<PAGE>
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20569
FORM 8-K/A No. 1
CURRENT REPORT
Pursuant to Section 13 or 15(d) of
The Securities Exchange Act of 1934
Date of Report (Date of earliest event reported) February 23, 1996
-----------------
MERIDIAN BANCORP, INC.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Pennsylvania 0-12364 23-2237529
- ---------------------------- ----------- ----------------
(State or other jurisdiction (Commission (IRS Employer
of incorporation) File Number) Ident. 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
---------------
N/A
- --------------------------------------------------------------------------------
(Former name or former address, if changed since last report.)
- --------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
<PAGE>
Item 7. Financial Statements and Exhibits.
---------------------------------
(a) The Consolidated Balance Sheets as of December 31, 1995 and 1994, and
the Consolidated Statements of Income, Consolidated Statements of
Changes in Stockholders' Equity and Consolidated Statements of Cash
Flow for the years ended December 31, 1995, 1994 and 1993 of United
Counties Bancorporation ("UCB"), and the related Notes to Consolidated
Financial Statements, are incorporated herein by reference to Exhibit
99.1 hereof.
(b) Pro forma financial information.
-------------------------------
Pro forma financial information, including the pro forma financial
statements of Meridian Bancorp, Inc. ("Meridian") and UCB required by
Item 7(b) of Form 8-K, are incorporated herein by reference to Exhibit
99.2 hereof.
(c) Exhibits.
--------
2.1 Agreement and Plan of Merger, dated as of May 23, 1995, between
Meridian and UCB (incorporated herein by reference to Exhibit 2.1
to Meridian's Current Report on Form 8-K dated May 23, 1995.)*
99.1 The Consolidated Balance Sheets as of December 31, 1995 and 1994,
and the Consolidated Statements of Income, Consolidated
Statements of Changes in Stockholders' Equity and Consolidated
Statements of Cash Flow for the years ended December 31, 1995,
1994 and 1993 of UCB, and the related Notes to Consolidated
Financial Statements.
99.2 Report of KPMG Peat Marwick LLP regarding audited financial
statements of UCB.
99.3 Pro forma financial information (unaudited), including pro forma
financial statements of Meridian and UCB.
_____________________
* previously filed.
2
<PAGE>
SIGNATURE
---------
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MERIDIAN BANCORP, INC.
Dated: April 8, 1996 By /s/ David E. Sparks
----------------------------------
David E. Sparks,
Vice Chairman and Chief
Financial Officer
3
<PAGE>
EXHIBIT INDEX
-------------
<TABLE>
<CAPTION>
Exhibit No. Description
- ----------- -----------
<S> <C>
2.1 Agreement and Plan of Merger, dated as of May 23, 1995, between
Meridian and UCB (incorporated herein by reference to Exhibit 2.1
to Meridian's Current Report on Form 8-K dated May 23, 1995.)
99.1 The Consolidated Balance Sheets as of December 31, 1995 and
1994, and the Consolidated Statements of Income, Consolidated
Statements of Changes in Stockholders' Equity and Consolidated
Statements of Cash Flow for the years ended December 31, 1995,
1994 and 1993 of UCB, the related Notes to Consolidated
Financial Statements.
99.2 Report of KPMG Peat Marwick LLP regarding audited financial
statements of UCB.
99.3 Pro forma financial information (unaudited), including pro forma
financial statements of Meridian and UCB.
</TABLE>
_______________________
* previously filed.
4
<PAGE>
Exhibit 99.1
United Counties Bancorporation and Subsidiaries
CONSOLIDATED BALANCE SHEETS
(Dollars in thousands)
<TABLE>
<CAPTION>
December 31,
------------------------
1995 1994
------------ ----------
<S> <C> <C>
Assets
Cash and due from banks (Note 2) $ 67,498 $ 93,221
Money market investments 3,619 2,555
Securities available-for-sale (Note 3) 304,415 100,070
Investment securities (market value:
1995-$706,422;1994-$931,639)(Note 3) 696,395 965,239
Federal funds sold 134,000 115,000
Loans, net of unearned discounts of $323 in
1995 and $255 in 1994 (Note 4) 386,852 374,375
Less: Allowance for loan losses (Note 5) 11,037 11,091
---------- ----------
Net loans 375,815 363,284
Premises and equipment, net (Note 6) 11,267 11,754
Accrued interest receivable 18,942 21,289
Other assets (Note 15) 9,300 8,528
---------- ----------
Total assets $1,621,251 $1,680,940
========== ==========
Liabilities and Stockholders' Equity
Liabilities:
Deposits:
Demand $ 270,430 $ 264,781
Savings 703,918 770,977
Time 337,242 318,980
---------- ----------
Total deposits (Note 7) 1,311,590 1,354,738
Securities sold under repurchase agreements
(Note 8) 72,119 110,141
Other borrowed funds (Note 9) 8,990 12,341
Other liabilities (Note 13) 23,923 22,137
---------- ----------
Total liabilities 1,416,622 1,499,357
Commitments and contingent liabilities
(Notes 14 and 16)
Stockholders' equity (Notes 10 and 11):
Preferred stock: no par value, no stated
value; authorized 3,000,000 shares; zero
shares issued and outstanding - -
Common stock: no par value, $1 stated value;
authorized 6,000,000 shares; issued 2,531,071
shares in 1995 and 2,523,976 shares in 1994 2,531 2,524
Additional paid-in capital 24,323 23,947
Retained earnings 190,773 169,967
Net unrealized gain on securities available-
for-sale, net of income taxes 9,235 6,747
---------- ----------
226,862 203,185
Less: treasury stock, at cost -
381,438 shares in 1995 and 376,270
shares in 1994 22,233 21,602
---------- ----------
Total stockholders' equity 204,629 181,583
---------- ----------
Total liabilities and stockholders'
equity $1,621,251 $1,680,940
========== ==========
</TABLE>
See accompanying notes to consolidated financial statements.
1
<PAGE>
United Counties Bancorporation and Subsidiaries
CONSOLIDATED STATEMENTS OF INCOME
(In thousands, except per share amounts)
<TABLE>
<CAPTION>
Year ended December 31,
------------------------------
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Interest income
Interest and fees on loans:
Taxable income $ 32,541 $ 30,612 $ 30,771
Tax-exempt income 490 584 895
Interest and dividends on securities
available-for-sale 6,037 6,075 -
Interest on investment securities:
Taxable income 58,949 60,080 67,421
Tax-exempt income 535 482 786
Interest on money market investments 228 189 107
Interest on federal funds sold 4,145 2,788 1,992
-------- -------- --------
Total interest income 102,925 100,810 101,972
-------- -------- --------
Interest expense
Savings and time deposits (Note 7) 36,620 32,393 31,652
Securities sold under repurchase
agreements (Note 8) 3,166 1,841 1,507
Other borrowed funds (Note 9) 427 346 240
-------- -------- --------
Total interest expense 40,213 34,580 33,399
-------- -------- --------
Net interest income 62,712 66,230 68,573
Provision for loan losses (Note 5) (500) (825) 175
-------- -------- --------
Net interest income after
provision for loan losses 63,212 67,055 68,398
-------- -------- --------
Other operating income
Service charges on deposit accounts 2,955 3,060 3,280
Trust fees 1,050 1,128 1,101
Net security gains (losses) 13,768 - (172)
Gain on sale of merchant credit card
operations -0- -0- 663
Other income (Note 12) 1,379 2,920 3,536
-------- -------- --------
Total other operating income 19,152 7,108 8,408
-------- -------- --------
Net interest and other operating
income 82,364 74,163 76,806
-------- -------- --------
Other operating expenses
Salaries and employee benefits (Note 13) 20,056 20,737 20,920
Net occupancy expense (Notes 6 and 14) 3,418 3,601 3,616
Equipment expense (Notes 6 and 14) 1,659 1,816 1,934
FDIC insurance premium 1,727 3,054 2,998
Other expense (Note 12) 6,581 8,771 9,665
-------- -------- --------
Total other operating expenses 33,441 37,979 39,133
-------- -------- --------
Income before income taxes and cumulative
effect of change in accounting principles 48,923 36,184 37,673
Income taxes (Note 15) 16,734 12,392 13,480
-------- -------- --------
Income before cumulative effect of change in
accounting principles 32,189 23,792 24,193
Cumulative effect of change in accounting
principles (Notes 1 and 15) - - (579)
-------- -------- --------
Net income $ 32,189 $ 23,792 $ 23,614
======== ======== ========
Income per share before cumulative effect
of change in accounting principles $15.00 $11.12 $11.29
Cumulative effect of change in accounting
principles, per share - - (.27)
-------- -------- --------
Net income per share of common stock $15.00 $11.12 $11.02
======== ======== ========
Average number of outstanding shares 2,146 2,139 2,142
======== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE>
United Counties Bancorporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
(Dollars in thousands)
<TABLE>
<CAPTION>
Net Unrealized
Gain on Securities
Available-for-Sale
Additional Net of
Preferred Common Paid-in Retained Income Treasury
Stock Stock Capital Earnings Taxes Stock Total
---------- -------- -------- ---------- -------- --------- -------
<S> <C> <C> <C> <C> <C> <C> <C>
Balances at
December 31, 1992 -- $ 2,489 $22,466 $135,164 -- $(17,980) $142,139
Shares issued under the Incentive Stock
Option Plans (Note 10) 12 504 516
Net income 23,614 23,614
Dividends declared (5,560) (5,560)
Treasury stock acquired - 31,035 shares (2,741) (2,741)
---------- -------- -------- ---------- -------- --------- --------
Balances at
December 31, 1993 -- 2,501 22,970 153,218 -- (20,721) 157,968
Shares issued under the Incentive Stock
Option Plans (Note 10) -- 23 977 1,000
Net income 23,792 23,792
Dividends declared (7,043) (7,043)
Net unrealized gain on securities
available-for-sale, net of income taxes $ 6,747 6,747
Treasury stock acquired - 8,929 shares (881) (881)
---------- -------- -------- ---------- -------- --------- --------
Balance at
December 31, 1994 -- 2,524 23,947 169,967 6,747 (21,602) 181,583
Shares issued under the Incentive Stock
Option Plans (Note 10) -- 7 376 383
Net income 32,189 32,189
Dividends declared (11,383) (11,383)
Net change in unrealized gain on securities
available-for-sale, net of income taxes 2,488 2,488
Treasury stock acquired - 5,168 shares (631) (631)
---------- -------- -------- ---------- -------- --------- --------
Balances at
December 31, 1995 -- $2,531 $24,323 $190,773 $ 9,235 $(22,233) $204,629
========== ====== ======= ======== ======== ========= ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE>
United Counties Bancorporation and Subsidiaries
CONSOLIDATED STATEMENTS OF CASH FLOW
(In thousands)
<TABLE>
<CAPTION>
Year Ended December 31,
----------------------------------------
1995 1994 1993
---------- -------- --------
<S> <C> <C> <C>
Operating Activities:
Net income $ 32,189 $ 23,792 $ 23,614
Adjustments to reconcile net income to
net cash from operating activities:
Gain on exchange of securities
available-for-sale (13,596) - -
Amortization of premiums and discounts, net 4,283 7,793 8,272
Depreciation 1,259 1,462 1,546
Provision for loan losses (500) (825) 175
Deferred income tax expense (benefit) 5,635 (164) (1,217)
Amortization of deferred loan fees (233) 5 140
Gain on sale of merchant credit card
operations - - (663)
(Gains) losses on sales of securities (172) - 172
Cumulative adjustment - change in
accounting principles - - 579
Decrease in interest receivable 2,347 765 991
Increase (decrease) in interest payable 1,276 (288) (659)
(Increase) decrease in other assets (2,789) (435) 699
Increase (decrease) in other liabilities (4,715) (1,255) 797
Increase (decrease) in current income tax
payable (499) 534 51
---------- -------- --------
Total adjustments (7,704) 7,592 10,883
---------- -------- --------
Net cash from operating activities 24,485 31,384 34,497
---------- -------- --------
Investing Activities:
Proceeds from sale of securities available-
for-sale 898 - -
Proceeds from maturities of securities
available-for-sale 15,442 10,000 -
Purchases of securities available-for-sale (4,200) (115) -
Proceeds from sales of investment securities 0 0 675
Proceeds from maturities of investment
securities 177,944 261,138 256,239
Purchases of investment securities (111,295) (250,007) (311,850)
Net (increase) decrease in short-term
investments (1,064) 3,765 375
