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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-K
[X] Annual report pursuant to Section 13 OR 15(d) of the Securities Exchange
Act of 1934 [Fee Required] for the fiscal year ended December 31, 1995, or
[ ] Transition report pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required] for the transition period from
______ to ______________.
Commission file number 0-12364
MERIDIAN BANCORP, INC.
(Exact name of registrant as specified in its charter)
Pennsylvania 23-2237529
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
35 North Sixth Street, Reading, Pennsylvania 19601
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (610) 655-2000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Common Stock ($5.00 par value)
Preferred Stock Purchase Rights
Indicate by check mark whether the Registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
Registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes X No
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Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [X]
The aggregate market value of the shares of Common Stock of the Registrant
held by nonaffiliates, on the basis of the sale price as of February 15, 1996,
was approximately $2,795,462,000. As of February 15, 1996, the Registrant had
58,687,937 shares of such Common Stock outstanding.
Documents incorporated by reference. None.
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PART I
ITEM 1. BUSINESS
Meridian Bancorp, Inc.
- ----------------------
General. Meridian Bancorp, Inc. (the "Registrant"), a multi-bank holding
company registered under the federal Bank Holding Company Act of 1956, as
amended, was incorporated as a Pennsylvania business corporation as a result of
the statutory consolidation on June 30, 1983 of American Bancorp, Inc. and
Central Penn National Corp. The Registrant's subsidiaries presently engaged in
the business of banking are (i) Meridian Bank, formed in 1986 as a result of the
merger of the Registrant's then-existing three banking subsidiaries (American
Bank and Trust Co. of Pa., Central Penn National Bank and The First National
Bank of Allentown), (ii) Delaware Trust Company, acquired in January 1988, and
(iii) Meridian Bank, New Jersey, which commenced operations in April 1993 upon
the acquisition of Cherry Hill National Bank.
Recent Developments. On October 10, 1995, the Registrant and CoreStates
Financial Corp. ("CoreStates") entered into an Agreement and Plan of Merger,
dated as of October 10, 1995 (the "CoreStates Merger Agreement"), pursuant to
which the Registrant has agreed to merge with and into CoreStates with
CoreStates surviving the merger (the "CoreStates Merger"). On the effective
date of the CoreStates Merger, each outstanding share of Meridian common stock,
par value $5.00 per share, will be converted into the right to receive 1.225
shares of CoreStates common stock, par value $1.00 per share, except that cash
will be paid in lieu of fractional shares.
The CoreStates Merger has been approved by the shareholders of the
Registrant and CoreStates and has received all necessary regulatory approvals.
The CoreStates Merger is expected to be completed in the second quarter of 1996.
The foregoing summary is not intended to be a complete description of the
terms of the CoreStates Merger and is qualified in its entirety by reference to
the CoreStates Merger Agreement, a copy of which is an exhibit hereto.
On February 23, 1996, Meridian completed its previously announced
acquisition of United Counties Bancorporation.
Bank Subsidiaries - Meridian Bank, Delaware Trust Company and
- -------------------------------------------------------------
Meridian Bank, New Jersey
- -------------------------
Meridian Bank conducts its business principally through 257 banking offices
located in 29 eastern and central Pennsylvania counties.
Delaware Trust, a Delaware banking corporation, was incorporated in 1899
under the Delaware General Corporation Law and acquired banking powers through
its merger in 1910 with Delaware Savings Bank, which was created in 1905 by a
special act of the General Assembly of the State of Delaware. Delaware Trust
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operates 25 branches in New Castle, Kent and Sussex Counties, Delaware.
In January 1993, the Registrant caused the formation of Meridian Bank, New
Jersey, a New Jersey state-chartered banking institution, to effect the
acquisition of Cherry Hill National Bank, which was completed in April 1993.
Meridian Bank, New Jersey operates 22 branches in seven southern New Jersey
Counties.
At December 31, 1995, Meridian Bank, Delaware Trust and Meridian Bank, New
Jersey had total deposits of $ 9.5 billion, $ 1.1 billion and $ 534.3 million,
respectively, total loans of $ 8.9 billion, $ 947.3 million and $ 251.4 million,
respectively, and total assets of $ 12.5 billion, $ 1.4 billion and $ 640.9
million, respectively.
Meridian Bank, Delaware Trust and Meridian Bank, New Jersey provide a wide
variety of services, including secured and unsecured financing, real estate
financing, checking, savings and time deposit accounts, as well as the offering
of cash management and a variety of other specialized financial services to
individuals, businesses, municipalities and other governmental bodies. In
addition, Meridian Capital Markets, Inc. a division of Meridian Bank, engages in
the underwriting of municipal obligations and various other investment banking,
mortgage banking and related activities permitted by law for banks.
Other Subsidiaries of the Registrant
- ------------------------------------
Meridian Life Insurance Company is a wholly-owned subsidiary of the
Registrant that reinsures life insurance and accident and health insurance
issued to borrowers in connection with loans and other extensions of credit made
to such borrowers by the Registrant's subsidiary banks.
Meridian Funding Corp. is a wholly-owned subsidiary of the Registrant that
issues commercial paper for the use of the Registrant and its subsidiaries.
Meridian Asset Management, Inc. ("MAM") and its subsidiaries, Meridian
Trust Company and Meridian Investment Company, provide services formerly
provided by the trust departments of the predecessors of Meridian Bank. These
services include personal and corporate trust, asset management and related
services and investment advisory services. Meridian Trust Company is a
Pennsylvania trust company with full trust powers. Meridian Investment Company
is an investment advisory firm registered with the Securities and Exchange
Commission and the Pennsylvania Securities Commission. As of December 31, 1995,
assets being administered in one or more fiduciary capacities by MAM or one of
its subsidiaries had an aggregate market value of approximately $ 27.9 billion,
of which MAM or one of such subsidiaries had sole or joint investment
responsibility for
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approximately $ 7.7 billion. Meridian Trust Company of California was sold in
1995.
In addition to fiduciary services provided by MAM and its subsidiaries,
Delaware Trust Capital Management, Inc., a Delaware bank and trust company and a
wholly-owned subsidiary of Delaware Trust, performs trust and related financial
services. Prior to the commencement of operations by Delaware Trust Capital
Management, Inc. in January 1989, such services were performed by the Capital
Management Group of Delaware Trust. As of December 31, 1995, assets being
administered in one or more fiduciary capacities by Delaware Trust Capital
Management, Inc. had an aggregate market value of approximately $ 13.8 billion,
of which it had sole or joint investment responsibility for approximately $ 1.4
billion.
McGlinn Capital Management, Inc. is a registered investment advisory firm
acquired in July 1994. Assets under management by McGlinn Capital Management as
of December 31, 1995 had an aggregate market value of approximately $ 3.3
billion.
Meridian Securities, Inc. is registered as a broker with the Securities and
Exchange Commission and the Pennsylvania Securities Commission and is a member
of the National Association of Securities Dealers, Inc.
Meridian Acceptance Corp., a wholly-owned subsidiary of the Registrant,
engages in the business of purchasing motor vehicle installment sale contracts
originating in the State of New Jersey.
Meridian Commercial Finance Corporation was formed in 1994 to engage in
secured commercial lending.
Until August 1990, Meridian Mortgage Corporation ("Meridian Mortgage")
operated as a wholly-owned mortgage banking subsidiary of the Registrant. In
August 1990, Meridian Mortgage became a wholly-owned subsidiary of Meridian
Bank. During the third quarter of 1993, the Registrant decided to significantly
reduce the scope of its mortgage banking business through a sale of
substantially all of the mortgage servicing operations conducted by Meridian
Mortgage.
Meridian Delaware Investments, Inc., a wholly-owned subsidiary of the
Registrant, is a Delaware business corporation that invests in and holds certain
investments.
Meridian Leasing, Inc. specializes in leasing office and business
equipment. In October 1991, Meridian Leasing, Inc. was reorganized as a direct
subsidiary of Meridian Bank.
Meridian Auto Leasing, Inc., a wholly owned subsidiary of Meridian Bank,
conducts the automobile leasing activities previously conducted by Meridian
Bank.
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Callowhill Consumer Discount Company is a wholly owned subsidiary of
Meridian Bank formed in 1995 to engage in indirect auto lending.
Meridian Asset Servicing Corp. was merged out of existence into an inactive
subsidiary of the Registrant during 1995.
Supervision and Regulation
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Various requirements and restrictions under the laws of the United States
and the states in which the Registrant and its subsidiaries do business affect
the Registrant and its subsidiaries.
General
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The Registrant is a bank holding company subject to supervision and
regulation by the Board of Governors of the Federal Reserve System (the "Federal
Reserve Board") under the Bank Holding Company Act of 1956, as amended (the
"BHCA"). As a bank holding company, the Registrant's activities and those of
its banking and nonbanking subsidiaries are limited to the business of banking
and activities closely related or incidental to banking, and the Registrant may
not directly or indirectly acquire the ownership or control of more than 5% of
any class of voting shares or substantially all of the assets of any company,
including a bank, without the prior approval of the Federal Reserve Board.
The Registrant's subsidiary banks are subject to supervision and
examination by applicable federal and state banking agencies. All of the
Registrant's subsidiary banks are insured by, and therefore subject to the
regulations of, the Federal Deposit Insurance Corporation (the "FDIC"). In
addition, Meridian Bank is a Pennsylvania bank and trust company and member of
the Federal Reserve System subject to supervision and regulation by the
Pennsylvania Department of Banking and the Federal Reserve Board. Delaware
Trust Company is a Delaware banking corporation subject to supervision and
regulation by the Delaware State Bank Commissioner, and Meridian Bank, New
Jersey, is a New Jersey state bank subject to supervision and regulation by the
New Jersey Department of Banking. The Registrant's subsidiary banks are also
subject to requirements and restrictions under federal and state law, including
requirements to maintain reserves against deposits, restrictions on the types
and amounts of loans that may be granted and the interest that may be charged
thereon, and limitations on the types of investments that may be made and the
types of services that may be offered. Various consumer laws and regulations
also affect the operations of the Registrant's subsidiary banks. In addition to
the impact of regulation, commercial banks are affected significantly by the
actions of the Federal Reserve Board as it attempts to control the money supply
and credit availability in order to influence the economy.
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Holding Company Structure
-------------------------
The Registrant's subsidiary banks are subject to restrictions under federal
law which limit the transfer of funds by each of them to the Registrant and its
nonbanking subsidiaries, whether in the form of loans, other extensions of
credit, investments or asset purchases. Such transfers by any subsidiary bank
to the Registrant or any nonbanking subsidiary are limited in amount to 10% of
such subsidiary bank's capital and surplus and, with respect to the Registrant
and all nonbanking subsidiaries, to an aggregate of 20% of such subsidiary
bank's capital and surplus. Furthermore, such loans and extensions of credit
are required to be secured in specified amounts, and all such transactions are
required to be on an arm's length basis.
The Federal Reserve Board has issued regulations under the BHCA that
require a bank holding company to serve as a source of financial and managerial
strength to its subsidiary banks. As a result, the Federal Reserve Board,
pursuant to such regulations, may require the Registrant to stand ready to use
its resources to provide adequate capital funds to its banking subsidiaries
during periods of financial stress or adversity. This support may be required
at times when, absent such regulations, the bank holding company might not
otherwise provide such support. The Federal Reserve Board also has the
authority to require a bank holding company to terminate any activity or
relinquish control of a nonbank subsidiary (other than a nonbank subsidiary of a
bank) upon the Federal Reserve Board's determination that such activity or
control constitutes a serious risk to the financial soundness and stability of
any bank subsidiary of the bank holding company.
Under the Federal Deposit Insurance Act ("FDIA"), a depository institution
insured by the FDIC can be held liable for any loss incurred by, or reasonably
expected to be incurred by, the FDIC in connection with (i) the default of a
commonly controlled FDIC-insured depository institution or (ii) any assistance
provided by the FDIC to a commonly controlled depository institution in danger
of default.
Regulatory Restrictions on Dividends
------------------------------------
Dividend payments by Meridian Bank to the Registrant are subject to the
Pennsylvania Banking Code of 1965 (the "Banking Code") and the FDIA. Under the
Banking Code, no dividends may be paid except from "accumulated net earnings"
(generally, undivided profits). Under the FDIA, no dividends may be paid by an
insured bank if the bank is in arrears in the payment of any insurance
assessment due to the FDIC.
The declaration and payment of dividends by Delaware Trust to the
Registrant are subject to the Delaware Banking Code and the FDIA. Under the
Delaware Banking Code, no dividends may be paid except from "net profits"
(generally, net income as defined
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under federal regulations and reported to the State Bank Commissioner).
Additional restrictions apply unless Delaware Trust's surplus fund is equal to
the amount of its common stock.
The declaration and payment of dividends by Meridian Bank, New Jersey to
the Company are subject to the New Jersey Banking Act of 1948 and the FDIA.
Under the New Jersey Banking Act of 1948, Meridian Bank, New Jersey cannot pay a
cash dividend unless following such dividend, the Bank's surplus will equal at
least fifty percent of the capital stock or the payment of the dividend will not
reduce the Bank's surplus.
State and federal regulatory authorities have adopted standards for the
maintenance of adequate levels of capital by banks. Adherence to such standards
further limits the ability of banks to pay dividends.
The payment of dividends by any subsidiary bank may also be affected by
other regulatory requirements and policies, such as the maintenance of adequate
capital. If, in the opinion of the applicable regulatory authority a bank under
its jurisdiction is engaged in, or is about to engage in, an unsafe or unsound
practice (which, depending on the financial condition of the bank, could include
the payment of dividends), such authority may require, after notice and hearing,
that such bank cease and desist from such practice. The Federal Reserve Board
and the FDIC have formal and informal policies which provide that insured banks
and bank holding companies should generally pay dividends only out of current
operating earnings, with some exceptions.
FDIC Insurance Assessments
--------------------------
Two deposit insurance funds are administered by the FDIC - the Savings
Association Insurance Fund ("SAIF") and the Bank Insurance Fund ("BIF"). On an
aggregate basis, substantially all of Registrant's subsidiary banks' deposits
are insured under the BIF; however, certain deposits assumed by Meridian Bank
and Meridian Bank, New Jersey in connection with the purchase of failed
institutions from the Resolution Trust Corporation are treated and assessed as
SAIF-insured deposits. The FDIC has implemented a risk-related premium schedule
for all insured depository institutions that results in the assessment of
premiums based on capital and supervisory measures.
Under the risk-related premium schedule, the FDIC assigns, on a semiannual
basis, each institution to one of three capital groups (well-capitalized,
adequately capitalized or undercapitalized) and further assigns such institution
to one of three subgroups within a capital group. The institution's subgroup
assignment is based upon the FDIC's judgment of the institution's strength in
light of supervisory evaluations, including examination reports, statistical
analyses and other information relevant to gauging the risk posed by the
institution. Only institutions with a total capital to
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risk-adjusted assets ratio of 10.00% or greater, a Tier 1 capital to
risk-adjusted assets ratio of 6.0% or greater and a Tier 1 leverage ratio of
5.0% or greater, are assigned to the well-capitalized group.
In August, 1995, the FDIC adopted an amendment to the BIF risk-based
assessment schedule that lowers the deposit insurance assessment rate for most
depository institutions with deposits insured by BIF to $.04 per $100 of insured
deposits. In November of 1995, the FDIC further reduced the BIF assessment
rates to a range of $.00 per $100 of insured deposits (subject to a minimum
annual premium of $2,000) for those institutions with the least risk, to $0.27
for every $100 of insured deposits for institutions deemed to have the highest
risk, beginning January 1, 1996. At the same time, the FDIC voted to retain the
existing assessment rates of $.23 for every $100 of deposits for the members of
the SAIF in the lowest risk-based premium category to $0.31 for every $100 of
insured deposits for members of SAIF in the highest risk-based premium category.
Therefore, Meridian Bank and Meridian Bank, New Jersey pay higher assessments on
their deposits which are assessed at SAIF rates.
Capital Adequacy
----------------
The Federal Reserve Board adopted risk-based capital guidelines for bank
holding companies, such as the Registrant. The required minimum ratio of total
capital to risk-weighted assets (including off-balance sheet activities, such as
standby letters of credit) is 8%. At least half of the total capital is
required to be "Tier 1 capital," consisting principally of common shareholders'
equity, noncumulative perpetual preferred stock, a limited amount of cumulative
perpetual preferred stock and minority interests in the equity accounts of
consolidated subsidiaries, less goodwill. The remainder ("Tier 2 capital") may
consist of a limited amount of subordinated debt and intermediate-term preferred
stock, certain hybrid capital instruments and other debt securities, perpetual
preferred stock, and a limited amount of the general loan loss allowance.
In addition to the risk-based capital guidelines, the Federal Reserve Board
established minimum leverage ratio (Tier 1 capital to total assets) guidelines
for bank holding companies. These guidelines provide for a minimum leverage
ratio of 3% for those bank holding companies which have the highest regulatory
examination ratings and are not contemplating or experiencing significant growth
or expansion. All other bank holding companies are required to maintain a
leverage ratio of at least 1% to 2% above the 3% stated minimum. Each of the
Registrant's subsidiary banks is subject to similar capital requirements adopted
by its primary federal regulator. The Registrant and each of its subsidiary
banks exceed all applicable capital requirements.
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The risk-based capital standards are required to take adequate account
of interest rate risk, concentration of credit risk and the risks of
non-traditional activities. In August of 1995, the Federal banking agencies
issued a rule modifying their existing risk-based capital standards to provide
for consideration of interest rate risk when assessing the capital adequacy of
an institution. This new rule implements the first step of a two-step process by
explicitly including a bank's exposure to declines in the value of its capital
due to changes in interest rates as one factor that the banking agencies will
consider in evaluating a bank's capital adequacy. The new rule does not
establish a measurement framework for assessing a bank's interest rate risk
exposure level. Examiners will use data collected by the banking agencies to
determine the adequacy of an individual bank's capital in light of interest rate
risk. Examiners will also consider historical financial performance, earnings
exposure to interest rate movements and the adequacy of internal interest rate
risk management, among other things. This case-by-case approach for assessing a
bank's capital adequacy for interest rate risk is transitional. The second step
of the banking agencies' interest rate risk regulation will be to establish an
explicit minimum capital charge for interest rate risk, based on measured levels
of interest rate risk exposure. The banking agencies will implement this second
step at some future date.
The federal regulators adopted final rules relating to concentration of
credit risk and risks of non-traditional activities effective on January 17,
1995. The agencies declined to adopt a quantitative test for concentrations of
credit risk and, instead, provided that such risk would be considered in
addition to other risks in assessing an institution's overall capital adequacy.
Institutions with higher concentration of credit risk will be required to
maintain greater levels of capital. Similarly, the federal agencies
incorporated the evaluation of the risks of non-traditional activities into the
overall assessment of capital adequacy. The agencies indicated that proposed
rules regarding specific types of non-traditional activities will be promulgated
from time to time.
Prompt Corrective Action
------------------------
The federal banking agencies have each promulgated regulations specifying
the levels at which an insured institution would be considered "well
capitalized," "adequately capitalized," "undercapitalized," "significantly
undercapitalized" and "critically undercapitalized." Under these regulations, a
bank is considered "well capitalized" if it has (i) a total risk-based capital
ratio of 10% or greater, (ii) a Tier 1 risk-based capital ratio of 6% or
greater, (iii) a leverage ratio of 5% or greater and (iv) is not subject to any
order or written directive to meet and maintain a specific capital level. An
"adequately capitalized" bank is defined under the regulations as one that
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has (i) a total risk-based capital ratio of 8% or greater, (ii) a Tier 1
risk-based capital ratio of 4% or greater, (iii) a leverage ratio of 4% or
greater (or 3% or greater in the case of a bank with the highest composite
regulatory examination rating) and (iv) does not meet the definition of a well
capitalized bank. A bank will be considered (A) "undercapitalized" if it has (i)
a total risk-based capital ratio of less than 8%, (ii) a Tier 1 risk-based
capital ratio of less than 4% or (iii) a leverage ratio of less than 4% (or 3%
in the case of a bank with the highest regulatory examination rating of 1); (B)
"significantly undercapitalized" if the bank has (i) a total risk-based capital
ratio of less than 6%, (ii) a Tier 1 risk-based capital ratio of less than 3% or
(iii) a leverage ratio of less than 3%; and (C) "critically undercapitalized" if
the bank has a ratio of tangible equity to total assets of equal to or less than
2%. Notwithstanding the foregoing, the applicable federal bank regulator for a
depository institution could, under certain circumstances, reclassify a "well
capitalized" institution as "adequately capitalized" or require an "adequately
capitalized" or "undercapitalized" institution to comply with supervisory
actions as if it were in the next lower category. Such a reclassification could
be made if the regulatory agency determines that the institution is in an unsafe
or unsound condition (which could include unsatisfactory examination ratings).
Undercapitalized institutions, including significantly and critically
undercapitalized institutions, are required to submit capital restoration plans
to the appropriate federal banking regulator and are subject to restrictions on
operations, including prohibitions on branching, engaging in new activities,
paying management fees, making capital distributions such as dividends, and
growing without regulatory approval.
Interstate Banking
------------------
Pennsylvania law has, for some time, permitted a Pennsylvania bank holding
company (such as the Registrant) to expand by acquiring banks located in any
state of the United States or the District of Columbia the laws of which allow
such expansion. Also, bank holding companies located in another state are
permitted by Pennsylvania law to acquire banks and bank holding companies in
Pennsylvania, but only if the other state has enacted reciprocal legislation.
"Reciprocal" legislation generally means legislation that permits Pennsylvania
bank holding companies to acquire banks in such states and permits bank holding
companies in those states to acquire Pennsylvania banks.
The Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Banking Law") amended various federal banking laws to provide
for nationwide interstate banking, interstate bank mergers and interstate
branching. The
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interstate banking provisions permit the acquisition by a bank holding company
of a bank located in another state.
Interstate bank mergers and branch purchase and assumption transactions
will be allowed effective June 1, 1997; however, states may "opt-out" of the
merger and purchase and assumption provisions by enacting a law which
specifically prohibits such interstate transactions. States may, in the
alternative, enact legislation to allow interstate merger and purchase and
assumption transactions prior to June 1, 1997. States may also enact legislation
to allow for de novo interstate branching by out of state banks. In July of
1995, Pennsylvania adopted "opt in" legislation which allows such transactions
today, prior to the June 1, 1997 effective date.
The Interstate Banking Law also contains provisions which allow affiliated
banks, such as the Registrant's subsidiary banks to receive deposits, renew time
deposits, close loans, service loans and receive payments on loans and other
obligations, as agent for an affiliated depository institution without being
considered a branch of the affiliate depository institution.
Competition
-----------
Meridian Bank, Delaware Trust, and Meridian Bank, New Jersey compete with
numerous other banking and financial institutions in their respective markets.
Commercial banks, savings and loan associations and credit unions actively
compete for savings and time deposits and for many types of loans. Such
institutions, as well as an undetermined number of consumer finance companies,
investment counseling firms, insurance companies, stock brokerage firms, money
market funds, equipment leasing companies and corporate trustees, in addition to
retailers of goods and services who offer consumer credit, may be considered
major competitors of Meridian Bank, Delaware Trust and Meridian Bank, New Jersey
with respect to one or more of the services they offer.
Acquisitions and de novo expansion effected under the Interstate Banking
Law may introduce new competitors to the Registrant's market area.
Additionally, the manner in which banking institutions conduct their operations
may change materially as the activities in which bank holding companies and
their banking and nonbanking subsidiaries are permitted to engage increase, and
funding and investment alternatives continue to broaden, although the long-range
effects of these changes cannot be predicted, with reasonable certainty, at this
time. These changes most probably will further narrow the differences and
intensify competition between and among commercial banks, thrift institutions
and other financial service companies.
The marketplace continues to see intense competition from financial
institutions and nonbanks for deposits, credit and associated services. Further
deregulation is expected to open up
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opportunities for new product offerings that will replace and complement
existing product lines. The ability of the Registrant and its subsidiaries to
remain competitive with such other financial institutions offering similar
services will depend upon how successfully the Registrant can respond to the
rapidly evolving competitive, regulatory, technological, and demographic
developments which affect its operations.
Employees
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As of December 31, 1995, the Registrant and its subsidiaries employed
5,779 persons on a full-time equivalent basis. The Registrant and its
subsidiaries provide a full range of employment benefits and consider their
relationships with their employees to be excellent.
ITEM 2. PROPERTIES
As of December 31, 1995, the Registrant, or a subsidiary of the Registrant,
owned 187 properties in fee and leased 188. The properties owned in fee were at
such date subject to liens, encumbrances or collateral assignments amounting in
the aggregate to approximately $ 2.4 million.
The principal office of the Registrant and of Meridian Bank is owned in fee
and is located at 35 North Sixth Street, Reading, Pennsylvania 19601. The
principal office of Delaware Trust is leased and located at 900 Market Street
Mall, Wilmington, Delaware 19899. The principal office of Meridian Bank, New
Jersey is leased and is located at 176 Route 70, Medford, New Jersey 08055.
ITEM 3. LEGAL PROCEEDINGS
The Registrant and certain of its subsidiaries are party (plaintiff or
defendant) to a number of lawsuits. While any litigation has an element of
uncertainty, management, after reviewing these actions with its legal counsel,
is of the opinion that the liability, if any, resulting from all legal actions
will not have a material effect on the consolidated financial condition or
results of operations of the Registrant.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
None.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
On December 19, 1995, the Registrant revised its organizational structure
in light of changed circumstances resulting from the Agreement and Plan of
Merger, dated October 10, 1995, between the Registrant and CoreStates Financial
Corp ("CoreStates") pursuant to which the Registrant will be merged with and
into CoreStates. Certain information, including
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principal occupation during the past five years, relating to each executive
officer of the Registrant, as of December 19, 1995, is set forth below:
<TABLE>
<CAPTION>
Principal Occupation
Name Age For Last Five Years
---- --- -------------------
<C> <C> <S>
Samuel A. McCullough 57 Chairman, President and Chief Executive
Officer, Registrant since April 1995; prior
thereto, Chairman and Chief Executive
Officer, Registrant since February 1988;
prior thereto, President and Chief Executive
Officer, Registrant from June 1983; also, a
Director of the Registrant and Meridian Bank
and Chairman, President and Chief Executive
Officer of Meridian Bank and principal
executive officer Meridian Bank, New Jersey.
David E. Sparks 51 Vice Chairman and Chief Financial Officer,
Registrant and Meridian Bank since February
1991; also a Director of the Registrant and
Meridian Bank since 1993; prior thereto,
Vice Chairman, Treasurer and Chief Financial
Officer, Registrant and Meridian Bank from
February 1990; prior thereto, Executive Vice
President, Midlantic Corporation from 1985.
Also, senior policy making officer of
Registrant with respect to activities of
Meridian Securities Inc. and Meridian
Capital Markets, Inc. Also, principal
senior financial officer Delaware Trust
Company, Meridian Bank, New Jersey and
Meridian Asset Management.
P. Sue Perrotty 41 Group Executive Vice President and Head of
Strategic Marketing and Distribution System
Development, Registrant and Meridian Bank
since September 6, 1994; Senior Retail
Policy Officer,
</TABLE>
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<TABLE>
<C> <C> <S>
Meridian Bank, Delaware Trust Company and
Meridian Bank, New Jersey since December 19,
1995; prior thereto, Executive Vice
President, Registrant and Meridian Bank
since July 1989.
John F. Porter, III 61 Chairman, President and Chief Executive
Officer, Delaware Trust Company since July
1988; prior thereto, President, Delaware
Trust Company.
Wayne R. Huey, Jr. 51 Executive Vice President, Registrant and
Meridian Bank since January 1988; Corporate
Group Head and senior corporate lending
officer, Meridian Bank, Delaware Trust
Company and Meridian Bank, New Jersey since
December 19, 1995.
Richard E. Meyers 49 Executive Vice President, Registrant since
1983; also, Executive Vice President,
Meridian Bank. Chief Risk Officer and
senior credit policy officer, Registrant,
Meridian Bank, Delaware Trust Company and
Meridian Bank, New Jersey since December
19, 1995.
George W. Grosz 58 President and Chief Executive Officer of
Meridian Asset Management, Inc. since May
16, 1994; prior thereto, Executive Vice
President of Riggs National Bank,
Washington, D.C. since 1987.
Michael B. High 47 Chief Accounting Officer, Registrant and
principal accounting officer Delaware Trust
Company and Meridian Bank, New Jersey since
December 19, 1995; prior thereto, Group
Controller, Registrant from 1993; prior
thereto, Executive Vice President and Chief
Financial Officer, Meritor Savings Bank.
</TABLE>
14
<PAGE>
PART II
ITEM 5. MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
SHAREHOLDER MATTERS
Shares of the Registrant's Common Stock are traded nationally in the
over-the-counter market under the symbol MRDN and are quoted on the NASDAQ
National Market System. As of February 15, 1996, the Registrant had
approximately 25,300 shareholders of record holding the Registrant's Common
Stock.
The following sets forth the quarterly ranges of high and low bid prices,
and the closing sale price, for shares of the Registrant's Common Stock for the
periods indicated. Such prices represent quotations between dealers and do not
include mark-ups, mark-downs or commissions, and may not necessarily represent
actual transactions. The table also reflects cash dividends declared during the
periods indicated.
<TABLE>
<CAPTION>
Quarter Dividends High Low Close
- ------- --------- ------- ------- -------
<S> <C> <C> <C> <C>
1994
----
First........................ $ .32 $31-1/8 $26-7/8 $29-1/8
Second....................... .34 33-1/4 27-3/8 30-3/8
Third........................ .34 33-1/8 28-3/4 28-3/4
Fourth....................... .34 29-1/4 25-1/2 26-5/8
1995
----
First........................ .34 31-3/8 26-1/4 30-5/8
Second....................... .34 34-5/8 30-5/8 34-3/8
Third........................ .34 41 34-1/8 38-1/4
Fourth....................... .37 47-7/8 38 46-1/2
</TABLE>
ITEM 6. SELECTED FINANCIAL DATA
The following sets forth certain selected historical consolidated financial
data of Meridian for the periods indicated.
