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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 OR 15(d) of the Securities Exchange
Act of 1934 [Fee Required] for the fiscal year ended December 31, 1994, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
______ to ______________.
Commission file number 0-12364
MERIDIAN BANCORP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2237529
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 North Sixth Street, Reading, Pennsylvania 19601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 655-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($5.00 par value)
Preferred Stock Purchase Rights
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the shares of Common Stock of the Registrant
held by nonaffiliates, on the basis of the sale price as of February 15, 1995,
was $1,574,879,250. As of February 15, 1995, the Registrant had 57,843,092
shares of such Common Stock outstanding.
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Documents incorporated by reference. Portions of the following documents
are incorporated herein by reference: Proxy Statement of the Registrant relating
to the Registrant's Annual Meeting of Shareholders to be held April 25, 1995,
Part III.
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PART I
ITEM 1.
Meridian Bancorp, Inc.
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Meridian Bancorp, Inc. (the "Registrant"), a multi-bank holding
company registered under the federal Bank Holding Company Act of 1956, as
amended, was incorporated as a Pennsylvania business corporation as a result of
the statutory consolidation on June 30, 1983 of American Bancorp, Inc. and
Central Penn National Corp. The Registrant's subsidiaries presently engaged in
the business of banking are (i) Meridian Bank, formed in 1986 as a result of the
merger of the Registrant's then-existing three banking subsidiaries (American
Bank and Trust Co. of Pa., Central Penn National Bank and The First National
Bank of Allentown), (ii) Delaware Trust Company, acquired in January 1988, and
(iii) Meridian Bank, New Jersey, which commenced operations in April 1993 upon
the acquisition of Cherry Hill National Bank.
Bank Subsidiaries - Meridian Bank, Delaware Trust Company and Meridian Bank,
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New Jersey
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Meridian Bank conducts its business principally through 270 banking
offices located in 29 eastern and central Pennsylvania counties.
Delaware Trust, a Delaware banking corporation, was incorporated in
1899 under the Delaware General Corporation Law and acquired banking powers
through its merger in 1910 with Delaware Savings Bank, which was created in 1905
by a special act of the General Assembly of the State of Delaware. Delaware
Trust operates 26 branches in New Castle, Kent and Sussex Counties, Delaware.
In January 1993, the Registrant caused the formation of Meridian Bank,
New Jersey, a New Jersey state-chartered banking institution, to effect the
acquisition of Cherry Hill National Bank, which was completed in April 1993.
Meridian Bank, New Jersey operates 29 branches in seven southern New Jersey
Counties.
At December 31, 1994, Meridian Bank, Delaware Trust and Meridian Bank,
New Jersey had total deposits of $9.7 billion, $1.2 billion and $556 million,
respectively, total loans of $8.7 billion, $972 million and $153 million,
respectively, and total assets of $12.8 billion, $1.4 billion and $651 million,
respectively.
Meridian Bank, Delaware Trust and Meridian Bank, New Jersey provide a
wide variety of services, including secured and unsecured financing, real estate
financing, checking, savings and time deposit accounts, as well as the offering
of cash management and a variety of other specialized financial services to
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individuals, businesses, municipalities and other governmental bodies. In
addition, Meridian Capital Markets, Inc. a division of Meridian Bank, engages in
the underwriting of municipal obligations and various other investment banking,
mortgage banking and related activities permitted by law for banks.
Other Subsidiaries of the Registrant
------------------------------------
Meridian Life Insurance Company is a wholly-owned subsidiary of the
Registrant that reinsures life insurance and accident and health insurance
issued to borrowers in connection with loans and other extensions of credit made
to such borrowers by the Registrant's subsidiary banks.
Meridian Funding Corp. is a wholly-owned subsidiary of the Registrant
that issues commercial paper for the use of the Registrant and its subsidiaries.
Meridian Asset Management, Inc. ("MAM") and its subsidiaries, Meridian
Trust Company and Meridian Investment Company, provide services formerly
provided by the trust departments of the predecessors of Meridian Bank. These
services include personal and corporate trust, asset management and related
services and investment advisory services. Meridian Trust Company is a
Pennsylvania trust company with full trust powers. Meridian Investment Company
is an investment advisory firm registered with the Securities and Exchange
Commission and the Pennsylvania Securities Commission. As of December 31, 1994,
assets being administered in one or more fiduciary capacities by MAM or one of
its subsidiaries had an aggregate market value of approximately $14.2 billion,
of which MAM or one of such subsidiaries had sole or joint investment
responsibility for approximately $5.7 billion. Meridian Trust Company of
California was organized by MAM in 1989 and engaged in personal and corporate
trust activities in California; a sale is pending for the business of Meridian
Trust Company of California.
In addition to fiduciary services provided by MAM and its
subsidiaries, Delaware Trust Capital Management, Inc., a Delaware bank and trust
company and a wholly-owned subsidiary of Delaware Trust, performs trust and
related financial services. Prior to the commencement of operations by Delaware
Trust Capital Management, Inc. in January 1989, such services were performed by
the Capital Management Group of Delaware Trust. As of December 31, 1994, assets
being administered in one or more fiduciary capacities by Delaware Trust Capital
Management, Inc. had an aggregate market value of approximately $14.8 billion,
of which it had sole or joint investment responsibility for approximately $1.5
billion.
McGlinn Capital Management, Inc. is a registered investment advisory
firm acquired in July 1994. Assets under management by McGlinn Capital
Management as of December 31, 1994 had an aggregate market value of
approximately $2.7 billion.
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Meridian Securities, Inc. is registered as a broker with the
Securities and Exchange Commission and the Pennsylvania Securities Commission
and is a member of the National Association of Securities Dealers, Inc.
Meridian Capital Corp., a wholly-owned subsidiary of the Registrant,
previously was a small business investment company licensed by the SBA. This
subsidiary is presently inactive and the Registrant intends to liquidate it
during 1995.
Meridian Acceptance Corp., a wholly-owned subsidiary of the
Registrant, engages in the business of purchasing motor vehicle installment sale
contracts originating in the State of New Jersey.
Meridian Commercial Finance Corporation was formed in 1994 to engage
in secured commercial lending.
Until August 1990, Meridian Mortgage Corporation ("Meridian Mortgage")
operated as a wholly-owned mortgage banking subsidiary of the Registrant. In
August 1990, Meridian Mortgage became a wholly-owned subsidiary of Meridian
Bank. During the third quarter of 1993, the Registrant decided to significantly
reduce the scope of its mortgage banking business through a sale of
substantially all of the mortgage servicing operations conducted by Meridian
Mortgage.
Meridian Delaware Investments, Inc., a wholly-owned subsidiary of the
Registrant, is a Delaware business corporation that invests in and holds certain
investments.
Meridian Leasing, Inc. specializes in leasing office and business
equipment. In October 1991, Meridian Leasing, Inc. was reorganized as a direct
subsidiary of Meridian Bank.
Meridian Auto Leasing, Inc., a wholly-owned subsidiary of Meridian
Bank, conducts the automobile leasing activities previously conducted by
Meridian Bank.
Meridian Asset Servicing Corp. was formed in 1993 to hold title to and
liquidate real estate acquired through foreclosure on defaulted loans.
Supervision and Regulation
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Various requirements and restrictions under the laws of the United
States and the states in which the Registrant and its subsidiaries do business
affect the Registrant and its subsidiaries.
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General
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The Registrant is a bank holding company subject to supervision and
regulation by the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board") under the Bank Holding Company Act of 1956, as amended (the
"BHCA"). As a bank holding company, the Registrant's activities and those of
its banking and nonbanking subsidiaries are limited to the business of banking
and activities closely related or incidental to banking, and the Registrant may
not directly or indirectly acquire the ownership or control of more than 5% of
any class of voting shares or substantially all of the assets of any company,
including a bank, without the prior approval of the Federal Reserve Board.
The Registrant's subsidiary banks are subject to supervision and
examination by applicable federal and state banking agencies. All of the
Registrant's subsidiary banks are insured by, and therefore subject to the
regulations of, the Federal Deposit Insurance Corporation (the "FDIC"). In
addition, Meridian Bank is a Pennsylvania bank and trust company and member of
the Federal Reserve System subject to supervision and regulation by the
Pennsylvania Department of Banking and the Federal Reserve Board. Delaware
Trust Company is a Delaware banking corporation subject to supervision and
regulation by the Delaware State Bank Commissioner, and Meridian Bank, New
Jersey, is a New Jersey state bank subject to supervision and regulation by the
New Jersey Department of Banking. The Registrant's subsidiary banks are also
subject to requirements and restrictions under federal and state law, including
requirements to maintain reserves against deposits, restrictions on the types
and amounts of loans that may be granted and the interest that may be charged
thereon, and limitations on the types of investments that may be made and the
types of services that may be offered. Various consumer laws and regulations
also affect the operations of the Registrant's subsidiary banks. In addition to
the impact of regulation, commercial banks are affected significantly by the
actions of the Federal Reserve Board as it attempts to control the money supply
and credit availability in order to influence the economy.
Holding Company Structure
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The Registrant's subsidiary banks are subject to restrictions under
federal law which limit the transfer of funds by each of them to the Registrant
and its nonbanking subsidiaries, whether in the form of loans, other extensions
of credit, investments or asset purchases. Such transfers by any subsidiary
bank to the Registrant or any nonbanking subsidiary are limited in amount to 10%
of such subsidiary bank's capital and surplus and, with respect to the
Registrant and all nonbanking subsidiaries, to an aggregate of 20% of such
subsidiary bank's capital and surplus. Furthermore, such loans and extensions
of credit are required to be secured in specified
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amounts, and all such transactions are required to be on an arm's length basis.
The Federal Reserve Board has issued regulations under the BHCA that
require a bank holding company to serve as a source of financial and managerial
strength to its subsidiary banks. As a result, the Federal Reserve Board,
pursuant to such regulations, may require the Registrant to stand ready to use
its resources to provide adequate capital funds to its banking subsidiaries
during periods of financial stress or adversity. This support may be required
at times when, absent such regulations, the bank holding company might not
otherwise provide such support. Under the Federal Deposit Insurance Corporation
Improvement Act of 1991 (the "FDICIA"), a bank holding company is required to
guarantee the compliance of any insured depository institution subsidiary that
may become "undercapitalized" (as described below) with the terms of any capital
restoration plan filed by such subsidiary with its appropriate federal banking
agency, up to specified limits. Under the BHCA, the Federal Reserve Board has
the authority to require a bank holding company to terminate any activity or
relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a
bank) upon the Federal Reserve Board's determination that such activity or
control constitutes a serious risk to the financial soundness and stability of
any bank subsidiary of the bank holding company.
Under the Financial Institutions Reform, Recovery, and Enforcement Act
of 1989 ("FIRREA"), a depository institution insured by the FDIC can be held
liable for any loss incurred by, or reasonably expected to be incurred by, the
FDIC in connection with (i) the default of a commonly controlled FDIC-insured
depository institution or (ii) any assistance provided by the FDIC to a commonly
controlled depository institution in danger of default.
Regulatory Restrictions on Dividends
------------------------------------
Dividend payments by Meridian Bank to the Registrant are subject to
the Pennsylvania Banking Code of 1965 (the "Banking Code") and the Federal
Deposit Insurance Act (the "FDIA"). Under the Banking Code, no dividends may be
paid except from "accumulated net earnings" (generally, undivided profits).
Under the FDIA, no dividends may be paid by an insured bank if the bank is in
arrears in the payment of any insurance assessment due to the FDIC.
The declaration and payment of dividends by Delaware Trust to the
Registrant are subject to the Delaware Banking Code and the FDIA. Under the
Delaware Banking Code, no dividends may be paid except from "net profits"
(generally, net income as defined under federal regulations and reported to the
State Bank Commissioner). Additional restrictions apply unless Delaware Trust's
surplus fund is equal to the amount of its common stock.
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The declaration and payment of dividends by Meridian Bank, New Jersey
to the Company are subject to the New Jersey Banking Act of 1948 and the FDIA.
Under the New Jersey Banking Act of 1948, Meridian Bank, New Jersey cannot pay a
cash dividend unless following such dividend, the Bank's surplus will equal at
least fifty percent of the capital stock or the payment of the dividend will not
reduce the Bank's surplus.
State and federal regulatory authorities have adopted standards for
the maintenance of adequate levels of capital by banks. Adherence to such
standards further limits the ability of banks to pay dividends.
Under these policies and subject to the restrictions applicable to the
Registrant's subsidiary banks, such subsidiary banks could declare in the
remainder of 1995, without prior regulatory approval, aggregate dividends of
$101.2 million, plus net profits for the remainder of 1995.
The payment of dividends by any subsidiary bank may also be affected
by other regulatory requirements and policies, such as the maintenance of
adequate capital. If, in the opinion of the applicable regulatory authority a
bank under its jurisdiction is engaged in, or is about to engage in, an unsafe
or unsound practice (which, depending on the financial condition of the bank,
could include the payment of dividends), such authority may require, after
notice and hearing, that such bank cease and desist from such practice. The
Federal Reserve Board and the FDIC have formal and informal policies which
provide that insured banks and bank holding companies should generally pay
dividends only out of current operating earnings, with some exceptions.
FDIC Insurance Assessments
--------------------------
FIRREA created two deposit insurance funds to be administered by the
FDIC - the Savings Association Insurance Fund ("SAIF") and the Bank Insurance
Fund ("BIF"). On an aggregate basis, substantially all of Registrant's
subsidiary banks' deposits are insured under the BIF; however, certain deposits
assumed by Meridian Bank and Meridian Bank, New Jersey in connection with the
purchase of failed institutions from the Resolution Trust Corporation are
treated and assessed as SAIF-insured deposits. The FDIC has implemented a risk-
related premium schedule for all insured depository institutions that results in
the assessment of premiums based on capital and supervisory measures.
Under the risk-related premium schedule, the FDIC assigns, on a
semiannual basis, each institution to one of three capital groups (well-
capitalized, adequately capitalized or undercapitalized) and further assigns
such institution to one of three subgroups within a capital group. The
institution's subgroup assignment is based upon the FDIC's judgment of the
institution's strength in light of supervisory evaluations,
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including examination reports, statistical analyses and other information
relevant to gauging the risk posed by the institution. Only institutions with a
total capital to risk-adjusted assets ratio of 10.00% or greater, a Tier 1
capital to risk-adjusted assets ratio of 6.0% or greater and a Tier 1 leverage
ratio of 5.0% or greater, are assigned to the well-capitalized group. As of
December 31, 1994, Registrant's subsidiary banks were subject to FDIC deposit
insurance assessments at the rate of $.23 for every $100 of deposits.
The FDIC has reported that it anticipates that the BIF could reach its
statutory reserve ratio requirement in 1995. Consequently, the FDIC has
proposed a significant reduction of assessment rates applicable to BIF members.
While such a reduction in BIF assessment rates will result in lower deposit
insurance premiums paid by Delaware Trust Company, and by Meridian Bank and
Meridian Bank, New Jersey with respect to their deposits assessed at BIF rates,
there can be no assurance when, if ever, the FDIC will adopt its proposed
assessment rates. According to the proposed rate schedule, BIF institutions
deemed to have the highest risk will pay up to $0.31 for every $100 of deposits
annually while those deemed to have the least risk will pay $0.04 for every $100
of deposits annually. At the same time, the FDIC has indicated that it
anticipates that the SAIF assessment rate in even the lowest risk-based category
will not fall below the current rate of $0.23 for every $100 of deposits before
2002. Therefore, Meridian Bank and Meridian Bank, New Jersey could pay higher
assessments on their deposits which are assessed at SAIF rates.
Capital Adequacy
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The Federal Reserve Board adopted risk-based capital guidelines for
bank holding companies, such as the Registrant. The guidelines were phased in
over a two-year period ended December 31, 1992. Currently, the required minimum
ratio of total capital to risk-weighted assets (including off-balance sheet
activities, such as standby letters of credit) is 8%. At least half of the
total capital is required to be "Tier 1 capital," consisting principally of
common shareholders' equity, noncumulative perpetual preferred stock, a limited
amount of cumulative perpetual preferred stock and minority interests in the
equity accounts of consolidated subsidiaries, less goodwill. The remainder
("Tier 2 capital") may consist of a limited amount of subordinated debt and
intermediate-term preferred stock, certain hybrid capital instruments and other
debt securities, perpetual preferred stock, and a limited amount of the general
loan loss allowance. During the two-year phase-in period, a limited portion of
Tier 2 capital was permitted to be included as Tier 1 capital.
In addition to the risk-based capital guidelines, the Federal Reserve
Board established minimum leverage ratio (Tier 1
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capital to total assets) guidelines for bank holding companies. These
guidelines provide for a minimum leverage ratio of 3% for those bank holding
companies which have the highest regulatory examination ratings and are not
contemplating or experiencing significant growth or expansion. All other bank
holding companies are required to maintain a leverage ratio of at least 1% to 2%
above the 3% stated minimum. Each of the Registrant's subsidiary banks is
subject to similar capital requirements adopted by its primary federal
regulator. The Registrant and each of its subsidiary banks exceed all
applicable capital requirements.
FDICIA requires each federal banking agency to revise its risk-based
capital standards to ensure that those standards take adequate account of
interest rate risk, concentration of credit risk and the risks of non-
traditional activities. In September 1993, the Federal Reserve Board, the
Office of the Comptroller of the Currency ("OCC") and the FDIC issued a joint
notice of proposed rulemaking seeking public comment on two alternative proposed
revisions to the risk-based capital rules to take account of interest rate risk.
Under the first alternative proposed, interest rate risk would be measured by
either an internal bank model or a supervisory model. If interest rate risk in
excess of 1 percent of assets is identified, the bank's risk-weighted assets
would be increased, and the bank's risk-based capital ratio would accordingly
decrease. A bank may be required to add capital if excess interest rate risk
caused its risk-based capital ratio to fall below regulatory minimums. Under
the second approach, the level of measured interest rate risk would be just one
of several factors that examiners would consider when evaluating a bank's
capital needs relating to interest rate risk. Other factors considered would
include the quality of the bank's interest rate risk management, internal
controls, and the overall financial condition of the bank, including earnings
capacity, capital base and other identified risks. The Registrant is unable to
predict the form in which these proposed regulations will ultimately be adopted
or the effect such regulations would have on the operations and capital adequacy
of the Registrant and the subsidiary banks.
The federal regulators adopted final rules relating to concentration
of credit risk and risks of non-traditional activities effective on January 17,
1995. The agencies declined to adopt a quantitative test for concentrations of
credit risk and, instead, provided that such risk would be considered in
addition to other risks in assessing an institution's overall capital adequacy.
Institutions with higher concentration of credit risk will be required to
maintain greater levels of capital. Similarly, the federal agencies
incorporated the evaluation of the risks of non-traditional activities into the
overall assessment of capital adequacy. The agencies indicated that proposed
rules regarding specific types of non-traditional activities will be promulgated
from time to time.
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Other Provisions of FDICIA
--------------------------
FDICIA required the federal banking agencies to promulgate regulations
specifying the levels at which an insured institution would be considered "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." Under these regulations, a
bank is considered "well capitalized" if it has (i) a total risk-based capital
ratio of 10% or greater, (ii) a Tier 1 risk-based capital ratio of 6% or
greater, (iii) a leverage ratio of 5% or greater and (iv) is not subject to any
order or written directive to meet and maintain a specific capital level. An
"adequately capitalized" bank is defined under the regulations as one that has
(i) a total risk-based capital ratio of 8% or greater, (ii) a Tier 1 risk-based
capital ratio of 4% of greater, (iii) a leverage ratio of 4% or greater (or 3%
or greater in the case of a bank with the highest composite regulatory
examination rating) and (iv) does not meet the definition of a well capitalized
bank. A bank will be considered (A) "undercapitalized" if it has (i) a total
risk-based capital ratio of less than 8%, (ii) a Tier 1 risk-based capital ratio
of less than 4% or (iii) a leverage ratio of less than 4% (or 3% in the case of
a bank with the highest regulatory examination rating of 1); (B) "significantly
undercapitalized" if the bank has (i) a total risk-based capital ratio of less
than 6%, (ii) a Tier 1 risk-based capital ratio of less than 3% or (iii) a
leverage ratio of less than 3%; and (C) "critically undercapitalized" if the
bank has a ratio of tangible equity to total assets of equal to or less than 2%.
Notwithstanding the foregoing, the applicable federal bank regulator for a
depository institution could, under certain circumstances, reclassify a "well
capitalized" institution as "adequately capitalized" or require an "adequately
capitalized" or "undercapitalized" institution to comply with supervisory
actions as if it were in the next lower category. Such a reclassification could
be made if the regulatory agency determines that the institution is in an unsafe
or unsound condition (which could include unsatisfactory examination ratings).
Undercapitalized institutions, including significantly and critically
undercapitalized institutions, are required to submit capital restoration plans
to the appropriate federal banking regulator and are subject to restrictions on
operations, including prohibitions on branching, engaging in new activities,
paying management fees, making capital distributions such as dividends, and
growing without regulatory approval.
Prior to December 31, 1992, each federal banking agency was required
to review the accounting procedures it requires institutions it regulates to
utilize in preparing reports or statements to be filed with such agency to
ensure compliance with generally accepted accounting principles ("GAAP").
Additionally, certain accounting reforms require the federal banking agencies to
implement regulations to require that "off balance sheet"
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assets and liabilities be taken into account in the preparation of a depository
institution's financial statements. Furthermore, the federal banking agencies
must develop a method for and require disclosure of the fair value of a
depository institution's assets and liabilities in financial statements.
Each depository institution must submit audited financial statements
to its primary regulator and the FDIC, which reports are made publicly
available. In addition, the audit committee of each depository institution must
consist of outside directors and the audit committee at "large institutions" (as
defined by FDIC regulation) must include members with banking or financial
management expertise. The audit committee at "large institutions" must also
have access to independent outside counsel. In addition, an institution must
notify the FDIC and the institution's primary regulator of any change in the
institution's independent auditor, and annual management letters must be
provided to the FDIC and the depository institution's primary regulator. The
regulations define a "large institution" as one with over $500 million in
assets, which would include the Company. Also, under the rule, an institution's
independent auditor must examine the institution's internal controls over
financial reporting and perform agreed-upon procedures to test compliance with
laws and regulations concerning safety and soundness.
Under FDICIA, each federal banking agency must prescribe certain
safety and soundness standards for depository institutions and their holding
companies. Three types of standards must be prescribed: asset quality and
earnings, operational and managerial, and compensation. Such standards would
include a ratio of classified assets to capital, minimum earnings, and, to the
extent feasible, a minimum ratio of market value to book value for publicly
traded securities of such institutions and holding companies. Operational and
managerial standards must relate to: (i) internal controls, information systems
and internal audit systems, (ii) loan documentation, (iii) credit underwriting,
(iv) interest rate exposure, (v) asset growth and (vi) compensation, fees and
benefits. In November 1993, the federal banking agencies released proposed
rules setting forth some of the required safety and soundness standards. Under
such proposed rules, if the primary federal regulator determines that any
standard has not been met, the regulator can require the institution to submit a
compliance plan that describes the steps the institution will take to eradicate
the deficiency. Failure to adopt or implement a compliance plan could lead to
further sanctions by the responsible regulator. Pursuant to the Riegle
Community Development and Regulatory Improvement Act of 1994 (the "Community
Development Act"), federal banking agencies have been given the discretion to
adopt safety and soundness guidelines rather than regulations. Holding
companies such as the Company are no longer subject to the relevant statutory
requirement.
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Provisions of FDICIA relax certain requirements for mergers and
acquisitions among financial institutions, including authorization of mergers of
insured institutions that are not members of the same insurance fund, and
provide specific authorization for a federally chartered savings association or
national bank to be acquired by any insured depository institution.
Under FDICIA, all depository institutions must provide 90 days notice
to their primary federal regulator of branch closings, and penalties are imposed
for false reports by financial institutions. Depository institutions with
assets in excess of $250 million must be examined on-site annually by their
primary federal or state regulator or the FDIC.
FDICIA also sets forth Truth in Savings disclosure and advertising
requirements applicable to all depository institutions.
Interstate Banking
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Pennsylvania law permits a Pennsylvania bank holding company (such as
the Registrant) to expand by acquiring banks located in any state of the United
States or the District of Columbia the laws of which allow such expansion.
Also, bank holding companies located in another state are permitted by
Pennsylvania law to acquire banks and bank holding companies in Pennsylvania,
but only if the other state has enacted reciprocal legislation. "Reciprocal"
legislation generally means legislation that permits Pennsylvania bank holding
companies to acquire banks in such states and permits bank holding companies in
those states to acquire Pennsylvania banks.
On September 29, 1994, Congress enacted the Riegle-Neal Interstate
Banking and Branching Efficiency Act of 1994 (the "Interstate Banking Law"),
which amended various federal banking laws to provide for nationwide interstate
banking, interstate bank mergers and interstate branching. The interstate
banking provisions allow, effective September 29, 1994, for the acquisition by a
bank holding company of a bank located in another state.
Interstate bank mergers and branch purchase and assumption
transactions will be allowed effective June 1, 1997; however, states may "opt-
out" of the merger and purchase and assumption provisions by enacting a law
which specifically prohibits such interstate transactions. States may, in the
alternative, enact legislation to allow interstate merger and purchase and
assumption transactions prior to June 1, 1997. States may also enact
legislation to allow for de novo interstate branching by out of state banks.
The Interstate Banking Law also contains provisions which allow
affiliated banks, such as the Registrant's subsidiary banks
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to receive deposits, renew time deposits, close loans, service loans and receive
payments on loans and other obligations, as agent for an affiliated depository
institution without being considered a branch of the affiliate depository
institution. Registrant's subsidiary banks are in the process of implementing
procedures under this provision, allowing for customers to utilize banking
services across state lines.
Proposed Legislation
--------------------
Legislation has been introduced in Congress, from time to time, that
would repeal portions of the Glass Steagall Act, which forbids commercial banks
from underwriting corporate securities and certain municipal securities. There
is active consideration by Congress of such proposed legislation at this time.
The Registrant is continuously evaluating whether it can and should avail itself
of securities powers that may be permitted if such legislation is enacted.
Competition
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Meridian Bank, Delaware Trust, and Meridian Bank, New Jersey compete
with numerous other banking and financial institutions in their respective
markets. Commercial banks, savings and loan associations and credit unions
actively compete for savings and time deposits and for many types of loans.
Such institutions, as well as an undetermined number of consumer finance
companies, investment counseling firms, insurance companies, stock brokerage
firms, money market funds, equipment leasing companies and corporate trustees,
in addition to retailers of goods and services who offer consumer credit, may be
considered major competitors of Meridian Bank, Delaware Trust and Meridian Bank,
New Jersey with respect to one or more of the services they offer.
Acquisitions and de novo expansion effected under the Interstate
Banking Law may introduce new competitors to the Registrant's market area.
Additionally, the manner in which banking institutions conduct their operations
may change materially as the activities in which bank holding companies and
their banking and nonbanking subsidiaries are permitted to engage increase, and
funding and investment alternatives continue to broaden, although the long-range
effects of these changes cannot be predicted, with reasonable certainty, at this
time. These changes most probably will further narrow the differences and
intensify competition between and among commercial banks, thrift institutions
and other financial service companies.
The marketplace continues to see intense competition from financial
institutions and nonbanks for deposits, credit and associated services. Further
deregulation is expected to open up opportunities for new product offerings that
will replace and complement existing product lines. The ability of the
Registrant and its subsidiaries to remain competitive with such other
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financial institutions offering similar services will depend upon how
successfully the Registrant can respond to the rapidly evolving competitive,
regulatory, technological, and demographic developments which affect its
operations.
Employees
---------
As of December 31, 1994, the Registrant and its subsidiaries employed
6,939 persons on a full-time equivalent basis. The Registrant and its
subsidiaries provide a full range of employment benefits and consider their
relationships with their employees to be excellent.
ITEM 2. PROPERTIES
As of December 31, 1994, the Registrant, or a subsidiary of the
Registrant, owned 200 properties in fee and leased 188. The properties owned in
fee were at such date subject to liens, encumbrances or collateral assignments
amounting in the aggregate to approximately $2.7 million.
The principal office of the Registrant and of Meridian Bank is owned
in fee and is located at 35 North Sixth Street, Reading, Pennsylvania 19601.
The principal office of Delaware Trust is leased and located at 900 Market
Street Mall, Wilmington, Delaware 19899. The principal office of Meridian Bank,
New Jersey is leased and is located at 176 Route 70, Medford, New Jersey 08055.
ITEM 3. LEGAL PROCEEDINGS
The Registrant and certain of its subsidiaries are party (plaintiff or
defendant) to a number of lawsuits. While any litigation has an element of
uncertainty, management, after reviewing these actions with its legal counsel,
is of the opinion that the liability, if any, resulting from all legal actions
will not have a material effect on the consolidated financial condition or
results of operations of the Registrant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
Certain information, including principal occupation during the past
five years, relating to each executive officer of the Registrant is set forth
below:
15
<PAGE>
Principal Occupation
Name Age For Last Five Years
---- --- --------------------
Samuel A. McCullough 56 Chairman and Chief Executive Officer,
Registrant since February 1988; prior
thereto, President and Chief Executive
Officer, Registrant from June 1983; also, a
Director of the Registrant and Chairman,
Meridian Bank.
Ezekiel S. Ketchum 59 President, Registrant since February 1988
and Chief Operating Officer since December
1992; prior thereto, Vice Chairman,
Registrant from September 1984; also, a
Director of the Registrant and President and
Chief Executive Officer, Meridian Bank.
David E. Sparks 50 Vice Chairman and Chief Financial Officer,
Registrant and Meridian Bank since February
1991; also a Director of the Registrant and
Meridian Bank since 1993; prior thereto,
Vice Chairman, Treasurer and Chief Financial
Officer, Registrant and Meridian Bank from
February 1990; prior thereto, Executive Vice
President, Midlantic Corporation from 1985.
William M. Fenimore, Jr. 51 Group Executive Vice President, Chief
Technology Officer and Head of Strategic
Planning, Registrant and Meridian Bank,
since September 12, 1994; prior thereto,
Executive Vice President CoreStates
Financial Corp., since 1988; prior,
President, CEO Hamilton Bank, a subsidiary
of CoreStates Financial Corp., since 1985.
P. Sue Perrotty 41 Group Executive Vice President and Head of
Strategic Marketing and Distribution System
Development, Registrant and Meridian Bank
since
16
<PAGE>
September 6, 1994; prior thereto, Executive
Vice President, Registrant and Meridian Bank
since July 1989; prior thereto, Senior Vice
President, Registrant and Meridian Bank.
John F. Porter, III 60 Chairman, President and Chief Executive
Officer, Delaware Trust Company since July
1988; prior thereto, President, Delaware
Trust Company.
Paul W. McGloin 47 Executive Vice President,
Registrant and Meridian Bank
from July 1985.
Robert J. Unruh 48 Chairman, Meridian Securities,
Inc. since April 1990; also,
Executive Vice President,
Registrant and Meridian Bank
from February 1985.
Jan S. Berninger 38 President, Lehigh Valley Division, Meridian
Bank since December 1992; prior thereto,
Executive Vice President, Corporate and
Commercial Banking, Delaware Valley
Division, Meridian Bank, June 1992 to
December 1992; prior thereto, Senior Vice
President, Meridian Bank from 1986.
David R. Bright 55 President, Delaware Valley Division,
Meridian Bank since February 1988; prior
thereto, Executive Vice President,
Berks/Schuylkill Division, Meridian Bank
since 1987.
Thomas P. Dautrich 46 President, Susquehanna Valley Division,
Meridian Bank since February, 1990; prior
thereto, Executive Vice President,
Registrant from December 1989; prior
thereto, Senior Vice President, Registrant
and Meridian Bank from 1986.
Alice D. Flaherty 46 Executive Vice President, Registrant and
Meridian Bank
17
<PAGE>
since December 1991; prior thereto, Senior
Vice President, Registrant and Meridian Bank
from 1985.
R. William Holland 51 Executive Vice President and Director of
Human Resources, Registrant and Meridian
Bank since August 8, 1994; prior thereto,
Vice President Human Resources, University
of Pennsylvania, Philadelphia, 1992 to 1994;
prior, Vice President of Employment, Charles
Schwab 1989-1992; and prior thereto, Vice
President of Human Resources, Chase
Manhattan Bank, 1986-1989.
Wayne R. Huey, Jr. 50 Executive Vice President, Registrant and
Meridian Bank since January 1988; prior
thereto, President Lehigh Valley Division,
Meridian Bank from April 1986.
Richard E. Meyers 48 Executive Vice President, Registrant since
1983; also, Executive Vice President,
Meridian Bank.
George W. Millward 45 Executive Vice President, Registrant since
May 1992; prior thereto, managing associate,
Coopers & Lybrand January 1987 to April
1992.
Thomas G. Strohm 45 Executive Vice President, Registrant since
April 1991; prior thereto Senior Vice
President, Registrant from 1986.
George W. Grosz 57 President and Chief Executive Officer of
Meridian Asset Management, Inc. since May
16, 1994; prior thereto, Executive Vice
President of Riggs National Bank,
Washington, D.C. since 1987.
18
<PAGE>
Michael J. Mizak, Jr. 43 Senior Vice President and Controller,
Registrant and Meridian Bank since June
1991; prior thereto, Senior Vice President
and Controller, Registrant from May 1990;
prior thereto, Senior Vice President,
Meridian Bank from May 1989; prior thereto,
Senior Vice President, Registrant from
November 1984.
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED SHAREHOLDER MATTERS
Shares of the Registrant's Common Stock are traded nationally in the
over-the-counter market under the symbol MRDN and are quoted on the NASDAQ
National Market System. As of February 15, 1995, the Registrant had 26,880
shareholders of record holding the Registrant's Common Stock.
The following sets forth the quarterly ranges of high and low bid
prices, and the closing sale price, for shares of the Registrant's Common Stock
for the periods indicated. Such prices represent quotations between dealers and
do not include mark-ups, mark-downs or commissions, and may not necessarily
represent actual transactions. The table also reflects cash dividends declared
during the periods indicated.
<TABLE>
<CAPTION>
Quarter Dividends High Low Close
------- --------- ------ ------ ------
<S> <C> <C> <C> <C>
1993
----
First.... .30 35-3/4 29-3/4 33
Second... .32 34 26-3/4 32-1/2
Third.... .32 34-5/8 30-1/4 32-7/8
Fourth... .32 33-1/8 27-3/4 28-1/2
1994
----
First.... .32 31-1/8 26-7/8 29-1/8
Second... .34 33-1/4 27-3/8 30-3/8
Third.... .34 33-1/8 28-3/4 28-3/4
Fourth... .34 29-1/4 25-1/2 26-5/8
</TABLE>
19
<PAGE>
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth certain selected historical consolidated financial
data of Meridian for the periods indicated.
