SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549
FORM 10-Q
[X] Quarterly report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the quarterly period
ended September 30, 1995 or
[ ] Transition report pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934 for the transition period
from __________ to __________.
No. 0-12364
(Commission File Number)
MERIDIAN BANCORP, INC.
(Exact Name of Registrant as Specified in its Charter)
PENNSYLVANIA 23-2237529
(State of Incorporation) (IRS Employer ID Number)
35 NORTH SIXTH STREET, READING, PA 19601
(Address of Principal Executive Offices) (Zip Code)
(610) 655-2000
(Registrant's Telephone Number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports) and (2) has been subject to such filing
requirements for the past 90 days. Yes X No ___
Number of Shares Outstanding as of September 30, 1995
COMMON STOCK ($5 Par Value) 57,822,604
(Title of Class) (Outstanding Shares)
<PAGE>
MERIDIAN BANCORP, INC.
FORM 10-Q
For the Quarter Ended September 30, 1995
Contents
PART I - FINANCIAL INFORMATION Page No.
Item 1. Financial Statements
Consolidated Balance Sheets as of
September 30, 1995 and
September 30 and December 31,
1994 37
Consolidated Statements of Income for
the Three-Month and Nine-Month
Periods Ended September 30, 1995
and 1994 39
Consolidated Statements of Changes in
Shareholders' Equity for the
Nine-Month Periods Ended September 30,
1995 and 1994 41
Consolidated Statements of Cash Flows
for the Nine-Month Periods Ended
September 30, 1995 and 1994 43
Notes to Consolidated Financial Statements 45
Item 2. Management's Discussion and Analysis of
Financial Condition and Results of
Operations
Management's Discussion and Analysis of
Earnings and Financial Position 1
PART II - OTHER INFORMATION
Item 5. Other events 53
Item 6. Exhibits and Reports on Form 8-K 53
<PAGE>
PART I
Item 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF EARNINGS AND
FINANCIAL POSITION.
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF EARNINGS AND FINANCIAL POSITION
(Dollars in Thousands, Except Per Share Data)
Third Second First Fourth Third
Quarter Quarter Quarter Quarter Quarter
1995 1995 1995 1994 1994
____________ _____________ _____________ _____________ _____________
<S> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
Interest Income...................................... $279,002 $282,441 $273,735 $264,121 $257,210
Interest Expense..................................... 123,436 129,154 123,258 110,888 100,799
Net Interest Income.................................. 155,566 153,287 150,477 153,233 156,411
Provision for Possible Loan Losses................... 10,510 10,121 8,021 6,069 6,493
Net Interest Income After Provision for
Possible Loan Losses............................... 145,056 143,166 142,456 147,164 149,918
Non-Interest Income.................................. 62,954 67,109 57,757 57,453 57,302
Non-Interest Expenses
Restructuring Charge............................... 32,000
All Other Expenses................................. 127,361 140,537 140,404 144,102 153,686
Total Non-Interest Expenses.......................... 127,361 172,537 140,404 144,102 153,686
Income Before Income Taxes........................... 80,649 37,738 59,809 60,515 53,534
Provision For Income Taxes........................... 26,277 11,809 18,574 16,370 16,914
Net Income........................................... $54,372 $25,929 $41,235 $44,145 $36,620
Income Before Restructuring Charge................... $46,729
Net Interest Margin.................................. 4.71% 4.60% 4.58% 4.60% 4.65%
Return on Average Assets............................. 1.48% 0.70% 1.13% 1.18% 0.97%
Before Restructuring Charge........................ 1.26%
Return on Average Common Shareholders' Equity........ 17.33% 8.43% 13.90% 14.33% 11.95%
Before Restructuring Charge........................ 15.18%
Fully Diluted Earnings Per Share
Net Income......................................... $0.96 $0.45 $0.73 $0.77 $0.63
Before Restructuring Charge........................ $0.82
Dividends Per Common Share........................... $0.37 $0.37 $0.34 $0.34 $0.34
Ratio of Dividends to Net Income..................... 38% 80% 46% 44% 54%
FINANCIAL CONDITION
AVERAGE BALANCES
Loans................................................ $10,126,069 $9,976,992 $9,775,050 $9,545,556 $9,499,372
Assets............................................... 14,558,994 14,856,841 14,822,105 14,826,353 14,996,590
Deposits............................................. 11,080,920 11,246,269 11,097,803 11,230,079 11,380,801
Total Shareholders' Equity........................... 1,244,898 1,234,380 1,203,192 1,222,293 1,215,464
Primary Shares Outstanding........................... 56,730,655 56,452,388 56,452,905 57,535,268 58,301,343
Fully Diluted Shares Outstanding..................... 56,744,217 56,593,898 56,562,364 57,535,268 58,301,343
Total Shareholders' Equity to Assets................. 8.55% 8.31% 8.12% 8.24% 8.10%
AT QUARTER-END
Loans................................................ $10,246,035 $10,056,692 $9,906,538 $9,763,523 $9,444,630
Assets............................................... 14,563,170 14,911,173 14,996,342 15,052,647 14,782,400
Deposits............................................. 11,104,414 11,528,876 11,137,466 11,379,567 11,310,179
Total Shareholders' Equity........................... 1,266,311 1,236,161 1,222,835 1,215,085 1,231,596
Book Value Per Common Share.......................... 22.65 22.12 21.90 21.50 21.31
Common Shares Outstanding............................ 55,897,604 55,886,536 55,826,807 56,506,642 57,803,902
Total Shareholders' Equity to Assets................. 8.70% 8.29% 8.15% 8.07% 8.33%
Risk-Based Capital Ratio............................. 13.04% 12.76% 12.80% 12.73% 13.07%
Allowance for Possible Loan Losses................... 174,133 170,684 168,426 169,402 173,503
Allowance for Possible Loan Losses to Loans.......... 1.70% 1.70% 1.70% 1.74% 1.84%
Allowance for Possible Loan Losses to
Non-Performing Loans............................... 195% 171% 158% 176% 168%
<PAGE>
Non-Performing Assets as a Percentage of Total
Period-End Loans and Assets Acquired
in Foreclosure..................................... 1.03% 1.17% 1.33% 1.24% 1.35%
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....................................... 1.30% 1.39% 1.57% 1.47% 1.56%
</TABLE>
<PAGE>
MANAGEMENT'S DISCUSSION AND
ANALYSIS OF EARNINGS AND FINANCIAL POSITION
FINANCIAL HIGHLIGHTS
Meridian Bancorp, Inc. (Meridian) reported record net income
of $54.4 million in the third quarter of 1995 compared to
$36.6 million in the third quarter of 1994, an increase of 48%.
On a fully-diluted per share basis, net income was $.96 compared
to $.63 last year, a 52% increase.
The returns on average assets and on average common
shareholders' equity for the quarter ended September 30, 1995
were 1.48% and 17.33%, respectively, compared to .97% and 11.95%,
respectively, for the same quarter of last year.
The growth in net income reflects the underlying strength of
the core banking operations and the success of the previously
announced "59.9" program designed to improve Meridian's operating
performance.
Net interest income was $155.6 million in the third quarter
of 1995 compared to $156.4 million in the third quarter of 1994.
On a taxable-equivalent basis, net interest income was
$159.4 million compared to $160.8 million in the third quarter of
1994. The net interest margin was 4.71% in the third quarter of
this year compared to 4.65% a year ago and 4.60% in the second
quarter of 1995. The increase in the net interest margin from
last year resulted from a change in the mix of interest-earning
assets, as growth in the loan portfolio was funded by a reduction
in the investment portfolio.
The provision for possible loan losses was $10.5 million in
the third quarter of 1995 compared to $6.5 million in the third
quarter of 1994 and $10.1 million in the second quarter of 1995.
The higher provision reflects the growth in loans during the past
year.
Non-performing loans were $89.5 million or .87% of loans at
September 30, 1995 compared to $100.0 million or .99% at June 30,
1995 and $103.4 million or 1.09% a year ago. The ratio of the
allowance for possible loan losses to non-performing loans was
195% at September 30, 1995 compared to 171% at June 30, 1995 and
168% a year ago. Total non-performing assets were $105.7 million
at September 30, 1995, or 1.03% of loans and assets acquired in
foreclosures, compared to $117.6 million or 1.17% at June 30,
1995 and $128.1 million or 1.35% at September 30, 1994.
Net loans charged-off in the third quarter of 1995 were
$7.1 million compared to $7.9 million in the second quarter of
1995 and $6.4 million in the comparable period a year ago. The
allowance for possible loan losses was 1.70% of total loans at
both September 30, 1995 and June 30, 1995 and 1.84% a year ago.
Non-interest income was $63.0 million in the third quarter
of 1995 compared to $57.3 million in the third quarter of last
year, an increase of 10%. Broker-dealer and investment banking
revenues increased by $9.9 million, as such revenues in the third
quarter of 1994 were negatively impacted by financial market
conditions which resulted in reduced trading volumes and a
valuation adjustment of the trading portfolios. Banking service
charges and related fees increased by $4.5 million. The third
quarter of 1994 included a gain of $9.0 million on the sale of
Meridian's student loan portfolio.
Non-interest expenses declined by $26.3 million or 17%
between the third quarters of 1995 and 1994. Salaries and
benefits decreased by $9.1 million, or 12% between the two
quarters, reflecting continuing reductions in staff levels. FDIC
deposit insurance premiums were $5.5 million lower as a result of
the recent reduction in the ongoing assessment rate. The third
quarter of 1994 included expenses of $8.9 million related to the
completion of the downsizing and streamlining of Meridian's
mortgage banking activities. Reference should be made to Note 6
of Notes to Consolidated Financial Statements for discussion of a
possible one-time additional deposit insurance assessment in a
future period.
For the first nine months of 1995, income before a
restructuring charge of $32.0 million (after-tax $20.8 million or
$.37 per share) taken in the second quarter of 1995, increased by
24% to $142.3 million or $2.51 per fully-diluted share compared
to net income of $115.2 million or $1.98 per fully-diluted share
in the similar period of 1994. The restructuring charge was
taken as part of Meridian's "59.9" program, which is discussed
later. Net income in the first nine months of 1995 was
$121.5 million or $2.14 per fully-diluted share.
The returns on average assets and on average common
shareholders' equity, based on income before the restructuring
charge, for the nine-month period ended September 30, 1995 were
1.29% and 15.50%, respectively, compared to 1.07% and 12.89%,
respectively, for the same period of last year.
Total assets at September 30, 1995 were $14.6 billion
compared to $14.8 billion at September 30, 1994. Total loans
were $10.2 billion compared to $9.4 billion a year ago, an 8%
increase. Total deposits were $11.1 billion compared to
$11.3 billion at September 30, 1994. Meridian continues to fund
a significant portion of its assets with deposits acquired in its
local marketplace.
Shareholders' equity was $1.27 billion or 8.70% of total
assets at September 30, 1995 compared to $1.23 billion or 8.33% a
year ago. The ratio of tangible shareholders' equity to assets,
which excludes $121.5 million of intangible assets in 1995 and
$138.9 million in 1994, was 7.93% at September 30, 1995 compared
to 7.46% at September 30, 1994. Meridian's risk-based capital
ratio was 13.04% at September 30, 1995, in excess of the 10%
regulatory requirement for well capitalized institutions. This
ratio was 12.76% at June 30, 1995 and 13.07% at September 30,
1994. Book value per common share was $22.65 at September 30,
1995 compared to $21.31 at September 30, 1994, an increase of 6%.
Book value per common share at June 30, 1995 was $22.12.
On October 10, 1995, Meridian and CoreStates Financial Corp.
announced a definitive agreement to merge in a transaction
expected to be accounted for as a pooling-of-interests. The
combination would create a banking services organization with
$45 billion in assets and $3.7 billion in equity and with leading
geographic market positions and specialized strengths in
servicing key regional, national and global customer segments.
The transaction will be a tax-free exchange of 1.225 shares of
CoreStates common stock for each share of Meridian common stock.
The merger, which is subject to approval by shareholders of both
companies and by regulators, is expected to close in the second
quarter of 1996.
OPERATING PERFORMANCE STUDY ("59.9" PROGRAM)
In January 1995, Meridian commenced an internal review of
its operations and businesses. The purpose of this review was to
improve the company's operating performance and competitive
position by streamlining and consolidating functions and work
processes and by increasing the focus on customers and service
levels. The improvement is to be measured by Meridian's
performance ratio (non-interest expenses divided by the total of
non-interest income and net interest income on a taxable-
equivalent basis) with a goal of reducing the ratio to 59.9% or
lower by the end of the first quarter of 1996. The ratio was
67.6% for the year 1994. In June 1995, Meridian completed this
review and announced a company-wide plan to be implemented over a
period of approximately twelve months from that date.
As a result of the review, Meridian recorded a $32 million
restructuring charge ($20.8 million after-tax or $.37 per share)
in the second quarter of 1995. The components of the
restructuring charge and related cash outflow were as follows (in
thousands):
Cash
Requiring Outflow
Cash Through
Total Outflow September 30,
1995
Severance and Other Employee
Related Costs $15,900 $15,900 $3,600
Lease and Other
Contract Terminations 2,600 2,600 200
Building and Other
Asset Write-Downs 10,700 --- ---
Professional Fees 2,800 2,800 2,800
Total $32,000 $21,300 $6,600
The severance charge relates to a separation package given
to eligible employees based on years of service. Cash payments
commenced in July 1995 and will continue for varying terms.
Lease and other contract terminations include estimated payments
related to bank branch closings and the consolidation of
brokerage activities. Building and other asset write-downs
include amounts related to buildings, equipment, and intangible
assets written-down as a result of branch closings and other
consolidations. Professional fees include consulting fees and
legal expenses incurred during the review process. In the third
quarter of 1995, Meridian recorded a restructuring credit of
$2.8 million related to a gain on the curtailment of future
pension benefits associated with employees terminated during the
quarter. This gain, however, approximated a curtailment loss
related to healthcare and other postretirement benefits for
employees already terminated and those expected to be terminated
as a result of the "59.9" program. At September 30, 1995, cash
payments of $6.6 million and non-cash charges of $5.7 million
have been charged against the restructuring reserve. Meridian
believes that the balance remaining in this reserve at
September 30, 1995 of $19.7 million will be sufficient to absorb
remaining expenses.