15
<PAGE>
<TABLE>
<CAPTION>
(Dollars In Thousands, Except Per Share Data)
1995 1994 1993 1992
---------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
RESULTS OF OPERATIONS FOR THE YEAR
Interest Income.................................................. $1,110,422 $985,040 $961,690 $1,016,181
Interest Expense................................................. 494,740 372,624 344,398 442,998
---------- ---------- ---------- ----------
Net Interest Income.............................................. 615,682 612,416 617,292 573,183
Provision for Possible Loan Losses............................... 39,377 28,086 58,781 81,096
---------- ---------- ---------- ----------
Net Interest Income After Provision for
Possible Loan Losses........................................... 576,305 584,330 558,511 492,087
Non-Interest Income.............................................. 256,565 228,026 274,623 233,613
Non-Interest Expenses
Restructuring and Merger-Related Charges....................... 40,425 -- 17,500 --
All Other Expenses............................................. 537,994 579,668 606,026 540,316
---------- ---------- ---------- ----------
Total Non-Interest Expenses...................................... 578,419 579,668 623,526 540,316
---------- ---------- ---------- ----------
Income from Continuing Operations Before Income Taxes
and Cumulative Effect of Changes in Accounting Principles...... 254,451 232,688 209,608 185,384
Provision for Income Taxes....................................... 84,637 70,600 59,068 48,679
---------- ---------- ---------- ----------
Income from Continuing Operations Before Cumulative
Effect of Changes in Accounting Principles.................... 169,814 162,088 150,540 136,705
Loss From Discontinued Operations, Net of Taxes.................. -- -- -- --
---------- ---------- ---------- ----------
Income Before Cumulative Effect of Changes in
Accounting Principles......................................... 169,814 162,088 150,540 136,705
Cumulative After-Tax Effect of Changes in Accounting
Principles................................................... -- (2,730) 7,221 --
---------- ---------- ---------- ----------
Net Income....................................................... $169,814 $159,358 $157,761 $136,705
========== ========== ========== ==========
Inc before Restructuring and Merger-Related Charges (net of taxes) $199,591 $159,358 $169,136 $136,705
========== ========== ========== ==========
Net Interest Margin (Taxable Equivalent Basis)................... 4.67% 4.73% 4.96% 4.77%
Return on Average Assets (1)..................................... 1.16% 1.10% 1.11% 1.00%
Before Restructuring and Merger-Related Charges............... 1.36% 1.10% 1.19% 1.00%
Return on Average Common Shareholders' Equity (1)................ 13.68% 13.26% 14.17% 13.63%
Before Restructuring and Merger-Related Charges............... 16.08% 13.26% 15.19% 13.63%
Fully Diluted Earnings Per Share
Income from Continuing Operations Before Cumulative Effect
of Changes in Accounting Principles.......................... $2.98 $2.80 $2.61 $2.44
Loss from Discontinued Operations, Net of Taxes................ -- -- -- --
Income Before Cumulative Effect of Changes in
Accounting Principles...................................... 2.98 2.80 2.61 2.44
Cumulative After-Tax Effect of Changes in Accounting
Principles.................................................. -- (0.05) 0.13 --
Net Income..................................................... 2.98 2.75 2.74 2.44
Income before Restructuring and Merger-Related Charges...... 3.51 2.75 2.93 2.44
Dividends Declared Per Common Share.............................. 1.45 1.34 1.26 0.90 (2)
Dividends Paid Per Common Share.................................. 1.45 1.34 1.26 1.20
Ratio of Dividends Declared to Net Income........................ 48% 49% 43% 35%
FINANCIAL CONDITION AT YEAR-END
Securities....................................................... $2,628,118 $3,307,413 $3,060,147 $3,405,727
Loans............................................................ 10,163,851 9,763,523 9,010,187 8,592,427
Assets........................................................... 14,758,226 15,052,647 14,084,787 14,290,325
Deposits......................................................... 11,149,846 11,379,567 11,346,151 11,774,702
Total Shareholders' Equity....................................... 1,306,431 1,215,085 1,185,633 1,059,319
Book Value Per Common Share...................................... 23.24 21.50 20.39 18.75
Common Shares Outstanding........................................ 56,213,749 56,506,642 58,154,486 56,491,396
Total Shareholders' Equity to Assets............................. 8.85% 8.07% 8.42% 7.41%
Risk-Based Capital Ratio......................................... 13.06% 12.73% 13.67% 11.61%
Allowance for Possible Loan Losses............................... 164,151 169,402 175,078 166,842
Allowance for Possible Loan Losses to Loans...................... 1.62% 1.74% 1.94% 1.94%
Allowance for Possible Loan Losses to
Non-Performing Loans........................................... 214% 176% 117% 90%
Non-Performing Assets as Percentage of
Loans and Assets Acquired
in Foreclosures................................................ 0.90% 1.24% 2.00% 2.50%
Non-Performing Assets and Loans Past Due 90 or
more Days as to Interest or Principal as a
Percentage of Loans and Assets Acquired
in Foreclosures................................................ 1.17% 1.47% 2.27% 2.98%
<CAPTION>
1991 1990
---------- -----------
<S> <C> <C>
RESULTS OF OPERATIONS FOR THE YEAR
Interest Income.................................................. $1,123,711 $1,246,867
Interest Expense................................................. 623,675 775,495
---------- -----------
Net Interest Income.............................................. 500,036 471,372
Provision for Possible Loan Losses............................... 108,990 141,326
---------- ----------
Net Interest Income After Provision for
Possible Loan Losses........................................... 391,046 330,046
Non-Interest Income.............................................. 253,689 180,420
Non-Interest Expenses
Restructuring and Merger-Related Charges....................... -- --
All Other Expenses............................................. 476,676 423,993
---------- ------------
Total Non-Interest Expenses...................................... 476,676 423,993
---------- ------------
Income from Continuing Operations Before Income Taxes
and Cumulative Effect of Changes in Accounting Principles...... 168,059 86,473
Provision for Income Taxes....................................... 43,873 23,806
---------- ----------
Income from Continuing Operations Before Cumulative
Effect of Changes in Accounting Principles.................... 124,186 62,667
Loss From Discontinued Operations, Net of Taxes.................. (6,500) (25,983)
---------- ----------
Income Before Cumulative Effect of Changes in
Accounting Principles......................................... 117,686 36,684
Cumulative After-Tax Effect of Changes in Accounting
Principles................................................... -- --
---------- ----------
Net Income....................................................... $117,686 $36,684
========== ==========
Inc before Restructuring and Merger-Related Charges (net of taxes) $117,686 $36,684
========== ==========
Net Interest Margin (Taxable Equivalent Basis)................... 4.47% 4.16%
Return on Average Assets (1)..................................... 0.96% 0.47%
Before Restructuring and Merger-Related Charges............... 0.96% 0.47%
Return on Average Common Shareholders' Equity (1)................ 14.31% 7.46%
Before Restructuring and Merger-Related Charges............... 14.31% 7.46%
Fully Diluted Earnings Per Share
Income from Continuing Operations Before Cumulative Effect
of Changes in Accounting Principles.......................... $2.35 $1.22
Loss from Discontinued Operations, Net of Taxes................ (0.12) (0.51)
Income Before Cumulative Effect of Changes in
Accounting Principles...................................... 2.23 0.71
Cumulative After-Tax Effect of Changes in Accounting
Principles.................................................. -- --
Net Income..................................................... 2.23 0.71
Income before Restructuring and Merger-Related Charges........ 2.23 0.71
Dividends Declared Per Common Share.............................. 1.20 1.20
Dividends Paid Per Common Share.................................. 1.20 1.20
Ratio of Dividends Declared to Net Income........................ 48% 149%
FINANCIAL CONDITION AT YEAR-END
Securities....................................................... $2,853,581 $2,153,977
Loans............................................................ 8,553,402 9,463,148
Assets........................................................... 13,205,391 13,444,753
Deposits......................................................... 10,948,133 10,573,972
Total Shareholders' Equity....................................... 947,733 817,413
Book Value Per Common Share...................................... 17.21 15.88
Common Shares Outstanding........................................ 55,064,521 51,475,965
Total Shareholders' Equity to Assets............................. 7.18% 6.08%
Risk-Based Capital Ratio......................................... 10.37% 8.23%
Allowance for Possible Loan Losses............................... 179,747 157,785
Allowance for Possible Loan Losses to Loans...................... 2.10% 1.67%
Allowance for Possible Loan Losses to
Non-Performing Loans........................................... 80% 90%
Non-Performing Assets as Percentage of
Loans and Assets Acquired
in Foreclosures................................................ 2.88% 1.97%
Non-Performing Assets and Loans Past Due 90 or
more Days as to Interest or Principal as a
Percentage of Loans and Assets Acquired
in Foreclosures................................................ 3.52% 2.56%
</TABLE>
(1) Calculation is based upon continuing operations.
(2) Reflects new dividend payment schedule adopted in the first quarter of 1992.
16
<PAGE>
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
17
<PAGE>
FINANCIAL HIGHLIGHTS
Meridian Bancorp, Inc. (Meridian) reported record income, before
restructuring and merger-related charges (net of taxes), of $199.6 million in
1995 compared to net income of $159.4 million in 1994, an increase of 25%. On a
fully-diluted per share basis, income before these charges was $3.51 compared to
net income of $2.75 last year, an increase of 28%.
The return on average assets for 1995 was 1.36% before these charges
compared to 1.10% a year ago, and the return on average equity reached 16.08%
compared to 13.26% in 1994.
After restructuring and merger-related charges of $40.4 million ($29.8
million after-tax), net income in 1995 was $169.8 million or $2.98 per fully-
diluted share, also the highest level in the history of Meridian.
Restructuring and merger-related charges include $30.4 million related to
Meridian's previously announced operating performance study ("59.9" program), as
discussed later, and $10.0 million of non-tax deductible expenses associated
with the pending merger with CoreStates Financial Corp., also discussed later.
The growth in net income reflects primarily the underlying strength of the
core banking operations and the success of the "59.9" program.
18
<PAGE>
The major changes in net income per fully diluted share between 1995 and
1994, and a discussion of such changes, is as follows.
<TABLE>
<CAPTION>
<S> <C>
Net income per fully diluted share in 1994 $2.75
Increase(decrease)resulting from:
Increase in net interest income .06
Increase in provision for possible
loan losses (.19)
Increase in non-interest income .49
Reduction in non-interest expenses .72
Increase in provision for income taxes (.43)
Decrease in average shares outstanding .06
-----
Increase in income before restructuring and
merger-related charges and cumulative effect
of change in accounting principle .71
Restructuring and merger-related charges, net of taxes (.53)
Cumulative effect of change in accounting
principle .05
-----
Net income per fully diluted share in 1995 $2.98
=====
</TABLE>
Net interest income was $615.7 million in 1995 compared to $612.4 million
in 1994, an increase of 1%. On a taxable - equivalent basis, net interest income
was $631.4 million in 1995 compared to $630.1 million in 1994. The net interest
margin was 4.67% in 1995 compared to 4.73% in 1994. The decline in the net
interest margin in 1995 resulted from asset and liability repricing in an
interest rate environment that was slightly higher than in 1994. The impact of
repricing was partially offset by a change in the mix of interest-earning
assets, as growth in the loan portfolio
19
<PAGE>
was funded by a decline in the investment portfolio.
The provision for possible loan losses was $39.4 million in 1995 compared
to $28.1 million in 1994. The higher provision reflects the growth in loans over
the past year. Non-performing loans declined to $76.7 million at December 31,
1995, or .76% of loans, from $96.2 million or .98% at the end of last year. The
ratio of the allowance for possible loan losses to non-performing loans was 214%
at December 31, 1995 compared to 176% a year ago. Total non-performing assets
also declined to $92.1 million at December 31, 1995, or .90% of loans and assets
acquired in foreclosures, compared to $121.7 million or 1.24% at year-end 1994.
Net loans charged-off in 1995 were $44.6 million, or .45% of average loans, up
from $32.6 million, or .35% of average loans, in 1994. The increase in net loans
charged-off resulted primarily from one significant commercial account written-
off during the year. The allowance for possible loan losses was 1.62% of total
loans at December 31, 1995 compared to 1.74% a year ago.
Non-interest income was $256.6 million in 1995 compared to $228.0 million
in 1994, an increase of $28.6 million or 13%. Trust revenues increased by $11.3
million between the two years, partially as a result of the acquisition of
McGlinn Capital Management in July 1994. Broker-dealer and investment banking
revenues increased by $8.0 million because of increased trading volumes. Such
revenues were impacted in 1994 by a valuation adjustment of the trading
20
<PAGE>
portfolios. Service charges on deposits and fees for other customer services
increased by $12.3 million over last year, mainly as the result of the
introduction of new consumer-related demand deposit products. Also, net gains
from securities transactions increased by $5.0 million between the two years.
Mortgage-banking fees declined by $4.7 million, reflecting lower servicing
volumes due to the reduction in scope of Meridian's mortgage banking activities.
Excluding restructuring and merger-related charges, non-interest expenses
were $538.0 million in 1995 compared to $579.7 million in 1994, a decrease of
$41.7 million, or 7%. The implementation of the recommendations of Meridian's
operating performance study ("59.9" program), including significant reductions
in staff levels, the restructuring and downsizing of Meridian's mortgage banking
activities, and a reduction in FDIC deposit insurance premiums contributed to
the decline in expenses. The performance, or expense, ratio improved to 56.7%
for the fourth quarter of 1995 and 60.6% for the year 1995. The ratio was 67.6%
for the year 1994.
Total assets at December 31, 1995 were $14.8 billion compared to $15.1
billion at the end of 1994. Total loans were $10.2 billion compared to $9.8
billion a year ago, a 4% increase. Each of the major loan categories grew over
the last twelve months. Total deposits were $11.1 billion at December 31, 1995
compared to $11.4 billion a year ago. Meridian continues to fund a significant
21
<PAGE>
portion of its assets with deposits acquired in its local marketplace.
Shareholders' equity was $1.31 billion or 8.85% of total assets at December
31, 1995 compared to $1.22 billion or 8.07% a year ago. The ratio of tangible
shareholders' equity to assets, which excludes $117.5 million of intangible
assets in 1995 and $136.2 million in 1994, was 8.12% at December 31, 1995
compared to 7.23% at December 31, 1994. Meridian's risk-based capital ratio was
13.06% of total risk-weighted assets at December 31, 1995, in excess of the 10%
regulatory requirement for well capitalized institutions. The ratio was 12.73%
at December 31, 1994. Book value per common share was $23.24 at December 31,
1995 compared to $21.50 at December 31, 1994, an increase of 8%.
On October 10, 1995, Meridian and CoreStates Financial Corp. announced a
definitive agreement to merge in a transaction expected to be accounted for as a
pooling-of-interests. The partnership would create a banking services
organization with $45 billion in assets and $3.7 billion in equity, with leading
geographic market positions and specialized strengths in servicing key regional,
national and global customer segments. The transaction would be a tax-free
exchange of 1.225 shares of CoreStates common stock for each share of Meridian
common stock. Shareholders of both corporations approved the merger at separate
meetings on February 6, 1996. The merger, which is subject to approval by
regulators, is
22
<PAGE>
expected to close in the second quarter of 1996.
On May 24, 1995, Meridian and United Counties Bancorporation announced a
definitive agreement to merge in a transaction to be accounted for as a pooling-
of-interests. The transaction closed on February 23, 1996. The transaction was
a tax-free exchange of five shares of Meridian stock for each share of United
Counties stock.
OPERATING PERFORMANCE STUDY ("59.9" PROGRAM)
In January 1995, Meridian commenced an internal review of its operations
and businesses. The purpose of this review was to improve the company's
operating performance and competitive position by streamlining and consolidating
functions and work processes and by increasing the focus on customers and
service levels. The improvement is to be measured by Meridian's performance, or
expense, ratio (non-interest expenses divided by the total of non-interest
income and net interest income on a taxable-equivalent basis), with a goal of
reducing the ratio to 59.9% or lower by the end of the first quarter of 1996. In
June 1995, Meridian completed this review and announced a company-wide plan to
be implemented over a period of approximately twelve months from that date.
The expense ratio goal, however, was reached ahead of schedule, with the
ratio improving to 57.3% for the third quarter of 1995 and 56.7% for the fourth
quarter of 1995. The ratio was 60.6% for the
23
<PAGE>
year 1995 and 67.6% for 1994. Without the reduction in FDIC deposit insurance
premiums in the second half of 1995, the ratio would have been 59.8% for the
third quarter of 1995, 58.5% for the fourth quarter of 1995, and 61.4% for the
year 1995.
As a result of this review, Meridian recorded a net restructuring charge of
$30.4 million in 1995. A restructuring charge of $32.0 million ($20.8 million
after-tax or $.37 per share) was recorded in the second quarter of 1995. This
charge was reduced by a net gain of $1.6 million on the curtailment of employee
benefits, as discussed later. The components of the net restructuring charge
and related cash outflow were as follows (in thousands):
<TABLE>
<CAPTION>
Cash
Requiring Outflow
Cash Through
Total Outflow December 31,
----- ------- 1995
----
<S> <C> <C> <C>
Severance and Other Employee
Related Costs $15,900 $15,900 $ 9,300
Net Curtailment Gain Related
to Pension and Other Employee
Benefits (1,600) --- ---
Lease and Other
Contract Terminations 2,600 2,600 400
Building and Other
Asset Write-Downs 10,700 --- ---
Professional Fees 2,800 2,800 2,800
------- ------- -------
Total $30,400 $21,300 $12,500
======= ======= =======
</TABLE>
The severance charge relates to a separation package given to eligible
employees based on years of service. Cash payments commenced in July 1995 and
will continue for varying terms. Lease and other contract terminations include
estimated payments related to bank branch closings and the consolidation of
brokerage activities.
24
<PAGE>
Building and other asset write-downs include amounts related to buildings,
equipment, and intangible assets written-off as a result of branch closings and
other consolidations. Professional fees include consulting fees and legal
expenses incurred during the review process. At December 31, 1995, cash payments
of $12.5 million and non-cash charges of $6.0 million have been charged against
the restructuring reserve. Meridian believes that the balance remaining in this
reserve at December 31, 1995 of $13.5 million will be sufficient to absorb
remaining expenses.
In the second half of 1995, Meridian recorded a restructuring gain of $3.8
million related to the curtailment of future pension benefits associated with
employees terminated during that period. This gain was partially offset by a
curtailment loss of $2.2 million related to healthcare and other postretirement
benefits for employees terminated and those expected to be terminated in the
future as a result of the "59.9" program, resulting in a net gain of $1.6
million.
Implementation of the plan began at the end of the second quarter of 1995
and will continue over approximately the next twelve months from that date.
Over that period, the process is expected to reduce net operating expenses on an
annualized pre-tax basis by $55 million while providing recurring revenue
enhancements of $13 million, increasing Meridian's after-tax earnings on an
annual basis by $44 million, or $.78 per share. The gross reduction in
operating expenses is expected to approximate $73.2 million and is composed of
salaries
25
<PAGE>
and benefits of $54.2 million, furniture and fixtures expense of $16.1 million,
and occupancy of $2.9 million. Offsetting these savings are foregone revenues,
which are directly related to expense reductions, mainly in branches, of $7.5
million and one-time implementation costs of $10.7 million, resulting in net
expense reductions of $55 million.
The process was expected to result in the elimination of approximately
1,100 positions of approximately 7,100 then-existing positions. The eliminations
were to result from attrition and a partial hiring freeze in effect from
January, 1995 to June, 1995, from strategic alliances with outside firms and
from layoffs. At December 31, 1995, Meridian had 5,779 full-time equivalent
employees which reflects approximately 450 employee layoffs related to the
"59.9" program, as well as other types of reductions.
Meridian is currently evaluating the impact of the agreement to merge with
CoreStates Financial Corp. on the "59.9" program. As previously mentioned,
however, the goal of attaining an expense ratio of 59.9% or lower was reached in
each of the last two quarters of 1995.
NET INTEREST INCOME AND RELATED ASSETS AND LIABILITIES (INCLUDING DERIVATIVES)
Net interest income is the single largest component of Meridian's operating
income. Net interest income totaled $615.7 million in 1995 compared to $612.4
million in 1994, an increase of 1%. Taxable-
26
<PAGE>
equivalent net interest income was $631.4 million in 1995 compared to $630.1
million in 1994, also an increase of 1%. The level of net interest income
results from the interaction between the volume and mix of interest-earning
assets and the related funding sources, and the net interest margin (the
difference between the interest rates earned on assets relative to those paid on
funding sources). In 1995, the positive impact on net interest income of a 4%
increase in average loans outstanding was offset by narrowing interest rate
spreads as a result of asset and liability repricing in an interest rate
environment that was slightly higher than in 1994. The net interest margin was
4.67% in 1995 compared to 4.73% in 1994.
Average interest-earning assets increased to $13.5 billion in 1995 from
$13.3 billion in 1994, an increase of 2%. The mix of earning assets changed
moderately, as a portion of loan growth was funded by reductions in investment
securities. Loans accounted for 75% of average interest-earning assets in 1995
compared to 73% in 1994, while investment securities accounted for 22% and 25%
of average interest-earning assets during 1995 and 1994, respectively.
Average loans, including loans held for sale, increased 4% to $10.1 billion
in 1995 from $9.7 billion in 1994. Growth occurred in the major loan categories,
and was reflective of the improved economic environment within Meridian's
marketplace. Average commercial loans increased 8%. Average consumer loans,
primarily home equity and indirect automobile loans, increased by only 2%
between the two years
27
<PAGE>
mainly because student loans totaling approximately $223 million were sold
during the third quarter of 1994. Excluding the impact of this sale, average
consumer loans increased by 8% between the two years. Average residential
mortgage loans increased 15%. Average loans held for sale, composed of
residential mortgage loans and student loans, declined by 70% between the two
years.
Meridian's average securities portfolios declined 8% in the year, to $3.0
billion in 1995 from $3.3 billion in 1994. Principal paydowns on mortgage-
backed securities and proceeds from maturing securities were used to fund loan
growth.
Deposit balances declined slightly in 1995 and averaged $11.1 billion
compared to $11.2 billion in 1994. Average short-term borrowings increased to
$1.6 billion in 1995 from $1.5 billion in 1994. Approximately 35% of short-term
borrowings is comprised of securities sold under repurchase agreements, the
majority with Meridian customers. Average balances of long-term debt increased
from $383 million in 1994 to $448 million in 1995. The increase reflects
Meridian's issuance of $150 million of senior notes during 1995.
Interest Rate Risk Management. The level and volatility of interest rates
can have a significant impact on Meridian's profitability. The objective of
interest rate risk management is to identify and manage the sensitivity of net
interest income to changing interest rates and other market factors in order to
achieve overall
28
<PAGE>
financial goals. Based on economic conditions, on and off-balance sheet
positions, asset quality and various other considerations, management
establishes tolerance ranges for interest rate sensitivity and manages within
these ranges.
Meridian uses several tools to measure interest rate risk. Income
simulation modeling, the primary risk measurement tool, is used to project net
interest income in different interest rate environments. Simulation modeling
considers not only the impact of changing interest rates but also other
potential causes of variability, such as earning-asset volume and mix, yield
curve relationships, loan spreads, customer preferences and general market
conditions. Meridian also monitors the sensitivity of the market value and
duration of assets, liabilities and off-balance sheet positions to changing
interest rates.
An interest rate sensitivity or gap analysis is used to supplement
simulation modeling. Gap analysis classifies assets, liabilities and off-balance
sheet positions into maturity and repricing time intervals in order to identify
potential mismatches among these positions. A substantial portion of Meridian's
liabilities, primarily NOWs, savings and money market deposit accounts, do not
have contractual maturities. In addition, certain consumer loans have prepayment
options. For gap analysis purposes, these items are distributed among the
various repricing time intervals based on historical and anticipated repricing
patterns. Other adjustments are made to the analysis to reflect the
29
<PAGE>
impact of product pricing decisions, interest rate spread relationships and
customer behaviors. These adjustments are necessarily subjective and will vary
over time with loan and deposit changes, customer preferences and market
conditions. Management believes that this type of gap analysis provides a more
realistic picture of the interest rate risk characteristics of Meridian's
balance sheet than an analysis based on contractual maturities. The gap
position at December 31, 1995, as provided in Table 3, indicates a moderate
asset sensitive position through the one-year time period.
Derivatives. Meridian uses off-balance sheet derivative products as
follows:
. For interest rate risk management
. In the securities unit (broker-dealer activities)
Tables 4 and 5 provide information on derivative positions at December 31,
1995. Reference should also be made to Note 11 of Notes to Consolidated
Financial Statements for additional information on off-balance sheet derivative
products.
Derivatives Used for Interest Rate Risk Management. Meridian's core
banking businesses generate a mix of loans and deposits that tends to create an
asset sensitive interest rate risk profile, primarily because retail core
deposits do not reprice as quickly as loans. An asset sensitive position
generally indicates that net
30
<PAGE>
interest income would increase in periods of rising interest rates and decrease
in periods of declining interest rates. Meridian manages this tendency towards
asset sensitivity through its securities and purchased funding portfolios and by
the use of off-balance sheet derivative products. The gap position at December
31, 1995, as previously discussed, was moderately asset sensitive.
Meridian utilizes a variety of derivative instruments in managing interest
rate risk, including interest rate swaps, options, forwards, caps, floors and
collars. These instruments provide an efficient means to achieve risk management
goals, while supporting liquidity and capital management objectives.
Interest rate swaps account for approximately 70% of the derivative
products used for interest rate risk management purposes. Interest rate swaps
involve the exchange of fixed and variable interest payments based on an
underlying notional amount. Meridian will generally receive a fixed rate and pay
a variable rate in order to reduce the asset sensitive position associated with
its core banking businesses. Meridian uses interest rate swaps primarily to
alter the repricing characteristics of its retail core deposits, including time
deposits, interest-bearing checking accounts, and savings and money market
deposits.
Interest rate swaps totaled $2.2 billion at December 31, 1995 compared to
$2.8 billion at December 31, 1994. Because of the nature
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of risk being managed, the impact on net interest income of swaps for which
Meridian receives a fixed and pays a variable interest rate will be positive
during periods of declining rates and negative in periods of rising rates.
Consistent with this profile, the impact of interest rate swaps was to increase
interest expense on deposits by $23.5 million in 1995 compared to a reduction of
$11.3 million in interest expense in 1994.
As financial market conditions and balance sheet mix changes, management
may elect to modify its interest rate risk profile. One means for achieving this
objective is to terminate existing derivatives contracts. Accounting rules
require that any gains or losses resulting from terminations be amortized over
the remaining life of the terminated contract. Deferred losses on terminated
interest rate swaps were $338 thousand at December 31, 1995 and will be
completely amortized into income by early 1996. Deferred gains on terminated
interest rate floors contracts totaled $2.4 million at December 31, 1995 and
will be completely amortized into income by year-end 1997.
Meridian purchases interest rate floors to protect net interest income from
the effects of declining interest rates or a flattening of the yield curve. In
interest rate floor contracts, Meridian pays a premium to a counterparty for the
right to receive payments if interest rates associated with a particular index
fall below a predetermined level. Meridian has no future obligation to make
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additional premium or other payments to the counterparty. Premiums paid are
amortized over the life of the contract. As of December 31, 1995, Meridian had
$525 million of purchased floors based on London Inter-Bank Offered Rate (LIBOR)
rates.
Meridian also utilizes interest rate collars to manage interest rate risk.
Interest rate collars combine the purchase of a floor with the sale of a cap.
Payments are received when market rates are below a predetermined level and
payments are made when market rates are above a predetermined level. At
December 31, 1995, Meridian had $200 million of collars outstanding.
The favorable impact of the interest rate floors and collars, net of
premium amortization, was $2.3 million in 1995 compared to a negative impact of
$93 thousand in 1994.
Derivative financial instruments of $2.9 billion notional value at December
31, 1995 were used to manage interest rate risk associated with deposits. On
December 31, 1995, unrealized gains on these derivative financial instruments
were $31.7 million and unrealized losses were $2.5 million. The effect of these
derivative financial instruments on the interest cost of deposits for the year
ended December 31, 1995 was an increase of .23%.
Derivative products, as with all financial instruments, contain elements of
risk. A derivative product is subject to market risk in
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that the value of a contract will increase or decrease as a result of movements
in market interest rates. Meridian continually monitors the sensitivity of its
derivative contracts to changing interest rates. Unrealized gains and losses
are calculated based on the replacement costs of the contracts. The increase in
the market value of Meridian's interest rate contracts from year-end 1994 to
1995 is consistent with the declining interest rate environment throughout 1995.
Unrealized gains and losses on derivative positions should be viewed in the
context of the overall balance sheet. An unrealized loss on a derivative
product used for interest rate risk management purposes is generally offset or
mitigated by an unrealized gain on the asset or liability to which the
derivative contract is assigned. Meridian, as part of its asset and liability
management process, continually monitors the impact of interest rate movements
on the market value of not only its derivative positions, but also all other on
and off-balance sheet positions. In a rising rate environment, fixed rate loan,
investment and off-balance sheet positions will decline in market value, while
core deposits and longer term borrowings will appreciate in value.
Credit risk exists to the extent that a derivatives contract has a positive
market value and the counterparty to the transaction fails to perform under the
terms of the contract. Current exposure is measured by calculating the cost to
replace a derivative contract at current
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market rates. For those contracts where it would be favorable for the
counterparty to default, the current cost to replace Meridian's derivatives
portfolio was $32 million as of December 31, 1995. Potential exposure is
estimated by calculating projected changes in replacement costs under different
interest rate environments. Current and potential exposures are calculated and
reviewed by management at least monthly. Credit limits, considering both
current and potential exposures, are approved by the Meridian Credit Policy
Committee. Credit risk is further managed by restricting counterparties to a
select group of high quality institutions, by entering into netting arrangements
and, where appropriate, by establishing collateral requirements.
Meridian offers interest rate caps and floors to its banking customers, who
typically request these products in conjunction with their management of
variable rate loans. The total of customer interest rate caps and floors was
$188 million at December 31, 1995. The repricing characteristics of loans made
with optional features are monitored and considered in the asset and liability
management and risk measurement processes previously discussed.
Derivatives Used in the Securities Unit (Broker-Dealer Activities).
Meridian uses various off-balance sheet derivative products to support customer
needs and manage the market risks associated with the broker-dealer business.
The securities unit acts as remarketing agent on tender option bonds totaling
$208 million at
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year-end 1995 compared to $256 million at December 31, 1994. The premium paid
for Treasury float contracts, which is included on the balance sheet in other
assets, was $858 thousand at December 31, 1995 and represents the maximum
exposure to Meridian from such contracts. Other derivative products used to
manage risks associated with trading account positions include forward
commitments to sell securities, which totaled $70 million at December 31, 1995
and averaged $68 million for the year.
Liquidity. The objective of liquidity management is to ensure that
sufficient funding is available, at reasonable cost, to meet the ongoing and
potential cash needs of Meridian and to take advantage of income producing
opportunities as they arise. While the desired level of liquidity may vary
depending upon a variety of factors, it is a primary goal of Meridian to
maintain a high level of liquidity in all economic environments. Management
considers Meridian's liquidity position at the end of 1995 to be sufficient to
meet its foreseeable cash flow requirements.
Liquidity management is influenced by several key elements, including
Meridian's reputation, asset quality, the maturity structure of its assets and
liabilities, cash flow generated by assets, and Meridian's ability to access
funds in the capital markets. The single most important source of liquidity for
Meridian is its core deposit base, which consists of deposits from customers
with long-standing relationships. Meridian continues to promote the acquisition
of core
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deposits through its retail distribution systems and through selective banking
acquisitions. Long-term debt and shareholders' equity also contribute to
liquidity. In 1995, Meridian funded approximately 75% of total assets with core
deposits acquired within its local marketplace and approximately 85% of total
assets with core deposits, long-term debt and shareholders' equity.
Meridian also places emphasis on the maintenance of an appropriate level of
asset liquidity. Liquid assets include short-term money market investments,
securities available for sale, and interest-bearing deposits with other banks.
Cash flows from investment maturities and mortgage and asset-backed securities
also provide a significant source of liquidity.
Meridian is committed to maintaining additional funding flexibility through
access to the debt and capital markets. Meridian Bank, Meridian's principal
banking subsidiary, has access to a variety of money market sources of funds,
such as federal funds purchased and securities sold under agreements to
repurchase, borrowings from the Federal Home Loan Bank, as well as to term
funding through the issuance of bank notes, bank deposit notes, and subordinated
debt.
The cost and availability of external funding is influenced by Meridian's
credit ratings. The following is a summary of Meridian's and Meridian Bank's
ratings at December 31, 1995, which are unchanged from a year ago.
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<TABLE>
<CAPTION>
STANDARD
MOODY'S AND POOR'S
------- ----------
<S> <C> <C>
MERIDIAN BANCORP, INC.
- ----------------------
Commercial Paper P-2 A-2
Subordinated Debt Baa1 BBB
MERIDIAN BANK
- -------------
Short-Term Deposits P-1 A-2
Long-Term Deposits A1 A-
Subordinated Debt A3 BBB+
</TABLE>
Reference should also be made to the Statements of Cash Flows appearing in
the Consolidated Financial Statements for additional information on liquidity.
The statement of cash flows for 1995 reflects $351.0 million of cash provided by
operations, $188.8 million provided by investing activities, and $462.5 million
used for financing activities. Operating activities include $169.8 million in
net income for 1995. Investing activities are primarily comprised of sales and
purchases of short-term investments, investment securities, investment
securities available for sale and loans. Financing activities present the net
change in Meridian's deposit accounts, short-term borrowings, long-term debt and
shareholders' equity. Cash flows from operations and proceeds from maturities,
calls and paydowns of investment securities were used to fund increases in loans
and decreases in deposits and short-term borrowings during 1995.
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Loans. The lending function is Meridian's principal business activity and
it is Meridian's continuing policy to serve the credit needs of its customer
base. The economy in Meridian's primary marketplace is broad-based and diverse
and the loan portfolio reflects that diversity. Lending to individual consumers
in this marketplace accounts for approximately 40% of total loans. The remainder
of the portfolio consists predominantly of commercial loans and commercial real
estate loans also in Meridian's primary marketplace. Loans were $10.2 billion at
December 31, 1995 compared to $9.8 billion at December 31, 1994, an increase of
4%. Each of the major loan portfolios grew over this time period.
Commercial loans amounted to $6.1 billion at December 31, 1995 compared to
$5.9 billion at December 31, 1994, a 2% increase. Meridian's commercial loan
portfolio is oriented toward diversified, small and medium-sized businesses
within Meridian's market area, with limits on the size of loans to any single
borrower according to credit risk. These loans are predominantly in the
services, real estate, and manufacturing industries. Credit risk associated with
these borrowers is principally influenced by general economic conditions and the
resulting impact on the borrower's operations. Geographical coverage of
Meridian's commercial lending activity extends across the eastern half of
Pennsylvania, southern New Jersey and Delaware.
Real estate-related commercial loans, including real estate
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construction and commercial mortgages, totaled $1.9 billion and represented 19%
of total loans at December 31, 1995 compared to $2.0 billion and 20% one year
ago. These portfolios are located primarily in markets in which Meridian has a
local banking presence. Collateral types are diverse and include the real estate
of borrowers who utilize the property in their businesses (owner-occupied) as
well as real estate investors. At December 31, 1995, owner-occupied commercial
mortgages comprised 7% of total loan outstandings compared to 8% at December 31,
1994. Investor-developer commercial mortgages comprised 9% at both year-end 1995
and 1994.
Commercial, financial and agricultural loans totaled $4.2 billion and
represented 41% of total loans at December 31, 1995 compared to $4.0 billion and
41% at the end of 1994.
Consumer lending includes primarily loans to individuals in communities
served by Meridian. These loans include open-ended credit arrangements, such as
home equity loans, and closed-end loans subject to specific contractual payment
schedules, such as installment loans. Consumer loans totaled $2.8 billion at
December 31, 1995 compared to $2.6 billion at year-end 1994, an increase of 8%.
Residential mortgage loans increased from $1.2 billion at December 31, 1994 to
$1.3 billion at December 31, 1995, an increase of 7%.
Investment Securities and Investment Securities Available for Sale.
Effective in the first quarter 1994, Meridian adopted Statement
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of Financial Accounting Standards No. 115 "Accounting for Certain Investments in
Debt and Equity Securities" which requires investments in equity securities with
a readily determinable fair value and investments in all debt securities to be
classified in one of three categories. The classification of securities is
determined at the time of purchase. The three categories are (1) held to
maturity -- carried at amortized cost; (2) available for sale -- carried at fair
value (with unrealized gains and losses, net of related tax effect, recorded as
a separate component of shareholders' equity); and (3) trading account --
carried at fair value (with unrealized gains and losses recorded in the income
statement). During December 1995, as permitted by the Financial Accounting
Standards Board in its "Guide to the Implementation of Statement No. 115 on
Accounting for Certain Investments in Debt and Equity Securities," Meridian
transferred investment securities of $921.2 million to investment securities
available for sale. The unrealized loss on these securities at the date of
transfer was $915 thousand.
The carrying value of the investment portfolio at December 31, 1995 was
$1.3 billion and net unrealized gains totaled $4.6 million. Such gains include
gross unrealized gains of $9.1 million and gross unrealized losses of $4.5
million. Meridian has the intent and the ability to hold these securities until
maturity. At the end of 1994, the carrying value of the investment portfolio was
$2.9 billion and net unrealized losses were $119.1 million. The change in the
value of the portfolio compared to year-end 1994 reflects the impact of the
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decrease in long-term interest rates during 1995. The average maturity of the
investment portfolio at December 31, 1995 was 2.3 years compared to 2.5 years at
December 31, 1994.