(Dollars In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
RESULTS OF OPERATIONS
FOR THE YEAR
Interest Income......... $ 985,040 $ 961,690 $ 1,016,181 $ 1,123,711 $ 1,246,867 $ 1,120,165
Interest Expense........ 372,624 344,398 442,998 623,675 775,495 703,116
----------- ----------- ----------- ----------- ----------- -----------
Net Interest Income..... 612,416 617,292 573,183 500,036 471,372 417,049
Provision for Possible
Loan Losses............ 27,321 56,101 68,827 106,750 140,746 30,517
----------- ----------- ----------- ----------- ----------- -----------
Net Interest Income
After Provision for
Possible Loan Losses... 585,095 561,191 504,356 393,286 330,626 386,532
Non-Interest Income..... 240,815 285,270 242,878 261,200 188,227 147,632
Non-Interest Expenses... 593,222 636,853 561,850 486,427 432,380 383,528
----------- ----------- ----------- ----------- ----------- -----------
Income from Continuing
Operations Before
Income Taxes and
Cumulative Effect of
Changes in Accounting
Principles............. 232,688 209,608 185,384 168,059 86,473 150,636
Provision for Income
Taxes.................. 70,600 59,068 48,679 43,873 23,806 33,671
----------- ----------- ----------- ----------- ----------- -----------
Income from Continuing
Operations Before
Cumulative Effect of
Changes in Accounting
Principles............. 162,088 150,540 136,705 124,186 62,667 116,965
Loss From Discontinued
Operations, Net of
Taxes.................. -- -- -- (6,500) (25,983) (11,114)
----------- ----------- ----------- ----------- ----------- -----------
Income Before Cumulative
Effect of Changes in
Accounting Principles.. 162,088 150,540 136,705 117,686 36,684 105,851
Cumulative After-Tax
Effect of Changes in
Accounting Principles.. (2,730) 7,221 -- -- -- --
----------- ----------- ----------- ----------- ----------- -----------
Net Income.............. 159,358 157,761 136,705 117,686 36,684 105,851
Less Preferred
Dividends.............. -- -- -- -- -- 1,885
----------- ----------- ----------- ----------- ----------- -----------
Net Income Applicable to
Common Stock........... $ 159,358 $ 157,761 $ 136,705 $ 117,686 $ 36,684 $ 103,966
=========== =========== =========== =========== =========== ===========
Net Interest Margin
(Taxable Equivalent
Basis)................. 4.73% 4.96% 4.77% 4.47% 4.16% 4.26%
Return on Average
Assets/(1)/............ 1.10% 1.11% 1.00% .96% .47% 1.00%
Return on Average Common
Shareholders'
Equity/(1)/............ 13.26% 14.17% 13.63% 14.31% 7.46% 14.61%
Fully Diluted Earnings
Per Share
Income from Continuing
Operations Before
Cumulative Effect of
Changes in Accounting
Principles............. $ 2.80 $ 2.61 $ 2.44 $ 2.35 $ 1.22 $ 2.30
Loss from Discontinued
Operations, Net of
Taxes................. -- -- -- (.12) (.51) (.22)
Income Before
Cumulative Effect of
Changes in Accounting
Principles............ 2.80 2.61 2.44 2.23 .71 2.08
Cumulative After-Tax
Effect of Changes in
Accounting Principles. (.05) .13 -- -- -- --
Net Income............. 2.75 2.74 2.44 2.23 .71 2.08
Dividends Declared Per
Common Share........... 1.34 1.26 .90(/2/) 1.20 1.20 1.13
Dividends Paid Per
Common Share........... 1.34 1.26 1.20 1.20 1.20 1.10
Ratio of Dividends
Declared to Net Income. 49% 43% 35% 48% 149% 48%
FINANCIAL CONDITION AT
YEAR-END
Securities.............. $ 3,307,413 $ 3,060,147 $ 3,405,727 $ 2,853,581 $ 2,153,977 $ 2,233,674
Loans................... 9,757,623 8,988,044 8,551,597 8,498,050 9,440,894 8,976,844
Assets.................. 15,052,647 14,084,787 14,290,325 13,205,391 13,444,753 13,411,530
Deposits................ 11,379,567 11,346,151 11,774,702 10,948,133 10,573,972 10,854,666
Total Shareholders'
Equity................. 1,215,085 1,185,633 1,059,319 947,733 817,413 829,682
Book Value Per Common
Share.................. 21.50 20.39 18.75 17.21 15.88 16.33
Common Shares
Outstanding............ 56,506,642 58,154,486 56,491,396 55,064,521 51,475,965 50,808,962
Total Shareholders'
Equity to Assets....... 8.07% 8.42% 7.41% 7.18% 6.08% 6.19%
Risk-Based Capital
Ratio.................. 12.73% 13.67% 11.61% 10.37% 8.23% 8.72%
Allowance for Possible
Loan Losses............ 169,402 173,388 165,512 179,167 157,505 97,730
Allowance for Possible
Loan Losses to Loans... 1.74% 1.93% 1.94% 2.11% 1.67% 1.09%
Allowance for Possible
Loan Losses to Non-
Performing Loans....... 188% 136% 115% 106% 103% 110%
Non-Performing Assets as
Percentage of Loans and
Assets Acquired in
Foreclosures........... 1.24% 1.98% 2.48% 2.87% 1.96% 1.04%
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........... 1.47% 2.25% 2.96% 3.51% 2.56% 1.58%
</TABLE>
/(1)/ Calculation is based upon continuing operations.
/(2)/ Reflects new dividend payment schedule adopted in the first quarter of
1992.
20
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
FINANCIAL HIGHLIGHTS
Meridian Bancorp, Inc. (Meridian) reported net income of $159.4 million in
1994 compared to $157.8 million in 1993, an increase of 1%. Earnings per fully
diluted share were $2.75 in 1994 compared to $2.74 in 1993.
The returns on average assets and on average common shareholders' equity were
1.10% and 13.26%, respectively, in 1994 compared to 1.11% and 14.17%, respec-
tively, in 1993.
Both years included the effects of accounting changes which reduced net in-
come in 1994 by $2.7 million or $.05 per share and increased net income in
1993 by $7.2 million or $.13 per share. These accounting changes, which are
discussed later, related to certain postemployment benefits in 1994 and income
taxes in 1993. Income before accounting changes was $162.1 million in 1994
compared to $150.5 million in 1993, an increase of 8%. Earnings per fully di-
luted share before accounting changes increased by 7%, from $2.61 in 1993 to
$2.80 in 1994.
The major changes in net income per fully diluted share between 1994 and
1993, and a discussion of such changes, is as follows.
<TABLE>
<S> <C>
Net income per fully diluted share in
1993................................ $2.74
Increase (decrease) resulting from:
Decline in net interest income...... (.08)
Decrease in provision for possible
loan losses........................ .50
Decrease in non-interest income..... (.77)
Reduction in non-interest expenses.. .76
Increase in provision for income
taxes.............................. (.20)
Increase in average shares
outstanding........................ (.02)
-----
Increase in income before cumulative
effect of changes in accounting
principles.......................... .19
Cumulative effect of changes in
accounting principles............... (.18)
-----
Net income per fully diluted share in
1994................................ $2.75
=====
</TABLE>
Net interest income was $612.4 million in 1994 compared to $617.3 million in
1993, a decrease of less than 1%. On a taxable-equivalent basis, net interest
income was $630.1 million in 1994 compared to $639.3 million in 1993. The net
interest margin was 4.73% in 1994 compared to 4.96% in 1993. The net interest
margin was affected in 1994 by asset and liability repricing in the current
interest rate environment and the impact of bank acquisitions.
The provision for possible loan losses was $27.3 million in 1994, down from
$56.1 million in 1993. The decline over the past year resulted from continued
improvement in loan quality. Non-performing loans declined to $90.3 million at
December 31, 1994, or .93% of loans, from $127.6 million or 1.42% at the end
of last year. The ratio of the allowance for possible loan losses to non-per-
forming loans was 188% at December 31, 1994 compared to 136% a year ago. Total
non-performing assets also declined to $121.7 million at December 31, 1994, or
1.24% of loans and assets acquired in foreclosures, compared to $178.8 million
or 1.98% at year-end 1993. Net loans charged-off in 1994 were $32.5 million,
or .35% of average loans, down from $51.3 million, or .59% of average loans,
in 1993. The allowance for possible loan losses was 1.74% of total loans at
December 31, 1994 compared to 1.93% a year ago.
Non-interest income was $240.8 million in 1994 compared to $285.3 million in
1993, a decrease of $44.5 million, or 16%. Broker-dealer and investment bank-
ing revenues decreased by $26.5 million because of reduced profitability on
trading volumes resulting from financial market conditions and the current in-
terest rate environment. In addition, mortgage banking fees declined by $18.5
million, reflecting lower origination and servicing volumes due to rising in-
terest rates and the reduction in scope of Meridian's mortgage banking activi-
ties. Also, net gains from securities transactions decreased by $22.3 million
between the two years. An improvement in other revenues offset a portion of
these declines. Trust revenues increased by $13.0 million between the two
years, partially as a result of the acquisition of McGlinn Capital Management
in July 1994. Service charges on deposits and fees for other customer services
increased by $5.7 million over last year.
Non-interest expenses were $593.2 million in 1994 compared to $636.9 million
in 1993, a decrease of $43.7 million, or 7%. Expenses declined by $23.1 mil-
lion, or 4%, between the two years exclusive of non-recurring merger expenses
related to the Commonwealth acquisition and restructuring of Meridian's mort-
gage banking activities in 1993 and expenses related to the downsizing of the
mortgage banking activities in 1994.
Total assets at December 31, 1994 were $15.1 billion compared to $14.1 bil-
lion at the end of 1993. Total loans were $9.8 billion compared to $9.0 bil-
lion a year ago, a 9% increase. Each of the major loan categories grew over
the last twelve months. Total deposits were $11.4 billion at December 31,
1994, almost unchanged from the balance of a year ago. Meridian continues to
fund a significant portion of its assets with deposits acquired in its local
marketplace.
Shareholders' equity was $1.22 billion or 8.07% of total assets at December
31, 1994 compared to $1.19 billion or 8.42% a year ago. Equity was impacted by
Meridian's purchase of 1.8 million shares of common stock during 1994, as dis-
cussed later. The ratio of tangible shareholders' equity to assets, which ex-
cludes $136.2 million of intangible assets in 1994 and $96.8 million in 1993,
was 7.23% at December 31, 1994 compared to 7.78% at December 31, 1993. Meridi-
an's risk-based capital ratio was 12.73% of total risk weighted assets at De-
cember 31, 1994, in excess of
21
<PAGE>
the 10% regulatory requirement for well capitalized institutions. The ratio
was 13.67% at December 31, 1993. Book value per common share was $21.50 at De-
cember 31, 1994 compared to $20.39 at December 31, 1993, an increase of 5%.
NET INTEREST INCOME AND RELATED ASSETS AND LIABILITIES (INCLUDING DERIVATIVES)
Net interest income is the single largest component of Meridian's operating
income. Net interest income totaled $612.4 million in 1994 compared to $617.3
million in 1993, a decrease of approximately 1%. Taxable-equivalent net inter-
est income was $630.1 million in 1994 compared to $639.3 million in 1993, also
a decrease of 1%. The level of net interest income results from the interac-
tion between the volume and mix of interest-earning assets and the related
funding sources, and the net interest margin. In 1994, the positive impact on
net interest income of earning asset growth was offset by a 23 basis point de-
cline in the net interest margin as a result of asset and liability repricing
in the current interest rate environment. The net interest margin was 4.73% in
1994 compared to 4.96% in 1993, as can be seen in Table 1.
Average interest-earning assets increased to $13.3 billion in 1994 from $12.9
billion in 1993, an increase of 3%. The mix of earning assets changed moder-
ately, as a portion of loan growth was funded by reductions in investment se-
curities. Loans accounted for 70% of average interest-earning assets in 1994
compared to 67% in 1993, while investment securities accounted for 25% and 27%
of average interest-earning assets during 1994 and 1993, respectively.
Average loans increased 8% to $9.4 billion in 1994 from $8.7 billion in 1993.
Growth occurred in all loan categories, and is reflective of the improved eco-
nomic environment within Meridian's marketplace. Average commercial loans in-
creased 7%. Average consumer loans, primarily home equity and indirect automo-
bile loans, increased 9%, despite the fact that student loans totaling approx-
imately $223 million were sold during the third quarter of 1994. Average resi-
dential mortgage loans increased 10%.
Meridian's securities portfolios declined an average of 3% in the year, to
$3.3 billion in 1994 from $3.4 billion in 1993. Principal paydowns on mort-
gage-backed securities and proceeds from maturing securities were used to fund
loan growth.
Deposit balances declined slightly in 1994 and averaged $11.2 billion com-
pared to $11.3 billion in 1993. Deposit balances increased as a result of Me-
ridian's mid-year acquisition of branches of Security Savings Bank in New Jer-
sey. These additional deposits offset the deposit runoff from prior years' ac-
quisitions and the loss of escrow balances related to mortgage servicing
rights sold in mid-1994.
Average short-term borrowings increased to $1.5 billion in 1994 from $1.0
billion in 1993. Approximately 40% of short-term borrowings is comprised of
securities sold under repurchase agreements, the majority with Meridian cus-
tomers. Average balances of long-term debt decreased from $439 million in 1993
to $383 million in 1994, reflecting a decline in Federal Home Loan Bank
borrowings.
22
<PAGE>
INTEREST RATE RISK MANAGEMENT. The level and volatility of interest rates can
have a significant impact on Meridian's profitability. The objective of inter-
est rate risk management is to identify and manage the sensitivity of net in-
terest income to changing interest rates and other market factors in order to
achieve overall financial goals. Based on economic conditions, on and off-bal-
ance sheet positions, asset quality and various other considerations, manage-
ment 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 relation-
ships, loan spreads, customer preferences and general market conditions. Me-
ridian also monitors the sensitivity of the market value of all assets,
liabilities and off-balance sheet positions to changing interest rates.
An interest rate sensitivity or gap analysis is used to supplement simulation
modeling. Gap analysis classifies assets, liabilities and off-balance sheet po-
sitions into maturity and repricing time intervals in order to identify poten-
tial mismatches among these positions. A substantial portion of Meridian's lia-
bilities, primarily savings and money market deposit accounts, do not have con-
tractual maturities. In addition, certain consumer loans have prepayment
options. For gap analysis purposes, these items are distributed among the vari-
ous repricing time intervals based on historical and anticipated repricing pat-
terns. Other adjustments are made to the analysis to reflect the impact of
product pricing decisions, interest rate spread relationships and customer be-
havior. These adjustments are necessarily subjective and will vary over time
with loan and deposit changes, customer preferences and market conditions. Man-
agement believes that this type of gap analysis provides a more realistic pic-
ture of the interest rate risk characteristics of Meridian's balance sheet than
an analysis based on contractual maturities. The gap position at December 31,
1994, as provided in Table 3, indicates a moderate liability sensitive position
through the one-year time period.
23
<PAGE>
DERIVATIVES. Meridian uses off-balance sheet derivative products as follows:
. For interest rate risk management
. In the securities unit (broker-dealer activities)
Tables 4 and 5 provide information on derivative positions at December 31,
1994. Reference should also be made to Note 11 of Notes to Consolidated Finan-
cial Statements for additional information on off-balance sheet derivative
products.
DERIVATIVES USED FOR INTEREST RATE RISK MANAGEMENT. 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 indi-
cates 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.
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 sup-porting liquidity and capital management objectives.
Interest rate swaps account for the majority of derivative products used for
interest rate risk management purposes. Interest rate swaps involve the ex-
change of fixed and floating interest payments based on an underlying notional
amount. Meridian will generally receive a fixed rate and pay a floating rate
in order to reduce the asset sensitive position associated with its core bank-
ing businesses. Meridian uses interest rate swaps primarily to alter the
repricing characteristics of its retail core deposits, including time depos-
its, interest-bearing checking accounts, and savings and money market depos-
its.
The notional amount of interest rate swaps totaled $2.9 billion at December
31, 1994 compared to $2.3 billion at December 31, 1993. 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 floating interest rate will be positive
during periods of declining rates and negative in periods of rising rates.
Consistent with this profile, interest expense on deposits was reduced by
$11.3 million in the rising rate environment of 1994 compared to a reduction
of $43.6 million in interest expense in 1993.
24
<PAGE>
As financial market conditions and balance sheet mix changes, management may
elect to modify its interest rate risk profile. One means for achieving this
objective is to terminate existing interest rate swaps. Accounting rules re-
quire that any gains or losses resulting from terminations be amortized over
the remaining life of the terminated contract. Deferred gains on terminated
interest rate swaps were $905,000 at December 31, 1994 and will be completely
amortized into income by early 1996. Deferred losses on terminated swaps to-
taled $5.0 million at December 31, 1994 and will be completely amortized into
income by year-end 1995.
Meridian purchases interest rate floors to protect net interest income from
the effects of declining interest rates or a flattening of the yield curve. In
interest rate floor contracts, Meridian pays a premium to a counterparty for
the right to receive payments if interest rates associated with a particular
index fall below a predetermined level. Meridian has no future obligation to
make additional premium or other payments to the counterparty. Premiums paid
are amortized over the life of the contract. As of December 31, 1994, Meridian
had $500 million of purchased floors based on London Inter-Bank Offered Rate
(LIBOR) and U.S. Treasury rates.
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 con-
tracts 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 from year-end 1993 to 1994 is con-
sistent with the rising interest rate environment of 1994.
Unrealized gains and losses on derivative positions should be viewed in the
context of the overall balance sheet. An unrealized loss on a derivative prod-
uct used for interest rate risk management purposes is generally offset or
mitigated by an unrealized gain on the asset or liability to which the deriva-
tive contract relates. 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 fixed rate, longer term borrowings will appreciate in value.
25
<PAGE>
Credit risk exists to the extent that a derivatives contract has a positive
market value and the counterparty to the transaction fails to perform under
the terms of the contract. Current exposure is measured by calculating the
cost to replace a derivative contract at current market rates. Potential expo-
sure is estimated by calculating projected changes in replacement costs under
different interest rate environments. Current and potential exposures are cal-
culated and reviewed by management on an ongoing basis. Credit limits, consid-
ering both current and potential exposures, are approved by the Meridian
Credit Policy Committee. Credit risk is further managed by restricting
counterparties to a select group of high quality institutions, by entering
into netting arrangements and, where appropriate, by establishing collateral
requirements.
Meridian offers interest rate caps and floors to its banking customers, who
typically request these products in conjunction with their management of vari-
able rate loans. The total of customer interest rate caps and floors was ap-
proximately $267 million at December 31, 1994. The repricing characteristics
of loans made with optional features are monitored and considered in the asset
and liability management and risk measurement processes previously discussed.
DERIVATIVES USED IN THE SECURITIES UNIT (BROKER-DEALER ACTIVITIES). Meridian
Securities uses various off-balance sheet derivative products to support cus-
tomer needs and manage the market risks associated with the broker-dealer
business. The securities unit acts as remarketing agent on tender option bonds
totaling $256 million at year-end 1994 compared to $435 million at December 31,
1993. The premium paid for Treasury float con-tracts, which is included on the
balance sheet in Other Assets, was $1.6 mil-lion at December 31, 1994 and
represents the maximum exposure to Meridian from such contracts. Other
derivative products used to manage risks associated with trading account
positions include forward commitments to sell securities, which totaled $111
million at December 31, 1994 and averaged $88 million for the year.
LIQUIDITY. The objective of liquidity management is to ensure that sufficient
funding is available, at reasonable cost, to meet the ongoing and potential
cash needs of Meridian and to take advantage of income producing opportunities
as they arise. While the desired level of liquidity may vary depending upon a
variety of factors, it is a primary goal of Meridian to maintain a high level
of liquidity in all economic environments. Management considers Meridian's li-
quidity position at the end of 1994 to be sufficient to meet its foreseeable
cash flow requirements.
26
<PAGE>
Liquidity management is influenced by several key elements, including Meridi-
an's reputation, asset quality, the maturity structure of its assets and lia-
bilities, cash flow generated by assets, and Meridian's ability to access
funds in the capital markets. The single most important source of liquidity
for Meridian is its core deposit base, which consists of deposits from custom-
ers with long-standing relationships. Meridian continues to promote the acqui-
sition of core deposits through its retail distribution systems and through
selective banking acquisitions. Long-term debt and shareholders' equity also
contribute to liquidity. In 1994, Meridian funded approximately 75% of total
assets with core deposits acquired within its local marketplace and approxi-
mately 85% of total assets with core deposits, long-term debt and sharehold-
ers' equity.
Meridian also places emphasis on the maintenance of an appropriate level of
asset liquidity. Liquid assets include short-term money market investments,
securities available for sale, and interest-bearing deposits with other banks.
Cash flows from investment maturities and mortgage and asset-backed securities
also provide a significant source of liquidity.
Meridian is committed to maintaining additional funding flexibility through
access to the debt and capital markets. Meridian Bank, Meridian's principal
banking subsidiary, has access to a variety of money market sources of funds,
such as federal funds purchased and securities sold under agreements to repur-
chase, borrowings from the Federal Home Loan Bank, as well as to term funding
through the issuance of bank notes, bank deposit notes, and subordinated debt.
Meridian also has the capacity to issue securities under its shelf registra-
tion statement filed with the Securities and Exchange Commission. As of Decem-
ber 31, 1994, Meridian had debt and preferred equity securities registered but
unissued under this registration statement totaling $175 million.
The cost and availability of external funding is influenced by Meridian's
credit ratings. The following is a summary of Meridian's and Meridian Bank's
ratings at December 31, 1994, which are unchanged from a year ago.
<TABLE>
<CAPTION>
Standard
Moody's and Poor's
------- ----------
<S> <C> <C>
MERIDIAN BANCORP, INC.
Commercial Paper...... P-2 A-2
Subordinated Debt..... Baa1 BBB
MERIDIAN BANK
Short-Term Deposits... P-1 A-2
Long-Term Deposits.... A1 A-
Subordinated Debt..... A3 BBB+
</TABLE>
27
<PAGE>
Reference should also be made to the Statements of Cash Flows appearing in the
Consolidated Financial Statements for additional information on liquidity. The
statement of cash flows for 1994 reflects $555.0 million of cash provided by
operations, $750.4 million used by investing activities and $359.6 million
provided by financing activities. Operating activities include $159.4 million
in net income for 1994. Investing activities are primarily comprised of sales
and purchases of short-term investments, investment securities, investment
securities available for sale and loans. Financing activities present the net
change in Meridian's deposit accounts, short-term borrowings, long-term debt
and shareholders' equity. Cash flows from operations and an increase in short-
term borrowings were used to fund the increases in loans and investments during
1994.
LOANS. The lending function is Meridian's principal business activity and it
is Meridian's continuing policy to serve the credit needs of its customer
base. The economy in Meridian's primary marketplace is broad-based and diverse
and the loan portfolio reflects that diversity. Lending to individual consum-
ers in this marketplace accounts for approximately one-third of total loans.
The remainder of the portfolio consists predominantly of commercial loans and
commercial real estate loans also in Meridian's primary marketplace. Loans
were $9.8 billion at December 31, 1994 compared to $9.0 billion at December
31, 1993, an increase of 9%. Each of the major loan portfolios experienced
growth over this time period.
Commercial loans amounted to $5.9 billion at December 31, 1994 compared to
$5.4 billion at December 31, 1993, a 9% increase. Meridian's commercial loan
portfolio is oriented toward diversified, small and medium-sized businesses
within Meridian's market area, with limits on the size of loans to any single
borrower according to credit risk. These loans are predominantly in the serv-
ices, real estate, and manufacturing industries. Credit risk associated with
these borrowers is principally influenced by general economic conditions and
the resulting impact on the borrower's operations. Geographical coverage of
Meridian's commercial lending activity extends across central and eastern
Pennsylvania, southern New Jersey and Delaware.
Real estate-related commercial loans, including real estate construction and
commercial mortgages, totaled $2.0 billion and represented 20% of total loans
at December 31, 1994 compared to $1.9 billion and 21% one year ago. These
portfolios are located primarily in markets in which Meridian has a local
banking presence. Collateral types are diverse and include the real estate of
borrowers who utilize the property in their businesses (owner-occupied) as
well as real estate investors. At December 31, 1994, owner-occupied commercial
mortgages comprised 8% of total loan outstandings compared to 9% at December
31, 1993. Investor-developer commercial mortgages comprised 9% at both year-
end 1994 and 1993.
28
<PAGE>
Commercial, financial and agricultural loans totaled $4.0 billion and repre-
sented 41% of total loans at December 31, 1994 compared to $3.6 billion and
40% at the end of 1993.
Consumer lending includes primarily loans to individuals in communities served
by Meridian. These loans include open-ended credit arrangements, such as home
equity loans, and closed-end loans subject to specific contractual payment
schedules, such as installment loans. Consumer loans totaled $2.6 billion at
December 31, 1994 compared to $2.5 billion at year-end 1993, an increase of 2%.
Student loans aggregating $223 million were sold during the third quarter of
1994. This portfolio was sold due to the implementation of a federal government
program for student loans. Exclusive of the impact of this sale, consumer loans
increased by 11% over the twelve-month time period. Residential mortgage loans
increased from $993.5 million at December 31, 1993 to $1.2 billion at December
31, 1994.
INVESTMENT SECURITIES AND INVESTMENT SECURITIES AVAILABLE FOR SALE. Effective
in the first quarter 1994, Meridian adopted Statement of Financial Accounting
Standards No. 115 "Accounting for Certain Investments in Debt and Equity Secu-
rities" which requires investments in equity securities with a readily deter-
minable fair value and investments in all debt securities to be classified in
one of three categories. The classification of securities is determined at the
time of purchase. The three categories are (1) held to maturity--carried at
amortized cost; (2) available for sale--carried at fair value (with unrealized
gains and losses, net of related tax effect, recorded as a separate component
of shareholders' equity); and (3) trading account--carried at fair value (with
unrealized gains and losses recorded in the income statement).
The carrying value of the investment portfolio at December 31, 1994 was $2.9
billion and net unrealized losses totaled $119.1 million. Such losses include
gross unrealized losses of $123.3 million and gross unrealized gains of $4.2
million. Meridian has the intent and the ability to hold these securities un-
til maturity. At the end of 1993, the carrying value of the investment portfo-
lio was $2.8 billion and net unrealized gains were $28.6 million. The change
in the value of the portfolio compared to year-end 1993 reflects the impact of
the increase in interest rates during 1994. The average maturity of the in-
vestment portfolio at December 31, 1994 was 2.5 years compared to 2.8 years at
December 31, 1993.
Securities expected to be held for an indefinite period of time are classi-
fied as investment securities available for sale and are carried at fair val-
ue. The fair value of this portfolio at December 31, 1994 was $435.0 million,
with net unrealized losses of $10.7 million. Such losses include gross
unrealized losses of $14.0 million and gross unrealized gains of $3.3 million.
At year-end 1993, the carrying value of this portfolio, based on the lower of
aggregate amortized cost or fair value, was $275.7 million, with net
unrealized gains of $12.5 million. The average maturity of the portfolio of
investment securities available for sale, which includes tax-exempt obliga-
tions of states and municipalities, was 4.5 years at December 31, 1994 com-
pared to 5.5 years at December 31, 1993.
29
<PAGE>
Meridian's securities portfolios (investment securities and investment secu-
rities available for sale) are comprised of U.S. Treasury and federal agency
securities, mortgage-backed securities, tax-exempt obligations of states and
municipalities, corporate securities, including privately issued asset-backed
securities, and equity securities.
U.S. Treasury and federal agency securities (other than mortgage-backed secu-
rities) were $942 million at year-end 1994 and accounted for approximately 28%
of total securities holdings. Mortgage-backed securities remain the largest
component of Meridian's securities portfolios, accounting for approximately
52% of the total at year-end 1994. This portfolio is comprised of federal
agency mortgage-backed securities and collateralized mortgage obligations
which are backed by federal agency collateral or are AAA rated private issues.
Meridian evaluates and closely monitors cash flow projections for all mort-
gage-backed securities. The expected average life of mortgage-backed securi-
ties at December 31, 1994, based on projected prepayment rates, was 2.9 years
compared to 2.2 years at year-end 1993.
Meridian's current credit guidelines call for purchases of securities issued by
either the U.S. Treasury or federal agencies, or by states and municipalities or
corporate entities that are rated A or higher by Moody's Investor Services, Inc.
or Standard and Poor's Corporation. At December 31, 1994, the carrying value of
state and municipal securities was $368.8 million, 93% of which was rated A or
higher by the rating agencies. Securities rated Baa and below totaled $2.1
million and $22.7 million were non-rated. Non-rated securities are generally
collateralized by letters of credit or are securities in which the principal and
interest is supported by government obligations set aside in escrow accounts. At
December 31, 1994, the carrying value of corporate securities, excluding AAA
rated private mortgage-backed and asset-backed securities, was $9.2 million.
Corporate securities rated Baa and below totaled $3.9 million and $3.8 million
of such securities was non-rated.
DEPOSITS. Total deposits were $11.4 billion at December 31, 1994, almost un-
changed from the balance at the end of 1993. During the second quarter of 1994,
Meridian assumed approximately $487 million of deposits of Security Savings
Bank from the Resolution Trust Corporation. These additional deposits offset
runoff from prior years' acquisitions and the loss of escrow balances related
to mortgage servicing rights sold in mid-1994.
SHORT-TERM BORROWINGS. At December 31, 1994, short-term borrowings totaled
$1.8 billion compared to $791.7 million a year earlier, an increase of 129%.
This category is comprised primarily of federal funds purchased and securities
sold under agreements to repurchase and, at year-end 1994, $75 million of se-
nior floating rate notes due in July 1995.
LONG-TERM DEBT AND OTHER BORROWINGS. This category amounted to $372.2 million
at December 31, 1994 compared to $421.3 million at December 31, 1993, a de-
crease of 12%. Subordinated debt of $321.9 million is included in this catego-
ry, along with capitalized lease obligations, longer-term borrowings from the
Federal Home Loan Bank, and various other loans and mortgages payable. The de-
crease in this category resulted from the repayment of certain borrowings from
the Federal Home Loan Bank during 1994.
30
<PAGE>
PROVISION FOR POSSIBLE LOAN LOSSES AND RELATED CREDIT QUALITY
Meridian manages asset quality and controls credit risk through diversification
of the loan portfolio and the application of policies designed to foster sound
underwriting and loan monitoring practices. Meridian's credit administration
function is charged with monitoring asset quality, establishing credit policies
and procedures, and enforcing the consistent application of these policies and
procedures across Meridian.
Commercial loans are assigned risk ratings by loan officers. The appropriate-
ness of these ratings, in addition to the overall lending process, is reviewed
by credit policy personnel. A quarterly review and reporting process is in
place for monitoring those loans that have been identified as problems or po-
tential problems. A separate loan workout department is involved with the col-
lection of problem loans. Because of their relatively homogeneous nature and
small dollar size, consumer and residential mortgage loans are generally re-
viewed in the aggregate.
When establishing the appropriate levels for the provision and the allowance
for possible loan losses, management performs an analysis of the loan portfo-
lio by considering a variety of factors. This analysis includes periodic re-
views by loan officers, credit review and loan workout personnel of all bor-
rowers with aggregate balances of $500,000 or greater. Meridian also reviews,
at least on a quarterly basis, problem borrowers with balances of $250,000 or
greater, as well as selected lower balance loans. Consideration is given to
the impact of current and anticipated economic conditions, the diversification
of the loan portfolio, historical loss experience, delinquency statistics, re-
views performed by loan officers who are primarily responsible for compliance
with established lending policy, the financial strength of borrowers, and the
adequacy of underlying collateral. Consideration is also given to examinations
performed by regulatory authorities. Lending procedures and the loan portfolio
are examined periodically by several banking regulatory agencies as part of
their supervisory activities.
To assist in determining the adequacy of the provision and the allowance,
management first sets the allocated portion of the allowance for possible loan
losses. For commercial loans, allocations of the allowance to individual loans
are based on borrower-specific data determined by reviewing individual non-
performing, delinquent, problem, and other loans and by considering those items
described in the preceding paragraph. In addition, general allocations of the
allowance are made to the commercial loan category. General allocations to
commercial loans also consider the impact of current and anticipated economic
conditions on both individual borrowers and the commercial loan portfolio taken
as a whole. Consumer and residential mortgage loan allocations are determined
in the aggregate and are based on recent charge-off history and delinquency
trends, anticipated losses over the foreseeable future, and the impact of
current and anticipated economic conditions in the local, regional and national
economies. The unallocated portion of the allowance is that amount which, when
added to the allocated allowance, brings the total allowance to the amount
deemed adequate by management at the time. Management considers the unallocated
portion of the allowance, which is determined by reviewing those items described
in the preceding paragraph, as a subset of the entire allowance and,
consequently, available to absorb losses anywhere within the loan portfolio.
31
<PAGE>
The loan portfolio represents loans made primarily in Meridian's market area
in eastern and central Pennsylvania and in Delaware and southern New Jersey.
Management continues to monitor the economic conditions in this market area.
The ultimate collectibility of a substantial portion of Meridian's loans, espe-
cially its real estate loans, and the market value of other real estate owned,
is susceptible to changes in economic conditions in this primary market area,
as was especially evident over the past several years.
Determining the level of the allowance for possible loan losses at any given
date is difficult, particularly in a continually changing economy. Management
must make estimates, using assumptions and information which are often subjec-
tive and changing. Management continues to review Meridian's loan portfolio in
light of a changing economy and possible future changes in the banking and reg-
ulatory environment. In management's opinion, the allowance for possible loan
losses is adequate at December 31, 1994.
The balance in the allowance for possible loan losses was $169.4 million or
1.74% of total loans at the end of 1994 compared to $173.4 million or 1.93% of
total loans at year-end 1993. The provision for possible loan losses represents
charges made to earnings to maintain an adequate allowance for possible loan
losses. The provision for possible loan losses was $27.3 million in 1994 com-
pared to $56.1 million in 1993. The decline in the provision for possible loan
losses reflects management's evaluation of the level of the allowance for pos-
sible loan losses in light of, among other factors, improved asset quality
trends, current economic conditions, the continued decline in non-performing
loans and a decline in the amount of loans being charged off. The overall im-
provement in asset quality was also evident in a decrease of $5.6 million in
writedowns and other expenses associated with foreclosed real estate, from
$10.9 million in 1993 to $5.3 million in 1994.
Net charge-offs were $32.5 million or .35% of average loans in 1994 compared
to $51.3 million or .59% of average loans in 1993. Recoveries were $19.7 mil-
lion in 1994 compared to $11.2 million in 1993. The relationship of recoveries
to charge-offs improved from 18% in 1993 to 38% in 1994.
Table 14 presents a summary of various indicators of credit quality. At Decem-
ber 31, 1994, non-performing assets as a percentage of period-end loans and as-
sets acquired in foreclosures were 1.24% compared to 1.98% at the end of last
year. Non-performing assets were $121.7 million at December 31, 1994 and de-
creased by $57.1 million during 1994 from $178.8 million a year ago. Real es-
tate-related non-performing assets were 62% of total non-performing assets at
December 31, 1994 compared to 65% a year ago.
32
<PAGE>
Non-performing loans were .93% of total loans at December 31, 1994 compared to
1.42% at the end of last year. Non-performing loans amounted to $90.3 million
at December 31, 1994 and decreased by $37.3 million during the past year from
$127.6 million a year ago. Non-performing assets and loans past due 90 or more
days as to interest or principal at December 31, 1994 were $144.1 million or
1.47% of loans and assets acquired in foreclosures compared to $203.6 million
or 2.25% one year ago, a decrease of $59.5 million.
