparts and each of such counterparts shall for all purposes
be deemed to be an original, and all such counterparts shall
together constitute but one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment to be duly executed, all as of the day and year first
above written.
MERIDIAN BANCORP, INC.
By/s/ Samuel A. McCullough
Attest:/s/ William L. Gaunt
MERIDIAN TRUST COMPANY
By/s/ George W. Grosz
Attest:/s/ David Rittenhouse