Securities expected to be held for an indefinite period of time are
classified as investment securities available for sale and are carried at fair
value. The fair value of this portfolio at December 31, 1995 was $1.3 billion,
with net unrealized gains of $11.6 million. Such gains include gross unrealized
gains of $16.8 million and gross unrealized losses of $5.2 million. At year-end
1994, the carrying value of this portfolio was $435.0 million, with net
unrealized losses of $10.8 million. The increase in the net unrealized gain was
primarily due to the decline in interest rates and the increased balance in the
portfolio. The average maturity of the portfolio of investment securities
available for sale, which includes tax-exempt obligations of states and
municipalities, was 2.8 years at December 31, 1995 compared to 4.5 years at
December 31, 1994. The decline in the average maturity resulted primarily from
the transfer of investment securities to investment securities available for
sale, discussed earlier.
Meridian's securities portfolios (investment securities and investment
securities available for sale) are comprised of U.S. Treasury and federal agency
securities, mortgage-backed securities, tax-exempt obligations of states and
municipalities, corporate securities, including privately issued asset-backed
securities, and
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equity securities.
U.S. Treasury and federal agency securities (other than mortgage-backed
securities) were $895 million at year-end 1995 and accounted for approximately
34% of total securities holdings. Mortgage-backed securities remain the largest
component of Meridian's securities portfolios, accounting for approximately 47%
of the total at year-end 1995. This portfolio is comprised of federal agency
mortgage-backed securities and collateralized mortgage obligations which are
backed by federal agency collateral or are AAA rated private issues. Meridian
evaluates and closely monitors cash flow projections for all mortgage-backed
securities. The expected average life of mortgage-backed securities at December
31, 1995, based on projected prepayment rates, was 2.8 years compared to 2.9
years at year-end 1994.
Meridian's current credit guidelines call for purchases of securities
issued by either the U.S. Treasury or federal agencies, or by states and
municipalities or corporate entities that are rated A or higher by Moody's
Investor Services, Inc. or Standard and Poor's Corporation. At December 31,
1995, the carrying value of state and municipal securities was $288 million, 90%
of which was rated A or higher by the rating agencies. Securities rated Baa and
below totaled $880 thousand and $28 million were non-rated. Non-rated securities
are generally collateralized by letters of credit or are securities in which the
principal and interest is supported by government obligations set aside in
escrow accounts. At December 31, 1995, the
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carrying value of corporate securities, excluding AAA rated private mortgage-
backed and asset-backed securities, was $8.5 million. There were no corporate
securities rated Baa and below and $4.8 million of such securities was non-
rated.
Deposits. Total deposits were $11.1 billion at December 31, 1995 compared
to $11.4 billion at December 31, 1994, a decline of 2%. Most of the decline was
in savings accounts, as lower rates resulted in depositors seeking alternative
investment opportunities.
Short-Term Borrowings. At December 31, 1995, short-term borrowings totaled
$1.5 billion compared to $1.8 billion a year earlier, a decrease of 16%. This
category is comprised primarily of federal funds purchased and securities sold
under agreements to repurchase.
Long-Term Debt and Other Borrowings. This category amounted to $513.8
million at December 31, 1995 compared to $372.2 million at December 31, 1994, an
increase of 38%. Subordinated debt of $324.1 million is included in this amount
in 1995, along with $149.9 million of senior notes, capitalized lease
obligations, longer-term borrowings from the Federal Home Loan Bank, and various
other loans and mortgages payable. The increase in this category resulted from
the issuance in 1995 of $150 million of 6 5/8% senior notes due in 2000.
PROVISION FOR POSSIBLE LOAN LOSSES AND RELATED CREDIT QUALITY
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Meridian manages asset quality and controls credit risk through
diversification of the loan portfolio and the application of policies designed
to foster sound underwriting and loan monitoring practices. Meridian's credit
administration function is charged with monitoring asset quality, establishing
credit policies and procedures, and enforcing the consistent application of
these policies and procedures across Meridian.
Commercial loans are assigned risk ratings by loan officers. The
appropriateness of these ratings, in addition to the overall lending process, is
reviewed by credit review and credit policy personnel. A quarterly review and
reporting process is in place for monitoring those loans that have been
identified as problems or potential problems. A separate loan workout
department is involved with the collection of problem loans. Because of their
relatively homogeneous nature and small dollar size, consumer and residential
mortgage loans are generally reviewed in the aggregate.
When establishing the appropriate levels for the provision and the
allowance for possible loan losses, management performs an analysis of the loan
portfolio by considering a variety of factors. This analysis includes periodic
reviews by loan officers and credit review and loan workout personnel of all
borrowers with aggregate balances of $500,000 or greater. Meridian also reviews,
at least on a quarterly basis, problem borrowers with balances of $250,000 or
greater, as well as selected lower balance loans. Consideration is
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given to the impact of current and anticipated economic conditions, the
diversification of the loan portfolio, historical loss experience, delinquency
statistics, reviews performed by loan officers who are primarily responsible for
compliance with established lending policy, the financial strength of borrowers,
and the perceived adequacy of underlying collateral. Consideration is also
given to examinations performed by regulatory authorities. Lending procedures
and the loan portfolio are examined periodically by several banking regulatory
agencies as part of their supervisory activities. For Meridian, the most
comprehensive of these examinations is performed by the Federal Reserve Bank.
To assist in determining the adequacy of the provision and the allowance,
management first sets the allocated portion of the allowance for possible loan
losses. For commercial loans, allocations of the allowance to individual loans
are based on borrower-specific data determined by reviewing individual non-
performing, delinquent, problem, and other loans and by considering those items
described in the preceding paragraph. In addition, general allocations of the
allowance are made to the commercial loan category. General allocations to
commercial loans also consider the impact of current and anticipated economic
conditions on both individual borrowers and the commercial loan portfolio taken
as a whole. Consumer and residential mortgage loan allocations are determined
in the aggregate and are based on recent charge-off history and delinquency
trends, anticipated losses over the foreseeable future, and the impact of
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current and anticipated economic conditions in the local, regional and national
economies. The unallocated portion of the allowance is that amount which, when
added to the allocated allowance, brings the total allowance to the amount
deemed adequate by management at the time. Management considers the unallocated
portion of the allowance, which is determined by reviewing those items described
in the preceding paragraph, as a subset of the entire allowance and,
consequently, available to absorb losses anywhere within the loan portfolio.
The loan portfolio represents loans made primarily in Meridian's market
area in the eastern half of Pennsylvania and in Delaware and southern New
Jersey. Management continues to monitor the economic conditions in this market
area. The ultimate collectibility of a substantial portion of Meridian's loans,
especially its real estate loans, and the market value of other real estate
owned, is susceptible to changes in economic conditions in this primary market
area.
Determining the level of the allowance for possible loan losses at any
given date is difficult, particularly in a continually changing economy.
Management must make estimates, using assumptions and information which are
often subjective and changing. Management continues to review Meridian's loan
portfolio in light of a changing economy and possible future changes in the
banking and regulatory environment. In management's opinion, the allowance for
possible loan losses is adequate at December 31, 1995.
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The balance in the allowance for possible loan losses was $164.2 million or
1.62% of total loans at the end of 1995 compared to $169.4 million or 1.74% of
total loans at year-end 1994. The provision for possible loan losses represents
charges made to earnings to maintain an adequate allowance for possible loan
losses. The provision for possible loan losses was $39.4 million in 1995
compared to $28.1 million in 1994. The higher provision reflects the growth in
loans during the past year.
Net charge-offs were $44.6 million or .45% of average loans in 1995
compared to $32.6 million or .35% of average loans in 1994. The increase in
loans charged-off resulted from one significant commercial account written-off
during the year. Recoveries were $15.6 million in 1995 compared to $19.7 million
in 1994.
Table 14 presents a summary of various indicators of credit quality. At
December 31, 1995, non-performing assets as a percentage of period-end loans and
assets acquired in foreclosures were .90% compared to 1.24% at the end of last
year. Non-performing assets were $92.1 million at December 31, 1995 and
decreased by 24% during 1995 from $121.7 million a year ago. Real estate-
related non-performing assets were 69% of total non-performing assets at
December 31, 1995 compared to 62% a year ago.
Non-performing loans were .76% of total loans at December 31, 1995 compared
to .98% at the end of last year. Non-performing loans
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<PAGE>
amounted to $76.7 million at December 31, 1995 and decreased by 20% during the
past year from $96.2 million a year ago. Non-performing assets and loans past
due 90 or more days as to interest or principal at December 31, 1995 were $119.4
million or 1.17% of loans and assets acquired in foreclosures compared to $144.1
million or 1.47% one year ago, a decrease of 17%.
The ratio of the allowance for possible loan losses to non-performing loans
was 214% at December 31, 1995 compared to 176% at year-end 1994. The coverage of
non-performing assets was 178% at year-end 1995 compared to 139% at December 31,
1994. Possible future losses on foreclosed real estate will be charged directly
to earnings and not to the allowance for possible loan losses. Foreclosed real
estate is carried at the lower of cost or fair value, less estimated costs of
disposal.
Non-performing assets are comprised of non-accrual loans, loans categorized
as troubled debt restructurings, and assets acquired in foreclosures. Non-
performing assets do not include loans past due 90 days or more as to interest
or principal which are well secured and in the process of collection, the
majority of which represent residential mortgage loans.
Generally, a commercial loan is classified as non-accrual when it is
determined that the collection of interest or principal is doubtful, or when a
default of interest or principal has existed for
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90 days or more, unless such loan is well secured and in the process of
collection. When the accrual of interest is discontinued, unpaid interest is
reversed through a charge to interest income. The majority of non-accrual loans
are secured by various forms of collateral, the ultimate recoverability of which
is, however, subject to economic conditions and other factors.
Residential mortgages which are 180 days or more delinquent are placed on
nonaccrual status when total principal, interest, and escrow owed exceeds 80% of
the property's appraised value. Properties are re-appraised when foreclosure
proceedings are initiated. Consumer loans are not placed on non-accrual status,
but the borrower's ability to comply with payment terms is closely monitored by
management. Loans are charged-off when deemed uncollectible, which is generally
at a time no later than 120 days past due.
Non-accrual loans were $75.9 million at December 31, 1995 compared to $95.0
million one year ago, a decrease of 20%. The carrying value of non-accrual
commercial loans at December 31, 1995 has already been reduced by charge-offs
and payments to 55% of the aggregate carrying value when such loans were
originally placed into a non-performing status. Payments of $5.4 million were
received on these loans in 1995, almost all of which was applied as a reduction
in the principal outstanding. Meridian's non-accrual loans include only five
loans with balances in excess of $2.5 million (only two of which are over $5
million), indicating that a substantial portion of the
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risk is spread across a significant number of borrowers. These five loans
aggregated $26.9 million or approximately 35% of total non-accrual loans at
December 31, 1995. Table 16 classifies non-accrual loans according to various
levels of payment performance.
A loan is categorized as a troubled debt restructuring if the original
interest rate on the loan, repayment terms, or both, were restructured on a
below market basis due to a deterioration in the financial condition of the
borrower. If restructured loans are not performing according to revised terms,
such amounts are included in non-accrual loans.
The level of assets acquired in foreclosures (except consumer related), was
$12.5 million at December 31, 1995 compared to $23.4 million a year ago. Assets
acquired in foreclosures at December 31, 1995 have already been reduced by
charge-offs and payments to 37% of the aggregate carrying value when such assets
were originally placed into non-performing status. Assets acquired in
foreclosures include only three properties with a balance in excess of $1.0
million at year-end 1995, aggregating $4.3 million or approximately 34% of the
total of such assets. Although the real estate market remained mixed during the
year, Meridian was successful in disposing of portions of assets acquired in
foreclosures. The balance of these assets at the end of 1995 was 54% of the
balance at the beginning of the year.
Reference should be made to Table 6 for a summary of the period-
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end balances in the loan portfolio. There has not been a significant change in
the percentage of each category to total loans from a year ago.
In addition, reference should be made to Table 17 for a breakdown of
commercial loans by major industry and to Table 18 for a breakdown of commercial
real estate loans by category. As can be seen in these tables, Meridian's
portfolio of commercial loans and commercial real estate loans covers a wide
range of borrowers. This diversification generally characterizes the economy of
Meridian's primary market area. Almost all, or 96%, of Meridian's commercial
real estate loans are to borrowers for property in Pennsylvania, Delaware, and
New Jersey. Pennsylvania has 79%, or the largest single share. In connection
with the decision to extend credit to particular borrowers, Meridian takes into
account, among other things, asset diversification and particular risks
presented by the different industries in which such borrowers compete, in light
of changing economic circumstances.
Loan concentrations are considered to exist when there are amounts loaned
to a multiple number of borrowers engaged in similar activities which would
cause their ability to meet contractual obligations to be similarly impacted by
economic or other conditions. At December 31, 1995, Meridian's commercial loans
and commitments did not have any industry concentration or other known
concentration (as defined) that exceeded 10% of total loans and commitments.
Potential problem loans consist of loans which are included
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in performing loans at December 31, 1995, but for which potential credit
problems of the borrowers have caused management to have concerns as to the
ability of such borrowers to comply with present repayment terms. At December
31, 1995, such potential problem loans, not included in Table 14, amounted to
approximately $22 million, unchanged from the balance of a year ago. Depending
on the state of the economy and the impact thereof on Meridian's borrowers, as
well as other future events, these loans and others not currently so identified
could be classified as non-performing assets in the future.
Meridian continues to service approximately $598 million of residential
mortgage loans on which there is potential credit loss. This servicing was
either originated by Meridian or purchased with recourse from other financial
institutions, some of which have since experienced financial difficulties,
including bankruptcies. As of December 31, 1995, reserves of approximately
$12.0 million have been established in recognition of potential losses related
to the recourse servicing portfolio.
Effective January 1, 1995, Meridian adopted Statement of Financial
Accounting Standards No. 114 "Accounting by Creditors for Impairment of A Loan"
and Statement No. 118 "Accounting by Creditors for Impairment of a Loan - Income
Recognition and Disclosures". Statement No. 114 requires that certain impaired
loans be measured based on the present value of expected future
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cash flows discounted at the loan's effective interest rate or fair value of the
loan if the loan is collateral dependent. Statement No. 118 amends Statement
No. 114 to allow a creditor to use existing methods for recognizing interest
income on an impaired loan. There was no impact on consolidated net income
resulting from the implementation of these statements. Prior period financial
information has been restated to reflect the reclassification of in-substance
foreclosures to non-performing loans.
A loan is considered impaired when, based on current information and
events, it is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement. This category
currently includes all commercial loans on non-accrual status and certain
restructured loans. Large groups of smaller-balance, homogeneous loans such as
residential mortgage and consumer loans that are collectively evaluated for
impairment are not included in impaired loans.
The average recorded investment in impaired loans was $82.9 million in
1995, $119.7 million in 1994 and $167.1 million in 1993. The recorded investment
in impaired loans at December 31, 1995 was $76.7 million. The recorded
investment for which there is a related allowance for possible loan losses was
$36.4 million at December 31, 1995 and the related allowance was $10.2 million.
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The recorded investment for which there is no related allowance for possible
loan losses was $40.3 million.
Interest income is not accrued on commercial loans where management has
determined that borrowers may be unable to meet contractural principal or
interest payments, or where such payments are 90 or more days past due unless
the loan is well secured and in the process of collection. Interest collections
on nonaccrual loans for which the ultimate collectibility of principal is
uncertain are applied as principal reductions. Otherwise, such collections are
credited to income when received. Interest on loans that have been restructured
is recognized according to the renegotiated terms. The amount of interest
income recognized on impaired loans, using the cash-basis method of accounting,
was $845.4 thousand, $596.5 thousand and $706.0 thousand for the years ended
December 31, 1995, 1994 and 1993 respectively.
NON-INTEREST INCOME
Meridian's businesses generate various sources of non-interest income, such
as trust revenues, mortgage banking fee income, broker-dealer and investment
banking revenues, securities gains, service charges on deposit accounts, and
other service charges, commissions and fees. Non-interest income was $256.6
55
<PAGE>
million in 1995 compared to $228.0 million in 1994, an increase of 13%.
Trust revenues were $66.0 million in 1995 compared to $54.7 million in
1994, an increase of 21%. Contributing to the higher level of revenues was the
acquisition of McGlinn Capital Management, Inc. in July 1994, and increases in
personal trust and investment advisory fees. The market value of customers'
assets administered by Meridian was $31.2 billion at December 31, 1995, down
slightly from $31.7 billion at year-end 1994. Included in the total at year-end
1995 are assets for which Meridian has investment management responsibility of
$10.9 billion.
Mortgage banking revenues were $12.8 million in 1995 compared to $17.5
million in 1994. This decrease reflects lower servicing volumes due to the
reduction in scope of Meridian's mortgage banking activities during the past two
years. Servicing revenues declined by $6.4 million, or 64%, between the two
years. Origination fees increased, however, by $550 thousand or 12% between the
two years, reflecting higher loan origination volumes.
Broker-dealer and investment banking revenues totaled $50.8 million in
1995 compared to $42.8 million in 1994, an increase of 19%. Net trading gains
increased by $12.0 million between the
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<PAGE>
two years. Financial market conditions in 1994 resulted in reduced trading
volumes and a valuation adjustment of the trading portfolios.
Service charges on deposits and fees for other customer services
increased by 14% between the two years, from $90.1 million in 1994 to $102.5
million in 1995. Increases in certain fees for deposit products, as well as the
introduction of new consumer-related demand deposit products, contributed to the
higher level of service charges.
Net securities gains were $8.0 million in 1995 compared to $3.0 million in
1994. The amount in 1995 included gains of $8.7 million and losses of $739
thousand. These gains are in addition to gains of $356 thousand from sales
primarily of mortgage-related investments, which are included in broker-dealer
and investment banking revenues. The gains in 1994 and a portion of the gains in
1995 resulted from the sale of investment securities available for sale. The
remainder of the gains in 1995 resulted from calls of investments and the sale
of investment securities either near the maturity date or for which Meridian had
collected a substantial portion of the principal originally outstanding at the
date of purchase.
NON-INTEREST EXPENSES
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<PAGE>
Excluding restructuring and merger-related charges, non-interest expenses
were $538.0 million in 1995 compared to $579.7 million in 1994, a decrease of
$41.7 million, or 7%. The implementation of the recommendations of the operating
performance study ("59.9" program), including significant reductions in staff
levels, the restructuring and downsizing of Meridian's mortgage banking
activities, and a reduction in FDIC deposit insurance premiums in the second
half of 1995 contributed to the decline in expenses. Total non-interest expenses
were $578.4 million in 1995 compared to $579.7 million in 1994.
Salaries and benefits, which represent the largest component of non-
interest expenses, were $284.8 million in 1995 compared to $297.5 million in
1994, a decrease of 4%. The impact of ongoing staff reductions in most of
Meridian's business units was partially offset by normal merit increases. Full-
time equivalent employment was 5,779 at December 31, 1995 compared to 6,939 a
year ago, a decrease of 17%.
Net occupancy expense was $44.0 million in 1995 compared to $45.4
million in 1994, a decrease of 3%. Equipment expense was $38.7 million in 1995,
almost unchanged from the total in 1994. Both categories were affected by the
recommendations of the recent operating performance study.
Other operating expenses were $170.5 million in 1995 compared
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<PAGE>
to $198.1 million in 1994, a decrease of $27.6 million, or 14%. Loan-related
expenses declined by $17.6 million, or 61%, between the two years, mainly
because of the reduction in scope of Meridian's mortgage banking activities. In
addition, there was a decline of $3.3 million in the provision for recourse
servicing. With respect to mortgage servicing portfolios purchased with
recourse, the provisions charged to operating expense were $7.1 million and
$10.4 million in 1995 and 1994, respectively. Chargeoffs and writedowns
aggregated $2.2 million in 1995 and $4.1 million in 1994.
Meridian's ongoing expense control efforts were reflected in reductions in
various other expense categories including consulting and other types of
professional fees, loan and deposit-related expenses, and stationery and
supplies. FDIC deposit insurance expense declined $7.4 million as a result of
the recent decrease in the ongoing assessment rate. Partially offsetting these
decreases were increases related to foreclosed real estate expenses, automated
teller network charges, and the amortization of intangible assets.
Deposits of Meridian at December 31, 1995 of approximately $8.9 billion
were insured by the Bank Insurance Fund ("BIF"), while the remaining deposits of
approximately $2.2 billion were insured by the Savings Associated Insurance Fund
("SAIF"). These SAIF deposits are related to previous acquisitions by Meridian
Bank and Meridian Bank, New Jersey of deposits of savings and
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<PAGE>
thrift institutions that were SAIF members. The Federal Deposit Insurance
Corporation ("FDIC") recently established a new assessment rate schedule which
significantly reduces the premium for BIF deposits while retaining the existing
assessment rate of 23 to 31 basis points for SAIF deposits.
Several alternatives to mitigate the effect of the BIF/SAIF premium
difference have been proposed by the Clinton Administration, by members of
Congress, and by industry groups. One such proposal is for the institutions
with SAIF-insured deposits to pay a one-time charge of approximately $0.85 to
$0.90 for every $100.00 of assessable deposits. This proposal includes a twenty
percent reduction of SAIF deposits held by BIF member institutions that resulted
from prior acquisitions of savings and thrift institutions. If this proposal
were enacted, Meridian would recognize a one-time pre-tax charge of
approximately $15.3 million to $16.2 million. Such a special assessment might
permit a reduction in future SAIF premiums to a level comparable to the recently
announced assessment rates for BIF.
Effective January 1, 1994, Meridian adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits." This statement establishes standards for employers who provide
benefits to former employees after employment but before retirement. Such
benefits include, among other things, severance, disability, and workers'
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<PAGE>
compensation benefits. The implementation of these new accounting rules
resulted in a charge of $4.2 million ($2.7 million after-tax or $.05 per share)
in the first quarter of 1994. Total postemployment benefits expense was $221
thousand in 1995.
Restructuring and merger-related charges totaled $40.4 million in 1995.
Restructuring charges related to the operating performance study ("59.9"
program) included $15.9 million of severance and other employee related costs;
$10.7 million of building and other asset writedowns; $2.8 million of consulting
and legal fees; and $2.6 million of lease and other contract terminations
related to bank branch closings and the consolidation of brokerage activities.
These charges, totaling $32 million, were partially offset by net gains of $1.6
million related to the curtailment of the employee benefit plans affected by
employee terminations, as previously discussed. Merger-related charges totaled
$10.0 million, representing payments to three investment banking firms for
providing services with respect to the merger between Meridian and CoreStates.
PROVISION FOR INCOME TAXES
The provision for income taxes for 1995 was $84.6 million compared to
$70.6 million for 1994. The effective tax rate,
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which is the ratio of income tax expense to income before income taxes, was 33%
in 1995, up from 30% in 1994. The increase in the effective rate resulted from
a decrease in tax-free income between the two years and the fact that $10.0
million of merger-related expenses in 1995 were non-deductible for tax purposes.
The tax rate for both periods was less than the federal statutory rate of 35%
primarily because of tax-exempt investment and loan income.
At December 31, 1995, deferred tax assets amounted to $97.4 million and
deferred tax liabilities amounted to $67.0 million, which are included in other
assets and other liabilities, respectively. No valuation allowance has been
established for deferred tax assets because management believes that it is more
likely than not that the deferred tax assets will be realized.
CAPITAL RESOURCES
The maintenance of appropriate levels of capital is a management priority.
Overall capital adequacy and dividend policy are monitored on an on-going basis
and are reviewed quarterly by the Board of Directors. Meridian's principal
capital planning goals are to maintain a strong capital base to support the
risks inherent in various lines of business, to retain sufficient earnings to
meet capitalization objectives,
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especially those related to growth and expansion, and to provide an adequate
return to shareholders. Capital is managed for each of Meridian's subsidiaries
based on their respective risks and growth opportunities, as well as regulatory
requirements. Meridian is positioned to take advantage of market opportunities
to strengthen capital.
Total shareholders' equity was $1.31 billion at December 31, 1995 compared
to $1.22 billion at the end of 1994, an increase of 8%. Net income for the year
was $169.8 million and dividends declared during the year were $81.1 million,
resulting in a common dividend payout ratio of 48%.
Equity was impacted during 1994 and 1995 by two common stock purchase
programs. First, in January 1994 the Board of Directors authorized the purchase
of up to one million shares to satisfy both the company's obligations under the
warrant to acquire 500,000 shares of Meridian's common stock issuable in
connection with the acquisition of McGlinn Capital Management, and obligations
under stock option and other employee benefit plans. The authorization was met
during 1995 and 574,188 shares remained as treasury stock at December 31, 1995
compared to 525,336 shares at December 31, 1994. Secondly, in August 1994 the
Board of Directors authorized the adoption of an Employee Stock Ownership Plan
(ESOP), and Meridian announced that the trustee for the ESOP would purchase two
million shares of common stock in the market. Purchased shares will be used
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<PAGE>
for distribution to employees of Meridian and its affiliated companies as part
of an additional qualified plan of deferred compensation. As of December 31,
1995, the ESOP had purchased two million shares and 100,000 shares had been
committed to be released to participants.
Meridian's capital adequacy at December 31, 1995 can be determined by
analyzing the capital ratios presented in Table 21. As can be seen in this
table, Meridian's consolidated ratios at the end of 1995 exceeded all regulatory
requirements. The risk-based capital ratio was 13.06% at December 31, 1995
compared to 12.73% at December 31, 1994. The ratio of tangible shareholders'
equity to assets, which excludes $117.5 million of intangible assets (goodwill
and core deposit intangibles) was 8.12% at December 31, 1995 compared to 7.23%
at December 31, 1994. The risk-based capital ratios of each of Meridian's
commercial banks also exceeded regulatory requirements at the end of 1995, as
shown in the table.
Federal Reserve Board regulations define a well-capitalized institution as
having a Tier 1 capital ratio of 6% or more, a total risk-based capital ratio of
10% or more, and a leverage ratio of 5% or more. Consolidated ratios at December
31, 1995 exceeded these guidelines, as did the ratios of each of Meridian's
commercial banks.
The common stock of Meridian is traded in the over-the-counter
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<PAGE>
market. The monthly average number of common shares traded in 1995 was 5.1
million compared to 3.9 million in 1994. Table 23 sets forth the high and low
market price quotations for the periods indicated. Price quotations are
available through the National Market System of the National Association of
Securities Dealers Automated Quotation System. These prices represent
quotations between dealers and do not include retail markups, markdowns or
commissions, and may not represent actual transactions.
Book value per common share was $23.24 at December 31, 1995 compared to a
market value of $46.50 per share. The increase in Meridian's market value in the
fourth quarter of 1995 resulted from the announcement of the proposed merger
with CoreStates. Book value and market value at the end of 1994 were $21.50 and
$26.63, respectively. The market to book value ratio was 200% at the end of 1995
compared to 124% one year ago. Meridian's market capitalization at December 31,
1995 was approximately $2.7 billion compared to $1.5 billion one year ago, an
increase of 76%.
After-tax unrealized gains on investment securities available for sale
aggregated $7.5 million at December 31, 1995 compared to unrealized losses of
$7.2 million at December 31, 1994. The impact of recording this unrealized gain
in equity at the end of 1995 was an increase in book value per common share of
$.13 and an increase of 5 basis points in the shareholders' equity to assets
ratio. This impact compares to reductions of both $.13 in book value per common
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share and 5 basis points in the shareholders' equity to assets ratio at the end
of 1994.
Reference should be made to the Statement of Changes in Shareholders'
Equity appearing in the Consolidated Financial Statements for a summary of the
changes in total shareholders' equity for each of the years in the three-year
period ended December 31, 1995.
INDUSTRY SEGMENTS
Table 24 presents a summary of the operating results of Meridian's two
reportable industry segments.
Banking. The banking unit provides a full range of retail and
corporate banking, and trust and asset management services to customers in the
eastern half of Pennsylvania, as well as Delaware and southern New Jersey.
The banking unit reported record income, before restructuring and
merger-related charges, of $193.2 million in 1995 compared to net income of
$155.7 million in 1994, an increase of 24%. After restructuring and merger-
related charges of $35.4 million, ($26.5 million after-tax), net income was
$166.6 million in 1995. An increase in trust revenues and service charges on
deposit accounts contributed to an increase in non-interest income. The
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implementation of the recommendations of Meridian's operating performance study
("59.9" program), including significant reductions in staff levels, the
restructuring and downsizing of Meridian's mortgage banking activities, and a
reduction in FDIC deposit insurance premiums in the second half of 1995
contributed to the decline in non-interest expenses.
Net interest income on a taxable-equivalent basis was $626.2 million
in 1995 compared to $623.1 million in 1994, an increase of 1%. The net interest
margin was 4.75% in 1995 compared to 4.85% in 1994. The net interest margin was
impacted in 1995 by asset and liability repricing in an interest rate
environment that was slightly higher than in 1994. In addition, the mix of
interest-earning assets changed, as growth in the loan portfolio was funded by a
decline in the investment portfolio.
Loans outstanding at December 31, 1995 were $10.2 billion compared to
$9.8 billion at the end of 1994, a 4% increase. Total deposits at December 31,
1995 were $11.1 billion compared to $11.3 billion at December 31, 1994. Changes
in these categories are discussed in the "Loans" and "Deposits" sections.
Securities. Meridian Securities underwrites, brokers and distributes
securities to municipalities, institutional and individual investors. In
addition, the unit buys, sells and securitizes mortgage loans and brokers loan
servicing portfolios.
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The unit also provides investment banking services by acting as financial
advisors in facilitating municipal and corporate transactions in the capital
markets.
The securities unit reported income before restructuring charges of $6.4
million in 1995 compared to net income of $3.7 million in 1994. After
restructuring charges of $5.0 million ($3.3 million after-tax), net income was
$3.2 million in 1995. Net revenues increased by $7.3 million, or 15%. Net
trading gains increased by $12.0 million between the two years. Financial
market conditions in 1994 resulted in reduced trading volumes and a valuation
adjustment of the trading portfolios. Operating expenses increased 8% between
the two years, totaling $46.8 million in 1995 compared to $43.5 million in 1994.
An analysis of the more significant components of revenues for the
securities unit is as follows (dollars in thousands).
<TABLE>
<CAPTION>
Net Trading Gains
- -----------------
1995 1994
---- ----
<S> <C> <C>
Gains on Sales of Securities $33,773 $21,165
Losses on Sales of Mortgage Loans ( 708) ( 63)
------- -------
Net Trading Gains $33,065 $21,102
Tender Option Bonds
- -------------------
</TABLE>
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<PAGE>
<TABLE>
<S> <C> <C>
Fees $ 7,166 $12,088
Average Net Spread Earned 3.04% 3.86%
Retail Brokerage Activity
- -------------------------
Number of Retail Trades
Equity Securities 28,789 23,841
Fixed Income Securities 2,432 2,564
Retail Commissions and Fees $ 3,763 $ 3,141
</TABLE>
ANALYSIS OF 1994 COMPARED TO 1993
Financial Highlights. Net income was $159.4 million in 1994 compared to $157.8
million in 1993. Earnings per fully diluted share were $2.75 in 1994 compared
to $2.74 in 1993. Both years included the effects of accounting changes which
reduced net income in 1994 by $2.7 million or $.05 per share and increased net
income in 1993 by $7.2 million or $.13 per share. These accounting changes
related to certain postemployment benefits in 1994 and income taxes in 1993.
Income before accounting changes was $162.1 million in 1994 compared to $150.5
million in 1993, an increase of 8%. Earnings per fully diluted share before
accounting changes increased by 7%, from $2.61 in 1993 to $2.80 in 1994.
The major changes in net income per fully diluted share between 1994 and 1993,
and a discussion of such changes, is as follows.
<TABLE>
<S> <C>
Net income per fully diluted share in 1993 $2.74
Increase(decrease)resulting from:
</TABLE>
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<PAGE>
<TABLE>
<S> <C>
Decline in net interest income (.08)
Decrease in provision for possible
loan losses .53
Decrease in non-interest income (.81)
Reduction in non-interest expenses .46
Increase in provision for income taxes (.09)
Increase in average shares outstanding (.01)
-----
Change in income before restructuring charges
and cumulative effect of changes in accounting
principles --
Restructuring charges .19
Cumulative effect of changes in accounting
principles (.18)
-----
Net income per fully diluted share in 1994 $2.75
=====
</TABLE>
The returns on average assets and on average common shareholders' equity in
1994 were 1.10% and 13.26%, respectively, compared to 1.11% and 14.17%,
respectively, in 1993.
Total assets at December 31, 1994 were $15.1 billion compared to $14.1
billion at the end of 1993. Total loans increased 8% to $9.8 billion at
December 31, 1994. Each of the major loan portfolios experienced growth over
this time period. Total deposits were $11.4 billion at December 31, 1994
compared to $11.3 billion at December 31, 1993.
The ratio of shareholders' equity to assets was 8.07% at December 31, 1994
compared to 8.42% at the end of 1993. Equity was impacted by Meridian's
purchase of 1.8 million shares of common stock during 1994, as discussed
previously. Meridian's risk-based capital ratio was 12.73% at December 31, 1994
compared
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to 13.67% at the end of 1993. Book value per common share was $21.50 at
December 31, 1994 compared to $20.39 at year-end 1993.
Net Interest Income and Related Assets and Liabilities. Net interest
income on a taxable equivalent basis was $630.1 million in 1994 compared to
$639.3 million in 1993. In 1994, the positive impact on net interest income of
earning asset growth was offset by a 23 basis point decline in the net interest
margin as a result of asset and liability repricing in the 1994 interest rate
environment. The net interest margin was 4.73% in 1994 compared to 4.96% in
1993.