The ratio of the allowance for possible loan losses to non-performing loans
was 188% at December 31, 1994 compared to 136% at year-end 1993. The coverage
of non-performing assets was 139% at year-end 1994 compared to 97% at December
31, 1993. Possible future losses on foreclosed real estate will be charged di-
rectly to earnings and not to the allowance for possible loan losses. Fore-
closed real estate is carried at the lower of cost or fair value, less esti-
mated costs of disposal.
Non-performing assets are comprised of non-accrual loans, loans categorized as
troubled debt restructurings, and assets acquired in foreclosures which in-
cludes in-substance foreclosures. Non-performing assets do not include loans
past due 90 days or more as to interest or principal which are well secured and
in the process of collection, the majority of which represent residential mort-
gage loans.
Generally, a commercial loan is classified as non-accrual when it is deter-
mined that the collection of interest or principal is doubtful, or when a de-
fault 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 in-
terest is discontinued, unpaid interest is reversed through a charge to inter-
est income. The majority of non-accrual loans are secured by various forms of
collateral, the ultimate recoverability of which is subject to economic condi-
tions and other factors.
Residential mortgages which are 180 days or more delinquent are placed on
nonaccrual status when total principal, interest, and escrow owed exceeds 80%
of the property's appraised value. Properties are re- appraised when foreclo-
sure proceedings are initiated. Consumer loans are charged-off when deemed un-
collectible, which is generally at a time no later than 180 days past due.
Non-accrual loans were $89.1 million at December 31, 1994 compared to $124.3
million one year ago, a decrease of $35.2 million, or 28%. The carrying value of
non-accrual commercial loans at December 31, 1994 has already been reduced by
charge-offs and payments to 63% of the aggregate carrying value when such loans
were originally placed into a non-performing status. Payments of $14.2 million
were received on these loans in 1994, almost all of which was applied as a
reduction in the principal outstanding. Meridian's non-accrual loans include
only three loans with balances in excess of $2.5 million (only one of which is
over $5 million), indicating that a substantial portion of the risk is spread
across a significant number of borrowers. These three loans aggregated $19.4
million or approximately 24% of total non-accrual loans at December 31, 1994.
Table 16 classifies non-accrual loans according to various levels of payment
performance.
33
<PAGE>
A loan is categorized as a troubled debt restructuring if the original inter-
est rate on the loan, repayment terms, or both, were restructured on a below-
market basis due to a deterioration in the financial condition of the borrower.
If restructured loans are not performing according to revised terms, such
amounts are included in non-accrual loans.
The level of assets acquired in foreclosures (except consumer related), in-
cluding in-substance foreclosures, was $29.3 million at December 31, 1994 com-
pared to $50.0 million a year ago. A loan is classified as an in-substance
foreclosure when the borrower is perceived to have little or no equity in the
project, the borrower appears to be unable or unwilling to rebuild equity or
repay the loan in the foreseeable future, and the bank can reasonably antici-
pate proceeds for repayment only from the operation or sale of the collateral.
These assets are carried at the lower of cost or fair value, less estimated
selling expenses.
Assets acquired in foreclosures at December 31, 1994 have already been reduced
by charge-offs and payments to 33% of the aggregate carrying value when such
assets were originally placed into non-performing status. Assets acquired in
foreclosures include only one property with a balance in excess of $2.5 million
at year-end 1994, aggregating $6.6 million or approximately 23% of the total of
such assets. Although the real estate market remained mixed during the year,
Meridian was successful in disposing of portions of assets acquired in
foreclosures. The balance of these assets at the end of 1994 was less than 60%
of the balance at the beginning of the year.
Reference should be made to Table 6 for a summary of the period-end balances
in the loan portfolio. There has not been a significant change in the percent-
age of each category to total loans from a year ago.
34
<PAGE>
In addition, reference should be made to Table 17 for a breakdown of commer-
cial loans by major industry and to Table 18 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 97%, are to borrowers for property in Pennsylvania, Delaware,
and New Jersey, of which Pennsylvania has 80%, or the largest single share. In
connection with the decision to extend credit to particular borrowers, Merid-
ian takes into account, among other things, asset diversification and particu-
lar risks presented by the different industries in which such borrowers com-
pete, in light of changing economic circumstances.
Loan concentrations are considered to exist when a multiple number of borrow-
ers are engaged in similar activities and have similar economic characteristics
which would cause their ability to meet contractual obligations to be similarly
impacted by economic or other conditions. At December 31, 1994, Meridian's com-
mercial loans and commitments did not have any industry concentration or other
known concentration that exceeded 10% of total loans and commitments. Meridian
has no foreign loan exposure. Meridian's largest industry exposures are in the
automobile dealer and healthcare sectors. Information related to these portfo-
lios at December 31, 1994 and 1993 is as follows (in thousands).
<TABLE>
<CAPTION>
% of Total
% of Total Non- Non-
Loans Loans and Performing Performing
Outstanding Commitments Loans Loans
----------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
AUTOMOBILE DEALERS
1994 $421,900 3.1% -- --
1993 362,700 2.9% -- --
HEALTHCARE
1994 334,500 2.5% $300 .3%
1993 315,800 2.6% 700 .5%
</TABLE>
Potential problem loans consist of loans which are included in performing
loans at December 31, 1994, but for which potential credit problems of the bor-
rowers have caused management to have concerns as to the ability of such bor-
rowers to comply with present repayment terms. At December 31, 1994, such po-
tential problem loans, not included in Table 14, amounted to approximately $43
million compared to approximately $31 million one year ago. 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.
35
<PAGE>
Meridian continues to service approximately $701 million of residential mort-
gage loans on which there is potential credit loss. This servicing was either
originated by Meridian or purchased with recourse from other financial institu-
tions. These institutions have since experienced financial difficulties, in-
cluding bankruptcies. As of December 31, 1994, reserves of $8.0 million have
been established in recognition of potential losses related to the recourse
servicing portfolio.
Statement of Financial Accounting Standards No. 114 "Accounting by Creditors
for Impairment of a Loan" 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 the fair value of the loan if the loan is
collateral dependent. Statement No. 118 "Accounting by Creditors for Impairment
of a Loan--Income Recognition and Disclosures" amends Statement No. 114 to al-
low a creditor to use existing methods for recognizing interest income on an
impaired loan. Both statements are effective in the first quarter of 1995.
Based on management's analysis, the impact on Meridian's consolidated results
of operations will not be material.
NON-INTEREST INCOME
Meridian's businesses generate various sources of non-interest income, such as
trust revenues, mortgage banking fee income, broker-dealer and investment bank-
ing revenues, securities gains, service charges on deposit accounts, and other
service charges, commissions and fees. Non-interest income was $240.8 million
in 1994 compared to $285.3 million in 1993, a decrease of $44.5 million, or
16%.
Trust revenues were $54.7 million in 1994 compared to $41.7 million in 1993,
an increase of 31%. Contributing to the higher level of revenues was the ac-
quisition of McGlinn Capital Management Inc. in July 1994, and increases in
personal trust, employee benefit and investment advisory fees. The market
value of customers' assets administered by Meridian increased by 15% during
the year from $27.5 billion at year-end 1993 to $31.7 billion at December 31,
1994. Included in the total at year-end 1994 are assets for which Meridian has
investment management responsibility of $9.9 billion, including $2.7 billion
from the McGlinn acquisition.
36
<PAGE>
Mortgage banking revenues were $17.5 million in 1994 compared to $36.0 million
in 1993. Revenues in 1993 were $69.7 million before the negative impact of the
amortization and reserves of $33.7 million for purchased mortgage servicing
rights, which was recorded as a reduction of revenues. Amortization of purchased
mortgage servicing rights in 1994 was insignificant since all of such rights
were sold or written-off during the past two years. Exclusive of this
amortization charge, mortgage banking revenues declined by $52.2 million, or
75%, between the two years. This decrease reflects lower origination and ser-
vicing volumes due to rising interest rates and the reduction in scope of Me-
ridian's mortgage banking activities. Origination fees declined by $12.5 mil-
lion, or 74%, between the two years. The reduction in origination volume and the
decision to sell most of the mortgage loan servicing portfolio resulted in a
decline of $19.9 million or 66% in servicing fee revenues between the two years.
A decrease in gains on the sale of mortgage loan servicing also contributed to
the decline in revenues. Financial data (in thousands) relevant to these gains
is as follows.
<TABLE>
<CAPTION>
1994 1993
---------- ----------
<S> <C> <C>
Amount of Mortgage
Loan Servicing
Rights Sold During
the Year........... $5,204,431 $2,894,877
Mortgage Loan
Servicing Portfolio
at Year-End........ 1,713,161 7,013,164
Losses on Sales of
Mortgage Loans..... (1,125) (2,317)
Gains on Sales of
Mortgage Loan
Servicing.......... 867 21,606
</TABLE>
Broker-dealer and investment banking revenues totaled $42.8 million in 1994
compared to $69.4 million in 1993, a decrease of 38%. Factors contributing to
the decline in revenues are discussed in the "Industry Segments" portion of
this narrative. Revenues also include valuation adjustments to interest-only
collateralized mortgage obligation residuals, which are classified as invest-
ment securities. The valuation of residuals was impacted by the decline in in-
terest rates in 1993 and the impact on expected prepayment speeds and cash
flows. As of December 31, 1994, Meridian had a net carrying value, after re-
serves of $1.1 million, of $8.2 million in collateralized mortgage obligation
residuals.
37
<PAGE>
Service charges on deposits and fees for other customer services increased by
6% between the two years, from $97.2 million in 1993 to $102.9 million in
1994. Increases in certain fees for deposit products, as well as additional
deposit accounts because of bank acquisitions over the past year, contributed
to the higher level of service charges.
Net securities gains were $3.0 million in 1994 compared to $25.3 million in
1993. The amount in 1994 included gains of $3.2 million and losses of $214
thousand. These gains are in addition to gains of $1.8 million from sales
primarily of mortgage-related investments, which are included in broker-dealer
and investment banking revenues. Included in the total for 1993 was a gain of
$8.6 million on the sale of Meridian's common stock investment in Fidelity
National Financial, Inc. This stock was acquired as part of the sale of
Meridian's title insurance operations in 1992. A gain of $5.5 million was
recognized in 1993 from the sale of investment securities available for sale in
the first quarter of the year, mainly U.S. Treasury and federal agency
securities with maturities of less than one year. Finally, a gain of $8.3
million was recognized in 1993 from the sale of some of Commonwealth's mortgage-
backed investments related to the restructuring of this portfolio.
NON-INTEREST EXPENSES
Non-interest expenses were $593.2 million in 1994 compared to $636.9 million
in 1993, a decrease of $43.7 million, or 7%. Expenses decreased by $23.1 mil-
lion, or 4%, between the two years exclusive of non-recurring expenses related
to the Commonwealth acquisition and restructuring of Meridian's mortgage bank-
ing activities in 1993 and expenses related to the downsizing of the mortgage
banking activities in 1994. A decline in operating expenses in the securities
unit and the mortgage banking function was the primary reason for this decrease
in expenses.
Salaries and employee benefits, which represent the largest component of non-
interest expenses, were almost unchanged between the two years, totaling $297.5
million in 1994 compared to $296.1 million in 1993. Lower levels of expense in
the mortgage banking and securities units offset an increase in the banking
unit. Full-time equivalent employment was 6,939 at December 31, 1994 compared
to 6,917 a year ago.
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.
38
<PAGE>
Net occupancy expense was $45.4 million in 1994 compared to $42.6 million in
1993, an increase of 7%. Equipment expense increased from $38.0 million in
1993 to $38.7 million in 1994. The increases in both expense categories were
related to expansion, banking acquisitions, and the upgrading of Meridian's
data processing and operations capabilities.
Other expenses were $211.7 million in 1994 compared to $242.6 million in
1993, a decrease of $30.9 million, or 13%. Almost half of the decline in ex-
penses occurred in the mortgage banking function, where loan origination and
servicing expense decreased by $7.0 million reflecting the reduction in scope
of Meridian's mortgage banking activities. In addition, there was a decline of
$5.1 million in the provision for recourse servicing. With respect to mortgage
servicing portfolios purchased with recourse, the provisions charged to oper-
ating expense were $10.4 million and $15.6 million in 1994 and 1993, respec-
tively. Charge-offs and writedowns aggregated $4.1 million in 1994 and $13.8
million in 1993.
FDIC deposit insurance expense decreased by $6.7 million between the two
years. Other categories reflecting decreases between the two years included
foreclosed real estate expenses, which declined by $5.6 million and profes-
sional fees, mostly payments to outside consultants for enhancements to oper-
ating systems, which declined by $3.2 million. Partially offsetting these de-
creases were increases related to automated teller network charges and the am-
ortization of intangible assets.
A restructuring charge of $17.5 million was recorded in 1993 in the mortgage
unit. This charge resulted from the restructuring plan approved by Meridian's
Board of Directors and included:
. $7.9 million for anticipated cash outflows related to various contract ter-
mination, severance and legal and other sale-related costs.
. $9.6 million to reflect the estimated fair market value of certain mortgage
servicing intangibles and other related assets, which balances were then
transferred to assets held for sale.
PROVISION FOR INCOME TAXES
The provision for income taxes for 1994 was $70.6 million compared to $59.1
million for 1993. The effective tax rate, which is the ratio of income tax ex-
pense to income before income taxes, was 30% in 1994, up from 28% in 1993. The
tax rate for both periods was less than the federal statutory rate of 35% pri-
marily because of tax-exempt investment and loan income.
39
<PAGE>
At December 31, 1994, deferred tax assets amounted to $84.1 million and de-
ferred tax liabilities amounted to $65.5 million, which are included in other
assets and other liabilities, respectively. No valuation allowance has been
established for deferred tax assets because management believes that it is
more likely than not that the deferred tax assets will be realized.
Effective January 1, 1993, Meridian adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" which requires a change from
the deferred method of accounting for income taxes to the asset and liability
method. Under the asset and liability method, deferred tax assets and liabili-
ties are recognized for the future tax consequences attributable to temporary
differences between the financial statement and tax bases of existing assets
and liabilities. Deferred tax assets and liabilities are measured using en-
acted tax rates expected to apply to taxable income in the years in which
those temporary differences are expected to be recovered or settled. The ef-
fect on deferred tax assets and liabilities of a change in tax rates is recog-
nized in income in the period that includes the enactment date of the rate
change.
CAPITAL RESOURCES
The maintenance of appropriate levels of capital is a management priority.
Overall capital adequacy and dividend policy are monitored on an on-going ba-
sis and are reviewed quarterly by the Board of Directors. Meridian's principal
capital planning goals are to maintain a strong capital base to support the
risks inherent in various lines of business, to retain sufficient earnings to
meet capitalization objectives, especially those related to growth and expan-
sion, and to provide an adequate return to shareholders.
Meridian is positioned to take advantage of market opportunities to
strengthen capital. A shelf registration statement with the Securities and Ex-
change Commission is available to facilitate the issuance of an additional
$175 million of debt and preferred equity securities, if and when the need
arises for capital and market conditions warrant.
Total shareholders' equity was $1.22 billion at December 31, 1994 compared to
$1.19 billion at the end of 1993, an increase of 2%. Net income for the year
was $159.4 million and dividends declared during the year were $77.3 million,
resulting in a common dividend payout ratio of 49%.
Equity was impacted during 1994 by the implementation of two common stock
purchase programs.
40
<PAGE>
In January 1994 the Board of Directors authorized the purchase of up to one
million shares to satisfy the company's obligations under the warrant to acquire
500,000 shares of Meridian's common stock issuable in connection with the
acquisition of McGlinn Capital Management, and obligations under stock option
and other employee benefit plans. During 1994, 638,854 shares were purchased in
the open market and at December 31, 1994, 525,336 shares remained as treasury
stock.
In August 1994 the Board of Directors authorized the adoption of an Employee
Stock Ownership Plan (ESOP), and Meridian announced that the trustee for the
ESOP would purchase two million shares of common stock in the market. Pur-
chased shares will be used for distribution to employees of Meridian and its
affiliated companies as part of an additional qualified plan of deferred com-
pensation. As of December 31, 1994, the ESOP had purchased 1,285,000 shares.
Meridian's capital adequacy at December 31, 1994 can be determined by analyz-
ing the capital ratios presented in Table 21. As can be seen in this table,
Meridian's consolidated ratios at the end of 1994 exceeded all regulatory re-
quirements. The risk-based capital ratio was 12.73% at December 31, 1994 com-
pared to 13.67% at December 31, 1993. The ratio of tangible shareholders' eq-
uity to assets, which excludes $136.2 million of intangible assets (goodwill
and core deposit intangibles) was 7.23% at December 31, 1994 compared to 7.78%
at December 31, 1993. The risk-based capital ratios of each of Meridian's com-
mercial banks also exceeded regulatory requirements at the end of 1994, as
shown in the table.
Federal Reserve Board regulations define a well-capitalized institution as
having a Tier 1 capital ratio of 6% or more, a total risk-based capital ratio
of 10% or more, and a leverage ratio of 5% or more. Consolidated ratios at De-
cember 31, 1994 exceeded these guidelines, as did the ratios of each of Merid-
ian's commercial banks.
The common stock of Meridian is traded in the over-the-counter market. The
monthly average number of common shares traded in 1994 was 3.9 million com-
pared to 4.0 million in 1993. Table 23 sets forth the high and low market
price quotations for the periods indicated. Price quotations are available
through the National Market System of the National Association of Securities
Dealers Automated Quotation System. These prices represent quotations between
dealers and do not include retail markups, markdowns or commissions, and may
not represent actual transactions.
41
<PAGE>
Book value per common share was $21.50 at December 31, 1994 compared to a
market value of $26.63 per share. Book value and market value at the end of
1993 were $20.39 and $28.50, respectively. The market to book value ratio was
124% at the end of 1994 compared to 140% one year ago. Meridian's market capi-
talization at December 31, 1994 was approximately $1.5 billion compared to
$1.7 billion one year ago, a decrease of 9%.
After-tax unrealized losses on investment securities and securities classi-
fied as available for sale, which aggregated $7.2 million at December 31,
1994, were de ducted from shareholders' equity. The impact of recording this
unrealized loss in equity at the end of 1994 was a reduction in book value per
common share of $.13 and a reduction of 5 basis points in the shareholders'
equity to assets ratio.
Reference should be made to the Statement of Changes in Shareholders' Equity
appearing in the Consolidated Financial Statements for a summary of the changes
in total shareholders' equity for each of the years in the three-year period
ended December 31, 1994.
INDUSTRY SEGMENTS
Table 24 presents a summary of the operating results of Meridian's two re-
portable industry segments.
BANKING. The banking unit provides a full range of retail and corporate bank-
ing, and trust and asset management services to customers in central and east-
ern Pennsylvania, as well as Delaware and southern New Jersey.
Banking unit net income was $155.7 million in 1994 compared to $139.0 million
in 1993, an increase of 12%. A decrease in the provision for possible loan
losses, a decline in expenses in the mortgage banking unit, and an increase in
trust revenues more than offset a decline in securities gains, and resulted in
the increase in the banking unit's earnings this year compared to 1993.
Net interest income on a taxable-equivalent basis was $623.1 million in 1994
compared to $629.9 million in 1993, a decrease of 1%. The net interest margin
was 4.85% in 1994 compared to 5.04% in 1993. The net interest margin was af-
fected in 1994 by asset and liability repricing in the current interest rate
environment and the impact of bank acquisitions.
Loans outstanding at December 31, 1994 were $9.8 billion compared to $9.0
billion at the end of 1993, a 9% increase. Total deposits at December 31, 1994
were $11.3 billion, almost unchanged from the balance of a year ago. Changes
in these categories are discussed in the "Loans" and "Deposits" sections.
42
<PAGE>
SECURITIES (BROKER-DEALER ACTIVITIES). Meridian Securities 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 unit also provides
investment banking services by acting as financial advisors in facilitating
municipal and corporate transactions in the capital markets.
The securities unit reported after-tax operating income of $3.7 million in 1994
compared to $18.7 million in 1993. The decline in income resulted primarily from
a decrease in net revenues of $29.1 million, or 38%. Financial market conditions
and the current interest rate environment resulted in reduced profitability on
trading volumes and unfavorable valuation adjustments of the trading portfolios
during 1994. The decline in revenues more than offset a decline in operating
expenses, primarily salaries and incentive-related compensation expense.
An analysis of the more significant components of revenues for the securities
unit is as follows (dollars in thousands).
<TABLE>
<CAPTION>
1994 1993
------- -------
<S> <C> <C>
NET TRADING GAINS
Gains on Sales of
Securities............ $12,986 $31,835
Gains on Sales of
Mortgage Loans........ 3,167 5,391
------- -------
Net Trading Gains...... $16,153 $37,226
TENDER OPTION BONDS
Fees................... $12,088 $19,608
Average Net Spread
Earned................ 3.86% 4.25%
RETAIL BROKERAGE
ACTIVITY
Number of Retail Trades
Equity Securities...... 26,405 26,986
Fixed Income
Securities............ 1,721 1,737
Retail Commissions and
Fees.................. $ 3,141 $ 4,133
</TABLE>
43
<PAGE>
ANALYSIS OF 1993 COMPARED TO 1992
FINANCIAL HIGHLIGHTS. Net income was $157.8 million in 1993 compared to
$136.7 million in 1992. The results for 1993 include the cumulative effect of
adopting Statement of Financial Accounting Standards No. 109, "Accounting for
Income Taxes," which increased net income by $7.2 million.
The increase in net income, before the cumulative effect of the accounting
change, was primarily due to the following:
. An increase in net interest income of $44.1 million ($23.5 million after-
tax).
. A decrease in the provision for possible loan losses of $12.7 million ($9.0
million after-tax).
. An after-tax loss of $33.7 million in the mortgage banking unit.
. Expenses of $11.9 million related to Meridian's merger with Commonwealth
less securities gains of $8.3 million at Commonwealth, resulting in a re-
duction in pre-tax income of $3.6 million ($3.1 million after-tax).
. An increase in other securities gains of $14.2 million ($9.2 million after-
tax).
The returns on average assets and on average common shareholders' equity in
1993 were 1.11% and 14.17%, respectively, compared to 1.00% and 13.63%, re-
spectively, in 1992.
Total assets at December 31, 1993 were $14.1 billion compared to $14.3 bil-
lion at the end of 1992. Total loans increased 5% to $9.0 billion at Decem-
ber 31, 1993. The consumer portfolio increased by 13% between the two years
and the commercial portfolio grew by 4%. This growth was partially offset by a
decline in residential mortgage loans. Total deposits were $11.3 billion at
December 31, 1993, compared to $11.8 billion at December 31, 1992.
The ratio of shareholders' equity to assets was 8.42% at December 31, 1993
compared to 7.41% at the end of 1992. Meridian's risk-based capital ratio was
13.67% at December 31, 1993 compared to 11.61% at the end of 1992. Book value
per common share was $20.39 at December 31, 1993 compared to $18.75 at Decem-
ber 31, 1992.
NET INTEREST INCOME AND RELATED ASSETS AND LIABILITIES. Net interest income
on a taxable equivalent basis increased 8% from $594.0 million in 1992 to
$639.3 million in 1993. The growth in net interest income in 1993 was attrib-
utable to a 3% increase in average interest-earning assets and to a 19 basis
point improvement in the net interest margin, from 4.77% in 1992 to 4.96% in
1993.
44
<PAGE>
Interest-earning assets averaged $12.9 billion in 1993, compared to $12.5
billion in 1992. Loans accounted for approximately one-half of the growth in
earning assets. The net interest margin improved between the two years, mostly
because rates on interest-bearing liabilities decreased faster than yields on
interest-earning assets in the declining rate environment during this period.
Average loans outstanding were $8.7 billion in 1993 compared to $8.4 billion
in 1992, a 3% increase. Average commercial loans increased by 1% in 1993, re-
flecting the weak loan demand in Meridian's marketplace. Average residential
real estate mortgage loans declined by 14%, the result of accelerated pre-pay-
ments of mortgages in the low interest rate environment that prevailed in
1993. Consumer loan growth was strong, with average outstandings increasing
16%. Most of the growth occurred in the home equity and indirect automobile
loan categories, due to the low interest rate environment and enhanced market-
ing efforts. Average deposits were $11.3 billion in 1993, almost unchanged
from 1992.
PROVISION FOR POSSIBLE LOAN LOSSES AND RELATED CREDIT QUALITY. The provision
for possible loan losses was $56.1 million in 1993 compared to $68.8 million
in 1992. The decline of $12.7 million resulted primarily from an improvement
in loan quality. The overall improvement in asset quality was also evident in
a decrease of $12.4 million in writedowns and other expenses associated with
foreclosed real estate, from $23.3 million in 1992 to $10.9 million in 1993.
Net loans charged-off were $51.3 million in 1993 compared to $84.6 million in
1992. The balance in the allowance for possible loan losses was $173.4 million
or 136% of non-performing loans at December 31, 1993 compared to $165.5 mil-
lion and 115% at the end of 1992.
NON-INTEREST INCOME. Non-interest income was $285.3 million in 1993 compared
to $242.9 million in 1992. Revenues from the mortgage banking, asset manage-
ment, and securities activities were $147.0 million in 1993, an increase of
$6.6 million, or 5%, over revenues of 1992. Increases in trust revenues and
revenues in the securities unit more than offset a decline in revenues in the
mortgage banking unit, primarily due to a decrease in servicing fees and an
increase in the amortization of purchased mortgage servicing rights, which is
recorded as a reduction of mortgage banking revenues. Gains on sales of mort-
gage servicing increased during the year. The increase in revenues in the se-
curities unit resulted from higher net trading gains, tender option bond fees,
and retail brokerage commissions and fees. Service charges on deposits and
fees for other customer services increased by $7.5 million, or 8%, between the
two years. Net securities gains were $25.3 million in 1993 compared to $2.8
million in 1992. Included in the total for 1993 was a gain of $8.6 million on
the sale of Meridian's common stock investment in Fidelity National Financial,
Inc. This stock was acquired as part of the sale of Meridian's title insurance
operations in 1992.
45
<PAGE>
NON-INTEREST EXPENSES. Non-interest expenses were $636.9 million in 1993 com-
pared to $561.9 million in 1992. The increase resulted primarily from the fol-
lowing:
. A restructuring charge of $17.5 million associated with reducing the scope
of Meridian's mortgage servicing-related activities and an increase of $5.0
million in the provision for possible credit losses on mortgage servicing
portfolios with recourse.
. One-time expenses of $11.9 million related to the merger with Commonwealth.
Exclusive of these changes in 1993, non-interest expenses would have in-
creased by $40.6 million or 7% between the two years.
Salaries and employee benefits were $296.1 million in 1993 compared to $255.5
million in 1992, an increase of 16%. An increase in staff levels because of
acquisitions in the banking unit and ongoing expansion in the broker-dealer
and investment banking function, an increase in commissions and other incen-
tive-related compensation, merit increases for employees, and a 54% increase
in medical and other employee-related insurance contributed to the higher
level of personnel expense.
Net occupancy expense was $42.6 million in 1993 compared to $41.3 million in
1992, an increase of 3%. Equipment expense increased from $37.1 million in
1992 to $38.0 million in 1993, or 2%. The increases in both expense categories
were related to expansion, banking acquisitions, and the upgrading of Meridi-
an's data processing and operations capabilities.
The increase in other operating expenses from $228.0 million in 1992 to
$242.6 million in 1993 resulted from several factors. Loan related expenses,
primarily in Meridian's mortgage banking subsidiary, increased by $8.4 million
in 1993. Included in this total was an increase of $5.0 million in the provi-
sion for possible credit losses on mortgage servicing portfolios purchased
with recourse. FDIC deposit insurance expense increased by $4.0 million be-
tween the two years. Professional fees, mostly payments to outside consultants
for enhancements to operating systems, increased by $4.0 million. Other cate-
gories reflecting increases between the two years included advertising, ac-
counting and legal fees, and educational development expenses. Partially off-
setting these increases was a decline of $12.3 million in foreclosed real es-
tate expenses.
PROVISION FOR INCOME TAXES. The effective tax rate was 28% in 1993, up from
26% in 1992. The tax rate for both periods was less than the federal statutory
rate of 35% in 1993 and 34% in 1992, primarily because of tax-exempt invest-
ment and loan income.
QUARTERLY FINANCIAL DATA
Summarized quarterly financial data for 1994 and 1993 is presented in Table
25.
46
<PAGE>
--------------------------------------------------------------------------------
Table 1: NET INTEREST INCOME, AVERAGE BALANCES AND RATES
(Dollars in Thousands)
<TABLE>
<CAPTION>
1994 1993 1992
------------------------------- ----------------------------- -------------------------------
INTEREST AVERAGE Interest Average Interest Average
AVERAGE INCOME/ YIELD/ Average Income/ Yield/ Average Income/ Yield/
BALANCE EXPENSE RATE Balance Expense Rate Balance Expense Rate
----------- ---------- ------- ----------- -------- ------- ----------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
INTEREST-EARNING ASSETS
Short-Term Investment
Interest-Bearing
Deposits in Other
Banks................. $ 103,016 $ 4,607 4.47% $ 110,754 $ 3,874 3.50% $ 188,544 $ 8,326 4.42%
Federal Funds Sold and
Securities Purchased
Under Agreements to
Resell................ 74,726 2,928 3.92 53,681 2,262 4.21 23,807 916 3.85
----------- ---------- ---- ----------- -------- ---- ----------- ---------- -----
Total Short-Term
Investments.......... 177,742 7,535 4.24 164,435 6,136 3.73 212,351 9,242 4.35
----------- ---------- ---- ----------- -------- ---- ----------- ---------- -----
Trading Account
Assets/(1)/............ 136,550 9,250 6.77 148,419 10,989 7.40 84,475 4,634 5.49
Investment Securities
Available for
Sale/(1)/.............. 363,580 25,364 6.98 668,299 49,202 7.36 245,293 18,137 7.39
Investment Securities
Taxable................ 2,565,868 137,438 5.36 2,368,231 135,749 5.73 2,634,918 184,524 7.00
Non-Taxable/(1)/....... 338,260 28,070 8.30 378,198 31,640 8.37 339,357 33,042 9.74
----------- ---------- ---- ----------- -------- ---- ----------- ---------- -----
Total Investment
Securities........... 2,904,128 165,508 5.70 2,746,429 167,389 6.09 2,974,275 217,566 7.31
----------- ---------- ---- ----------- -------- ---- ----------- ---------- -----
Loans Held For Sale..... 381,365 28,618 7.50 499,585 36,405 7.29 502,602 40,630 8.08
Loans
Commercial/(1)/........ 5,636,223 460,234 8.17 5,259,325 409,214 7.78 5,203,832 426,620 8.20
Real Estate-
Residential........... 1,099,542 89,905 8.18 1,002,361 93,065 9.28 1,160,764 119,974 10.34
Consumer............... 2,614,419 216,334 8.27 2,406,796 211,341 8.78 2,077,618 200,204 9.64
----------- ---------- ---- ----------- -------- ---- ----------- ---------- -----
Total Loans/(2)/...... 9,350,184 766,473 8.20 8,668,482 713,620 8.23 8,442,214 746,798 8.85
----------- ---------- ---- ----------- -------- ---- ----------- ---------- -----
TOTAL INTEREST-EARNING
ASSETS................. 13,313,549 1,002,748 7.53 12,895,649 983,741 7.63 12,461,210 1,037,007 8.32
Allowance for Possible
Loan Losses............ (175,101) -- -- (173,170) -- -- (186,480) -- --
Non-Interest Earning
Assets................. 1,414,374 -- -- 1,442,773 -- -- 1,349,499 -- --
----------- ---------- ---- ----------- -------- ---- ----------- ---------- -----
TOTAL ASSETS, INTEREST
INCOME............... $14,552,822 $1,002,748 6.89% $14,165,252 $983,741 6.94% $13,624,229 $1,037,007 7.61%
=========== ========== ==== =========== ======== ==== =========== ========== =====
LIABILITIES
INTEREST-BEARING
LIABILITIES
Interest-Bearing
Deposits
NOW Accounts........... $ 1,481,798 $ 21,373 1.44% $ 1,320,401 $ 22,904 1.73% $ 1,128,010 $ 31,268 2.77%
Savings Deposits....... 1,943,411 41,666 2.14 1,756,208 40,456 2.30 1,347,803 46,091 3.42
Money Market Deposit
Accounts.............. 2,326,188 58,020 2.49 2,409,786 43,043 1.79 2,476,316 61,386 2.48
Short-Term Time
Deposits.............. 732,817 23,783 3.25 891,432 32,579 3.65 1,057,522 42,632 4.03
Long-Term Time
Deposits.............. 2,505,410 113,921 4.55 2,643,194 116,915 4.42 3,024,980 174,170 5.76
Certificates of
Deposit of $100,000
or More............... 497,080 24,493 4.93 587,603 27,925 4.75 748,493 40,628 5.43
----------- ---------- ---- ----------- -------- ---- ----------- ---------- -----
Total Interest-Bearing
Deposits............. 9,486,704 283,256 2.99 9,608,624 283,822 2.95 9,783,124 396,175 4.05
----------- ---------- ---- ----------- -------- ---- ----------- ---------- -----
Short-Term Borrowings
Federal Funds
Purchased and
Securities Sold Under
Agreements to
Repurchase............ 1,250,134 52,932 4.23 841,257 24,424 2.90 722,100 24,765 3.43
Commercial Paper....... 3,650 141 3.86 2,342 69 2.95 9,784 374 3.82
Other Short-Term
Borrowings............ 209,615 10,053 4.80 188,780 6,025 3.19 121,432 4,220 3.48
----------- ---------- ---- ----------- -------- ---- ----------- ---------- -----
Total Short-Term
Borrowings........... 1,463,399 63,126 4.31 1,032,379 30,518 2.96 853,316 29,359 3.44
----------- ---------- ---- ----------- -------- ---- ----------- ---------- -----
Long-Term Debt and
Other Borrowings....... 382,835 26,242 6.85 439,154 30,058 6.84 240,761 17,464 7.25
----------- ---------- ---- ----------- -------- ---- ----------- ---------- -----
TOTAL INTEREST-BEARING
LIABILITIES.......... 11,332,938 372,624 3.29 11,080,157 344,398 3.11 10,877,201 442,998 4.07
----------- ---------- ---- ----------- -------- ---- ----------- ---------- -----
NON-INTEREST SOURCES TO
FUND INTEREST-EARNING
ASSETS
Non-Interest Bearing
Deposits............... 1,738,859 -- -- 1,694,358 -- -- 1,530,571 -- --
Other Liabilities....... 278,815 -- -- 277,203 -- -- 213,362 -- --
Shareholders' Equity.... 1,202,210 -- -- 1,113,534 -- -- 1,003,095 -- --
----------- ---------- ---- ----------- -------- ---- ----------- ---------- -----
TOTAL NON-INTEREST
SOURCES TO FUND
INTEREST-EARNING
ASSETS............... 3,219,884 -- -- 3,085,095 -- -- 2,747,028 -- --
----------- ---------- ---- ----------- -------- ---- ----------- ---------- -----
TOTAL LIABILITIES AND
SHAREHOLDERS' EQUITY,
INTEREST EXPENSE..... $14,552,822 372,624 2.56% $14,165,252 344,398 2.43% $13,624,229 442,998 3.25%
=========== ========== ==== =========== ======== ==== =========== ========== =====
NET INTEREST INCOME..... $ 630,124 $639,343 $ 594,009
========== ======== ==========
NET INTEREST
SPREAD/(3)/............ 4.24% 4.52% 4.25%
EFFECT OF NON-INTEREST
BEARING FUNDS.......... .49 .44 .52
---- ---- -----
NET INTEREST
MARGIN/(4)/............ 4.73% 4.96% 4.77%
==== ==== =====
</TABLE>
/(1)/ The indicated interest income and average yields are presented on a
taxable-equivalent basis. The taxable-equivalent adjustments included
above are $17,708, $22,051, and $20,826 for 1994, 1993, and 1992, re-
spectively. The effective tax rates used for the taxable-equivalent ad-
justments were 35% for 1994 and 1993 and 34% for 1992.