Net increase in federal funds sold (19,000) (15,000) (10,000)
Net (increase) decrease in credit card
receivables and other short-term loans 3,359 8,249 (2,586)
Principal collected on longer term loans 101,535 121,168 129,671
Longer term loans originated or acquired (116,903) (127,223) (126,456)
Purchases of premises and equipment, net (772) (589) (736)
---------- -------- --------
Net cash from (applied to) investing
activities 45,944 11,386 (64,668)
---------- -------- --------
Financing Activities:
Net increase (decrease) in demand deposits,
NOW accounts, and savings accounts (61,410) (51,920) 35,967
Net increase (decrease) in open time
accounts 3,966 4,723 (522)
Proceeds from sales of certificates of
deposit 136,561 107,252 87,674
Payments for maturing certificates of deposit (122,265) (98,154) (102,745)
Net increase (decrease) in short-term
borrowings (41,373) 11,580 15,534
Payments to acquire treasury stock (631) (881) (2,741)
Dividends paid (11,383) (8,537) (5,358)
Proceeds from exercise of stock options 383 1,000 516
---------- -------- --------
Net cash from (applied to) financing
activities (96,152) (34,937) 28,325
---------- -------- --------
Net increase (decrease) in cash and cash
equivalents (25,723) 7,833 (1,846)
---------- -------- --------
Cash and cash equivalents at beginning of year 93,221 85,388 87,234
---------- -------- --------
Cash and cash equivalents at end of year $ 67,498 $ 93,221 $ 85,388
========== ======== ========
Cash paid during the year for:
Interest $ 38,937 $ 34,869 $ 32,311
========== ======== ========
Income taxes $ 12,289 $ 14,040 $ 15,206
========== ======== ========
Transfer from investment securities to
securities available-for-sale $ 198,960 $100,054 --
========== ======== ========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE>
United Counties Bancorporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. Summary of Significant Accounting Policies
Principles of Consolidation
The consolidated financial statements of United Counties Bancorporation include
the accounts of the parent company and subsidiaries, United Capital Corporation
and United Counties Trust Company (Bank) and its subsidiaries. All material
intercompany transactions have been eliminated.
Investment Securities
Investments classified as held-to-maturity consist of debt securities, and are
carried at cost, adjusted for accretion of discounts and amortization of
premiums, both computed on the level yield method. The Bancorporation has both
the ability and positive intent to hold these securities to maturity.
Debt securities not classified as held-to-maturity and marketable equity
securities are categorized as available-for-sale and carried at fair value.
Unrealized gains and losses, net of related tax effects, are reported as a
separate component of stockholders equity.
The adjusted cost of a specific security is the basis for calculating the gain
or loss on the sale of a security as reported in the consolidated statements of
income.
Interest and dividends on investment securities are recognized as income when
earned.
Loans
Loans are stated at the principal amount outstanding, net of unearned discounts.
Unearned discount, where appropriate, is recognized on a monthly basis using the
actuarial method, which approximates the level yield method. Interest is
accrued monthly on other non-discounted loans based upon the principal amount
outstanding. Loan origination fees are recognized over the estimated life of
the loan and as an adjustment to yield.
When a loan is past due in excess of 90 days or doubt exists in the opinion of
management as to the collectibility of principal or interest, it is placed on a
nonaccrual basis, recognizing interest income as received. At the same time,
previously accrued but unpaid interest is reversed and charged against current
earnings.
Allowance for Loan Losses
The Allowance for Loan Losses account is an estimate and may be subject to
variance based upon economic conditions throughout our trade area as well as
periodic fluctuations in the financial condition of individual loans.
5
<PAGE>
Additions to the Allowance arise from charges to operations through the
Provision for Loan Losses or from the recovery of amounts previously charged
off. The Allowance is reduced by loan charge-offs. Loans are charged off when
management believes there has been permanent impairment to the values at which
loans are carried.
Premises and Equipment
Land is carried at cost. Premises, furniture, equipment, and leasehold
improvements are stated at cost less accumulated depreciation. Depreciation is
computed on the straight-line and declining balance methods over the estimated
useful lives, which generally range from three to forty years. Leasehold
improvements are carried at cost less accumulated amortization computed on a
straight-line basis over the terms of the leases or the estimated useful lives
of the assets, if shorter. Maintenance and repairs are expensed as incurred.
Other Real Estate Owned
When a property is acquired through foreclosure, it is reported at its estimated
fair market value and subsequently reported at the lower of its new cost basis
or estimated fair market value less estimated liquidation costs.
Income Taxes
Certain items of income and expense are recognized over different periods for
financial reporting purposes than for income tax purposes. Deferred taxes are
provided in recognition of these temporary differences. The Bancorporation
files a consolidated federal income tax return. The applicable income taxes of
the parent and subsidiaries generally are computed individually and reflected as
such for financial statement purposes.
Retirement Benefit Plans
Retirement benefit plan costs, based on actuarial computations of current and
future benefits for employees, are charged to expense and generally funded based
on the maximum amount that can be deducted for federal income tax purposes.
Income Per Share
Income per share of common stock is calculated based on the average daily number
of common shares outstanding. Shares issuable under the 1984 Incentive Stock
Option Plan and the 1989 Incentive Stock Option Plan have no materially dilutive
effect and are not included in the average number of shares outstanding.
Reclassifications
Certain amounts in previous periods have been reclassified to conform to the
current periods presentation. These reclassifications have no material effect
on net income or total assets.
6
<PAGE>
Adoption of Recent Accounting Pronouncements
Effective January 1, 1995, the Bancorporation adopted FASB Statement No. 114,
"Accounting by Creditors for Impairment of a Loan". This Standard applies to
contractual rights to receive money on demand or on fixed or determinable dates
that are recognized as assets on creditors' balance sheets, including accounts
receivable due in more than one year. A loan is considered impaired if, based
upon current information and events, it is probable that the creditor will not
be able to collect all principal and interest due in accordance with the terms
of the agreement. Once a loan is considered impaired, the Standard requires
calculation of the present value of expected future cash flows using the
effective rate of the loan. If the calculated present value is less than the
recorded investment in the loan, the difference is to be charged to bad debt
expense with a corresponding credit to a valuation allowance account. Loans for
which repayment is expected to be provided by the underlying collateral, the
fair value of the collateral of the loan may be used.
Also effective January 1, 1995, the Bancorporation adopted FASB Statement No.
118, "Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures". This Standard amends the income recognition and disclosure
requirements of FASB No. 114.
The adoption of these Standards did not have a material effect on the financial
position of the Bancorporation.
FASB No. 115, "Accounting for Certain Investments in Debt and Equity
Securities", was adopted on January 1, 1994. This Standard applies to equity
securities having readily determinable fair values and to all debt securities.
For accounting and financial reporting purposes, securities are to be classified
into one of the following three categories: 1) held-to-maturity; 2) trading
securities; or 3) available-for-sale. Only debt securities may be classified as
held-to-maturity. Those securities that are classified as held-to-maturity are
to be carried at amortized cost while unrealized gains/losses from the changes
in market value for investments categorized as available-for-sale are to be
reported as a separate component of stockholders' equity net of related tax
effects. See Note 3.
During 1993, the Bancorporation adopted FASB No. 109, "Accounting for Income
Taxes". This Standard changed the method of accounting for income taxes from the
"deferred" method previously required under generally accepted accounting
principles to the "asset and liability" method. The Statement addresses various
matters related to temporary differences from financial statement basis versus
tax basis of assets and liabilities. See Note 15.
2. Cash and Due from Banks
The average reserve requirement of the bank amounted to $22,799,000 and
$26,569,000 at December 31, 1995 and 1994, respectively.
7
<PAGE>
3. Investment Securities and Securities Available-for-Sale
On January 1, 1994, FASB No. 115 was adopted. During December 1995, in response
to the recently released Financial Accounting Standards Board Guide to
Implementation of this Statement, the Bancorporation transferred $198,960,000
from securities held-to-maturity to securities available-for-sale. The
following tables present information related to the portfolio of investment
securities held-to-maturity and available-for-sale of the Bancorporation at
December 31, 1995 and December 31, 1994 (in thousands):
<TABLE>
<CAPTION>
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
1995
- -----
Investment Securities
Held-to-Maturity
- -------------------------------
United States Treasury securities
and obligations of United States
government corporations and agencies $548,036 $ 8,384 $ 853 $555,567
Obligations of states and
political subdivisions 15,304 -0- 2 15,302
Corporate obligations 133,055 2,731 233 135,553
-------- ------- ------- --------
Total $696,395 $11,115 $ 1,088 $706,422
======== ======= ======= ========
Gross Gross Book/
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ---------- ------
Securities Available-for-Sale
- -------------------------------
United States Treasury securities and
obligations of United States government
corporations and agencies $259,872 $ 5,207 $ 359 $264,720
Marketable equity securities 29,674 10,021 -0- 39,695
-------- ------- ------- --------
Total $289,546 $15,228 $ 359 $304,415
======== ======= ======= ========
Gross Gross Estimated
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
----------- ---------- ---------- ----------
1994
- -------------------------------
Investment Securities
Held-to-Maturity
- -------------------------------
United States Treasury securities and
obligations of United States government
corporations and agencies $810,182 $ 525 $27,433 $783,274
Obligations of states and political
subdivisions 14,778 4 4 14,778
Corporate obligations 140,279 162 6,854 133,587
-------- ------- ------- --------
Total $965,239 $ 691 $34,291 $931,639
======== ======= ======= ========
</TABLE>
8
<PAGE>
<TABLE>
<CAPTION>
Gross Gross Book/
Amortized Unrealized Unrealized Market
Cost Gains Losses Value
---------- ---------- ---------- ------
Securities Available-for-Sale
- -------------------------------
<S> <C> <C> <C> <C>
United States Treasury securities and obligations
of United States government corporations
and agencies $ 76,574 $ 77 $ 2,518 $ 74,133
Marketable equity securities 13,046 12,891 -0- 25,937
-------- ------- ------- --------
Total $ 89,620 $12,968 $ 2,518 $100,070
======== ======= ======= ========
</TABLE>
The carrying value of securities pledged to secure public funds and for other
purposes as required by law was $171,643,000 at December 31, 1995, and
$209,635,000 at December 31, 1994.