Implementation of the plan began at the end of the second
quarter of 1995 and will continue over approximately the next
twelve months from that date. Over that period, the process is
expected to reduce net operating expenses on an annualized pre-
tax basis by $55 million while providing recurring revenue
enhancements of $13 million, increasing Meridian's after-tax
earnings on an annual basis by $44 million, or $.78 per share.
The gross reduction in operating expenses is expected to
approximate $73.2 million and is composed of salaries and
benefits of $54.2 million, furniture and fixtures of
$16.1 million, and occupancy of $2.9 million. Offsetting these
savings are foregone revenues, which are directly related to
expense reductions, mainly in branches, of $7.5 million and one-
time implementation costs of $10.7 million, resulting in net
expense reductions of $55 million. Meridian is currently
evaluating the impact of the agreement to merge with CoreStates
Financial Corp. on the "59.9" program.
As previously mentioned, the goal of this program is to
reduce the performance ratio to 59.9% or lower by the end of the
first quarter of 1996. This goal was reached in the third
quarter of 1995. Non-interest expenses declined 17% in the third
quarter of 1995 compared to the third quarter of last year and
the performance ratio improved to 57.3% (59.8% without the
reduction in FDIC deposit insurance premiums), compared to 67.6%
for the year 1994 and 62.6% in the second quarter of 1995.
NET INTEREST INCOME AND RELATED ASSETS AND LIABILITIES (INCLUDING
DERIVATIVES)
Net interest income was $155.6 million in the third quarter
of 1995 compared to $156.4 million in the same quarter of 1994, a
decline of less than 1%. Net interest income on a taxable-
equivalent basis was $159.4 million in the third quarter of this
year compared to $160.8 million in the same period of last year.
The level of net interest income results from the
interaction between the volume and mix of interest-earning assets
and the related funding sources, and the net interest margin.
Over the past year, the level of interest-earning assets declined
2% but the asset mix changed, as total loans increased 7% and
partially offset declines in other categories of interest-earning
assets. The positive impact of loan growth was offset by
narrowing spreads resulting from asset and liability repricing in
the higher short-term interest rate environment in 1995. The net
interest margin was 4.71% in the third quarter of 1995 compared
to 4.65% in the same period of last year, and 4.60% in the second
quarter of 1995.
Average interest-earning assets declined by 2% to
$13.5 billion in the third quarter of 1995 from $13.7 billion in
the same period of last year. Average loans outstanding
increased by 7% between the two periods. Average investment
securities and investment securities available for sale decreased
by 16%. Average deposits were $11.1 billion in the third quarter
of 1995, down 3% from the same period of last year. Average
short-term borrowings decreased by 17% in the third quarter of
1995 from the same period of last year.
Net interest income for the nine months ended September 30,
1995 was $459.3 million, almost unchanged from $459.2 million in
the same period of last year. The positive impact of earning
asset growth was offset by a decline in the net interest margin.
The net interest margins were 4.63% and 4.78% for the first nine
months of 1995 and 1994, respectively.
Table 1 presents net interest income, yields and rates on a
taxable-equivalent basis, and average balances for the third
quarters of 1995 and 1994, the second quarter of 1995, and the
nine months ended September 30, 1995 and 1994, respectively.
The level and volatility of interest rates can have a
significant impact on Meridian's profitability. The objective of
interest rate risk management is to identify and manage the
sensitivity of net interest income to changing interest rates and
other market factors in order to achieve overall financial goals.
Based on economic conditions, on and off-balance sheet positions,
asset quality and various other considerations, management
establishes tolerance ranges for interest rate sensitivity and
manages within these ranges.
Meridian uses several tools to measure interest rate risk.
Income simulation modeling, the primary risk measurement tool, is
used to project net interest income in different interest rate
environments. Simulation modeling considers not only the impact
of changing interest rates but also other potential causes of
variability, such as earning-asset volume and mix, yield curve
relationships, loan spreads, customer preferences and general
market conditions. Meridian also monitors the sensitivity of the
market value of assets, liabilities and off-balance sheet
positions to changing interest rates. An interest rate
sensitivity or gap analysis is used to supplement simulation
modeling.
Meridian uses off-balance sheet derivative products for
interest rate risk management and in the securities unit (broker-
dealer activities). Table 2 provides information on derivative
positions at September 30, 1995.
Meridian's core banking businesses generate a mix of loans
and deposits that tends to create an asset sensitive interest
rate risk profile, primarily because retail core deposits do not
reprice as quickly as loans. An asset sensitive position
generally indicates that net interest income would increase in
periods of rising interest rates and decrease in periods of
declining interest rates. Meridian manages this tendency towards
asset sensitivity through its securities and purchased funding
portfolios and by the use of off-balance sheet derivative
products. At September 30, 1995, Meridian's interest sensitivity
indicated a moderate asset sensitive position through the one-
year time period.
Meridian utilizes a variety of derivative instruments in
managing interest rate risk, including interest rate swaps,
options, forwards, caps and floors. These instruments provide an
efficient means to achieve risk management goals, while
supporting liquidity and capital management objectives.
Interest rate swaps account for approximately 70% of the
derivative products used for interest rate risk management
purposes. Interest rate swaps involve the exchange of fixed and
variable interest payments based on an underlying notional
amount. Meridian will generally receive a fixed rate and pay a
variable rate in order to reduce the asset sensitive position
associated with its core banking businesses. Meridian uses
interest rate swaps primarily to alter the repricing
characteristics of its retail core deposits, including time
deposits, interest-bearing checking accounts, and savings and
money market deposits.
The notional amount of interest rate swaps totaled
$2.4 billion at September 30, 1995 compared to $2.9 billion at
September 30, 1994 and $2.6 billion at June 30, 1995. Because of
the nature of risk being managed, the impact on net interest
income of swaps for which Meridian receives a fixed and pays a
variable interest rate will be positive during periods of
declining rates and negative in periods of rising rates.
Consistent with this profile, the impact of interest-rate swaps
was to increase interest expense on deposits by $5.1 million in
the higher rate environment of the third quarter of 1995 compared
to a reduction of $1.0 million in interest expense in the third
quarter of 1994. For the nine months, the comparable amounts
were an increase to interest expense of $19.9 million in 1995 and
a decrease to interest expense of $14.5 million in 1994.
Derivative products, as with all financial instruments,
contain elements of risk. A derivative product is subject to
market risk in that the value of a contract will increase or
decrease as a result of movements in market interest rates.
Meridian continually monitors the sensitivity of its derivative
contracts to changing interest rates. Unrealized gains and
losses are calculated based on the replacement costs of the
contracts. The decline in the market value of Meridian's
interest rate contracts over the past twelve months is consistent
with the rising interest rate environment over that time period.
Unrealized gains and losses on derivative positions should
be viewed in the context of the overall balance sheet. An
unrealized loss on a derivative product used for interest rate
risk management purposes is generally offset or mitigated by an
unrealized gain on the asset or liability to which the derivative
contract is assigned. Meridian, as part of its asset and
liability management process, continually monitors the impact of
interest rate movements on the market value of not only its
derivative positions, but also all other on and off-balance sheet
positions. In a rising rate environment, fixed-rate loan,
investment and off-balance sheet positions will decline in market
value, while core deposits and longer term borrowings will
appreciate in value.
The securities unit uses various off-balance sheet
derivative products to support customer needs and to manage the
market risks associated with the broker-dealer business, as
indicated in Table 2. The securities unit acts as remarketing
agent on tender option bonds totaling $216 million at
September 30, 1995 compared to $279 million at September 30,
1994. The premium paid for Treasury float contracts, which is
included on the balance sheet in other assets, was $1.3 million
at September 30, 1995 and represents the maximum exposure to
Meridian from such contracts. Other derivative products, such as
commitments to purchase or sell securities, are used to manage
risks associated with trading account positions.
The objective of liquidity management is to ensure that
sufficient funding is available, at reasonable cost, to meet the
ongoing and potential cash needs of Meridian and to take
advantage of income producing opportunities as they arise. While
the desired level of liquidity may vary depending upon a variety
of factors, it is a primary goal of Meridian to maintain a high
level of liquidity in all economic environments. Management
considers Meridian's liquidity position at the end of the third
quarter of 1995 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 $10.2 billion
at September 30, 1995 compared to $9.4 billion at September 30,
1994, an 8% increase. Commercial loans increased by
$462.5 million, or 8%. Residential mortgage loans increased by
$131.5 million or 11%. Consumer loans, mostly home equity loans
and other types of personal loans, were $2.8 billion at
September 30, 1995, up 8% from the balance of a year ago.
Table 4 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
$2.8 billion at September 30, 1995 compared to $3.5 billion a
year ago, a decrease of 19%.
Table 5 presents a summary of the amortized cost,
approximate fair value, and gross unrealized gains and losses for
the portfolio at September 30, 1995 and 1994 and December 31,
1994. Changes in long-term interest rates over the past year,
with rates rising through much of 1994 and then declining in the
first nine months of 1995, increased the approximate fair value
of the combined portfolios, as reflected in this table.
Deposits. Meridian's deposits, the largest source of funds,
amounted to $11.1 billion at September 30, 1995 compared to
$11.3 billion at September 30, 1994, a decrease of 2%.
Table 6 presents a summary of period-end deposit balances.
PROVISION FOR POSSIBLE LOAN LOSSES AND RELATED CREDIT QUALITY
The provision for possible loan losses was $10.5 million in
the third quarter of 1995, compared to $6.5 million in the third
quarter of 1994 and $10.1 million in the second quarter of 1995.
The provision for the nine months ended September 30, 1995 was
$28.7 million compared to $22.0 million for the same period of
1994, an increase of 30%. The higher provision reflects the
growth in loans during the past year. The balance in the
allowance for possible loan losses was $174.1 million or 1.70% of
total loans at September 30, 1995, compared to $170.7 million or
1.70% at June 30, 1995 and $173.5 million or 1.84% at
September 30, 1994.
Net charge-offs were $7.1 million or .28% of average loans
in the third quarter of 1995 compared to $6.4 million or .27% of
average loans in the third quarter of 1994. Recoveries were
$5.2 million in the third quarter of 1995 compared to
$4.9 million in the same period of last year. Net charge-offs
for the nine months ended September 30, 1995 were $23.9 million
compared to $24.8 million in the similar period of 1994. Net
charge-offs represented .32% of average loans in the first nine
months of 1995 compared to .36% last year.
Determining the level of the allowance for possible loan
losses at any given date is difficult, particularly in a
continually changing economy. Management must make estimates,
using assumptions and information which are often subjective and
changing. Management continues to review Meridian's loan
portfolio in light of a changing economy and possible future
changes in the banking and regulatory environment. In
management's opinion, the allowance for possible loan losses is
adequate at September 30, 1995.
Table 7 presents an analysis of the activity in the
allowance for possible loan losses. Table 8 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. Non-performing assets do not include
loans past due 90 days or more as to interest or principal which
are well secured and in the process of collection, the majority
of which represent residential mortgage loans. Non-performing
assets totaled $105.7 million at September 30, 1995 compared to
$117.6 million at June 30, 1995 and $128.1 million a year ago.
Generally, a commercial loan is classified as non-accrual
when it is determined that the collection of interest or
principal is doubtful, or when a default of interest or principal
has existed for 90 days or more, unless such loan is well secured
and in the process of collection. When the accrual of interest
is discontinued, unpaid interest is reversed through a charge to
interest income. The majority of non-accrual loans are secured by
various forms of collateral, the ultimate recoverability of which
is, however, subject to economic conditions and other factors.
Residential mortgages which are 180 days or more delinquent
are placed on nonaccrual status when total principal, interest,
and escrow owed exceeds 80% of the property's appraised value.
Properties are reappraised when foreclosure proceedings are
initiated. Consumer loans are charged-off when deemed
uncollectible, which is generally at a time no later than
120 days past due.
Meridian's non-accrual loans, which totaled $88.4 million at
September 30, 1995, included only three loans with balances in
excess of $2.5 million. These three loans aggregated
$36.0 million or 41% of total non-accrual loans at the end of the
third quarter of 1995.
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.
Assets acquired in foreclosures (except consumer related),
which totaled $16.2 million at the end of the third quarter of
1995, included only three properties with a balance in excess
of $1.0 million. These properties had a balance of $4.2 million
or 26% of assets acquired in foreclosures.
Reference should be made to Table 4 for a summary of period-
end balances in the loan portfolio. Except for a
reclassification of certain balances within consumer loans, 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 9 for a
breakdown of commercial loans by major industry and to Table 10
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 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 96%, are to
borrowers for property in Pennsylvania, Delaware, and New Jersey,
of which Pennsylvania has 79%, or the largest single share.
Loan concentrations are considered to exist when a multiple
number of borrowers are engaged in similar activities and have
similar economic characteristics which would cause their ability
to meet contractual obligations to be similarly impacted by
economic or other conditions. At September 30, 1995, Meridian's
commercial loans and commitments did not have any industry
concentration that exceeded 10% of total loans and commitments.
Potential problem loans consist of loans included in
performing loans at September 30, 1995 but for which potential
credit problems of the borrowers have caused management to have
concerns as to the ability of such borrowers to comply with
present repayment terms. At September 30, 1995, such potential
problem loans, not included in Table 8, aggregated approximately
$35 million compared to $24 million at June 30, 1995. 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.
Meridian continues to service approximately $629 million of
residential mortgage loans on which there is potential credit
loss. This servicing was either originated by Meridian or
purchased with recourse primarily from other financial
institutions, some of which have since experienced financial
difficulties, including bankruptcies. As of September 30, 1995,
reserves of $12.0 million have been established in recognition of
potential losses related to this recourse servicing portfolio.