Average interest-earning assets increased to $13.3 billion in 1994 from
$12.9 billion in 1993, an increase of 3%. The mix of earning assets changed
moderately, as a portion of loan growth was funded by reductions in investment
securities. Loans accounted for 73% of average interest-earning assets in 1994
compared to 71% in 1993, while investment securities accounted for 25% and 26%
of average interest-earning assets during 1994 and 1993, respectively.
Average loans, including loans held for sale, increased 6% to $9.7 billion
in 1994 from $9.2 billion in 1993. Growth occurred in the major loan categories,
reflecting the improved economic environment within Meridian's marketplace.
Average commercial loans increased 7%. Average consumer loans, primarily
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home equity and indirect automobile loans, increased 9% despite the fact that
student loans totaling approximately $223 million were sold during the third
quarter of 1994. Average residential mortgage loans increased 10%. Average
loans held for sale declined by 24% between the two years. Deposit balances
declined slightly in 1994 and averaged $11.2 billion compared to $11.3 billion
in 1993.
Provision for Possible Loan Losses and Related Credit Quality. The
provision for possible loan losses was $28.1 million in 1994 compared to $58.8
million in 1993. The decline of $30.7 million resulted primarily from continued
improvement in loan quality. The overall improvement in asset quality was also
evident in a decrease of $3.7 million in writedowns and other expenses
associated with foreclosed real estate, from $8.3 million in 1993 to $4.5
million in 1994. Net loans charged-off were $32.6 million in 1994 compared to
$53.6 million in 1993. The balance in the allowance for possible loan losses was
$169.4 million or 176% of non-performing loans at December 31, 1994 compared to
$175.1 million and 117% at the end of 1993.
Non-Interest Income. Non-interest income was $228.0 million in 1994
compared to $274.6 million in 1993, a decrease of 17%. Broker-dealer and
investment banking revenues decreased by $26.5
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million between the two years. Financial market conditions in 1994 resulted in
reduced trading volumes and a valuation adjustment of the trading portfolios.
In addition, mortgage-banking fees declined by $18.5 million, reflecting lower
origination and servicing volumes due to rising interest rates and the reduction
in scope of Meridian's mortgage banking activities. Net gains from securities
transactions decreased by $22.3 million between the two years. Included in the
total for 1993 was a gain of $8.6 million on the sale of Meridian's common stock
investment in Fidelity National Financial, Inc. This stock was acquired as part
of the sale of Meridian's title insurance operations in 1992. A gain of $5.5
million was recognized in 1993 from the sale of investment securities available
for sale in the first quarter of the year, mainly U.S. Treasury and federal
agency securities with maturities of less than one year. Finally, a gain of
$8.3 million was recognized in 1993 from the sale of some mortgage-backed
investments acquired in the merger with Commonwealth Bancshares Corporation
during the third quarter of 1993. An improvement in other revenues offset a
portion of these declines. Trust revenues increased by $13.0 million between
the two years, partially as a result of the acquisition of McGlinn Capital
Management in July 1994. Service charges on deposits and fees for other
customer services increased by $3.6 million over the prior year.
Non-Interest Expenses. Non-interest expenses were $579.7
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million in 1994 compared to $623.5 million in 1993, a decrease of $43.8 million,
or 7%. Expenses declined by $23.3 million, or 4%, between the two years,
exclusive of non-recurring merger expenses related to the Commonwealth
acquisition in 1993 and expenses in both years related to the restructuring and
downsizing of Meridian's mortgage banking activities. A decline in operating
expenses in the securities unit and the mortgage banking function was the
primary reason for the decrease in expenses.
Salaries and benefits, which represent the largest component of non-
interest expenses, were almost unchanged between the two years, totaling $297.5
million in 1994 compared to $296.1 million in 1993. Lower levels of expense in
the mortgage banking and securities units offset an increase in the banking
unit. Full-time equivalent employment was 6,939 at December 31, 1994 compared to
6,917 at the end of 1993.
Effective January 1, 1994, Meridian adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits." This statement establishes standards for employers who provide
benefits to former employees after employment but before retirement. Such
benefits include, among other things, severance, disability, and workers'
compensation benefits. The implementation of these new accounting rules resulted
in a charge of $4.2 million ($2.7
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million after-tax or $.05 per share) in the first quarter of 1994.
Net occupancy expense was $45.4 million in 1994 compared to $42.6 million
in 1993, an increase of 7%. Equipment expense increased from $38.0 million in
1993 to $38.7 million in 1994. The increases in both expense categories were
related to expansion, banking acquisitions, and the upgrading of Meridian's data
processing and operations capabilities.
Other operating expenses were $198.1 million in 1994 compared to $229.3
million in 1993, a decrease of 14%. Almost half of the decline in expenses
occurred in the mortgage banking function, where loan origination and servicing
expense decreased by $7.0 million because of the reduction in scope of
Meridian's mortgage banking activities. In addition, the provision for recourse
servicing declined $5.1 million. With respect to mortgage servicing portfolios
purchased with recourse, the provisions charged to operating expense were $10.5
million and $15.6 million in 1994 and 1993, respectively. Charge-offs and
writedowns aggregated $4.1 million in 1994 and $13.8 million in 1993.
FDIC deposit insurance expense decreased by $6.7 million between the two
years. Other categories reflecting decreases between the two years included
foreclosed real estate expenses,
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which declined by $3.7 million, and professional fees, mostly payments to
outside consultants for enhancements to operating systems, which declined by
$3.2 million. Partially offsetting these reductions were increases related to
automated teller network charges and the amortization of intangible assets.
A restructuring charge of $17.5 million was recorded in 1993 in the
mortgage unit. This charge resulted from the restructuring plan approved by
Meridian's Board of Directors and included:
. Reserves of $7.9 million for anticipated cash outflows related to
various contract termination, severance and legal and other sale-related
costs.
. Writedowns of $9.6 million to estimated fair market value of certain
mortgage servicing intangibles and other related assets, which balances
were then transferred to assets held for sale.
Provision for Income Taxes. The effective tax rate was 30% in 1994, up
from 28% in 1993. The tax rate for both periods was less than the federal
statutory rate of 35% primarily because of tax-exempt investment and loan
income.
Quarterly Financial Data. Summarized quarterly financial data for 1995 and
1994 is presented in Table 25.
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TABLE 1: NET INTEREST INCOME, AVERAGE BALANCES AND RATES
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 1994
--------------------------------- ---------------------------------
Interest Average Interest Average
Average Income/ Yield/ Average Income/ Yield/
Balance Expense Rate Balance Expense Rate
----------- ----------- ------- ----------- ----------- -------
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-Earning Assets
Short-Term Investments
Interest-Bearing Deposits in Other Banks............ $85,494 $5,293 6.19% $103,016 $4,607 4.47%
Federal Funds Sold and Securities Purchased
Under Agreements to Resell........................ 31,204 1,600 5.13 74,726 2,928 3.92
----------- ----------- ------- ----------- ----------- -------
Total Short-Term Investments...................... 116,698 6,893 5.91 177,742 7,535 4.24
----------- ----------- ------- ----------- ----------- -------
Trading Account Assets (1)............................ 278,797 20,736 7.44 136,550 9,250 6.77
Investment Securities Available for Sale (1).......... 497,870 34,446 6.92 363,580 25,364 6.98
Investment Securities
Taxable............................................. 2,214,641 126,832 5.73 2,565,868 137,438 5.36
Non-Taxable (1)..................................... 291,686 24,572 8.42 338,260 28,070 8.30
----------- ----------- ------- ----------- ----------- -------
Total Investment Securities (1)................... 2,506,327 151,404 6.04 2,904,128 165,508 5.70
----------- ----------- ------- ----------- ----------- -------
Loans Held For Sale................................... 112,666 10,029 8.90 381,365 28,618 7.50
Loans
Commercial (1)...................................... 6,071,274 559,995 9.22 5,636,223 460,234 8.17
Real Estate-Residential............................. 1,261,614 104,643 8.29 1,099,542 89,905 8.18
Consumer............................................ 2,674,759 238,023 8.90 2,614,419 216,334 8.27
----------- ----------- ------- ----------- ----------- -------
Total Loans (2)................................... 10,007,647 902,661 9.02 9,350,184 766,473 8.20
----------- ----------- ------- ----------- ----------- -------
Total Interest-Earning Assets.......................... 13,520,005 1,126,169 8.33 13,313,549 1,002,748 7.53
Allowance for Possible Loan Losses................... (173,464) -- -- (175,101) -- --
Non-Interest Earning Assets.......................... 1,308,657 -- -- 1,414,374 -- --
----------- ----------- ------- ----------- ----------- -------
Total Assets, Interest Income.....................$14,655,198 $1,126,169 7.68% $14,552,822 $1,002,748 6.89%
=========== ----------- ------- =========== ----------- -------
LIABILITIES
Interest-Bearing Liabilities
Interest-Bearing Deposits
NOW Accounts........................................ $1,453,556 $25,628 1.76% $1,481,798 $21,373 1.44%
Savings Deposits.................................... 1,731,223 42,926 2.48 1,943,411 41,666 2.14
Money Market Deposit Accounts....................... 2,168,729 76,532 3.53 2,326,188 58,020 2.49
Short-Term Time Deposits............................ 581,279 25,598 4.40 732,817 23,783 3.25
Long-Term Time Deposits............................. 2,744,894 160,353 5.84 2,505,410 113,921 4.55
Certificates of Deposits of $100,000 or More........ 695,890 40,690 5.85 497,080 24,493 4.93
----------- ----------- ------- ----------- ----------- -------
Total Interest-Bearing Deposits................... 9,375,571 371,727 3.96 9,486,704 283,256 2.99
----------- ----------- ------- ----------- ----------- -------
Short-Term Borrowings
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase............... 1,388,746 77,972 5.61 1,250,134 52,932 4.23
Other Short-Term Borrowings......................... 226,018 13,454 5.95 213,265 10,194 4.78
----------- ----------- ------- ----------- ----------- -------
Total Short-Term Borrowings....................... 1,614,764 91,426 5.66 1,463,399 63,126 4.31
----------- ----------- ------- ----------- ----------- -------
Long-Term Debt and Other Borrowings................... 447,983 31,587 7.05 382,835 26,242 6.85
----------- ----------- ------- ----------- ----------- -------
Total Interest-Bearing Liabilities................ 11,438,318 494,740 4.33 11,332,938 372,624 3.29
----------- ----------- ------- ----------- ----------- -------
Non-Interest Sources to Fund Interest-Earning Assets
Non-Interest Bearing Deposits......................... 1,703,415 -- -- 1,738,859 -- --
Other Liabilities..................................... 272,323 -- -- 278,815 -- --
Shareholders' Equity.................................. 1,241,142 -- -- 1,202,210 -- --
----------- ----------- ------- ----------- ----------- -------
Total Non-Interest Sources to Fund
Interest-Earning Assets......................... 3,216,880 -- -- 3,219,884 -- --
----------- ----------- ------- ----------- ----------- -------
Total Liabilities and Shareholders' Equity,
Interest Expense................................$14,655,198 494,740 3.38% $14,552,822 372,624 2.56%
=========== ----------- ------- =========== ----------- -------
NET INTEREST INCOME..................................... $631,429 $630,124
=========== ===========
NET INTEREST SPREAD (3)............................... 4.00% 4.24%
EFFECT OF NON-INTEREST BEARING FUNDS................. 0.67 0.49
------- -------
NET INTEREST MARGIN (4)............................... 4.67% 4.73%
======= =======
<CAPTION>
1993
---------------------------------
Interest Average
Average Income/ Yield/
Balance Expense Rate
----------- ----------- -------
<S> <C> <C> <C>
ASSETS
Interest-Earning Assets
Short-Term Investments
Interest-Bearing Deposits in Other Banks............ $110,754 $3,874 3.50%
Federal Funds Sold and Securities Purchased
Under Agreements to Resell........................ 53,681 2,262 4.21
----------- ----------- -------
Total Short-Term Investments...................... 164,435 6,136 3.73
----------- ----------- -------
Trading Account Assets (1)............................ 148,419 10,989 7.40
Investment Securities Available for Sale (1).......... 668,299 49,202 7.36
Investment Securities
Taxable............................................. 2,368,231 135,749 5.73
Non-Taxable (1)..................................... 378,198 31,640 8.37
----------- ----------- -------
Total Investment Securities (1)................... 2,746,429 167,389 6.09
----------- ----------- -------
Loans Held For Sale................................... 499,585 36,405 7.29
Loans
Commercial (1)...................................... 5,259,325 409,214 7.78
Real Estate-Residential............................. 1,002,361 93,065 9.28
Consumer............................................ 2,406,796 211,341 8.78
----------- ----------- -------
Total Loans (2)................................... 8,668,482 713,620 8.23
----------- ----------- -------
Total Interest-Earning Assets.......................... 12,895,649 983,741 7.63
Allowance for Possible Loan Losses................... (173,170) -- --
Non-Interest Earning Assets.......................... 1,442,773 -- --
----------- ----------- -------
Total Assets, Interest Income..................... $14,165,252 $983,741 6.94%
=========== ----------- -------
LIABILITIES
Interest-Bearing Liabilities
Interest-Bearing Deposits
NOW Accounts........................................ $1,320,401 $22,904 1.73%
Savings Deposits.................................... 1,756,208 40,456 2.30
Money Market Deposit Accounts....................... 2,409,786 43,043 1.79
Short-Term Time Deposits............................ 891,432 32,579 3.65
Long-Term Time Deposits............................. 2,643,194 116,915 4.42
Certificates of Deposits of $100,000 or More........ 587,603 27,925 4.75
----------- ----------- -------
Total Interest-Bearing Deposits................... 9,608,624 283,822 2.95
----------- ----------- -------
Short-Term Borrowings
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase............... 841,257 24,424 2.90
Other Short-Term Borrowings......................... 191,122 6,094 3.19
----------- ----------- -------
Total Short-Term Borrowings....................... 1,032,379 30,518 2.96
----------- ----------- -------
Long-Term Debt and Other Borrowings................... 439,154 30,058 6.84
----------- ----------- -------
Total Interest-Bearing Liabilities................ 11,080,157 344,398 3.11
----------- ----------- -------
Non-Interest Sources to Fund Interest-Earning Assets
Non-Interest Bearing Deposits......................... 1,694,358 -- --
Other Liabilities..................................... 277,203 -- --
Shareholders' Equity.................................. 1,113,534 -- --
----------- ----------- -------
Total Non-Interest Sources to Fund
Interest-Earning Assets......................... 3,085,095 -- --
----------- ----------- -------
Total Liabilities and Shareholders' Equity,
Interest Expense................................ $14,165,252 344,398 2.43%
=========== ----------- -------
NET INTEREST INCOME..................................... $639,343
===========
NET INTEREST SPREAD (3)............................... 4.52%
EFFECT OF NON-INTEREST BEARING FUNDS................. 0.44
-------
NET INTEREST MARGIN (4)............................... 4.96%
=======
</TABLE>
(1) The indicated interest income and average yields are presented on a
taxable-equivalent basis. The taxable-equivalent adjustments included
above are $15,747, $17,708, and $22,051 for 1995, 1994, and 1993,
respectively. The effective tax rate used for the taxable-equivalent
adjustments was 35% for all periods presented.
(2) Loan fees of $11,028, $14,168, and $14,616 for 1995, 1994 and 1993,
respectively, are included in interest income. Average loan balances
include non-accruing loans.
(3) Net Interest Spread is the arithmetic difference between the yield on
interest-earning assets and the rate paid on interest-bearing liabilities.
(4) Net Interest Margin is computed by dividing net interest income by average
interest-earning assets.
77
<PAGE>
TABLE 2: VOLUME-RATE ANALYSIS OF CHANGES IN NET INTEREST INCOME
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995/1994 (2)
---------------------------------------
Increase (Decrease) in Interest Income/
Expense Due To Changes In
---------------------------------------
Volume Rate Total
--------- -------- ---------
<S> <C> <C> <C>
INTEREST INCOME
Short-Term Investments
Interest-Bearing Deposits in Other Banks.......... ($876) $1,562 $686
Federal Funds Sold and Securities
Purchased Under Agreements to Resell............ (2,050) 722 (1,328)
-------- -------- ---------
Total Short-Term Investments.................... (2,926) 2,284 (642)
-------- -------- ---------
Trading Account Assets (1).......................... 10,489 997 11,486
Investment Securities Available for Sale (1)........ 9,302 (220) 9,082
Investment Securities
Taxable........................................... (19,673) 9,067 (10,606)
Non-Taxable (1)................................... (3,900) 402 (3,498)
-------- -------- ---------
Total Investment Securities (1)................. (23,573) 9,469 (14,104)
Loans Held For Sale................................. (23,137) 4,548 (18,589)
Loans
Commercial (1).................................... 37,434 62,327 99,761
Real Estate-Residential........................... 13,506 1,232 14,738
Consumer.......................................... 5,043 16,646 21,689
-------- -------- ---------
Total Loans .................................... 55,983 80,205 136,188
-------- -------- ---------
Total Interest Income .......................... $26,138 $97,283 $123,421
-------- -------- ---------
INTEREST EXPENSE
Total Interest-Bearing Deposits..................... ($3,331) $91,802 $88,471
Short-Term Borrowings
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase.................. 6,351 18,689 25,040
Other Short-Term Borrowings....................... 640 2,620 3,260
-------- -------- ---------
Total Short-Term Borrowings..................... 6,991 21,309 28,300
-------- -------- ---------
Long-Term Debt and Other Borrowings................. 4,562 783 5,345
-------- -------- ---------
Total Interest Expense.......................... 8,222 113,894 122,116
-------- -------- ---------
Increase (Decrease) in Net Interest Income.......... $17,916 ($16,611) $1,305
======== ======== =========
<CAPTION>
1994/1993 (2)
-----------------------------------------
Increase (Decrease) in Interest Income/
Expense Due To Changes In
-----------------------------------------
Volume Rate Total
--------- -------- ---------
<S> <C> <C> <C>
INTEREST INCOME
Short-Term Investments
Interest-Bearing Deposits in Other Banks.......... ($285) $1,018 $733
Federal Funds Sold and Securities
Purchased Under Agreements to Resell............ 832 (166) 666
-------- -------- ---------
Total Short-Term Investments.................... 547 852 1,399
-------- -------- ---------
Trading Account Assets (1).......................... (842) (897) (1,739)
Investment Securities Available for Sale (1)........ (21,413) (2,425) (23,838)
Investment Securities
Taxable........................................... 10,832 (9,143) 1,689
Non-Taxable (1)................................... (3,308) (262) (3,570)
-------- -------- ---------
Total Investment Securities (1)................. 7,524 (9,405) (1,881)
Loans Held For Sale................................. (8,812) 1,025 (7,787)
Loans
Commercial (1).................................... 30,021 20,999 51,020
Real Estate-Residential........................... 8,500 (11,660) (3,160)
Consumer.......................................... 17,655 (12,662) 4,993
-------- -------- ---------
Total Loans .................................... 56,176 (3,323) 52,853
-------- -------- ---------
Total Interest Income .......................... $33,180 ($14,173) $19,007
-------- -------- ---------
INTEREST EXPENSE
Total Interest-Bearing Deposits..................... ($3,990) $3,424 ($566)
Short-Term Borrowings
Federal Funds Purchased and Securities Sold
Under Agreements to Repurchase.................. 14,667 13,841 28,508
Other Short-Term Borrowings....................... 773 3,327 4,100
-------- -------- ---------
Total Short-Term Borrowings..................... 15,440 17,168 32,608
-------- -------- ---------
Long-Term Debt and Other Borrowings................. (3,860) 44 (3,816)
-------- -------- ---------
Total Interest Expense.......................... 7,590 20,636 28,226
-------- -------- ---------
Increase (Decrease) in Net Interest Income.......... $25,590 ($34,809) ($9,219)
======== ======== =========
</TABLE>
(1) The indicated interest changes are presented on a taxable equivalent basis,
using an effective tax rate of 35% for all periods presented.
(2) The portion of the total change attributable to both volume and rate changes
during the year has been allocated to volume and rate components based upon
the absolute dollar amount of the change in each component prior to the
allocation.
78
<PAGE>
TABLE 3: INTEREST RATE SENSITIVITY
<TABLE>
<CAPTION>
December 31, 1995
(Dollars In Thousands) Maturity/Repricing Schedule
-------------------------------------------------------------------
Within Two To Four To Seven To Over
One Three Six Twelve Twelve
Month Months Months Months Months Total
-------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Interest-Earning Assets
Short-Term Investments and Trading Account Assets....... $123,786 $93,676 $100 $194 $656 $218,412
Investment Securities and Investment Securities
Available for Sale................................... 190,358 218,367 304,180 563,670 1,351,543 2,628,118
Loans................................................... 4,119,706 966,646 470,788 916,431 3,814,872 10,288,443
-------------------------------------------------------------------
Total Interest-Earning Assets........................ 4,433,850 1,278,689 775,068 1,480,295 5,167,071 13,134,973
-------------------------------------------------------------------
Funding Sources
Interest-Bearing Deposits............................... 1,742,811 739,871 1,347,830 1,599,559 3,753,607 9,183,678
Short-Term Borrowings................................... 1,518,181 - - - - 1,518,181
Long-Term Debt and Other Borrowings..................... 3,027 94,020 923 1,622 414,173 513,765
-------------------------------------------------------------------
Total Interest-Bearing Liabilities................... 3,264,019 833,891 1,348,753 1,601,181 4,167,780 11,215,624
-------------------------------------------------------------------
Demand Deposits, Shareholders' Equity,
and Other Non-Interest Bearing
Funds, Net............................................. (210,241) 72,560 57,436 (43,654) 2,043,248 1,919,349
Interest Rate Swaps........................................ 1,058,000 311,238 (191,300) (480,200) (697,738) -
Tender Option Bonds and Other Off-Balance Sheet Items...... 136,244 149 12,016 10,695 (159,104) -
-------------------------------------------------------------------
Total Funding Sources................................ 4,248,022 1,217,838 1,226,905 1,088,022 5,354,186 $13,134,973
--------------------------------------------------------===========
Interest Sensitivity Gap................................... 185,828 60,851 (451,837) 392,273 (187,115)
-------------------------------------------------------------
Cumulative Interest Sensitivity Gap........................ 185,828 246,679 (205,158) 187,115
---------------------------------------------
Cumulative Interest Sensitivity Gap as a
Percent of Interest-Earning Assets.................... 1.4% 1.9% -1.6% 1.4%
</TABLE>
79
<PAGE>
Table 4 OFF-BALANCE SHEET DERIVATIVES
MATURITIES AND OTHER INFORMATION
<TABLE>
<CAPTION>
December 31, 1995
(Dollars in Thousands) 2000
and
Consolidated Notional Amount 1996 1997 1998 1999 Beyond
----------- --------- --------- --------- ---------
<S> <C> <C> <C> <C> <C>
Related to Interest Rate Risk Management $1,114,565 $663,954 $524,209 $595,138 $216,228
Related to Securities Unit (Broker-Dealer Activities) 324,742 137,052 85,769 58,608 524,377
----------- --------- --------- --------- ---------
Consolidated Derivatives $1,439,307 $801,006 $609,978 $653,746 $740,605
=========== ========= ========= ========= =========
Related to Interest Rate Risk Management
Interest Rate Swaps
Fixed Rate Receive
Notional Amount $950,000 $400,006 $417,032 $50,000 $100,000
Weighted Average Fixed Rate Receive 6.07% 5.69% 5.66% 6.57% 5.78%
Weighted Average Floating Rate Pay 5.84% 5.91% 5.89% 5.93% -
Floating Rate Receive and Pay -- Basis Swaps
Notional Amount 100,000 150,000 - - -
Weighted Average Floating Rate Receive 5.94% 5.90% - - -
Weighted Average Floating Rate Pay 5.79% 5.92% - - -
Purchased Interest Rate Floors
Notional Amount - 100,000 - 425,000 -
Weighted Average Rate - 7.00% - 6.50% -
Interest Rate Collars
Notional Amount - - 100,000 100,000 -
Weighted Average Rate on Floors - - 6.25% 6.00% -
Weighted Average Rate on Caps - - 8.12% 8.80% -
Notional Amount of Other Contracts
Interest Rate Caps and Floors for Customers 30,831 13,948 7,177 20,138 116,228
Other 33,734 - - - -
----------- --------- --------- --------- ---------
Total Interest Rate Risk Management $1,114,565 $663,954 $524,209 $595,138 $216,228
=========== ========= ========= ========= =========
<CAPTION>
December 31, 1995 Net
(Dollars in Thousands) Unrealized
Unrealized Unrealized Gains
Consolidated Notional Amount Total Gains Losses (Losses)
----------- ---------- ---------- ----------
<S> <C> <C> <C> <C>
Related to Interest Rate Risk Management $3,114,094 $31,694 ($2,544) $29,150
Related to Securities Unit (Broker-Dealer Activities) 1,130,548 11,216 (2,994) 8,222
----------- --------- --------- ---------
Consolidated Derivatives $4,244,642 $42,910 ($5,538) $37,372
=========== ========= ========= =========
Related to Interest Rate Risk Management
Interest Rate Swaps
Fixed Rate Receive
Notional Amount $1,917,038 $9,545 ($2,544) $7,001
Weighted Average Fixed Rate Receive 5.81%
Weighted Average Floating Rate Pay 5.86%
Floating Rate Receive and Pay -- Basis Swaps
Notional Amount 250,000 - - -
Weighted Average Floating Rate Receive 5.91%
Weighted Average Floating Rate Pay 5.86%
Purchased Interest Rate Floors
Notional Amount 525,000 17,453 - 17,453
Weighted Average Rate 6.60%
Interest Rate Collars
Notional Amount 200,000 4,696 - 4,696
Weighted Average Rate on Floors 6.13%
Weighted Average Rate on Caps 8.46%
Notional Amount of Other Contracts
Interest Rate Caps and Floors for Customers 188,322 - - -
Other 33,734 - - -
----------- ---------- ---------- ---------
Total Interest Rate Risk Management $3,114,094 $31,694 ($2,544) $29,150
=========== ========== ========== =========
</TABLE>
Notes
1. Maturity information reflects contractual terms based on interest rates in
effect at December 31, 1995.
2. Fixed rate receive swaps contain $100 million of swaps starting forward in
January 1996. The variable rate will be determined at the time the swap
begins.
3. Fixed rates shown are raises over the life of the swaps; floating rates
represent rates in effect at December 31, 1995.
4. Fixed rates receive swaps contain $157 million of indexed amortizing
swaps, where amortization of the notional amount is dependent upon the
level of short term interests rates.
5. Basis swaps are based on the receipt of three month LIBOR and the payment
of one month LIBOR.
6. Weighted average rates shown for purchased floors are the exercise rates;
payments would be received when market rates are below these predetermined
exercise rates.
7. Interest rate collars combine the purchase of a floor with the sale of a
cap; payments would be received when market rates are below a
predetermined level and payments would be made when market rates are
above a predetermined level.
8. Other contracts include customer caps and floors, forward delivery
instruments to manage risks from mortgage operations, and foreign exchange
contracts.
Related to Securities Unit (Broker-Dealer Activities)
------------------------
<TABLE>
<S> <C> <C> <C> <C> <C>
Interest Rate Swaps
Fixed Rate Receive
Notional Amount - - - - $8,000
Weighted Average Fixed Rate Receive - - - - 7.09%
Weighted Average Floating Rate Pay - - - - 5.92%
Tender Option Bonds
Notional Amount $53,426 $93,100 $15,485 $2,595 43,497
Weighted Average Fixed Rate Receive 8.27% 7.88% 8.00% 6.75% 8.04%
Weighted Average Floating Rate Pay 4.46% 4.49% 4.32% 4.63% 5.63%
Treasury Float Contracts 41,289 39,115 64,568 52,980 425,786
Commitments to Purchase or
Sell Mortgages and Securities 230,027 4,837 5,716 3,033 47,094
----------- ---------- ---------- ---------- ---------
Total Securities Unit $324,742 $137,052 $85,769 $58,608 $524,377
=========== ========== ========== ========== =========
Interest Rate Swaps
Fixed Rate Receive
Notional Amount $8,000 $654 - $654
Weighted Average Fixed Rate Receive 7.09%
Weighted Average Floating Rate Pay 5.92%
Tender Option Bonds
Notional Amount 208,103 5,024 ($29) 4,995
Weighted Average Fixed Rate Receive 7.94%
Weighted Average Floating Rate Pay 4.59%
Treasury Float Contracts 623,738 884 - 884
Commitments to Purchase or
Sell Mortgages and Securities 290,707 4,654 (2,965) 1,689
---------- ----------- ---------- ----------
Total Securities Unit $1,130,548 $11,216 ($2,994) $8,222
========== =========== ========== ==========
</TABLE>
Notes
1. Maturity information reflects expected maturity based on interest rates in
effect at December 31, 1995.
2. Fixed rates shown are rates over the life of the swaps; floating rates
represent rates in effect at December 31, 1995.
80
<PAGE>
Table 4 OFF-BALANCE SHEET DERIVATIVES
MATURITIES AND OTHER INFORMATION
<TABLE>
<CAPTION>
December 31, 1994
(Dollars in Thousands) 1999
and
Consolidated Notional Amount 1995 1996 1997 1998 Beyond
---------------------------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Related to Interest Rate Risk Management $968,908 $1,153,200 $768,700 $310,700 $482,903
Related to Securities Unit (Broker-Dealer Activities) 352,889 123,073 132,517 88,992 843,238
---------- ---------- ---------- ---------- ----------
Consolidated Derivatives $1,321,797 $1,276,273 $901,217 $399,692 $1,326,141
========== ========== ========== ========== ==========
Related to Interest Rate Risk Management
----------------------------------------
Interest Rate Swaps
Fixed Rate Receive
Notional Amount $850,000 $1,150,000 $535,000 $300,000 -
Weighted Average Fixed Rate Receive 5.51% 5.54% 5.58% 5.30% -
Weighted Average Floating Rate Pay 6.25% 6.09% 5.89% 5.88% -
Fixed Rate Pay
Notional Amount 50,000 - - - -
Weighted Average Floating Rate Receive 8.50% - - - -
Weighted Average Fixed Rate Pay 6.81% - - - -
Purchased Interest Rate Floors
Notional Amount - - 200,000 - $300,000
Weighted Average Rate - - 7.50% - 6.67%
Notional Amount of Other Contracts
Interest Rate Caps and Floors for Customers 36,600 3,200 33,700 10,700 182,903
Other 32,308 - - - -
---------- ---------- ---------- ---------- ----------
Total Interest Rate Risk Management $968,908 $1,153,200 $768,700 $310,700 $482,903
---------- ---------- ---------- ---------- ----------
<CAPTION>
December 31, 1994 Net
(Dollars in Thousands) Unrealized
Unrealized Unrealized Gains
Consolidated Notional Amount Total Gains Losses (Losses)
---------------------------- ---------- ---------- ---------- ----------
Related to Interest Rate Risk Management $3,684,411 $1,260 ($101,793) ($100,533)
Related to Securities Unit (Broker-Dealer Activities) 1,540,709 12,918 (3,840) 9,078
---------- ---------- ---------- ----------
Consolidated Derivatives $5,225,120 $14,178 ($105,633) ($91,455)
========== ========== ========== ==========
Related to Interest Rate Risk Management
Interest Rate Swaps
Fixed Rate Receive
Notional Amount $2,835,000 - ($101,491) ($101,491)
Weighted Average Fixed Rate Receive 5.52%
Weighted Average Floating Rate Pay 6.08%
Fixed Rate Pay
Notional Amount 50,000 $905 - 905
Weighted Average Floating Rate Receive 8.50%
Weighted Average Fixed Rate Pay 6.81%
Purchased Interest Rate Floors
Notional Amount 500,000 355 (282) 73
Weighted Average Rate 7.00%
Notional Amount of Other Contracts
Interest Rate Caps and Floors for Customers 267,103 - - -
Other 32,308 - (20) (20)
---------- ---------- ---------- ----------
Total Interest Rate Risk Management $3,684,411 $1,260 ($101,793) ($100,533)
---------- ---------- ---------- ----------
</TABLE>
Notes
1. Maturity information reflects contractual terms based on interest rates
in effect at December 31, 1994.
2. Fixed rate receive swaps convert retail deposits to floating rates.
3. Fixed rates shown are rates over the life of the swaps; floating rates
represent rates in effect at December 31, 1994.
4. Fixed rate receive swaps contain (1) $225 million of indexed amortizing
swaps, where amortization of the notional amount is dependent upon the
level of short term interest rates and (2) $50 million of forward starting
swaps.
5. Weighted average rates shown for purchased floors are the exercise rates;
payments will be received when market rates are below these predetermined
exercise rates.
6. Other contracts include customer caps and floors, forward delivery
instruments to manage risks from mortgage operations, and foreign
exchange contracts.