/(2)/ Loan fees of $14,168, $14,616, and $15,951 for 1994, 1993 and 1992, re-
spectively, are included in interest income. Average loan balances in-
clude non-accruing loans.
/(3)/ Net Interest Spread is the arithmetic difference between the yield on
interest-earning assets and the rate paid on interest-bearing liabili-
ties.
/(4)/ Net Interest Margin is computed by dividing net interest income by av-
erage interest-earning assets.
47
<PAGE>
-------------------------------------------------------------------------------
Table 2: ANALYSIS OF IMPACT ON NET INTEREST INCOME OF CHANGES IN VOLUMES AND
RATES OF INTEREST-EARNING ASSETS AND INTEREST-BEARING LIABILITIES
(Dollars in Thousands)
<TABLE>
<CAPTION>
1994/1993/(2)/ 1993/1992/(2)/
------------------------------------------- -----------------------------------------
INCREASE (DECREASE) IN INTEREST INCOME/ Increase (Decrease) in Interest Income/
EXPENSE DUE TO CHANGES IN Expense Due To Changes In
------------------------------------------- -----------------------------------------
VOLUME RATE TOTAL Volume Rate Total
-------------- ------------- ------------- -------------------------- -------------
<S> <C> <C> <C> <C> <C> <C>
INTEREST INCOME
Short-Term Investments
Interest-Bearing
Deposits in Other
Banks................. $ (285) $ 1,018 $ 733 $ (2,959) $ (1,493) $ (4,452)
Federal Funds Sold and
Securities Purchased
Under Agreements to
Resell................ 832 (166) 666 1,253 93 1,346
------------- ------------- ------------- ----------- ------------- -------------
Total Short-Term
Investments.......... 547 852 1,399 (1,706) (1,400) (3,106)
------------- ------------- ------------- ----------- ------------- -------------
Trading Account Assets.. (842) (897) (1,739) 4,354 2,001 6,355
Investment Securities
Available for
Sale/(1)/.............. (21,413) (2,425) (23,838) 31,139 (74) 31,065
Investment Securities
Taxable................ 10,832 (9,143) 1,689 (17,466) (31,309) (48,775)
Non-Taxable/(1)/....... (3,308) (262) (3,570) 3,543 (4,945) (1,402)
------------- ------------- ------------- ----------- ------------- -------------
Total Investment
Securities/(1)/...... 7,524 (9,405) (1,881) (13,923) (36,254) (50,177)
Loans Held For Sale..... (8,812) 1,025 (7,787) (244) (3,981) (4,225)
Loans
Commercial/(1)/........ 30,021 20,999 51,020 4,533 (21,939) (17,406)
Real Estate-
Residential........... 8,500 (11,660) (3,160) (15,366) (11,543) (26,909)
Consumer............... 17,655 (12,662) 4,993 29,987 (18,850) 11,137
------------- ------------- ------------- ----------- ------------- -------------
Total Loans........... 56,176 (3,323) 52,853 19,154 (52,332) (33,178)
------------- ------------- ------------- ----------- ------------- -------------
TOTAL INTEREST INCOME. $ 33,180 $ (14,173) $ 19,007 $ 38,774 $ (92,040) $ (53,266)
------------- ------------- ------------- ----------- ------------- -------------
INTEREST EXPENSE
Interest-Bearing
Deposits............... (3,990) 3,424 (566) (6,924) (105,429) (112,353)
Short-Term Borrowings
Federal Funds Purchased
and Securities Sold
Under
Agreements to
Repurchase............ 14,667 13,841 28,508 3,777 (4,118) (341)
Other Short-Term
Borrowings............ 773 3,327 4,100 1,938 (438) 1,500
------------- ------------- ------------- ----------- ------------- -------------
Total Short-Term
Borrowings........... 15,440 17,168 32,608 5,715 (4,556) 1,159
------------- ------------- ------------- ----------- ------------- -------------
Long-Term Debt and
Other Borrowings...... (3,860) 44 (3,816) 13,392 (798) 12,594
------------- ------------- ------------- ----------- ------------- -------------
TOTAL INTEREST
EXPENSE.............. 7,590 20,636 28,226 12,183 (110,783) (98,600)
------------- ------------- ------------- ----------- ------------- -------------
INCREASE (DECREASE) IN
NET INTEREST INCOME.... $ 25,590 $ (34,809) $ (9,219) $ 26,591 $ 18,743 $ 45,334
============= ============= ============= =========== ============= =============
</TABLE>
/(1)/ The indicated interest changes are presented on a taxable equivalent
basis, using an effective tax rate of 35% for 1994 and 1993 and 34% for
1992.
/(2)/ The portion of the total change attributable to both volume and rate
changes during the year has been allocated to volume and rate compo-
nents based upon the absolute dollar amount of the change in each com-
ponent prior to the allocation.
48
<PAGE>
--------------------------------------------------------------------------------
Table 3: INTEREST RATE SENSITIVITY
DECEMBER 31, 1994
(Dollars In Thousands)
<TABLE>
<CAPTION>
MATURITY/REPRICING SCHEDULE
-------------------------------------------------------------------------
WITHIN TWO TO FOUR TO SEVEN TO OVER
ONE THREE SIX TWELVE TWELVE
MONTH MONTHS MONTHS MONTHS MONTHS TOTAL
---------- ---------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Short-Term Investments
and Trading Account
Assets................ $ 249,877 $ 269,478 $ 35,297 $ 10,760 $ 1,176 $ 566,588
Investment Securities
and Investment
Securities Available
for Sale.............. 113,957 176,035 516,249 367,609 2,133,563 3,307,413
Loans.................. 4,082,338 921,301 475,941 900,365 3,468,268 9,848,213
---------- ---------- ----------- ---------- ----------- -----------
Total Interest-Earning
Assets................ 4,446,172 1,366,814 1,027,487 1,278,734 5,603,007 13,722,214
---------- ---------- ----------- ---------- ----------- -----------
FUNDING SOURCES
Interest-Bearing
Deposits.............. 1,706,511 762,891 1,396,704 1,592,140 3,922,661 9,380,907
Short-Term Borrowings.. 1,812,566 -- -- -- -- 1,812,566
Long-Term Debt and
Other Borrowings...... 3,292 85,634 870 1,735 280,622 372,153
---------- ---------- ----------- ---------- ----------- -----------
Total Interest-Bearing
Liabilities........... 3,522,369 848,525 1,397,574 1,593,875 4,203,283 11,565,626
---------- ---------- ----------- ---------- ----------- -----------
Demand Deposits,
Shareholders' Equity,
and Other Non-Interest
Bearing Funds, Net..... 17,295 44,214 38,660 (44,198) 2,100,617 2,156,588
Interest Rate Swaps..... 1,208,000 1,060,000 (375,000) (775,000) (1,118,000) --
Tender Option Bonds and
Other Off-Balance Sheet
Items.................. (6,790) 107,779 24,650 8,241 (133,880) --
---------- ---------- ----------- ---------- ----------- -----------
Total Funding Sources.. 4,740,874 2,060,518 1,085,884 782,918 5,052,020 $13,722,214
---------- ---------- ----------- ---------- ----------- ===========
Interest Sensitivity
Gap.................... $ (294,702) $ (693,704) $ (58,397) $ 495,816 $ 550,987
========== ========== =========== ========== ===========
Cumulative Interest
Sensitivity Gap........ $ (294,702) $ (988,406) $(1,046,803) $ (550,987)
========== ========== =========== ==========
Cumulative Interest
Sensitivity Gap as a
Percent of Interest-
Earning Assets......... -2.1% -7.2% -7.6% -4.0%
</TABLE>
49
<PAGE>
--------------------------------------------------------------------------------
Table 4: OFF-BALANCE SHEET DERIVATIVES--MATURITIES AND OTHER INFORMATION
DECEMBER 31, 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
Net
1999 Unrealized
and Unrealized Unrealized Gains
1995 1996 1997 1998 Beyond Total Gains Losses (Losses)
---------- ---------- -------- -------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
CONSOLIDATED NOTIONAL
AMOUNT
Related to Interest
Rate Risk Management. $ 979,033 $1,153,200 $768,700 $310,700 $ 482,903 $3,694,536 $ 1,260 $(101,856) $(100,596)
Related to Securities
Unit (Broker-Dealer
Activities).......... 342,764 123,073 132,517 88,992 843,238 1,530,584 12,918 (3,777) 9,141
---------- ---------- -------- -------- ---------- ---------- ------- --------- ---------
CONSOLIDATED
DERIVATIVES......... $1,321,797 $1,276,273 $901,217 $399,692 $1,326,141 $5,225,120 $14,178 $(105,633) $ (91,455)
========== ========== ======== ======== ========== ========== ======= ========= =========
RELATED TO INTEREST
RATE RISK MANAGEMENT
Interest Rate Swaps
Fixed Rate Receive
Notional Amount...... $ 850,000 $1,150,000 $535,000 $300,000 -- $2,835,000 -- $(101,491) $(101,491)
Weighted Average
Fixed Rate Receive.. 5.51% 5.54% 5.58% 5.30% -- 5.52%
Weighted Average
Floating Rate Pay... 6.25% 6.09% 5.89% 5.88% -- 6.08%
Fixed Rate Pay
Notional Amount...... 50,000 -- -- -- -- 50,000 $ 905 -- 905
Weighted Average
Floating Rate
Receive............. 8.50% -- -- -- -- 8.50%
Weighted Average
Fixed Rate Pay...... 6.81% -- -- -- -- 6.81%
Purchased Interest
Rate Floors
Notional Amount...... -- -- 200,000 -- $ 300,000 500,000 355 (282) 73
Weighted Average
Rate................ -- -- 7.50% -- 6.67% 7.00%
Notional Amount of
Other Contracts
Interest Rate Caps
and Floors for
Customers........... 36,600 3,200 33,700 10,700 182,903 267,103 -- -- --
Other................ 42,433 -- -- -- -- 42,433 -- (83) (83)
---------- ---------- -------- -------- ---------- ---------- ------- --------- ---------
TOTAL INTEREST RATE
RISK MANAGEMENT...... $ 979,033 $1,153,200 $768,700 $310,700 $ 482,903 $3,694,536 $ 1,260 $(101,856) $(100,596)
========== ========== ======== ======== ========== ========== ======= ========= =========
NOTES
1. Maturity information reflects contractual terms based on interest rates in
effect at December 31, 1994.
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 rep-
resent rates in effect at December 31, 1994.
4. Fixed rate receive swaps contain (1) $225 million of indexed amortizing
swaps, where amortization of the notional amount is dependent upon the
level of short term interest rates and (2) $50 million of forward starting
swaps.
5. Weighted average rates shown for purchased floors are the exercise rates;
payments will be received when market rates are below these predetermined
exercise rates.
6. Other contracts include customer caps and floors, forward delivery instru-
ments to manage risks from mortgage operations, and foreign exchange con-
tracts.
RELATED TO SECURITIES
UNIT (BROKER-DEALER
ACTIVITIES)
Interest Rate Swaps
Fixed Rate Receive
Notional Amount...... -- -- -- -- $ 8,000 $ 8,000 -- $ (320) $ (320)
Weighted Average
Fixed Rate Receive.. -- -- -- -- 7.09% 7.09%
Weighted Average
Floating Rate Pay... -- -- -- -- 4.85% 4.85%
Tender Option Bonds
Notional Amount...... $ 51,236 $ 73,310 $ 84,710 $ 3,195 43,497 255,948 $ 7,513 (1,804) 5,709
Weighted Average
Fixed Rate Receive.. 8.08% 7.94% 7.85% 6.75% 8.04% 7.94%
Weighted Average
Floating Rate Pay... 3.74% 3.84% 4.16% 4.75% 3.81% 3.93%
Treasury Float
Contracts............ 110,205 44,065 42,970 82,221 741,614 1,021,075 4,345 -- 4,345
Commitments to
Purchase or Sell
Mortgages and
Securities........... 181,323 5,698 4,837 3,576 50,127 245,561 1,060 (1,653) (593)
---------- ---------- -------- -------- ---------- ---------- ------- --------- ---------
TOTAL SECURITIES UNIT. $ 342,764 $ 123,073 $132,517 $ 88,992 $ 843,238 $1,530,584 $12,918 $ (3,777) $ 9,141
========== ========== ======== ======== ========== ========== ======= ========= =========
</TABLE>
NOTES
1.Maturity information reflects contractual terms based on interest rates in
effect at December 31, 1994.
2.Fixed rates shown are rates over the life of the swaps; floating rates rep-
resent rates in effect at December 31, 1994.
50
<PAGE>
-------------------------------------------------------------------------------
Table 5: ACTIVITY IN INTEREST RATE SWAPS AND PURCHASED INTEREST RATE FLOORS
RELATED TO INTEREST RATE RISK MANAGEMENT
NOTIONAL AMOUNTS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Fixed Rate Fixed Rate
Receive Swaps Forward Fixed Rate Purchased
Outstanding Starting Swaps Pay Swaps Floors Total
------------- -------------- ---------- --------- -----------
<S> <C> <C> <C> <C> <C>
December 31, 1992....... $ 1,795,000 $ 275,000 $100,000 -- $ 2,170,000
Maturities.............. (1,410,000) -- -- -- (1,410,000)
Terminations............ (50,000) -- -- -- (50,000)
New contracts........... 1,425,000 175,000 -- -- 1,600,000
Forwards becoming
effective.............. 300,000 (300,000) -- -- --
----------- --------- -------- -------- -----------
December 31, 1993....... 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) -- -- --
----------- --------- -------- -------- -----------
DECEMBER 31, 1994....... $ 2,785,000 $ 50,000 $ 50,000 $500,000 $ 3,385,000
=========== ========= ======== ======== ===========
</TABLE>
51
<PAGE>
-------------------------------------------------------------------------------
Table 6: LOANS
DECEMBER 31,
(Dollars in Thousands)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------------- -------------- -------------- -------------- --------------
AMOUNT % Amount % Amount % Amount % Amount %
---------- --- ---------- --- ---------- --- ---------- --- ---------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
COMMERCIAL LOANS
Real Estate--
Commercial Mortgage.... $1,698,329 17% $1,620,876 18% $1,581,188 18% $1,524,219 18% $1,493,751 16%
Real Estate--
Construction........... 276,858 3 261,847 3 286,205 3 400,827 4 475,280 5
Commercial, Financial
and Agricultural...... 3,966,785 41 3,564,387 40 3,379,190 40 3,386,655 40 3,418,086 36
---------- --- ---------- --- ---------- --- ---------- --- ---------- ---
Total Commercial
Loans................ 5,941,972 61 5,447,110 61 5,246,583 61 5,311,701 62 5,387,117 57
---------- --- ---------- --- ---------- --- ---------- --- ---------- ---
REAL ESTATE--
RESIDENTIAL............ 1,217,142 12 993,459 11 1,057,576 13 1,285,102 15 1,550,483 16
CONSUMER LOANS
Real Estate--
Home Equity............ 744,022 8 680,440 7 581,500 7 482,172 5 426,740 4
Revolving Credit....... 110,049 1 79,613 1 77,847 1 67,257 1 50,334 1
Consumer Loans Held for
Sale.................. -- -- -- -- -- -- -- -- 625,283 7
Other Consumer Loans... 1,744,438 18 1,787,422 20 1,588,091 18 1,351,818 17 1,400,937 15
---------- --- ---------- --- ---------- --- ---------- --- ---------- ---
Total Consumer Loans... 2,598,509 27 2,547,475 28 2,247,438 26 1,901,247 23 2,503,294 27
---------- --- ---------- --- ---------- --- ---------- --- ---------- ---
Total Loans, Net of
Unearned Discount.... $9,757,623 100% $8,988,044 100% $8,551,597 100% $8,498,050 100% $9,440,894 100%
========== === ========== === ========== === ========== === ========== ===
</TABLE>
52
<PAGE>
-------------------------------------------------------------------------------
Table 7: COMMERCIAL LOAN MATURITIES AND INTEREST SENSITIVITY
DECEMBER 31, 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
ONE YEAR ONE THROUGH OVER TOTAL
OR LESS FIVE YEARS FIVE YEARS LOANS
---------- ----------- ---------- ----------
<S> <C> <C> <C> <C>
Commercial, Financial and
Agricultural (includes Real
Estate--Commercial Mortgage).. $2,341,436 $1,770,681 $1,552,997 $5,665,114
Real Estate Construction....... 158,120 118,738 -- 276,858
---------- ---------- ---------- ----------
Total......................... $2,499,556 $1,889,419 $1,552,997 $5,941,972
========== ========== ========== ==========
Loans with Predetermined Rates. $ 567,147 $ 915,391 $ 795,262 $2,277,800
Loans with Variable Rates...... 1,932,409 974,028 757,735 3,664,172
---------- ---------- ---------- ----------
Total......................... $2,499,556 $1,889,419 $1,552,997 $5,941,972
========== ========== ========== ==========
</TABLE>
The maturity of loans is based upon contractual terms. Meridian may, howev-
er, extend the stated maturity at prevailing rates and terms for economic
and market reasons.
53
<PAGE>
--------------------------------------------------------------------------------
Table 8: SECURITIES YIELDS BY MATURITY
DECEMBER 31, 1994
(Dollars in Thousands)
<TABLE>
<CAPTION>
AFTER AFTER
ONE YEAR FIVE YEARS
WITHIN BUT WITHIN BUT WITHIN AFTER
ONE YEAR FIVE YEARS TEN YEARS TEN YEARS TOTAL
--------------------- ------------------ ---------------- ---------------- ------------------
AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD AMOUNT YIELD
-------- ------- ---------- ------- -------- ------- -------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
INVESTMENT SECURITIES
United States
Government
Securities........... $111,090 5.35% $ 555,173 5.13% $ 508 7.23% $ 260 7.63% $ 667,031 5.17%
Mortgage-Backed
Securities
Collateralized
Mortgage Obligations. 228,929 5.26 960,259 5.53 176,807 5.29 14,110 4.40 1,380,105 5.44
Other................. 15,444 9.24 137,759 6.70 36,280 7.96 41,807 8.70 231,290 7.43
-------- ----- ---------- ----- -------- ----- -------- ----- ---------- -----
Total Mortgage-Backed
Securities.......... 244,373 5.51 1,098,018 5.68 213,087 5.74 55,917 7.61 1,611,395 5.73
State and Municipal
Securities........... 74,207 7.12 115,244 8.28 112,268 7.69 33,682 9.19 335,401 7.91
Other Securities...... 57,161/(1)/ 6.77 170,993 5.38 2,928 7.11 27,510 0.62 258,592 5.20
-------- ----- ---------- ----- -------- ----- -------- ----- ---------- -----
Total Carrying Value. $486,831 5.87% $1,939,428 5.65% $328,791 6.42% $117,369 6.43% $2,872,419 5.80%
======== ===== ========== ===== ======== ===== ======== ===== ========== =====
INVESTMENT SECURITIES
AVAILABLE FOR SALE
United States
Government
Securities........... $ 27,698 4.69% $ 246,736 6.29% $ 160 6.47% -- -- $ 274,594 6.13%
Mortgage-Backed
Securities
Collateralized
Mortgage Obligations. 25 8.82 315 7.29 289 7.28 $ 23,631 6.69% 24,260 6.71
Other................. -- -- 57,885 7.88 8,382 5.68 25,411 5.75 91,678 7.09
-------- ----- ---------- ----- -------- ----- -------- ----- ---------- -----
Total Mortgage-Backed
Securities.......... 25 8.82 58,200 7.88 8,671 5.73 49,042 6.20 115,938 7.01
State and Municipal
Securities........... 11,643 14.05 14,111 10.34 309 11.95 7,299 11.77 33,362 11.95
Other Securities...... 8,918/(1)/ 3.29 1,121 12.18 175 8.67 886 6.92 11,100 4.56
-------- ----- ---------- ----- -------- ----- -------- ----- ---------- -----
Total Carrying Value. $ 48,284 6.69% $ 320,168 6.78% $ 9,315 6.01% $ 57,227 6.92% $ 434,994 6.77%
======== ===== ========== ===== ======== ===== ======== ===== ========== =====
</TABLE>
The weighted average yields are based on carrying value with effective
yields weighted for the contractual or expected maturity of each security.
Where applicable, yields are calculated on a taxable equivalent basis using
a 35% tax rate.
/(1)/ Includes primarily stock and other securities with no stated maturity.
54
<PAGE>
-------------------------------------------------------------------------------
Table 9: DEPOSITS BY MAJOR CLASSIFICATION
DECEMBER 31, (Dollars in Thousands)
<TABLE>
<CAPTION>
1994 1993 1992
--------------- --------------- ---------------
AMOUNT % Amount % Amount %
----------- --- ----------- --- ----------- ---
<S> <C> <C> <C> <C> <C> <C>
Non-Interest Bearing
Deposits................. $ 1,998,660 18% $ 1,849,425 16% $ 1,824,878 15%
NOW Accounts.............. 1,523,834 13 1,467,758 13 1,334,441 11
Savings Deposits.......... 1,846,758 16 1,867,011 17 1,606,985 14
Money Market Deposit
Accounts................. 2,287,039 20 2,385,937 21 2,498,290 21
Short-Term Time Deposits.. 638,823 6 794,012 7 952,396 8
Long-Term Time Deposits... 2,586,443 23 2,504,231 22 2,901,184 25
Certificates of Deposit of
$100,000 or More......... 498,010 4 477,777 4 656,528 6
----------- --- ----------- --- ----------- ---
Total.................... $11,379,567 100% $11,346,151 100% $11,774,702 100%
=========== === =========== === =========== ===
</TABLE>
55
<PAGE>
-------------------------------------------------------------------------------
Table 10: DEPOSITS BY TYPE OF DEPOSITOR
DECEMBER 31, (Dollars in Thousands)
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Individuals, Partnerships and
Corporations........................... $10,901,797 $10,755,408 $11,038,400
United States Government................ 25,817 21,652 31,842
State and Political Subdivisions........ 324,697 400,539 496,207
Commercial Banks........................ 31,351 54,002 61,996
Other................................... 95,905 114,550 146,257
----------- ----------- -----------
Total.................................. $11,379,567 $11,346,151 $11,774,702
=========== =========== ===========
</TABLE>
56
<PAGE>
------------------------------------------------------------------------------
Table 11: MATURITY OF CERTIFICATES OF DEPOSIT OF $100,000 OR MORE
DECEMBER 31,
(Dollars in Thousands)
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Three Months or Less.................... $ 298,217 $ 230,855 $ 317,538
Over Three Through Six Months........... 62,976 65,383 104,448
Over Six Through Twelve Months.......... 65,129 52,868 95,837
Over Twelve Months...................... 71,688 128,671 138,705
----------- ----------- -----------
Total.................................. $ 498,010 $ 477,777 $ 656,528
=========== =========== ===========
</TABLE>
57
<PAGE>
--------------------------------------------------------------------------------
Table 12: ALLOWANCE FOR POSSIBLE LOAN LOSSES
(Dollars in Thousands)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Balance at Beginning of
Period................. $ 173,388 $ 165,512 $ 179,167 $ 157,505 $ 97,730
---------- ---------- ---------- ---------- ----------
Additions (Deductions)
Acquired Allowances.... 1,168 3,094 2,154 -- 737
---------- ---------- ---------- ---------- ----------
Loans Charged-Off
Commercial (includes
Commercial
Real Estate).......... (31,819) (46,431) (80,206) (69,784) (64,760)
Real Estate--
Residential........... (9,301) (1,593) (802) (416) (115)
Consumer............... (11,035) (14,486) (14,178) (21,951) (23,229)
---------- ---------- ---------- ---------- ----------
Total Loans Charged-
Off................... (52,155) (62,510) (95,186) (92,151) (88,104)
---------- ---------- ---------- ---------- ----------
Recoveries on Charged-
Off Loans
Commercial (includes
Commercial
Real Estate).......... 14,383 6,570 5,976 2,949 2,788
Real Estate--
Residential........... 460 163 57 15 46
Consumer............... 4,837 4,458 4,517 4,099 3,562
---------- ---------- ---------- ---------- ----------
Total Recoveries on
Charged-Off Loans..... 19,680 11,191 10,550 7,063 6,396
---------- ---------- ---------- ---------- ----------
Net Loans Charged-Off.. (32,475) (51,319) (84,636) (85,088) (81,708)
---------- ---------- ---------- ---------- ----------
Provision Charged to
Operating Expense..... 27,321 56,101 68,827 106,750 140,746
---------- ---------- ---------- ---------- ----------
Balance at End of
Period................. $ 169,402 $ 173,388 $ 165,512 $ 179,167 $ 157,505
========== ========== ========== ========== ==========
Average Loans........... $9,350,184 $8,668,482 $8,442,214 $8,839,384 $9,371,994
Loans at Year End....... $9,757,623 $8,988,044 $8,551,597 $8,498,050 $9,440,894
Net Loans Charged-Off To
Average Loans.......... .35% .59% 1.00% .96% .87%
Loans at Year-End...... .33 .57 .99 1.00 .87
Allowance for Possible
Loan Losses........... 19.17 29.60 51.14 47.49 51.88
Provision for Possible
Loan Losses........... 118.86 91.48 122.97 79.71 58.05
Allowance for Possible
Loan Losses to
Average Loans.......... 1.81 2.00 1.96 2.03 1.68
Loans at Year-End...... 1.74 1.93 1.94 2.11 1.67
</TABLE>
58
<PAGE>
--------------------------------------------------------------------------------
Table 13: ALLOCATION OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
DECEMBER 31, (Dollars in Thousands)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
---------------- ---------------- --------------------- ---------------- ----------------
AMOUNT % LOANS Amount % Loans Amount % Loans Amount % Loans Amount % Loans
-------- ------- -------- ------- -------- ------- -------- ------- -------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial.............. $ 88,309 61% $ 98,821 61% $114,933/(1)/ 61% $ 62,799 62% $ 69,634 57%
Real Estate--
Residential............ 11,276 12 7,000 11 706 13 867 15 1,368 16
Consumer................ 14,864 27 20,958 28 19,941 26 17,953 23 25,319 27
Unallocated............. 54,953 -- 46,609 -- 29,932/(1)/ -- 97,548 -- 61,184 --
-------- --- -------- --- -------- --- -------- --- -------- ---
Total.................. $169,402 100% $173,388 100% $165,512/(1)/ 100% $179,167 100% $157,505 100%
======== === ======== === ======== === ======== === ======== ===
</TABLE>
/(1)/ Beginning in 1992, the method of allocating the allowance to individual
commercial loans was changed. Allocations are now based primarily on
historical chargeoff experience for each credit risk category of com-
mercial loans.
59
<PAGE>
--------------------------------------------------------------------------------
Table 14: CREDIT QUALITY
DECEMBER 31, (Dollars in Thousands)
<TABLE>
<CAPTION>
1994 1993 1992 1991 1990
-------- -------- -------- -------- --------
<S> <C> <C> <C> <C> <C>
NON-ACCRUAL LOANS
Commercial
Real Estate--Commercial
Mortgage................ $ 28,265 $ 30,544 $ 36,326 $ 35,479 $ 34,867
Real Estate--
Construction............ 1,356 2,834 10,283 20,210 26,829
Commercial, Financial
and Agricultural........ 42,899 59,882 77,078 95,763 78,014
-------- -------- -------- -------- --------
Total Commercial........ 72,520 93,260 123,687 151,452 139,710
Real Estate--Residential.. 16,370 29,843 18,105 10,857 8,168
Consumer.................. 233 1,162 957 714 497
-------- -------- -------- -------- --------
Total Non-Accrual
Loans.................. 89,123 124,265 142,749 163,023 148,375
-------- -------- -------- -------- --------
RESTRUCTURED LOANS
Real Estate--Commercial
Mortgage................ 9 908 -- 3,127 --
Real Estate--
Construction............ 33 1,419 46 53 360
Commercial, Financial
and Agricultural........ 1,103 1,004 846 3,077 4,053
-------- -------- -------- -------- --------
Total Restructured
Loans.................. 1,145 3,331 892 6,257 4,413
-------- -------- -------- -------- --------
Total Non-Performing
Loans................. 90,268 127,596 143,641 169,280 152,788
-------- -------- -------- -------- --------
ASSETS ACQUIRED IN
FORECLOSURES AND ASSETS
CONSIDERED TO BE AN IN-
SUBSTANCE FORECLOSURE
STATUS
Foreclosed Real Estate... 23,392 29,497 28,811 20,733 8,628
Assets Related to
Consumer Loans.......... 2,178 1,265 2,235 1,694 2,617
In-Substance
Foreclosures............ 5,900 20,454 39,501 54,773 21,974
-------- -------- -------- -------- --------
Total Assets Acquired... 31,470 51,216 70,547 77,200 33,219
-------- -------- -------- -------- --------
Total Non-Performing
Assets................ $121,738 $178,812 $214,188 $246,480 $186,007
======== ======== ======== ======== ========
Allowance for Possible
Loan Losses as a
Percentage of Loans...... 1.74% 1.93% 1.94% 2.11% 1.67%
Non-Performing Loans..... 188 136 115 106 103
Non-Performing Assets.... 139 97 77 73 85
Total Non-Performing Loans
as a Percentage of Loans. .93 1.42 1.68 1.99 1.62
Total Non-Performing
Assets as a Percentage of
Loans and Assets Acquired
in Foreclosures.......... 1.24 1.98 2.48 2.87 1.96
Loans Past Due 90 or more
Days as to Interest or
Principal not Included
Above (Includes $11,789
of Real Estate-
Residential as of
December 31, 1994)...... $ 22,355 $ 24,798 $ 41,083 $ 54,666 $ 56,431
Total Non-Performing
Assets and Loans Past Due
90 or more Days as to
Interest or Principal.... $144,093 $203,610 $255,271 $301,146 $242,438
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............. 1.47% 2.25% 2.96% 3.51% 2.56%
</TABLE>
60
<PAGE>
-------------------------------------------------------------------------------
Table 15: CHANGE IN NON-PERFORMING ASSETS
(Dollars in Thousands)
<TABLE>
<CAPTION>
1994 1993
-------- --------
<S> <C> <C>
TOTAL NON-PERFORMING ASSETS AT BEGINNING OF PERIOD....... $178,812 $214,188
Non-Performing Loans at Beginning of Period.............. 127,596 143,641
Additions............................................... 104,869 113,132
Payments................................................ (68,501) (37,831)
Return to Accrual Status................................ (20,893) (12,620)
Charge-offs............................................. (29,773) (47,198)
Transfers to Assets Acquired in Foreclosures............ (9,190) (31,528)
Transfers to Assets Held for Sale....................... (13,840) --
-------- --------
Total Non-Performing Loans at End of Period............ 90,268 127,596
-------- --------
Assets Acquired in Foreclosures and Assets
Considered to be in an In-Substance
Foreclosure Status at Beginning of Period............... 51,216 70,547
Additions............................................... 22,428 31,920
Payments and Sales...................................... (32,129) (60,461)
Transfers from Non-Performing Loans..................... 9,190 31,528
Net Writedowns.......................................... (10,890) (22,318)
Transfers to Assets Held for Sale....................... (8,345) --
-------- --------
Total Assets Acquired at End of Period................. 31,470 51,216
-------- --------
TOTAL NON-PERFORMING ASSETS AT END OF PERIOD............. $121,738 $178,812
======== ========
</TABLE>
61
<PAGE>
-------------------------------------------------------------------------------
Table 16: PAYMENT PERFORMANCE OF NON-ACCRUAL LOANS
DECEMBER 31, 1994 (Dollars In Thousands)
<TABLE>
<CAPTION>
MERIDIAN'S CUSTOMER'S ACCUMULATED
CARRYING CONTRACTUAL NET
VALUE BALANCE CHARGE-OFFS
---------- ----------- -----------
<S> <C> <C> <C>
Contractually Past Due With
Substantial Performance/(1)/............. $ 8,608 $ 13,800 $10,065
Limited Performance/(2)/................. 19,018 20,941 612
No Performance/(3)/...................... 50,478 66,368 9,670
------- -------- -------
Total.................................... 78,104 101,109 20,347
------- -------- -------
Contractually Current, However,
Full Payment is Doubtful/(4)/............ 11,019 15,407 3,811
------- -------- -------
Total Non-Accrual Loans.................. $89,123 $116,516 $24,158
======= ======== =======
</TABLE>
/(1)/ Borrower has paid at least 85% of contractual obligations over the past
six months.
/(2)/ Borrower has paid between 25% and 85% of contractual obligations over
the past six months.
/(3)/ Borrower has paid less than 25% of contractual obligations over the
past six months.
(/4)/ Although contractually current, the borrower is in a specified period
of demonstrating payment performance or the loan has a prior charge-
off.
62
<PAGE>
--------------------------------------------------------------------------------
Table 17: COMMERCIAL LOANS BY MAJOR INDUSTRY CLASSIFICATION
DECEMBER 31, (Dollars in Thousands)
<TABLE>
<CAPTION>
1994 1993
---------------------------- ----------------------------
NON- Non-
TOTAL LOANS ACCRUAL Total Loans Accrual
OUTSTANDING % LOANS % Outstanding % Loans %
----------- --- ------- --- ----------- --- ------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Agriculture............. $ 161,979 3% $ 207 * $ 162,581 3% $ 728 1%
Mining.................. 17,596 * 260 * 15,837 * 274 *
Construction............ 226,205 4 3,149 5% 218,104 4 3,211 3
Manufacturing........... 1,095,389 18 24,194 33 1,004,135 18 22,700 24
Transportation,
Communication
and Public Utilities... 364,625 6 1,972 3 301,144 6 1,494 2
Wholesale Trade......... 363,705 6 4,055 6 330,360 6 3,072 3
Retail Trade............ 800,778 14 7,176 10 721,615 13 16,869 18
Finance, Insurance and
Real Estate............ 1,312,907 22 20,472 28 1,191,568 22 22,182 24
Services................ 1,458,346 25 10,967 15 1,342,383 25 21,149 23
Public Administration... 14,842 * 25 * 9,891 * -- --
Other................... 125,600 2 43 * 149,492 3 1,581 2
---------- --- ------- --- ---------- --- ------- ---
Total.................. $5,941,972 100% $72,520 100% $5,447,110 100% $93,260 100%
========== === ======= === ========== === ======= ===
</TABLE>
*Less than one percent
63
<PAGE>
-------------------------------------------------------------------------------
Table 18: COMMERCIAL REAL ESTATE
DECEMBER 31, (Dollars in Thousands)
OUTSTANDING LOANS
<TABLE>
<CAPTION>
1994 1993
---------------------------------------------------------------------------- -----------------------
INVESTOR-DEVELOPER OWNER-OCCUPIED TOTAL Total
----------------------- ----------------------- ---------------------------- -----------------------
COMMERCIAL COMMERCIAL COMMERCIAL Commercial
MORTGAGE CONSTRUCTION MORTGAGE CONSTRUCTION MORTGAGE CONSTRUCTION Mortgage Construction
---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Apartment
Buildings....... $220,022 $ 1,217 -- -- $ 220,022 $ 1,217 $ 215,458 $ 2,220
Office Buildings. 162,668 21,086 $188,380 $ 9,780 351,048 30,866 331,288 20,079
Residential
Properties...... -- 98,267 -- -- -- 98,267 -- 82,581
Shopping Centers. 157,590 29,572 74,597 2,721 232,187 32,293 187,721 34,627
Land............. -- 31,329 -- -- -- 31,329 -- 44,170
Industrial
Plants.......... 88,410 19,490 198,497 8,674 286,907 28,164 296,188 23,778
Hotel/Motel/Restaurant. 121,316 2,543 -- -- 121,316 2,543 125,907 2,381
Healthcare
Facilities...... -- -- 97,486 20,471 97,486 20,471 111,147 25,928
Other............ 150,415 14,708 238,948 17,000 389,363 31,708 353,167 26,083
-------- -------- -------- ------- ---------- -------- ---------- --------
Total........... $900,421 $218,212 $797,908 $58,646 $1,698,329/(1)/ $276,858/(1)/ $1,620,876 $261,847
======== ======== ======== ======= ========== ======== ========== ========
</TABLE>
/(1)/ The geographic distribution by state is as follows: Pennsylvania
$1,578,445 (80%), Delaware $236,443 (12%), New Jersey $96,372 (5%), and
all other states $63,927 (3%).