NON-INTEREST INCOME
Non-interest income was $63.0 million in the third quarter
of 1995 compared to $57.3 million in the third quarter of last
year, an increase of 10%.
Trust revenues were $16.2 million in the third quarter of
1995, an increase of $446 thousand or 3% from the third quarter
of 1994.
Mortgage revenues increased by $686 thousand, or 23%,
between the two quarters, reflecting an increase in gains on
sales of mortgage servicing.
Broker-dealer and investment banking revenues totaled
$11.9 million in the third quarter of 1995 compared to
$2.0 million in the same period a year ago. In the third quarter
of 1994, financial market conditions resulted in reduced trading
volumes and a valuation adjustment of the trading portfolios.
Service charges on deposits and fees for other customer
services increased by $4.5 million, or 19%, for the three months
ended September 30, 1995 compared to the same period of last
year. Increases in certain fees for deposit products, as well as
the introduction of new consumer-related demand deposit products,
contributed to the higher level of service charges.
Net securities gains were $1.5 million in the third quarter
of 1995 compared to $2.1 million in the same period of last year.
The amount in 1995 was comprised of gains of $1.7 million and
losses of $194 thousand. The gains in both quarters resulted
from sales of investment securities available for sale and calls
of investments.
Other non-interest income declined by $9.2 million between
the two quarters. The third quarter of 1994 included a gain of
$9.0 million on the sale of Meridian's student loan portfolio.
Non-interest income for the first nine months of 1995 was
$187.8 million compared to $170.6 million a year ago, an increase
of 10%. The same factors that affected the quarter-to-quarter
comparison contributed to the increase between the nine month
periods.
NON-INTEREST EXPENSES
Non-interest expenses for the third quarter of 1995 were
$127.4 million compared to $153.7 million for the same quarter of
1994, a decrease of 17%. The decline in expenses between the two
quarters results partially from Meridian's ongoing expense
control efforts. In addition, the third quarter of 1995 included
a reduction in FDIC deposit insurance premiums.
Salaries and employee benefits totaled $66.4 million in the
third quarter of 1995 compared to $75.5 million in the third
quarter of 1994, a decrease of 12%. The impact of ongoing staff
reductions in most of Meridian's business units was partially
offset by normal merit increases. Full-time equivalent staff
levels were 6,081 at September 30, 1995 compared to 7,039 a year
ago, a decrease of 14%, and 6,571 at June 30, 1995.
Net occupancy and equipment expense was $20.3 million in the
third quarter of 1995 compared to $20.5 million in the same
period last year, a decrease of 1%.
Other operating expenses were $40.7 million in the third
quarter of 1995 compared to $57.7 million in the third quarter of
1994. Reductions were experienced in such categories as
consulting and other types of professional fees, loan and
deposit-related expenses, and stationery and supplies. There was
also a decrease of $5.5 million in FDIC deposit insurance expense
as a result of the recent decrease in the ongoing assessment
rate. Approximately $1.4 million of this reduction represents a
refund of premiums paid in the second quarter of 1995. The third
quarter of 1994 included expenses of $8.9 million related to the
completion of the downsizing and streamlining of Meridian's
mortgage banking activities. Reference should be made to Note 6
of Notes to Consolidated Financial Statements for discussion of a
possible one-time additional deposit insurance assessment in a
future period.
Non-interest expenses for the nine months ended
September 30, 1995, excluding the $32.0 million restructuring
charge in the second quarter of 1995 related to the
"59.9" program, were $408.3 million, down 6% from $435.6 million
in the same period of last year. The same factors that affected
the quarter-to-quarter change contributed to the change between
the year-to-date periods.
PROVISION FOR INCOME TAXES
The provision for income taxes was $26.3 million in the
third quarter of 1995, compared to $16.9 million in the same
quarter of last year. The increase resulted from the higher
level of pre-tax income.
The effective tax rate, which is the ratio of income tax
expense to income before income taxes, was 33% in the third
quarter of 1995, compared to 32% in the same quarter of 1994.
The rate for the entire year of 1994 was 30%. 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
Shareholders' equity at September 30, 1995 was $1.27 billion
compared to $1.23 billion at September 30, 1994, an increase of
3%. Shareholders' equity was $1.24 billion at June 30, 1995.
The ratio of shareholders' equity to assets was 8.70% at
September 30, 1995 compared to 8.33% one year ago and 8.29% at
June 30, 1995. The ratio of tangible shareholders' equity to
assets, which excludes $121.5 million of intangible assets in
1995 and $138.8 million in 1994, was 7.93% at September 30, 1995
compared to 7.46% a year ago.
Meridian's capital adequacy at September 30, 1995 can be
determined by analyzing the capital ratios presented in Table 11.
Meridian's consolidated ratios at September 30, 1995 exceeded all
regulatory requirements. The risk-based capital ratio was 13.04%
at September 30, 1995 compared to 13.07% a year ago and 12.76% at
June 30, 1995. The risk-based capital ratios of each of
Meridian's commercial banks also exceeded regulatory requirements
at September 30, 1995, as shown in the table.
Federal Reserve Board guidelines define a well capitalized
institution as having a Tier 1 capital ratio of 6% or more, a
total risk-based capital ratio of 10% or more, and a leverage
ratio of 5% or more. Meridian's consolidated ratios at
September 30, 1995 exceeded these guidelines, as did the ratios
of each of Meridian's commercial banks.
INDUSTRY SEGMENTS
Table 12 presents a summary of the operating results of
Meridian's two reportable industry segments.
Banking. 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.
Banking unit net income was $52.3 million in the third
quarter of 1995 compared to $39.9 million for the same period of
last year, an increase of 31%.
Net interest income was $154.2 million in the third quarter
of 1995, almost unchanged from $154.7 million in the third
quarter of 1994. The positive impact of growth in loans was
offset by narrowing spreads resulting from asset and liability
repricing in the higher short-term interest rate environment in
1995. The provision for possible loan losses increased by
$4.0 million between the two quarters. The higher provision
reflects the growth in loans during the past year. Non-interest
income decreased by $3.6 million, or 7%, despite increases in
most of the major revenue categories. The third quarter of 1994
included a gain of $9.0 million on the sale of Meridian's student
loan portfolio.
Non-interest expenses declined by $27.4 million or 19%
between the two quarters. Expenses in the third quarter of 1995
were favorably impacted by a $5.5 million reduction in FDIC
deposit insurance premiums as a result of the recent decrease in
the ongoing assessment rate. Exclusive of this reduction, non-
interest expenses declined by $21.9 million between the two
quarters. The third quarter of 1994 included expenses of
$8.9 million related to the completion of the downsizing and
streamlining of Meridian's mortgage banking activities. In
addition, salaries and employee benefits expenses declined by
$10.6 million between the two periods, reflecting ongoing
reductions in staff levels.
For the first nine months of 1995, the banking unit reported
income before a restructuring charge of $27.0 million (after-tax
$17.5 million) taken in the second quarter of 1995, of
$137.6 million compared to $113.0 million for the same period of
last year, an increase of 22%. The restructuring charge relates
to Meridian's recently announced "59.9" program. After the
restructuring charge, net income was $120.0 million in the first
nine months of 1995. The same factors that affected the quarter-
to-quarter comparison contributed to the increase between the two
nine-month periods.
Securities (Broker-Dealer Activities). The securities unit
underwrites, brokers and distributes securities to
municipalities, and institutional and individual investors. In
addition, the unit buys, sells and securitizes mortgage loans and
brokers loan servicing portfolios. The area also provides
investment banking services by acting as financial advisors in
facilitating municipal and corporate transactions in the capital
markets.
The securities unit reported net income of $2.1 million in
the third quarter of 1995 compared to a loss of $3.2 million in
the third quarter of 1994. In the third quarter of 1994,
financial market conditions resulted in reduced trading volumes
and a valuation adjustment of the trading portfolios.
For the first nine months of 1995, the securities unit
reported income before a restructuring charge of $5.0 million
(after-tax $3.3 million) taken in the second quarter of 1995, of
$4.8 million compared to $2.3 million in the similar period of
1994. The restructuring charge relates to Meridian's recently
announced "59.9" program. After the restructuring charge, the
securities unit reported net income of $1.5 million in the first
nine months of 1995. The negative impact of financial market
conditions on revenues in third quarter of 1994 is reflected in
the improved earnings between the two nine-month periods.<PAGE>
<TABLE>
<CAPTION>
TABLE 1: NET INTEREST INCOME, AVERAGE BALANCES AND RATES
(Dollars in Thousands) 1995 1994
Three Months Ended September 30 Three Months Ended September 30
------------------------------- -------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-Earning Assets
Short-Term Investments
Interest Bearing Deposits in Other Banks............. $56,741 $898 6.28% $104,413 $1,230 4.67%
Federal Funds Sold and Securities
Purchased Under Agreements to Resell............... 14,246 202 5.63 80,285 829 4.10
Total Short-Term Investments....................... 70,987 1,100 6.15 184,698 2,059 4.42
Trading Account Assets (1)............................. 232,467 4,474 7.70 171,978 3,004 6.99
Investment Securities Available for Sale (1)........... 410,514 7,331 7.14 421,923 7,116 6.75
Investment Securities
Taxable.............................................. 2,238,507 31,954 5.74 2,716,866 36,222 5.30
Non-Taxable (1)...................................... 275,973 5,824 8.44 337,560 6,996 8.18
Total Investment Securities........................ 2,514,480 37,778 6.04 3,054,426 43,218 5.62
Loans Held for Sale.................................... 120,867 2,975 9.85 407,179 7,868 7.73
Loans
Commercial (1)....................................... 6,131,250 141,367 9.15 5,688,403 120,294 8.39
Real Estate-Residential.............................. 1,285,191 26,726 8.32 1,148,129 23,351 8.14
Consumer............................................. 2,709,628 61,110 8.95 2,662,840 54,702 8.15
Total Loans (2).................................... 10,126,069 229,203 8.99 9,499,372 198,347 8.29
Total Interest-Earning Assets...................... 13,475,384 282,861 8.35 13,739,576 261,612 7.56
Allowance for Possible Loan Losses....................... (174,191) - - (173,795) - -
Non-Interest Earning Assets.............................. 1,257,801 - - 1,430,809 - -
Total Assets, Interest Income...................... $14,558,994 $282,861 7.73% $14,996,590 $261,612 6.93%
LIABILITIES
Interest-Bearing Liabilities
Interest Bearing Deposits
NOW Accounts......................................... $1,442,890 $6,207 1.71% $1,509,477 $5,721 1.50%
Savings Deposits..................................... 1,705,637 10,381 2.41 2,008,349 11,373 2.25
Money Market Deposit Accounts........................ 2,149,657 19,192 3.54 2,310,570 15,238 2.62
Short-Term Time Deposits............................. 574,304 6,665 4.60 733,107 5,798 3.14
Long-Term Time Deposits.............................. 2,787,613 41,314 5.88 2,560,325 30,052 4.66
Certificates of Deposit of $100,000 or More.......... 714,414 10,568 5.87 513,199 6,404 4.95
Total Interest Bearing Deposits.................... 9,374,515 94,327 3.99 9,635,027 74,586 3.07
Short-Term Borrowings
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase................ 1,203,414 16,611 5.48 1,547,730 16,936 4.34
Other Short-Term Borrowings.......................... 241,562 3,498 5.75 197,344 2,931 5.89
Total Short-Term Borrowings........................ 1,444,976 20,109 5.52 1,745,074 19,867 4.52
Long-Term Debt and Other Borrowings.................... 514,628 9,000 7.00 395,710 6,346 6.41
Total Interest-Bearing Liabilities................. 11,334,119 123,436 4.32 11,775,811 100,799 3.40
Non-Interest Sources to Fund
Interest-Earning Assets
Non-Interest Bearing Deposits........................ 1,706,405 - - 1,745,774 - -
Other Liabilities.................................... 273,572 - - 259,541 - -
Shareholders' Equity................................. 1,244,898 - - 1,215,464 - -
Total Non-Interest Sources to Fund
Interest-Earning Assets.......................... 3,224,875 - - 3,220,779 - -
Total Liabilities and Shareholders' Equity,
Interest Expense................................. $14,558,994 $123,436 3.37% $14,996,590 $100,799 2.67%
NET INTEREST INCOME...................................... $159,425 $160,813
NET INTEREST SPREAD (3)................................ 4.03% 4.16%
EFFECT OF NON-INTEREST BEARING FUNDS................... 0.68% 0.49%
NET INTEREST MARGIN (4)................................ 4.71% 4.65%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1995
Three Months Ended June 30
--------------------------------
Interest Average
Average Income/ Yield/
Balance Expense Rate
------- -------- -------
<S> <C> <C> <C>
ASSETS
Interest-Earning Assets
Short-Term Investments
Interest Bearing Deposits in Other Banks............. $104,524 $1,668 6.40%
Federal Funds Sold and Securities