<TABLE>
<CAPTION>
Related to Securities Unit (Broker-Dealer Activities)
-----------------------------------------------------
<S> <C> <C> <C> <C> <C>
Interest Rate Swaps
Fixed Rate Receive
Notional Amount - - - - $8,000
Weighted Average Fixed Rate Receive - - - - 7.09%
Weighted Average Floating Rate Pay - - - - 4.85%
Tender Option Bonds
Notional Amount $51,236 $73,310 $84,710 $3,195 43,497
Weighted Average Fixed Rate Receive 8.08% 7.94% 7.85% 6.75% 8.04%
Weighted Average Floating Rate Pay 3.74% 3.84% 4.16% 4.75% 3.81%
Treasury Float Contracts 110,205 44,065 42,970 82,221 741,614
Commitments to Purchase or
Sell Mortgages and Securities 191,448 5,698 4,837 3,576 50,127
--------- --------- --------- -------- ---------
Total Securities Unit $352,889 $123,073 $132,517 $88,992 $843,238
========= ========= ========= ======== =========
<CAPTION>
Related to Securities Unit (Broker-Dealer Activities)
-----------------------------------------------------
<S> <C> <C> <C> <C>
Interest Rate Swaps
Fixed Rate Receive
Notional Amount $8,000 - ($320) ($320)
Weighted Average Fixed Rate Receive 7.09%
Weighted Average Floating Rate Pay 4.85%
Tender Option Bonds
Notional Amount 255,948 $7,513 (1,804) 5,709
Weighted Average Fixed Rate Receive 7.94%
Weighted Average Floating Rate Pay 3.93%
Treasury Float Contracts 1,021,075 4,345 - 4,345
Commitments to Purchase or
Sell Mortgages and Securities 255,686 1,060 (1,716) (656)
---------- ------- ------- ------
Total Securities Unit $1,540,709 $12,918 ($3,840) $9,078
========== ======= ======= ======
</TABLE>
Notes
1. Maturity information reflects expected maturity based on interest rates
in effect at December 31, 1994.
2. Fixed rates shown are rates over the life of the swaps; floating rates
represent rates in effect at December 31, 1994.
81
<PAGE>
Table 5: ACTIVITY IN DERIVATIVES RELATED TO INTEREST RATE RISK MANAGEMENT
<TABLE>
<CAPTION>
NOTIONAL AMOUNTS
(Dollars in Thousands)
FIXED RATE FIXED RATE
RECEIVE SWAPS RECEIVE SWAPS FIXED RATE BASIS PURCHASED
OUTSTANDING FORWARD START PAY SWAPS SWAPS FLOORS COLLARS TOTAL
-------------- -------------- ---------- -------- ----------- --------- ----------
<S> <C> <C> <C> <C> <C> <C> <C>
December 31, 1993 $2,060,000 $150,000 $100,000 - - - $2,310,000
Maturities (550,000) - (50,000) - - - (600,000)
Terminations (225,000) - - - - - (225,000)
New contracts 875,000 525,000 - - $500,000 - 1,900,000
Forwards becoming effective 625,000 (625,000) - - - - -
-------------- -------------- ---------- -------- ----------- --------- ----------
December 31, 1994 2,785,000 50,000 50,000 - 500,000 - 3,385,000
Maturities (992,962) - (50,000) - - - (1,042,962)
Terminations (275,000) - - - (100,000) - (375,000)
New contracts 200,000 150,000 - $250,000 125,000 $200,000 925,000
Forwards becoming effective 100,000 (100,000) - - - - -
-------------- -------------- ---------- -------- ----------- --------- ----------
December 31, 1995 $1,817,038 $100,000 - $250,000 $525,000 $200,000 $2,892,038
============== ============== ========== ======== =========== ========= ==========
</TABLE>
82
<PAGE>
TABLE 6 LOANS
December 31
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 1994 1993 1992
----------------- ---------------- --------------- ----------------
Amount % Amount % Amount % Amount %
---------- --- ---------- --- ---------- --- --------- ---
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial Loans
Real Estate -
Commercial Mortgage.................. $1,665,138 17% $1,702,816 17% $1,632,092 18% $1,593,867 19%
Real Estate -
Construction......................... 227,867 2 278,271 3 272,774 3 314,356 4
Commercial, Financial
and Agricultural..................... 4,171,780 41 3,966,785 41 3,564,387 40 3,379,190 39
----------- --- ---------- --- ---------- --- ---------- ---
Total Commercial Loans.............. 6,064,785 60 5,947,872 61 5,469,253 61 5,287,413 62
----------- --- ---------- --- ---------- --- ---------- ---
Real Estate - Residential................ 1,297,353 13 1,217,142 12 993,459 11 1,057,576 12
Consumer Loans
Real Estate -
Home Equity.......................... 1,137,360 (1) 11 744,022 8 680,440 7 581,500 7
Revolving Credit....................... 148,757 1 110,049 1 79,613 1 77,847 1
Other Consumer Loans................... 1,515,596 15 1,744,438 18 1,787,422 20 1,588,091 18
----------- --- ---------- --- ---------- --- ---------- ---
Total Consumer Loans................ 2,801,713 27 2,598,509 27 2,547,475 28 2,247,438 26
----------- --- ---------- --- ---------- --- ---------- ---
Total Loans, Net of
Unearned Discount............... $10,163,851 100% $9,763,523 100% $9,010,187 100% $8,592,427 100%
=========== === ========== === ========== === ========== ===
<CAPTION>
1991
---------------------
Amount %
---------- ---
<S> <C> <C>
Commercial Loans
Real Estate -
Commercial Mortgage.................. $1,537,936 18%
Real Estate -
Construction......................... 442,462 5
Commercial, Financial
and Agricultural..................... 3,386,655 40
----------- ---
Total Commercial Loans.............. 5,367,053 63
----------- ---
Real Estate - Residential................ 1,285,102 15
Consumer Loans
Real Estate -
Home Equity.......................... 482,172 5
Revolving Credit....................... 67,257 1
Other Consumer Loans................... 1,351,818 16
----------- ---
Total Consumer Loans................ 1,901,247 22
----------- ---
Total Loans, Net of
Unearned Discount............... $8,553,402 100%
----------- ---
</TABLE>
(1) Includes $347 million of loans transferred from "Other Consumer Loans"
during 1995.
83
<PAGE>
TABLE 7: COMMERCIAL LOAN MATURITIES AND INTEREST SENSITIVITY
- ------------------------------------------------------------
December 31, 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
One Year One Through Over Total
or Less Five Years Five Years Loans
----------- ------------ ------------ -----------
<S> <C> <C> <C> <C>
Commercial, Financial and Agricultural
(includes Real Estate-Commercial Mortgage)....... $2,446,062 $1,819,817 $1,571,039 $5,836,918
Real Estate Construction........................... 134,114 93,753 - 227,867
----------- ------------ ------------ -----------
Total.......................................... $2,580,176 $1,913,570 $1,571,039 $6,064,785
=========== ============ ============ ===========
Loans with Predetermined Rates..................... $508,319 $970,152 $850,809 $2,329,280
Loans with Variable Rates.......................... 2,071,857 943,418 720,230 3,735,505
----------- ------------ ------------ -----------
Total.......................................... $2,580,176 $1,913,570 $1,571,039 $6,064,785
=========== ============ ============ ===========
</TABLE>
The maturity of loans is based upon contractual terms. Meridian may, however,
extend the stated maturity at prevailing rates and terms for economic and market
reasons.
84
<PAGE>
TABLE 8 SECURITIES YIELDS BY MATURITY
December 31, 1995
(Dollars in Thousands)
<TABLE>
<CAPTION>
After After
One Year Five Years
Within But Within But Within
One Year Five Years Ten Years
-------------------------- --------------------- --------------------
Amount Yield Amount Yield Amount Yield
------------- ----------- ----------- --------- ---------- --------
<S> <C> <C> <C> <C> <C> <C>
Investment Securities
United States Government Securities............. $112,223 4.97% $90,964 6.34% - -
Mortgage-Backed Securities
Collateralized Mortgage Obligations 180,474 5.40 571,134 5.54 - -
Other......................................... - - - - - -
------------- ----------- ----------- --------- ---------- --------
Total Mortgage-Backed Securities............ 180,474 5.40 571,134 5.54 - -
State and Municipal Securities.................. 53,069 7.99 94,365 8.19 $92,631 7.65%
Other Securities................................ 32,472 (1) 11.38 84,779 5.19 - -
------------- ----------- ----------- --------- ---------- --------
Total Carrying Value......................... $378,238 6.15% $841,242 5.89% $92,631 7.65%
============= =========== =========== ========= ========== ========
Investment Securities Available For Sale
United States Government Securities............. $294,491 4.86% $394,905 6.12% $1,919 6.88%
Mortgage-Backed Securities
Collateralized Mortgage Obligations 11,252 4.69 251,733 5.84 61,243 6.21
Other......................................... 31,038 7.62 68,766 5.96 30,505 6.91
------------- ----------- ----------- --------- ---------- --------
Total Mortgage-Backed Securities: 42,290 6.84 320,499 5.87 91,748 6.44
State and Municipal Securities.................. 8,556 11.06 4,886 8.35 1,184 7.95
Other Securities................................ 65,007 (1) 6.43 15,430 6.46 2,358 7.63
------------- ----------- ----------- --------- ---------- --------
Total Carrying Value......................... $410,344 5.44% $735,720 6.03% $97,209 6.49%
============= =========== =========== ========= ========== ========
<CAPTION>
After
Ten Years Total
-------------------------- ---------------------
Amount Yield Amount Yield
------------- ----------- ----------- ---------
Investment Securities
United States Government Securities.......... - - $203,187 5.58%
Mortgage-Backed Securities
Collateralized Mortgage Obligations $2,207 7.81% 753,815 5.51
Other...................................... - - - -
------------- ----------- ----------- ---------
Total Mortgage-Backed Securities......... 2,207 7.81 753,815 5.51
State and Municipal Securities............... 24,230 10.23 264,295 8.15
Other Securities............................. - 0.00 117,251 6.90
------------- ----------- ----------- ---------
Total Carrying Value...................... $26,437 10.03% $1,338,548 6.17%
============= =========== =========== =========
Investment Securities Available For Sale
United States Government Securities.......... $286 7.63% $691,601 5.58%
Mortgage-Backed Securities
Collateralized Mortgage Obligations $12,175 8.64 336,403 5.97
Other...................................... 24,599 5.65 154,908 6.43
------------- ----------- ----------- ---------
Total Mortgage-Backed Securities: 36,774 6.64 491,311 6.12
State and Municipal Securities............... 9,135 8.49 23,761 9.36
Other Securities............................. 102 7.47 82,897 6.47
------------- ----------- ----------- ---------
Total Carrying Value...................... $46,297 7.01% $1,289,570 5.91%
============= =========== =========== =========
</TABLE>
The weighted average yields are based on carrying value with effective yields
weighted for the contractual or expected maturity of each security. Where
applicable, yields are calculated on a taxable equivalent using a 35% tax rate.
(1) Includes primarily stock and other securities with no stated maturity.
85
<PAGE>
TABLE 9: DEPOSITS BY MAJOR CLASSIFICATION
<TABLE>
<CAPTION>
December 31,
(Dollars in Thousands)
1995 1994 1993
------------------ ------------------- ------------------
Amount % Amount % Amount %
---------- ----- ---------- ----- ---------- -----
<S> <C> <C> <C> <C> <C> <C>
Non-Interest Bearing Deposits..................... $1,966,168 18% $1,998,660 18% $1,849,425 16%
NOW Accounts...................................... 1,502,470 13 1,523,834 13 1,467,758 13
Savings Deposits.................................. 1,632,018 15 1,846,758 16 1,867,011 17
Money Market Deposit Accounts..................... 2,164,762 19 2,287,039 20 2,385,937 21
Short-Term Time Deposits.......................... 553,188 5 638,823 6 794,012 7
Long-Term Time Deposits........................... 2,741,885 25 2,586,443 23 2,504,231 22
Certificates of Deposit of $100,000 or More....... 589,355 5 498,010 4 477,777 4
----------- ----- ----------- ----- ----------- -----
Total.........................................$11,149,846 100% $11,379,567 100% $11,346,151 100%
=========== ===== =========== ===== =========== =====
</TABLE>
86
<PAGE>
TABLE 10: DEPOSITS BY TYPE OF DEPOSITOR
<TABLE>
<CAPTION>
-----------------------------------------
December 31, 1995 1994 1993
(Dollars in Thousands) ------------- ------------- -------------
<S> <C> <C> <C>
Individuals, Partnerships and Corporations........ $10,653,468 $10,901,797 $10,755,408
United States Government.......................... 39,216 25,817 21,652
State and Political Subdivisions.................. 333,135 324,697 400,539
Commercial Banks.................................. 45,049 31,351 54,002
Other............................................. 78,978 95,905 114,550
------------- ------------- -------------
Total......................................... $11,149,846 $11,379,567 $11,346,151
============= ============= =============
</TABLE>
87
<PAGE>
TABLE 11: MATURITY OF CERTIFICATES OF DEPOSIT OF $100,000 OR MORE
<TABLE>
<CAPTION>
---------------------------------
December 31, 1995 1994 1993
(Dollars in Thousands) --------- --------- ---------
<S> <C> <C> <C>
Three Months or Less...........................$393,677 $298,217 $230,855
Over Three Through Six Months.................. 73,079 62,976 65,383
Over Six Through Twelve Months................. 53,375 65,129 52,868
Over Twelve Months............................. 69,224 71,688 128,671
--------- --------- ---------
Total......................................$589,355 $498,010 $477,777
========= ========= =========
</TABLE>
88
<PAGE>
TABLE 12: ALLOWANCE FOR POSSIBLE LOAN LOSSES
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 1994 1993 1992 1991
--------------- ------------ ------------ ------------ ------------
<S> <C> <C> <C> <C> <C>
Balance at Beginning of Period.................... $169,402 $175,078 $166,842 $179,747 $157,785
--------------- ------------ ------------ ------------ ------------
Additions (Deductions)
Acquired Allowances............................. - 1,168 3,094 2,154 -
Other Deductions................................ - (2,377) - - -
--------------- ------------ ------------ ------------ ------------
Loans Charged-Off
Commercial (includes Commercial Real Estate).. (39,573) (31,897) (48,751) (91,725) (71,724)
Real Estate - Residential..................... (3,999) (9,301) (1,593) (802) (416)
Consumer...................................... (16,683) (11,035) (14,486) (14,178) (21,951)
--------------- ------------ ------------ -------------------------
Total Loans Charged-Off..................... (60,255) (52,233) (64,830) (106,705) (94,091)
--------------- ------------ ------------ ------------ ------------
Recoveries on Charged-Off Loans
Commercial (includes Commercial Real Estate).. 9,666 14,383 6,570 5,976 2,949
Real Estate - Residential..................... 191 460 163 57 15
Consumer...................................... 5,770 4,837 4458 4,517 4,099
--------------- ------------ ------------ ------------ ------------
Total Recoveries on Charged-Off Loans....... 15,627 19,680 11,191 10,550 7,063
--------------- ------------ ------------ ------------ ------------
Net Loans Charged-Off........................... (44,628) (32,553) (53,639) (96,155) (87,028)
--------------- ------------ ------------ ------------ ------------
Provision Charged to Operating Expense.......... 39,377 28,086 58,781 81,096 108,990
--------------- ------------ ------------ ------------ ------------
Balance at End of Period.......................... $164,151 $169,402 $175,078 $166,842 $179,747
=============== ============ ============ ============ ============
Average Loans..................................... $10,007,647 $9,350,184 $8,668,482 $8,442,214 $8,839,384
Loans at Year End................................. $10,163,851 $9,763,523 $9,010,187 $8,592,427 $8,553,402
Net Loans Charged-Off To
Average Loans.................................. 0.45% 0.35% 0.62% 1.14% 0.98%
Loans at Year-End.............................. 0.44 0.33 0.60 1.12 1.02
Allowance for Possible Loan Losses............. 27.19 19.22 30.64 57.63 48.42
Provision for Possible Loan Losses............. 113.34 115.90 91.25 118.57 79.85
Allowance for Possible Loan Losses to
Average Loans.................................. 1.64 1.81 2.02 1.98 2.03
Loans at Year-End.............................. 1.62 1.74 1.94 1.94 2.10
</TABLE>
89
<PAGE>
TABLE 13: ALLOCATION OF ALLOWANCE FOR POSSIBLE LOAN LOSSES
<TABLE>
<CAPTION>
-------------------------------------------------------------------------------------------
December 31, 1995 1994 1993 1992
(Dollars in Thousands) ---------------------- -------------------- -------------------- --------------------
Amount % Loans Amount % Loans Amount % Loans Amount % Loans
----------- ------- ---------- ------- ---------- ------- ---------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial.................... $91,098 59% $88,309 61% $100,511 61% $116,263 (1) 62%
Real Estate - Residential..... 12,577 13 11,276 12 7,000 11 706 12
Consumer...................... 15,567 28 14,864 27 20,958 28 19,941 26
Unallocated................... 44,909 - 54,953 - 46,609 - 29,932 (1) -
----------- ------- ---------- ------- ---------- ------- ---------- -------
Total..................... $164,151 100% $169,402 100% $175,078 100% $166,842 (1) 100%
=========== ======= ========== ======= ========== ======= ========== =======
<CAPTION>
--------------------
December 31, 1991
(Dollars in Thousands) --------------------
Amount % Loans
--------- -------
<S> <C> <C>
Commercial.................... $63,379 63%
Real Estate - Residential..... 867 15
Consumer...................... 17,953 22
Unallocated................... 97,548 -
--------- -------
Total..................... $179,747 100%
========= =======
</TABLE>
(1) Beginning in 1992, the method of allocating the allowance to individual
commercial loans was changed. Allocations are now based primarily on
historical chargeoff experience for each credit risk category of
commercial loans.
90
<PAGE>
TABLE 14: CREDIT QUALITY
<TABLE>
<CAPTION>
December 31
(Dollars in Thousands)
1995 1994 1993 1992 1991
----------- -----------------------------------------------
<S> <C> <C> <C> <C> <C>
Non-Accrual Loans
Commercial
Real Estate - Commercial Mortgage............ $36,771 $32,521 $41,761 $49,006 $49,198
Real Estate - Construction................... 1,056 3,000 13,761 38,434 61,844
Commercial, Financial and Agricultural....... 25,087 42,899 59,882 76,886 95,763
----------- -----------------------------------------------
Total Commercial........................... 62,914 78,420 115,404 164,326 206,805
Real Estate - Residential...................... 12,380 16,370 29,843 18,105 10,857
Consumer....................................... 606 233 1,162 1,149 714
----------- -----------------------------------------------
Total Non-Accrual Loans.................... 75,900 95,023 146,409 183,580 218,376
----------- -----------------------------------------------
Restructured Loans
Real Estate - Commercial Mortgage............ 744 761 908 - 3,127
Real Estate - Construction................... 26 33 1,419 46 53
Commercial, Financial and Agricultural....... 78 351 1,004 846 3,077
----------- -----------------------------------------------
Total Restructured Loans................... 848 1,145 3,331 892 6,257
----------- -----------------------------------------------
TOTAL NON-PERFORMING LOANS............... 76,748 96,168 149,740 184,472 224,633
----------- -----------------------------------------------
Assets Acquired in Foreclosures
Foreclosed Real Estate....................... 12,530 23,392 29,497 28,811 20,733
Assets Related to Consumer Loans............. 2,815 2,178 1,265 2,235 1,694
----------- -----------------------------------------------
Total Assets Acquired...................... 15,345 25,570 30,762 31,046 22,427
----------- -----------------------------------------------
TOTAL NON-PERFORMING ASSETS.............. $92,093 $121,738 $180,502 $215,518 $247,060
=========== ===============================================
Allowance for Possible Loan Losses
as a Percentage of
Loans.......................................... 1.62% 1.74% 1.94% 1.94% 2.10%
Non-Performing Loans........................... 214% 176% 117% 90% 80%
Non-Performing Assets.......................... 178% 139% 97% 77% 73%
Total Non-Performing Loans as a Percentage
of Loans....................................... 0.76% 0.98% 1.66% 2.15% 2.63%
Total Non-Performing Assets as a Percentage of
Loans and Assets Acquired in Foreclosures...... 0.90% 1.24% 2.00% 2.50% 2.88%
Loans Past Due 90 or more Days
as to Interest or Principal not Included
Above (Includes $14,343 of Real Estate-
Residential as of December 31, 1995).......... $27,354 $22,355 $24,798 $41,083 $54,666
Total Non-Performing Assets and Loans Past Due
90 or more Days as to Interest or Principal.... $119,447 $144,093 $205,300 $256,601 $301,726
Total Non-Performing Assets and Loans Past Due
90 or more Days as to Interest or Principal as
a Percentage of Loans and Assets Acquired
in Foreclosures................................ 1.17% 1.47% 2.27% 2.98% 3.52%
</TABLE>
91
<PAGE>
TABLE 15: CHANGE IN NON-PERFORMING ASSETS
<TABLE>
<CAPTION>
(Dollars in Thousands)
1995 1994
----------- -----------
<S> <C> <C>
Total Non-Performing Assets at Beginning of Period.......... $121,738 $180,502
Non-Performing Loans at Beginning of Period................. 96,168 149,739
Additions........................................... 89,163 105,169
Payments............................................ (44,485) (69,678)
Return to Accrual Status............................ (19,604) (22,883)
Charge-offs......................................... (35,704) (29,844)
Transfers to Assets Acquired in Foreclosures........ (8,790) (22,495)
Transfers to Assets Held for Sale................... - (13,840)
----------- -----------
Total Non-Performing Loans at End of Period...... 76,748 96,168
----------- -----------
Assets Acquired in Foreclosures at Beginning of Period...... 25,570 30,763
Additions........................................... 15,733 22,428
Payments and Sales.................................. (25,089) (30,952)
Transfers from Non-Performing Loans................. 8,790 22,495
Net Writedowns...................................... (9,659) (10,819)
Transfers to Assets Held for Sale................... - (8,345)
----------- -----------
Total Assets Acquired at End of Period........... 15,345 25,570
----------- -----------
Total Non-Performing Assets at End of Period................ $92,093 $121,738
=========== ===========
</TABLE>
92
<PAGE>
TABLE 16: PAYMENT PERFORMANCE OF NON-ACCRUAL LOANS
December 31, 1995
(Dollars In Thousands)
<TABLE>
<CAPTION>
Meridian's Customer's Accumulated
Carrying Contractual Net
Value Balance Charge-Offs
---------- ----------- -----------
<S> <C> <C> <C>
Contractually Past Due With
Substantial Performance (1)....... $9,974 $17,462 $5,017
Limited Performance (2)........... 7,753 8,888 407
No Performance (3)................ 32,976 45,969 6,400
---------- ----------- -----------
Total......................... 50,703 72,319 11,824
---------- ----------- -----------
Contractually Current, However,
Full Payment is Doubtful (4)........ 25,197 38,526 11,220
---------- ----------- -----------
Total Non-Accrual Loans....... $75,900 $110,845 $23,044
========== =========== ===========
</TABLE>
(1) Borrower has paid at least 85% of contractual obligations over the past
six months.
(2) Borrower has paid between 25% and 85% of contractual obligations over
the past six months.
(3) Borrower has paid less than 25% of contractual obligations over the past
six months.
(4) Although contractually current, the borrower is in a specified period of
demonstrating payment performance or the loan has a prior charge-off.
93
<PAGE>
TABLE 17: COMMERCIAL LOANS BY MAJOR INDUSTRY CLASSIFICATION
<TABLE>
<CAPTION>
December 31
(Dollars in Thousands)
1995 1994
----------------------------------------- ----------------------------------------
Total Loans Non-Accrual Total Loans Non-Accrual
Outstanding % Loans % Outstanding % Loans %
----------- ------- ----------- ------- ----------- ------- ----------- -------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Agriculture............................. $170,640 3 % $1,454 2 % $161,979 3 % $207 * %
Mining.................................. 15,267 * 204 * 17,596 * 260 *
Construction............................ 227,682 4 1,960 4 226,205 4 3,149 4
Manufacturing........................... 1,117,756 18 10,862 17 1,096,375 18 25,180 32
Transportation, Communication and
Public Utilities..................... 374,543 6 2,207 4 364,625 6 1,972 3
Wholesale Trade......................... 391,422 6 1,935 3 365,628 6 5,978 8
Retail Trade............................ 864,209 15 5,990 10 800,778 14 7,176 9
Finance, Insurance and
Real Estate........................... 1,393,232 23 30,788 49 1,313,333 22 20,898 27
Services................................ 1,458,413 24 6,973 11 1,459,302 25 11,923 15
Public Administration................... 18,287 * 0 * 14,842 * 25 *
Other................................... 33,334 1 541 * 127,209 2 1,652 2
----------- ------- ----------- ------- ----------- ------- ----------- -------
Total.............................. $6,064,785 100 % $62,914 100 % $5,947,872 100 % $78,420 100 %
=========== ======= =========== ======= =========== ======= =========== =======
</TABLE>
* Less than one percent
94
<PAGE>
TABLE 18: COMMERCIAL REAL ESTATE
DECEMBER 31
(Dollars in Thousands)
Outstanding Loans
<TABLE>
<CAPTION>
1995 1994
Investor-Developer Owner-Occupied Total Total
Commercial Commercial Commercial Commercial
Mortgage Construction Mortgage Construction Mortgage Construction Mortgage Construction
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Apartment Buildings...... $188,916 $3,889 - - $188,916 $3,889 220,022 1,217
Office Buildings......... 178,318 4,336 $194,169 $11,183 372,487 15,519 352,707 30,866
Residential Properties... - 106,466 - - - 106,466 - 98,562
Shopping Centers......... 177,922 8,918 65,089 2,460 243,011 11,378 232,187 32,293
Land..................... - 33,226 - - - 33,226 - 32,447
Industrial Plants........ 101,574 1,947 174,382 13,294 275,956 15,241 288,270 28,164
Hotel/Motel/Restaurant... 127,345 2,358 - - 127,345 2,358 122,135 2,543
Healthcare Facilities.... - - 53,768 2,323 53,768 2,323 97,486 20,471
Other.................... 155,585 11,927 248,070 25,540 403,655 37,467 390,009 31,708
-------- -------- -------- ------- ---------- -------- ---------- --------
Total.................. $929,660 $173,067 $735,478 $54,800 $1,665,138 (1) $227,867 (1) $1,702,816 $278,271
(1) The geographic distribution by state is as follows: Pennsylvania $1,490,913 (79%), Delaware $217,168 (11%), New Jersey $114,883
(6%), and all other states $70,041 (4%).
Non-Accrual Loans
<CAPTION>
1995 1994
Investor-Developer Owner-Occupied Total Total
Commercial Commercial Commercial Commercial
Mortgage Construction Mortgage Construction Mortgage Construction Mortgage Construction
<S>...................... <C> <C> <C> <C> <C> <C> <C> <C>
Apartment Buildings...... $5,625 - - - $5,625 - 4,906 -
Office Buildings......... 16,927 - $623 - 17,550 - 5,351 -
Residential Properties... - $827 - - - $827 - 975
Shopping Centers......... 3,626 - 827 - 4,453 - 4,316 -
Land..................... - 228 - - - 228 - 1,509
Industrial Plants........ - - 5,008 - 5,008 - 9,885 -
Hotel/Motel/Restaurant... 1,916 - - - 1,916 - 1,886 285
Other.................... 936 - 1,369 - 2,305 - 6,408 -
------- ------ ------ ------- ------ ------- ------
Total.................. $29,030 $1,055 $7,827 - $36,857 (2) $1,055 (2) $32,752 $2,769
(2) The geographic distribution by state is as follows: Pennsylvania $23,699 (63%), Delaware $12,447 (32%), New Jersey $964 (3%),
and all other states $802 (2%).
Assets Acquired in Foreclosures (3)
<CAPTION>
1995 1994
<S> <C> <C>
Apartment Buildings...... $138 $42
Office Buildings......... 2,794 11,309
Residential Properties... 2,166 3,373
Shopping Centers......... 221 95
Land..................... 2,205 3,039
Industrial Plants........ 1,317 1,323
Hotel/Motel/Restaurant... 300 282
Other.................... 513 1,207
------ -------
Total.................. $9,654 (3) $20,670
(3) The geographic distribution by state is as follows: Pennsylvania $5,720 (60%), Delaware $272 (3%),
New Jersey $3,489 (36%), and all other states $173 (1%).
</TABLE>
95
<PAGE>
<TABLE>
<CAPTION>
Table 19: Composition of Non-Interest Income
(Dollars in thousands)
Percent Change
-------------------
1995 1994 1993 1995/94 1994/93
------- ------- ------- -------- ---------
<S> <C> <C> <C> <C> <C>
Trust
Personal Fees.................................................... $19,071 $17,022 $14,740 12% 15%
Corporate and Institutional Fees................................. 24,031 24,673 21,118 -3 17
Investment Advisory Services Fees................................ 13,166 8,097 4,067 63 99
Other............................................................ 9,712 4,932 1,754 97 -
------- ------- ------- -------- ---------
Total.................................................... 65,980 54,724 41,679 21 31
------- ------- ------- -------- ---------
Mortgage Banking
Servicing Fees................................................... 3,932 10,136 30,052 -61 -66
Amortization of and Reserves for Purchased Mortgage Servicing
Rights and Other Servicing-Related Assets.................. (301) (114) (33,713) - -
------- ------- ------- -------- ---------
Net Servicing Fees...................................... 3,631 10,022 (3,661) -64 -
Origination Fees................................................. 5,002 4,452 16,990 12 -74
Other............................................................ 4,203 3,015 22,641 39 -87
------- ------- ------- -------- ---------
Total.................................................... 12,836 17,489 35,970 -27 -51
------- ------- ------- -------- ---------
Broker-Dealer and Investment Banking
Net Trading Gains................................................ 33,065 21,102 42,494 57 -50
Net Tender Option Bond Fees...................................... 7,166 12,088 18,578 -41 -35
Commissions and Related Fees..................................... 10,237 7,769 11,259 32 -31
Other (Includes Realized/Unrealized
Gains and Losses on Investments)............................. 356 1,890 (2,960) -81 -
------- ------- ------- -------- ---------
Total.................................................... 50,824 42,849 69,371 19 -38
------- ------- ------- -------- ---------
Service Charges on Deposit Accounts................................. 66,373 56,075 53,827 18 4
Fees for Other Customer Services.................................... 36,092 34,060 32,708 6 4
Net Securities Gains................................................ 7,965 2,998 25,280 - -88
Other Income
Gains on Sales of Loans and Other Assets......................... 2,880 8,392 1,947 -66 -
Other ........................................................... 13,615 11,439 13,841 19 -17
------- ------- ------- -------- ---------
Total ................................................... 16,495 19,831 15,788 -17 26
------- ------- ------- -------- ---------
Total Non-Interest Income............................ $256,565 $228,026 $274,623 13% -17%
======== ======== ======== ======== =========
</TABLE>
96
<PAGE>
TABLE 20: Composition of Non-Interest Expenses
(Dollars in thousands)
<TABLE>
<CAPTION>
Percent Change
--------------------
1995 1994 1993 1995/94 1994/93
-------- -------- -------- ---------- --------
<S> <C> <C> <C> <C> <C>
Salaries and Employee Benefits
Salaries................................................$228,079 $238,336 $239,354 -4% -
Payroll taxes........................................... 18,118 19,527 18,219 -7 7%
Pension and Savings Plans............................... 8,994 11,839 9,969 -24 19
Medical and Other Insurance............................. 26,850 27,023 27,960 -1 -3
Other .................................................. 2,795 747 624 - 20
-------- -------- -------- ---------- --------
Total........................................ 284,836 297,472 296,126 -4 -
-------- -------- -------- ---------- --------
Full-Time Equivalent Employees
Banking................................................. 5,545 6,614 6,701 -16 -1
Securities.............................................. 234 325 216 -28 50
-------- -------- -------- ---------- --------
Total........................................ 5,779 6,939 6,917 -17 -
-------- -------- -------- ---------- --------
Net Occupancy Expense....................................... 43,996 45,351 42,578 -3 7
Equipment Expense........................................... 38,665 38,745 38,005 - 2
Restructuring and Merger-Related Charges................... 40,425 - 17,500 - -
Other Expenses
Accounting and Legal Fees............................... 6,261 7,092 7,664 -12 -7
Other Professional Fees and Services.................... 17,258 19,411 22,607 -11 -14
Advertising and Customer Develpoment.................... 12,742 17,077 16,400 -25 4
Communications.......................................... 21,035 20,903 20,425 1 2
FDIC Deposit Insurance.................................. 15,413 22,800 29,533 -32 -23
Other Deposit Related Expenses.......................... 2,042 3,735 2,753 -45 36
Stationery and Supplies................................. 7,941 10,320 10,810 -23 -5
Loan Related Expenses................................... 11,441 29,042 41,488 -61 -30
Foreclosed Real Estate Expenses......................... 6,573 4,544 8,259 45 -45
Taxes-Other Than Income................................. 11,755 10,672 9,495 10 12
Transportation.......................................... 4,866 6,571 6,479 -26 1
Educational Development................................. 5,219 5,892 5,550 -11 6
Amortization of Intangibles............................. 16,367 14,700 11,082 11 33
Automated Teller Network Charges........................ 9,242 8,155 6,602 13 24
Merchant Credit Card Servicing.......................... 3,171 2,359 2,131 34 11
Other .................................................. 19,171 14,827 28,039 29 -47
-------- -------- -------- ---------- --------
Total........................................ 170,497 198,100 229,317 -14 -14
-------- -------- -------- ---------- --------
Total Non-Interest Expenses........$578,419 $579,668 $623,526 - -7%
======== ======== ======== ========== ========
Before Restructuring and Merger-
Related Charges....................$537,994 $579,668 $606,026 -7% -4%
======== ======== ======== ========== ========
</TABLE>
97
<PAGE>
TABLE 21: CAPITAL ADEQUACY
December 31,
<TABLE>
<CAPTION>
--------- -------- --------
1995 1994 1993
--------- -------- --------
<S> <C> <C> <C>
CONSOLIDATED
Total Shareholders' Equity to Assets............ 8.85% 8.07% 8.42%
Tangible Shareholders' Equity to Assets......... 8.12 7.23 7.78
Risk-Based Capital
Tier 1....................................... 9.77 9.25 9.60
Tier 2....................................... 3.29 3.48 4.07
--------- -------- --------
Total (1)(2)................................ 13.06 12.73 13.67
========= ======== ========
Leverage (1)(2)................................. 8.35 7.47 7.84
BANKING
Total Risk-Based Capital (1) (2)
Meridian Bank................................. 12.96 12.16 12.23
Delaware Trust Company........................ 16.07 14.32 13.07
Meridian Bank, New Jersey..................... 14.06 15.06 15.59
</TABLE>
(1) The minimum ratios required by the Federal Reserve Board guidelines are
4% for Tier 1 capital, 8% for total risk-based capital, and a leverage
ratio of 3% plus an additional cushion 100 to 200 basis points.