The amortized cost and estimated market value of investment securities held-to-
maturity and available-for-sale at December 31, 1995 and December 31, 1994, by
contractual maturity, are shown in the table below. Expected maturities may
differ from contractual maturities since certain borrowers may have the right to
call or prepay obligations with or without call or prepayment penalties (in
thousands):
<TABLE>
<CAPTION>
Investment Securities
Held-to-Maturity
------------------------------------------
December 31, 1995 December 31, 1994
-------------------- -------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
---------- --------- ------ ----------
<S> <C> <C> <C> <C>
Due in one year or less $276,426 $277,820 $144,914 $144,896
Due after one year through
five years 412,353 420,573 757,617 728,328
Due after five years through
ten years 7,260 7,675 62,193 57,904
Due after ten years 356 354 515 511
-------- -------- -------- --------
Total $696,395 $706,422 $965,239 $931,639
======== ======== ======== ========
<CAPTION>
Securities
Available-for-Sale
------------------------------------------
December 31, 1995 December 31, 1994
-------------------- -------------------
Estimated Estimated
Amortized Market Amortized Market
Cost Value Cost Value
---------- --------- ---------- ---------
<S> <C> <C> <C> <C>
Due in one year or less $ 20,103 $ 20,203 $ 15,062 $ 15,117
Due after one year through
five years 239,769 244,517 61,512 59,016
-------- -------- -------- --------
Total $259,872 $264,720 $ 76,574 $ 74,133
======== ======== ======== ========
</TABLE>
9
<PAGE>
Proceeds from sale of securities during 1995 were $898,000. Gross gains of
$172,000 were realized. Proceeds from sales of securities during 1994 were
zero. Proceeds from sales of investment securities during 1993 were $675,000.
Gross losses of $172,000 were realized.
Fixed income investment securities are traded in liquid markets and are of
investment quality as rated by nationally recognized rating services.
4. Loans
The following summarizes the loan categories, net of unearned discounts, at
December 31, 1995 and 1994 (in thousands);
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Real estate loans:
Construction $ 14,668 $ 15,214
Commercial 124,576 115,829
Residential:
Conventional 100,826 99,028
Insured or guaranteed 870 1,067
Home equity & secondary mortgage 92,598 87,568
Economic Development Authority 6,368 7,013
Term 3,673 2,555
-------- --------
Total real estate loans 343,579 328,274
Consumer loans 16,584 16,905
Credit card 1,162 3,075
Commercial and industrial 25,308 26,005
Lease financing receivables 219 116
-------- --------
Total loans, net of unearned
discounts $386,852 $374,375
======== ========
</TABLE>
The primary lending marketplace of the Bancorporation includes the New Jersey
Counties of Middlesex, Monmouth, Morris, Somerset, and Union.
Loans to principal officers, directors, and their affiliates are made in the
ordinary course of business and are on substantially the same terms, including
interest rates and collateral, as loans to other customers of the Bank. These
loans aggregated $19,361,000 and $17,472,000 at December 31, 1995 and 1994,
respectively. During 1995, loan activity to principal officers, directors, and
their affiliates consisted of new loans amounting to $6,306,000 and principal
payments on outstanding loans of $4,417,000.
A significant portion of the loan portfolio of the Bank is secured by real
estate. At December 31, 1995, real estate loans amounted to 88.8% of the total
loan portfolio compared to 87.7% at December 31, 1994.
Risk elements, which include nonaccrual loans, restructured loans, and loans
past due 90 days or more at December 31, 1995 and 1994, were as follows (in
thousands):
10
<PAGE>
<TABLE>
<CAPTION>
1995 1994
------ -------
<S> <C> <C>
Nonaccrual loans $2,787 $ 2,769
Restructured loans 4,739 5,265
Loans past due 90 days or more 2,375 2,401
------ -------
Total $9,901 $10,435
====== =======
</TABLE>
5. Allowance for Loan Losses
The following is an analysis of changes in the Allowance for Loan Losses for the
years ended December 31, 1995, 1994, and 1993 (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
Balance at beginning of year $11,091 $11,014 $10,930
Provision (credited) charged to
operating expense (500) (825) 175
Recoveries of loans previously
charged off 956 1,175 633
Loans charged off (510) (273) (724)
------- ------- -------
Balance at end of year $11,037 $11,091 $11,014
======= ======= =======
</TABLE>
The Allowance for Loan Losses account for federal income tax purposes amounted
to $2,456,000 at December 31, 1995, $2,323,000 at December 31, 1994, and
$2,236,000 at December 31, 1993.
6. Premises and Equipment
Premises and equipment at December 31, 1995 and 1994, is detailed below (in
thousands):
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Land $ 4,426 $ 4,293
Premises 18,532 18,258
Furniture and equipment 11,713 11,534
Leasehold improvements 744 744
------- -------
35,415 34,829
Less: Accumulated depreciation
and amortization 24,148 23,075
------- -------
Premises and equipment, net $11,267 $11,754
======= =======
</TABLE>
Depreciation and amortization charged to operating expense for the years ended
December 31, 1995, 1994, and 1993, amounted to $1,259,000, $1,462,000, and
$1,546,000, respectively.
7. Deposits
Time deposits in denominations of $100,000 and over at December 31, 1995 and
1994, consisted of the following (in thousands):
11
<PAGE>
<TABLE>
<CAPTION>
1995 1994
------- -------
<S> <C> <C>
Certificates of deposit $15,790 $12,095
Other time deposits 8,243 6,896
------- -------
Total $24,033 $18,991
======= =======
</TABLE>
Interest expense relating to time deposits in denominations of $100,000 and
over, totalled $1,189,000 in 1995, $682,000 in 1994, and $653,000 in 1993.
8. Securities Sold Under Repurchase Agreements
Balances and rates of securities sold under repurchase agreements for the years
ended December 31, 1995 and 1994, were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- ---------
<S> <C> <C>
Balance at end of year $72,119 $110,141
Average during year 65,805 55,228
Maximum month-end balance during year 91,536 110,141
Average rate during year 4.81% 3.34%
Rate at end of year 4.28 4.98
</TABLE>
9. Other Borrowed Funds
Other borrowed funds consist of Treasury tax and loan obligations due on demand.
Interest on the Treasury tax and loan notes is computed at a rate equal to 25
basis points below the weekly average federal funds rate. Balances and rates
for the years ended December 31, 1995 and 1994, were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- --------
<S> <C> <C>
Balance at end of year $ 8,990 $12,341
Average during year 7,644 8,669
Maximum month-end balance during year 11,363 14,153
Average rate during year 5.59% 3.98%
Rate at end of year 5.07 5.11
</TABLE>
10. Incentive Stock Option Plans
The United Counties Bancorporation 1984 and 1989 Incentive Stock Option Plans
became effective after approval by stockholders on December 13, 1984, and
January 12, 1989, respectively. The Plans are designed to provide long-term
equity incentives to key officers and executives to foster the growth and
profitability of the Bancorporation and its subsidiaries. The Plans are
administered by a Committee of the Board of Directors. The 1989 Plan provides
that a maximum of 100,000 shares of common stock may be granted in the form of
Incentive Stock Options, whereas the 1984 Plan provides that a maximum of
125,000 shares of common stock may be granted. Options are granted at the fair
market value of the stock on the date of the grant. Options are exercisable in
full or in installments as specified by the Committee, provided a minimum of 10%
of the eligible shares are exercised. The 1984 Plan terminated during December
1994. The 1989 Plan terminates on December 31, 1999.
12
<PAGE>
Transactions in the Plans were as follows:
<TABLE>
<CAPTION>
Number of Shares
--------------------- ---------------
Available Under Option price
for Option Option per share
----------- -------- ---------------
<S> <C> <C> <C>
1989 Plan
Balance at December 31, 1992 71,320 33,280 $ 50.25-$ 73.00
Options granted (7,325) 7,325 $ 86.50
Options cancelled 1,200 (1,200) $ 54.00-$ 73.00
Options exercised (1,925) $ 54.00
-------- ------- ---------------
Balance at December 31, 1993 65,195 37,480 $ 50.25-$ 86.50
Options granted (1,900) 1,900 $104.25-$134.75
Options cancelled 1,475 (1,475) $ 54.00-$ 73.00
Options exercised (4,883) $ 54.00
-------- ------- ---------------
Balance at December 31, 1994 64,770 33,022 $ 50.25-$134.75
Options granted (14,513) 14,513 $112.00-$125.75
Options cancelled 5,750 (5,750) $ 54.00-$134.75
Options exercised (4,732) $ 53.50-$ 54.50
-------- ------- ---------------
Balance at December 31, 1995 56,007 37,053 $ 50.25-$134.75
======== ======= ===============
1984 Plan
Balance at December 31, 1992 2,523 42,988 $ 28.75-$ 69.75
Options granted (1,585) 1,585 $ 86.50
Options cancelled 1,072 (1,072) $ 54.00-$ 86.50
Options exercised (10,110) $ 28.75-$ 54.00
-------- ------- ---------------
Balance at December 31, 1993 2,010 33,391 $ 28.75-$ 86.50
Options granted (1,600) 1,600 $ 134.75
Options cancelled 542 (542) $ 54.00
Options terminated (952) -
Options exercised (17,752) $ 28.75-$ 54.00
-------- ------- ---------------
Balance at December 31, 1994 0 16,697 $ 28.75-$134.75
Options granted - -
Options cancelled 3,365 (3,365) $ 54.00-$134.75
Options terminated (3,365) -
Options exercised (2,363) $ 54.00
-------- ------- ---------------
Balance at December 31, 1995 0 10,969 $ 28.75-$134.75
======== ======= ===============
</TABLE>
The number of shares that were exercisable at December 31, 1995, were 560.
13
<PAGE>
11. Dividend Restrictions
Certain limitations are imposed by New Jersey statutes on the availability of a
subsidiary bank's undistributed net assets for the payment of dividends to the
parent company without prior approval of the regulatory authorities. The Bank
may pay dividends only if, following the payment of each such dividend, the
capital stock of the subsidiary bank will not be impaired and (1) the Bank will
have additional paid-in capital of not less than 50% of its capital stock, or,
if not, (2) the payment of such dividends will not reduce the additional paid-in
capital of the Bank. The Bank is also subject to the Federal Deposit Insurance
Corporation regulations that require the Bank to maintain minimum capital
ratios. Under current law, a minimum leverage ratio of 4%, Tier 1 risk-based
capital ratio of 4% and total risk-based capital ratio of 8% must be maintained.