Purchased Under Agreements to Resell............... 45,592 580 5.10
Total Short-Term Investments....................... 150,116 2,248 6.01
Trading Account Assets (1)............................. 348,535 6,376 7.32
Investment Securities Available for Sale (1)........... 456,252 8,106 7.11
Investment Securities
Taxable.............................................. 2,386,557 34,011 5.72
Non-Taxable (1)...................................... 307,357 6,394 8.32
Total Investment Securities........................ 2,693,914 40,405 6.01
Loans Held for Sale.................................... 95,875 2,005 8.37
Loans
Commercial (1)....................................... 6,110,995 142,526 9.35
Real Estate-Residential.............................. 1,248,191 25,994 8.33
Consumer............................................. 2,617,806 58,858 9.02
Total Loans (2).................................... 9,976,992 227,378 9.14
Total Interest-Earning Assets...................... 13,721,684 286,518 8.37
Allowance for Possible Loan Losses....................... (171,050) - -
Non-Interest Earning Assets.............................. 1,306,207 - -
Total Assets, Interest Income...................... $14,856,841 $286,518 7.73%
LIABILITIES
Interest-Bearing Liabilities
Interest Bearing Deposits
NOW Accounts......................................... $1,460,317 $6,698 1.84%
Savings Deposits..................................... 1,757,146 11,160 2.55
Money Market Deposit Accounts........................ 2,174,373 19,325 3.56
Short-Term Time Deposits............................. 577,603 6,359 4.42
Long-Term Time Deposits.............................. 2,787,830 40,921 5.89
Certificates of Deposit of $100,000 or More.......... 805,475 11,958 5.95
Total Interest Bearing Deposits.................... 9,562,744 96,421 4.04
Short-Term Borrowings
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase................ 1,506,664 21,910 5.83
Other Short-Term Borrowings.......................... 249,696 3,806 6.11
Total Short-Term Borrowings........................ 1,756,360 25,716 5.87
Long-Term Debt and Other Borrowings.................... 392,121 7,017 7.16
Total Interest-Bearing Liabilities................. 11,711,225 129,154 4.42
Non-Interest Sources to Fund
Interest-Earning Assets
Non-Interest Bearing Deposits........................ 1,683,525 - -
Other Liabilities.................................... 227,711 - -
Shareholders' Equity................................. 1,234,380 - -
Total Non-Interest Sources to Fund
Interest-Earning Assets.......................... 3,145,616 - -
Total Liabilities and Shareholders' Equity,
Interest Expense................................. $14,856,841 $129,154 3.49%
NET INTEREST INCOME...................................... $157,364
NET INTEREST SPREAD (3)................................ 3.95%
EFFECT OF NON-INTEREST BEARING FUNDS................... 0.65%
NET INTEREST MARGIN (4)................................ 4.60%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
1995 1994
Nine Months Ended September 30 Nine Months Ended September 30
-------------------------------- --------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
------- -------- ------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-Earning Assets
Short-Term Investments
Interest Bearing Deposits in Other Banks............. $93,277 $4,364 6.26% $99,185 $3,092 4.17%
Federal Funds Sold and Securities
Purchased Under Agreements to Resell............... 37,876 1,449 5.11 79,002 2,221 3.76
Total Short-Term Investments....................... 131,153 5,813 5.93 178,187 5,313 3.99
Trading Account Assets (1)............................. 304,529 17,200 7.53 151,419 7,709 6.79
Investment Securities Available for Sale (1)........... 433,875 23,075 7.09 334,135 17,702 7.06
Investment Securities
Taxable.............................................. 2,367,113 101,865 5.74 2,549,313 101,218 5.31
Non-Taxable (1)...................................... 300,823 18,863 8.36 340,257 21,128 8.28
Total Investment Securities........................ 2,667,936 120,728 6.04 2,889,570 122,346 5.66
Loans Held for Sale.................................... 105,293 7,084 8.97 378,387 20,999 7.40
Loans
Commercial (1)....................................... 6,070,210 419,521 9.24 5,587,387 333,353 7.98
Real Estate-Residential.............................. 1,252,132 77,875 8.29 1,070,676 65,171 8.12
Consumer............................................. 2,638,294 175,975 8.92 2,626,273 161,800 8.24
Total Loans (2).................................... 9,960,636 673,371 9.04 9,284,336 560,324 8.07
Total Interest-Earning Assets...................... 13,603,422 847,271 8.32 13,216,034 734,393 7.42
Allowance for Possible Loan Losses....................... (172,714) - - (175,417) - -
Non-Interest Earning Assets.............................. 1,312,291 - - 1,420,023 - -
Total Assets, Interest Income...................... $14,742,999 $847,271 7.68% $14,460,640 $734,393 6.78%
LIABILITIES
Interest-Bearing Liabilities
Interest Bearing Deposits
NOW Accounts......................................... $1,458,131 $20,014 1.84% $1,478,064 $14,928 1.35%
Savings Deposits..................................... 1,757,455 33,250 2.53 1,961,620 30,091 2.05
Money Market Deposit Accounts........................ 2,188,668 58,150 3.55 2,324,113 40,191 2.31
Short-Term Time Deposits............................. 590,348 19,047 4.31 757,288 17,973 3.17
Long-Term Time Deposits.............................. 2,743,065 119,607 5.83 2,487,002 81,019 4.36
Certificates of Deposit of $100,000 or More.......... 707,428 31,096 5.88 478,282 17,191 4.81
Total Interest Bearing Deposits.................... 9,445,095 281,164 3.98 9,486,369 201,393 2.84
Short-Term Borrowings
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase................ 1,442,781 61,231 5.67 1,148,189 33,387 3.89
Other Short-Term Borrowings.......................... 241,956 10,848 5.99 217,130 7,257 4.47
Total Short-Term Borrowings........................ 1,684,737 72,079 5.72 1,365,319 40,644 3.98
Long-Term Debt and Other Borrowings.................... 425,676 22,605 7.08 385,957 19,699 6.81
Total Interest-Bearing Liabilities................. 11,555,508 375,848 4.35 11,237,645 261,736 3.11
Non-Interest Sources to Fund
Interest-Earning Assets
Non-Interest Bearing Deposits........................ 1,696,509 - - 1,737,669 - -
Other Liabilities.................................... 263,339 - - 289,900 - -
Shareholders' Equity................................. 1,227,643 - - 1,195,426 - -
Total Non-Interest Sources to Fund
Interest-Earning Assets.......................... 3,187,491 - - 3,222,995 - -
Total Liabilities and Shareholders' Equity,
Interest Expense................................. $14,742,999 $375,848 3.41% $14,460,640 $261,736 2.42%
NET INTEREST INCOME...................................... $471,423 $472,657
NET INTEREST SPREAD (3)................................ 3.97% 4.31%
EFFECT OF NON-INTEREST BEARING FUNDS................... 0.66% 0.47%
NET INTEREST MARGIN (4)................................ 4.63% 4.78%
<FN>
(1) The indicated interest income and average yields are
presented on a taxable-equivalent basis. The
taxable-equivalent adjustments included above are $3,859,
$4,343, $4,077, $12,903 and $13,474 for the third quarter of
1995 and 1994, the second quarter of 1995 and the first nine
months of 1995 and 1994, 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 2: OFF-BALANCE SHEET DERIVATIVES
MATURITIES AND OTHER INFORMATION
September 30, 1995
(Dollars in Thousands) 1999
and
Consolidated Notional Amount 1995 1996 1997 1998 Beyond Total
-------- ---------- -------- -------- -------- ----------
<S> <C> <C> <C> <C> <C> <C>
Related to Interest Rate Risk Management............ $418,964 $1,058,007 $745,067 $451,762 $719,924 $3,393,724
Related to Securities Unit (Broker-Dealer
Activities)....................................... 134,454 132,870 143,218 91,589 717,728 1,219,859
Consolidated Derivatives.......................... $553,418 $1,190,877 $888,285 $543,351 $1,437,652 $4,613,583
Related to Interest Rate Risk Management
Interest Rate Swaps
Fixed Rate Receive
Notional Amount............................... $300,000 $950,000 $479,562 $345,843 $50,000 $2,125,405
Weighted Average Fixed Rate Receive........... 5.68% 5.99% 5.67% 5.51% 6.57% 5.75%
Weighted Average Floating Rate Pay............ 5.87% 5.87% 5.88% 5.85% 5.88% 5.87%
Floating Rate Receive and Pay -- Basis Swaps
Notional Amount............................... - 100,000 150,000 - - 250,000
Weighted Average Floating Rate Receive........ - 5.88% 5.88% - - 5.88%
Weighted Average Floating Rate Pay............ - 5.85% 5.89% - - 5.88%
Purchased Interest Rate Floors
Notional Amount............................... - - 100,000 - 425,000 525,000
Weighted Average Rate......................... - - 7.00% - 6.50% 6.60%
Interest Rate Collars
Notional Amount............................... - - - 100,000 100,000 200,000
Weighted Average Rate on Floors............... - - - 6.25% 6.00% 6.13%
Weighted Average Rate on Caps................. 8.12% 8.80% 8.46%
Notional Amount of Other Contracts
Interest Rate Caps and Floors for Customers... 31,643 8,007 15,505 5,919 144,924 205,998
Other......................................... 87,321 - - - - 87,321
Total Interest Rate Risk Management................... $418,964 $1,058,007 $745,067 $451,762 $719,924 $3,393,724
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
September 30, 1995
(Dollars in Thousands)
Net
Unrealized
Unrealized Unrealized Gains
Consolidated Notional Amount Gains Losses (Losses)
---------- ---------- ----------
<S> <C> <C> <C>
Related to Interest Rate Risk Management............ $19,979 ($11,449) $8,530
Related to Securities Unit (Broker-Dealer
Activities)....................................... 11,576 (3,285) 8,291
Consolidated Derivatives.......................... $31,555 ($14,734) $16,821
Related to Interest Rate Risk Management
Interest Rate Swaps
Fixed Rate Receive
Notional Amount............................... $6,090 ($11,449) ($5,359)
Weighted Average Fixed Rate Receive...........
Weighted Average Floating Rate Pay............
Floating Rate Receive and Pay -- Basis Swaps
Notional Amount............................... - - -
Weighted Average Floating Rate Receive........
Weighted Average Floating Rate Pay............
Purchased Interest Rate Floors
Notional Amount............................... 11,289 - 11,289
Weighted Average Rate.........................
Interest Rate Collars
Notional Amount............................... 2,600 - 2,600
Weighted Average Rate on Floors...............
Weighted Average Rate on Caps.................
Notional Amount of Other Contracts
Interest Rate Caps and Floors for Customers... - - -
Other......................................... - - -
Total Interest Rate Risk Management................... $19,979 ($11,449) $8,530
<FN>
Notes
1. Maturity information reflects contractual terms based on
interest rates in effect at September 30, 1995.
2. Fixed rate receive swaps convert retail deposits to floating
rates.
3. Fixed rates shown are rates over the life of the swaps;
floating rates represent rates in effect at September 30,
1995.
4. Fixed rate receive swaps contain $190 million of indexed
amortizing swaps, where amortization of the notional amount
is dependent upon the level of short term interest rates.
5. Basis swaps are based on the receipt of three month LIBOR
and the payment of one month LIBOR.
6. Weighted average rates shown for purchased floors are the
exercise rates; payments would be received when market rates
are below these predetermined exercise rates.
7. Interest rate collars combine the purchase of a floor with
the sale of a cap; payments would be received when market
rates are below a predetermined level and payments would be
made when market rates are above a predetermined level.
8. Other contracts include customer caps and floors, forward
delivery instruments to manage risks from mortgage
operations, and foreign exchange contracts.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
September 30, 1995
(Dollars in Thousands) 1999
and
Related to Securities Unit (Broker-Dealer Activities) 1995 1996 1997 1998 Beyond Total
--------- --------- --------- -------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
Interest Rate Swaps
Fixed Rate Receive
Notional Amount............................... - - - - $8,000 $8,000
Weighted Average Fixed Rate Receive........... - - - - 7.09% 7.09%
Weighted Average Floating Rate Pay............ - - - - 5.96% 5.96%
Tender Option Bonds
Notional Amount............................... $2,655 $65,916 $95,345 $8,310 43,497 215,723
Weighted Average Fixed Rate Receive........... 8.13% 7.99% 7.28% 7.55% 8.04% 7.67%
Weighted Average Floating Rate Pay............ 4.27% 4.50% 4.47% 4.72% 5.09% 4.61%
Treasury Float Contracts............................ 19,601 43,265 42,964 77,514 614,965 798,309
Commitments to Purchase or
Sell Mortgages and Securities..................... 112,198 23,689 4,909 5,765 51,266 197,827
Total Securities Unit................................. $134,454 $132,870 $143,218 $91,589 $717,728 $1,219,859
<CAPTION>
Net
Unrealized
Unrealized Unrealized Gains
Related to Securities Unit (Broker-Dealer Activities) Gains Losses (Losses)
---------- ---------- ----------
<S> <C> <C> <C>
Interest Rate Swaps
Fixed Rate Receive
Notional Amount............................... $435 - $435
Weighted Average Fixed Rate Receive...........
Weighted Average Floating Rate Pay............
Tender Option Bonds
Notional Amount................................ 7,308 ($2,092) 5,216
Weighted Average Fixed Rate Receive...........
Weighted Average Floating Rate Pay............
Treasury Float Contracts............................ 1,434 - 1,434
Commitments to Purchase or
Sell Mortgages and Securities..................... 2,399 (1,193) 1,206
Total Securities Unit................................. $11,576 ($3,285) $8,291
<FN>
Notes
1. Maturity information reflects expected maturity based on
interest rates in effect at September 30, 1995.