(2) Federal Reserve Board guidelines define a well-capitalized institution
as having a Tier 1 capital ratio of 6% or more, a total risk-based
capital ratio of 10% or more, and a leverage ratio of 5% or more.
98
<PAGE>
TABLE 22: COMPOSITION OF RISK-BASED CAPITAL
<TABLE>
<CAPTION>
December 31,
(Dollars in Thousands) 1995 1994
----------- -----------
<S> <C> <C>
Tier 1 Capital
Common Stock................................................... $293,440 $291,585
Surplus........................................................ 222,801 211,011
Retained Earnings.............................................. 862,505 763,968
Less Treasury Stock and ESOP Shares............................ (72,315) (51,479)
----------- -----------
Total Shareholders' Equity................................... 1,306,431 1,215,085
Add (Deduct):
Goodwill..................................................... (85,187) (94,663)
Unrealized (Gain) Loss on Securities, net of taxes........... (7,548) 7,182
Certain Core Deposit and Other Intangibles................... (21,504) (28,256)
----------- -----------
Total Tier 1 Capital......................................... 1,192,192 1,099,348
----------- -----------
Tier 2 Capital
Allowable Portion of Allowance for Possible Loan Losses....... 152,725 148,689
Allowable Portion of Subordinated Capital Notes............... 249,059 263,962
----------- -----------
Total Tier 2 Capital......................................... 401,784 412,651
----------- -----------
Total Risk-Based Capital......................................... $1,593,976 $1,511,999
=========== ===========
Risk-Based Capital in Excess of Regulatory Requirement........... $617,452 $562,048
=========== ===========
Risk-Weighted Assets and Off-Balance Sheet Items.................$12,206,552 $11,874,393
=========== ===========
Intangibles and Related Assets
Goodwill....................................................... $85,187 $94,663
Core Deposit and Other Intangibles............................. 32,283 41,547
----------- -----------
Total........................................................ $117,470 $136,210
=========== ===========
</TABLE>
99
<PAGE>
TABLE 23: PRICE RANGE OF COMMON STOCK
<TABLE>
<CAPTION>
Quarter High Low Close
------- ------ ----- -------
<S> <C> <C> <C>
1993: First................................ $35-3/4 $29-3/4 $33
Second............................... 34 26-3/4 32-1/2
Third................................ 34-5/8 30-1/4 32-7/8
Fourth............................... 33-1/8 27-3/4 28-1/2
1994: First................................ 31-1/8 26-7/8 29-1/8
Second............................... 33-1/4 27-3/8 30-3/8
Third................................ 33-1/8 28-3/4 28-3/4
Fourth............................... 29-1/4 25-1/2 26-5/8
1995: First................................ 31-3/8 26-1/4 30-5/8
Second............................... 34-5/8 30-5/8 34-3/8
Third................................ 41 34-1/8 38-1/4
Fourth............................... 47-7/8 38 46-1/2
</TABLE>
100
<PAGE>
TABLE 24: INDUSTRY SEGMENTS
(Dollars in Thousands)
<TABLE>
<CAPTION>
Net Income Assets at December 31,
---------------------------------------------- -------------------------------
1995 1994 1993 1995 1994
------------- --------------- -------------- -------------- -----------
<S> <C> <C> <C> <C> <C>
Banking....................................... $166,646 $155,650 $139,036 $14,425,635 $14,550,315
Securities (Broker-Dealer Activities)......... 3,168 3,708 18,725 332,591 502,332
------------- --------------- -------------- -------------- -----------
Consolidated ................................. $169,814 $159,358 $157,761 $14,758,226 $15,052,647
============= =============== ============== ============== ===========
Income before Restructuring
and Merger-Related Charges (net of taxes):
Banking..................................... $193,164 $150,411
Securities (Broker-Dealer Activities)....... 6,427 18,725
------------- --------------
Consolidated ............................... $199,591 $169,136
============= ==============
<CAPTION>
BANKING 1995 1994 1993
--------------------------------------------- ------------- --------------- --------------
<S> <C> <C> <C>
Net Interest Income (1)....................... $626,188 $623,148 $629,887
Provision for Possible Loan Losses............ 39,498 28,147 57,635
Non-Interest Income........................... 205,710 185,812 204,474
Non-Interest Expenses......................... 526,607 536,155 573,698
Before Restructuring and
Merger-Related Charges.................... 491,197 536,155 556,198
Net Interest Margin (1)....................... 4.75% 4.85% 5.04%
Return on Average Assets...................... 1.17% 1.11% 1.01%
Before Restructuring and
Merger-Related Charges.................... 1.35% 1.11% 1.01%
Return on Average Equity...................... 13.61% 13.05% 12.60%
Before Restructuring and
Merger-Related Charges.................... 15.78% 13.05% 12.60%
Loans
Commercial.................................. 6,064,785 5,946,787 5,468,107
Real Estate-Residential..................... 1,297,353 1,217,142 993,459
Consumer.................................... 2,801,713 2,598,509 2,547,475
Deposits...................................... 11,149,846 11,335,103 11,268,615
Equity........................................ 1,288,005 1,204,767 1,171,435
Equity to Assets.............................. 8.93% 8.28% 8.52%
(1) Taxable Equivalent Basis
<CAPTION>
SECURITIES (BROKER-DEALER ACTIVITIES) 1995 1994 1993
--------------------------------------------- ------------- --------------- --------------
<S> <C> <C> <C>
Net Revenues (1).............................. $55,544 $48,263 $77,376
Operating Expenses............................ 51,812 43,513 49,829
Before Restructuring Charges................ 46,797 43,513 49,829
Par Value of Bonds Underwritten............... 447,108 807,648 1,121,501
Number of Trades.............................. 39,176 32,350 42,548
Tender Option Bonds........................... 208,103 255,948 435,243
</TABLE>
(1) Gross revenues less interest expense.
101
<PAGE>
TABLE 25: SUMMARIZED QUARTERLY FINANCIAL DATA
(Dollars In Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
-----------------------1995---------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest Income............................................. $275,244 $279,002 $282,441 $273,735
Interest Expense............................................ 118,892 123,436 129,154 123,258
-------- -------- -------- --------
Net Interest Income......................................... 156,352 155,566 153,287 150,477
Provision for Possible Loan Losses.......................... 10,725 10,510 10,121 8,021
-------- -------- -------- --------
Net Interest Income after
Provision for Possible Loan Losses........................ 145,627 145,056 143,166 142,456
-------- -------- -------- --------
Net Securities Gains (Losses)............................... 3,294 1,504 3,580 (413)
Other Non-Interest Income................................... 65,451 61,450 63,529 58,170
Non-Interest Expenses
Restructuring and Merger-Related Expenses............... 8,425 - 32,000 -
All Other Expenses...................................... 129,692 127,361 140,537 140,404
-------- -------- -------- --------
Total Non-Interest Expenses................................. 138,117 127,361 172,537 140,404
Income Before Income Taxes and Cumulative Effect of
Change in Accounting Principle........................... 76,255 80,649 37,738 59,809
Provision for Income Taxes.................................. 27,977 26,277 11,809 18,574
-------- -------- -------- --------
Income Before Cumulative Effect of Change in Accounting
Principle................................................ 48,278 54,372 25,929 41,235
Cumulative After-tax Effect on Prior Year of Change in
Accounting Principle..................................... - - - -
-------- -------- -------- --------
Net Income.................................................. $48,278 $54,372 $25,929 $41,235
======== ======== ======== ========
Income Before Restructuring and Merger-Related
Expenses (net of taxes)................................. $57,255 $46,729
======== ========
Fully Diluted Earnings Per Share
Income Before Cumulative Effect of Change in
Accounting Principle................................. $0.84 $0.96 $0.45 $0.73
Cumulative After-Tax Effect on Prior Year of Change in
Accounting Principle................................. - - - -
Net Income.............................................. 0.84 0.96 0.45 0.73
Before Restructuring and Merger-Related Expenses..... 1.00 0.82
Dividends Declared Per Common Share......................... 0.37 0.37 0.37 0.34
Ratio of Dividends Declared to Net Income................... 43% 38% 80% 46%
Net Interest Margin (Taxable Equivalent Basis).............. 4.80% 4.71% 4.60% 4.58%
Return on Average Assets ................................... 1.33% 1.48% 0.70% 1.13%
Before Restructuring and Merger-Related Expenses........ 1.58% 1.26%
Return on Average Common Shareholders' Equity............... 14.95% 17.33% 8.43% 13.90%
Before Restructuring and Merger-Related Expenses........ 17.73% 15.18%
At Quarter -End
Loans..................................................... $10,163,851 $10,246,035 $10,056,692 $9,906,538
Assets.................................................... 14,758,226 14,563,170 14,911,173 14,996,342
Deposits.................................................. 11,149,846 11,104,414 11,528,876 11,137,466
Total Shareholders' Equity................................ 1,306,431 1,266,311 1,236,161 1,222,835
Total Shareholders' Equity to Assets...................... 8.85% 8.70% 8.29% 8.15%
Risk-Based Capital Ratio.................................. 13.06% 13.04% 12.76% 12.80%
Allowance for Possible Loan Losses to Loans............... 1.62% 1.70% 1.70% 1.70%
Allowance for Possible Loan Losses to
Non-Performing Loans.................................... 214% 195% 171% 158%
Non-Performing Assets as a Percentage of
Period-End Loans and
Assets Acquired in Foreclosures......................... 0.90% 1.03% 1.17% 1.33%
</TABLE>
<TABLE>
<CAPTION>
------------------------1994------------------
Fourth Third Second First
Quarter Quarter Quarter Quarter
-------- -------- -------- --------
<S> <C> <C> <C> <C>
Interest Income............................................. $264,121 $257,210 $241,724 $221,985
Interest Expense............................................ 110,888 100,799 85,880 75,057
-------- -------- -------- --------
Net Interest Income......................................... 153,233 156,411 155,844 146,928
Provision for Possible Loan Losses.......................... 6,069 6,493 6,699 8,825
-------- -------- -------- --------
Net Interest Income after
Provision for Possible Loan Losses........................ 147,164 149,918 149,145 138,103
-------- -------- -------- --------
Net Securities Gains (Losses)............................... 247 2,110 (49) 690
Other Non-Interest Income................................... 57,206 55,192 55,383 57,247
Non-Interest Expenses
Restructuring and Merger-Related Expenses............... - - - -
All Other Expenses...................................... 144,102 153,686 145,012 136,868
-------- -------- -------- --------
Total Non-Interest Expenses................................. 144,102 153,686 145,012 136,868
Income Before Income Taxes and Cumulative Effect of
Change in Accounting Principle........................... 60,515 53,534 59,467 59,172
Provision for Income Taxes.................................. 16,370 16,914 18,683 18,633
-------- -------- -------- --------
Income Before Cumulative Effect of Change in Accounting
Principle................................................ 44,145 36,620 40,784 40,539
Cumulative After-tax Effect on Prior Year of Change in
Accounting Principle..................................... - - - (2,730)
-------- -------- -------- --------
Net Income.................................................. $44,145 $36,620 $40,784 $37,809
======== ======== ======== ========
Income Before Restructuring and Merger-Related
Expenses (net of taxes).................................
Fully Diluted Earnings Per Share
Income Before Cumulative Effect of Change in
Accounting Principle................................. $0.77 $0.63 $0.70 $0.70
Cumulative After-Tax Effect on Prior Year of Change in
Accounting Principle................................. - - - (0.05)
Net Income.............................................. 0.77 0.63 0.70 0.65
Before Restructuring and Merger-Related Expenses.....
Dividends Declared Per Common Share......................... 0.34 0.34 0.34 0.32
Ratio of Dividends Declared to Net Income................... 44% 54% 48% 49%
Net Interest Margin (Taxable Equivalent Basis).............. 4.60% 4.65% 4.85% 4.82%
Return on Average Assets ................................... 1.18% 0.97% 1.13% 1.10%
Before Restructuring and Merger-Related Expenses........
Return on Average Common Shareholders' Equity............... 14.33% 11.95% 13.74% 13.00%
Before Restructuring and Merger-Related Expenses........
At Quarter -End
Loans..................................................... $9,763,523 $9,444,630 $9,520,497 $9,173,551
Assets.................................................... 15,052,647 14,782,400 15,184,724 14,038,474
Deposits.................................................. 11,379,567 11,310,179 11,666,783 11,151,964
Total Shareholders' Equity................................ 1,215,085 1,231,596 1,214,604 1,193,395
Total Shareholders' Equity to Assets...................... 8.07% 8.33% 8.00% 8.50%
Risk-Based Capital Ratio.................................. 12.73% 13.07% 13.30% 13.81%
Allowance for Possible Loan Losses to Loans............... 1.74% 1.84% 1.81% 1.89%
Allowance for Possible Loan Losses to
Non-Performing Loans.................................... 176% 168% 151% 128%
Non-Performing Assets as a Percentage of
Period-End Loans and
Assets Acquired in Foreclosures......................... 1.24% 1.35% 1.50% 1.88%
</TABLE>
Amounts in this table have been rounded for presentation purposes and therefore
may not equal annual totals.
102
<PAGE>
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
103
<PAGE>
Independent Auditors' Report
The Board of Directors
Meridian Bancorp, Inc.:
We have audited the accompanying consolidated balance sheets of Meridian
Bancorp, Inc. and subsidiaries as of December 31, 1995 and 1994, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the years in the three year period ended December 31, 1995.
These consolidated financial statements are the responsibility of the Company's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above present
fairly, in all material respects, the financial position of Meridian Bancorp,
Inc. and subsidiaries as of December 31, 1995 and 1994 and the results of their
operations and their cash flows for each of the years in the three-year period
ended December 31, 1995, in conformity with generally accepted accounting
principles.
As described in Notes 1 and 8, respectively, to the consolidated financial
statements, the Company adopted the provisions of the Financial Accounting
Standards Board's Statement of Financial Accounting Standards No. 115,
Accounting for Certain Investments in Debt and Equity Securities and Statement
of Financial Accounting Standards No. 112, Employers' Accounting for
Postemployment Benefits, in 1994. Also, as described in Notes 8 and 10,
respectively, to the consolidated financial statements, the Company adopted the
provisions of the Financial Accounting Standards Board's Statement of Financial
Accounting Standards No. 106, Employers' Accounting for Postretirement Benefits
Other Than Pensions, and Statement of Financial Standards No. 109, Accounting
for Income Taxes, in 1993.
January 17, 1996,
Except as to note 2, which is as of February 23, 1996
104
<PAGE>
CONSOLIDATED FINANCIAL STATEMENTS
- -------------------------------------------------------------------------------
CONSOLIDATED BALANCE SHEETS
December 31,
(Dollars In Thousands)
<TABLE>
<CAPTION>
1995 1994
----------- -----------
<S> <C> <C>
ASSETS
Cash and Due from Banks.......................................... $839,010 $669,642
Short-Term Investments
Interest-Bearing Deposits in Other Banks....................... 67,461 123,608
Federal Funds Sold and Securities
Purchased Under Agreements to Resell......................... 5,069 96,810
----------- -----------
Total Short-Term Investments................................. 72,530 220,418
----------- -----------
Trading Account Assets........................................... 145,882 346,170
Investment Securities Available for Sale (Amortized Cost
$1,277,957 and $445,783 in 1995 and 1994, Respectively)..... 1,289,570 434,994
Investment Securities
(Fair Value $1,343,170 and $2,753,307 in 1995 and 1994,
Respectively)................................................. 1,338,548 2,872,419
Loans and Other Assets Held for Sale............................. 124,592 90,590
Total Loans, Net of Unearned Discount............................ 10,163,851 9,763,523
Less Allowance for Possible Loan Losses.................... 164,151 169,402
----------- -----------
Net Loans................................................ 9,999,700 9,594,121
----------- -----------
Premises and Equipment........................................... 246,731 263,583
Accrued Interest Receivable...................................... 112,151 111,936
Other Assets..................................................... 589,512 448,774
----------- -----------
Total Assets................................................. $14,758,226 $15,052,647
=========== ===========
LIABILITIES
Deposits
Non-Interest Bearing Deposits.................................. $1,966,168 $1,998,660
Interest-Bearing Deposits...................................... 9,183,678 9,380,907
----------- -----------
Total Deposits............................................... 11,149,846 11,379,567
----------- -----------
Short-Term Borrowings
Federal Funds Purchased and Securities
Sold Under Agreements to Repurchase.......................... 1,271,517 1,569,153
Other Short-Term Borrowings.................................... 246,664 243,413
----------- -----------
Total Short-Term Borrowings.................................. 1,518,181 1,812,566
----------- -----------
Long-Term Debt and Other Borrowings.............................. 513,765 372,153
Accrued Interest Payable......................................... 82,438 62,344
Other Liabilities................................................ 187,565 210,932
----------- -----------
Total Liabilities............................................ 13,451,795 13,837,562
----------- -----------
Commitments and Contingencies (Note 12)
SHAREHOLDERS' EQUITY
Preferred Stock (Par Value $25.00)
Authorized - 25,000,000 Shares
Common Stock (Par Value $5.00)
Authorized - 200,000,000 Shares
Issued - 58,687,937 and 58,316,978 shares in 1995 and 1994,
Respectively.................................................. 293,440 291,585
Surplus.......................................................... 222,801 211,011
Retained Earnings................................................ 854,957 771,150
Net Unrealized Gains (Losses) on Securities...................... 7,548 (7,182)
Treasury Stock - 574,188 and 525,336 shares in 1995 and 1994,
Respectively.................................................. (18,649) (15,911)
Unallocated Shares Held by Employee Stock Ownership
Plan (ESOP) Trust - 1,900,000 and 1,285,000 Shares in
1995 and 1994, Respectively................................... (53,666) (35,568)
----------- -----------
Total Shareholders' Equity................................... 1,306,431 1,215,085
----------- -----------
Total Liabilities and Shareholders' Equity.............. $14,758,226 $15,052,647
=========== ===========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
105
<PAGE>
Consolidated Statements of Income
Year Ended December 31,
(Dollars in Thousands, Except Per Share Data)
<TABLE>
<CAPTION>
-------------- -------------- --------------
1995 1994 1993
-------------- -------------- --------------
<S> <C> <C> <C>
Interest Income
Interest and Fees on Loans.......................................... $896,976 $760,672 $705,893
Interest on Trading Account Assets.................................. 20,538 8,647 9,857
Interest on Investment Securities Available for Sale................ 33,182 23,884 51,963
Interest on Investment Securities................................... 142,804 155,684 151,436
Interest on Loans Held for Sale..................................... 10,029 28,618 36,405
Other Interest Income............................................... 6,893 7,535 6,136
-------------- -------------- --------------
Total Interest Income............................................. 1,110,422 985,040 961,690
-------------- -------------- --------------
Interest Expense
Interest on Deposits................................................ 371,727 283,256 283,822
Interest on Short-Term Borrowings................................... 91,426 63,126 30,518
Interest on Long-Term Debt and Other Borrowings..................... 31,587 26,242 30,058
-------------- -------------- --------------
Total Interest Expense............................................ 494,740 372,624 344,398
-------------- -------------- --------------
Net Interest Income................................................... 615,682 612,416 617,292
Provision for Possible Loan Losses.................................... 39,377 28,086 58,781
-------------- -------------- --------------
Net Interest Income After Provision for Possible Loan Losses 576,305 584,330 558,511
-------------- -------------- --------------
NON-INTEREST INCOME
Trust............................................................... 65,980 54,724 41,679
Mortgage Banking.................................................... 12,836 17,603 69,683
Amortization of and Reserves For Purchased Mortgage
Servicing Rights and Other Servicing-Related Assets.......... - (114) (33,713)
-------------- -------------- --------------
Net Mortgage Banking...................................... 12,836 17,489 35,970
Broker-Dealer and Investment Banking................................ 50,824 42,849 69,371
Service Charges on Deposit Accounts................................. 66,373 56,075 53,827
Fees for Other Customer Services ................................... 36,092 34,060 32,708
Net Securities Gains................................................ 7,965 2,998 25,280
Other Income........................................................ 16,495 19,831 15,788
-------------- -------------- --------------
Total Non-Interest Income......................................... 256,565 228,026 274,623
-------------- -------------- --------------
NON-INTEREST EXPENSES
Salaries and Employee Benefits...................................... 284,836 297,472 296,126
Net Occupancy Expense............................................... 43,996 45,351 42,578
Equipment Expense................................................... 38,665 38,745 38,005
Restructuring and Merger-Related Charges............................ 40,425 - 17,500
Other Expenses...................................................... 170,497 198,100 229,317
-------------- -------------- --------------
Total Non-Interest Expenses....................................... 578,419 579,668 623,526
-------------- -------------- --------------
Income Before Income Taxes and Cumulative Effect of Changes in
Accounting Principles............................................... 254,451 232,688 209,608
Provision for Income Taxes.......................................... 84,637 70,600 59,068
-------------- -------------- --------------
Income Before Cumulative Effect of Changes in Accounting Principles... 169,814 162,088 150,540
Cumulative After-Tax Effect of Changes in Accounting Principles..... - (2,730) 7,221
-------------- -------------- --------------
Net Income............................................................ $169,814 $159,358 $157,761
============== ============== ==============
Per Common Share
Income Before Cumulative Effect of Changes in Accounting Principles
Primary............................................................. $3.00 $2.80 $2.61
Fully Diluted....................................................... 2.98 2.80 2.61
Cumulative Effect on Prior Years of Changes in Accounting Principles
Primary............................................................. - (0.05) 0.13
Fully Diluted....................................................... - (0.05) 0.13
Net Income
Primary............................................................. 3.00 2.75 2.74
Fully Diluted....................................................... 2.98 2.75 2.74
Dividends Declared.................................................... 1.45 1.34 1.26
Average Shares Outstanding
Primary............................................................. 56,572,757 58,040,310 57,674,058
Fully Diluted....................................................... 57,000,499 58,040,310 57,674,058
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
106
<PAGE>
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
(Dollars in Thousands)
<TABLE>
<CAPTION>
Common Stock
--------------
Shares Retained
Outstanding Amount Surplus Earnings
-------------- -------------- -------------- ------------
<S> <C> <C> <C> <C>
Balance at January 1,1993................................................ 56,491,396 $282,445 $180,352 $596,670
Net Income............................................................... -- -- -- 157,761
Common Stock Dividends Declared.......................................... -- -- -- (67,541)
Sales of Stock Under Dividend Reinvestment, Stock Option
and Employee Benefit Plans............................................. 621,453 3,107 13,135 --
Unrealized Loss on Marketable Equity Securities.......................... -- -- -- --
Common Stock Issued in Merger............................................ 1,041,637 5,208 11,687 3,168
-------------- -------------- -------------- ------------
Balance at December 31,1993............................................. 58,154,486 290,760 205,174 690,058
Net Income............................................................... -- -- -- 159,358
Common Stock Dividends Declared.......................................... -- -- -- (77,303)
Sales of Stock Under Dividend Reinvestment, Stock Option
and Employee Benefit Plans............................................. 121,298 51 (361) (963)
Purchases of Treasury Stock.............................................. (638,854) -- -- --
Purchases of Shares for Employee Stock Ownership Plan (ESOP)............. (1,285,000) -- -- --
Unrealized After - Tax Loss on Investment Securities Available for Sale.. -- -- -- --
Common Stock Warrants Issued in Acquisition.............................. -- -- 4,000 --
Common Stock Issued in Merger............................................ 154,712 774 2,198 --
-------------- -------------- -------------- ------------
Balance at December 31, 1994............................................. 56,506,642 291,585 211,011 771,150
Net Income............................................................... -- -- -- 169,814
Common Stock Dividends Declared.......................................... -- -- -- (81,115)
Sales of Stock Under Dividend Reinvestment, Stock Option
and Employee Benefit Plans............................................. 783,269 1,855 10,004 (4,892)
Purchases of Treasury Stock.............................................. (461,162) -- -- --
Purchases of Shares for Employee Stock Ownership Plan (ESOP)............. (715,000) -- -- --
Employee Stock Ownership Plan (ESOP) Shares Committed to be
Released to Participants............................................... 100,000 -- 1,786 --
Unrealized After - Tax Gain on Investment Securities Available for Sale.. -- -- -- --
-------------- -------------- -------------- ------------
Balance at December 31, 1995............................................. 56,213,749 $293,440 $222,801 $854,957
============== ============== ============== ============
<CAPTION>
Net Unrealized Unallocated
Gains / (Losses) Treasury ESOP
on Securities Stock Shares Total
--------------- ------------ -------------- -------------
<S> <C> <C> <C> <C>
Balance at January 1,1993................................................ ($148) -- -- $1,059,319
Net Income............................................................... -- -- -- 157,761
Common Stock Dividends Declared.......................................... -- -- -- (67,541)
Sales of Stock Under Dividend Reinvestment, Stock Option
and Employee Benefit Plans............................................. -- -- -- 16,242
Unrealized Loss on Marketable Equity Securities.......................... (211) -- -- (211)
Common Stock Issued in Merger............................................ -- -- -- 20,063
--------------- ------------ -------------- -------------
Balance at December 31,1993............................................. (359) -- -- 1,185,633
Net Income............................................................... -- -- -- 159,358
Common Stock Dividends Declared.......................................... -- -- -- (77,303)
Sales of Stock Under Dividend Reinvestment, Stock Option
and Employee Benefit Plans............................................. -- $3,355 -- 2,082
Purchases of Treasury Stock.............................................. -- (19,266) -- (19,266)
Purchases of Shares for Employee Stock Ownership Plan (ESOP)............. -- -- ($35,568) (35,568)
Unrealized After - Tax Loss on Investment Securities Available for Sale.. (6,823) -- -- (6,823)
Common Stock Warrants Issued in Acquisition.............................. -- -- -- 4,000
Common Stock Issued in Merger............................................ -- -- -- 2,972
--------------- ------------ -------------- -------------
Balance at December 31, 1994............................................. (7,182) (15,911) (35,568) 1,215,085
Net Income............................................................... -- -- -- 169,814
Common Stock Dividends Declared.......................................... -- -- -- (81,115)
Sales of Stock Under Dividend Reinvestment, Stock Option
and Employee Benefit Plans............................................. -- 13,765 -- 20,732
Purchases of Treasury Stock.............................................. -- (16,503) -- (16,503)
Purchases of Shares for Employee Stock Ownership Plan (ESOP)............. -- -- (20,922) (20,922)
Employee Stock Ownership Plan (ESOP) Shares Committed to be
Released to Participants............................................... -- -- 2,824 4,610
Unrealized After - Tax Gain on Investment Securities Available for Sale.. 14,730 -- -- 14,730
--------------- ------------ -------------- -------------
Balance at December 31, 1995............................................. $7,548 ($18,649) ($53,666) $1,306,431
=============== ============ ============== =============
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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<PAGE>
<TABLE>
<CAPTION>
CONSOLIDATED STATEMENTS OF CASH FLOWS Year Ended
(Dollars in Thousands) December 31,
----------------------- ---------
1995 1994 1993
--------- -------- ---------
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net Income............................................................................ $169,814 $159,358 $157,761
Adjustments to Reconcile Net Income to Net Cash Provided by Operating Activities
Restructuring Charge............................................................... 17,893 -- 17,500
Depreciation and Amortization...................................................... 51,952 53,768 81,855
Deferred Tax (Benefit) Expense..................................................... (11,767) 28,305 929
Cumulative (After-Tax) Effect of Changes in Accounting Principles.................. -- 2,730 (7,221)
Provision for Possible Loan Losses................................................. 39,377 28,086 58,781
Provision for Other Real Estate Losses and Mortgage Servicing Recourse............. 10,494 17,522 16,938
Net Gains - Investment Securities.................................................. (4,091) (361) (12,694)
Net Gains - Investment Securities Available for Sale............................... (1,130) (4,446) (14,632)
Gains On Sales Of Mortgage Servicing............................................... (2,387) (867) (21,606)
Gain On Sale Of Student Loans...................................................... -- (8,984) --
Decrease (Increase) in Trading Account Assets...................................... 200,963 (23,579) 28,641
Decrease (Increase) in Loans and Other Assets Held for Sale........................ (30,864) 329,994 (123,848)
Decrease (Increase) in Other Assets................................................ (165,600) 49,429 117,848
Increase (Decrease) in Other Liabilities........................................... 71,322 (80,133) 63,707
Other, Net......................................................................... 5,020 4,199 14,380
--------- -------- ---------
Net Cash Provided by Operating Activities...................................... 350,996 555,021 378,339
--------- -------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES
Decrease (Increase) in Short-Term Investments......................................... 56,150 (21,746) 64,189
Proceeds from Sales of Investment Securities.......................................... 29,524 4,986 109,156
Proceeds from Maturities, Calls and Paydowns of Investment Securities................. 649,741 989,623 1,319,468
Purchases of Investment Securities.................................................... (84,809) (1,106,094) (1,320,142)
Proceeds from Sales of Investment Securities Available for Sale....................... 335,075 77,110 741,151
Proceeds from Maturities, Calls, Paydowns of Investment Securities Available for Sale. 62,995 63,779 165,945
Purchases of Investment Securities Available for Sale................................. (404,405) (288,218) (642,886)
Net Principal Disbursed on Loans to Customers......................................... (469,755) (1,064,515) (482,769)
Proceeds from Sale of Student Loans................................................... -- 231,984 --
Proceeds from Sales of Premises and Equipment......................................... 6,587 11,541 5,386
Purchases of Premises and Equipment................................................... (20,828) (54,487) (36,948)
Proceeds from Sales of Mortgage Servicing............................................. 3,041 8,199 18,528
Purchases of Mortgage Servicing....................................................... -- -- (2,116)
Proceeds from Sales of Assets Acquired in Foreclosures................................ 25,827 18,110 31,500
Net Cash Provided By Acquisitions..................................................... -- 379,318 52,900
--------- -------- ---------
Net Cash Provided by (Used For) Investing Activities........................... 189,143 (750,410) 23,362
--------- -------- ---------
CASH FLOWS FROM FINANCING ACTIVITIES
Net Decrease in Deposits.............................................................. (230,519) (445,161) (502,208)
Net Increase (Decrease) in Short Term Borrowings ..................................... (294,384) 1,020,843 (85,371)
Proceeds from Issuance of Long-Term Debt.............................................. 152,111 2,385 197,607
Repayment of Long-Term Debt........................................................... (12,834) (64,020) (92,077)
Purchases of Treasury Stock and ESOP Shares........................................... (16,503) (54,834) --
Funds Transferred to Trust for Future ESOP Purchases.................................. -- (24,432) --
Proceeds from Issuance of Common Stock................................................ 20,732 2,082 16,242
Cash Dividends Paid to Common Shareholders............................................ (81,115) (77,303) (69,635)
--------- -------- ---------
Net Cash Provided by (Used For) Financing Activities............................... (462,512) 359,560 (535,442)
--------- -------- ---------
CASH AND CASH EQUIVALENTS
Net Increase (Decrease) During the Period.......................................... 77,627 164,171 (133,741)
Balance at Beginning of the Period................................................. 766,452 602,281 736,022
--------- -------- ---------
Balance at End of the Period....................................................... $844,079 $766,452 $602,281
========= ======== =========
</TABLE>
See accompanying Notes to Consolidated Financial Statements.
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<PAGE>
NOTE 1: SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The following is a description of the more significant accounting policies
and reporting practices of Meridian Bancorp, Inc. and its subsidiaries
(Meridian). They are in accordance with generally accepted accounting
principles and have been followed on a consistent basis, except for the
accounting changes described in the following notes.
Basis of Presentation
The consolidated financial statements include the accounts of Meridian
Bancorp, Inc. and its wholly owned subsidiaries. All significant intercompany
accounts and transactions have been eliminated. Certain amounts in prior years
have been reclassified for comparative purposes.
Meridian is a regional bank holding company incorporated under the laws of
the Commonwealth of Pennsylvania, primarily operating in the eastern half of
Pennsylvania, as well as Delaware and southern New Jersey. Through its
subsidiaries, Meridian is engaged in providing a full range of retail and
corporate banking, trust and asset management services and broker-dealer
activities to a diversified customer base.
The preparation of financial statements in conformity with generally
accepted accounting principles requires management to
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<PAGE>
make estimates and assumptions that affect the amounts reported in the financial
statements and accompanying notes. Actual results could differ from those
estimates.
Cash and Cash Equivalents
In the accompanying Consolidated and Parent Company Statements of Cash
Flows, cash and cash equivalents include cash on hand, amounts due from banks,
federal funds sold, and securities purchased under agreements to resell. The
original maturities of such instruments are less than 90 days. Federal funds
are sold and securities are purchased under agreements to resell for generally
one-day periods.
Relative to the Consolidated Statements of Cash Flows, income tax payments
totaled $83.0 million in 1995, $45.0 million in 1994, and $66.1 million in 1993.
Interest payments totaled $474.6 million in 1995, $369.9 million in 1994, and
$345.0 million in 1993. Non-cash operating activity in 1994 includes a transfer
of $286.0 million from loans and other assets held for sale to trading account
assets. Non-cash investing activity consists of net transfers of loans in
liquidation to other real estate aggregating $23.9 million in 1995, $29.8
million in 1994, and $45.8 million in 1993; transfers of investment securities
to investment securities available for sale of $921.2 million in 1995, $18.3
million in 1994 and $415.0 million in 1993; a transfer of non-accrual
residential mortgage loans of $8.0 million and foreclosed real estate of $7.3
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<PAGE>
million to loans and other assets held for sale in 1994; and a transfer of
purchased mortgage servicing rights and related assets of $36.0 million from
other assets to loans and other assets held for sale in 1993. Noncash financing
activity consists of stock and a warrant aggregating $7.0 million in 1994 and
stock of $20.1 million in 1993 issued as a result of acquisitions.