At December 31, 1995, the capital accounts of the Bank totalled $154,399,000 of
which $88,420,000 was available for the payment of dividends to the parent
company.
12. Other Income and Expense
Included in other income and expense for the years ended December 31, 1995,
1994, and 1993, are the following major components, which represent more than
one percent of total interest income and other operating income (in thousands):
<TABLE>
<CAPTION>
Year Ended December 31,
-----------------------
1995 1994 1993
------- ------ ------
<S> <C> <C> <C>
Other income:
Credit card merchant fees $ 3 $1,465 $1,813
====== ====== ======
Other expense:
Credit card merchant expenses
(refunds) $ (32) $1,007 $1,390
====== ====== ======
Telephone, postage, and
communication expenses $2,064 $2,210 $2,494
====== ====== ======
</TABLE>
14
<PAGE>
13. Retirement and Profit Sharing Plans
The Bank has a trusteed noncontributory retirement plan for its eligible
employees. Plan assets consist primarily of common stock, United States
government and corporate obligations.
Pension costs for 1995 and 1994 are based on data from the September 30, 1995
and 1994, evaluation data. They include the following components (in
thousands):
<TABLE>
<CAPTION>
September 30,
--------------------------
1995 1994 1993
-------- -------- ------
<S> <C> <C> <C>
Service cost-benefits earned during
the period $ 423 $ 408 $ 474
Interest cost on projected benefit
obligation 868 820 781
Return on assets (1,597) (133) (676)
Amortization of net gain (loss) 352 (1,146) (604)
------- ------- -----
Pension expense (credit) $ 46 $ (51) (25)
======= ======= =====
</TABLE>
The funded status of the pension plan is as follows:
<TABLE>
<CAPTION>
September 30,
-------------------
1995 1994
-------- --------
<S> <C> <C>
Actuarial present value of:
Vested benefit obligation $ 9,900 $ 9,800
======== ========
Accumulated benefit obligation $ 10,000 $ 10,000
======== ========
Projected benefit obligation $(12,015) $(11,867)
Plan assets at fair value 14,978 14,024
-------- --------
Excess of plan assets over projected
benefit obligation 2,963 2,157
Unrecognized prior service credit (130) (149)
Unrecognized market value over book
value of assets (1,649) (582)
Unrecognized gain (1,179) (1,376)
-------- --------
Accrued pension credit $ 5 $ 50
======== ========
</TABLE>
The projected benefit obligation was determined using an assumed discount rate
of 7.50%, an assumed long-term rate of compensation increase of 6.00%, and an
expected long-term rate of return on plan assets of 7.50% for 1995 and 1994.
In addition to the pension plan, the Bank has a defined profit sharing plan
which provides for annual contributions based on net operating income.
Substantially all employees of the Bank are eligible. Profit sharing expense
was $1,618,000, $1,996,000, and $2,109,000 for 1995, 1994, and 1993,
respectively.
15
<PAGE>
The Bank also provides certain health care and life insurance benefits for
retired employees. Current eligible employees must satisfy certain service and
age requirements in order to be covered for post-retirement benefits other than
pensions. Currently, the Plan is not required to fund a separate trusteed
account. The assumed health care cost trend is 12% per annum.
Postretirement costs for 1995 and 1994 are based on data from the January 1,
1995 and 1994 evaluation data. They include the following components (in
thousands):
<TABLE>
<CAPTION>
December 31,
-------------------------
1995 1994 1993
-------- -------- -----
<S> <C> <C> <C>
Service cost $ 218 $ 219 $ 206
Interest cost 606 570 549
Amortization of net loss -0- 6 48
------- ------- -----
Net periodic postretirement benefit cost $ 824 $ 795 $ 803
======= ======= =====
</TABLE>
The unfunded status of the postretirement plan is as follows:
<TABLE>
<CAPTION>
December 31,
-----------------
1995 1994
------- -------
<S> <C> <C>
Fair value of assets $ -0- $ -0-
Accumulated Postretirement Benefit
Obligation:
A) Retirees (3,931) (3,405)
B) Other fully eligible plan
participants (617) (431)
C) Other active plan participants (5,139) (3,421)
------- -------
Unfunded status (9,687) (7,257)
------- -------
Unrecognized loss 1,886 120
Unrecognized transition obligation -0- -0-
------- -------
Accrued postretirement benefit cost $(7,801) $(7,137)
======= =======
Effect of a 1% increase in the medical inflation rate:
Increase in the aggregate of the service and
interest cost components of net periodic
postretirement benefit cost $ 63 $ 61
Increase in the accumulated postretirement
benefit obligation 680 490
------- -------
Total $ 743 $ 551
======= =======
</TABLE>
The present value of the accumulated benefit obligation assumed a discount rate
of 7.00% in 1995 and 8.50% in 1994. The rate of increase used in future
compensation levels was 6.00% for both 1995 and 1994.
16
<PAGE>
14. Leases
Future minimum rental payments under noncancellable leasehold commitments as of
December 31, 1995, are not material in relation to the consolidated financial
statements.
15. Income Taxes
Effective January 1, 1993, the Bancorporation adopted FASB No. 109, "Accounting
for Income Taxes". The cumulative effect of this accounting change reduced net
income by $579,000. As permitted, prior year financial statements have not been
restated. However, certain deferred tax information for 1994 has been adjusted
from amounts previously presented to conform with tax returns filed for these
periods.
The current and deferred amounts of income tax expense (benefit) at December 31,
1995, 1994, and 1993, were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- -------- --------
<S> <C> <C> <C>
Current:
Federal $10,139 $11,132 $12,739
State 743 1,424 1,958
Foreign 217 - -
Deferred:
Federal 5,312 (94) (1,072)
State 323 (70) (145)
------- ------- -------
Total income tax expense $16,734 $12,392 $13,480
======= ======= =======
</TABLE>
The Bancorporation has established a deferred tax liability of $5,634,000 as a
result of the net unrealized gains on securities designated as available-for-
sale under the provisions of FASB No. 115, "Accounting for Certain Investments
in Debt and Equity Securities". See Notes 1 and 3.
The significant components of the Corporations deferred tax assets and
liabilities at December 31, 1995, and 1994, were as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994
-------- ------
<S> <C> <C>
Deferred tax liabilities:
Accretion on bond discounts, net $ 1,023 $ 401
Net unrealized gain on securities
available-for-sale 5,634 3,703
Gain on exchange of securities
available-for-sale 4,957 -
------- ------
Total deferred tax liabilities 11,614 4,104
------- ------
</TABLE>
17
<PAGE>
<TABLE>
<CAPTION>
1995 1994
-------- ------
<S> <C> <C>
Deferred tax assets:
Excess book bad debt 3,359 3,382
Postretirement benefits 3,428 3,108
New Jersey Corporate business tax 941 1,281
Book over tax depreciation 588 496
Book over tax core deposit premium
amortization 540 696
Other 93 207
------- ------
Total deferred tax assets 8,949 9,170
------- ------
Net deferred tax asset (liability) $(2,665) $5,066
======= ======
</TABLE>
As required by FASB 109, the Bancorporation has determined that it is not
required to establish a valuation reserve for the deferred tax asset account
since it is "more likely than not" that the deferred tax asset will be realized
through a carryback to taxable income in prior years, future reversals of
existing taxable temporary differences, future taxable income and tax planning
strategies. The conclusion that it is "more likely than not" that the deferred
tax asset will be realized is based on the history of earnings and the prospects
for continued growth including an analysis of potential uncertainties that may
affect future operating results. Management believes that future taxable income
will be sufficient to realize the benefits of temporary deductible differences
that cannot be realized through carryback to prior years or through the reversal
of future temporary taxable differences. Management will continue to review the
tax criteria related to the recognition of deferred tax assets.
The significant components of the 1995 and 1994 deferred expense (benefit) were
as follows (in thousands):
1995 1994 1993
------ ------ --------
Deferred income tax expense (benefit) $5,635 $(164) $(1,217)
====== ====== ========
A reconciliation between the amount of reported total income tax expense and the
amount computed by multiplying the applicable statutory federal income tax rate
to income before taxes is as follows (in thousands):
<TABLE>
<CAPTION>
1995 1994 1993
------- ------- -------
<S> <C> <C> <C>
Tax expense at statutory rate 35.0 % 35.0 % 35.0 %
Tax-exempt interest (0.7) (1.0) (1.5)
State income taxes,
net of federal income
tax benefit 1.4 2.4 3.1
Other - net (1.5) (0.7) (0.8)
----- ----- -----
Total 34.2 % 35.7 % 35.8 %
===== ===== =====
</TABLE>
18
<PAGE>
Income tax expense (benefit) applicable to securities gains (losses) for the
years ended December 31, 1995, 1994, and 1993, was $5,020,000, zero, and
$(63,000), respectively.
16. Commitments and Contingent Liabilities
The Bancorporation may, from time to time, be a defendant in legal proceedings
relating to the conduct of its business. In the normal course of business there
also are outstanding various contingent liabilities, such as commitments to
extend credit (including standby letters of credit in the amount of $7,128,000
at December 31, 1995, and $7,327,000 at December 31, 1994) which are not
reflected in the accompanying consolidated financial statements. In the
judgement of management, the consolidated financial position of the
Bancorporation and its subsidiaries will not be affected materially by the final
outcome of any present legal proceedings or other contingent liability.
The Bancorporation is party to financial obligations with off-balance sheet risk
incurred in the normal course of business. These instruments are commitments to
extend credit in the form of loans totalling $164,922,000 at December 31, 1995,
and $185,847,000 at December 31, 1994. The exposure of the Bancorporation to
credit loss in the event of non-performance by the other party to these
financial instruments is equal to the contractual amount. The Bancorporation
uses the same credit policies in granting these commitments as it does for loans
presently outstanding. Collateral is obtained when deemed appropriate. These
commitments do not necessarily represent future obligations. A substantial
portion of the commitments historically have remained unused, or if used, would
be secured by mortgages on real estate.