2. Fixed rates shown are rates over the life of the swaps;
floating rates represent rates in effect at September 30,
1995.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 3: ACTIVITY IN DERIVATIVES RELATED TO INTEREST RATE RISK MANAGEMENT
NOTIONAL AMOUNTS
(Dollars in Thousands)
FIXED RATE FIXED RATE
RECEIVE SWAPS RECEIVE SWAPS FIXED RATE BASIS PURCHASED
OUTSTANDING FORWARD START PAY SWAPS SWAPS FLOORS COLLARS TOTAL
------------- ------------- ---------- ----- --------- ------- -----
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at January 1, 1994....... $2,060,000 $150,000 $100,000 - - - $2,310,000
Maturities....................... (550,000) - (50,000) - - - (600,000)
Terminations..................... (225,000) - - - - - (225,000)
New contracts.................... 875,000 525,000 - - $500,000 - 1,900,000
Forwards becoming effective...... 625,000 (625,000) - - - - -
---------- -------- -------- -------- -------- -------- ----------
Balance at December 31, 1994..... 2,785,000 50,000 50,000 - 500,000 - 3,385,000
========== ======== ======== ======== ======== ======== ==========
Maturities....................... (609,595) - (50,000) - - - (659,595)
Terminations..................... (275,000) - - - (100,000) - (375,000)
New contracts.................... 125,000 50,000 - $250,000 125,000 $200,000 750,000
Forwards becoming effective...... 100,000 (100,000) - - - - -
---------- -------- -------- -------- -------- -------- ----------
Balance at September 30, 1995.... $2,125,405 - - $250,000 $525,000 $200,000 $3,100,405 (1)
========== ======== ======== ======== ======== ======== ==========
<FN>
(1) Excludes customer caps and floors, forward delivery
instruments to manage risks from mortgage operations, and
foreign exchange contracts aggregating $293.3 million at
September 30, 1995.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 4: LOANS
(Dollars in Thousands)
September 30, 1995 September 30, 1994 December 31, 1994
-------------------- ------------------- -------------------
Amount % Amount % Amount %
----------- --- ---------- --- ---------- ---
<S> <C> <C> <C> <C> <C> <C>
Commercial Loans
Real Estate - Commercial Mortgage............. $1,683,129 16% $1,676,046 18% $1,702,816 17%
Real Estate - Construction.................... 265,915 3 256,629 3 278,271 3
Commercial, Financial and Agricultural........ 4,256,198 42 3,810,023 40 3,966,785 41
---------- --- ---------- --- ---------- ---
Total Commercial Loans..................... 6,205,242 61 5,742,698 61 5,947,872 61
Real Estate - Residential........................ 1,289,851 12 1,158,381 12 1,217,142 12
Consumer Loans
Real Estate - Home Equity..................... 1,138,635 (1) 11 735,961 8 744,173 8
Direct Auto Loans............................. 68,237 1 90,495 1 91,834 1
Indirect Auto Loans........................... 979,552 9 942,363 10 967,783 10
Autos Under Lease............................. 156,385 2 118,346 1 118,483 1
Other Consumer Loans.......................... 408,133 4 656,386 7 676,236 7
---------- --- ---------- --- ---------- ---
Total Consumer Loans....................... 2,750,942 27 2,543,551 27 2,598,509 27
---------- --- ---------- --- ---------- ---
Total Loans, Net of Unearned Discount... $10,246,035 100% $9,444,630 100% $9,763,523 100%
=========== === ========== === ========== ===
<FN>
(1) Includes $347 million of loans transferred from "Other
Consumer Loans" during the first quarter of 1995.
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
TABLE 5: 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:
September 30, 1995 September 30, 1994 December 31, 1994
------------------------- -------------------------- -------------------------
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....... $596,468 $592,611 $716,779 $697,324 $667,031 $638,476
Mortgage Backed Securities
Collateralized Mortgage Obligations.... 1,176,213 1,163,226 1,431,218 1,385,256 1,380,105 1,311,068
Other ................................. 181,336 182,178 241,224 236,843 231,290 222,298
Total Mortgage-Backed Securities.... 1,357,549 1,345,404 1,672,442 1,622,099 1,611,395 1,533,366
State and Municipal Securities............ 273,991 277,922 345,123 343,761 335,401 327,811
Other Securities.......................... 186,001 185,233 286,891 283,710 258,592 253,654
---------- ---------- ---------- ---------- ---------- ----------
Total Investment Securities......... $2,414,009 $2,401,170 $3,021,235 $2,946,894 $2,872,419 $2,753,307
</TABLE>
A summary of gross unrealized gains and losses on investment
securities is as follows:
<TABLE>
<CAPTION>
September 30, 1995 September 30, 1994 December 31, 1994
------------------------ ----------------------- ----------------------
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....... $1,126 $4,983 $600 $20,055 $162 $28,717
Mortgage Backed Securities
Collateralized Mortgage Obligations.... 2,190 15,177 393 46,355 75 69,112
Other ................................. 2,560 1,718 2,623 7,004 1,056 10,048
------ ------- ------ -------
Total Mortgage-Backed Securities.... 4,750 16,895 3,016 53,359 1,131 79,160
State and Municipal Securities............ 4,673 742 4,391 5,753 2,802 10,392
Other Securities.......................... 130 898 77 3,258 128 5,066
------- ------- ------ -------
Total Investment Securities......... $10,679 $23,518 $8,084 $82,425 $4,223 $123,335
======= ======= ====== =======
</TABLE>
<PAGE>
Investment Securities Available for Sale
A summary of the amortized cost and approximate fair value
of investment securities available for sale is as follows:
<TABLE>
<CAPTION>
September 30, 1995 September 30, 1994 December 31, 1994
------------------------ ------------------------ ------------------------
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....... $247,558 $251,985 $288,147 $284,795 $282,500 $274,594
Mortgage Backed Securities
Collateralized Mortgage Obligations.... 1,585 1,723 25,089 24,553 25,089 24,260
Other ................................. 84,463 85,587 99,441 96,897 96,501 91,678
-------- -------- -------- -------- -------- --------
Total Mortgage-Backed Securities.... 86,048 87,310 124,530 121,450 121,590 115,938
State and Municipal Securities............ 36,640 37,425 29,727 30,907 32,530 33,362
Other Securities.......................... 7,376 9,891 15,526 17,593 9,163 11,100
-------- -------- -------- -------- -------- --------
Total Investment Securities
Available for Sale................ $377,622 $386,611 $457,930 $454,745 $445,783 $434,994
======== ======== ======== ======== ======== ========
</TABLE>
A summary of gross unrealized gains and losses on investment
securities available for sale is as follows:
<TABLE>
<CAPTION>
September 30, 1995 September 30, 1994 December 31, 1994
------------------------- ------------------------ ------------------------
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....... $4,501 $74 $464 $3,816 $105 $8,011
Mortgage Backed Securities
Collateralized Mortgage Obligations.... 139 1 - 536 - 829
Other ................................. 1,303 179 198 2,742 72 4,895
------ ---- ---- ------ ---- ------
Total Mortgage-Backed Securities.... 1,442 180 198 3,278 72 5,724
State and Municipal Securities............ 794 9 1,240 60 958 126
Other Securities.......................... 2,760 245 2,192 125 2,121 184
------ ---- ------ ------ ------ -------
Total Investment Securities
Available for Sale................ $9,497 $508 $4,094 $7,279 $3,256 $14,045
====== ==== ====== ====== ====== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Table 6: DEPOSITS
(Dollars in Thousands)
September 30, 1995 September 30, 1994 December 31, 1994
------------------ ------------------ -----------------
Amount % Amount % Amount %
----------- ---- ----------- ---- ---------- ----
<S> <C> <C> <C> <C> <C> <C>
Non-Interest Bearing Deposits................ $1,782,975 16% $1,811,484 16% $1,998,660 18%
NOW Accounts................................. 1,408,649 13 1,469,937 13 1,523,834 13
Savings Deposits............................. 1,668,211 15 1,949,808 17 1,846,758 16
Money Market Deposit Accounts................ 2,078,761 19 2,244,885 20 2,287,039 20
Short-Term Time Deposits..................... 579,087 5 710,805 6 638,823 6
Long-Term Time Deposits...................... 2,776,321 25 2,547,549 23 2,586,443 23
Certificates of Deposit of $100,000 or More.. 810,410 7 575,711 5 498,010 4
----------- --- ----------- --- ----------- ---
Total.................................. $11,104,414 100% $11,310,179 100% $11,379,567 100%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 7: ALLOWANCE FOR POSSIBLE LOAN LOSSES
(Dollars In Thousands)
Three Months Ended Nine Months Ended
--------------------------------------------------------------- ----------------------------
September 30, June 30, March 31, December 31, September 30, September 30, September 30,
1995 1995 1995 1994 1994 1995 1994
------------- -------- --------- ------------ ------------- ------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance at Beginning of Period.......... $170,684 $168,426 $169,402 $173,503 $172,343 $169,402 $175,078
Additions (Deductions)
Loans Charged-Off
Commercial (includes
Commercial Real Estate)...... (7,291) (6,708) (8,397) (12,182) (7,621) (22,396) (19,715)
Real Estate - Residential......... (739) (619) (499) (989) (838) (1,857) (8,312)
Consumer.......................... (4,275) (4,392) (3,014) (3,035) (2,808) (11,681) (8,000)
-------- -------- -------- -------- -------- -------- --------
Total Loans Charged-Off...... (12,305) (11,719) (11,910) (16,206) (11,267) (35,934) (36,027)
-------- -------- -------- -------- -------- -------- --------
Recoveries on Charged-Off Loans
Commercial (includes
Commercial Real Estate)...... 3,850 2,102 1,485 7,063 3,528 7,437 7,320
Real Estate - Residential......... 19 76 80 45 216 175 415
Consumer.......................... 1,375 1,678 1,348 1,305 1,161 4,401 3,532
-------- -------- -------- -------- -------- -------- --------
Total Recoveries on
Charged-Off Loans............. 5,244 3,856 2,913 8,413 4,905 12,013 11,267
-------- -------- -------- -------- -------- -------- --------
Net Loans Charged-Off................ (7,061) (7,863) (8,997) (7,793) (6,362) (23,921) (24,760)
-------- -------- -------- -------- -------- -------- --------
Acquired Reserves.................... - - - - 1,029 - 1,168
Other Deductions..................... - - - (2,377) - - -
Provision Charged to
Operating Expense........... 10,510 10,121 8,021 6,069 6,493 28,652 22,017
-------- -------- -------- -------- -------- -------- --------
Balance at End of Period................ $174,133 $170,684 $168,426 $169,402 $173,503 $174,133 $173,503
======== ======== ======== ======== ======== ======== ========
Net Loan Charge-Offs to Average Loans... 0.28% 0.32% 0.37% 0.32% 0.27% 0.32% 0.36%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 8: CREDIT QUALITY
(Dollars in Thousands)
September 30, June 30, March 31, December 31, September 30,
1995 1995 1995 1994 1994
------------- -------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Non-Accrual Loans
Commercial
Real Estate-Commercial Mortgage...................... $26,869 $31,620 $23,152 $32,521 $35,152
Real Estate-Construction............................. 1,545 1,786 2,059 3,000 6,492
Commercial, Financial and Agricultural............... 47,365 50,872 63,054 42,899 46,459
-------- -------- -------- -------- --------
Total Commercial.................................. 75,779 84,278 88,265 78,420 88,103
Real Estate-Residential................................ 11,770 13,562 16,235 16,370 13,304
Consumer............................................... 886 997 817 233 822
-------- -------- -------- -------- --------
Total Non-Accrual Loans........................... 88,435 98,837 105,317 95,023 102,229
-------- -------- -------- -------- --------
Restructured Loans
Real Estate-Commercial Mortgage........................ 752 761 769 761 10
Real Estate-Construction............................... 28 29 31 33 34
Commercial, Financial and Agricultural................. 311 331 349 351 1,138
-------- -------- -------- -------- --------
Total Restructured Loans.......................... 1,091 1,121 1,149 1,145 1,182
-------- -------- -------- -------- --------
TOTAL NON-PERFORMING LOANS................... 89,526 99,958 106,466 96,168 103,411
-------- -------- -------- -------- --------
Assets Acquired in Foreclosures
Foreclosed Real Estate............................... 14,615 15,156 23,338 23,392 23,519
Assets Related to Consumer Loans..................... 1,608 2,475 1,923 2,178 1,127
-------- -------- -------- -------- --------
Total Assets Acquired.............................. 16,223 17,631 25,261 25,570 24,646
-------- -------- -------- -------- --------
TOTAL NON-PERFORMING ASSETS.................. $105,749 $117,589 $131,727 $121,738 $128,057
======== ======== ======== ======== ========
Allowance for Possible Loan Losses as a Percentage of:
Loans.................................................. 1.70% 1.70% 1.70% 1.74% 1.84%
Non-Performing Loans................................... 195% 171% 158% 176% 168%
Non-Performing Assets.................................. 165% 145% 128% 139% 135%
Total Non-Performing Loans as a Percentage
of Loans............................................... 0.87% 0.99% 1.07% 0.98% 1.09%
Total Non-Performing Assets as a Percentage
of Loans and Assets Acquired in Foreclosures........... 1.03% 1.17% 1.33% 1.24% 1.35%
Loans Past Due 90 or more Days as to Interest or Principal
not Included Above (Includes $14,791 of Real Estate-
Residential as of September 30, 1995).................. $27,529 $22,681 $24,071 $22,355 $19,639
Total Non-Performing Assets and Loans Past Due
90 or more Days as to Interest or Principal............ $133,278 $140,270 $155,798 $144,093 $147,696
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........... 1.30% 1.39% 1.57% 1.47% 1.56%
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 9: COMMERCIAL LOANS BY MAJOR INDUSTRY CLASSIFICATION
September 30,
(Dollars in Thousands)
1995 1994
-------------------------------------- -------------------------------------
Loans Non-Accrual Loans Non-Accrual
Outstanding % Loans % Outstanding % Loans %
----------- ---- ----------- ---- ----------- ---- ----------- ----
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Agriculture........................... $161,454 2% $1,433 2% $155,173 3% $235 *
Mining................................ 16,350 * 265 * 17,678 * 327 *
Construction.......................... 228,570 4 2,355 3 236,541 4 3,911 5
Manufacturing......................... 1,223,510 20 28,762 38 1,153,579 20 21,316 24
Transportation, Communication and
Public Utilities................... 371,155 6 1,817 3 294,433 5 2,403 3
Wholesale Trade....................... 384,628 6 2,376 3 363,179 6 7,198 8
Retail Trade.......................... 808,787 13 9,377 12 731,411 13 8,977 10
Finance, Insurance and Real Estate.... 1,408,796 23 20,190 27 1,283,256 23 26,973 31
Services.............................. 1,459,523 24 8,571 11 1,389,160 24 15,096 17
Public Administration................. 17,387 * - - 14,892 * 621 1
Other................................. 125,082 2 633 1 103,396 2 1,046 1
---------- --- ------- --- ---------- --- ------- ---
Total............................... $6,205,242 100% $75,779 100% $5,742,698 100% $88,103 100%
========== === ======= === ========== === ======= ===
<FN>
* Less than one percent
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 10: COMMERCIAL REAL ESTATE
September 30
(Dollars in Thousands)
Outstanding Loans 1995 1994
------------------------------------------------------------------------------ ------------------------
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..... $215,915 $2,712 - - $215,915 $2,712 216,382 1,253
Office Buildings........ 169,559 16,906 $187,109 $11,490 356,668 28,396 342,679 24,796
Residential Properties.. - 111,161 - - - 111,161 130 89,422
Shopping Centers........ 169,020 21,014 70,452 2,451 239,472 23,465 227,469 21,798
Land.................... - 34,060 - - - 34,060 - 41,240
Industrial Plants....... 101,873 5,537 178,871 14,026 280,744 19,563 286,963 28,071
Hotel/Motel/Restaurant.. 128,647 2,734 - - 128,647 2,734 119,385 2,810
Healthcare Facilities... - - 67,699 1,611 67,699 1,611 99,075 19,388
Other................... 148,785 16,498 245,199 25,715 393,984 42,213 383,963 27,851
-------- -------- -------- ------- ---------- -------- ---------- --------
Total................. $933,799 $210,622 $749,330 $55,293 $1,683,129 (1) $265,915 (1) $1,676,046 $256,629
======== ======== ======== ======= ========== ======== ========== ========
<FN>
(1) The geographic distribution by state is as follows:
Pennsylvania $1,544,347 (79%), Delaware $215,012 (11%), New
Jersey $119,595 (6%), and all other states $70,090 (4%).