NON-ACCRUAL LOANS
<TABLE>
<CAPTION>
1994 1993
--------------------------------------------------------------------------- -----------------------
INVESTOR-DEVELOPER OWNER-OCCUPIED TOTAL Total
----------------------- ----------------------- --------------------------- -----------------------
COMMERCIAL COMMERCIAL COMMERCIAL Commercial
MORTGAGE CONSTRUCTION MORTGAGE CONSTRUCTION MORTGAGE CONSTRUCTION Mortgage Construction
---------- ------------ ---------- ------------ ---------- ------------ ---------- ------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Apartment Buildings.. $ 4,906 -- -- -- $ 4,906 -- $ 6,403 --
Office Buildings..... 1,126 -- $ 2,566 -- 3,692 -- 3,571 --
Residential
Properties.......... -- $ 680 -- -- -- $ 680 -- $1,346
Shopping Centers..... 2,479 -- 1,837 -- 4,316 -- 3,467 203
Land................. -- 391 -- -- -- 391 -- 991
Industrial Plants.... 5,118 -- 3,404 -- 8,522 -- 3,275 --
Hotel/Motel/Restaurant. 1,067 285 -- -- 1,067 285 9,757 294
Other................ 1,140 -- 4,622 -- 5,762 -- 4,071 --
------- ------ ------- --- ------- ------ ------- ------
Total............... $15,836 $1,356 $12,429 -- $28,265/(2)/ $1,356/(2)/ $30,544 $2,834
======= ====== ======= === ======= ====== ======= ======
</TABLE>
/(2)/ The geographic distribution by state is as follows: Pennsylvania
$19,577 (66%), Delaware $3,628 (12%), New Jersey $4,859 (17%), and all
other states $1,557 (5%).
<TABLE>
<CAPTION>
1994 1993
ASSETS ACQUIRED IN FORECLOSURES/(3)/ ------- -------
<S> <C> <C>
Apartment Buildings.................. $ 42 $ 23
Office Buildings..................... 12,968 14,722
Residential Properties............... 3,668 5,227
Shopping Centers..................... 95 105
Land................................. 4,157 8,878
Industrial Plants.................... 2,686 7,056
Hotel/Motel/Restaurant............... 1,101 873
Other................................ 1,853 3,016
------- -------
Total............................... $26,570/(4)/ $39,900
======= =======
</TABLE>
/(3)/ Includes Assets Considered to be in an In-Substance Foreclosure status.
/(4)/ The geographic distribution by state is as follows: Pennsylvania
$20,884 (79%), Delaware $417 (2%), and New Jersey $5,269 (19%).
64
<PAGE>
-------------------------------------------------------------------------------
Table 19: COMPOSITION OF NON-INTEREST INCOME
(Dollars in Thousands)
<TABLE>
<CAPTION>
PERCENT CHANGE
---------------
1994 1993 1992 1994/93 1993/92
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
TRUST
Personal Fees................. $ 17,022 $ 14,740 $ 13,588 15% 8%
Corporate and Institutional
Fees......................... 24,673 21,118 18,188 17 16
Investment Advisory Services
Fees......................... 8,097 4,067 3,899 99 4
Other......................... 4,932 1,754 2,831 -- -38
-------- -------- -------- --- ---
Total......................... 54,724 41,679 38,506 31 8
-------- -------- -------- --- ---
MORTGAGE BANKING
Servicing Fees................ 10,136 30,052 34,011 -66 -12
Amortization of and Reserves
for Purchased Mortgage
Servicing Rights and Other
Servicing-Related Assets..... (114) (33,713) (22,133) -- 52
-------- -------- -------- --- ---
Net Servicing Fees............ 10,022 (3,661) 11,878 -- --
Origination Fees.............. 4,452 16,990 17,366 -74 -2
Other......................... 3,015 22,641 18,442 -87 23
-------- -------- -------- --- ---
Total......................... 17,489 35,970 47,686 -51 -25
-------- -------- -------- --- ---
BROKER-DEALER AND INVESTMENT
BANKING
Net Trading Gains............. 16,153 37,226 27,559 -57 35
Net Tender Option Bond Fees... 12,088 19,608 17,099 -38 15
Commissions and Related Fees.. 7,518 12,126 7,996 -38 52
Other (Includes
Realized/Unrealized Gains and
Losses on Investments)....... 7,090 411 1,556 -- -74
-------- -------- -------- --- ---
Total......................... 42,849 69,371 54,210 -38 28
-------- -------- -------- --- ---
SERVICE CHARGES ON DEPOSIT
ACCOUNTS...................... 56,075 53,827 48,967 4 10
FEES FOR OTHER CUSTOMER
SERVICES...................... 46,849 43,355 40,743 8 6
NET SECURITIES GAINS........... 2,998 25,280 2,764 -88 --
OTHER INCOME
Gains on Sales of Loans and
Other Assets................. 8,392 1,947 229 -- --
Other......................... 11,439 13,841 9,773 -17 42
-------- -------- -------- --- ---
Total......................... 19,831 15,788 10,002 26 58
-------- -------- -------- --- ---
Total Non-Interest Income.... $240,815 $285,270 $242,878 -16% 17%
======== ======== ======== === ===
</TABLE>
65
<PAGE>
--------------------------------------------------------------------------------
Table 20: COMPOSITION OF NON-INTEREST EXPENSES
(Dollars in Thousands)
<TABLE>
<CAPTION>
PERCENT CHANGE
---------------
1994 1993 1992 1994/93 1993/92
-------- -------- -------- ------- -------
<S> <C> <C> <C> <C> <C>
SALARIES AND EMPLOYEE
BENEFITS
Salaries.................... $238,336 $239,354 $212,414 -- 13%
Payroll taxes............... 19,527 18,219 16,310 7% 12
Pension and Savings Plans... 11,839 9,969 6,781 19 47
Medical and Other Insurance. 27,023 27,960 18,180 -3 54
Other....................... 747 624 1,847 20 -66
-------- -------- -------- --- ---
Total....................... 297,472 296,126 255,532 -- 16
-------- -------- -------- --- ---
FULL-TIME EQUIVALENT
EMPLOYEES
Banking..................... 6,614 6,701 6,555 -1 2
Securities.................. 325 216 186 50 16
-------- -------- -------- --- ---
Total....................... 6,939 6,917 6,741 -- 3
-------- -------- -------- --- ---
NET OCCUPANCY EXPENSE........ 45,351 42,578 41,259 7 3
EQUIPMENT EXPENSE............ 38,745 38,005 37,087 2 2
PROVISION FOR MORTGAGE
BANKING RESTRUCTURING....... -- 17,500 -- -- --
OTHER EXPENSES
Accounting and Legal Fees... 7,092 7,664 6,811 -7 13
Other Professional Fees and
Services................... 19,411 22,607 18,593 -14 22
Advertising and Customer
Development................ 17,077 16,400 14,758 4 11
Communications.............. 20,903 20,425 19,067 2 7
FDIC Deposit Insurance...... 22,800 29,533 25,552 -23 16
Other Deposit Related
Expenses................... 3,735 2,753 2,297 36 20
Stationery and Supplies..... 10,320 10,810 10,306 -5 5
Loan Related Expenses....... 29,042 41,488 33,026 -30 26
Foreclosed Real Estate
Expenses................... 5,309 10,939 23,258 -51 -53
Taxes-Other Than Income..... 10,672 9,495 8,755 12 8
Transportation.............. 6,571 6,479 5,880 1 10
Educational Development..... 5,892 5,550 4,513 6 23
Amortization of Intangibles. 14,700 11,082 11,202 33 -1
Automated Teller Network
Charges.................... 8,155 6,602 5,457 24 21
Merchant Credit Card
Servicing.................. 15,148 12,778 11,183 19 14
Other....................... 14,827 28,039 27,314 -47 3
-------- -------- -------- --- ---
Total....................... 211,654 242,644 227,972 -13 6
-------- -------- -------- --- ---
Total Non-Interest
Expenses.................. $593,222 $636,853 $561,850 -7% 13%
======== ======== ======== === ===
</TABLE>
66
<PAGE>
-------------------------------------------------------------------------------
Table 21: CAPITAL ADEQUACY
DECEMBER 31,
<TABLE>
<CAPTION>
1994 1993 1992
----- ----- -----
<S> <C> <C> <C>
CONSOLIDATED
Total Shareholders' Equity to Assets................... 8.07% 8.42% 7.41%
Tangible Shareholders' Equity to Assets................ 7.23 7.78 6.44
Risk-Based Capital
Tier 1................................................. 9.25 9.60 8.78
Tier 2................................................. 3.48 4.07 2.83
----- ----- -----
Total/(1)//(2)/....................................... 12.73 13.67 11.61
===== ===== =====
Leverage/(1)//(2)/..................................... 7.47 7.84 7.15
BANKING
Total Risk-Based Capital/(1)//(2)/
Meridian Bank.......................................... 12.16 12.23 10.59
Delaware Trust Company................................. 14.32 13.07 12.44
Meridian Bank, New Jersey.............................. 15.06 15.59 --
</TABLE>
/(1)/ The minimum ratios required by the Federal Reserve Board guidelines are
4% for Tier 1 capital, 8% for total risk-based capital, and a leverage
ratio of 3% plus an additional cushion of 100 to 200 basis points.
/(2)/ Federal)Reserve Board guidelines define a well-capitalized institution
as having a Tier 1 capital ratio of 6% or more, a total risk-based cap-
ital ratio of 10% or more, and a leverage ratio of 5% or more.
67
<PAGE>
-------------------------------------------------------------------------------
Table 22: COMPOSITION OF RISK-BASED CAPITAL
DECEMBER 31, (Dollars in Thousands)
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
TIER 1 CAPITAL
Common Stock..................................... $ 291,585 $ 290,760
Surplus.......................................... 211,011 205,174
Retained Earnings................................ 763,968 689,699
Less Treasury Stock and ESOP Shares.............. (51,479) --
----------- -----------
Total Shareholders' Equity....................... 1,215,085 1,185,633
Add (Deduct):
Goodwill......................................... (94,663) (35,024)
Unrealized Loss on Securities, Net of Taxes...... 7,182 --
Certain Core Deposit and Other Intangibles....... (28,256) (32,280)
Other............................................ -- (15,921)
----------- -----------
Total Tier 1 Capital............................. 1,099,348 1,102,408
----------- -----------
TIER 2 CAPITAL
Allowable Portion of Allowance for Possible Loan
Losses.......................................... 148,689 144,150
Allowable Portion of Subordinated Capital Notes.. 263,962 323,871
----------- -----------
Total Tier 2 Capital............................. 412,651 468,021
----------- -----------
Total Risk-Based Capital.......................... $ 1,511,999 $ 1,570,429
=========== ===========
Risk-Based Capital in Excess of Regulatory
Requirement...................................... $ 562,048 $ 651,159
=========== ===========
Risk-Weighted Assets and Off-Balance Sheet Items.. $11,853,393 $11,490,879
=========== ===========
INTANGIBLES AND RELATED ASSETS
Goodwill......................................... $ 94,663 $ 35,024
Core Deposit and Other Intangibles............... 41,547 25,757
Purchased Mortgage Servicing Rights.............. -- 36,000
----------- -----------
Total............................................ $ 136,210 $ 96,781
=========== ===========
</TABLE>
68
<PAGE>
-------------------------------------------------------------------------------
Table 23: PRICE RANGE OF COMMON STOCK
<TABLE>
<CAPTION>
High Low Close
QUARTER ------- ------- -------
<S> <C> <C> <C>
1992:First...... $26 5/8 $22 1/8 $26 1/4
Second.......... 28 23 27 1/2
Third........... 29 3/8 24 5/8 26 1/8
Fourth.......... 32 26 1/8 31 7/8
1993:First...... 35 3/4 29 3/4 33
Second.......... 34 26 3/4 32 1/2
Third........... 34 5/8 30 1/4 32 7/8
Fourth.......... 33 1/8 27 3/4 28 1/2
1994:FIRST...... 31 1/8 26 7/8 29 1/8
SECOND.......... 33 1/4 27 3/8 30 3/8
THIRD........... 33 1/8 28 3/4 28 3/4
FOURTH.......... 29 1/4 25 1/2 26 5/8
</TABLE>
69
<PAGE>
-------------------------------------------------------------------------------
Table 24: INDUSTRY SEGMENTS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Net Income Assets at December 31,
-------------------------- -----------------------
1994 1993 1992 1994 1993
-------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Banking................... $155,650 $139,036 $121,145 $14,550,315 $13,751,699
Securities (Broker-Dealer
Activities).............. 3,708 18,725 15,560 502,332 333,088
-------- -------- -------- ----------- -----------
Consolidated.............. $159,358 $157,761 $136,705 $15,052,647 $14,084,787
======== ======== ======== =========== ===========
</TABLE>
-------------------------------------------------------------------------------
BANKING
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Net Interest Income/(1)/............... $ 623,148 $ 629,887 $ 588,759
Provision for Possible Loan Losses..... 27,382 54,955 68,827
Non-Interest Income.................... 198,601 215,121 188,041
Non-Interest Expenses.................. 549,709 587,025 525,121
Net Interest Margin/(1)/............... 4.85% 5.04% 4.84%
Return on Average Assets............... 1.11% 1.01% 0.91%
Return on Average Equity............... 13.05% 12.60% 12.19%
Loans
Commercial............................ 5,940,887 5,445,964 5,246,583
Real Estate-Residential............... 1,217,142 993,459 1,057,576
Consumer.............................. 2,598,509 2,547,475 2,247,438
Deposits............................... 11,335,103 11,268,615 11,661,833
Equity................................. 1,204,767 1,171,435 1,047,329
Equity to Assets....................... 8.28% 8.52% 7.56%
--------------------------------------------------------------------------------
SECURITIES (BROKER-DEALER ACTIVITIES)
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
Net Revenues/(2)/...................... $ 48,263 $ 77,376 $ 59,311
Operating Expenses..................... 43,513 49,829 36,729
Par Value of Bonds Underwritten........ 807,648 1,121,501 1,675,432
Number of Trades....................... 43,058 42,548 38,287
Tender Option Bonds.................... 255,948 435,243 535,552
</TABLE>
/(1)/ Taxable equivalent basis.
/(2)/ Gross revenues less interest expense.
70
<PAGE>
--------------------------------------------------------------------------------
Table 25: SUMMARIZED QUARTERLY FINANCIAL DATA
(Dollars In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
1994 1993
-------------------------------------------------- ------------------------------------------------------
FOURTH THIRD SECOND FIRST Fourth Third Second First
QUARTER QUARTER QUARTER QUARTER Quarter Quarter Quarter Quarter
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest Income..... $ 264,121 $ 257,210 $ 241,722 $ 221,985 $ 238,090 $ 241,574 $ 242,968 $ 239,058
Interest Expense.... 110,888 100,799 85,880 75,057 82,553 84,891 88,329 88,625
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Interest Income. 153,233 156,411 155,842 146,928 155,537 156,683 154,639 150,433
Provision for
Possible Loan
Losses............. 6,016 6,121 6,684 8,500 12,480 14,631 14,656 14,334
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Interest Income
after Provision for
Possible Loan
Losses............. 147,217 150,290 149,158 138,428 143,057 142,052 139,983 136,099
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Securities Gains
(Losses)........... 247 2,110 (49) 690 666 9,943 8,766 5,905
Non-Interest Income. 61,182 58,581 58,356 59,699 75,461 75,359 63,856 45,313
Non-Interest
Expenses........... 148,131 157,447 147,999 139,645 162,033 178,875/(1)/ 151,648 144,296
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Income Before Income
Taxes and
Cumulative Effect
of Changes in
Accounting
Principles......... 60,515 53,534 59,466 59,172 57,151 48,479 60,957 43,021
Provision for Income
Taxes.............. 16,370 16,914 18,682 18,633 15,084 13,850 17,417 12,716
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Income Before
Cumulative Effect
of Changes in
Accounting
Principles......... 44,145 36,620 40,784 40,539 42,067 34,629 43,540 30,305
Cumulative After-Tax
Effect on Prior
Years of Changes in
Accounting
Principles......... -- -- -- (2,730) -- -- -- 7,221
----------- ----------- ----------- ----------- ----------- ----------- ----------- -----------
Net Income.......... $ 44,145 $ 36,620 $ 40,784 $ 37,809 $ 42,067 $ 34,629 $ 43,540 $ 37,526
=========== =========== =========== =========== =========== =========== =========== ===========
Fully Diluted
Earnings Per Share
Income Before
Cumulative Effect
of Changes in
Accounting
Principles......... $ .77 $ .63 $ .70 $ .70 $ .73 $ .60 $ .75 $ .53
Cumulative After-
Tax Effect on
Prior Years of
Changes in
Accounting
Principles........ -- -- -- (.05) -- -- -- .13
Net Income......... .77 .63 .70 .65 .73 .60 .75 .66
Dividends Declared
Per Common Share... .34 .34 .34 .32 .32 .32 .32 .30
Ratio of Dividends
Declared to Net
Income............. 44% 54% 48% 49% 45% 46% 39% 42%
Net Interest Margin
(Taxable Equivalent
Basis)............. 4.60% 4.65% 4.85% 4.82% 5.00% 4.97% 4.90% 4.98%
Return on Average
Assets............. 1.18% .97% 1.13% 1.10% 1.18% .96% 1.22% 1.10%
Return on Average
Common
Shareholders'
Equity............. 14.33% 11.95% 13.74% 13.00% 14.34% 12.10% 15.85% 14.24%
At Quarter-End
Loans.............. $ 9,757,623 $ 9,435,170 $ 9,509,818 $ 9,157,829 $ 8,988,044 $ 8,832,862 $ 8,626,402 $ 8,522,252
Assets............. 15,052,647 14,782,400 15,184,724 14,038,474 14,084,787 14,334,773 14,403,339 14,175,835
Deposits........... 11,379,567 11,310,179 11,666,783 11,151,964 11,346,151 11,171,363 11,433,459 11,279,275
Total Shareholders'
Equity............ 1,215,085 1,231,596 1,214,604 1,193,395 1,185,633 1,146,875 1,124,935 1,086,898
Total Shareholders'
Equity to Assets.. 8.07% 8.33% 8.00% 8.50% 8.42% 8.00% 7.81% 7.67%
Risk-Based Capital
Ratio............. 12.73% 13.07% 13.30% 13.81% 13.67% 13.16% 13.05% 12.91%
Allowance for
Possible Loan
Losses to Loans... 1.74% 1.81% 1.79% 1.87% 1.93% 1.92% 1.95% 1.95%
Allowance for
Possible Loan
Losses to Non-
Performing Loans.. 188% 182% 165% 143% 136% 130% 125% 122%
Non-Performing
Assets as a
Percentage of
Period-End Loans
and Assets
Acquired in
Foreclosures...... 1.24% 1.33% 1.48% 1.86% 1.98% 2.18% 2.26% 2.39%
</TABLE>
Amounts in this table have been rounded for presentation purposes and
therefore may not equal annual totals.
/(1)/ Third quarter of 1993 includes a mortgage banking restructuring charge
of $17,500 and expenses of $11,900 related to the Commonwealth merger.
71
<PAGE>
Item 8. Financial Statements and Supplementary Data
INDEPENDENT AUDITORS' REPORT
[LOGO OF KPMG PEAT MARWICK LLP APPEARS HERE]
The Board of Directors
Meridian Bancorp, Inc.:
We have audited the accompanying consolidated balance sheets of Meridian
Bancorp, Inc. and its subsidiaries as of December 31, 1994 and 1993, and the
related consolidated statements of income, changes in shareholders' equity, and
cash flows for each of the years in the three-year period ended December 31,
1994. These consolidated financial statements are the responsibility of manage-
ment. Our responsibility is to express an opinion on these consolidated finan-
cial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing stan-
dards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of mate-
rial misstatement. An audit includes examining, on a test basis, evidence sup-
porting the amounts and disclosures in the financial statements. An audit also
includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement pre-
sentation. We believe that our audits provide a reasonable basis for our opin-
ion.
In our opinion, the consolidated financial statements referred to above pres-
ent fairly, in all material respects, the financial position of Meridian
Bancorp, Inc. and its subsidiaries as of December 31, 1994 and 1993, and the
results of their operations and their cash flows for each of the years in the
three-year period ended December 31, 1994, in conformity with generally ac-
cepted accounting principles.
As described in Notes 1 and 8, respectively, to the consolidated financial
statements, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 115, Account-
ing for Certain Investments in Debt and Equity Securities, and Statement of Fi-
nancial Accounting Standards No. 112, Employers' Accounting for Postemployment
Benefits, in 1994. Also, as described in Notes 8 and 10, respectively, to the
consolidated financial statements, the Company adopted the provisions of the
Financial Accounting Standards Board's Statement of Financial Accounting Stan-
dards No. 106, Employers' Accounting for Postretirement Benefits Other Than
Pensions, and Statement of Financial Accounting Standards No. 109, Accounting
for Income Taxes, in 1993.
/s/ KPMG PEAT MARWICK LLP APPEARS HERE
January 18, 1995
72
<PAGE>
--------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
DECEMBER 31,
(Dollars In Thousands)
<TABLE>
<CAPTION>
1994 1993
----------- -----------
<S> <C> <C>
ASSETS
Cash and Due from Banks.......................... $ 669,642 $ 587,587
Short-Term Investments
Interest-Bearing Deposits in Other Banks........ 123,608 101,860
Federal Funds Sold and Securities Purchased
Under Agreements to Resell..................... 96,810 14,694
----------- -----------
Total Short-Term Investments.................... 220,418 116,554
----------- -----------
Trading Account Assets........................... 346,170 36,616
Investment Securities Available for Sale
(Amortized Cost $445,783 in 1994 and Fair Value
$288,152 in 1993)............................... 434,994 275,663
Investment Securities (Fair Value $2,753,307 and
$2,813,100 in 1994 and 1993, Respectively)...... 2,872,419 2,784,484
Loans and Other Assets Held for Sale............. 90,590 655,844
Total Loans, Net of Unearned Discount............ 9,757,623 8,988,044
Less Allowance for Possible Loan Losses......... 169,402 173,388
----------- -----------
Net Loans....................................... 9,588,221 8,814,656
----------- -----------
Premises and Equipment........................... 263,583 241,584
Accrued Interest Receivable...................... 111,936 103,250
Other Assets..................................... 454,674 468,549
----------- -----------
Total Assets.................................... $15,052,647 $14,084,787
=========== ===========
LIABILITIES
Deposits
Non-Interest Bearing Deposits................... $ 1,998,660 $ 1,849,425
Interest-Bearing Deposits....................... 9,380,907 9,496,726
----------- -----------
Total Deposits.................................. 11,379,567 11,346,151
----------- -----------
Short-Term Borrowings
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase................. 1,569,153 540,255
Other Short-Term Borrowings..................... 243,413 251,468
----------- -----------
Total Short-Term Borrowings..................... 1,812,566 791,723
----------- -----------
Long-Term Debt and Other Borrowings.............. 372,153 421,291
Accrued Interest Payable......................... 62,344 59,581
Other Liabilities................................ 210,932 280,408
----------- -----------
Total Liabilities............................... 13,837,562 12,899,154
----------- -----------
Commitments and Contingencies (Note 12)
SHAREHOLDERS' EQUITY
Preferred Stock (Par Value $25.00) Authorized--
25,000,000 Shares
Common Stock (Par Value $5.00) Authorized--
200,000,000 Shares
Issued--58,316,978 shares in 1994; Issued and
Outstanding--58,154,486 shares in 1993......... 291,585 290,760
Surplus.......................................... 211,011 205,174
Retained Earnings................................ 771,150 690,058
Net Unrealized Losses on Securities.............. (7,182) (359)
Treasury Stock--525,336 shares................... (15,911) --
Unallocated Shares Held by Employee Stock
Ownership
Plan (ESOP) Trust--1,285,000 Shares............. (35,568) --
----------- -----------
TOTAL SHAREHOLDERS' EQUITY..................... 1,215,085 1,185,633
----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY..... $15,052,647 $14,084,787
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
73
<PAGE>
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF INCOME
YEAR ENDED DECEMBER 31,
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
1994 1993 1992
---------- ---------- ----------
<S> <C> <C> <C>
INTEREST INCOME
Interest and Fees on Loans........... $ 760,672 $ 705,893 $ 738,248
Interest on Trading Account Assets... 8,647 9,857 4,634
Interest on Investment Securities
Available for Sale.................. 23,884 51,963 17,095
Interest on Investment Securities.... 155,684 151,436 206,332
Interest on Loans Held for Sale...... 28,618 36,405 40,630
Other Interest Income................ 7,535 6,136 9,242
---------- ---------- ----------
TOTAL INTEREST INCOME............... 985,040 961,690 1,016,181
---------- ---------- ----------
INTEREST EXPENSE
Interest on Deposits................. 283,256 283,822 396,175
Interest on Short-Term Borrowings.... 63,126 30,518 29,359
Interest on Long-Term Debt and Other
Borrowings.......................... 26,242 30,058 17,464
---------- ---------- ----------
TOTAL INTEREST EXPENSE.............. 372,624 344,398 442,998
---------- ---------- ----------
Net Interest Income................... 612,416 617,292 573,183
Provision for Possible Loan Losses.... 27,321 56,101 68,827
---------- ---------- ----------
Net Interest Income After Provision
for Possible Loan Losses............. 585,095 561,191 504,356
---------- ---------- ----------
NON-INTEREST INCOME
Trust................................ 54,724 41,679 38,506
Mortgage Banking..................... 17,603 69,683 69,819
Amortization of and Reserves For
Purchased Mortgage Servicing Rights
and Other Servicing-Related Assets.. (114) (33,713) (22,133)
---------- ---------- ----------
Net Mortgage Banking................. 17,489 35,970 47,686
Broker-Dealer and Investment Banking. 42,849 69,371 54,210
Service Charges on Deposit Accounts.. 56,075 53,827 48,967
Fees for Other Customer Services..... 46,849 43,355 40,743
Net Securities Gains................. 2,998 25,280 2,764
Other Income......................... 19,831 15,788 10,002
---------- ---------- ----------
TOTAL NON-INTEREST INCOME........... 240,815 285,270 242,878
---------- ---------- ----------
NON-INTEREST EXPENSES
Salaries and Employee Benefits....... 297,472 296,126 255,532
Net Occupancy Expense................ 45,351 42,578 41,259
Equipment Expense.................... 38,745 38,005 37,087
Provision for Mortgage Banking
Restructuring....................... -- 17,500 --
Other Expenses....................... 211,654 242,644 227,972
---------- ---------- ----------
TOTAL NON-INTEREST EXPENSES......... 593,222 636,853 561,850
---------- ---------- ----------
Income Before Income Taxes and
Cumulative Effect of Changes in
Accounting Principles................ 232,688 209,608 185,384
Provision for Income Taxes........... 70,600 59,068 48,679
---------- ---------- ----------
Income Before Cumulative Effect of
Changes in Accounting Principles..... 162,088 150,540 136,705
Cumulative After-Tax Effect of
Changes In Accounting Principles.... (2,730) 7,221 --
---------- ---------- ----------
Net Income............................ $ 159,358 $ 157,761 $ 136,705
========== ========== ==========
PER COMMON SHARE
Income Before Cumulative Effect of
Changes in Accounting Principles
Primary.............................. $ 2.80 $ 2.61 $ 2.45
Fully Diluted........................ 2.80 2.61 2.44
Cumulative Effect on Prior Years of
Changes in Accounting Principles
Primary.............................. (.05) .13 --
Fully Diluted........................ (.05) .13 --
Net Income
Primary.............................. 2.75 2.74 2.45
Fully Diluted........................ 2.75 2.74 2.44
Dividends Declared.................... 1.34 1.26 .90/(1)/
Dividends Paid........................ 1.34 1.26 1.20
<CAPTION>
AVERAGE SHARES OUTSTANDING
<S> <C> <C> <C>
Primary.............................. 58,040,310 57,674,058 55,596,748
Fully Diluted........................ 58,040,310 57,674,058 55,810,810
</TABLE>
/(1)/ Reflects new dividend payment schedule
adopted first quarter 1992.
See accompanying Notes to Consolidated Financial Statements.
74
<PAGE>
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
COMMON STOCK NET UNREALIZED
--------------------- GAINS UNALLOCATED
SHARES RETAINED (LOSSES) ON TREASURY ESOP
OUTSTANDING AMOUNT SURPLUS EARNINGS ON SECURITIES STOCK SHARES TOTAL
----------- -------- -------- -------- -------------- -------- ----------- ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
BALANCE AT JANUARY 1,
1992................... 55,064,521 $275,311 $165,408 $507,895 $ (881) -- -- $ 947,733
Net Income.............. -- -- -- 136,705 -- -- -- 136,705
Common Stock Dividends
Declared............... -- -- -- (48,359) -- -- -- (48,359)
Sales of Stock Under
Dividend Reinvestment,
Stock Option and
Employee Benefit Plans. 642,174 3,210 7,730 -- -- -- -- 10,940
Reversal of Unrealized
Loss on Marketable
Equity Securities...... -- -- -- -- 733 -- -- 733
Common Stock Issued in
Merger................. 784,701 3,924 7,375 429 -- -- -- 11,728
Cash in Lieu of
Fractional Shares...... -- -- (161) -- -- -- -- (161)
---------- -------- -------- -------- ------- -------- -------- ----------
BALANCE AT DECEMBER 31,
1992................... 56,491,396 282,445 180,352 596,670 (148) -- -- 1,059,319
Net Income.............. -- -- -- 157,761 -- -- -- 157,761
Common Stock Dividends
Declared............... -- -- -- (67,541) -- -- -- (67,541)
Sales of Stock Under
Dividend Reinvestment,
Stock Option and
Employee Benefit Plans. 621,453 3,107 13,261 -- -- -- -- 16,368
Unrealized Loss on
Marketable Equity
Securities............. -- -- -- -- (211) -- -- (211)
Common Stock Issued in
Merger................. 1,041,637 5,208 11,687 3,168 -- -- -- 20,063
Cash in Lieu of
Fractional Shares...... -- -- (126) -- -- -- -- (126)
---------- -------- -------- -------- ------- -------- -------- ----------
BALANCE AT DECEMBER 31,
1993................... 58,154,486 290,760 205,174 690,058 (359) -- -- 1,185,633
Net Income.............. -- -- -- 159,358 -- -- -- 159,358
Common Stock Dividends
Declared............... -- -- -- (77,303) -- -- -- (77,303)
Sales of Stock Under
Dividend Reinvestment,
Stock Option and
Employee Benefit Plans. 121,298 51 (352) (963) -- $ 3,355 -- 2,091
Purchases of Treasury
Stock.................. (638,854) -- -- -- -- (19,266) -- (19,266)
Purchases of Shares for
Employee Stock
Ownership Plan (ESOP).. (1,285,000) -- -- -- -- -- $(35,568) (35,568)
Unrealized After-Tax
Loss on Investment
Securities Available
for Sale............... -- -- -- -- (6,823) -- -- (6,823)
Common Stock Warrant
Issued in Acquisition.. -- -- 4,000 -- -- -- -- 4,000
Common Stock Issued in
Merger................. 154,712 774 2,198 -- -- -- -- 2,972
Cash in Lieu of
Fractional Shares...... -- -- (9) -- -- -- -- (9)
---------- -------- -------- -------- ------- -------- -------- ----------
BALANCE AT DECEMBER 31,
1994................... 56,506,642 $291,585 $211,011 $771,150 $(7,182) $(15,911) $(35,568) $1,215,085
========== ======== ======== ======== ======= ======== ======== ==========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
75
<PAGE>
--------------------------------------------------------------------------------
CONSOLIDATED STATEMENTS OF CASH FLOWS
YEAR ENDED DECEMBER 31,
(Dollars in Thousands)
<TABLE>
<CAPTION>
1994 1993 1992
----------- ----------- -----------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income............................ $ 159,358 $ 157,761 $ 136,705
Adjustments to Reconcile Net Income to
Net Cash Provided by Operating
Activities Depreciation and
Amortization (Including Amortization
of Purchased Mortgage Servicing
Rights).............................. 53,768 81,855 60,197
Deferred Tax Expense (Benefit)........ 28,305 929 (4,810)
Cumulative Effect of Changes in
Accounting Principles................ 2,730 (7,221) --
Provision for Possible Loan Losses.... 27,321 56,101 68,827
Provision for Other Real Estate Losses
and Mortgage Servicing Recourse...... 18,287 19,618 31,263
Provision for Mortgage Banking
Restructuring........................ -- 17,500 --
Net Gains--Investment Securities...... (361) (12,694) (18,132)
Net Gains--Investment Securities
Available for Sale................... (4,446) (14,632) --
Gains On Sales Of Mortgage Servicing.. (867) (21,606) (15,131)
Gain On Sale Of Student Loans......... (8,984) -- --
Decrease (Increase) in Trading Account
Assets............................... (23,579) 28,641 (31,193)
Decrease (Increase) in Loans and Other
Assets Held for Sale................. 329,994 (123,848) (204,945)
Decrease (Increase) in Other Assets... 49,429 117,848 (233,072)
Increase (Decrease) in Other
Liabilities.......................... (80,133) 63,707 26,165
Other, Net............................ 4,199 14,380 669
----------- ----------- -----------
Net Cash Provided by (Used for)
Operating Activities................ 555,021 378,339 (183,457)
----------- ----------- -----------
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from Maturities of Short-Term
Investments.......................... 263,135 310,925 701,723
Purchases of Short-Term Investments... (284,881) (246,736) (645,328)
Proceeds from Sales of Investment
Securities........................... 4,986 109,156 474,673
Proceeds from Maturities, Calls and
Paydowns of Investment Securities.... 989,623 1,319,468 1,078,147
Purchases of Investment Securities.... (1,106,094) (1,320,142) (2,087,489)
Proceeds from Sales of Investment
Securities Available for Sale........ 77,110 741,151 --
Proceeds from Maturities, Calls,
Paydowns of Investment Securities
Available for Sale................... 63,779 165,945 --
Purchases of Investment Securities
Available for Sale................... (288,218) (642,886) --
Net Principal Disbursed on Loans to
Customers............................ (1,079,069) (501,815) (112,709)
Proceeds from Sales of Student Loans
and Other Loans...................... 231,984 -- 9,669
Proceeds from Sales of Premises and
Equipment............................ 11,541 5,386 5,838
Purchases of Premises and Equipment... (54,487) (36,948) (31,980)
Proceeds from Sale of Discontinued
Title Operations..................... -- -- 15,601
Proceeds from Sales of Mortgage
Servicing............................ 8,199 18,528 12,591
Purchases of Mortgage Servicing....... -- (2,116) (21,286)
Proceeds from Sales of Assets Acquired
in Foreclosures...................... 32,664 50,546 9,242
Net Cash Provided by Acquisitions..... 379,318 52,900 670,000
----------- ----------- -----------
Net Cash Provided by (Used for)
Investing Activities................ (750,410) 23,362 78,692
----------- ----------- -----------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Increase (Decrease) in Deposits... (445,161) (502,208) 86,077
Net Increase (Decrease) in Short Term
Borrowings........................... 1,020,843 (85,371) (39,173)
Proceeds from Issuance of Long-Term
Debt................................. 2,385 197,607 184,017
Repayment of Long-Term Borrowings..... (64,020) (92,077) (15,415)
Purchases of Treasury Stock and ESOP
Shares............................... (54,834) -- --
Funds Transferred to Trust for Future
ESOP Purchases....................... (24,432) -- --
Proceeds from Issuance of Common
Stock................................ 2,082 16,242 10,779
Cash Dividends Paid to Common
Shareholders......................... (77,303) (69,635) (61,594)
----------- ----------- -----------
Net Cash Provided by (Used For)
Financing Activities................ 359,560 (535,442) 164,691
----------- ----------- -----------
CASH AND CASH EQUIVALENTS
Net Increase (Decrease) During the
Period............................... 164,171 (133,741) 59,926
Balance at Beginning of the Period.... 602,281 736,022 676,096
----------- ----------- -----------
Balance at End of the Period.......... $ 766,452 $ 602,281 $ 736,022
=========== =========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
76
<PAGE>
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the more significant accounting policies
and reporting practices of Meridian Bancorp, Inc. and its subsidiaries (Merid-
ian). They are in accordance with generally accepted accounting principles and
have been followed on a consistent basis, except for the accounting changes
described in the following notes.