17. Parent Company Only Financial Statements
The condensed financial statements of the parent company only are presented
below (in thousands):
19
<PAGE>
<TABLE>
<CAPTION>
December 31,
-----------------------------
1995 1994
--------- ---------
<S> <C> <C>
Balance Sheets
Assets:
Cash $ 76 $ 91
Securities available-for-sale 39,695 25,938
Investment in subsidiaries 154,712 156,184
Repurchase agreements 18,950 4,075
Other assets 24 19
-------- --------
Total assets $213,457 $186,307
======== ========
Liabilities and Stockholders' Equity:
Liabilities $ 8,828 $ 4,724
Stockholders' Equity 226,862 203,185
Less: treasury stock, at cost -
381,438 shares in 1995 and
376,270 shares in 1994 22,233 21,602
-------- --------
Total stockholders' equity 204,629 181,583
-------- --------
Total liabilities and
stockholders' equity $213,457 $186,307
======== ========
Year ended December 31,
--------------------------------
1995 1994 1993
--------- -------- ---------
Statements of Income
Income:
Dividends from subsidiaries $ 27,907 $ 8,212 $ 9,219
Net security gains (losses) 13,768 -0- (172)
Other dividend income 1,721 589 605
Interest income 635 105 41
--------- -------- --------
Total income 44,031 8,906 9,693
--------- -------- --------
Expense:
Interest expense -0- -0- 1
Other expenses 409 395 184
--------- -------- --------
Total expenses 409 395 185
Income before income tax (benefit) expense
and equity in undistributed income of
subsidiaries 43,622 8,511 9,508
Income tax (benefit) expense 5,650 (40) (82)
--------- -------- --------
Income before equity in undistributed
income of subsidiaries 37,972 8,551 9,590
Equity in undistributed income of
subsidiaries (5,783) 15,241 14,024
--------- -------- --------
Net income $ 32,189 $ 23,792 $ 23,614
========= ======== ========
</TABLE>
20
<PAGE>
<TABLE>
<CAPTION>
Year ended December 31,
---------------------------------
1995 1994 1993
---------- --------- ---------
<S> <C> <C> <C>
Statements of Cash Flow
Operating Activities:
Net income $ 32,189 $ 23,792 $ 23,614
Adjustments to reconcile net income
to net cash from operating activities
Equity in undistributed income
of subsidiaries 7,764 (15,241) (14,024)
Gain on exchanges of securities
available-for-sale (13,596) - -
(Gains) losses on sales of securities (172) -0- 172
(Increase) decrease in other assets 13 1,934 (254)
Increase (decrease) in other liabilities 3,152 (14) (12)
--------- --------- --------
Total adjustments (2,839) (13,321) (14,118)
--------- --------- --------
Net cash from operating activities 29,350 10,471 9,496
--------- --------- --------
Investing Activities:
Purchases of securities
available-for-sale (3,757) (115) -
Proceeds from sales of investment
securities 898 -0- 675
Purchase of investment securities -0- -0- (131)
Net (increase) decrease in short-term
investments (14,875) (1,945) (2,130)
--------- --------- --------
Net cash from (applied to) investing
activities (17,734) (2,060) (1,586)
--------- --------- --------
Financing Activities:
Net increase (decrease) in short-term
borrowings -0- -0- (260)
Payments to acquire treasury stock (631) (881) (2,741)
Dividends paid (11,383) (8,537) (5,358)
Proceeds from exercise of stock options 383 1,000 516
--------- --------- --------
Net cash applied to financing activities (11,631) (8,418) (7,843)
--------- --------- --------
Net increase (decrease) in cash and
cash equivalents (15) (7) 67
--------- --------- --------
Cash and cash equivalents at beginning
of year 91 98 31
--------- --------- --------
Cash and cash equivalents at end
of year $ 76 $ 91 $ 98
========= ========= ========
</TABLE>
21
<PAGE>
18. Quarterly Financial Data (unaudited)
The following is a summary of quarterly financial data of the Bancorporation
and, in the opinion of management, reflects necessary adjustments for a fair
presentation of such data (in thousands, except per share amounts):
<TABLE>
<CAPTION>
Three Months Ended
--------------------------------------------------
1995 Dec. 31 Sept. 30 June 30 March 31
-------- --------- ------- ---------
<S> <C> <C> <C> <C>
Total interest income $25,139 $25,914 $25,832 $26,040
Total interest expense 9,715 10,299 10,144 10,055
------- ------- ------- -------
Net interest income $15,424 $15,615 $15,688 $15,985
======= ======= ======= =======
Provision for loan losses $ -0- $ -0- $ (500) $ -0-
======= ======= ======= =======
Security gains $ 1,505 $ 255 $ - $12,008
======= ======= ======= =======
Income before income taxes $10,075 $ 9,335 $ 8,952 $20,561
Income taxes 3,395 3,176 2,935 7,228
------- ------- ------- -------
Net income $ 6,680 $ 6,159 $ 6,017 $13,333
======= ======= ======= =======
Net income per share $3.11 $2.87 $2.81 $6.21
======= ======= ======= =======
Average number of shares
outstanding 2,149 2,146 2,143 2,147
======= ======= ======= =======
Three Months Ended
-----------------------------------------------
1994 Dec. 31 Sept. 30 June 30 March 31
-------- --------- ------- ---------
Total interest income $25,644 $25,590 $25,058 $24,518
Total interest expense 9,179 9,074 8,434 7,893
------- ------- ------- -------
Net interest income $16,465 $16,516 $16,624 $16,625
======= ======= ======= =======
Provision for loan losses $ -0- $ (200) $ (325) $ (300)
======= ======= ======= =======
Income before income taxes $ 8,690 $ 8,746 $ 9,563 $ 9,185
Income taxes 2,617 2,765 3,563 3,447
------- ------- ------- -------
Net income $ 6,073 $ 5,981 $ 6,000 $ 5,738
======= ======= ======= =======
Net income per share $2.82 $2.80 $2.81 $2.69
======= ======= ======= =======
Average number of shares
outstanding 2,148 2,138 2,136 2,134
======= ======= ======= =======
</TABLE>
22
<PAGE>
19. Fair Value of Financial Instruments
A financial instrument is defined as cash, evidence of an ownership interest, or
participation in certain contracts. This definition would include virtually all
assets, liabilities, and off-balance sheet instruments. Fair value is defined
as the amount at which an instrument could be exchanged in a current arms length
transaction between willing parties other than in a forced or liquidation sale
and given sufficient exposure to the marketplace.
The fair value estimates presented are determined based upon relevant
information as well as knowledge about the financial instrument at a particular
time. The Bancorporation utilizes quoted market prices when available. Since
only a limited market exists for a portion of the Bancorporations financial
instruments, fair value estimates are based on the discounted cash flow method.
This technique takes account current economic conditions, risk characteristics,
and other factors which warrant consideration. These estimates are subjective
in nature, involve uncertainties, and matters of significant judgement; and
therefore; cannot be determined with exact accuracy. Changes in assumptions
could significantly affect the estimates presented. Additionally, the fair
value estimates disclosed are based upon existing on and off-balance sheet
financial instruments without attempting to estimate the value of any
anticipated future business and only consider assets and liabilities that are
financial instruments.
The methods and assumptions used to estimate the fair value of significant
financial instruments were as follows. Book value is considered to approximate
fair value for cash and due from banks, money market investments, federal funds
sold, and deposit liabilities with no defined maturity. Quoted market prices
are generally used to ascertain fair values of investment securities and
securities available-for-sale.
The fair value of loans is calculated by discounting estimated future cash flows
at applicable rates. For time deposit liabilities and securities sold under
repurchase agreements, fair value was estimated by discounting future cash flows
using currently offered market rates for obligations of similar remaining
maturities.
The fair value of both commitments to extend credit and standby letters of
credit are estimated using fees currently charged to enter into similar
agreements. The value of these amounts, which are considered immaterial, are
deemed to approximate fair value and are included in the value of the related
financial instrument. If funded, the fair value of these commitments is equal
to the commitment amount. The estimated fair value of financial instruments and
their related carrying values at December 31, 1995 and 1994 were as follows (in
thousands):
23
<PAGE>
<TABLE>
<CAPTION>
Estimated Carrying
1995 Fair Value Value
- ----- ---------- ----------
<S> <C> <C>
Financial assets:
Cash and due from banks $ 67,498 $ 67,498
Money market investments 3,619 3,619
Securities available-for-sale 304,415 304,415
Investment securities 706,422 696,395
Federal funds sold 134,000 134,000
Net loans 380,053 375,815
Financial liabilities:
Deposits $1,312,676 $1,311,590
Securities sold under
repurchase agreements 72,860 72,199
Other borrowed funds 8,990 8,990
1994
- -----
Financial assets:
Cash and due from banks $ 93,221 $ 93,221
Money market investments 2,555 2,555
Securities available-for-sale 100,070 100,070
Investment securities 931,639 965,239
Federal funds sold 115,000 115,000
Net loans 359,761 363,284
Financial liabilities:
Deposits $1,353,491 $1,354,738
Securities sold under
repurchase agreements 110,457 110,141
Other borrowed funds 12,341 12,341
</TABLE>
20. Pending Acquisition
On May 24, 1995 United Counties Bancorporation announced that it signed a
definitive merger agreement with Meridian Bancorp, Inc., Reading, Pennsylvania,
pursuant to which United Counties Bancorporation will be acquired in a tax-free,
stock-for-stock Merger. Pursuant to the Merger, each of the outstanding shares
of United Counties Bancorporation common stock will be exchanged for five (5)
shares of Meridian common stock. United Counties Bancorporation will be merged
into Meridian and United Counties Bancorporation's wholly-owned subsidiary,
United Counties Trust Company will be merged into Meridian's wholly-owned
subsidiary, Meridian Bank, New Jersey. The acquisition became effective on
February 23, 1996.
On October 10, 1995, Meridian Bancorp, Inc. announced the signing of a
definitive merger agreement with CoreStates Financial Corp (CoreStates)of
Philadelphia, Pennsylvania. Under the terms of this agreement, each share of
Meridian common stock will be exchanged for 1.225 shares of CoreStates common
stock and is dependent upon necessary bank regulatory and shareholder approvals
and other customary terms and conditions.
24
<PAGE>
At the effective date of the Merger between Meridian Bancorp, Inc. and United
Counties Bancorporation a non-recurring charge of approximately $16.0 million,
$14.5 million after the related tax effects, will be incurred. These expenses
relate directly to the Merger and include $10.3 million of human resources-
related costs, including employment contracts and severance; $1.5 million of
operations and data processing integration-related expenses; and $4.2 million of
other expenses, including investment banker fees and legal expenses. Deferred
taxes receivable, at statutory rates, totalling $1.5 million are reflected in
other assets.
25
<PAGE>
Exhibit 99.2
Independent Auditors' Report
----------------------------
The Board of Directors and Stockholders
United Counties Bancorporation:
We have audited the accompanying consolidated balance sheets of United Counties
Bancorporation and subsidiaries as of December 31, 1995 and 1994, and the
related consolidated statements of income, changes in stockholders' equity, and
cash flow for each of the years in the three-year period ended December 31,
1995. These consolidated financial statements are the responsibility of the
Bancorporation's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by management, as well as evaluating the overall financial statement
presentation. We believe that our audits provide a reasonable basis for our
opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of United Counties
Bancorporation and subsidiaries at December 31, 1995 and 1994, and the results
of their operations and their cash flow for each of the years in the three-year
period ended December 31, 1995 in conformity with generally accepted accounting
principles.
As discussed in notes 1, 3, and 15 to the consolidated financial statements, the
Bancorporation adopted Statement of Financial Accounting Standards No. 115,
"Accounting for Certain Investments in Debt and Equity Securities," in 1994, and
Statement of Financial Accounting Standards No. 109, "Accounting for Income
Taxes," in 1993.