</TABLE>
<TABLE>
<CAPTION>
Non-Accrual Loans 1995 1994
------------------------------------------------------------------------------ ------------------------
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..... $1,498 - - - $1,498 - 6,572 -
Office Buildings........ 12,218 - $1,112 - 13,330 - 6,162 -
Residential Properties.. - $958 - - - $958 130 1,038
Shopping Centers........ 1,323 81 549 - 1,872 81 3,355 -
Land.................... - 228 - - - 228 - 5,161
Industrial Plants....... 17 - 3,133 - 3,150 - 10,466 -
Hotel/Motel/Restaurant.. 4,004 278 - - 4,004 278 2,905 293
Other................... 1,361 - 1,654 - 3,015 - 5,562 -
------- ------ ------ ------------ ------- ------ ------- ------
Total................. $20,421 $1,545 $6,448 - $26,869 (2) $1,545 (2) $35,152 $6,492
======= ====== ====== ============ ======= ====== ======= ======
<FN>
(2) The geographic distribution by state is as follows:
Pennsylvania $12,851, (45%), Delaware $12,456 (44%), New
Jersey $1,409 (5%), and all other states $1,698 (6%).
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Assets Acquired in
Foreclosures (3) 1995 1994
------- -------
<S> <C> <C>
Apartment Buildings..... $150 401
Office Buildings........ 2,871 11,415
Residential Properties.. 2,640 -
Shopping Centers........ 119 3,246
Land.................... 2,380 759
Industrial Plants....... 1,666 1,066
Hotel/Motel/Restaurant.. 437 1,844
Other................... 763 1,674
------- -------
Total................. $11,026 (3) $20,405
======= =======
<FN>
(3) The geographic distribution by state is as follows:
Pennsylvania $6,732 (61%), Delaware $272 (3%), and New
Jersey $4,022 (36%).
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
TABLE 11: CAPITAL ADEQUACY
September 30, June 30, March 31, December 31, September 30,
1995 1995 1995 1994 1994
------------- -------- --------- ------------ -------------
<S> <C> <C> <C> <C> <C>
Consolidated
Total Shareholders' Equity
to Assets................................... 8.70% 8.29% 8.15% 8.07% 8.33%
Tangible Shareholders' Equity
to Assets................................... 7.93 7.51 7.35 7.23 7.46
Risk-Based Capital
Tier 1.................................... 9.59 9.31 9.32 9.25 9.44
Tier 2.................................... 3.45 3.45 3.48 3.48 3.63
Total (1,2)............................. 13.04 12.76 12.80 12.73 13.07
Leverage (1,2)................................. 7.96 7.57 7.52 7.47 7.47
Banking
Total Risk-Based Capital (1,2)
Meridian Bank.............................. 12.87 12.35 12.39 12.16 12.53
Delaware Trust Company..................... 16.03 14.95 14.59 14.32 13.58
Meridian Bank, New Jersey.................. 14.50 14.06 15.20 15.06 15.88
<FN>
(1) The minimum ratios required by 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% more, a
total risk-based capital ratio of 10% or more, and a
leverage ratio of 5% or more.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
TABLE 12: INDUSTRY SEGMENTS
(Dollars in Thousands)
Net Income(Loss)
--------------------------------------------- Assets
Three Months Ended Nine Months Ended ------------------------
-------------------- ---------------------
September 30, September 30, September 30, December 31,
1995 1994 1995 1994 1995 1994 1994
------- -------- -------- -------- ----------- ----------- ------------
<S> <C> <C> <C> <C> <C> <C> <C>
Banking (1)................................ $52,287 $39,850 $120,016 $112,953 $14,325,928 $14,251,308 $14,550,315
Securities (Broker-Dealer Activities) (2).. 2,085 (3,230) 1,520 2,260 237,242 531,092 502,332
------- ------- -------- -------- ----------- ----------- -----------
Consolidated (3)........................... $54,372 $36,620 $121,536 $115,213 $14,563,170 $14,782,400 $15,052,647
======= ======= ======== ======== =========== =========== ===========
<FN>
(1) Includes restructuring charge of $27.0 million(after-tax
$17.5 million) in the second quarter of 1995.
(2) Includes restructuring charge of $5.0 million(after-tax
$3.3 million) in the second quarter of 1995.
(3) Includes restructuring charge of $32.0 million(after-tax
$20.8 million) in the second quarter of 1995.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED BALANCE SHEETS
(Dollars in Thousands)
September 30, September 30, December 31,
1995 1994 1994
------------- ------------- ------------
<S> <C> <C> <C>
ASSETS
Cash and Due from Banks.................................................... $610,239 $614,200 $669,642
Short-Term Investments
Interest-Bearing Deposits in Other Banks................................ 63,556 113,314 123,608
Federal Funds Sold and Securities Purchased Under
Agreements to Resell................................................. 13,996 48,965 96,810
Total Short-Term Investments......................................... 77,552 162,279 220,418
Trading Account Assets..................................................... 116,249 71,763 346,170
Investment Securities Available for Sale
(Amortized Cost, $377,622, $457,930 and $445,783 at
September 30,1995, September 30, 1994 and December
31, 1994, Respectively)............................................... 386,611 454,745 434,994
Investment Securities
(Fair Value $2,401,170, $2,946,894 and $2,753,307 at
September 30, 1995, September 30, 1994 and December
31, 1994, Respectively)............................................... 2,414,009 3,021,235 2,872,419
Loans and Other Assets Held for Sale....................................... 140,293 422,010 90,590
Total Loans, Net of Unearned Discount...................................... 10,246,035 9,444,630 9,763,523
Less Allowance for Possible Loan Losses.............................. 174,133 173,503 169,402
Net Loans...................................................... 10,071,902 9,271,127 9,594,121
Premises and Equipment..................................................... 248,876 258,267 263,583
Accrued Interest Receivable................................................ 105,550 103,444 111,936
Other Assets............................................................... 391,889 403,330 448,774
Total Assets................................................... $14,563,170 $14,782,400 $15,052,647
LIABILITIES
Deposits
Non-Interest Bearing Deposits........................................... $1,782,975 $1,811,484 $1,998,660
Interest-Bearing Deposits............................................... 9,321,439 9,498,695 9,380,907
Total Deposits....................................................... 11,104,414 11,310,179 11,379,567
Short-Term Borrowings
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase....................................... 1,072,240 1,371,412 1,569,153
Other Short-Term Borrowings............................................. 289,889 271,648 243,413
Total Short-Term Borrowings.......................................... 1,362,129 1,643,060 1,812,566
Long-Term Debt and Other Borrowings........................................ 514,524 372,546 372,153
Accrued Interest Payable................................................... 80,101 48,826 62,344
Other Liabilities.......................................................... 235,691 176,193 210,932
Total Liabilities.................................................... 13,296,859 13,550,804 13,837,562
<PAGE>
COMMITMENTS AND CONTINGENCIES (Note 6)
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 - 58,338,038 Shares at September 30, 1995 and
58,316,978 Shares at September 30, 1994 and
December 31, 1994, Respectively....................................... 291,690 291,585 291,585
Surplus.................................................................... 211,426 211,142 211,011
Retained Earnings.......................................................... 827,553 746,750 771,150
Net Unrealized Gains (Losses) on Securities................................ 5,844 (2,239) (7,182)
Treasury Stock - 515,434, 513,076 and 525,336 Shares
at September 30, 1995, September 30, 1994 and December.................
31, 1994, Respectively................................................. (15,830) (15,642) (15,911)
Unallocated Shares Held by Employee Stock Ownership Plan
(ESOP) Trust -1,925,000 and 1,285,000 Shares at
September 30, 1995 and December 31, 1994,
Respectively.......................................................... (54,372) - (35,568)
Total Shareholders' Equity........................................... 1,266,311 1,231,596 1,215,085
Total Liabilities and Shareholders' Equity...................... $14,563,170 $14,782,400 $15,052,647
<FN>
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 Nine Months Ended
September 30, September 30,
---------------------------- ----------------------------
1995 1994 1995 1994
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans............................... $227,818 $196,909 $669,088 $555,960
Interest on Trading Account Assets....................... 4,431 2,810 17,050 7,151
Interest on Investment Securities
Available for Sale...................................... 6,939 6,795 22,016 16,545
Interest on Investment Securities........................ 35,739 40,769 114,126 114,951
Interest on Loans Held for Sale.......................... 2,975 7,868 7,084 20,999
Other Interest Income.................................... 1,100 2,059 5,814 5,313
Total Interest Income................................. 279,002 257,210 835,178 720,919
INTEREST EXPENSE
Interest on Deposits..................................... 94,327 74,586 281,164 201,393
Interest on Short-Term Borrowings........................ 20,109 19,867 72,079 40,644
Interest on Long-Term Debt and Other
Borrowings.............................................. 9,000 6,346 22,605 19,699
Total Interest Expense................................ 123,436 100,799 375,848 261,736
NET INTEREST INCOME......................................... 155,566 156,411 459,330 459,183
PROVISION FOR POSSIBLE LOAN LOSSES.......................... 10,510 6,493 28,652 22,017
NET INTEREST INCOME AFTER PROVISION
FOR POSSIBLE LOAN LOSSES................................. 145,056 149,918 430,678 437,166
NON-INTEREST INCOME
Trust.................................................... 16,237 15,791 48,117 37,748
Mortgage................................................. 3,640 2,954 9,602 14,960
Broker-Dealer and Investment Banking..................... 11,909 1,986 38,056 31,419
Service Charges on Deposit Accounts...................... 17,792 14,391 48,739 41,416
Fees for Other Customer Services......................... 9,524 8,475 26,609 25,216
Net Securities Gains .................................... 1,504 2,110 4,671 2,751
Other Income............................................. 2,348 11,595 12,026 17,063
Total Non-Interest Income............................. 62,954 57,302 187,820 170,573
NON-INTEREST EXPENSES
Salaries and Employee Benefits........................... 66,379 75,461 214,758 223,298
Net Occupancy Expense.................................... 10,600 11,103 32,978 34,330
Equipment Expense........................................ 9,670 9,401 28,552 28,833
Restructuring Charge..................................... 32,000
Other Expenses........................................... 40,712 57,721 132,014 149,105
Total Non-Interest Expenses........................... 127,361 153,686 440,302 435,566
INCOME BEFORE INCOME TAXES AND CUMULATIVE
EFFECT OF CHANGE IN ACCOUNTING
PRINCIPLE................................................. 80,649 53,534 178,196 172,173
Provision for Income Taxes............................... 26,277 16,914 56,660 54,230
INCOME BEFORE CUMULATIVE EFFECT OF CHANGE
IN ACCOUNTING PRINCIPLE................................... 54,372 36,620 121,536 117,943
CUMULATIVE AFTER-TAX EFFECT ON PRIOR YEARS
OF CHANGE IN METHOD OF ACCOUNTING FOR
POSTEMPLOYMENT BENEFITS................................... - - - (2,730)
NET INCOME.................................................. $54,372 $36,620 $121,536 $115,213
<PAGE>
<CAPTION>
Three Months Ended Nine Months Ended
September 30, September 30,
---------------------------- ---------------------------
1995 1994 1995 1994
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
PER COMMON SHARE
Income Before Cumulative Effect of
Change in Accounting Principle
Primary............................................... $0.96 $0.63 $2.15 $2.03
Fully Diluted......................................... $0.96 $0.63 $2.14 $2.03
Cumulative After-Tax Effect on Prior
Years of Change in Accounting Principle
Primary............................................... - - - ($0.05)
Fully Diluted......................................... - - - ($0.05)
Net Income
Primary............................................... $0.96 $0.63 $2.15 $1.98
Fully Diluted......................................... $0.96 $0.63 $2.14 $1.98
Dividends................................................ $0.37 $0.34 $1.08 $1.00
AVERAGE SHARES OUTSTANDING
Primary............................................... 56,730,655 58,301,343 56,521,960 58,226,123
Fully Diluted......................................... 56,744,217 58,301,343 56,824,500 58,226,123
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in Thousands)
Common Stock Net Unrealized
------------------------ Gains
Shares Retained (Losses) on Treasury
Outstanding Amount Surplus Earnings Securities Stock
----------- -------- -------- -------- -------------- --------
<S> <C> <C> <C> <C> <C> <C>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1994
Balance at January 1, 1994.................... 58,154,486 $290,760 $205,174 $690,058 ($359) -
Net Income.................................... - - - 115,213 - -
Common Stock Dividends Declared............... - - - (57,767) - -
Sales of Stock Under Dividend Reinvestment,
Stock Option and Employee Benefit Plans.... 105,204 51 (230) (754) - 2,842
Purchases of Treasury Stock................... (610,500) - - - - (18,484)
Unrealized After-Tax Loss on Investment
Securities Available for Sale.............. - - - - (1,880) -
Common Stock Warrants Issued in Merger........ - - 4,000 - - -
Common Stock Issued in Merger................. 154,712 774 2,198 - - -
Balance at September 30, 1994................. 57,803,902 $291,585 $211,142 $746,750 ($2,239) ($15,642)
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995
Balance at January 1, 1995.................... 56,506,642 $291,585 $211,011 $771,150 ($7,182) ($15,911)
Net Income.................................... - - - 121,536 - -
Common Stock Dividends Declared............... - - - (60,430) - -
Sales of Stock Under Dividend Reinvestment,
Stock Option and Employee Benefit Plans.... 417,936 105 41 (4,703) - 13,149
Purchases of Treasury Stock................... (386,974) - - - - (13,068)