Basis of Presentation
The consolidated financial statements include the accounts of Meridian
Bancorp, Inc. and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated.
Certain other amounts in prior period financial statements have been reclas-
sified to conform with the presentation used in the 1994 financial statements.
These reclassifications have no effect on net income.
Cash and Cash Equivalents
In the accompanying Consolidated and Parent Company Statements of Cash Flows,
cash and cash equivalents include cash on hand, amounts due from banks, fed-
eral 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 $45.0 million in 1994, $66.1 million in 1993 and $52.3 million in
1992. Interest payments totaled $369.9 million in 1994, $345.0 million in 1993
and $469.9 million in 1992. Non-cash operating activity includes a transfer of
$286.0 million from loans and other assets held for sale to trading account
assets. Non-cash investing activity consists of net transfers of loans in liq-
uidation to other real estate aggregating $29.8 million in 1994, $45.8 million
in 1993 and $24.0 million in 1992; transfers of investment securities to in-
vestment securities available for sale of $18.3 million in 1994, $415.0 mil-
lion in 1993 and $945.2 million in 1992; a transfer of non-accrual residential
mortgage loans of $8.0 million and foreclosed real estate of $7.3 million to
loans and other assets held for sale in 1994; a transfer of purchased mortgage
servicing rights and related assets of $36.0 million from other assets to
loans and other assets held for sale in 1993. Noncash financing activity con-
sists of stock and a warrant aggregating $7.0 million in 1994 and stock of
$20.1 million in 1993 issued as a result of acquisitions.
Investment Securities
Effective in the first quarter of 1994, Meridian adopted Statement of Finan-
cial Accounting Standards No. 115, "Accounting for Certain Investments in Debt
and Equity Securities", which requires investments in equity securities with a
readily determinable fair value and investments in all debt securities to be
classified, at the date of adoption, in one of three categories. The three
categories are (1) held to maturity--carried at amortized cost; (2) available
for sale--carried at fair value (with unrealized gains and losses, net of re-
lated tax effect, recorded as a separate component of shareholders' equity);
and (3) trading account--carried at fair value (with unrealized gains and
losses recorded in the income statement). As a result of the implementation of
Statement 115, after-tax unrealized losses on investment securities and secu-
rities classified as available for sale, aggregated $7.2 million at December
31, 1994.
The amortization of premiums and accretion of discounts to the expected matu-
rity date of the related debt obligations are based on a method which approxi-
mates a constant yield.
When a determination is made that the decline in fair value below cost for a
marketable equity or debt security is other than temporary, the cost basis of
the individual security is written down to a new cost basis and the amount of
the write-down is accounted for as a realized loss.
Gains and losses on the sale of securities and unrealized gains and losses
are computed on the specific identification method. Trading account securities
are carried at fair value and unrealized gains or losses are included in the
Consolidated Statements of Income.
Interest Rate Swaps
Interest rate swaps, the principal derivative product used by Meridian, are a
tool used mainly to alter the repricing characteristics of a portion of the
core deposit base. There is no effect on the recorded total assets or liabili-
ties of Meridian. Net amounts receivable or payable under agreements desig-
nated for risk management purposes are recorded as adjustments to the interest
income or expense of the associated asset or liability. Gains or losses re-
sulting from the termination of interest rate swaps entered into for risk man-
agement purposes are deferred and amortized over the remaining term of the
swap contract.
Loans
Loans are stated net of deferred fees and costs and unearned discount. Loan
interest income is accrued using various methods which approximate a constant
yield.
Interest income is not accrued on commercial loans where management has de-
termined that borrowers may be unable to meet contractual principal or inter-
est payments, or where such payments are 90 or more days past due unless the
loan is well secured and in the process of collection. Interest on loans that
have been restructured is recognized according to the renegotiated terms.
Residential mortgages which are 180 days or more delinquent are placed on
nonaccrual status when total principal, interest, and escrow owed exceeds 80%
of the property's appraised value. Properties are re-appraised when foreclo-
sure proceedings are initiated. Consumer loans are charged-off when deemed un-
collectible, which is generally at a time no later than 180 days past due.
Loan origination and commitment fees and direct loan origination costs are
deferred and recognized over the life of the related loans as an element of
the yield.
Statement of Financial Accounting Standards No. 114 "Accounting by Creditors
for Impairment of a Loan" requires that certain impaired loans be measured
based on the present value of expected future cash flows discounted at the
loan's effective interest rate, or the fair value of the loan if the loan is
collateral dependent. Statement No. 118 "Accounting by Creditors for Impair-
ment of a Loan--Income Recognition and Disclosures" amends Statement No. 114
to allow a creditor to use existing methods for recognizing interest income on
an impaired loan. Both statements are effective in the first quarter of 1995.
Based on management's analysis, the impact on Meridian's consolidated results
of operations will not be material.
Allowance for Possible Loan Losses
The allowance for possible loan losses is established through provisions for
possible loan losses charged against income. Loans deemed to be uncollectible
are charged against the allowance. Subsequent recoveries, if any, are credited
to the allowance. The balance in the allowance is based on a periodic evalua-
tion of the loan portfolio and reflects an amount that in management's opinion
is adequate to absorb losses inherent in the portfolio.
77
<PAGE>
When establishing the appropriate levels for the provision and the allowance
for possible loan losses, management performs an analysis of the loan portfo-
lio by considering a variety of factors. This analysis includes periodic re-
views by loan officers, credit review and loan workout personnel of all bor-
rowers with aggregate balances of $500,000 or greater. Meridian also reviews,
at least on a quarterly basis, problem borrowers with balances of $250,000 or
greater, as well as selected lower balance loans. Consideration is given to
the impact of current and anticipated economic conditions, the diversification
of the loan portfolio, historical loss experience, delinquency statistics, re-
views performed by loan officers who are primarily responsible for compliance
with established lending policy, the perceived financial strength of borrow-
ers, and the perceived adequacy of underlying collateral. Consideration is
also given to examinations performed by regulatory authorities.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed on the straight line method and is
charged to operations over the estimated useful lives of the related assets.
Leasehold improvements are amortized on a straight line basis over the terms
of the respective leases or the estimated useful lives of the improvements,
whichever is shorter.
Other Assets
Goodwill is the excess of the purchase price over the fair value of net as-
sets of companies acquired through business combinations accounted for as pur-
chases. Included in other assets is $94.7 million of goodwill that is being
amortized using the straight line method over various periods not exceeding 15
years.
Core deposit intangibles are a measure of the value of consumer demand and
savings deposits acquired in business combinations accounted for as purchases.
Included in other assets is $34.4 million of core deposit intangibles which
are being amortized on an accelerated method, with at least two-thirds of the
original balance being amortized within seven years following the date of ac-
quisition.
The recoverability of the carrying value of intangible assets is evaluated on
an ongoing basis and permanent declines in value, if any, are charged to ex-
pense.
Assets acquired in foreclosures consist of real estate acquired through fore-
closure or in settlement of debt and loans considered to be in an in-substance
foreclosure status. These assets are carried at the lower of cost or fair
value less estimated costs of disposal.
Trust Assets
Assets held by Meridian in a fiduciary or agency capacity for customers are
not included in the consolidated financial statements since such items are not
assets of Meridian or its subsidiaries. Trust income is reported on the ac-
crual method.
Mortgage Banking
Prior to the third quarter of 1993, mortgage servicing fees received from
permanent investors for servicing their loan portfolios were recorded as in-
come when received. Mortgage loan servicing included collecting monthly mort-
gagor payments, forwarding payments and related accounting reports to invest-
ors, collecting escrow deposits for the payment of mortgagor property taxes
and insurance, and paying taxes and insurance from escrow funds when due.
In the third quarter of 1993 Meridian decided to refocus its mortgage activi-
ties on the origination of residential loans and to substantially reduce the
scope of its mortgage servicing business. Mortgage servicing intangibles and
other related assets were carried at fair value and were included in mortgage
loans and other assets held for sale in the consolidated balance sheet at De-
cember 31, 1993. The majority of these assets were sold in 1994.
Acquisition costs of mortgage servicing rights purchased prior to the third
quarter of 1993 were capitalized and amortized in proportion to, and over the
period of, estimated net servicing revenue (undiscounted servicing revenues in
excess of undiscounted servicing costs). There was an insignificant amount of
amortization in 1994 since all purchased mortgage servicing rights have been
sold or written-off.
Excess servicing fees were computed as the present value of the difference
between the estimated future net revenues and normal servicing revenues as es-
tablished by the federally sponsored secondary market makers. Resultant premi-
ums were deferred and amortized over the estimated life of the related mort-
gages using the constant yield method.
The amortization of both purchased mortgage servicing rights and excess ser-
vicing fees was recorded as a reduction of servicing revenue.
Loans and other assets held for sale are carried at the lower of aggregate
cost or fair value, with resulting gains and losses included in other income.
The fair value calculation includes consideration of all open positions, out-
standing commitments from investors and related fees paid.
Securities Operations
Off-balance sheet derivative products used by the securities operations
mostly include tender option bonds, treasury float agreements, and forward
commitments to purchase and sell loans and securities. Tender option bonds
represent a contingent liability to purchase securities. Realized gains and
losses and net interest spread earned on these products are included in non-
interest income. Treasury float agreements represent purchased option con-
tracts. The premiums paid for these contracts are amortized over the option
periods. Forward commitments to purchase and sell loans and securities consist
primarily of forward commitments to sell mortgage-backed securities, which are
used to hedge mortgage loans held in the trading account. These commitments
are marked to fair value with unrealized gains and losses recorded in non-
interest income. Collateralized mortgage obligation residuals, rights acquisi-
tion contracts and guaranteed interest rate contracts are other financial in-
struments and are included in the consolidated financial statements in invest-
ment securities, investment securities available for sale and interest-bearing
deposits, respectively.
Income Taxes
Certain items of income and expense are included in one reporting period for
financial accounting purposes and another reporting period for income tax pur-
poses. Under the asset and liability method, deferred tax assets and liabili-
ties are recognized for the future tax consequences attributable to temporary
differences between the financial statement and tax bases of existing assets
and liabilities.
Employee Benefits
Meridian has a non-contributory defined benefit pension plan covering sub-
stantially all employees who qualify as to age and length of service. The plan
benefits are based on years of service and an earnings formula that considers
average salaries during a defined period prior to retirement.
The projected unit credit method is used to measure net periodic pension cost
over employees' service lives. The plan is funded using the entry age actuar-
ial cost method to the extent deductible under existing federal income tax
regulations.
Meridian currently provides postretirement health care and life insurance
benefits to its employees. The medical portion is contributory and life insur-
ance coverage is non-contributory to the participants. The expected cost of
these benefits is accrued over the period the employee earns the benefits.
There are currently no plan assets attributable to these postretirement bene-
fits.
78
<PAGE>
Effective January 1, 1995, all employees of Meridian and its subsidiaries
with two years of service will participate in a non-contributory employee
stock ownership plan. Compensation cost will be recognized based on the fair
market value of the shares committed to be released to employees.
Treasury Stock
The purchase of Meridian's common stock is recorded at cost. At the date of
subsequent reissue, the treasury stock account is reduced by the cost of such
stock on a first-in-first-out basis.
Preferred Stock
Meridian has 25 million shares of preferred stock authorized that carries a
$25.00 par value per share. No shares of preferred stock were issued and out-
standing as of December 31, 1994. Meridian's Board of Directors has the au-
thority to issue preferred stock from time to time as a class without series,
or in one or more series.
Common Stock Dividends
Meridian adopted a new dividend payment schedule effective in 1992. In addi-
tion to the dividend of $.30 per share paid on January 1, 1992 (declared No-
vember 1991), the Board of Directors also declared dividends of $.30 per share
in April, July and October 1992 for payment on June 1, September 1 and Decem-
ber 1, 1992, respectively. Accordingly, a dividend was not declared in the
quarter ended March 31, 1992.
Earnings Per Share
Primary earnings per share is computed by dividing net income after deduction
of any preferred stock dividends by the weighted average number of common
stock and common stock equivalents outstanding during the year. There is cur-
rently no preferred stock outstanding and the last time such stock was out-
standing was 1989. Stock options and warrants are considered common stock
equivalents and are included in the computation of the number of outstanding
shares using the treasury stock method, unless such options are anti-dilutive.
Fully diluted earnings per share gives effect to the assumed conversion of any
convertible preferred stock as well as to the exercise of stock options. For
the purposes of computing primary and fully diluted earnings per share begin-
ning in 1995, committed to be released and allocated shares in the employee
stock ownership plan will be considered outstanding.
NOTE 2: ACQUISITIONS
In June 1994, Meridian Bank, New Jersey, a banking subsidiary of Meridian,
assumed approximately $487 million of deposits and paid a premium of $42 mil-
lion to the Resolution Trust Corporation, in exchange for the $14 million in
home equity loans and $431 million in cash in connection with the acquisition
of 29 branches of the former Security Savings Bank. The transaction was
treated as a purchase for financial accounting purposes.
In July 1994, Meridian acquired McGlinn Capital Management, Inc., an invest-
ment advisory firm with $2.7 billion in assets under direct management at
year-end 1994, for cash and a warrant for 500,000 shares of Meridian common
stock. The transaction was treated as a purchase for financial accounting pur-
poses.
In August 1994, Meridian and United Counties Bancorporation of Cranford, New
Jersey jointly announced the execution of a letter of intent to merge, subject
to due diligence reviews and the negotiation of a definitive merger agreement.
In December 1994 Meridian and United Counties announced that, as a result of
prevailing equity market conditions and the inability of the parties to agree
on certain terms of the plan of merger, the companies jointly decided to ter-
minate their letter of intent and future merger discussions.
NOTE 3: INVESTMENT SECURITIES, INVESTMENT SECURITIES AVAILABLE FOR SALE AND
SECURITIES GAINS
Investment Securities
A summary of the amortized cost and approximate fair value of investment se-
curities included in the Consolidated Balance Sheets is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
---------------------- ---------------------- ----------------------
APPROXIMATE Approximate Approximate
AMORTIZED FAIR Amortized Fair Amortized Fair
COST VALUE Cost Value Cost Value
(Dollars in Thousands) ---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
United States Government
Securities............. $ 667,031 $ 638,476 $ 630,338 $ 635,047 $ 549,275 $ 561,897
Mortgage-Backed
Securities
Collateralized Mortgage
Obligations............ 1,380,105 1,311,068 1,240,901 1,241,026 1,131,011 1,142,638
Other.................. 231,290 222,298 314,221 324,372 165,017 172,131
---------- ---------- ---------- ---------- ---------- ----------
Total Mortgage-Backed
Securities............ 1,611,395 1,533,366 1,555,122 1,565,398 1,296,028 1,314,769
State and Municipal
Securities............. 335,401 327,811 375,582 387,298 356,718 364,155
Other Securities........ 258,592 253,654 223,442 225,357 258,489 264,325
---------- ---------- ---------- ---------- ---------- ----------
Total Investment
Securities............ $2,872,419 $2,753,307 $2,784,484 $2,813,100 $2,460,510 $2,505,146
========== ========== ========== ========== ========== ==========
</TABLE>
A summary of the gross unrealized gains and losses of investment securities
is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------------------- --------------------- ---------------------
GROSS GROSS Gross Gross Gross Gross
UNREALIZED UNREALIZED Unrealized Unrealized Unrealized Unrealized
GAINS LOSSES Gains Losses Gains Losses
(Dollars in Thousands) ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
United States Government
Securities............. $ 162 $ 28,717 $ 5,644 $ 935 $13,007 $ 385
Mortgage-Backed
Securities
Collateralized Mortgage
Obligations........... 75 69,112 4,957 4,832 13,117 1,490
Other.................. 1,056 10,048 10,492 341 7,131 17
------ -------- ------- ------ ------- ------
Total Mortgage-Backed
Securities............ 1,131 79,160 15,449 5,173 20,248 1,507
State and Municipal
Securities............. 2,802 10,392 11,942 226 8,426 989
Other Securities........ 128 5,066 2,624 709 10,265 4,429
------ -------- ------- ------ ------- ------
Total Investment
Securities............ $4,223 $123,335 $35,659 $7,043 $51,946 $7,310
====== ======== ======= ====== ======= ======
</TABLE>
The amortized cost and approximate fair value of investment securities at De-
cember 31, 1994 by contractual maturity are shown below. Expected maturities
may differ from contractual maturities because certain borrowers have the
right to call or prepay obligations.
79
<PAGE>
<TABLE>
<CAPTION>
APPROXIMATE
AMORTIZED FAIR
COST VALUE
(Dollars in Thousands) ---------- -----------
<S> <C> <C>
Other Than Mortgage-Backed Securities
Due in one year or less................................ $ 242,458 $ 240,949
Due after one year but within five years............... 841,410 809,488
Due after five years but within ten years.............. 115,704 109,128
Due after ten years.................................... 61,452 60,376
---------- ----------
Total.................................................. 1,261,024 1,219,941
Mortgage-Backed Securities
Collateralized Mortgage Obligations.................... 1,380,105 1,311,068
Other.................................................. 231,290 222,298
---------- ----------
Total Mortgage-Backed Securities....................... 1,611,395 1,533,366
---------- ----------
Total Investment Securities............................ $2,872,419 $2,753,307
========== ==========
</TABLE>
Investment securities carried at approximately $1.9 billion at December 31,
1994 were pledged as collateral for public deposits, trust deposits, repurchase
agreements, and certain other deposits as required by law. No securities of an
individual issuer aggregated more than 10% of shareholders' equity at December
31, 1994. Tax-free income on investment securities for 1994, 1993 and 1992
amounted to $18.2 million, $20.6 million and $21.8 million, respectively.
Investment Securities Available For Sale
A summary of the amortized cost and approximate fair value of investment secu-
rities available for sale included in the Consolidated Balance Sheets is as
follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------------------- --------------------- ---------------------
APPROXIMATE Approximate Approximate
AMORTIZED FAIR Amortized Fair Amortized Fair
COST VALUE Cost Value Cost Value
(Dollars in Thousands) --------- ----------- --------- ----------- --------- -----------
<S> <C> <C> <C> <C> <C> <C>
United States Government
Securities............. $282,500 $274,594 $103,086 $105,997 $220,233 $224,564
Mortgage-Backed
Securities
Collateralized Mortgage
Obligations........... 25,089 24,260 2,856 2,865 68,842 69,805
Other.................. 96,501 91,678 122,297 125,971 489,717 503,132
-------- -------- -------- -------- -------- --------
Total Mortgage-Backed
Securities............ 121,590 115,938 125,153 128,836 558,559 572,937
State and Municipal
Securities............. 32,530 33,362 34,306 37,029 146,803 154,894
Other Securities........ 9,163 11,100 13,118 16,290 19,622 21,019
-------- -------- -------- -------- -------- --------
Total Investment
Securities Available
for Sale.............. $445,783 $434,994 $275,663 $288,152 $945,217 $973,414
======== ======== ======== ======== ======== ========
</TABLE>
A summary of the gross unrealized gains and losses of investment securities
available for sale is as follows:
<TABLE>
<CAPTION>
1994 1993 1992
--------------------- --------------------- ---------------------
GROSS GROSS Gross Gross Gross Gross
UNREALIZED UNREALIZED Unrealized Unrealized Unrealized Unrealized
GAINS LOSSES Gains Losses Gains Losses
(Dollars in Thousands) ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
United States Government
Securities............. $ 105 $ 8,011 $ 2,998 $ 87 $ 4,331 --
Mortgage-Backed
Securities
Collateralized Mortgage
Obligations........... -- 829 9 -- 1,047 $ 84
Other.................. 72 4,895 3,773 99 13,785 370
------ ------- ------- ---- ------- ----
Total Mortgage-Backed
Securities............ 72 5,724 3,782 99 14,832 454
State and Municipal
Securities............. 958 126 2,723 -- 8,091 --
Other Securities........ 2,121 184 3,189 17 1,397 --
------ ------- ------- ---- ------- ----
Total Investment
Securities Available
for Sale.............. $3,256 $14,045 $12,692 $203 $28,651 $454
====== ======= ======= ==== ======= ====
</TABLE>
80
<PAGE>
The amortized cost and approximate fair value of investment securities avail-
able for sale at December 31, 1994 by contractual maturity are shown below.
Expected maturities may differ from contractual maturities because certain
borrowers have the right to call or prepay obligations.
<TABLE>
<CAPTION>
APPROXIMATE
AMORTIZED FAIR
COST VALUE
(Dollars in Thousands) --------- -----------
<S> <C> <C>
Other Than Mortgage-Backed Securities
Due in one year or less................................. $ 46,437 $ 48,260
Due after one year but within five years................ 269,114 261,967
Due after five years but within ten years............... 645 644
Due after ten years..................................... 7,997 8,185
-------- --------
Total................................................... 324,193 319,056
Mortgage-Backed Securities
Collateralized Mortgage Obligations..................... 25,089 24,260
Other................................................... 96,501 91,678
-------- --------
Total Mortgage-Backed Securities........................ 121,590 115,938
-------- --------
Total Investment Securities Available for Sale.......... $445,783 $434,994
======== ========
</TABLE>
Total Securities Gains
Total gains from securities transactions (excluding trading account securi-
ties), which were included in the following categories in the non-interest in-
come section of the Consolidated Statements of Income, are as follows:
<TABLE>
<CAPTION>
1994 1993 1992
------ ------- -------
<S> <C> <C> <C>
Broker-Dealer and Investment Banking Income............. $1,809 $ 2,046 $15,368
Net Securities Gains.................................... 2,998 25,280 2,764
------ ------- -------
Total Securities Gains................................. $4,807 $27,326 $18,132
====== ======= =======
</TABLE>
Proceeds from the sale of securities for the years ended December 31, 1994,
1993 and 1992 were $82.1 million, $850.3 million and $474.7 million. Gross
gains on these sales were of $3.2 million, $25.5 million and $6.1 million and
gross losses were $214 thousand, $203 thousand and $3.4 million in 1994, 1993
and 1992, respectively.
NOTE 4: LOANS
A summary of loans included in the Consolidated Balance Sheets is as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------------
1994 1993
(Dollars in Thousands) ---------- ----------
<S> <C> <C>
COMMERCIAL LOANS
Real Estate--Commercial Mortgage........................ $1,698,329 $1,620,876
Real Estate--Construction............................... 276,858 261,847
Commercial, Financial and Agricultural.................. 4,006,360 3,591,370
---------- ----------
Total Commercial Loans.................................. 5,981,547 5,474,093
REAL ESTATE--RESIDENTIAL................................. 1,217,359 993,753
CONSUMER LOANS
Real Estate--Home Equity................................ 744,022 680,440
Revolving Credit........................................ 110,049 79,613
Other Consumer Loans.................................... 1,816,716 1,871,648
---------- ----------
Total Consumer Loans.................................... 2,670,787 2,631,701
---------- ----------
Total Loans, Gross...................................... 9,869,693 9,099,547
Less Unearned Discount................................. 112,070 111,503
---------- ----------
Total Loans, Net of Unearned Discount................... $9,757,623 $8,988,044
========== ==========
</TABLE>
Included within the loan portfolio are restructured loans and loans on which
Meridian has discontinued the accrual of interest. Such loans amounted to
$90.3 million, $127.6 million, and $143.6 million at December 31, 1994, 1993,
and 1992, respectively. If these non-performing loans had been current in ac-
cordance with their original terms and had been outstanding throughout the pe-
riod, gross interest income for 1994, 1993, and 1992 would have increased $9.6
million, $9.5 million, and $13.5 million, respectively. Interest income on
these non-performing loans included in income for 1994, 1993, and 1992
amounted to $868.0 thousand, $706.0 thousand, and $3.1 million, respectively.
Tax-free income on loans for 1994, 1993, and 1992 amounted to $10.8 million
$14.4 million, and $16.6 million, respectively.
NOTE 5: ALLOWANCE FOR POSSIBLE LOAN LOSSES
A summary of activity in the allowance for possible loan losses follows:
<TABLE>
<CAPTION>
1994 1993 1992
(Dollars in Thousands) -------- -------- --------
<S> <C> <C> <C>
Balance at Beginning of Period.................... $173,388 $165,512 $179,167
Additions (Deductions)
Acquired Allowances.............................. 1,168 3,094 2,154
Loans Charged-Off................................ (52,155) (62,510) (95,186)
Recoveries on Charged-Off Loans................... 19,680 11,191 10,550
-------- -------- --------
Net Loans Charged-Off............................. (32,475) (51,319) (84,636)
-------- -------- --------
Provision Charged to Operating Expense............ 27,321 56,101 68,827
-------- -------- --------
Balance at End of Period.......................... $169,402 $173,388 $165,512
======== ======== ========
</TABLE>
NOTE 6: LONG-TERM DEBT AND OTHER BORROWINGS
Long-term debt and other borrowings consisted of the following:
<TABLE>
<CAPTION>
DECEMBER 31,
-----------------
1994 1993
(Dollars in Thousands) -------- --------
<S> <C> <C>
Floating Rate Subordinated Notes, Due 1996.................. $ 75,000 $ 75,000
6.625% Subordinated Notes, Due 2003......................... 147,945 147,723
7.875% Subordinated Notes, Due 2002......................... 98,977 98,852
7.06% Note, Due 1997........................................ 2,223 ---
Other Term Loans, Due 1993-2005 in Annual and Quarterly
Installments (repaid in 1994).............................. -- 4,167
Mortgages Payable and Capitalized Lease Obligations (See
Note 9).................................................... 18,623 10,462
Federal Home Loan Bank Advances Due 1995-1996 with Fixed
Rates from 6.61% to 7.19%.................................. 20,000 75,000
4.80% Fixed Rate Note, Due 1996............................. 8,400 8,400
11% Fixed Rate Note, Due 1994............................... -- 869
Other Borrowings............................................ 985 818
-------- --------
Total...................................................... $372,153 $421,291
======== ========
</TABLE>
The floating rate subordinated notes bear interest at a rate of 1/8 of 1%
above the arithmetic mean of London interbank offering quotations for three-
month Eurodollar deposits, determined quarterly. The notes carry a floor in-
terest rate of 5 1/8%. The notes are subordinate and junior in right of pay-
ment to senior indebtedness of Meridian. Since December 1, 1988, Meridian has
had the option to exchange the notes for capital securities or, under certain
circumstances, cash, prior to the maturity of the notes on December 1, 1996.
The effect of the capital securities which may be issued in connection with
these notes has not been included in the computation of earnings per share. In
December, 1993, Meridian received
81
<PAGE>
approval from the Federal Reserve Bank to revoke its obligation to exchange
the notes for capital securities at maturity.
Meridian has long-term borrowings from the Federal Home Loan Bank which total
$20 million. These borrowings require membership in the Federal Home Loan Bank
of Pittsburgh and the maintenance of available collateral with a fair value
which approximates the total amount of the outstanding debt.
Meridian also has $8.4 million of collateralized borrowings from the Student
Loan Marketing Association, due March 20, 1996, at a rate of 4.80%.
The remaining long-term debt consists of debt of Meridian's banking subsidi-
aries and is subordinated in the right of payment to the depositors of such
subsidiaries. Substantially all of the notes are redeemable prior to maturity
at certain amounts based on sinking fund provisions or, when applicable, ap-
proval of the appropriate regulatory agency.
Meridian has unused lines of credit of $30 million at December 31, 1994 and
1993.
Meridian has short-term borrowings, primarily federal funds purchased and se-
curities sold under agreement to repurchase, amounting to $1,813 million and
$792 million at December 31, 1994 and 1993, respectively. The average interest
rate paid on these borrowings was 4.31% and 2.96% for the years ended December
31, 1994 and 1993, respectively.
NOTE 7: DIVIDEND, CAPITAL AND OTHER REGULATORY RESTRICTIONS
Various laws restrict the amount of dividends that can be paid to Meridian by
its subsidiary banks without regulatory approval. Under current regulations,
Meridian's subsidiary banks, without prior approval of bank regulators, may
declare dividends to Meridian in 1995 totalling $101.2 million plus additional
amounts equal to the net profits earned by such subsidiary banks for the pe-
riod of January 1, 1995 through the date of declaration, less dividends previ-
ously paid in 1995.
The Federal Reserve Act also places restrictions on the amount of credit that
may be extended to Meridian by its subsidiary banks. During 1994, there were
no loans or advances made to Meridian by any of its subsidiary banks.
Meridian's banking subsidiaries are required to maintain reserve balances
with the Federal Reserve. These balances totalled $72.5 million at December
31, 1994 and averaged $153.4 million for the year then ended.
NOTE 8: EMPLOYEE BENEFIT PLANS
Pension Plans
Total pension expense for 1994, which includes several informal pension ar-
rangements in addition to the Meridian plan, was $4.3 million. Total pension
expense for 1993 and 1992 was $2.9 million and $59 thousand, respectively.
Net periodic pension expense (credit) of the Meridian plan includes the fol-
lowing components:
<TABLE>
<CAPTION>
1994 1993 1992
(Dollars in Thousands) -------- -------- --------
<S> <C> <C> <C>
Service Cost-Benefits Earned During the Year..... $ 8,743 $ 7,299 $ 6,353
Interest Cost on Projected Benefit Obligation.... 12,288 11,167 9,645
Actual Return on Plan Assets..................... 4,425 (15,985) (14,622)
Amortization of Unrecognized Net Assets and Other
Deferred Amounts--Net........................... (21,859) (530) (1,617)
-------- -------- --------
Net Periodic Pension Expense (Credit)............ $ 3,597 $ 1,951 $ (241)
======== ======== ========
</TABLE>
The following table sets forth the funded status of the Meridian plan and
amounts recognized in the Consolidated Balance Sheets at December 31.
<TABLE>
<CAPTION>
1994 1993
(Dollars in Thousands) -------- --------
<S> <C> <C>
Projected Benefit Obligation
Accumulated Benefit Obligation
Vested Benefits............................................ $ 94,647 $101,574
Non-Vested Benefits........................................ 5,969 4,986
Effect of Projected Future Compensation Increases.......... 42,276 56,193
-------- --------
Projected Benefit Obligation............................... 142,892 162,753
Less Fair Value of Plan Assets.............................. 169,794 178,658
-------- --------
Plan Assets in Excess of Projected Benefit Obligation....... 26,902 15,905
Less Unrecognized Net Gain Due to Past Experience Different
from Assumptions Made...................................... 17,956 4,491
Less Unrecognized Net Transition Asset Amortized Over
Employee Service Lives..................................... 3,877 4,731
-------- --------
Net Pension Asset Recognized in Balance Sheet at December
31......................................................... $ 5,069 $ 6,683
======== ========
</TABLE>
Net periodic pension expense is determined using certain assumptions as of
the beginning of the year whereas the funded status of the plan is determined
using assumptions as of the end of the year.
The discount rate used in determining the actuarial present value of Meridi-
an's projected benefit obligation was 8.25% in 1994, 7.0% in 1993 and 8.0%
1992. The expected long-term rate of return on plan assets was 9.5% in 1994,
1993 and 1992. The rate of increase in future compensation levels was 5.3% in
1994 and 1993 and 6.3% in 1992.
The assets of the Meridian plan are administered by Meridian Asset Manage-
ment, Inc., and consist primarily of common stock, fixed income securities
such as obligations of the United States government and corporations, and
units of certain common trust funds.
Other Post Retirement Benefits
Meridian provides postretirement health care and life insurance plans to its
employees. The medical portion is contributory and life insurance coverage is
noncontributory to the participants. Effective January 1, 1993, Meridian
adopted Statement of Financial Accounting Standards No. 106, "Employers' Ac-
counting for Postretirement Benefits Other Than Pensions". The new accounting
rules require the accrual of the expected cost of these benefits over the pe-
riod the employee earns the benefits. Meridian elected to defer and amortize
over 20 years the cumulative obligation for such benefits at the beginning of
1993.
The annual expense of Meridian's postretirement benefits other than pensions
under these new accounting rules was $4.6 million in 1994 compared to approxi-
mately $4.5 million in 1993. The health care trend rate assumption used to de-
termine accumulated benefit obligations applicable to these benefits was 10%
for 1994 decreasing over time to an annual rate of 5.5% and remaining at that
level thereafter. The discount rate used in determining the present value of
the projected benefit obligation was 8.25%.
Net periodic expense of the Meridian postretirement healthcare and life in-
surance plans includes the following components:
<TABLE>
<CAPTION>
1994 1993
(Dollars in Thousands) ------ ------
<S> <C> <C>
Service Cost-Benefits Earned During the Year..................... $1,060 $ 824
Interest Cost on Accumulated Postretirement Benefit Obligation... 2,100 2,280
Amortization of Unrecognized Net Transition Obligation Over 20
Years........................................................... 1,440 1,421
------ ------
Net Periodic Expense............................................. $4,600 $4,525
====== ======
</TABLE>
82
<PAGE>
The following table sets forth the funded status of the Meridian
postretirement healthcare and life insurance plans and amounts recognized in
the Consolidated Balance Sheets at December 31. There are currently no plan
assets attributable to these postretirement benefits.