KPMG PEAT MARWICK LLP
Short Hills, New Jersey
January 16, 1996, except for note 20,
which is as of February 23, 1996
<PAGE>
Exhibit 99.3
PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
DECEMBER 31, 1995
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CoreStates
CoreStates Meridian Meridian and Meridian
and and Pro Forma Meridian and
Subsidiaries Subsidiaries Adjustments Pro Forma Subsidiaries
-------------- -------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
ASSETS
Cash and due from banks $2,755,636 $839,010 $3,594,646 $839,010
Time deposits 1,841,799 67,461 1,909,260 67,461
Investment securities held-to-maturity 1,015,621 1,338,548 2,354,169 1,338,548
Investment securities available-for-sale 974,711 1,289,570 2,264,281 1,289,570
Loans 21,046,535 10,163,851 $126,267 (B,I) 31,336,653 10,163,851
Allowance for loan losses (495,075) (164,151) (70,000) (C) (729,226) (164,151)
Federal funds sold and securities
purchased under agreements to resell 594,868 5,069 599,937 5,069
Trading account securities 1,336 145,882 147,218 145,882
Due from customers on acceptances 549,557 11,128 560,685 11,128
Premises and equipment 406,279 246,731 653,010 246,731
Other assets 929,349 826,255 (63,829) (B,D,I) 1,691,775 826,255
-------------- -------------- ------------- ------------ --------------
Total assets $29,620,616 $14,769,354 ($7,562) $44,382,408 $14,769,354
============== ============== ============= ============ ==============
LIABILITIES
Deposits:
Domestic:
Non-interest bearing $6,700,599 $1,966,168 $8,666,767 $1,966,168
Interest bearing 13,661,766 9,180,799 22,842,565 9,180,799
Overseas branches and subsidiaries 1,140,068 2,879 1,142,947 2,879
-------------- -------------- ------------- ------------ --------------
Total deposits 21,502,433 11,149,846 32,652,279 11,149,846
Funds borrowed 2,091,722 1,518,181 3,609,903 1,518,181
Bank acceptances outstanding 549,048 11,128 560,176 11,128
Other liabilities 1,399,660 270,003 127,945 (C,H) 1,797,608 270,003
Long-term debt 1,698,334 513,765 2,212,099 513,765
-------------- -------------- ------------- ------------ --------------
Total liabilities 27,241,197 13,462,923 127,945 40,832,065 13,462,923
-------------- -------------- ------------- ------------ --------------
SHAREHOLDERS' EQUITY
Common stock 145,875 293,440 (222,251) (E) 217,064 293,440
Capital surplus 793,714 222,801 203,602 (E) 1,220,117 222,801
Retained earnings 1,690,295 862,505 (135,507) (C,H) 2,417,293 862,505
Treasury Stock (250,465) (18,649) 18,649 (E) (250,465) (18,649)
Unallocated shares held by ESOP - (53,666) (53,666) (53,666)
-------------- -------------- ------------- ------------ --------------
Total shareholders' equity 2,379,419 1,306,431 (135,507) 3,550,343 1,306,431
-------------- -------------- ------------- ------------ --------------
Total liabilities and
shareholders' equity $29,620,616 $14,769,354 ($7,562) $44,382,408 $14,769,354
============== ============== ============= ============ ==============
Book value per share (3) $17.24 $23.24 $17.16 $23.24
============== ============== ============ ==============
<CAPTION>
Pro Forma
UCB UCB Meridian Combined
and Pro Forma and UCB All
Subsidiaries Adjustments Pro Forma Transactions
-------------- ------------- ------------ --------------
<S> <C> <C> <C> <C>
ASSETS
Cash and due from banks $67,498 $906,508 $3,662,144
Time deposits - 67,461 1,909,260
Investment securities held-to-maturity 696,395 2,034,943 3,050,564
Investment seucrities available-for-sale 304,415 1,593,985 2,568,696
Loans 386,852 10,550,703 31,723,505
Allowance for loan losses (11,037) (175,188) (740,263)
Federal funds sold and securities
purchased under agreements to resell 137,619 142,688 723,556 (A)
Trading account securities - 145,882 147,218
Due from customers on acceptances - 11,128 560,685
Premises and equipment 11,267 257,998 664,277
Other assets 28,242 $1,500 (J) 855,997 1,721,517
-------------- ------------- ------------ --------------
Total assets $1,621,251 $ 1,500 $16,392,105 $45,991,159
============== ============= ============ ==============
LIABILITIES
Deposits:
Domestic:
Non-interest bearing $270,430 $2,236,598 $8,937,197
Interest bearing 1,041,160 10,221,959 23,883,725
Overseas branches and subsidiaries - 2,879 1,142,947
-------------- ------------- ------------ --------------
Total deposits 1,311,590 12,461,436 33,963,869
Funds borrowed 81,109 1,599,290 3,677,012 (A)
Bank acceptances outstanding - 11,128 560,176
Other liabilities 23,923 $16,000 (J) 309,926 1,837,531
Long-term debt - 513,765 2,212,099
-------------- ------------- ------------ --------------
Total liabilities 1,416,622 16,000 14,895,545 42,250,687
-------------- ------------- ------------ --------------
SHAREHOLDERS' EQUITY
Common stock 2,531 51,210 (F) 347,181 230,231 (G)
Capital surplus 24,323 (73,443) (F) 173,681 1,211,571 (G)
Retained earnings (3) 200,008 (14,500) (J) 1,048,013 2,602,801
Treasury Stock (22,233) 22,233 (F) (18,649) (250,465) (G)
Unallocated shares held by ESOP (53,666) (53,666)
-------------- ------------- ------------ --------------
Total shareholders' equity 204,629 (14,500) 1,496,560 3,740,472
-------------- ------------- ------------ --------------
Total liabilities and
shareholders' equity $1,621,251 $1,500 $16,392,105 $45,991,159
============== ============= ============ ==============
Book value per share (3) $95.19 $22.35 $17.00
============== ============ ==============
</TABLE>
See footnotes to the Pro Forma Condensed Combined Balance Sheet.
1
<PAGE>
FOOTNOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
(A) Reflects elimination of intercompany Federal funds transactions between
CoreStates and UCB.
(B) In connection with Statement of Financial Accounting Standards No. 114,
"Accounting by Creditors for Impairment of a Loan" ("FAS 114"), CoreStates
prospectively adopted effective January 1, 1995 the provisions of FAS 114
as they relate to the classification of loans previously determined to be
"in substance foreclosed." In accordance with FAS 114, loans determined to
be in substance foreclosed should be reclassified to loans and the charges
associated with write downs against in substance foreclosed loans should be
reclassified to the provision for losses on loans from non-financial
expenses. As in substance foreclosed loans are immaterial to CoreStates,
CoreStates' historical financial information reflects in substance
foreclosed loans as a component of other real estate owned ("OREO") in
other assets and the charges associated with write downs against in
substance foreclosed loans in other non-financial expenses.
Meridian adopted FAS 114 on January 1, 1995 and reclassified in substance
foreclosed loans in its historical financial information from OREO/other
assets to loans, and writedowns against in substance foreclosed loans from
other non-financial expenses to the provision for losses on loans.
As permitted under pooling of interests accounting, the pro forma financial
information is presented as if CoreStates reclassified in substance
foreclosed loans to loans, and writedowns against in substance foreclosed
loans from other non-financial expenses to the provision for losses on
loans for all periods presented.
In substance foreclosed loans for UCB are immaterial.
(C) Based on a preliminary review of Meridian's loan portfolio, CoreStates has
decided to take a different approach to the workout of certain assets. It
is CoreStates' philosophy that this change maximizes the total value of the
Merger and allows the Continuing Corporation to concentrate upon new
franchise initiatives and revenue generation. In CoreStates' general
experience, a strategy that involves the accelerated resolution of problem
assets has been more economical than a long-term work out approach. It has
been CoreStates' general experience that the costs of working out assets as
well as other carrying costs typically outweigh any improvement in those
assets' realized value. Furthermore, the process of working out problem
assets diverts resources and management time and attention from building
the business and creating long-term franchise value. CoreStates currently
estimates that in connection with the change in strategic direction and to
conform Meridian's consumer lending charge-off policies to those of
CoreStates, CoreStates will take an addition to the allowance for possible
loan losses of approximately $70 million and, accordingly, has adjusted
December 31, 1995 pro forma shareholders' equity by $70.0 million, $45.5
million after-tax. Based on the preliminary review, CoreStates currently
estimates that $66 million of the estimated provision relates to this
change in strategy and approximates 25% to 30% of the carrying value of
these assets. It is also estimated that the conforming adjustments, mostly
related to consumer lending charge-off policies, will comprise
approximately $4 million of the $70 million estimated provision.
Pro forma shareholders' equity at December 31, 1995 also reflects net
charges of approximately $105.0 million. These charges, which are based on
preliminary review, include: $40.0 million to $60.0 million for employee
severance costs; $25.0 million for the costs of consolidating and closing
branches and other duplicate facilities (net of anticipated gains on
branches expected to be sold); and $30.0 million for other expenses
directly attributable to the Merger. Accordingly, pro forma shareholders'
equity at December 31, 1995 has been reduced by $75.1 million, the net
after-tax effect of the charges and expenses directly attributable to the
Merger (net of anticipated gains on branches expected to be sold).
(D) Reflects deferred taxes receivable at statutory rates totaling $54.4
million related to the approximately $105.0 million of expenses directly
attributable to the Merger (net of anticipated gains on branches expected
to be sold) and the $70.0 million addition to Meridian's allowance for
possible loan losses.
2
<PAGE>
FOOTNOTES TO PRO FORMA CONDENSED COMBINED BALANCE SHEET
(UNAUDITED)
(E) Reflects the conversion of 58.114 million outstanding shares of Meridian
Common Stock on into 71.189 million shares of CoreStates Common Stock on
December 31, 1995 after giving effect to the cancellation of 574 thousand
shares of Meridian Common Stock held as treasury stock.
(F) Reflects the conversion of 2.150 million outstanding shares of UCB Common
Stock into 10.748 million shares of Meridian Common Stock on December 31,
1995 after giving effect to the cancellation of 381 thousand shares of UCB
Common Stock held as treasury stock.
(G) Reflects the conversion of 68.862 million pro forma shares of Meridian
Common Stock into 84.356 million shares of CoreStates Common Stock on
December 31, 1995 after giving effect to the cancellation of 574 thousand
shares of Meridian Common Stock held as treasury stock.
(H) Reflects the conforming accounting adjustment related to the pro forma
adoption by Meridian of the FAS 106 transitional liability of $28.8
million, $18.7 million after-tax, effective January 1, 1992. See footnote C
to Pro Forma Condensed Combined Statements of Income on page 10.
(I) Loans held for sale in CoreStates' historical financial information have
not exceeded the requirements for separate balance sheet disclosure and
accordingly have been included in total loans. Meridian's historical
financial information reflects loans held for sale as a separate caption on
the balance sheet (or in other assets in a condensed balance sheet). In the
pro forma financial information, combined loans held for sale do not exceed
the requirements for separate balance sheet disclosure and therefore
Meridian's loans held for sale have been reclassified to total loans.