Purchases of Shares for Employee Stock
Ownership Plan (ESOP)..................... (715,000) - - - - -
Employee Stock Ownership Plan (ESOP) Shares
Committed to be Released to Participants.. 75,000 - 374 - - -
Unrealized After-Tax Gain on Investment
Securities Available for Sale............. - - - - 13,026 -
Balance at September 30, 1995................. 55,897,604 $291,690 $211,426 $827,553 $5,844 ($15,830)
<PAGE>
<CAPTION>
Unallocated
ESOP
Shares Total
----------- -----------
<S> <C> <C>
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1994
Balance at January 1, 1994.................... - $1,185,633
Net Income.................................... - 115,213
Common Stock Dividends Declared............... - (57,767)
Sales of Stock Under Dividend Reinvestment,
Stock Option and Employee Benefit Plans.... - 1,909
Purchases of Treasury Stock................... - (18,484)
Unrealized After-Tax Gain on Investment
Securities Available for Sale.............. - (1,880)
Common Stock Warrants Issued in Merger........ - 4,000
Common Stock Issued in Merger................. - 2,972
Balance at September 30, 1994................. - $1,231,596
FOR THE NINE MONTHS ENDED
SEPTEMBER 30, 1995
Balance at January 1, 1995.................... ($35,568) $1,215,085
Net Income.................................... - 121,536
Common Stock Dividends Declared............... - (60,430)
Sales of Stock Under Dividend Reinvestment,
Stock Option and Employee Benefit Plans.... - 8,592
Purchases of Treasury Stock................... - (13,068)
Purchases of Shares for Employee Stock
Ownership Plan (ESOP)..................... (20,922) (20,922)
Employee Stock Ownership Plan (ESOP) Shares
Committed to be Released to Participants.. 2,118 2,492
Unrealized After-Tax Gain on Investment
Securities Available for Sale............. - 13,026
Balance at September 30, 1995................. ($54,372) $1,266,311
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Dollars in Thousands)
For the Nine Months Ended
September 30,
-------------------------
1995 1994
--------- --------
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income................................................... $121,536 $115,213
Adjustments to Reconcile Net Income to Net Cash Provided
by Operating Activities
Restructuring Charge...................................... 25,388 --
Depreciation and Amortization............................. 38,938 37,554
Deferred Tax Benefit (Expense)............................ (9,558) 6,682
Cumulative Effect of Change in Accounting Principle....... -- (2,730)
Provision for Possible Loan Losses........................ 28,652 22,017
Provision for Other Real Estate Losses and Mortgage
Servicing Recourse...................................... 7,552 13,709
Net Gains - Investment Securities......................... (3,966) (416)
Net Gains - Investment Securities Available
for Sale................................................ (1,060) (2,069)
Gains On Sales Of Mortgage Servicing...................... (1,802) (210)
Gain On Sale Of Student Loans............................. -- (8,984)
Decrease (Increase) in Trading Account Assets............. 230,397 (35,147)
Decrease (Increase) in Loans and Other Assets
Held for Sale.......................................... (46,564) 283,361
Decrease in Other Assets.................................. 44,875 96,281
Increase (Decrease) in Other Liabilities.................. 12,497 (121,041)
Other, Net................................................ 1,456 3,735
Net Cash Provided by Operating Activities............. 448,341 407,955
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease (Increase) in Short-Term Investments................ 60,054 (11,453)
Proceeds from Sales of Investment Securities................. 29,523 --
Proceeds from Maturities, Calls and Paydowns of Investment
Securities................................................. 478,804 845,014
Purchases of Investment Securities........................... (67,937) (1,104,428)
Proceeds from Sales of Investment Securities Available
for Sale................................................... 300,480 37,421
Proceeds from Maturities, Calls and Paydowns of Investment
Securities Available for Sale.............................. 13,731 50,799
Purchases of Investment Securities Available for Sale........ (243,835) (249,985)
Net Principal Disbursed on Loans to Customers................ (525,848) (731,355)
Proceeds from Sale of Student Loans.......................... -- 231,984
Proceeds from Sales of Premises and Equipment................ 5,601 11,009
Purchases of Premises and Equipment.......................... (14,648) (42,836)
Proceeds from Sales of Mortgage Servicing.................... 2,456 6,776
Proceeds from Sales of Assets Acquired in Foreclosures....... 22,162 25,543
Net Cash Provided by Acquisitions............................ -- 379,318
Net Cash Provided by (Used For) Investing Activities...... 60,543 (552,193)
CASH FLOWS FROM FINANCING ACTIVITIES
Net Decrease in Deposits..................................... (275,794) (514,035)
Net Increase (Decrease) in Short Term Borrowings ............ (450,437) 851,337
Proceeds from Issuance of Long-Term Debt..................... 152,110 2,223
Repayment of Long Term Debt.................................. (12,074) (60,061)
Purchases of Treasury Stock.................................. (13,068) (18,484)
Proceeds from Issuance of Common Stock....................... 8,592 1,909
Cash Dividends Paid to Common Shareholders................... (60,430) (57,767)
Net Cash Provided by (Used for) Financing Activities...... (651,101) 205,122
<PAGE>
CASH AND CASH EQUIVALENTS
Net Increase (Decrease) During the Period................. (142,217) 60,884
Balance at Beginning of the Period........................ 766,452 602,281
Balance at End of the Period.............................. $624,235 $663,165
<FN>
See accompanying Notes to Consolidated Financial Statements.
</TABLE>
<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 except for the changes described in Note 5.
This Quarterly Report should be read in conjunction with the
1994 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 prior period financial statements
have been reclassified to conform with the presentation used in
the 1995 financial statements. These reclassifications have no
effect on net income.
In the accompanying Consolidated Statements of Cash Flows,
cash and cash equivalents include cash on hand, amounts due from
banks, federal funds sold, and securities purchased under
agreements to resell. The original maturities of such
instruments are less than 90 days. Federal funds are sold and
securities are purchased under agreements to resell for generally
one-day periods.
Relative to the Consolidated Statements of Cash Flows,
income tax payments totaled $35.5 million in 1995 and
$36.1 million in 1994. Interest payments totaled $358.1 million
in 1995 and $272.5 million in 1994. Non-cash investing activity
consists of net transfers of loans in liquidation to other real
estate and aggregated $18.2 million in 1995 and $25.0 million in
1994 and the transfer of $19.9 million of venture capital-related
assets from investment securities to other assets in 1995.
2) Mergers and Acquisitions
On May 24, 1995, Meridian announced a definitive agreement
to merge with United Counties Bancorporation ("UCB") in a
transaction expected to be accounted for as a pooling-of-
interests. Under the terms of the agreement, the transaction
will be a tax-free exchange of five shares of Meridian stock for
each share of UCB stock. This will result in the issuance of
approximately 10.9 million shares of Meridian common stock. If
the transaction would have been effected at the last reported
sales price of Meridian's common stock on September 30, 1995, the
transaction would have had a value of approximately $419 million
on that date. The merger is expected to be completed in the
first quarter of 1996 and is subject to the satisfaction of
certain conditions, including, among others, approval by both
UCB's and Meridian's shareholders, and receipt of certain
remaining regulatory approvals.
The following tables present (i) unaudited consolidated
proforma balance sheet information for Meridian and UCB on the
assumption that the merger was completed on September 30, 1995 in
a transaction accounted for as a pooling of interests and
(ii) consolidated earnings data on the assumption that Meridian
and UCB had been combined for each period presented on a pooling
of interests basis.
<PAGE>
<TABLE>
<CAPTION>
Financial Condition
(dollars in thousands, except per share data)
September 30, 1995 September 30, 1994
------------------------------------------- ------------------------------------
Pro Forma Pro Forma
Meridian UCB Consolidated Meridian UCB Consolidated
----------- --------- ----------- ---------- --------- ------------
<S> <C> <C> <C> <C> <C> <C>
Loans................... $10,246,035 $388,600 $10,634,635 $9,444,630 $368,645 $9,813,275
Assets.................. 14,563,170 1,630,462 16,193,632 14,782,400 1,638,975 16,421,375
Deposits................ 11,104,414 1,303,225 12,407,639 11,310,179 1,371,234 12,681,413
Shareholders' Equity.... 1,266,311 199,091 1,465,402 1,231,596 178,066 1,409,662
<CAPTION>
Results of Operations
(dollars in thousands, except per share data)
Three Months Ended September 30,
----------------------------------------------------------------------------------
1995 1994
----------------------------------------- -----------------------------------
Pro Forma Pro Forma
Meridian UCB Consolidated Meridian UCB Consolidated
-------- ------- ------------ -------- ------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income..... $155,566 $15,615 $171,181 $156,411 $16,516 $172,927
Net Income.............. 54,372 6,159 60,531 36,620 5,981 42,601
Return on Average Assets 1.48% 1.54% 1.49% 0.97% 1.46% 1.02%
Return on Average Common
Shareholders' Equity 17.33% 12.63% 16.68% 11.95% 13.66% 12.15%
Earnings Per Share
Primary............. $0.96 $2.87 $0.90 $0.63 $2.80 $0.62
Fully Diluted....... $0.96 $2.87 $0.90 $0.63 $2.80 $0.62
<CAPTION>
Results of Operations
(dollars in thousands, except per share data)
Nine Months Ended September 30,
---------------------------------------------------------------------------------------
1995 1994
----------------------------------------------- ------------------------------------
Pro Forma Pro Forma
Meridian UCB Consolidated Meridian UCB Consolidated
------------ ----------- ------------ --------- -------- ------------
<S> <C> <C> <C> <C> <C> <C>
Net Interest Income..... $459,330 $47,288 $506,618 $459,183 $49,765 $508,948
Net Income.............. 121,536 (1) 25,509 (2) 147,045 (3) 115,213 17,719 132,932
Return on Average Assets 1.10%(4) 1.97% 1.20%(4) 1.07% 1.45% 1.10%
Return on Average Common
Shareholders' Equity 13.24%(4) 16.54% 13.87%(4) 12.89% 14.01% 13.03%
Earnings Per Share
Primary............. $2.15 (1) $11.89 (2) $2.19 (3) $1.98 $8.30 $1.93
Fully Diluted....... $2.14 (1) $11.89 (2) $2.18 (3) $1.98 $8.30 $1.93
<FN>
(1) Includes the effects of the restructuring charge related to
the "59.9" program of $32 million ($20.8 million after-tax
or $0.37 on both a primary and fully diluted per share
basis) taken by Meridian in the second quarter of 1995.
Excluding this restructuring charge, net income was
$142.3 million and net income per share was $2.52 (primary)
and $2.51 (fully diluted).
(2) Includes gain on exchange of securities available for sale
of $12.0 million pre-tax and $7.6 million after-tax, or
$3.56 per share of UCB common stock. Excluding this gain,
net income was $17.9 million and net income per share was
$8.33 on both a primary and fully diluted basis.
(3) Excluding the effects of the Meridian restructuring charge
and the UCB gain on exchange of securities available for
sale, proforma net income was $160.2 million and proforma
net income per share was $2.38 (primary) and $2.37 (fully
diluted).
(4) Excluding the effects of the Meridian restructuring charge
related to the "59.9" program, the returns on average assets
and on common shareholders' equity were 1.29% and 15.50%,
respectively, for the nine-month period ended September 30,
1995 and 1.37% and 15.83%, respectively, on a proforma basis
for the same period.
(5) The Pro Forma Condensed Results of Operations for the nine
months ended September 30, 1995, do not reflect the
estimated $16.0 million ($14.5 millon after-tax) of non-
recurring expenses directly attributable to the merger.
</TABLE>
On October 10, 1995, Meridian and CoreStates Financial Corp.
announced a definitive agreement to merge in a transaction
expected to be accounted for as a pooling-of-interests. The
combination would create a banking services organization with
$45 billion in assets and $3.7 billion in equity and with leading
geographic market positions and specialized strengths in
servicing key regional, national and global customer segments.
The transaction will be a tax-free exchange of 1.225 shares of
CoreStates common stock for each share of Meridian common stock.
The merger, which is subject to approval by shareholders of both
companies and by regulators, is expected to close in the second
quarter of 1996.
3) Operating Performance Study ("59.9" Program)
In June 1995, Meridian completed an internal review of its
operations and businesses and announced a company-wide plan
designed to improve the company's operating performance and
competitive position. As a result of this review, Meridian
recorded a restructuring charge of $32.0 million (after-tax
$20.8 million or $.37 per share) in the second quarter of 1995.
Implementation of the plan began at the end of the second
quarter of 1995 and will continue over approximately the next
twelve months from that date. Over that period, the process is
expected to reduce net operating expenses on an annualized pre-
tax basis by $55 million while providing recurring revenue
enhancements of $13 million, increasing Meridian's earnings on a
annual basis by $44 million, or $.78 per share. The gross
reduction in operating expenses is expected to approximate
$73.2 million and is composed of salaries and benefits of
$54.2 million, furniture and fixtures of $16.1 million, and
occupancy of $2.9 million. Offsetting these savings are foregone
revenues, which are directly related to expense reductions,
mainly in branches, of $7.5 million and one-time implementation
costs of $10.7 million, resulting in net expense reductions of
$55 million. Meridian is currently evaluating the impact of the
agreement to merge with CoreStates Financial Corp. on the
"59.9" program.