<TABLE>
<CAPTION>
1994 1993
(Dollars In Thousands) ------- -------
<S> <C> <C>
Accumulated Postretirement Benefit Obligation................. $30,274 $31,484
Less Fair Value of Plan Assets................................ -- --
------- -------
Accumulated Benefit Obligation in Excess of Plan Assets....... 30,274 31,484
Plus (Less) Unrecognized Net Gain (Loss) Due to Past
Experience Different from Assumptions Made................... 1,983 (1,061)
Less Unrecognized Net Transition Obligation................... 24,385 27,407
------- -------
Net Liability Recognized in Balance Sheet at December 31...... $ 7,872 $ 3,016
======= =======
</TABLE>
A change in the health care trend rate assumption of one percent would affect
annual service cost by approximately $100,000 and the accumulated
postretirement benefit obligation at December 31, 1994 by approximately
$700,000.
Post-Employment Benefits
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 mil-
lion ($2.7 million after-tax or $.05 per share) in the first quarter of 1994.
Savings Plan
Meridian also offers a savings plan which covers substantially all employees
who qualify as to age and length of service. A participating employee must
contribute at least 1% and may contribute a maximum of 10% of his or her com-
pensation. Meridian will match up to the first 6% that each employee contrib-
utes. Investment options include Meridian common stock. Contributions are
charged to current expense. The total expense relating to the Meridian savings
plan was $7.6 million in 1994, $7.1 million in 1993 and $6.5 million in 1992.
Employee Stock Ownership Plan
Effective January 1, 1995, all employees of Meridian and its subsidiaries
with two years of service will participate in a non-contributory employee
stock ownership plan (ESOP). The ESOP is a leveraged plan and is funded
through a direct loan from Meridian. The ESOP will acquire a total of
2,000,000 shares of Meridian common stock for distribution to eligible employ-
ees ratably over a 20 year period. As of December 31, 1994, the ESOP had pur-
chased 1,285,000 shares. Compensation cost will be recognized based on the
fair market value of the shares committed to be released to employees. No com-
pensation cost was recognized in 1994. Dividends on allocated shares will be
paid to participants and will be charged to retained earnings. Dividends on
unallocated shares and additional cash contributions from Meridian will be
used by the ESOP for debt service.
Stock Option Plan
Under Meridian's stock option plan, options to acquire a maximum of 3,500,000
shares of common stock may be granted to key officers. The plan provides for
the granting of options at the fair market value of Meridian's common stock at
the time the options are granted. Each option granted under the plan may be
exercised within a period of ten years from the date of the grant; however, no
option may be exercised within one year from the date of grant.
A stock appreciation rights (SARs) plan grants SARs in tandem with stock op-
tion grants, up to a maximum of 750,000 units. The exercise of SARs reduces
the stock options otherwise exercisable; similarly, the exercise of stock op-
tions cancels the corresponding SARs. There were no SARs outstanding at Decem-
ber 31, 1994.
Under Meridian's stock option plan, the exercisable option prices ranged from
$10.50 to $33.00 at December 31, 1994. An analysis of the activity in this
plan for the last three years follows:
<TABLE>
<CAPTION>
1994 1993 1992
Number of Options --------- --------- ---------
<S> <C> <C> <C>
Outstanding, January 1......................... 2,318,032 1,521,507 1,552,574
Granted........................................ 78,553 1,279,658 422,550
Exercised...................................... (123,286) (468,463) (443,917)
Lapsed......................................... ( 33,862) ( 14,670) ( 9,700)
--------- --------- ---------
Outstanding, December 31....................... 2,239,437 2,318,032 1,521,507
========= ========= =========
Exercisable, December 31....................... 2,206,937 1,770,632 1,098,957
========= ========= =========
</TABLE>
NOTE 9: LEASES
Meridian and its subsidiaries are committed under a number of capital and
non-cancelable operating leases for facilities and equipment with initial or
remaining terms in excess of one year. The minimum annual rental commitments
under these leases at December 31, 1994 are as follows:
<TABLE>
<CAPTION>
CAPITAL OPERATING
LEASES LEASES
(Dollars in Thousands) ------- ---------
<S> <C> <C>
1995.......................................................... $ 4,185 $16,467
1996.......................................................... 3,457 9,553
1997.......................................................... 2,778 8,701
1998.......................................................... 1,769 8,079
1999.......................................................... 1,595 7,196
2000 and Subsequent........................................... 18,325 28,444
------- -------
Total Minimum Lease Payments.................................. 32,109 $78,440
=======
Amounts Representing Interest................................. 16,072
-------
Present Value of Net Minimum Lease Payments................... $16,037
=======
</TABLE>
Total rental expense for all operating leases for 1994, 1993 and 1992
amounted to $21.7 million, $20.5 million, and $18.2 million, respectively.
NOTE 10: INCOME TAXES
The provision for income taxes on income before changes in accounting princi-
ples consists of the following:
<TABLE>
<CAPTION>
1994 1993 1992
(Dollars in Thousands) ------- ------- -------
<S> <C> <C> <C>
Current Expense--Federal.............................. $41,586 $57,017 $53,600
State Expense......................................... 2,607 2,677 1,724
Deferred Expense (Benefit)--Federal................... 26,407 (626) (6,645)
------- ------- -------
Total Income Tax Expense.............................. $70,600 $59,068 $48,679
======= ======= =======
</TABLE>
Effective January 1, 1993, Meridian adopted Statement of Financial Accounting
Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109), which re-
quires a change from the deferred method of accounting for income taxes to the
asset and liability method. Under the asset and liability method, deferred tax
assets and liabilities are recognized for future tax consequences attributable
to temporary differences between the financial statement and tax bases of ex-
isting assets and liabilities. Deferred tax assets and liabilities are mea-
sured using enacted tax rates expected to apply to taxable income in the years
in which temporary differences are
83
<PAGE>
expected to be recovered or settled. The effect on deferred tax assets and li-
abilities of a change in tax rates is recognized in income in the period that
includes the enactment date of the rate change.
As permitted by SFAS No. 109, Meridian has elected not to restate the finan-
cial statements of any prior years. The implementation of these new tax ac-
counting rules resulted in an increase in consolidated net income of $7.2 mil-
lion in the first quarter of 1993. This amount represents the cumulative ef-
fect of adopting SFAS No. 109 at the beginning of 1993. The impact of SFAS No.
109 on future periods is not expected to be material.
At December 31, 1994, deferred tax assets amounted to $84.1 million and de-
ferred tax liabilities amounted to $65.5 million. No valuation allowance has
been established for deferred tax assets because management believes that it
is more likely than not that the deferred tax assets will be realized. De-
ferred tax assets are realizable primarily through carryback of existing de-
ductible temporary differences to recover taxes paid in prior years and
through future reversal of existing taxable temporary differences.
The effective tax rate on income before changes in accounting principles is
less than the federal statutory rate in each year as a result of the following
items:
<TABLE>
<CAPTION>
1994 1993 1992
---------------- ---------------- ----------------
% OF % Of % Of
PRE-TAX Pre-Tax Pre-Tax
AMOUNT INCOME Amount Income Amount Income
(Dollars in Thousands) ------- ------- ------- ------- ------- -------
<S> <C> <C> <C> <C> <C> <C>
Federal Income Tax at Statu-
tory Rate.................. $81,441 35.0% $73,355 35.0% $63,029 34.0%
Increase (Decrease) in Tax
Rates Resulting from
Tax-Exempt Interest Income
on Investment Securities.. (7,567) (3.3) (9,218) (4.4) (7,967) (4.3)
Tax-Exempt Interest Income
on Loans.................. (3,768) (1.6) (5,022) (2.4) (5,611) (3.0)
Interest Disallowance on
Tax-Exempt Assets......... 945 .4 1,457 .7 1,454 .8
Other, Net................. (451) (.2) (1,504) (.7) (2,226) (1.2)
------- ---- ------- ---- ------- ----
Total Income Tax Expense.... $70,600 30.3% $59,068 28.2% $48,679 26.3%
======= ==== ======= ==== ======= ====
</TABLE>
The components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
DECEMBER 31,
---------------
1994 1993
(Dollars in Thousands) ------- -------
<S> <C> <C>
Deferred Tax Assets
Provision for Possible Credit Related Losses in Excess of
Charge-offs.................................................. $61,065 $63,902
Interest Income on Non-Accrual Loans.......................... 1,181 5,975
Deferred Compensation......................................... 5,865 3,789
Deferred Fees for Financial Statement Purposes Recognized for
Tax Purposes................................................. 7,653 7,340
Expense Accruals not Deductible Until Paid for Tax Purposes... 3,793 17,701
Differences Related to Financial and Tax Treatment of Other
Real Estate Owned............................................ 4,217 6,734
Other......................................................... 348 70
------- -------
Total Deferred Tax Assets...................................... 84,122 105,511
------- -------
Deferred Tax Liabilities
Differences Related to Financial and Tax Treatment of Leasing
Activities................................................... 29,832 29,917
Accelerated Tax Depreciation.................................. 13,442 9,951
Differences Related to Financial and Tax
Treatment of Investment Activities............................ 4,812 4,972
Differences Related to Financial and Tax Treatment of Mortgage
Banking Operations........................................... 1,443 924
Expenses Accelerated for Tax Purposes......................... 9,206 7,541
Other......................................................... 6,750 6,684
------- -------
Total Deferred Tax Liabilities................................. 65,485 59,989
------- -------
Net Deferred Tax Asset......................................... $18,637 $45,522
======= =======
</TABLE>
NOTE 11: FAIR VALUES AND OTHER INFORMATION FOR FINANCIAL INSTRUMENTS,
INCLUDING DERIVATIVES
Statement of Financial Accounting Standards No. 105 "Disclosure of Informa-
tion about Financial Instruments with Off-Balance Risk and Financial Instru-
ments with Concentrations of Credit Risk", Statement No. 107 "Disclosures
about Fair Value of Financial Instruments" and Statement No. 119 "Disclosure
about Derivative Financial Instruments and Fair Value of Financial Instru-
ments" require the disclosure of estimated fair value of all asset, liability
and off-balance sheet financial instruments, including derivatives, in addi-
tion to risks and certain other information related to off-balance sheet in-
struments.
Fair value estimates of Meridian's financial instruments are made at a point
in time, based on relevant market information and available information about
the financial instrument. Fair values are based on quoted market prices for
financial instruments where prices exist in the market. In cases where quoted
market prices are not available, fair values are derived from estimates using
discounted cash flow or other valuation techniques. Because a quoted market
price does not exist for a significant portion of Meridian's financial instru-
ments, fair value estimates are based on judgments regarding future cash flow
expectations, perceived credit risk, interest rate risk, prepayment risk, eco-
nomic conditions, and other factors. The estimates are therefore subjective
and may not reflect the amount that could be realized upon immediate sale of
the instrument. Changes in the assumptions could also significantly affect the
estimates. Also, the estimates do not reflect any additional premium or dis-
count that could result from the sale of Meridian's entire holdings of a par-
ticular financial instrument.
Only existing on and off-balance sheet financial instruments are subject to
fair value estimates. A value is not assigned to fee-based businesses such as
Meridian's asset management and trust operations. In addition, Meridian re-
tains demand and savings deposits which aggregated $7.7 billion or 67% of all
deposits at December 31, 1994. The value of such deposits results from the
low-cost funding provided by these liabilities as compared to other funding
sources. The substantial value of these deposits is not reflected in the fair
value estimates because it is not a requirement of SFAS 107. The value of
other non-financial instruments, such as property, plant and equipment is also
not considered. In addition, tax implications related to the realization of
unrealized gains and losses can significantly affect fair value and have not
been considered in these estimates.
84
<PAGE>
Because of these reasons, the aggregate fair values presented are not meant
to represent an estimate of the underlying value of Meridian taken as a whole
at December 31, 1994 and 1993. The carrying and estimated fair values of fi-
nancial instruments of Meridian are as follows:
<TABLE>
<CAPTION>
1994 1993
--------------------- ---------------------
CARRYING/ Carrying/
NOTIONAL ESTIMATED Notional Estimated
AMOUNT FAIR VALUE Amount Fair Value
(in thousands) ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
TRADING FINANCIAL INSTRUMENTS
ON-BALANCE SHEET FINANCIAL ASSETS
Mortgage Loans................... $ 285,975 $ 285,975 -- --
Investment Securities............ 60,195 60,195 $ 36,616 $ 36,616
OFF-BALANCE SHEET FINANCIAL
INSTRUMENTS
Commitments to Purchase and Sell
Mortgages....................... $ 120,817 $ (150) -- --
NONTRADING FINANCIAL INSTRUMENTS
ON-BALANCE SHEET FINANCIAL ASSETS
Cash and Due from Banks.......... $ 669,642 $ 669,642 $ 587,587 $ 587,587
Short-term Investments........... 220,418 220,418 116,554 116,554
Investment Securities............ 2,872,419 2,753,307 2,784,484 2,813,100
Investment Securities Available
for Sale........................ 434,994 434,994 275,663 288,152
Loans and Other Assets Held for
Sale............................ 90,590 90,590 655,844 658,082
Loans, Net....................... 9,322,365 9,323,043 8,650,485 8,885,901
Other Assets..................... 129,256 129,254 134,008 134,047
ON-BALANCE SHEET FINANCIAL
LIABILITIES
Demand and Savings Deposits...... $7,656,291 $7,656,291 $7,570,131 $7,570,131
Time Deposits.................... 3,723,276 3,612,024 3,776,020 3,868,306
Short-Term Borrowings............ 1,812,566 1,812,566 791,723 791,723
Long-Term Debt and Other
Borrowings...................... 358,529 334,919 416,497 435,343
Other Liabilities................ 62,344 62,344 59,581 59,581
OFF-BALANCE SHEET FINANCIAL
INSTRUMENTS
DERIVATIVES
Commitments to Purchase and Sell
Mortgages and Securities
(including Forward Rate
Agreements)..................... $ 124,744 $ (443) $ 670,749 $ (1,851)
Tender Option Bonds.............. 255,948 5,709 435,243 25,025
Treasury Float Contracts......... 1,021,075 4,345 1,061,794 1,936
Interest Rate Swap Agreements.... 2,893,000 (100,906) 2,317,000 5,076
Purchased Interest Rate Floors... 500,000 73 -- --
Interest Rate Caps and Floors for
Customers ...................... 267,103 -- 190,080 --
Other Interest Rate Contracts.... 42,433 (83) 63,492 --
OTHER
Commitments to Extend Credit..... $3,686,257 $ (921) $3,396,741 $ (2,170)
Standby and Commercial Letters of
Credit.......................... 514,697 (4,915) 539,366 (4,707)
Mortgage Loans Sold and Loan
Servicing Acquired with
Recourse........................ 533,438 (11,500) 990,364 (13,300)
</TABLE>
The following methods and assumptions were used by Meridian in estimating the
fair value of its financial instruments:
CASH AND DUE FROM BANKS. The carrying amounts reported in the balance sheet
approximate fair value due to the short-term nature of these assets.
SHORT-TERM INVESTMENTS. The carrying amounts of short-term investments on the
balance sheet approximate fair value since the maturity of these instruments
is generally 90 days or less. For short-term investments with maturities of
greater than 90 days, fair value estimates are based on market quotes for sim-
ilar instruments, adjusted for such differences between the quoted instruments
and the instruments being valued as to maturity and credit quality.
TRADING ACCOUNT ASSETS. Trading account assets are marked-to-market for fi-
nancial reporting purposes and therefore already approximate fair value. The
fair value of investment securities held for trading are based on quoted mar-
ket prices. The fair value of mortgage loans held for trading are based on
market prices for comparable instruments, adjusted for differences between the
two instruments such as credit quality.
INVESTMENT SECURITIES AND INVESTMENT SECURITIES AVAILABLE FOR SALE. The fair
values of investment securities and investment securities available for sale
are based on quoted market prices as of the balance sheet date. For certain
instruments, fair value is estimated by obtaining quotes from independent se-
curities dealers.
In accordance with SFAS No. 115, investment securities available for sale are
marked-to-market for financial reporting purposes and therefore already ap-
proximate fair value.
LOANS. Fair values are estimated for portfolios of loans with similar finan-
cial characteristics. Loans are aggregated by commercial, residential real es-
tate, and consumer categories. Each loan portfolio is further classified by
variable rate or fixed rate loans and by performing or nonperforming loans.
For performing variable-rate loans, carrying amounts approximate fair value,
as these loans reprice frequently as market rates change. Additionally, most
variable rate commercial loans are reviewed and extended on at least an annual
basis. At the time of that review, these loans are repriced to reflect the
current credit risk inherent in the loan. For performing fixed-rate loans, the
fair value methodology varies according to each loan portfolio. Fair
85
<PAGE>
values for residential real estate and consumer loans are estimated using
quoted market prices, where available. Where quoted market prices are not
available, quotations are obtained for similar instruments and adjusted for
such differences in loan characteristics as maturity and credit quality. The
fair value of performing fixed-rate commercial loans is estimated by discount-
ing the expected cash flows by a discount rate that reflects the interest rate
and credit risk inherent in the loan. The estimated maturity of these loans
reflects both contractual maturity and management's assessment of prepayments,
economic conditions, and other factors that may affect the maturity of the
portfolio. The discount rate is based on the rate that would be currently of-
fered for loans with similar terms to borrowers of similar credit quality.
Nonperforming loans are included in each of the loan portfolios previously
described. The fair value of nonperforming loans is estimated by discounting
the expected return of principal over the period of time Meridian anticipates
receiving principal payments on the loan. The discount rate used is a rate re-
flective of the higher risk surrounding these assets compared to a performing
loan.
ACCRUED INTEREST RECEIVABLE AND OTHER ASSETS. The carrying value of certain
financial instruments included in these categories, such as accrued interest
receivable, approximates fair value. For other financial instruments, such as
assets related to servicing certain loans, fair value is estimated by dis-
counting the scheduled cash flows through estimated maturity by a discount
rate that reflects the interest rate and credit risk inherent in the instru-
ment.
DEPOSITS. The fair value of deposits with no stated maturity, such as non-in-
terest bearing deposits, NOW accounts, savings, and money market deposit ac-
counts, is the amount payable on demand as of year end.
For time deposits, fair value is estimated by discounting the contractual
cash flows using a discount rate equal to the incremental borrowing rate for
similar maturities.
SHORT-TERM BORROWINGS. The carrying values of federal funds purchased, secu-
rities sold under agreements to repurchase, and other short-term borrowings
approximate fair values.
LONG-TERM DEBT AND OTHER BORROWINGS. The fair values of long-term debt and
other borrowings are estimated by discounting the contractual cash flows for
each instrument. The discount rate applied is based on the current incremental
borrowing rates for similar arrangements with similar maturities.
ACCRUED INTEREST PAYABLE AND OTHER LIABILITIES. The carrying value of certain
financial instruments included in these categories, such as accrued interest
payable, approximates fair value.
OFF-BALANCE SHEET FINANCIAL INSTRUMENTS, INCLUDING DERIVATIVES. Meridian uses
various off-balance sheet financial instruments, including derivatives, in
conducting its business activities and in managing its balance sheet risks.
The section of Management's Discussion and Analysis of Earnings and Financial
Position titled Derivatives contains additional information on derivatives and
is incorporated by reference into this Note 11.
The value of these instruments is based on the amount that Meridian would ei-
ther pay or receive to replace Meridian's position in these contracts. Fair
values for Meridian's off-balance sheet financial instruments are calculated
based on (1) market prices (forward rate agreements and interest rate swaps);
(2) market prices for comparable instruments, adjusted for differences between
the two instruments such as credit quality (mortgage loans sold or loan ser-
vicing acquired with recourse, commitments to purchase or sell securities,
tender option bonds, treasury float contracts, purchased interest rate con-
tracts and other interest rate contracts); and (3) fees currently charged to
enter into similar agreements, taking into account the remaining term of the
agreement and the present credit risk assessment of the counterparty (commit-
ments to extend credit and standby and commercial letters of credit).
A discussion of each type of off-balance sheet financial instrument and its
related risks is as follows:
. Meridian has commitments to buy/sell mortgage-backed securities or loans
with delivery at a future date but typically within 120 days. The risk as-
sociated with these instruments is one of interest rate risk. In a declin-
ing interest rate environment, commitments to sell mortgage-backed securi-
ties or loans will decline in value. In a rising interest rate environment,
commitments to buy mortgage-backed securities or loans will decline in val-
ue.
. Forward rate agreements are used in transactions with municipalities that
generally have a debt payment due in the future. Under these agreements,
Meridian agrees to deliver primarily securities, usually United States
Treasury securities, that will mature on or before the required payment date.
The type and associated interest rate of these securities is established when
the agreement is entered into.
The principal risk associated with forward rate agreements is interest rate
risk to the extent the required securities have not been purchased. If in-
terest rates fall, securities yielding the higher agreed upon fixed rate will
be more expensive for Meridian to purchase.
. Tender option bonds are also instruments associated with municipalities. A
municipality generally issues a tax-free, fixed rate, long-term security in
order to finance the origination of single family residential mortgages.
The municipality enters into a tender option bond program with Meridian,
which converts the fixed rate long-term instrument into a variable rate
short-term product. Under the terms of this agreement, the municipality
will pay a fixed rate to Meridian over the life of the underlying bond. Me-
ridian, in turn, pays a short-term variable rate to the ultimate bondhold-
er, who has the option to sell the bonds back to Meridian. Meridian also
receives the right to remarket any purchased bonds at a short-term, tax-
exempt, variable rate.
The risk to Meridian in tender option bonds is one of interest rate risk in a
rising rate environment. If interest rates increase, the rate paid on the
short-term instrument will also increase and the spread between the fixed
rate that Meridian receives and the short-term rate Meridian pays to bond-
holders will decrease. If short-term rates exceed the fixed rate on the long-
term instrument, then the short-term instrument will be sold at a dis-count
and Meridian would incur a loss.
Meridian's position in forward rate agreements and tender option bonds is
sometimes hedged through the use of other interest rate sensitive financial
instruments such as options. In addition, these two instruments have inter-
est rate sensitivities that move in opposite directions.
. A treasury float contract is created because a municipality, which has
defeased a bond issue with government securities, has a mismatch in the
timing of the maturity of the securities and the date the funds are needed
to pay the debt service. Meridian will pay an up-front fee for the right to
sell government securities to the municipality, generally at par. Meridian
retains any profit between the sales price and the price at which Meridian
acquired the securities. The maximum risk of loss cannot exceed the premium
paid for these contracts which was $1.6 million at December 31, 1994 and is
included on the consolidated balance sheets.
. Interest rate swap agreements, the principal derivative product used by Me-
ridian, involve the exchange of fixed and float ing rate interest payments
without the exchange of the underlying contractual or notional amounts.
These agreements are used as part of the asset and liability management
process to alter the repricing characteristics of a portion of the core
deposit base. Risk in these transactions involves the risk of counterparty
nonperformance under the terms of the contract.
86
<PAGE>
The notional or contract amount does not represent the risks inherent in
these agreements. The risk of loss can be approximated by estimating the
cost, on a present value basis, of replacing an instrument at current market
interest rates. Credit risk is managed by performing credit reviews and
through ongoing credit monitoring procedures.
. Purchased interest rate floors are also used as part of the asset and lia-
bility management process to protect net interest income from the effects
of declining interest rates or a flattening of the yield curve. In an in-
terest rate floor contract, Meridian pays a premium to a counterparty for
the right to receive payments if interest rates associated with a particu-
lar index fall below a predetermined level. Risk in these transactions in-
volves the risk of counterparty nonperformance under the terms of the con-
tract. The notional or contract amount does not represent the risks inher-
ent in these agreements. The maximum risk of loss cannot exceed the premium
paid.
. Interest rate options, caps, and floors involve the receipt of a fee by Me-
ridian in exchange for assumption of the risk of interest rate movements
beyond a predetermined level. Interest rate caps or floors are written to
enable customers to manage their interest rate risks.
. Commitments to extend credit assure prospective borrowers of financing for
a specified period of time or at a specified rate and usually require the
payment of a fee. The risk to Meridian in an undrawn loan commitment is
limited by the terms of the contract. For example, Meridian may not be ob-
ligated to advance funds if the customer's financial condition deteriorates
or if the customer fails to meet specific covenants. An undrawn loan com-
mitment represents both a potential credit risk once the funds are advanced
to the customer and liquidity risk since the customer may demand immediate
cash that would require a funding source. Meridian's credit review and ap-
proval process for loan commitments is the same as the process used for
loans. In addition, Meridian's Credit Policy Committee reviews customer re-
quests for loan commitments and monitors outstanding commitments on an on-
going basis. Meridian's current liquidity position continues to satisfy its
needs for funds. In addition, since a portion of these loan commitments
normally expire unused, the total amount of outstanding commitments at any
point in time will not require a funding source.
. Standby and commercial letters of credit are instruments issued by a bank
that represents an obligation to guarantee payments on certain transactions
of its customers. Meridian evaluates the creditworthiness of each of its
letter of credit customers, using the same review and approval process that
is used for loans. In addition, Meridian has established guidelines limit-
ing the amount of total outstanding standby letters of credit to a speci-
fied percentage of its shareholders' equity. Compliance with these guide-
lines is monitored on a monthly basis.
The amount of collateral received on loan commitments and on standby letters
of credit is dependent upon the individual transaction and the creditworthi-
ness of the customer.
. Meridian originates and sells residential mortgage loans as part of various
mortgage-backed security programs sponsored by United States government
agencies or government-sponsored agencies, such as the Government National
Mortgage Association, Federal Home Loan Mortgage Corporation and the Fed-
eral National Mortgage Association. These sales are often subject to cer-
tain recourse provisions in the event of default by the borrower. Meridian
provides for potential losses against these mortgage-backed securities by
establishing reserves at the time of sale and evaluates the adequacy of
these reserves on an ongoing basis.
NOTE 12: COMMITMENTS AND CONTINGENCIES
Concentrations of Credit Risk
Loan concentrations are considered to exist when a multiple number of borrow-
ers are engaged in similar activities and have similar economic characteris-
tics which would cause their ability to meet contractual obligations to be
similarly impacted by economic or other conditions. At December 31, 1994, Me-
ridian's commercial loans and commitments did not have any industry concentra-
tion or other known concentration that exceeded 10% of total loans and commit-
ments.
Legal
Meridian and certain of its subsidiaries were party (plaintiff or defendant)
to a number of lawsuits. While any litigation has an element of uncertainty,
management, after reviewing these actions with its legal counsel, is of the
opinion that the liability, if any, resulting from all legal actions will not
have a material effect on the consolidated financial condition or results of
operations of Meridian.
87
<PAGE>
NOTE 13: INDUSTRY SEGMENTS
Meridian operates principally in two business segments--banking and securities
(broker-dealer activities). Selected financial information for these segments
is as follows.
<TABLE>
<CAPTION>
ASSETS AT
NET INCOME DECEMBER 31,
------------------------------------- -----------------------
1994 1993 1992 1994 1993
(Dollars in Thousands) ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Banking.................. $ 155,650 $ 139,036 $ 121,145 $14,550,315 $13,751,699
Securities (Broker-Dealer
Activities)............. 3,708 18,725 15,560 502,332 333,088
----------- ----------- ----------- ----------- -----------
Consolidated............. $ 159,358 $ 157,761 $ 136,705 $15,052,647 $14,084,787
=========== =========== =========== =========== ===========
<CAPTION>
1994 1993 1992
BANKING ----------- ----------- -----------
<S> <C> <C> <C>
Net Interest Income/(1)/. $ 623,148 $ 629,887 $ 588,759
Provision for Possible
Loan Losses............. 27,382 54,955 68,827
Non-Interest Income...... 198,601 215,121 188,041
Non-Interest Expenses.... 549,709 587,025 525,121
Net Interest Margin/(1)/. 4.85% 5.04% 4.84%
Return on Average Assets. 1.11% 1.01% 0.91%
Return on Average Equity. 13.05% 12.60% 12.19%
Loans
Commercial.............. 5,940,887 5,445,964 5,246,583
Real Estate-Residential. 1,217,142 993,459 1,057,576
Consumer................ 2,598,509 2,547,475 2,247,438
Deposits................. 11,335,103 11,268,615 11,661,833
Equity................... 1,204,767 1,171,435 1,047,329
Equity to Assets......... 8.28% 8.52% 7.56%
<CAPTION>
SECURITIES (BROKER-DEALER 1994 1993 1992
ACTIVITIES) ----------- ----------- -----------
<S> <C> <C> <C>
Net Revenues/(2)/........ $ 48,263 $ 77,376 $ 59,311
Operating Expenses....... 43,513 49,829 36,729
Par Value of Bonds
Underwritten............ 807,648 1,121,501 1,675,432
Number of Trades......... 43,058 42,548 38,287
Tender Option Bonds...... 255,948 435,243 535,552
</TABLE>
/(1)/ Taxable equivalent basis.
/(2)/ Gross revenues less interest expense.
NOTE 14: MERIDIAN BANCORP, INC. (PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
DECEMBER 31,
1994 1993
(Dollars in Thousands) ---------- ----------
<S> <C> <C>
ASSETS
Cash..................................................... $ 3 $ 2,469
Short-Term Investments................................... 15,180 48,043
Investment in Subsidiaries
Banking................................................. 1,237,526 1,152,620
Non-Banking............................................. 127,843 111,143
Investment Securities.................................... -- 525
Premises and Equipment................................... 12,493 14,220
Intercompany Note Receivable............................. 83,155 47,009
Other Assets............................................. 27,898 38,633
---------- ----------
TOTAL ASSETS............................................ $1,504,098 $1,414,662
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Short-Term Borrowings.................................... $ 75,000 ---
Long-Term Debt and Other Borrowings...................... 174,464 $ 174,394
Accrued Interest Payable................................. 4,375 3,970
Other Liabilities........................................ 35,174 50,665
Shareholders' Equity..................................... 1,215,085 1,185,633
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY.............. $1,504,098 $1,414,662
========== ==========
</TABLE>
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993 1992
(Dollars in Thousands) -------- -------- --------
<S> <C> <C> <C>
INCOME
Interest Income from Subsidiaries................ $ 4,966 $ 4,570 $ 2,425
Management Fees from Subsidiaries................ 35,822 57,383 46,014
Interest and Fees on Loans....................... 224 4,160 873
Investment Securities Income..................... 552 955 516
Net Securities Gains............................. 261 607 1,132
Intercompany Service Fees........................ 616 578 5,940
Other Non-Interest Income........................ -- 1,414 307
-------- -------- --------
Total Income.................................... 42,441 69,667 57,207
EXPENSES
Interest on Borrowings........................... 14,021 12,489 8,609
Salaries and Benefits............................ 29,397 35,627 27,992
Net Occupancy Expense............................ 4,578 5,528 5,539
Equipment Expense................................ 2,520 3,446 3,605
Other Non-Interest Expenses...................... 4,782 30,808 21,864
-------- -------- --------
Total Expenses.................................. 55,298 87,898 67,609
-------- -------- --------
Loss Before Taxes and Earnings of Subsidiaries... (12,857) (18,231) (10,402)
Credit For Income Taxes.......................... (3,072) (6,288) (2,848)
-------- -------- --------
Loss Before Earnings of Subsidiaries............. (9,785) (11,943) (7,554)
Dividend Income from Subsidiaries
Banking Subsidiaries............................ 141,150 68,101 52,853
Non-Banking Subsidiaries........................ 7,200 850 250
Undistributed Earnings of Subsidiaries........... 20,793 100,753 91,156
-------- -------- --------
NET INCOME....................................... $159,358 $157,761 $136,705
======== ======== ========
</TABLE>
88
<PAGE>
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
1994 1993 1992
(Dollars in Thousands) --------- --------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income.................................... $ 159,358 $ 157,761 $ 136,705
Adjustments to Reconcile to Net Cash Provided
by Operating Activities
Earnings of Subsidiaries..................... (169,143) (169,704) (141,957)
Cash Dividends Received from Subsidiaries.... 148,350 68,951 53,103
Depreciation and Amortization................ 5,372 5,309 4,214
Other, Net................................... (1,175) (2,072) (1,165)
Decrease (Increase) in Other Operating As-
sets........................................ 33,414 (24,738) (3,960)
Increase (Decrease) in Other Operating Lia-
bilities.................................... (15,086) 29,536 15,984
--------- --------- ---------
Net Cash Provided by Operating Activities.... 161,090 65,043 62,924
--------- --------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Sales of Investment Securities................ -- 64,508 10,072
Purchases of Investment Securities............ -- (1,529) (87,081)
Capital Contributions and Advances to Subsidi-
aries........................................ (229,684) (53,036) (4,067)
Repayment of Advances to Subsidiaries......... 112,778 -- --
Purchases of Premises and Equipment........... (863) (3,803) (4,695)
Proceeds from Sales of Premises and Equipment. 917 19 --
--------- --------- ---------
Net Cash Provided by (Used for) Investing
Activities.................................. (116,852) 6,159 (85,771)
--------- --------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Cash Dividends Paid to Common Shareholders.... (77,303) (69,635) (61,256)
Proceeds from Issuances of Common Stock....... 2,082 16,242 10,779
Purchases of Treasury Stock and ESOP Shares... (54,834) -- ---
Funds Transferred to Trust for Future ESOP
Purchases.................................... (24,432) -- ---
Proceeds from Borrowings...................... 75,000 -- ---
Repayment of Long-Term Debt and Other
Borrowings................................... (80) (43) (305)
Proceeds from Issuance of Long Term Debt...... -- -- 98,675
--------- --------- ---------
Net Cash Provided by (Used for) Financing
Activities.................................. (79,567) (53,436) 47,893
--------- --------- ---------
CASH AND CASH EQUIVALENTS
Net Increase (Decrease) During the Year....... (35,329) 17,766 25,046
Balance at Beginning of Year.................. 50,512 32,746 7,700
--------- --------- ---------
Balance at End of Year........................ $ 15,183 $ 50,512 $ 32,746
========= ========= =========
</TABLE>
Interest payments totaled $13,616, $10,682 and $6,456 in 1994, 1993 and 1992,
respectively. Noncash financing activity consists of stock and a warrant aggre-
gating $6,972 in 1994 and stock of $20,063 in 1993 issued as a result of merg-
ers. Income tax refunds were $626 in 1994.
89
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
Incorporated by reference is the following information included in the
Proxy Statement relating to the Registrant's Annual Meeting of Shareholders to
be held on April 25, 1995 (the "Proxy Statement"), filed by the Registrant with
the Securities and Exchange Commission: with respect to the directors of the
Registrant, the section captioned "Election of Directors (Matter No. 1);
General." Information regarding executive offices of the Registrant is
presented in Part I, Item 4A of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Incorporated by reference is the information included in the Proxy
Statement under the headings "Election of Directors (Matter No. 1); Compensation
Paid to Executive Officers." "Election of Directors (Matter No. 1); Executive
Employment Agreements" and "Election of Directors (Matter No. 1); Compensation
Committee Interlocks and Insider Participation."
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Incorporated by reference is the following information included in the
Proxy Statement: (1) with respect to shares owned by certain beneficial owners,
the section captioned "General; Principal Shareholders" and (2) with respect to
shares owned by directors and executive officers, the section captioned
"Election of Directors (Matter No. 1); Security Ownership of Management."
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Incorporated by reference is the information included in the Proxy
Statement under the heading "Election of Directors (Matter No. 1); Certain
Transactions."