Investment Securities
Effective in the first quarter of 1994, Meridian adopted Statement of
Financial Accounting Standards No. 115, "Accounting for Certain Investments in
Debt and Equity Securities",which requires investments in equity securities with
a readily determinable fair value and investments in all debt securities to be
classified, at the date of adoption, in one of three categories. The three
categories are (1) held to maturity -- carried at amortized cost; (2) available
for sale -- carried at fair value (with unrealized gains and losses, net of
related tax effect, recorded as a separate component of shareholders' equity);
and (3) trading account - carried at fair value (with unrealized gains and
losses recorded in the income statement).
The amortization of premiums and accretion of discounts to the expected
maturity date of the related debt obligations are based on a method which
approximates a constant yield.
When a determination is made that the decline in fair value
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<PAGE>
below cost for a marketable equity or debt security is other than temporary, the
cost basis of the individual security is written down to a new cost basis and
the amount of the write-down is accounted for as a realized loss.
Gains and losses on the sales of securities and unrealized gains and losses
on securities are computed on the specific identification method. Trading
account securities are carried at fair value and unrealized gains or losses are
included in the Consolidated Statements of Income.
Interest Rate Swaps
Interest rate swaps, the principal derivative product used by Meridian, are
a tool used mainly to alter the repricing characteristics of a portion of the
core deposit base. There is no effect on the recorded total assets or
liabilities of Meridian. Net amounts receivable or payable under agreements
designated for risk management purposes are recorded as adjustments to the
interest income or expense of the associated asset or liability. Gains or
losses resulting from the termination of interest rate swaps entered into for
risk management purposes are deferred and amortized over the remaining term of
the swap contract.
Loans
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<PAGE>
Loans are stated net of deferred fees and costs and unearned discount.
Loan interest income is accrued using various methods which approximate a
constant yield.
Interest income is not accrued on commercial loans where management has
determined that borrowers may be unable to meet contractual principal or
interest payments, or where such payments are 90 or more days past due unless
the loan is well secured and in the process of collection. Interest on loans
that have been restructured is recognized according to the renegotiated terms.
Residential mortgages which are 180 days or more delinquent are placed on
nonaccrual status when total principal, interest, and escrow owed exceeds 80% of
the property's appraised value. Properties are re-appraised when foreclosure
proceedings are initiated. Consumer loans are not placed on non-accrual status,
but the borrower's ability to comply with payment terms is closely monitored by
management. Loans are charged-off when deemed uncollectible, which is generally
at a time no later than 120 days past due.
Loan origination and commitment fees and direct loan origination costs are
deferred and recognized over the life of the related loans as an element of the
yield.
Effective January 1, 1995, Meridian adopted Statement of
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<PAGE>
Financial Accounting Standards No. 114, "Accounting by Creditors for Impairment
of a Loan", and Statement No. 118, "Accounting by Creditors for Impairment of a
Loan - Income Recognition and Disclosures". Statement No. 114 requires that
certain impaired loans be measured based on the present value of expected future
cash flows discounted at the loan's effective interest rate or fair value of the
loan if the loan is collateral dependent. Statement No. 118 amends Statement
No. 114 to allow a creditor to use existing methods for recognizing interest
income on an impaired loan. There was no impact on consolidated net income
resulting from the implementation of these statements. Prior period financial
information has been restated to reflect the reclassification of in-substance
foreclosures to non-performing loans.
A loan is considered impaired when, based on current information and
events, it is probable that a creditor will be unable to collect all amounts due
according to the contractual terms of the loan agreement. This category
currently includes all commercial loans on non-accrual status and certain
restructured loans. Large groups of smaller-balance, homogeneous loans such as
residential mortgage and consumer loans that are collectively evaluated for
impairment are not included in impaired loans.
The average recorded investment in impaired loans was $82.9 million in
1995. The recorded investment in impaired loans at
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<PAGE>
December 31, 1995 was $76.7 million. The recorded investment for which there is
a related allowance for possible loan losses was $36.4 million at December 31,
1995 and the related allowance was $10.3 million. The recorded investment for
which there is no related allowance for possible loan losses was $40.3 million.
Interest income is not accrued on commercial loans where management has
determined that borrowers may be unable to meet contractual principal or
interest payments, or where such payments are 90 or more days past due unless
the loan is well secured and in the process of collection. Interest collections
on nonaccrual loans for which the ultimate collectibility of principal is
uncertain are applied as principal reductions. Otherwise, such collections are
credited to income when received. Interest on loans that have restructured is
recognized according to the renegotiated terms. The amount of interest income
recognized on impaired loans, using the cash-basis method of accounting, was
$845.4 thousand for the year ended December 31, 1995.
Allowance for Possible Loan Losses
The allowance for possible loan losses is established through provisions
for possible loan losses charged against income. Loans deemed to be
uncollectible are charged against the allowance. Subsequent recoveries, if any,
are credited to the allowance. The balance in the allowance is based on a
periodic
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<PAGE>
evaluation of the loan portfolio and reflects an amount that in management's
opinion is adequate to absorb losses inherent in the portfolio.
When establishing the appropriate levels for the provision and the
allowance for possible loan losses, management performs an analysis of the loan
portfolio by considering a variety of factors. This analysis includes periodic
reviews by loan officers, credit review and loan workout personnel of all
borrowers with aggregate balances of $500,000 or greater. Meridian also
reviews, at least on a quarterly basis, problem borrowers with balances of
$250,000 or greater, as well as selected lower balance loans. Consideration is
given to the impact of current and anticipated economic conditions, the
diversification of the loan portfolio, historical loss experience, delinquency
statistics, reviews performed by loan officers who are primarily responsible for
compliance with established lending policy, the perceived financial strength of
borrowers, and the perceived adequacy of underlying collateral. Consideration
is also given to examinations performed by regulatory authorities.
Premises and Equipment
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed on the straight line method and is
charged to operations over the
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<PAGE>
estimated useful lives of the related assets. Leasehold improvements are
amortized on a straight line basis over the terms of the respective leases or
the estimated useful lives of the improvements, whichever is shorter.
Other Assets
Goodwill is the excess of the purchase price over the fair value of net
assets of companies acquired through business combinations accounted for as
purchases. Included in other assets is $85.2 million of goodwill that is being
amortized using the straight line method over various periods not exceeding 15
years.
Core deposit intangibles are a measure of the value of consumer demand and
savings deposits acquired in business combinations accounted for as purchases.
Included in other assets is $27.6 million of core deposit intangibles which are
being amortized on an accelerated method, with at least two-thirds of the
original balance being amortized within seven years following the date of
acquisition.
The recoverability of the carrying value of intangible assets is evaluated
on an ongoing basis and permanent declines in value, if any, are charged to
expense.
Statement of Financial Accounting Standards No. 121,
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<PAGE>
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to
be Disposed Of "(FAS 121") was issued in March 1995. FAS 121, which is
effective beginning with 1996, addresses the accounting for and the measurement
of the impairment of long-lived assets that either will be held and used in
operations or that will be disposed of. The impact that FAS 121 will have on
Meridian's future results of operations cannot be estimated with certainty at
the current time. However, the adoption of FAS 121 is not expected to have a
material impact on Meridian's financial condition.
Assets acquired in foreclosures consist of real estate acquired through
foreclosure or in settlement of debt. These assets are carried at the lower of
cost or fair value less estimated costs of disposal.
Trust Assets
Assets held by Meridian in a fiduciary or agency capacity for customers are
not included in the consolidated financial statements since such items are not
assets of Meridian or its subsidiaries. Trust income is reported on the accrual
method.
Mortgage Banking
Prior to the third quarter of 1993, mortgage servicing fees received from
permanent investors for servicing their loan
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portfolios were recorded as income when received. Mortgage loan servicing
included collecting monthly mortgagor payments, forwarding payments and related
accounting reports to investors, collecting escrow deposits for the payment of
mortgagor property taxes and insurance, and paying taxes and insurance from
escrow funds when due.
In the third quarter of 1993 Meridian decided to refocus its mortgage
activities on the origination of residential loans and to substantially reduce
the scope of its mortgage servicing business. Mortgage servicing intangibles
and other related assets were carried at fair value and were included in
mortgage loans and other assets held for sale in the consolidated balance sheet
at December 31, 1993. The majority of these assets were sold in 1994.
Acquisition costs of mortgage servicing rights purchased prior to the third
quarter of 1993 were capitalized and amortized in proportion to, and over the
period of, estimated net servicing revenue (undiscounted servicing revenues in
excess of undiscounted servicing costs). There was an insignificant amount of
amortization in 1994 and none in 1995 since all purchased mortgage servicing
rights have been sold or written-off.
Excess servicing fees were computed as the present value of the difference
between the estimated future net revenues and normal servicing revenues as
established by the federally
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sponsored secondary market makers. Resultant premiums were deferred and
amortized over the estimated life of the related mortgages using the constant
yield method.
The amortization of both purchased mortgage servicing rights and excess
servicing fees was recorded as a reduction of servicing revenue.
Loans and other assets held for sale are carried at the lower of aggregate
cost or fair value, with resulting gains and losses included in other income.
The fair value calculation includes consideration of all open positions,
outstanding commitments from investors and related fees paid.
Statement of Financial Accounting Standards No. 122, "Accounting for
Mortgage Servicing Rights - an amendment of FASB Statement No. 65" ("FAS 122")
was issued in May 1995 to modify the treatment of capitalized mortgage servicing
rights by mortgage banking enterprises. FAS 122, which is effective beginning
with 1996, amends FASB Statement No. 65 to eliminate the separate treatment of
servicing rights acquired through loan originations versus those acquired
through purchase. The adoption of FAS 122 is not expected to have a material
impact on Meridian's results of operations or financial condition.
Securities Operations
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Off-balance sheet derivative products used by the securities operations
mostly include tender option bonds, treasury float agreements, and forward
commitments to purchase and sell loans and securities. Tender option bonds
represent a contingent liability to purchase securities. Realized gains and
losses and net interest spread earned on these products are included in non-
interest income. Treasury float agreements represent purchased option
contracts. The premiums paid for these contracts are amortized over the option
periods. Forward commitments to purchase and sell loans and securities consist
primarily of forward commitments to sell mortgage-backed securities, which are
used to hedge mortgage loans held in the trading account. These commitments are
marked to fair value with unrealized gains and losses recorded in non-interest
income. Collateralized mortgage obligation residuals, rights acquisition
contracts and guaranteed interest rate contracts are other financial instruments
and are included in the consolidated financial statements in investment
securities, investment securities available for sale, and interest-bearing
deposits, respectively.
Income Taxes
Certain items of income and expense are included in one reporting period
for financial accounting purposes and another reporting period for income tax
purposes. Under the asset and liability method, deferred tax assets and
liabilities are recognized for the future tax consequences attributable to
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temporary differences between the financial statement and tax bases of existing
assets and liabilities.
Employee Benefits
Meridian has a non-contributory defined benefit pension plan covering
substantially all employees who qualify as to age and length of service. The
plan benefits are based on years of service and an earnings formula that
considers average salaries during a defined period prior to retirement.
The projected unit credit method is used to measure net periodic pension
cost over employees' service lives. The plan is funded using the projected unit
credit method to the extent deductible under existing federal income tax
regulations.
Meridian currently provides postretirement health care and life insurance
benefits to its employees. The medical portion is contributory and life
insurance coverage is non-contributory to the participants. The expected cost
of these benefits is accrued over the period the employee earns the benefits.
There are currently no plan assets attributable to these postretirement
benefits.
Effective January 1, 1995, all employees of Meridian and its subsidiaries
with two years of service began participating in a non-contributory employee
stock ownership plan. Compensation
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cost is being recognized based on the fair market value of the shares committed
to be released to employees.
Treasury Stock
The purchase of Meridian's common stock is recorded at cost. At the date
of subsequent reissue, the treasury stock account is reduced by the cost of such
stock on a first-in-first-out basis.
Preferred Stock
Meridian has 25 million shares of preferred stock authorized that carries a
$25.00 par value per share. No shares of preferred stock were issued and
outstanding as of December 31, 1995. Meridian's Board of Directors has the
authority to issue the preferred stock from time to time as a class without
series, or in one or more series.
Earnings Per Share
Primary earnings per share is computed by dividing net income by the
weighted average number of common stock and common stock equivalents outstanding
during the year. Stock options and warrants are considered common stock
equivalents and are included in the computation of the number of outstanding
shares using the treasury stock method, unless such options are anti-dilutive.
Fully diluted earnings per share gives effect to the assumed
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conversion of any convertible preferred stock as well as to the exercise of
stock options. For the purposes of computing primary and fully diluted earnings
per share, committed to be released and allocated shares in the employee stock
ownership plan are considered outstanding.
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<PAGE>
Note 2: Mergers and Acquisitions
On May 24, 1995, Meridian and United Counties Bancorporation announced a
definitive agreement to merge in a transaction which was accounted for as a
pooling-of-interests. Under the terms of the agreement, the transaction was a
tax-free exchange of five shares of Meridian stock for each share of United
Counties stock. Shareholders of United Counties approved the merger at a
meeting on February 7, 1996. The transaction closed on February 23, 1996.
On October 10, 1995, Meridian and CoreStates Financial Corp. announced a
definitive agreement to merge in a transaction expected to be accounted for as a
pooling-of-interests. The transaction would be a tax-free exchange of 1.225
shares of CoreStates common stock for each share of Meridian common stock.
Shareholders of both corporations approved the merger at separate meetings on
February 6, 1996. The merger, which is subject to approval by regulators, is
expected to close in the second quarter of 1996.
A summary of selected unaudited historical financial information for
CoreStates and United Counties follows:
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<PAGE>
<TABLE>
<CAPTION>
CoreStates United Counties
Year Ended December 31, 1995 (a) 1994 1993 1995 (b) 1994 1993
(in thousands, except per share amounts) ---------------------------------------- ------------------------------
<S> <C> <C> <C> <C> <C> <C>
Operating results:
Net interest income $1,488,534 $1,389,369 $1,325,271 $62,712 $66,230 $68,573
Non-interest income 605,666 567,540 574,030 19,152 7,108 8,408
Income before cumulative effect of a change
in accounting principle 452,237 248,792 362,429 32,189 23,792 24,193
Per common share data:
Income before cumulative effect of a change
in accounting principle 3.22 1.75 2.49 15.00 11.12 11.29
Average common shares outstanding 140,600 142,498 145,398 2,146 2,139 2,142
At December 31
(in millions, except per share amounts)
Assets $29,621 $29,325 $28,435 $1,621 $1,681 $1,687
Loans 21,047 20,526 19,776 387 374 376
Deposits 21,502 22,041 21,132 1,312 1,355 1,393
Common shareholders' equity 2,379 2,350 2,368 205 182 158
Book value per common share 17.24 16.22 16.29 95.19 84.55 74.02
</TABLE>
(a) 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 million pre-tax restructuring
charge, $70.0 million after-tax or $0.49 per share, in March 1995.
CoreStates recorded restructuring-credits of $3.0 million, $1.9 million
after-tax or $0.01 per share in the second quarter of 1995 and $2.4
million, $1.5 million after-tax or $0.01 per share in the third quarter of
1995, related to gains on the curtailment of future pension benefits
associated with employees terminated during the second and third quarters.
(b) Includes a gain of $12.0 million ($7.6 million after-tax or $3.56 per
share) on the exchange of investment securities.
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A summary of unaudited pro forma financial information for Meridian and
United Counties and for Meridian, CoreStates and United Counties as if both
transactions had occurred on January 1, 1993 is as follows:
<TABLE>
<CAPTION>
Meridian and United Counties Meridian, CoreStates and United Counties
Year Ended December 31, 1995 1994 1993 1995 1994 1993
(in millions, except per share amounts) ------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net interest income $678 $679 $686 $2,167 $2,068 $2,011
Non-interest income 276 234 282 881 801 856
Income before cumulative effect of a
change in accounting principle 202 186 175 655 436 538
Per common share 3.03 2.72 2.57 2.95 1.93 2.35
Average common shares outstanding 66,682 68,356 67,904 222,285 226,234 228,580
Assets 16,391 16,744 15,781 46,011 46,069 44,216
Deposits 12,461 12,734 12,739 33,964 34,775 33,871
</TABLE>
127
<PAGE>
NOTE 3: Investment Securities, Investment Securities Available for Sale and
Securities Gains
Investment Securities
A summary of the amortized cost and approximate fair value of investment
securities included in the Consolidated Balance Sheets is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------------------- ----------------------- -----------------------
Approximate Approximate Approximate
Amortized Fair Amortized Fair Amortized Fair
Cost Value Cost Value Cost Value
(Dollars in Thousands) ---------- ----------- ---------- ----------- ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
United States Government Securities........... $203,187 $204,822 $667,031 $638,476 $630,338 $635,047
Mortgage-Backed Securities
Collateralized Mortgage Obligations........ 753,815 751,598 1,380,105 1,311,068 1,240,901 1,241,026
Other...................................... - - 231,290 222,298 314,221 324,372
---------- ---------- ---------- ---------- ---------- ----------
Total Mortgage-Backed Securities....... 753,815 751,598 1,611,395 1,533,366 1,555,122 1,565,398
State and Municipal Securities................ 264,295 269,630 335,401 327,811 375,582 387,298
Other Securities.............................. 117,251 117,120 258,592 253,654 223,442 225,357
---------- ---------- ---------- ---------- ---------- ----------
Total Investment Securities............... $1,338,548 $1,343,170 $2,872,419 $2,753,307 $2,784,484 $2,813,100
========== ========== ========== ========== ========== ==========
</TABLE>
A summary of the gross unrealized gains and losses of investment securities is
as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------------------- ----------------------- -----------------------
Gross Gross Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses Gains Losses
(Dollars in Thousands) ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
United States Government Securities........... $2,018 $383 $162 $28,717 $5,644 $935
Mortgage-Backed Securities
Collateralized Mortgage Obligations........ 1,360 3,577 75 69,112 4,957 4,832
Other...................................... - - 1,056 10,048 10,492 341
---------- ---------- ---------- ---------- ---------- ----------
Total Mortgage-Backed Securities....... 1,360 3,577 1,131 79,160 15,449 5,173
State and Municipal Securities................ 5,510 175 2,802 10,392 11,942 226
Other Securities.............................. 264 395 128 5,066 2,624 709
---------- ---------- ---------- ---------- ---------- ----------
Total Investment Securities............... $9,152 $4,530 $4,223 $123,335 $35,659 $7,043
========== ========== ========== ========== ========== ==========
</TABLE>
The amortized cost and approximate fair value of investment securities at
December 31, 1995 by contractual maturity are shown below. Expected maturities
may differ from contractual maturities because certain borrowers have the right
to call or prepay obligations.
<TABLE>
<CAPTION>
Approximate
Amortized Fair
(Dollars in Thousands) Cost Value
---------- ----------
<S> <C> <C>
Other Than Mortgage-Backed Securities
Due in one year or less....................... $197,764 $197,858
Due after one year but within five years...... 270,108 274,222
Due after five years but within ten years..... 92,631 94,205
Due after ten years........................... 24,230 25,287
---------- ----------
Total..................................... 584,733 591,572
Mortgage-Backed Securities
Collateralized Mortgage Obligations........ 753,815 751,598
Other...................................... - -
---------- ----------
Total Mortgage-Backed Securities....... 753,815 751,598
---------- ----------
Total Investment Securities............... $1,338,548 $1,343,170
========== ==========
</TABLE>
Investment securities carried at approximately $2.0 billion at December 31,
1995 were pledged as collateral for public deposits, trust deposits, repurchase
agreements, and certain other deposits required by law. No securities of an
individual issuer aggregated more than 10% of shareholders' equity at December
31, 1995. Tax-free income on investment securities and investment securities
available for sale for 1995, 1994 and 1993 amounted to $18.3 million, $21.0
million and $24.3 million, respectively.
During December 1995, as permitted by the Financial Accounting Standards
Board in its "Guide to the Implementation of Statement No. 115 on Accounting for
Certain Investments in Debt and Equity Securities." Meridian transferred
investment securities of $921.2 million to investment securities available for
sale. The unrealized loss on these securities at the date of transfer was $915
thousand.
128
<PAGE>
Investment Securities Available For Sale
A summary of the amortized cost and approximate fair value of investment
securities available for sale included in the Consolidated Balance Sheets
is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
---------------------- ---------------------- ----------------------
Approximate Approximate Approximate
Amortized Fair Amortized Fair Amortized Fair
(Dollars in Thousands) Cost Value Cost Value Cost Value
---------- ----------- --------- ------------ ---------- -----------
<S> <C> <C> <C> <C> <C> <C>
United States Government Securities.................... $684,490 $691,601 $282,500 $274,594 $103,086 $105,997
Mortgage-Backed Securities
Collateralized Mortgage Obligations................. 336,999 336,403 25,089 24,260 2,856 2,865
Other............................................... 153,323 154,908 96,501 91,678 122,297 125,971
---------- ----------- --------- ------------ ---------- -----------
Total Mortgage-Backed Securities................ 490,322 491,311 121,590 115,938 125,153 128,836
State and Municipal Securities......................... 23,280 23,761 32,530 33,362 34,306 37,029
Other Securities....................................... 79,865 82,897 9,163 11,100 13,118 16,290
---------- ----------- --------- ------------ ---------- -----------
Total Investment Securities Available for Sale..... $1,277,957 $1,289,570 $445,783 $434,994 $275,663 $288,152
========== =========== ========= ============ ========== ===========
</TABLE>
A summary of the gross unrealized gains and losses of investment securities
available for sale is as follows:
<TABLE>
<CAPTION>
1995 1994 1993
----------------------- ----------------------- ----------------------
Gross Gross Gross Gross Gross Gross
Unrealized Unrealized Unrealized Unrealized Unrealized Unrealized
Gains Losses Gains Losses Gains Losses
(Dollars in Thousands) ---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
United States Government Securities..................... $8,143 $1,032 $105 $8,011 $2,998 $87
Mortgage-Backed Securities
Collateralized Mortgage Obligations.................. 2,973 3,569 - 829 9 -
Other................................................ 1,933 348 72 4,895 3,773 99
---------- ---------- ---------- ---------- ---------- ----------
Total Mortgage-Backed Securities................. 4,906 3,917 72 5,724 3,782 99
State and Municipal Securities.......................... 491 10 958 126 2,723 -
Other Securities........................................ 3,288 256 2,121 184 3,189 17
---------- ---------- ---------- ---------- ---------- ----------
Total Investment Securities......................... $16,828 $5,215 $3,256 $14,045 $12,692 $203
========== ========== ========== ========== ========== ==========
</TABLE>
The amortized cost and approximate fair value of investment securities
available for sale at December 31, 1995 by contractual maturity are shown
below. Expected maturities may differ from contractual maturities because
certain borrowers have the right to call or prepay obligations.
<TABLE>
<CAPTION>
Approximate
Amortized Fair
Cost Value
(Dollars in Thousands) ----------- -----------
<S> <C> <C>
Other Than Mortgage-Backed Securities
Due in one year or less................................ $365,114 $368,052
Due after one year but within five years............... 407,812 415,222
Due after five years but within ten years.............. 5,381 5,462
Due after ten years.................................... 9,328 9,523
----------- -----------
Total.............................................. 787,635 798,259
Mortgage-Backed Securities
Collateralized Mortgage Obligations..................... 336,999 336,403
Other................................................... 153,323 154,908
----------- -----------
Total Mortgage-Backed Securities.................... 490,322 491,311
----------- -----------
Total Investment Securities Available for Sale..... $1,277,957 $1,289,570
=========== ===========
</TABLE>
Total Securities Gains
Total gains from securities transactions (excluding trading account
securities), which were included in the following categories in the non-interest
income section of the Consolidated Statements of Income, are as follows:
<TABLE>
<CAPTION>
1995 1994 1993
------ ------ ------
<S> <C> <C> <C>
Broker-Dealer and Investment Banking Income.................... $356 $1,809 $2,046
Net Securities Gains........................................... 7,965 2,998 25,280
------ ------ ------
Total Securities Gains................................. $8,321 $4,807 $27,326
====== ====== =======
</TABLE>
Proceeds from the sale of securities for the years ended December 31, 1995,
1994 and 1993 were $364.6 million, $82.1 million and $850.3 million. Gross gains
on these sales were $9.1 million, $5.1 million and $27.6 million and gross
losses were $741 thousand, $266 thousand and $203 thousand in 1995, 1994 and
1993, respectively.
129
<PAGE>
NOTE 4: LOANS
A summary of loans included in the Consolidated Balance Sheets
is as follows:
<TABLE>
<CAPTION>
December 31,
------------------------------
(Dollars in Thousands) 1995 1994
------------- -------------
<S> <C> <C>
Commercial Loans
Real Estate - Commercial Mortgage........... $1,665,138 $1,702,816
Real Estate - Construction.................. 227,867 278,271
Commercial, Financial and Agricultural...... 4,215,005 4,006,360
---------- ----------
Total Commercial Loans.................... 6,108,010 5,987,447
---------- ----------
Real Estate - Residential.................... 1,297,505 1,217,359
Consumer Loans
Real Estate - Home Equity................... 1,137,360 744,022
Revolving Credit............................ 148,757 110,049
Other Consumer Loans........................ 1,580,301 1,816,716
---------- ----------
Total Consumer Loans...................... 2,866,418 2,670,787
---------- ----------
Total Loans, Gross........................... 10,271,933 9,875,593
Less Unearned Discount..................... 108,082 112,070
---------- ----------
Total Loans, Net of
Unearned Discount.......................... $10,163,851 $9,763,523
=========== ==========
</TABLE>
Included within the loan portfolio are restructured loans and loans on
which Meridian has discontinued the accrual of interest. Such loans amounted to
$76.7 million, $96.2 million, and $149.7 million at December 31, 1995, 1994, and
1993, respectively. If these non-performing loans had been current in accordance
with their original terms and had been outstanding throughout the period, gross
interest income for 1995, 1994, and 1993 would have increased $7.6 million, $9.6
million, and $9.5 million, respectively. Interest income on these non-performing
loans included in income for 1995, 1994, and 1993 amounted to $1.2 million,
$868.0 thousand, and $706.0 thousand, respectively.
Tax-free income on loans for 1995, 1994, and 1993 amounted to $10.6
million, $10.8 million, and $14.4 million, respectively.
Loan concentrations are considered to exist when there are amounts loaned
to a multiple number of borrowers engaged in similar activities which would
cause their ability to meet contractual obligations to be similarly impacted by
economic or other conditions. At December 31, 1995, Meridian's commercial loans
and commitments did not have any industry concentration or other known
concentration (as defined) that exceeded 10% of total loans and commitments.
130
<PAGE>
NOTE 5: ALLOWANCE FOR POSSIBLE LOAN LOSSES
A summary of activity in the allowance for possible loan
losses follows:
<TABLE>
<CAPTION>
1995 1994 1993
-------- -------- --------
<S> <C> <C> <C>
(Dollars in Thousands)
Balance at Beginning of Period........... $169,402 $175,078 $166,842
Additions (Deductions)
Acquired Allowances.................. - 1,168 3,094
Other Deductions..................... - (2,377) -
Loans Charged-Off.................... (60,255) (52,233) (64,830)
Recoveries on Charged-Off Loans...... 15,627 19,680 11,191
-------- -------- --------
Net Loans Charged-Off.................... (44,628) (32,553) (53,639)
-------- -------- --------
Provision Charged to Operating Expense... 39,377 28,086 58,781
-------- -------- --------
Balance at End of Period................. $164,151 $169,402 $175,078
======== ======== ========
</TABLE>
131
<PAGE>
NOTE 6: LONG-TERM DEBT AND OTHER BORROWINGS
Long-term debt and other borrowings consisted of the following:
<TABLE>
<CAPTION>
December 31, 1995 1994
(Dollars in Thousands) ---------- ----------
<S> <C> <C>
Floating Rate Subordinated Notes, Due 1996..... $75,000 $75,000
6.625% Subordinated Notes, Due 2003............ 149,287 147,945
7.875% Subordinated Notes, Due 2002............ 99,773 98,977
7.06% Note, Due 1997........................... 2,223 2,223
6.625% Note, Due 2000.......................... 149,902 -
Mortgages Payable and Capitalized Lease
Obligations (See Note 9)..................... 16,292 18,623
Federal Home Loan Bank Advances Due 1995-1996
with Fixed Rates from 6.61% to 7.19%......... 10,000 20,000
Federal Home Loan Bank Community Investment
Program, 6.66% Fixed Rate Note, Due 2016..... 2,888 -
4.80% Fixed Rate Note, Due 1996................ 8,400 8,400
Other Borrowings............................... - 985
---------- ----------
Total..................................... $513,765 $372,153
========== ==========
</TABLE>
The floating rate subordinated notes bear interest at a rate
of 1/8 of 1% above the arithmetic mean of London interbank offering
quotations for three-month Eurodollar deposits, determined quarterly.
The notes carry a floor interest rate of 5 1/4%. The notes are
subordinate and junior in right of payment to senior indebtedness of
Meridian. Since December 1, 1988, Meridian has had the option to
exchange the notes for capital securities or, under certain circumstances,
cash, prior to the maturity of the notes on December 1, 1996. The effect of
the capital securities which may be issued in connection with these notes
has not been included in the computation of earnings per share. In
December 1993, Meridian received approval from the Federal Reserve
Bank to revoke its obligation to exchange the notes for capital securities
at maturity.
Meridian has long-term borrowings from the Federal Home Loan
Bank which total $12.9 million. These borrowings require membership
in the Federal Home Loan Bank of Pittsburgh and the maintenance of
available collateral with a fair value which approximates the total
amount of the outstanding debt.
132
<PAGE>
Meridian also has $8.4 million of collateralized borrowings from the
Student Loan Marketing Association, due March 20, 1996, at a rate of 4.80%.
The remaining long-term debt consists of debt of Meridian's banking
subsidiaries and is subordinated in the right of payment to the depositors
of such subsidiaries. Substantially all of the notes are redeemable
prior to maturity at certain amounts based on sinking fund provisions or,
when applicable, approval of the appropriate regulatory agency.
Meridian had unused lines of credit of $10 million at December 31, 1995
and $30 million at December 31, 1994.
Meridian has short-term borrowings, primarily federal funds purchased and
securities sold under agreement to repurchase, amounting to $1,518 million and
$1,813 million at December 31, 1995 and 1994, respectively. The weighted
average interest rate on these borrowings at December 31,1995, was 4.93%. The
average interest paid on these borrowings was 5.66% and 4.31% for the years
ended December 31, 1995 and 1994, respectively. The maximum amount outstanding
at any month-end was $2,032 million in 1995, $1,946 million in 1994 and $1,209
million in 1993.
133
<PAGE>
Note 7: DIVIDEND, CAPITAL AND OTHER REGULATORY RESTRICTIONS
Various laws restrict the amount of dividends that can be paid to Meridian
by its subsidiary banks without regulatory approval. Under current regulations,
Meridian's subsidiary banks, without prior approval of bank regulators, may
declare dividends to Meridian in 1996 totalling $121.1 million plus additional
amounts equal to the net profits earned by such subsidiary banks for the period
of January 1, 1996 through the date of declaration, less dividends previously
paid in 1996.
The Federal Reserve Act also places restrictions on the amount of credit
that may be extended to Meridian by its subsidiary banks. During 1995, there
were no loans or advances made to Meridian by any of its subsidiary banks.
Meridian's banking subsidiaries are required to maintain reserve balances
with the Federal Reserve. These balances totalled $245.8 million at December
31, 1995 and averaged $127.7 million for the year then ended.
134
<PAGE>
NOTE 8: EMPLOYEE BENEFIT PLANS
Pension Plans
Total pension expense for 1995, which includes several informal pension
arrangements in addition to the Meridian plan, was $3.9 million. Total pension
expense for 1994 and 1993 was $4.3 million and $2.9 million, respectively.
Net periodic pension expense (credit) of the Meridian plan includes the
following components:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1995 1994 1993
---- ---- ----
<S> <C> <C> <C>
Service Cost-Benefits
Earned During the Year $ 7,454 $ 8,743 $ 7,299
Interest Cost on Projected
Benefit Obligation 12,632 12,288 11,167
Actual Return on
Plan Assets (47,667) 4,425 (15,985)
Amortization of Unrecognized
Net Assets and Other
Deferred Amounts - Net 26,541 (21,859) (530)
-------- -------- --------
NET PERIODIC PENSION
EXPENSE (CREDIT) $ (1,040) $ 3,597 $ 1,951
======== ======== ========
</TABLE>
The following table sets forth the funded status of the Meridian plan and
amounts recognized in the Consolidated Balance Sheets at December 31.
<TABLE>
<CAPTION>
(Dollars In Thousands) 1995 1994
---- ----
<S> <C> <C>
Projected Benefit Obligation
Accumulated Benefit Obligation
Vested Benefits $136,265 $ 94,647
Non-Vested Benefits 9,084 5,969
Effect of Projected Future
Compensation Increases 53,497 42,276
-------- --------
PROJECTED BENEFIT OBLIGATION 198,846 142,892
Less Fair Value of Plan Assets 212,003 169,794
-------- --------
PLAN ASSETS IN EXCESS OF
PROJECTED BENEFIT OBLIGATION 13,157 26,902
</TABLE>
135
<PAGE>
<TABLE>
<S> <C> <C>
Less Unrecognized Net Gain Due
to Past Experience Different
from Assumptions Made 4,027 17,956
Less Unrecognized Net Transition Asset
Amortized Over Employee
Service Lives 3,021 3,877
------ -------
NET PENSION ASSET RECOGNIZED
IN BALANCE SHEET AT
DECEMBER 31 $6,109 $ 5,069
====== =======
</TABLE>
Net periodic pension expense is determined using certain assumptions as of
the beginning of the year whereas the funded status of the plan is determined
using assumptions as of the end of the year.