4) Securities Transactions
Total gains (losses) from securities transactions, which
were included in the following categories in the non-interest
income section of the consolidated statements of income, are as
follows:
Three Months Ended
September 30,
-----------------------------
1995 1994
---------- ------------
Broker-Dealer and Investment
Banking $ 2,000 ($ 44,000)
Net Securities Gains 1,504,000 2,110,000
---------- -----------
Total Gains from Securities
Transactions $1,506,000 $2,066,000
========== ==========
Nine Months Ended
September 30,
----------------------------
1995 1994
---------- -----------
Broker-Dealer and Investment
Banking $ 355,000 ($ 46,000)
Net Securities Gains 4,671,000 2,751,000
---------- ----------
Total Gains from Securities
Transactions $5,026,000 $2,705,000
========== ==========
The gains in 1995 resulted from the sale of investments
classified as available for sale and from investment securities
near the maturity date or for which Meridian had collected a
substantial portion of the principal originally outstanding at
the date of purchase. The gains and losses in 1994 resulted
mainly from sales of investments classified as available for sale
and calls of investments.
5) Accounting Pronouncements
Effective January 1, 1994, Meridian adopted Statement of
Financial Accounting Standards No. 112, "Employers' Accounting
for Postemployment Benefits". This statement establishes
standards for employers who provide benefits to former employees
after employment but before retirement. Such benefits include,
among other things, severance, disability, and workers'
compensation benefits. The implementation of these new
accounting rules resulted in a charge of $4.2 million
($2.7 million after-tax or $.05 per share) in the first quarter
of 1994.
Effective January 1, 1995, Meridian adopted Statement of
Financial Accounting Standards No. 114 "Accounting by Creditors
for Impairment of A Loan" and Statement No. 118 "Accounting by
Creditors for Impairment of a Loan - Income Recognition and
Disclosures". Statement No. 114 requires that certain impaired
loans be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or
fair value of the loan if the loan is collateral dependent.
Statement No. 118 amends Statement No. 114 to allow a creditor to
use existing methods for recognizing interest income on an
impaired loan. There was no impact on consolidated net income
resulting from the implementation of these statements. Prior
period financial information has been restated to reflect the
reclassification of in-substance foreclosures to non-performing
loans.
A loan is considered impaired when, based on current
information and events, it is probable that a creditor will be
unable to collect all amounts due according to the contractual
terms of the loan agreement. This category currently includes
all commercial loans on non-accrual status and certain
restructured loans. Large groups of smaller-balance, homogeneous
loans such as residential mortgage and consumer loans that are
collectively evaluated for impairment are not included in
impaired loans.
The average recorded investment in impaired loans was
$82.2 million in the third quarter of 1995 and $82.8 million for
the nine- month period ended September 30, 1995. The recorded
investment in impaired loans at September 30, 1995 was
$76.6 million. The recorded investment for which there is a
related allowance for possible loan losses was $41.3 million at
September 30, 1995 and the related allowance was $20.6 million.
The recorded investment for which there is no related allowance
for possible loan losses was $20.7 million.
Interest income is not accrued on commercial loans where
management has determined that borrowers may be unable to meet
contractual principal or interest payments, or where such
payments are 90 or more days past due unless the loan is well
secured and in the process of collection. Interest collections
on nonaccrual loans for which the ultimate collectibility of
principal is uncertain are applied as principal reductions.
Otherwise, such collections are credited to income when received.
Interest on loans that have been restructured is recognized
according to the renegotiated terms. The amount of interest
income recognized on impaired loans, using the cash-basis method
of accounting, was $49.5 thousand in the third quarter of 1995
and $142.6 thousand for the nine-month period ended September 30,
1995.
During the second quarter of 1995, the Financial Accounting
Standards Board issued Statements of Financial Accounting
Standards No. 121 "Accounting for the Impairment of Long-Lived
Assets and for Long-Lived Assets to Be Disposed Of" and No. 122
"Accounting for Mortgage Servicing Rights". SFAS 121 requires
that long-lived assets and certain identifiable intangibles held
and used by an entity be reviewed for impairment whenever events
or changes in circumstances indicate that the carrying amount of
the asset may not be recoverable. SFAS 122 amends FASB Statement
No. 65 to require that a mortgage banking enterprise recognize as
a separate asset rights to service mortgage loans for others,
regardless of whether those servicing rights were purchased or
originated. In addition, this statement requires that a mortgage
banking enterprise assess its capitalized mortgage servicing
assets for impairment based on the fair value of those rights.
The effective date for both statements is fiscal years beginning
after December 15, 1995. Management is currently analyzing the
effect of both SFAS 121 and 122 and has not yet determined the
effect on Meridian's consolidated financial position and results
of operations.
In October 1995, the Financial Accounting Standards Board
issued SFAS No. 123, "Accounting for Stock-Based Compensation".
This statement encourages the adoption of fair value accounting
for stock options issued to employees. Further, in the event
that fair value accounting is not adopted, the statement requires
proforma disclosure of net income and earnings per share as if
fair value accounting had been adopted. SFAS No. 123 is required
to be adopted by Meridian in 1996. Management currently expects
that it will not adopt fair value accounting for stock options
issued to employees and, therefore, does not expect the adoption
of this statement to materially affect Meridian's results of
operations or financial condition.
6) Commitments and Contingencies
At September 30, 1995, 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.
Deposits of Meridian at September 30, 1995 of approximately
$8.9 billion were insured by the Bank Insurance Fund ("BIF"),
while the remaining deposits of approximately $2.2 billion were
insured by the Savings Association Insurance Fund ("SAIF").
These SAIF deposits are related to previous acquisitions by
Meridian Bank and Meridian Bank New Jersey of deposits of savings
and thrift institutions that were SAIF members. The Federal
Deposit Insurance Corporation ("FDIC") recently established a new
assessment rate schedule with a premium range between 4 to
31 basis points for BIF deposits while retaining the existing
assessment rate of 23 to 31 basis points for SAIF deposits. The
reduction in FDIC deposit insurance premiums of $5.5 million in
the third quarter of 1995, as previously discussed, related to
Meridian's BIF deposit base.
Several alternatives to mitigate the effect of the BIF/SAIF
premium difference have been proposed by the Clinton
Administration, by members of Congress, and by industry groups.
One such proposal is for institutions with SAIF-insured deposits
to pay a one-time charge of approximately $0.85 to $0.90 for
every $100.00 of assessable deposits. This proposal includes a
twenty percent reduction of SAIF deposits held by BIF member
institutions that resulted from prior acquisitions of savings and
thrift institutions. If this proposal were enacted, Meridian
would recognize a one-time pre-tax charge of approximately
$15.3 million to $16.2 million. Such a special assessment might
permit a reduction in future SAIF premiums to a level comparable
to the recently announced assessment rates for BIF.
<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"), as amended June 28, 1994, relating to
the Company's shareholder rights plan (the "Plan"). A
description of the Plan and a copy of the Rights Agreement, as
amended, are included in the Company's Current Report on
Form 8-K, dated July 25, 1989, and the Company's Quarterly Report
on Form 10-Q for the quarter ended June 30, 1994.
On October 10, 1995, the Board of Directors of the Company
approved certain additional amendments to the Rights Agreement.
As a result, the Company and Meridian Trust Company, as Rights
Agent, executed an Amendment to Rights Agreement, dated as of
October 10, 1995 (the "1995 Amendment"), which, among other
things, (i) modifies the definitions of "Acquiring Person" and
"Adverse Person" to exclude CoreStates Financial Corp
("CoreStates") or any Affiliate (as defined in the Rights
Agreement) or Associate (as defined in the Rights Agreement) of
CoreStates as a result of their acquisition of Beneficial
Ownership (as defined in the Rights Agreement) of the Common
Stock of the Company by reason of the approval, execution, or
delivery of, or the completion of, or the completion of any
transaction under, the Stock Option Agreement (the "Stock Option
Agreement"), dated as of October 10, 1995, by and between the
Company and CoreStates, or the Agreement and Plan of Merger (the
"Merger Agreement"), dated as of October 10, 1995, between the
Company and CoreStates, (ii) adds to the Rights Agreement a
provision providing that the Rights shall expire immediately
prior to effectiveness of the merger of the Company with and into
CoreStates (the "Termination Time"), (iii) adds to the Rights
Agreement a provision providing that certain requirements
triggered upon the consolidation, merger, sale or transfer of
assets or earning power of the Company shall not be applicable to
CoreStates or any of its Affiliates so long as the Merger
Agreement shall not have been terminated, and (iv) adds to the
Rights Agreement a provision that the Rights Agreement shall
terminate at the Termination Time.
The description of the 1995 Amendment included herein is
qualified in its entirety by reference to the 1995 Amendment
which is incorporated herein by reference.
Item 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits
2.1 Agreement and Plan of Merger, dated as of
October 10, 1995, by and between Meridian
Bancorp, Inc. and CoreStates Financial Corp.
(Incorporated herein by reference to
Exhibit 99.2 to the Current Report on
Form 8-K, dated October 10, 1995, of Meridian
Bancorp, Inc.).
4.1 Amendment to Rights Agreement, dated as of
October 10, 1995, between Meridian Bancorp,
Inc. and Meridian Trust Company.
(Incorporated herein by reference to
Exhibit 2.3 to Amendment No. 2 on Form 8-A/A,
dated November 6, 1995, to the Registration
Statement on Form 8-A dated August 11, 1989
of Meridian Bancorp, Inc.).
10.1 Stock Option Agreement, dated as of
October 10, 1995, by and between Meridian
Bancorp, Inc., as issuer, and CoreStates
Financial Corp, as grantee. (Incorporated
herein by reference to Exhibit A to
Exhibit 99.2 to the Current Report on Form
8-K, dated October 10, 1995, of Meridian
Bancorp, Inc.).
10.2 Stock Option Agreement, dated as of
October 10, 1995, by and between CoreStates
Financial Corp, as issuer, and Meridian
Bancorp, Inc., as grantee. (Incorporated
herein by reference to Exhibit B to
Exhibit 99.2 to the Current Report on Form
8-K, dated October 10, 1995, of Meridian
Bancorp, Inc.).
27.1 Financial Data Schedule.
(b) Reports on Form 8-K
On September 22, 1995, the Company filed a Current
Report on Form 8-K, dated September 22, 1995, to
report under Item 5 the issuance of a press
release by the Company regarding the scheduled
date of the annual planning retreat of the Board
of Directors. The Current Report on Form 8-K did
not contain any financial statements.
On September 28, 1995, the Company filed a Current
Report on Form 8-K, dated September 26, 1995, to
report under Item 5 the issuance of a press
release by the Company regarding the completion of
the annual planning retreat of the Board of
Directors. The Current Report on Form 8-K did not
contain any financial statements.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of
1934, the registrant has duly caused this report to be signed on
its behalf by the undersigned thereunto duly authorized.
November 10, 1995 /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
2.1 Agreement and Plan of Merger, dated
as of October 10, 1995, by and
between Meridian Bancorp, Inc. and
CoreStates Financial Corp.
(Incorporated herein by reference
to Exhibit 99.2 to the Current
Report on Form 8-K, dated
October 10, 1995, of Meridian
Bancorp, Inc.).
4.1 Amendment to Rights Agreement,
dated as of October 10, 1995,
between Meridian Bancorp, Inc. and
Meridian Trust Company.
(Incorporated herein by reference
to Exhibit 2.3 to Amendment No. 2
on Form 8-A/A, dated November 6,
1995, to the Registration Statement
on Form 8-A dated August 11, 1989
of Meridian Bancorp, Inc.).
10.1 Stock Option Agreement, dated as of
October 10, 1995, by and between
Meridian Bancorp, Inc., as issuer,
and CoreStates Financial Corp, as grantee.
(Incorporated herein by reference to
Exhibit A to Exhibit 99.2 to the
Current Report on Form 8-K, dated
October 10, 1995, of Meridian Bancorp, Inc.).
10.2 Stock Option Agreement, dated as of
October 10, 1995, by and between CoreStates
Financial Corp, as issuer, and Meridian
Bancorp, Inc., as grantee. (Incorporated
herein by reference to Exhibit B to
Exhibit 99.2 to the Current Report on
Form 8-K, dated October 10, 1995, of Meridian
Bancorp, Inc.).
27.1 Financial Data Schedule.
<TABLE> <S> <C>
<ARTICLE> 9
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 610,239
<INT-BEARING-DEPOSITS> 63,556
<FED-FUNDS-SOLD> 13,996
<TRADING-ASSETS> 116,249
<INVESTMENTS-HELD-FOR-SALE> 386,611
<INVESTMENTS-CARRYING> 2,414,009
<INVESTMENTS-MARKET> 2,401,170
<LOANS> 10,246,035
<ALLOWANCE> 174,133
<TOTAL-ASSETS> 14,563,170
<DEPOSITS> 11,104,414
<SHORT-TERM> 1,362,129
<LIABILITIES-OTHER> 315,792
<LONG-TERM> 514,524
<COMMON> 291,690
0
0
<OTHER-SE> 974,621
<TOTAL-LIABILITIES-AND-EQUITY> 14,563,170
<INTEREST-LOAN> 669,088
<INTEREST-INVEST> 136,142
<INTEREST-OTHER> 29,948
<INTEREST-TOTAL> 835,178
<INTEREST-DEPOSIT> 281,164
<INTEREST-EXPENSE> 375,848
<INTEREST-INCOME-NET> 459,330
<LOAN-LOSSES> 28,652
<SECURITIES-GAINS> 4,671
<EXPENSE-OTHER> 440,302
<INCOME-PRETAX> 178,196
<INCOME-PRE-EXTRAORDINARY> 121,536
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 121,536
<EPS-PRIMARY> 2.15
<EPS-DILUTED> 2.14
<YIELD-ACTUAL> 4.63
<LOANS-NON> 88,435
<LOANS-PAST> 27,529
<LOANS-TROUBLED> 1,091
<LOANS-PROBLEM> 486,366
<ALLOWANCE-OPEN> 169,402
<CHARGE-OFFS> 35,934
<RECOVERIES> 12,013
<ALLOWANCE-CLOSE> 174,133
<ALLOWANCE-DOMESTIC> 174,133
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