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
A.1. Financial Statements (included under Item 8)
(a) Meridian Bancorp, Inc. and Subsidiaries
90
<PAGE>
- Independent Auditors' Report
- Consolidated Balance Sheets
- Consolidated Statements of Income
- Consolidated Statements of Changes in Shareholders' Equity
- Consolidated Statements of Cash Flows
- Notes to Consolidated Financial Statements
2. All financial schedules are omitted because they are not applicable,
the data are not significant or the required information is shown in the Annual
Report. (The information that would be shown in Meridian Bancorp, Inc.'s
(Parent Company Only) Statements of Changes in Shareholders' Equity is identical
to the information supplied in the Consolidated Statements of Changes in
Shareholders' Equity which appears herein.)
3. Exhibits (numbered as in Item 601 of Regulation S-K)
(3.1) Articles of Incorporation of Meridian Bancorp, Inc., as
amended (included herein).
(3.2) By-laws of Meridian Bancorp, Inc., as amended, incorporated
herein by reference to Exhibit 3.2 of the Annual Report on
Form 10-K of the Registrant for the year ended December 31,
1991.
(4) Agreement to furnish instruments defining the rights of
holders of long-term debt of Meridian Bancorp, Inc. and its
consolidated subsidiaries, incorporated herein by reference
to Exhibit 4 of the Annual Report on Form 10-K of the
Registrant for the year ended December 31, 1991.
(9) Voting Trust Agreement (none).
(10.1) Meridian Bancorp, Inc. Executive Annual Incentive Plan, as
amended, incorporated herein by reference to Exhibit 10.1 of
the Annual Report on Form 10-K of the Registrant for the
year ended December 31, 1991.*
(10.2) Meridian Bancorp, Inc. Retirement Restoration Plan, as
amended, incorporated herein by reference to Exhibit 10.2 of
the Annual Report on Form 10-K of the Registrant for the
year ended December 31, 1991.*
(10.3) Meridian Bancorp, Inc. Stock Option Plan, as amended,
incorporated herein by reference to Exhibit 10.3 of the
Annual Report on Form
91
<PAGE>
10-K of the Registrant for the year ended December 31,
1991.*
(10.4) Meridian Bancorp, Inc. Stock Appreciation Rights Plan,
incorporated herein by reference to Exhibit 10.4 of the
Annual Report on Form 10-K of the Registrant for the year
ended December 31, 1992.*
(10.5) Meridian Bancorp, Inc. Directors' Deferred Compensation Plan
dated July 1, 1983, incorporated herein by reference to
Exhibit 10.8 of the Annual Report on Form 10-K of the
Registrant for the year ended December 31, 1990.*
(10.6) Form of Deferred Compensation Agreements entered into on
January 12, 1987 between Meridian Bancorp, Inc. and Samuel
A. McCullough, incorporated herein by reference to Exhibit
10.6 of the Annual Report on Form 10-K of the Registrant for
the year ended December 31, 1991.*
(10.7) Form of Directors' Deferred Compensation Agreement,
incorporated herein by reference to Exhibit 10.7 of the
Annual Report on Form 10-K of the Registrant for the year
ended December 31, 1991.*
(10.8) Termination Agreement between Meridian Bancorp, Inc. and
Samuel A. McCullough dated as of July 1, 1986, incorporated
herein by reference to Exhibit 10.8 of the Annual Report on
Form 10-K of the Registrant for the year ended December 31,
1991.*
(10.9) Termination Agreement between Meridian Bancorp, Inc. and
Ezekiel S. Ketchum dated as of July 1, 1986, incorporated
herein by reference to Exhibit 10.9 of the Annual Report on
Form 10-K of the Registrant for the year ended December 31,
1991.*
(10.10) Termination Agreement between Meridian Bancorp, Inc. and
Russell J. Kunkel dated as of July 1, 1986, incorporated
herein by reference to Exhibit 10.11 of the Annual Report on
Form 10-K of the Registrant for the year ended December 31,
1991.*
(10.11) Termination Agreement between Meridian Bancorp, Inc. and
David E. Sparks dated as of January 23, 1990, incorporated
herein by
92
<PAGE>
reference to Exhibit 10.22 of the Annual Report on Form 10-K
of the Registrant for the year ended December 31, 1990.*
(10.12) Meridian Bancorp, Inc. Supplemental Salary Reduction Plan,
as amended, incorporated herein by reference to Exhibit
10.14 of the Annual Report on Form 10-K of the Registrant
for the year ended December 31, 1991.*
(10.13) Meridian Bancorp, Inc. Supplemental Executive Retirement
Plan, incorporated herein by reference to Exhibit 10.15 of
the Annual Report on Form 10-K of the Registrant for the
year ended December 31, 1991.*
(10.14) Meridian Bancorp, Inc. Executive Intermediate Performance
Plan adopted January 1, 1990, incorporated herein by
reference to Exhibit 10.23 of the Annual Report on Form 10-K
of the Registrant for the year ended December 31, 1990.*
(10.15) Rights Agreement dated as of July 25, 1989 between Meridian
Bancorp, Inc. and Meridian Trust Company, as Rights Agent,
incorporated herein by reference to Exhibit 1 of the
Registration Statement on Form 8-A of the Registrant, filed
on August 14, 1989.
(10.16) Amendment to Rights Agreement, dated as of June 28, 1994,
between Meridian Bancorp, Inc. and Meridian Trust Company,
as Rights Agent, incorporated herein by reference to Exhibit
2.2 of Amendment No. 1, filed July 25, 1994, to the
Registration Statement on Form 8-A of the Registrant, filed
August 14, 1989.
(11) Statement regarding Computation of Per Share Earnings
(included herein).
(12) Statement regarding Computation of Ratios (not applicable).
(18) Letter regarding Change in Accounting Principles (not
applicable).
(21) List of Subsidiaries of the Registrant (included herein).
(22) Published Report Regarding Matters Submitted to a Vote of
Security Holders (none).
93
<PAGE>
(23) Consent of KPMG Peat Marwick LLP (included herein).
(24) Power of Attorney (none).
(27) Financial Data Schedules (included herein).
(28) Information from reports furnished to state insurance
regulatory authorities (not applicable).
(99) Additional Exhibits (none).
________________________
*Denotes compensatory plan or arrangement.
B.1 Reports on Form 8-K.
On November 30, 1994, Meridian filed a Current Report on Form 8-K
dated November 4, 1994 with the Commission, reporting information under Items 5
and 7. The Form 8-K did not contain any financial statements.
94
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MERIDIAN BANCORP, INC.
(Registrant)
/s/ Samuel A. McCullough
----------------------------------
Samuel A. McCullough, Chairman and
Chief Executive Officer
Date: March 28, 1995
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed by the following persons on behalf of the Registrant
and in the capacities and on the dates indicated.
Signature Title Date
--------- ----- ----
/s/ Samuel A. McCullough Chairman, Chief March 28, 1995
----------------------------- Executive Officer
Samuel A. McCullough and Director
(Principal Executive
Officer)
/s/ David E. Sparks Vice Chairman, March 28, 1995
----------------------------- Chief Financial
David E. Sparks Officer and Director
(Principal
Financial Officer)
/s/ Michael J. Mizak, Jr. Senior Vice March 28, 1995
----------------------------- President and
Michael J. Mizak, Jr. Controller
(Principal
Accounting Officer)
/s/ DeLight E. Breidegam, Jr. Director March 28, 1995
-----------------------------
DeLight E. Breidegam, Jr.
/s/ Thomas F. Burke, Jr. Director March 28, 1995
-----------------------------
Thomas F. Burke, Jr.
Director March 28, 1995
-----------------------------
Robert W. Cardy
/s/ Harry Corless Director March 28, 1995
-----------------------------
Harry Corless
95
<PAGE>
/s/ William D. Davis Director March 28, 1995
----------------------------
William D. Davis
/s/ Julius W. Erving Director March 28, 1995
----------------------------
Julius W. Erving
/s/ Fred D. Hafer Director March 28, 1995
----------------------------
Fred D. Hafer
/s/ Joseph H. Jones Director March 28, 1995
----------------------------
Joseph H. Jones
/s/ Lawrence C. Karlson Director March 28, 1995
----------------------------
Lawrence C. Karlson
/s/ Ezekiel S. Ketchum Director March 28, 1995
----------------------------
Ezekiel S. Ketchum
/s/ Sidney D. Kline, Jr. Director March 28, 1995
----------------------------
Sidney D. Kline, Jr.
/s/ George W. Leighow Director March 28, 1995
----------------------------
George W. Leighow
/s/ Joseph F. Paquette, Jr. Director March 28, 1995
----------------------------
Joseph F. Paquette, Jr.
/s/ Daniel H. Polett Director March 28, 1995
----------------------------
Daniel H. Polett
/s/ Lawrence R. Pugh Director March 28, 1995
----------------------------
Lawrence R. Pugh
Director March 28, 1995
----------------------------
Paul R. Roedel
/s/ Wilmer R. Schultz Director March 28, 1995
----------------------------
Wilmer R. Schultz
Director March 28, 1995
----------------------------
Robert B. Seidel
Director March 28, 1995
----------------------------
Judith M. von Seldeneck
/s/ George Strawbridge, Jr. Director March 28, 1995
----------------------------
George Strawbridge, Jr.
/s/ Anita A. Summers Director March 28, 1995
----------------------------
Anita A. Summers
/s/ Earle A. Wootton Director March 28, 1995
----------------------------
Earle A. Wootton
96
<PAGE>
EXHIBIT INDEX
Page Number
Sequentially
Numbered
Number Description Original
------ ----------- ------------
(3.1) Articles of Incorporation of Meridian
Bancorp, Inc., as amended (included
herein).
(3.2) By-laws of Meridian Bancorp, Inc., as
amended, incorporated herein by
reference to Exhibit 3.2 of the Annual
Report on Form 10-K of the Registrant
for the year ended December 31, 1991.
(4) Agreement to furnish instruments
defining the rights of holders of long-
term debt of Meridian Bancorp, Inc. and
its consolidated subsidiaries,
incorporated herein by reference to
Exhibit 4 of the Annual Report on
Form 10-K of the Registrant for the
year ended December 31, 1991.
(9) Voting Trust Agreement (none).
(10.1) Meridian Bancorp, Inc. Executive Annual
Incentive Plan, as amended, incorporated
herein by reference to Exhibit 10.1 of
the Annual Report on Form 10-K of the
Registrant for the year ended
December 31, 1991.*
(10.2) Meridian Bancorp, Inc. Retirement
Restoration Plan, as amended,
incorporated herein by reference to
Exhibit 10.2 of the Annual Report on
Form 10-K of the Registrant for the
year ended December 31, 1991.*
(10.3) Meridian Bancorp, Inc. Stock Option
Plan, as amended, incorporated herein
by reference to Exhibit 10.3 of the
Annual Report on Form 10-K of the
Registrant for the year ended
December 31, 1991.*
(10.4) Meridian Bancorp, Inc. Stock Appreciation
Rights Plan, incorporated herein by
<PAGE>
reference to Exhibit 10.4 of the Annual
Report on Form 10-K of the Registrant
for the year ended December 31, 1992.*
(10.5) Meridian Bancorp, Inc. Directors'
Deferred Compensation Plan dated July 1,
1983, incorporated herein by reference
to Exhibit 10.8 of the Annual Report on
Form 10-K of the Registrant for the year
ended December 31, 1990.*
(10.6) Form of Deferred Compensation Agreements
entered into on January 12, 1987 between
Meridian Bancorp, Inc. and Samuel A.
McCullough, incorporated herein by
reference to Exhibit 10.6 of the Annual
Report on Form 10-K of the Registrant
for the year ended December 31, 1991.*
(10.7) Form of Directors' Deferred Compensation
Agreement, incorporated herein by
reference to Exhibit 10.7 of the Annual
Report on Form 10-K of the Registrant
for the year ended December 31, 1991.*
(10.8) Termination Agreement between Meridian
Bancorp, Inc. and Samuel A. McCullough
dated as of July 1, 1986, incorporated
herein by reference to Exhibit 10.8 of
the Annual Report on Form 10-K of the
Registrant for the year ended
December 31, 1991.*
(10.9) Termination Agreement between Meridian
Bancorp, Inc. and Ezekiel S. Ketchum
dated as of July 1, 1986, incorporated
herein by reference to Exhibit 10.9 of
the Annual Report on Form 10-K of the
Registrant for the year ended
December 31, 1991.*
(10.10) Termination Agreement between Meridian
Bancorp, Inc. and Russell J. Kunkel
dated as of July 1, 1986, incorporated
herein by reference to Exhibit 10.11 of
the Annual Report on Form 10-K of the
Registrant for the year ended
December 31, 1991.*
(10.11) Termination Agreement between Meridian
Bancorp, Inc. and David E. Sparks dated
as of January 23, 1990, incorporated
herein by reference to Exhibit 10.22 of
the Annual Report on Form 10-K of the
<PAGE>
Registrant for the year ended
December 31, 1990.*
(10.12) Meridian Bancorp, Inc. Supplemental
Salary Reduction Plan, as amended,
incorporated herein by reference to
Exhibit 10.14 of the Annual Report on
Form 10-K of the Registrant for the year
ended December 31, 1991.*
(10.13) Meridian Bancorp, Inc. Supplemental
Executive Retirement Plan, incorporated
herein by reference to Exhibit 10.15 of
the Annual Report on Form 10-K of the
Registrant for the year ended
December 31, 1991.*
(10.14) Meridian Bancorp, Inc. Executive
Intermediate Performance Plan adopted
January 1, 1990, incorporated herein by
reference to Exhibit 10.23 of the Annual
Report on Form 10-K of the Registrant
for the year ended December 31, 1990.*
(10.15) Rights Agreement dated as of July 25,
1989 between Meridian Bancorp, Inc. and
Meridian Trust Company, as Rights Agent,
incorporated herein by reference to Exhibit 1
of the Registration Statement on Form 8-A
of the Registrant, filed on August 14, 1989.
(10.16) Amendment to Rights Agreement, dated as of
June 28, 1994, between Meridian Bancorp, Inc.
and Meridian Trust Company, as Rights Agent,
incorporated herein by reference to
Exhibit 2.2 of Amendment No. 1, filed
July 25, 1994, to the Registration Statement
on Form 8-A of the Registrant, filed
August 14, 1989.
(11) Statement regarding Computation of Per
Share Earnings (included herein).
(12) Statement regarding Computation of
Ratios (not applicable).
(18) Letter regarding Change in Accounting
Principles (not applicable).
(21) List of Subsidiaries of the Registrant
(included herein).
(22) Published Report Regarding Matters
Submitted to a Vote of Security Holders
<PAGE>
(none).
(23) Consent of KPMG Peat Marwick LLP (included
herein).
(24) Power of Attorney (none).
(27) Financial Data Schedules (included herein).
(28) Information from reports furnished to
state insurance regulatory authorities
(not applicable).
(99) Additional Exhibits (none).
<PAGE>
EXHIBIT 3.1
ARTICLES OF INCORPORATION
OF
MERIDIAN BANCORP, INC.
FIRST. The name of the Corporation is Meridian Bancorp, Inc.
SECOND. The location and post office address of its initial registered
office in this Commonwealth is 35 North Sixth Street, Reading, Pennsylvania
19601.
THIRD. The Corporation is incorporated under the provisions of the
Business Corporation Law, the Act approved May 5, 1933, P.L. 364, as amended.
The purpose of the Corporation is and it shall have unlimited power to engage in
and to do any lawful act concerning any or all lawful business for which
corporations may be incorporated under such Act.
FOURTH. The term of the Corporation's existence is perpetual.
FIFTH. The aggregate number of shares of capital stock which the
Corporation shall have authority to issue is 225,000,000 shares, divided into
two classes consisting of 25,000,000 shares of preferred stock of the par value
of $25.00 each ("Preferred Stock") and 200,000,000 shares of common stock of
the par value of $5.00 each ("Common Stock").
SIXTH. The Preferred Stock may be issued from time to time as a class
without series, or if so determined by the Board of Directors of the
Corporation, either in whole or in part in one or more series. There is hereby
expressly granted to and vested in the Board of Directors of the Corporation
authority to fix and determine (except as fixed and determined herein), by
resolution, the voting powers, full or limited, or no voting powers, and such
designations, preferences and relative, participating, optional or other special
rights, if any, and the qualifications, limitations or restrictions thereof, if
any, including specifically, but not limited to, the dividend rights, conversion
rights, redemption rights and liquidation preferences, if any, of any wholly
unissued series of Preferred Stock (or the entire class of Preferred Stock if
none of such shares have been issued), the number of shares constituting any
such series and the terms and conditions of the issue thereof. Prior to the
issuance of any shares of Preferred Stock, a statement setting forth a copy of
each such resolution or resolutions and the number of shares of Preferred Stock
of each such class or series shall be executed and filed in accordance with the
Pennsylvania Business Corporation Law. Unless otherwise provided in any such
resolution or resolutions, the number of shares of capital stock
1
<PAGE>
of any such class or series so set forth in such resolution or resolutions may
thereafter be increased or decreased (but not below the number of shares then
outstanding), by a statement likewise executed and filed setting forth a
statement that a specified increase or decrease therein had been authorized and
directed by a resolution or resolutions likewise adopted by the Board of
Directors of the Corporation. In case the number of such shares shall be
decreased, the number of shares so specified in the statement shall resume the
status they had prior to the adoption of the first resolution or resolutions.
SEVENTH. Each holder of record of Common Stock shall have the right to one
vote for each share of Common Stock standing in his name on the books of the
Corporation. A stockholder shall not be entitled to cumulate his votes for the
election of directors.
EIGHTH. The management, control and government of the Corporation shall be
vested in a Board of Directors consisting of not less than twelve (12) nor more
than twenty-four (24) members in number, as fixed by the Board of Directors of
the Corporation. The directors of the Corporation shall be divided into three
classes: Class I, Class II and Class III. Each Class shall be as nearly equal
in number as possible. If the number of Class I, Class II or Class III
directors is fixed for any term of office, it shall not be increased during that
term, except by a majority vote of the Board of Directors. Except for the
initial Board of Directors as provided for in ARTICLE NINTH, the term of office
of each Class shall be three (3) years; provided, however, that the term of
office of the initial Class I directors shall expire at the annual election of
directors by the shareholders of the Corporation in 1984; the term of office of
the initial Class II directors shall expire at the annual election of directors
by the shareholders of the Corporation in 1985; and the term of office of the
initial Class III directors shall expire at the annual election of directors by
the shareholders of the Corporation in 1986, so that, after the expiration of
each such initial term, the terms of office of one class of directors shall
expire each year when their respective successors have been duly elected by the
shareholders and qualified. At each annual election of directors by the
shareholders of the Corporation held during and after 1984, the directors chosen
to succeed those whose terms then expire shall be identified as being of the
same class as the directors they succeed. A director need not be a shareholder
of the Corporation. If any initial director, as provided for in ARTICLE NINTH,
vacates his board position prior to the first annual election of directors for
the Class in which such director sits, the Board of Directors of the Corporation
shall designate the person to fill such vacancy as the Board of Directors of
American Bank and Trust Co. of Pa. (if such vacating initial director was
designated by American Bank and Trust Co. of Pa.) or of Central Penn National
Bank (if such vacating initial director was designated by Central Penn National
Bank) shall nominate. If a vacancy occurs on the Board of Directors of the
Corporation
2
<PAGE>
after the first annual election of directors for the Class in which such
director sits, a majority of the remaining directors shall have the exclusive
power to fill the vacancy by electing a director to hold office for the
unexpired term in respect of which the vacancy occurred. No director of the
Corporation shall be removed from office, as a director, by the vote of
shareholders, unless the votes of shareholders cast in favor of the resolution
for the removal of such director constitute at least a majority of the votes
which all shareholders would be entitled to cast at any annual election of
directors.
NINTH. The names, addresses and Class designations of the Initial Board of
Directors of the Corporation, who shall sit until the first annual election of
directors for the Class in which such directors sits, are:
CLASS I
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
John H. Austin, Jr. 330 Bair Road
Berwyn, Pennsylvania 19312
Sidney D. Kline, Jr. 21 Merrymount Road
Wyomissing Hills, Pennsylvania 19609
Richard M. Palmer 1242 Monroe Avenue
Wyomissing, Pennsylvania 19610
Paul R. Roedel 416 Wheatland Avenue
Shillington, Pennsylvania 19607
Judith M. von Seldneck 8124 St. Martins Lane
Philadelphia, Pennsylvania 19118
</TABLE>
CLASS II
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
J. Ripley Fehr R. D. #4
Reading, Pennsylvania 19606
William W. Hagerty 464 Margo Lane
Berwyn, Pennsylvania 19312
Joseph H. Jones 2100 Mahantongo Street
Pottsville, Pennsylvania 17901
Raymond Pearlstine Ninth Avenue and Main Street
Collegeville, Pennsylvania 19426
Robert B. Seidel 114 Ridgewood Road
Radnor, Pennsylvania 19087
</TABLE>
3
<PAGE>
CLASS III
<TABLE>
<CAPTION>
Name Address
---- -------
<S> <C>
Seymour G. Mandell 114 Delancey Street
Philadelphia, Pennsylvania 19106
Samuel A. McCullough Old Lauer's Lane
Wyomissing, Pennsylvania 19610
Janice B. Miller 1501 Rose Virginia Road
Wyomissing, Pennsylvania 19610
Harold F. Still, Jr. 1632 Graham Road
Meadowbrook, Pennsylvania 19046
James R. Stoudt 1437 Old Mill Road
Wyomissing, Pennsylvania 19610
</TABLE>
TENTH. No holder of any class of capital stock of the Corporation shall
have preemptive rights, and the Corporation shall have the right to issue and to
sell to any person or persons any shares of its capital stock or any option,
warrant or to acquire capital stock, right or any securities having conversion
or option rights without first offering such shares, rights or securities to any
holders of any class of capital stock of the Corporation.
ELEVENTH. Except as set forth below, the affirmative vote of shareholders
entitled to cast at least 80% of the votes which all shareholders of the
Corporation are entitled to cast, and if any class of shares is entitled to vote
as a separate class, the affirmative vote of shareholders entitled to cast at
least a majority of the votes entitled to be cast by the outstanding shares of
such class (or such greater amount as required by the provisions of these
Articles of Incorporation establishing such class) shall be required to approve
any of the following:
(a) any merger or consolidation of the Corporation with or into any
other corporation;
(b) any share exchange in which a corporation, person or entity
acquires the issued or outstanding shares of capital stock of the
Corporation pursuant to a vote of shareholders;
(c) any sale, lease, exchange or other transfer of all, or
substantially all, of the assets of the Corporation to any other
corporation, person or entity; or
(d) any transaction similar to, or having similar effect as, any of
the foregoing transactions,
4
<PAGE>
if, in any such case, as of the record date for the determination of
shareholders entitled to notice thereof and to vote thereon, such other
corporation, person or entity is the beneficial owner, directly or indirectly,
of shares of capital stock of the Corporation issued, outstanding and entitled
to cast five percent (5%) or more of the votes which all shareholders of the
Corporation are then entitled to cast.
If any of the transactions identified above in this ARTICLE ELEVENTH is
with a corporation, person or entity that is not the beneficial owner, directly
or indirectly, of shares of capital stock of the Corporation issued, outstanding
and entitled to cast five percent (5%) or more of the votes which all
shareholders of the Corporation are then entitled to cast, then the affirmative
vote of shareholders entitled to cast at least a majority of the votes which all
shareholders are entitled to cast shall be required to approve any such
transactions. An affirmative vote as provided in the foregoing provisions shall
be in lieu of the vote of the shareholders otherwise required by law.
The Board of Directors of the Corporation shall have the power and duty to
determine, for purposes of this ARTICLE ELEVENTH, on the basis of information
known to the Board, if and when such other corporation, person or entity is the
beneficial owner, directly or indirectly, of shares of capital stock of the
Corporation issued, outstanding and entitled to cast five percent (5%) or more
of the votes which all shareholders of the Corporation are then entitled to
cast, and/or if any transaction is similar to, or has a similar effect as, any
of the transactions identified above in this ARTICLE ELEVENTH. Any such
determination shall be conclusive and binding for all purposes of this ARTICLE
ELEVENTH. The Corporation may voluntarily completely liquidate and/or dissolve
only if the proposed liquidation and/or dissolution is approved by the
affirmative vote of shareholders entitled to cast at least 80% of the votes
which all shareholders are entitled to cast. The provisions of this ARTICLE
ELEVENTH shall not apply to any transaction which is approved in advance by
66-2/3% of the members of the Board of Directors of the Corporation, at a
meeting duly called and held.
TWELFTH. No action required to be taken or which may be taken at any
annual or special meeting of shareholders of the Corporation may be taken
without a meeting, and the power of the shareholders of the Corporation to
consent in writing to action without a meeting is specifically denied. The
presence, in person or by proxy, of shareholders entitled to cast at least
66-2/3% of the votes which are shareholders are entitled to cast, shall
constitute a quorum of shareholders at any annual or special meeting of
shareholders of the Corporation.
THIRTEENTH. The authority to make, amend, alter, change or repeal the
Bylaws of the Corporation is hereby expressly and solely granted to and vested
in the Board of Directors of the Corporation, subject always to the power of the
shareholders to
5
<PAGE>
make, amend, alter, change or repeal the Bylaws of the Corporation by the
affirmative vote of holders of 66-2/3% of the shares of the Corporation's
capital stock issued, outstanding and entitled to vote.
FOURTEENTH. The Board of Directors of the Corporation, when evaluating any
offer of another party to (a) make a tender or exchange offer for any equity
security of the Corporation, (b) merge or consolidate the Corporation with
another corporation, (c) purchase or otherwise acquire all or substantially all
of the properties and assets of the Corporation, or (d) engage in any
transaction similar to, or having similar effects as, any of the foregoing
transactions, shall, in connection with the exercise of its judgment in
determining what is in the best interests of the Corporation and its
shareholders, give due consideration to all relevant factors, including without
limitation the social and economic effects of the proposed transaction on the
depositors, employees, suppliers, customers and other constituents of the
Corporation and its subsidiaries and on the communities in which the Corporation
and its subsidiaries operate or are located, the business reputation of the
other party, and the Board of Directors' evaluation of the then value of the
Corporation in a freely negotiated sale and of the future prospects of the
Corporation as an independent entity.
FIFTEENTH. The Corporation reserves the right to amend, alter, change or
repeal any provision contained in its Articles of Incorporation in the manner
now or hereafter prescribed by statute and all rights conferred upon
shareholders and directors herein are hereby granted subject to this
reservation; provided, however, that the provisions set forth in ARTICLES
SEVENTH, EIGHTH, TWELFTH, THIRTEENTH and FOURTEENTH of these Articles of
Incorporation may not be repealed, altered or amended, in any respect
whatsoever, unless such repeal, alteration or amendment is approved by either
(a) the affirmative vote of shareholders of the Corporation entitled to cast at
least 66-2/3% of all votes which shareholders of the Corporation are then
entitled to cast, or (b) the affirmative vote of 66-2/3% of the members of the
Board of Directors of the Corporation and the affirmative vote of shareholders
of the Corporation entitled to cast at least a majority of all votes which
shareholders of the Corporation are then entitled to cast; and further provided,
that the provisions set forth in this ARTICLE FIFTEENTH and in ARTICLES ELEVENTH
and SIXTEENTH of these Articles of Incorporation may not be repealed, altered or
amended, in any respect whatsoever, unless such repeal, alteration or amendment
is approved by either (a) the affirmative vote of shareholders of the
Corporation entitled to cast at least 80% of all votes which shareholders of the
Corporation are then entitled to cast, or (b) the affirmative vote of 66-2/3% of
the members of the Board of Directors of the Corporation and the affirmative
vote of shareholders of the Corporation entitled to cast at least a majority of
all votes which shareholders of the Corporation are then entitled to cast.
6
<PAGE>
SIXTEENTH. If any corporation, person, entity, or group becomes the
beneficial owner, directly or indirectly, of shares of capital stock of the
Corporation having the right to cast in the aggregate 25% or more of all votes
entitled to be cast by all issued and outstanding shares of capital stock of the
Corporation entitled to vote, such corporation, person, entity or group shall
within 30 days thereafter offer to purchase all shares of capital stock of the
Corporation issued, outstanding and entitled to vote. Such offer to purchase
shall be at a price per share equal to the highest price paid for shares of the
respective class or series of capital stock of the Corporation purchased by such
corporation, person, entity or group within the preceding twelve months. If
such corporation, person, entity or group did not purchase any shares of a
particular class or series of capital stock of the Corporation within the
preceding twelve months, such offer to purchase shall be at a price per share
equal to the fair market value of such class or series of capital stock on the
date on which such corporation, person, entity or group becomes the beneficial
owner, directly or indirectly, of shares of capital stock of the Corporation
having the right to cast in the aggregate 25% or more of all votes entitled to
be cast by all issued and outstanding capital stock of the Corporation. Such
offer shall provide that the purchase price for such shares shall be payable in
cash. The provisions of this ARTICLE SIXTEENTH shall not apply if 80% or more
of the members of the Board of Directors of the Corporation approve in advance
the acquisition of beneficial ownership by such corporation, person, entity or
group of shares of capital stock of the Corporation having the right to cast in
the aggregate 25% or more of all votes entitled to be cast by all issued and
outstanding shares of capital stock of the Corporation. The provisions of this
ARTICLE SIXTEENTH shall be in addition to and not in lieu of any rights granted
under Section 910 of the Pennsylvania Business Corporation Law and any amendment
or restatement of such section ("Section 910"); provided, however, that if the
provisions of this ARTICLE SIXTEENTH and Section 910 are both applicable in any
given instance, the price per share to be paid for shares of capital stock of
the Corporation issued, outstanding and entitled to vote shall be the higher of
the price per share determined in accordance with this ARTICLE SIXTEENTH or the
price per share determined in accordance with the provisions of Section 910.
Dated: April 26, 1994
7
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
---------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
----------------------------------------------------------------------------------
1994 1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 159,358 $ 157,761 $ 136,705 $ 117,686 $ 36,684 $ 105,851
Average Common Shares Outstanding 57,661,043 57,194,411 55,201,126 52,052,879 51,014,585 48,975,367
Stock options considered to be
common stock equivalents,
net of shares assumed to be
repurchased under the treasury
stock method, and convertible
preferred stock 379,267 479,647 609,684 740,146 340,929 1,835,067
----------- ----------- ----------- ----------- ----------- -----------
Total stock and stock equivalents 58,040,310 57,674,058 55,810,810 52,793,025 51,355,514 50,810,434
=========== =========== =========== =========== =========== ===========
Net Income per common share $ 2.75 $ 2.74 $ 2.44 $ 2.23 $ 0.71 $ 2.08
=========== =========== =========== =========== =========== ===========
</TABLE>
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Name State of Incorporation
____ ______________________
<S> <C>
McGlinn Capital Management, Inc. Pennsylvania
Meridian Acceptance Corporation New Jersey
Meridian Asset Acceptance Corporation Delaware
Meridian Asset Management, Inc. Pennsylvania
Meridian Trust Company Pennsylvania
Meridian Investment Company Pennsylvania
Meridian Trust Company of California California
Meridian Asset Servicing Corp. New Jersey
Meridian Securities, Inc. Pennsylvania
Meridian Capital Corp. Pennsylvania
Meridian Commercial Finance Corporation Pennsylvania
Meridian Delaware Investments, Inc. Delaware
Meridian Funding Corp. Pennsylvania
Meridian Life Insurance Company Arizona
Delaware Trust Company Delaware
Delaware Trust Capital Management, Inc. Delaware
Meridian Bank Pennsylvania
Meridian Auto Leasing, Inc. Pennsylvania
Meridian Community Partnership
Development Corporation Pennsylvania
Limited Holdings Corporation Pennsylvania
Meridian Leasing, Inc. Pennsylvania
Meridian Mortgage Corporation Pennsylvania
Meridian Properties, Inc. Pennsylvania
Meridian Bank, New Jersey New Jersey
</TABLE>
<PAGE>
EXHIBIT 23
The Board of Directors
Meridian Bancorp, Inc,:
We consent to the incorporation by reference in the Registration Statements on
Form S-3 (Registration No. 33-45562), Form S-3 (Registration No. 33-58690), Form
S-3 (Registration No. 33-35228), Form S-8 (Registration No. 33-14104), Form S-8
(Registration No. 33-40616), and Form S-8 (Registration No. 33-12292) of
Meridian Bancorp, Inc. (the Company) of our report dated January 18, 1995
relating to the consolidated balance sheets of Meridian Bancorp, Inc. and
subsidiaries as of December 31, 1994 and 1993, and the related consolidated
statements of income, changes in shareholders' equity, and cash flows for each
of the years in the three-year period ended December 31, 1994, which report
appears in the December 31, 1994 annual report on Form 10-K of Meridian Bancorp,
Inc. Our report contains an explanatory paragraph which discusses that the
Company adopted the provisions of the Financial Accounting Standards Board's
Statement of Financial Accounting Standards No. 115, Accounting for Certain
Investments in Debt and Equity Securities, and No. 112, Employers' Accounting
for Postemployment Benefits, in 1994 and No. 106, Employers' Accounting for
Postretirement Benefits Other Than Pensions, and No. 109, Accounting for Income
Taxes, in 1993
KPMG Peat Marwick LLP
March 27, 1995
Philadelphia, Pennsylvania
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<MULTIPLIER> 1000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1994
<PERIOD-START> JAN-01-1994
<PERIOD-END> DEC-31-1994
<CASH> 669,642
<INT-BEARING-DEPOSITS> 123,608
<FED-FUNDS-SOLD> 96,810
<TRADING-ASSETS> 346,170
<INVESTMENTS-HELD-FOR-SALE> 434,994
<INVESTMENTS-CARRYING> 2,872,419
<INVESTMENTS-MARKET> 2,753,307
<LOANS> 9,757,623
<ALLOWANCE> 169,402
<TOTAL-ASSETS> 15,052,647
<DEPOSITS> 11,379,567
<SHORT-TERM> 1,812,566
<LIABILITIES-OTHER> 273,276
<LONG-TERM> 372,153
<COMMON> 291,585
0
0
<OTHER-SE> 923,500
<TOTAL-LIABILITIES-AND-EQUITY> 15,052,647
<INTEREST-LOAN> 760,672
<INTEREST-INVEST> 188,215
<INTEREST-OTHER> 36,153
<INTEREST-TOTAL> 985,040
<INTEREST-DEPOSIT> 283,256
<INTEREST-EXPENSE> 372,624
<INTEREST-INCOME-NET> 612,416
<LOAN-LOSSES> 27,321
<SECURITIES-GAINS> 2,998
<EXPENSE-OTHER> 593,222
<INCOME-PRETAX> 232,688
<INCOME-PRE-EXTRAORDINARY> 162,088
<EXTRAORDINARY> 0
<CHANGES> (2,730)
<NET-INCOME> 159,356
<EPS-PRIMARY> 2.75
<EPS-DILUTED> 2.75
<YIELD-ACTUAL> 4.73
<LOANS-NON> 89,123
<LOANS-PAST> 22,355
<LOANS-TROUBLED> 1,145
<LOANS-PROBLEM> 43,000
<ALLOWANCE-OPEN> 173,388
<CHARGE-OFFS> 52,155
<RECOVERIES> 19,680
<ALLOWANCE-CLOSE> 169,402
<ALLOWANCE-DOMESTIC> 169,402
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