(J) Reflects charges of approximately $16.0 million, $14.5 million after the
related tax effects, which include expenses directly attributable to
Meridian's acquisition of UCB. These expenses include $10.3 million
of human resources related costs, including employment contracts and
severance; $1.5 million for elimination of duplicate operations and data
processing facilities; and $4.2 million of other expenses, including
investment banker fees and legal expenses. Deferred taxes receivable, at
statutory rates, totaling $1.5 million are reflected in other assets.
3
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
(UNAUDITED)
TWELVE MONTHS ENDED DECEMBER 31, 1995
(in thousands, except per share amounts)
CoreStates
CoreStates Meridian Meridian and Meridian
and and Pro Forma Meridian and
Subsidiaries Subsidiaries Adjustments Pro Forma Subsidiaries
-------------- -------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $1,992,936 $907,005 $2,899,941 $907,005
Interest on investment securities 138,110 175,986 314,096 175,986
Interest on time deposits in banks 116,689 5,293 121,982 5,293
Other interest income 14,570 22,138 36,708 22,138
-------------- -------------- ------------- ------------ --------------
Total interest income 2,262,305 1,110,422 0 3,372,727 1,110,422
-------------- -------------- ------------- ------------ --------------
INTEREST EXPENSE
Interest on deposits 532,703 371,727 904,430 371,727
Interest on funds borrowed 119,667 91,426 211,093 91,426
Interest on long-term debt 121,401 31,587 152,988 31,587
-------------- -------------- ------------- ------------ --------------
Total interest expense 773,771 494,740 0 1,268,511 494,740
-------------- -------------- ------------- ------------ --------------
Net interest income 1,488,534 615,682 0 2,104,216 615,682
Provision for losses on loans 105,000 39,377 $125 (J) 144,502 39,377
-------------- -------------- ------------- ------------ --------------
Net interest income after provision for
losses on loans 1,383,534 576,305 (125) 1,959,714 576,305
-------------- -------------- ------------- ------------ --------------
NON-INTEREST INCOME
Securities gains 9,388 8,321 17,709 8,321
Other operating income 596,278 248,244 844,522 248,244
-------------- -------------- ------------- ------------ --------------
Total non-interest income 605,666 256,565 0 862,231 256,565
-------------- -------------- ------------- ------------ --------------
NON-FINANCIAL EXPENSES
Restructuring and merger related charges (G) 98,175 40,425 138,600 40,425
Other operating expenses 1,176,223 537,994 (1,565) (C,J) 1,712,652 537,994
-------------- -------------- ------------- ------------ --------------
Total non-financial expenses 1,274,398 578,419 (1,565) 1,851,252 578,419
-------------- -------------- ------------- ------------ --------------
Income before income taxes 714,802 254,451 1,440 970,693 254,451
Provision for income taxes 262,565 84,637 504 (C) 347,706 84,637
-------------- -------------- ------------- ------------ --------------
Net Income $452,237 $169,814 $936 $622,987 $169,814
============== ============== ============= ============ ==============
Average common shares outstanding 140,600 55,951 209,139 55,951
PER COMMON SHARE DATA (D)(H)
Income before cumulative effect of a change
in accounting principle $3.22 $3.04 $2.98 $3.04
Cash dividends declared $1.44 $1.45 $1.44 $1.45
<CAPTION>
Pro Forma
UCB Meridian Combined
UCB AND Pro Forma AND UCB All
Subsidiaries Adjustments Pro Forma Transactions(A)
-------------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $33,031 $940,036 $2,932,972
Interest on investment securities 65,521 241,507 379,617
Interest on time deposits in banks - 5,293 121,982
Other interest income 4,373 26,511 40,513 (B)
-------------- ------------- ----------- --------------
Total interest income 102,925 0 1,213,347 3,475,084
-------------- ------------- ----------- --------------
INTEREST EXPENSE
Interest on deposits 36,620 408,347 941,050
Interest on funds borrowed 3,593 95,019 214,118 (B)
Interest on long-term debt - 31,587 152,988
-------------- ------------- ----------- --------------
Total interest expense 40,213 0 534,953 1,308,156
-------------- ------------- ----------- --------------
Net interest income 62,712 0 678,394 2,166,928
Provision for losses on loans (500) 38,877 144,002
-------------- ------------- ----------- --------------
Net interest income after provision for
losses on loans 63,212 0 639,517 2,022,926
-------------- ------------- ----------- --------------
NON-INTEREST INCOME
Securities gains 13,768 22,089 31,477
Other operating income 5,384 253,628 849,906
-------------- ------------- ----------- --------------
Total non-interest income 19,152 0 275,717 881,383
-------------- ------------- ----------- --------------
NON-FINANCIAL EXPENSES
Restructuring and merger related charges(G) _ 40,425 138,600
Other operating expenses 34,507 572,501 1,747,159
-------------- ------------- ----------- --------------
Total non-financial expenses 34,507 0 612,926 1,885,759
-------------- ------------- ----------- --------------
Income before income taxes 47,857 0 302,308 1,018,550
Provision for income taxes 15,668 100,305 363,374
-------------- ------------- ----------- --------------
Net Income $32,189 $0 $202,003 $655,176
============== ============= =========== ==============
Average common shares outstanding 2,146 66,682 222,285
PER COMMON SHARE DATA (D)(H)
Income before cumulative effect of a
change in accounting principle $15.00 $3.03 $2.95
Cash dividends declared $5.30 $1.45 $1.44
</TABLE>
See Footnotes to Pro Forma Condensed Combined Statements of Income.
4
<PAGE>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
UNAUDITED
TWELVE MONTHS ENDED DECEMBER 31, 1994
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<TABLE>
<CAPTION>
CoreStates
CoreStates Meridian Meridian and
and and Pro Forma Meridian
Subsidiaries Subsidiaries Adjustments Pro Forma
-------------- -------------- ------------- -----------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $1,698,350 $789,290 $2,487,640
Interest on investment securities 156,931 179,568 336,499
Interest on time deposits in banks 66,389 4,607 70,996
Other interest income 7,857 11,575 19,432
-------------- -------------- ------------- -----------
Total interest income 1,929,527 985,040 2,914,567
-------------- -------------- ------------- -----------
INTEREST EXPENSE
Interest on deposits 364,858 283,256 648,114
Interest on funds borrowed 85,123 63,126 148,249
Interest on long-term debt 90,177 26,242 116,419
-------------- -------------- ------------- -----------
Total interest expense 540,158 372,624 912,782
-------------- -------------- ------------- -----------
Net interest income 1,389,369 612,416 2,001,785
Provision for losses on loans 246,900 28,086 $5,034 (J) 280,020
-------------- -------------- ------------- -----------
Net interest income after
provision for losses on loans 1,142,469 584,330 (5,034) 1,721,765
-------------- -------------- ------------- -----------
NON-INTEREST INCOME
Securities gains 18,753 4,807 23,560
Other operating income 548,787 223,219 772,006
-------------- -------------- ------------- -----------
Total non-interest income 567,540 228,026 795,566
-------------- -------------- ------------- -----------
NON-FINANCIAL EXPENSES
Restructuring and merger related
charges 108,700 - 108,700
Other operating expenses 1,208,861 579,668 (6,474) (C,J) 1,782,055
-------------- -------------- ------------- -----------
Total non-financial expenses 1,317,561 579,668 (6,474) 1,890,755
-------------- -------------- ------------- -----------
Income before income taxes 392,448 232,688 1,440 626,576
Provision for income taxes 143,656 70,600 504 (C) 214,760
-------------- -------------- ------------- -----------
Income before cumulative effect
of a change in accounting
principle (E)(F) $248,792 $162,088 $936 $411,816
============== ============== ============= ===========
Average common shares outstanding 142,498 57,661 213,133
PER COMMON SHARE DATA (D)
Income before cumulative effect
of a change in accounting
principle (E,F) $1.75 $2.81 $1.93
Cash dividends declared (H) $1.24 $1.34 $1.24
<CAPTION>
Meridian Pro Forma
Meridian UCB UCB and Combined
and and Pro Forma UCB All
Subsidiaries Subsidiaries Adjustments Pro Forma Transactions
-------------- -------------- ------------- ----------- --------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $789,290 $31,196 $820,486 $2,518,836
Interest on investment securities 179,568 66,637 246,205 403,136
Interest on time deposits in banks 4,607 - 4,607 70,996
Other interest income 11,575 2,977 14,552 21,591 (B)
-------------- -------------- ------------- ----------- --------------
Total interest income 985,040 100,810 1,085,850 3,014,559
-------------- -------------- ------------- ----------- --------------
INTEREST EXPENSE
Interest on deposits 283,256 32,393 315,649 680,507
Interest on funds borrowed 63,126 2,187 65,313 149,618 (B)
Interest on long-term debt 26,242 - 26,242 116,419
-------------- -------------- ------------- ----------- --------------
Total interest expense 372,624 34,580 407,204 946,544
-------------- -------------- ------------- ----------- --------------
Net interest income 612,416 66,230 678,646 2,068,015
Provision for losses on loans 28,086 (825) 27,261 279,195
-------------- -------------- ------------- ----------- --------------
Net interest income after
provision for losses on loans 584,330 67,055 651,385 1,788,820
-------------- -------------- ------------- ----------- --------------
NON-INTEREST INCOME
Securities gains 4,807 - 4,807 23,560
Other operating income 223,219 6,101 229,320 778,107
-------------- -------------- ------------- ----------- --------------
Total non-interest income 228,026 6,101 234,127 801,667
-------------- -------------- ------------- ----------- --------------
NON-FINANCIAL EXPENSES
Restructuring and merger related
charges - - - 108,700
Other operating expenses 579,668 38,326 617,994 1,820,381
-------------- -------------- ------------- ----------- --------------
Total non-financial expenses 579,668 38,326 617,994 1,929,081
-------------- -------------- ------------- ----------- --------------
Income before income taxes 232,688 34,830 267,518 661,406
Provision for income taxes 70,600 11,038 81,638 225,798
-------------- -------------- ------------- ----------- --------------
Income before cumulative effect
of a change in accounting
principle (E)(F) $162,088 $23,792 $0 $185,880 $435,608
============== ============== ============= =========== ==============
Average common shares outstanding 57,661 2,139 68,356 226,234
PER COMMON SHARE DATA (D)
Income before cumulative effect
of a change in accounting
principle (E,F) $2.81 $11.12 $2.72 $1.93
Cash dividends declared (H) $1.34 $3.29 $1.34 $1.24
</TABLE>
See Footnotes to Pro Forma Condensed Combined Statements of Income.
5
<PAGE>
<TABLE>
<CAPTION>
PRO FORMA CONDENSED COMBINED STATEMENT OF INCOME
UNAUDITED
TWELVE MONTHS ENDED DECEMBER 31, 1993
(IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
CoreStates
CoreStates Meridian Meridian and Meridian
and and Pro Forma Meridian and
Subsidiaries Subsidiaries Adjustments Pro Forma Subsidiaries
-------------- -------------- ------------- ------------ --------------
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $1,585,015 $742,298 $2,327,313 $742,298
Interest on investment securities 205,170 203,399 408,569 203,399
Interest on time deposits in banks 44,340 3,874 48,214 3,874
Other interest income 7,339 12,119 19,458 12,119
-------------- -------------- ------------- ------------ --------------
Total interest income 1,841,864 961,690 2,803,554 961,690
-------------- -------------- ------------- ------------ --------------
INTEREST EXPENSE
Interest on deposits 379,813 283,822 663,635 283,822
Interest on funds borrowed 67,001 30,518 97,519 30,518
Interest on long-term debt 69,779 30,058 99,837 30,058
-------------- -------------- ------------- ------------ --------------
Total interest expense 516,593 344,398 860,991 344,398
-------------- -------------- ------------- ------------ --------------
Net interest income 1,325,271 617,292 1,942,563 617,292
Provision for losses on loans 121,201 58,781 $9,215 (J) 189,197 58,781
-------------- -------------- ------------- ------------ --------------
Net interest income after provision for
losses on loans 1,204,070 558,511 (9,215) 1,753,366 558,511
-------------- -------------- ------------- ------------ --------------
NON-INTEREST INCOME
Securities gains 16,110 27,326 43,436 27,326
Other operating income 557,920 247,297 805,217 247,297
-------------- -------------- ------------- ------------ --------------
Total non-interest income 574,030 274,623 848,653 274,623
-------------- -------------- ------------- ------------ --------------
NON-FINANCIAL EXPENSES
Restructuring charge - 17,500 17,500 17,500
Other operating expenses 1,241,862 606,026 (10,636)(C,J) 1,837,252 606,026
-------------- -------------- ------------- ------------ --------------
Total non-financial expenses 1,241,862 623,526 (10,636) 1,854,752 623,526
-------------- -------------- ------------- ------------ --------------
Income before income taxes 536,238 209,608 1,421 747,267 209,608
Provision for income taxes 173,809 59,068 497 (C) 233,374 59,068
-------------- -------------- ------------- ------------ --------------
Income before cumulative effect of a
change in accounting principle (E,I) $362,429 $150,540 $924 $513,893 $150,540
============== ============== ============= ============ ==============
Average common shares outstanding 145,398 57,194 215,461 57,194
PER COMMON SHARE DATA (D)
Income before cumulative effect of a
change in accounting principle (E,I) $2.49 $2.63 $2.39 $2.63
Cash dividends declared (H) $1.14 $1.26 $1.14 $1.26
<CAPTION>
Meridian Pro Forma
UCB UCB and Combined
and Pro Forma UCB All
Subsidiaries Adjustments Pro Forma Transactions
-------------- ------------- ----------- --------------
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $31,666 $773,964 $2,358,979
Interest on investment securities 68,207 271,606 476,776
Interest on time deposits in banks - 3,874 48,214
Other interest income 2,099 14,218 20,980 (B)
-------------- ------------- ----------- --------------
Total interest income 101,972 1,063,662 2,904,949
-------------- ------------- ----------- --------------
INTEREST EXPENSE
Interest on deposits 31,652 315,474 695,287
Interest on funds borrowed 1,747 32,265 98,689 (B)
Interest on long-term debt - 30,058 99,837
-------------- ------------- ----------- --------------
Total interest expense 33,399 377,797 893,813
-------------- ------------- ----------- --------------
Net interest income 68,573 685,865 2,011,136
Provision for losses on loans 175 58,956 189,372
-------------- ------------- ----------- --------------
Net interest income after provision for
losses on loans 68,398 626,909 1,821,764
-------------- ------------- ----------- --------------
NON-INTEREST INCOME
Securities gains (losses) (172) 27,154 43,264
Other operating income 7,190 254,487 812,407
-------------- ------------- ----------- --------------
Total non-interest income 7,018 281,641 855,671
-------------- ------------- ----------- --------------
NON-FINANCIAL EXPENSES
Restructuring charge - 17,500 17,500
Other operating expenses 39,556 645,582 1,876,808
-------------- ------------- ----------- --------------
Total non-financial expenses 39,556 663,082 1,894,308
-------------- ------------- ----------- --------------
Income before income taxes 35,860 245,468 783,127
Provision for income taxes 11,667 70,735 245,041
-------------- ------------- ----------- --------------
Income before cumulative effect of a
change in accounting principle (E,I) $24,193 $0 $174,733 $538,086
============== ============= =========== ==============
Average common shares outstanding 2,142 67,904 228,580
PER COMMON SHARE DATA (D)
Income before cumulative effect of a
change in accounting principle (E,I) $11.29 $2.57 $2.35
Cash dividends declared (H) $2.60 $1.26 $1.14
</TABLE>
See Footnotes to Pro Forma Condensed Combined Statements of Income
6
<PAGE>
FOOTNOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(UNAUDITED)
(A) The Pro Forma Condensed Combined Statements of Income do not reflect the
estimated $70.0 million provision for losses on loans related to Meridian's
loan portfolio, or charges and expenses of approximately $105.0 million
directly attributable to the Merger since these charges are non-recurring.
See footnote C to footnotes to Pro Forma Condensed Combined Balance Sheet.
The Pro Forma Condensed Combined Statements of Income also do not reflect
the $16.0 million of charges and expenses directly attributable to
Meridian's acquisition of UCB. Were these expenses reflected in the Pro
Forma Condensed Combined Statement of Income for the twelve months ended
December 31, 1995, net income would decrease by $135.1 million, or $0.61
per share.
(B) Reflects the elimination of intercompany interest on Federal funds
transactions between CoreStates and UCB.
(C) Reflects the adoption of FAS 106, "Employers Accounting for Postretirement
Benefits Other Than Pensions." As permitted under FAS 106, CoreStates
elected to recognize immediately the January 1, 1992 transitional liability
of $128.7 million pre-tax, $84.9 million after-tax, as the cumulative
effect of a change in accounting principle in the first quarter of 1992.
Meridian adopted FAS 106 on January 1, 1993, the date required under that
statement. As permitted by FAS 106, Meridian elected not to recognize
immediately its $28.8 million transitional liability, but to amortize that
liability over 20 years. As permitted under pooling of interests
accounting, the pro forma financial information is prepared as if Meridian
adopted FAS 106 effective January 1, 1992 and immediately recognized the
$28.8 million, $18.7 million after-tax, transitional liability. Pro forma
salaries, wages and benefits have been adjusted accordingly.
UCB adopted FAS 106 effective January 1, 1992 and elected to recognize
immediately the transitional liability of $6.2 million, $4.0 million after-
tax, as the cumulative effect of a change in accounting principle.
(D) CoreStates, Meridian, UCB and pro forma earnings per common share for the
years ended December 31, 1995, 1994 and 1993 were based on weighted average
common shares outstanding as dilution from potentially dilutive common
stock equivalents was less than 3% for each period.
(E) Effective January 1, 1993, CoreStates adopted FAS 112, "Employers'
Accounting for Postemployment Benefits." CoreStates recognized the January
1, 1993 FAS 112 transitional liability of $20.0 million, $13.0 million
after-tax as the cumulative effect of a change in accounting principle.
Meridian adopted FAS 112 on January 1, 1994, the date required under the
statement. The adoption of FAS 112 resulted in a charge of $4.2 million,
$2.7 million after-tax, in the first quarter of 1994. As permitted under
pooling of interests accounting, the pro forma information is prepared as
if Meridian adopted FAS 112 effective January 1, 1993.
The impact of FAS 112 on UCB is immaterial.
(F) During the first quarter of 1994, CoreStates recognized a $3.4 million
after-tax impairment loss on certain mortgage securities. The loss was the
result of a write-down to fair value of these securities which were deemed
to be impaired. This accounting treatment resulted from a Financial
Accounting Standards Board ("FASB") interpretation of FAS 115. The
interpretation, reached by a consensus of the FASB Emerging Issues Task
Force in March 1994, requires more definitive criteria for recognition of
impairment losses on these types of securities.
7
<PAGE>
FOOTNOTES TO PRO FORMA CONDENSED COMBINED STATEMENTS OF INCOME
(UNAUDITED) (con't)
(G) In March 1995, CoreStates completed an intensive review of its operations
and businesses and announced a corporate-wide process redesign plan, which
restructures its banking services around customers and enhances employees'
authority to make decisions to benefit customers. As a result of this
process redesign, CoreStates recorded a $110.0 million pre-tax
restructuring charge, $70.0 million after-tax or $0.49 per share, in March
1995. Subsequently, CoreStates recorded restructuring credits of $11.8
million, $7.5 million after-tax or $0.05 per share, related to gains on the
curtailment of pension benefits associated with employees terminated during
1995 and gains on the sale of branches which were as a result of the
process redesign.
In June 1995, Meridian completed an internal review of its operations and
businesses and announced a company-wide plan designed to improve its
operating performance and competitive position. As a result of this review
Meridian recorded a restructuring charge in the second quarter of 1995 of
$32.0 million ($20.8 million after-tax or $0.37 per share). Subsequent to
recording the June 1995 restructuring charge, Meridian recorded
restructuring credits of $1.6 million, $1.0 million after-tax or $0.02 per
share, related to gains on the curtailment of pension benefits associated
with employees terminated during 1995. In the fourth quarter of 1995,
Meridian recorded a $10.0 million charge for non-deductible expenses
associated with the Merger.
(H) Cash dividends declared per share for the respective periods prior to
CoreStates' acquisition of First Peoples Corporation (on September 3,
1992), Constellation Bancorp (on March 16, 1994), Independence Bancorp,
Inc. (on June 27, 1994) and Meridian assume that CoreStates would have
declared cash dividends per share equal to the cash dividends per share
actually declared by CoreStates.
Cash dividends declared per share for the respective periods prior to
Meridian's acquisition of Commonwealth Bancshares Corporation (on
August 31, 1993) and UCB assume that Meridian would have declared cash
dividends per share equal to the cash dividends declared per share actually
declared by Meridian.
Meridian's historical cash dividends declared per share for the year ended
December 31, 1992, reflect a new dividend payment schedule adopted in the
first quarter of 1992. Dividends paid in 1992 aggregated $1.20 per share.
(I) CoreStates retroactively adopted FAS 109 in the first quarter of
1992, effective January 1, 1987. Meridian and UCB elected to prospectively
adopt FAS 109 on January 1, 1993 and recognize a cumulative
benefit/(expense) of $7.2 million and $(579) thousand, respectively, as the
cumulative effect of a change in accounting principle. As permitted under
pooling of interests accounting, the pro forma financial information is
prepared as if Meridian and UCB also retroactively adopted FAS 109
effective January 1, 1987.
(J) CoreStates historical Condensed Combined Statements of Income reflect the
charges associated with writedowns against in substance foreclosed loans in
other non-financial expenses. In connection with its adoption of FAS 114,
Meridian elected to reclassify writedowns against in substance foreclosed
loans from other non-financial expenses to the provision for losses on
loans. As permitted under pooling of interests accounting, the pro forma
financial information for all periods presented is prepared as if
CoreStates reclassified writedowns against in substance foreclosed loans
from other non-financial expenses to the provision for losses on loans for
all periods presented prior to 1995.
In substance foreclosed loans for UCB are immaterial.
8