The discount rate used in determining the actuarial present value of
Meridian's projected benefit obligation was 7.0% in 1995, 8.25% in 1994, and
7.0% in 1993. The expected long-term rate of return on plan assets was 9.5% in
1995, 1994 and 1993. The rate of increase in future compensation levels was
5.3% in 1995, 1994 and 1993.
The assets of the Meridian plan are administered by Meridian Asset
Management, Inc., and consist primarily of common stock, fixed income securities
such as obligations of the United States government and corporations, and units
of certain common trust funds.
Meridian provides postretirement health care and life insurance plans to
its employees. The medical portion is contributory and life insurance coverage
is noncontributory to the participants. Effective January 1, 1993, Meridian
adopted Statement of Financial Accounting Standards No. 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions". The new accounting
rules require the accrual of the expected cost of these benefits over the period
the employee earns the benefits. Meridian elected to defer and amortize over 20
years the cumulative obligation for such benefits at the beginning of 1993.
The annual expense of Meridian's postretirement benefits other than
pensions under these new accounting rules was $2.7 million in 1995 and $4.6
million in 1994. The health care trend rate assumption used to determine
accumulated benefit obligations applicable to these benefits was 9.0% for 1996
decreasing over time to an annual rate of 5.5% and remaining at that level
thereafter. The discount rate used in determining the present value of the
projected benefit obligation was 7.0%.
136
<PAGE>
Net periodic expense of the Meridian postretirement healthcare and life
insurance plans includes the following components:
<TABLE>
<CAPTION>
(Dollars in Thousands) 1995 1994
------ ------
<S> <C> <C>
Service Cost-Benefits $ 653 $1,060
Earned During the Year
Interest Cost on Accumulated
Postretirement Benefit Obligation 1,688 2,100
Amortization of Unrecognized
Net Transition Obligation
Over 20 Years 824 1,440
------ ------
NET PERIODIC EXPENSE $3,165 $4,600
====== ======
</TABLE>
The following table sets forth the funded status of the Meridian
postretirement healthcare and life insurance plans and amounts recognized in the
Consolidated Balance Sheets at December 31. There are currently no plan assets
attributable to these postretirement benefits.
<TABLE>
<CAPTION>
(Dollars In Thousands) 1995 1994
------- -------
<S> <C> <C>
Accumulated Postretirement Benefit
Obligation $18,483 $30,274
Less Fair Value of Plan Assets - -
------- -------
ACCUMULATED BENEFIT OBLIGATION
IN EXCESS OF PLAN ASSETS 18,483 30,274
Plus Unrecognized Net Gain Due
to Past Experience Different
from Assumptions Made 5,802 1,983
Less Unrecognized Net Transition
Obligation 11,436 24,385
------- -------
NET LIABILITY RECOGNIZED IN BALANCE
SHEET AT DECEMBER 31 $12,849 $ 7,872
======= =======
</TABLE>
A change in the health care trend rate assumption of one percent would
increase annual service cost by approximately $5,000 and the accumulated
postretirement benefit obligation at December 31, 1995 by approximately $50,000.
Effective January 1, 1994, Meridian adopted Statement of Financial
Accounting Standards No. 112, "Employers' Accounting for Postemployment
Benefits". This statement establishes
137
<PAGE>
standards for employers who provide benefits to former employees after
employment but before retirement. Such benefits include, among other things,
severance, disability, and workers' compensation benefits. The implementation
of these new accounting rules resulted in a charge of $4.2 million ($2.7 million
after-tax or $.05 per share) in the first quarter of 1994. Total postemployment
benefits expense was $221 thousand for 1995.
Savings Plan
Meridian also offers a savings plan which covers substantially all
employees who qualify as to age and length of service. A participating employee
must contribute at least 1% and may contribute a maximum of 10% of his or her
compensation. Meridian will match up to the first 4% that each employee
contributes. In 1994 Meridian matched up to the first 6% that each employee
contributed. Investment options include Meridian common stock. Contributions
are charged to current expense. The total expense relating to the Meridian
savings plan was $5.0 million in 1995, $7.6 million in 1994, and $7.1 million in
1993.
Employee Stock Ownership Plan
Effective January 1, 1995, all employees of Meridian and its subsidiaries
with two years of service are participating in a non-contributory employee stock
ownership plan (ESOP). The ESOP is a leveraged plan and is funded through a
direct loan from Meridian. The ESOP has acquired a total of 2,000,000 shares of
Meridian common stock for distribution to eligible employees ratably over a 20
year period. Compensation cost will be recognized based on the fair market value
of the shares committed to be released to employees. Total compensation cost
recognized in 1995 was $3.6 million. No compensation cost was recognized in
1994. Dividends on allocated shares will be paid to participants and will be
charged to retained earnings. Dividends on unallocated shares and additional
cash contributions from Meridian will be used by the ESOP for debt service.
Stock Option Plan
Under Meridian's stock option plan, options to acquire a maximum of
3,500,000 shares of common stock may be granted to key officers. The plan
provides for the granting of options at the fair market value of Meridian's
common stock at the time the options are granted. Each option granted under the
plan may be exercised within a period of ten years from the date of the grant;
however, no option may be exercised within one year from the date of grant.
A stock appreciation rights (SARs) plan grants SARs in tandem with stock
option grants, up to a maximum of 750,000 units. The exercise of SARs reduces
the stock options otherwise exercisable;
138
<PAGE>
similarly, the exercise of stock options cancels the corresponding SARs. There
were no SARs outstanding at December 31, 1995.
Under Meridian's stock option plan, the exercisable option prices ranged
from $10.50 to $33.00 at December 31, 1995. An analysis of the activity in this
plan for the last three years follows:
<TABLE>
<CAPTION>
Number of Common Shares 1995 1994 1993
---------- ---------- ----------
<S> <C> <C> <C>
Outstanding, January 1 2,239,437 2,318,032 1,521,507
Granted 701,100 78,553 1,279,658
Exercised (876,053) (123,286) (468,463)
Lapsed (35,608) ( 33,862) ( 14,670)
--------- --------- ---------
Outstanding, December 31 2,208,876 2,239,437 2,318,032
========= ========= =========
Exercisable, December 31 1,339,876 2,206,937 1,770,632
========= ========= =========
</TABLE>
In October 1995, the Financial Accounting Standards Board issued SFAS No.
123, "Accounting for Stock-Based Compensation". This statement encourages the
adoption of fair value accounting for stock options issued to employees.
Further, in the event that fair value accounting is not adopted, the statement
requires proforma disclosure of net income and earnings per share as if fair
value accounting had been adopted. SFAS No. 123 is required to be adopted by
Meridian in 1996. Management currently expects that it will not adopt fair value
accounting for stock options issued to employees and, therefore, does not expect
the adoption of this statement to materially affect Meridian's results of
operations or financial condition.
139
<PAGE>
NOTE 9: LEASES
Meridian and its subsidiaries are committed under a
number of capital and non-cancelable operating leases for
facilities and equipment with initial or remaining terms in
excess of one year. The minimum annual rental commitments
under these leases at December 31, 1995 are as follows:
<TABLE>
<CAPTION>
Capital Operating
Leases Leases
-------- ---------
(Dollars in Thousands)
<S> <C> <C>
1996.......................... $3,659 $12,194
1997.......................... 2,980 9,758
1998.......................... 1,971 9,165
1999.......................... 1,629 8,214
2000.......................... 1,087 7,764
2001 and Subsequent........... 17,238 22,436
-------- --------
Total Minimum Lease
Payments.................... 28,564 $69,531
-------- ========
Amounts Representing
Interest.................... 14,617
--------
Present Value of Net Minimum
Lease Payments.............. $13,947
========
</TABLE>
Total rental expense for all operating leases for 1995, 1994 and 1993
amounted to $20.4 million, $21.7 million, and $20.5 million, respectively.
140
<PAGE>
NOTE 10: INCOME TAXES
The provision for income taxes consists of the following:
<TABLE>
<CAPTION>
1995 1994 1993
------------ ------------ --------------
<S> <C> <C> <C>
(Dollars in Thousands)
Current Expense - Federal.................................................... $92,941 $41,586 $57,017
State Expense................................................................ 3,463 2,607 2,677
Deferred Expense (Benefit) - Federal......................................... (11,767) 26,407 (626)
------------ ------------ --------------
Total Income Tax Expense..................................................... $84,637 $70,600 $59,068
============ ============ ==============
</TABLE>
Effective January 1, 1993, Meridian adopted Statement of Financial
Accounting Standards No. 109, "Accounting for Income Taxes" (SFAS No. 109),
which requires a change from the deferred method of accounting for income taxes
to the liability method. Under the liability method, deferred tax assets and
liabilities are recognized for future tax consequences attributable to temporary
differences between the financial statement and tax bases of existing assets and
liabilities. Deferred tax assets and liabilities are measured using enacted tax
rates expected to apply to taxable income in the years in which temporary
differences are expected to be recovered or settled. The effect on deferred tax
assets and liabilities of a change in tax rates is recognized in income in the
period that includes the enactment date of the rate change.
As permitted by SFAS No. 109, Meridian has elected not to restate the
financial statements of any prior years. The implementation of these new tax
accounting rules resulted in an increase in consolidated net income of $7.2
million in the first quarter of 1993. This amount represents the cumulative
effect of adopting SFAS No. 109 at the beginning of 1993.
At December 31, 1995, deferred tax assets amounted to $97.4 million and
deferred tax liabilities amounted to $67.0 million. No valuation allowance has
been established for deferred tax assets because managment believes that it is
more likely than not that the deferred tax assets will be realized. Deferred tax
assets are realizable primarily through carryback of existing deductible
temporary differences to recover taxes paid in prior years and through future
reversal of existing taxable temporary differences.
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<PAGE>
The effective tax rate is less than the federal statutory rate in each year as a
result of the following items:
(Dollars in Thousands)
<TABLE>
<CAPTION>
1995 1994 1993
--------------------- --------------------- ---------------------
% Of % Of % Of
Pre-Tax Pre-Tax Pre-Tax
Amount Income Amount Income Amount Income
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Federal Income Tax at Statutory Rate........................ $89,058 35.0% $81,441 35.0% $73,355 35.0%
Increase (Decrease) in Tax Rates Resulting from
Tax-Exempt Interest Income on Investment Securities....... (6,832) (2.7) (7,567) (3.3) (9,218) (4.4)
Tax-Exempt Interest Income on Loans....................... (3,684) (1.4) (3,768) (1.6) (5,022) (2.4)
Interest Disallowance on Tax-Exempt Assets................ 877 .4 945 .4 1,457 0.7
Non-deductible Merger Related Expenses.................... 3,500 1.4 0 0
Other, Net................................................ 1,718 .6 (451) (.2) (1,504) (0.7)
---------- ---------- ---------- ---------- ---------- ----------
Total Income Tax Expense.................................... $84,637 33.3% $70,600 30.3% $59,068 28.2%
========== ========== ========== ========== ========== ==========
</TABLE>
142
<PAGE>
The components of deferred tax assets and liabilities are as follows:
<TABLE>
<CAPTION>
December 31, 1995 1994
(Dollars in thousands) ____________ ____________
<S> <C> <C>
Deferred Tax Assets
Provision for Possible Credit Related Losses in Excess of Charge-offs...... $61,187 $61,065
Interest Income on Non-Accrual Loans....................................... 852 1,181
Deferred Compensation...................................................... 5,812 5,865
Deferred Fees for Financial Accounting Purposes
Recognized for Tax Purposes........................................... 7,726 7,653
Expense Accruals not Deductible Until Paid for Tax Purposes................ 16,280 3,793
Differences Related to Financial and Tax Treatment
of Other Real Estate Owned ........................................... 4,293 4,217
Other...................................................................... 1,242 348
------------ ------------
Total Deferred Tax Assets.................................................... 97,392 84,122
------------ ------------
Deferred Tax Liabilities
Differences Related to Financial and Tax
Treatment of Leasing Activities....................................... 33,687 29,832
Accelerated Tax Depreciation............................................... 14,229 13,442
Differences Related to Financial and Tax
Treatment of Investment Activities.................................... 960 4,812
Differences Related to Financial and Tax
Treatment of Mortgage Banking Operations.............................. 1,263 1,443
Expenses Accelerated for Tax Purposes...................................... 10,352 9,206
Other...................................................................... 6,497 6,750
------------ ------------
Total Deferred Tax Liabilities............................................... 66,988 65,485
------------ ------------
Net Deferred Tax Asset....................................................... $30,404 $18,637
============ ============
</TABLE>
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<PAGE>
NOTE 11: FAIR VALUES AND OTHER INFORMATION FOR FINANCIAL
INSTRUMENTS, INCLUDING DERIVATIVES
Statement of Financial Accounting Standards No. 105 "Disclosure of
Information about Financial Instruments with Off-Balance Risk and Financial
Instruments with Concentrations of Credit Risk", Statement No. 107 "Disclosures
about Fair Value of Financial Instruments" and Statement No. 119 "Disclosure
about Derivative Financial Instruments and Fair Value of Financial Instruments"
require the disclosure of estimated fair value of all asset, liability and off-
balance sheet financial instruments, including derivatives, in addition to risks
related to off-balance sheet instruments.
Fair value estimates of Meridian's financial instruments are made at a
point in time, based on relevant market information and available information
about the financial instrument. Fair values are based on quoted market prices
for financial instruments where prices exist in the market. In cases where
quoted market prices are not available, fair values are derived from estimates
using discounted cash flow or other valuation techniques. Because a quoted
market price does not exist for a significant portion of Meridian's financial
instruments, fair value estimates are based on judgments regarding future cash
flow expectations, perceived credit risk, interest rate risk, prepayment risk,
economic conditions, and other factors. The estimates are therefore subjective
and may not reflect the amount that could be realized upon immediate sale of the
instrument. Changes in the assumptions could also significantly affect the
estimates. Also, the estimates do not reflect any additional premium or
144
<PAGE>
discount that could result from the sale of Meridian's entire holdings of a
particular financial instrument.
Only existing on and off-balance sheet financial instruments are subject to
fair value estimates. A value is not assigned to fee-based businesses such as
Meridian's asset management and trust operations. In addition, Meridian
retains demand and savings deposits which aggregated $7.3 billion or 65% of all
deposits at December 31, 1995. The value of such deposits results from the low-
cost funding provided by these liabilities as compared to other funding sources.
The substantial value of these deposits is not reflected in the fair value
estimates because it is not a requirement of SFAS 107. The value of other non-
financial instruments, such as property, plant and equipment is also not
considered. In addition, tax implications related to the realization of
unrealized gains and losses can significantly affect fair value and have not
been considered in these estimates.
Because of these reasons, the aggregate fair values presented are not meant
to represent an estimate of the underlying value of Meridian taken as a whole at
December 31, 1995 and 1994. The carrying and estimated fair values of financial
instruments of Meridian are as follows:
145
<PAGE>
<TABLE>
<CAPTION>
1995 1994
---- ----
Carrying/ Carrying/
Notional Estimated Notional Estimated
(in thousands) Amount Fair Value Amount Fair Value
--------- ---------- --------- ----------
<S> <C> <C> <C> <C>
TRADING FINANCIAL INSTRUMENTS
- -----------------------------
On-Balance Sheet Financial Assets
- ---------------------------------
Mortgage Loans $64,244 $64,244 $285,975 $285,975
Investment Securities 81,638 81,638 60,195 60,195
Off-Balance Sheet Financial Instruments
- ---------------------------------------
Derivatives
- -----------
Commitments to Purchase and
Sell Mortgages $139,803 ($125) $120,817 ($150)
NONTRADING FINANCIAL INSTRUMENTS
- --------------------------------
On-Balance Sheet Financial Assets
- ---------------------------------
Cash and Due from Banks $839,010 $839,010 $669,642 $669,642
Short-term Investments 72,530 72,530 220,418 220,418
Investment Securities 1,338,548 1,343,170 2,872,419 2,753,307
Investment Securities Available 1,289,570 1,289,570 434,994 434,994
for Sale
Loans and Other Assets 124,592 124,592 90,590 90,590
Held for Sale
Loans, Net 9,614,337 9,861,665 9,322,365 9,323,043
Other Assets 136,631 136,631 129,256 129,254
On-Balance Sheet Financial
Liabilities
- --------------------------
Demand and Savings
Deposits $7,265,418 $7,265,418 $7,656,291 $7,656,291
Time Deposits 3,884,428 3,898,015 3,723,276 3,612,024
</TABLE>
146
<PAGE>
<TABLE>
<S> <C> <C> <C> <C>
Short-Term Borrowings 1,518,181 1,518,181 1,812,566 1,812,566
Long-Term Debt and Other 500,192 512,841 358,529 334,919
Borrowings
Accrued Interest Payable 82,438 82,438 62,344 62,344
</TABLE>
Certain non-financial assets and liabilities as defined in SFAS 107 have not
been included in the accompanying table. Therefore, loans and long-term debt
will not agree to the Consolidated Balance Sheet.
<TABLE>
<S> <C> <C> <C> <C>
Off-Balance Sheet Financial Instruments
- ---------------------------------------
Derivatives
- -----------
Commitments to Purchase and
Sell Mortgages and Securities
(Including Forward Rate
Agreements) $ 150,904 $ 1,814 $ 134,869 ($506)
Tender Option Bonds 208,103 4,995 255,948 5,709
Treasury Float Contracts 623,738 884 1,021,075 4,345
Interest Rate Swap Agreements 2,175,038 7,655 2,893,000 (100,906)
Purchased Interest Rate Floors 725,000 (1) 20,786 500,000 73
Caps Written as Part of
Interest Rate Collars 200,000 1,363 ------ ------
Interest Rate Caps and Floors 188,322 ------ 267,103 ------
for Customers
Other Interest Rate Contracts 33,734 0 32,308 (20)
Other
- -----
Commitments to Extend Credit $ 4,187,960 ($958) $3,686,257 ($832)
Standby and Commercial Letters 597,145 (4,943) 514,697 (4,915)
of Credit
Mortgage Loans Sold and Loan
Servicing Acquired with
Recourse 427,798 (12,041) 533,438 (11,500)
</TABLE>
(1) Includes $200,000 of floors purchased as part of interest rate collars.
147
<PAGE>
The following methods and assumptions were used by Meridian in estimating the
fair value of its financial instruments:
Cash and Due from Banks. The carrying amounts reported in the balance sheet
approximate fair value due to the short-term nature of these assets.
Short-Term Investments. The carrying amounts of short-term investments on
the balance sheet approximate fair value since the maturity of these
instruments is generally 90 days or less. For short-term investments with
maturities of greater than 90 days, fair value estimates are based on market
quotes for similar instruments, adjusted for such differences between the quoted
instruments and the instruments being valued as to maturity and credit quality.
Trading Account Assets. Trading account assets are marked-to-market for
financial reporting purposes and therefore already approximate fair value. The
fair value of investment securities held for trading are based on quoted market
prices. The fair value of mortgage loans held for trading are based on market
prices for comparable instruments, adjusted for differences between the two
instruments such as credit quality.
Investment Securities and Investment Securities Available for Sale. The fair
values of investment securities and investment securities available for sale are
based on quoted market prices as of the balance sheet date. For certain
instruments, fair value is estimated by obtaining quotes from independent
securities dealers.
In accordance with SFAS No. 115, investment securities available for sale are
marked-to-
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<PAGE>
market for financial reporting purposes and therefore already approximate fair
value.
Loans. Fair values are estimated for portfolios of loans with similar
financial characteristics. Loans are aggregated by commercial, residential real
estate, and consumer categories. Each loan portfolio is further classified by
variable rate or fixed rate loans and by performing or nonperforming loans.
For performing variable-rate loans, carrying amounts approximate fair value,
as these loans reprice frequently as market rates change. Additionally, most
variable rate commercial loans are reviewed and extended on at least an annual
basis. At the time of that review, these loans are repriced to reflect the
current credit risk inherent in the loan. For performing fixed-rate loans, the
fair value methodology varies according to each loan portfolio. Fair values for
residential real estate and consumer loans are estimated using quoted market
prices, where available. Where quoted market prices are not available,
quotations are obtained for similar instruments and adjusted for such
differences in loan characteristics as maturity and credit quality. The fair
value of performing fixed-rate commercial loans is estimated by discounting the
expected cash flows by a discount rate that reflects the interest rate and
credit risk inherent in the loan. The estimated maturity of these loans
reflects both contractual maturity and management's assessment of prepayments,
economic conditions, and other factors that may affect the maturity of the
portfolio. The discount rate is based on the rate that would be currently
offered for loans with similar terms to borrowers of similar credit quality.
Nonperforming loans are included in each of the loan portfolios previously
described. The fair
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<PAGE>
value of nonperforming loans is estimated by discounting the expected return of
principal over the period of time Meridian anticipates receiving principal
payments on the loan. The discount rate used is a rate reflective of the higher
risk surrounding these assets compared to a performing loan.
Accrued Interest Receivable and Other Assets. The carrying value of certain
financial instruments included in these categories, such as accrued interest
receivable, approximates fair value. For other financial instruments, such as
assets related to servicing certain loans, fair value is estimated by
discounting the scheduled cash flows through estimated maturity by a discount
rate that reflects the interest rate and credit risk inherent in the instrument.
Deposits. The fair value of deposits with no stated maturity, such as non-
interest bearing deposits, NOW accounts, savings, and money market deposit
accounts, is the amount payable on demand as of year end.
For time deposits, fair value is estimated by discounting the contractual
cash flows using a discount rate equal to the incremental borrowing rate for
similar maturities.
Short-Term Borrowings. The carrying values of federal funds purchased,
securities sold under agreements to repurchase, and other short-term borrowings
approximate fair values.
Long-Term Debt and Other Borrowings. The fair values of long-term debt and
other borrowings are estimated by discounting the contractual cash flows for
each instrument. The discount rate applied is based on the current incremental
borrowing rates for similar arrangements with similar maturities.
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<PAGE>
Accrued Interest Payable and Other Liabilities. The carrying value of
certain financial instruments included in these categories, such as accrued
interest payable, approximates fair value.
Off-Balance Sheet Financial Instruments, Including Derivatives. Meridian uses
various off-balance sheet financial instruments, including derivatives, in
conducting its business activities and in managing its balance sheet risks. The
section of Management's Discussion and Analysis of Earnings and Financial
Position titled Derivatives on pages 13 through 19 contains additional
information on derivatives and is incorporated by reference into this Note 11.
The value of these instruments is based on the amount that Meridian would
either pay or receive to replace Meridian's position in these contracts. Fair
values for Meridian's off-balance sheet financial instruments are calculated
based on (1) market prices (forward rate agreements and interest rate swaps);
(2) market prices for comparable instruments, adjusted for differences between
the two instruments such as credit quality (mortgage loans sold or loan
servicing acquired with recourse, commitments to purchase or sell securities,
tender option bonds, treasury float contracts, purchased interest rate
contracts, interest rate collars and other interest rate contracts); and (3)
fees currently charged to enter into similar agreements, taking into account the
remaining term of the agreement and the present credit risk assessment of the
counterparty (commitments to extend credit and standby and commercial letters of
credit).
A discussion of each type of off-balance sheet financial instrument and its
related risks is as follows:
151
<PAGE>
.Meridian extends binding loan commitments to prospective borrowers. Such
commitments assure the borrower of financing for a specified period of time or
at a specified rate and usually require the payment of a fee. The risk to
Meridian in an undrawn loan commitment is limited by the terms of the contract.
For example, Meridian may not be obligated to advance funds if the customer's
financial condition deteriorates or if the customer fails to meet specific
covenants. An undrawn loan commitment represents both a potential credit risk
once the funds are advanced to the customer and liquidity risk since the
customer may demand immediate cash that would require a funding source.
Meridian's credit review and approval process for loan commitments is the same
as the process used for loans. In addition, Meridian's Credit Policy Committee
reviews customer requests for loan commitments and monitors outstanding
commitments on an ongoing basis. Meridian's current liquidity position
continues to satisfy its needs for funds. In addition, since a portion of these
loan commitments normally expire unused, the total amount of outstanding
commitments at any point in time will not require a funding source.
.Standby and commercial letters of credit are instruments issued by a bank
that represents an obligation to guarantee payments on certain transactions of
its customers. Meridian evaluates the creditworthiness of each of its letter of
credit customers, using the same review and approval process that is used for
loans. In addition, Meridian has established guidelines limiting the amount of
total outstanding standby letters of credit to a specified percentage of its
shareholders' equity. Compliance with these guidelines is monitored on a
monthly basis.
The amount of collateral received on loan commitments and on standby
letters of credit is dependent upon the individual transaction and the
creditworthiness of the customer.
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<PAGE>
. Meridian originates and sells residential mortgage loans as part of various
mortgage-backed security programs sponsored by United States government agencies
or government-sponsored agencies, such as the Government National Mortgage
Association, Federal Home Loan Mortgage Corporation and the Federal National
Mortgage Association. Certain sales and other servicing acquired are subject to
recourse provisions in the event of default by the borrower. Meridian provides
for potential losses against these mortgage-backed securities by establishing
reserves at the time of sale and evaluates the adequacy of these reserves on an
ongoing basis.
. Meridian has commitments to buy/sell mortgage-backed securities or loans
with delivery at a future date but typically within 120 days. The risk
associated with these instruments is one of interest rate risk. In a declining
interest rate environment, commitments to sell mortgage-backed securities or
loans will decline in value. In a rising interest rate environment, commitments
to buy mortgage-backed securities or loans will decline in value.
. Forward rate agreements are used in transactions with municipalities that
generally have a debt payment due in the future. Under these agreements,
Meridian agrees to deliver primarily securities, usually United States Treasury
securities, that will mature on or before the required payment date. The type
and associated interest rate of these securities is established when the
agreement is entered into.
The principal risk associated with forward rate agreements is interest rate
risk to the extent the required securities have not been purchased. If interest
rates fall, securities yielding the higher agreed upon fixed rate will be more
expensive for Meridian to purchase.
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<PAGE>
.Tender option bonds are also instruments associated with municipalities. A
municipality generally issues a tax-free, fixed rate, long-term security in
order to finance the origination of single family residential mortgages. The
municipality enters into a tender option bond program with Meridian, either
through a contractural arrangement or a tax-exempt trust structure which
converts the fixed rate long-term instrument into a variable rate short-term
product. Under the terms of this agreement, the municipality will pay a fixed
rate to Meridian over the life of the underlying bond. Meridian, in turn, pays
a short-term variable rate to the ultimate bondholder, who has the option to
sell the bonds back to Meridian. Meridian also receives the right to remarket
any purchased bonds at a short-term, tax-exempt, variable rate.
The risk to Meridian in tender option bonds is one of interest rate risk in
a rising rate environment. If interest rates increase, the rate paid on the
short-term instrument will also increase and the spread between the fixed rate
that Meridian receives and the short-term rate Meridian pays to bondholders will
decrease. If short-term rates exceed the fixed rate on the long-term
instrument, then the short-term instrument will be sold at a discount and
Meridian would incur a loss.
Meridian's position in forward rate agreements and tender option bonds is
sometimes hedged through the use of other interest rate sensitive financial
instruments such as options. In addition, these two instruments have interest
rate sensitivities that move in opposite directions. However, tender option
bonds have not been entered into as hedges of specific transactions.
.A treasury float contract is created because a municipality, which has
defeased a bond issue with government securities, has a mismatch in the timing
of the maturity of the securities and the
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<PAGE>
date the funds are needed to pay the debt service. Meridian will pay an up-
front fee for the right to sell government securities to the municipality,
generally at par. Meridian retains any profit between the sales price and the
price at which Meridian acquired the securities. The maximum risk of loss
cannot exceed the premium paid for these contracts which was $858 thousand at
December 31, 1995 and is included on the consolidated balance sheets.
.Interest rate swap agreements, the principal derivative product used by
Meridian, involve the exchange of fixed and floating rate interest payments
without the exchange of the underlying contractual or notional amounts. These
agreements are used as part of the asset and liability management process to
alter the repricing characteristics of a portion of the core deposit base. Risk
in these transactions involves the risk of counterparty nonperformance under the
terms of the contract. The notional or contract amount does not represent the
risks inherent in these agreements. The risk of loss can be approximated by
estimating the cost, on a present value basis, of replacing an instrument at
current market interest rates. Credit risk is managed by performing credit
reviews and through ongoing credit monitoring procedures.
.Purchased interest rate floors are also used as part of the asset and
liability management process to protect net interest income from the effects of
declining interest rates or a flattening of the yield curve. In an interest
rate floor contract, Meridian pays a premium to a counterparty for the right to
receive payments if interest rates associated with a particular index fall below
a predetermined level. Risk in these transactions involves the risk of
counterparty nonperformance under the terms of the contract. The notional or
contract amount does not represent the risks inherent in these agreements. The
maximum risk of loss cannot exceed the premium paid.
155
<PAGE>
.Interest rate collars are instruments whereby Meridian combines the
purchase of a floor with the sale of a cap to hedge against interest rates
movements. Payments would be received when market rates are below a
predetermined level and payments would be made when market rates are above a
predetermined level. Risk in these transactions involves the risk of
counterparty nonperformance under the terms of the contract and a rise in
interest rates above the predetermined cap.
.Interest rate options, caps, and floors involve the receipt of a fee by
Meridian in exchange for assumption of the risk of interest rate movements
beyond a predetermined level. Interest rate caps or floors are written to
enable customers to manage their interest rate risks.
156
<PAGE>
NOTE 12: COMMITMENTS AND CONTINGENCIES
Concentrations of Credit Risk
Loan concentrations are considered to exist when a multiple number of
borrowers are engaged in similar activities and have similar economic
characteristics which would cause their ability to meet contractual obligations
to be similarly impacted by economic or other conditions. At December 31, 1995,
Meridian's commercial loans and commitments did not have any industry
concentration or other known concentration that exceeded 10% of total loans and
commitments.
Legal
Meridian and certain of its subsidiaries were party (plaintiff or
defendant) to a number of lawsuits. While any litigation has an element of
uncertainty, management, after reviewing these actions with its legal counsel,
is of the opinion that the liability, if any, resulting from all legal actions
will not have a material effect on the consolidated financial condition or
results of operations of Meridian.
157
<PAGE>
NOTE 13: INDUSTRY SEGMENTS
Meridian operates principally in two business segments - banking and
securities (broker-dealer activities). Selected financial information for these
segments is as follows (ratios unaudited).
<TABLE>
<CAPTION>
(Dollars in Thousands)
Net Income Assets at December 31,
----------------------------------- -----------------------------
1995 1994 1993 1995 1994
-------- -------- -------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Banking....................................... $166,646 $155,650 $139,036 $14,425,635 $14,550,315
Securities (Broker-Dealer Activities)......... 3,168 3,708 18,725 332,591 502,332
-------- -------- -------- ----------- -----------
Consolidated ................................. $169,814 $159,358 $157,761 $14,758,226 $15,052,647
======== ======== ======== =========== ===========
Income before Restructuring
and Merger-Related Charges (net of taxes):
Banking..................................... $193,164 $150,411
Securities (Broker-Dealer Activities)....... 6,427 18,725
-------- --------
Consolidated ............................... $199,591 $169,136
======== ========
<CAPTION>
BANKING 1995 1994 1993
- ---------------------------------------------- -------- -------- --------
<S> <C> <C> <C>
Net Interest Income (1)....................... $626,188 $623,148 $629,887
Provision for Possible Loan Losses............ 39,498 28,147 57,635
Non-Interest Income........................... 205,710 185,812 204,474
Non-Interest Expenses......................... 526,607 536,155 573,698
Before Restructuring and
Merger-Related Charges.................... 491,197 536,155 556,198
Net Interest Margin (1)....................... 4.75% 4.85% 5.04%
Return on Average Assets...................... 1.17% 1.11% 1.01%
Before Restructuring and
Merger-Related Charges.................... 1.35% 1.11% 1.01%
Return on Average Equity...................... 13.61% 13.05% 12.60%
Before Restructuring and
Merger-Related Charges.................... 15.78% 13.05% 12.60%
Loans
Commercial.................................. 6,064,785 5,946,787 5,468,107
Real Estate-Residential..................... 1,297,353 1,217,142 993,459
Consumer.................................... 2,801,713 2,598,509 2,547,475
Deposits......................................11,149,846 11,335,103 11,268,615
Equity........................................ 1,288,005 1,204,767 1,171,435
Equity to Assets.............................. 8.93% 8.28% 8.52%
</TABLE>
(1) Taxable Equivalent Basis
<TABLE>
<CAPTION>
SECURITIES (BROKER-DEALER ACTIVITIES) 1995 1994 1993
- ---------------------------------------------- ------- ------- -------
<S> <C> <C> <C>
Net Revenues (1).............................. $55,544 $48,263 $77,376
Operating Expenses............................ 51,812 43,513 49,829
Before Restructuring Charges................ 46,797 43,513 49,829
Par Value of Bonds Underwritten............... 447,108 807,648 1,121,501
Number of Trades.............................. 39,176 32,350 42,548
Tender Option Bonds........................... 208,103 255,948 435,243
</TABLE>
(1) Gross revenues less interest expense.
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<PAGE>
Note 14. MERIDIAN BANCORP, INC.
(PARENT COMPANY ONLY)
Condensed Balance Sheets
<TABLE>
<CAPTION>
-------------------------------
December 31, 1995 1994
(Dollars In Thousands) ---------- ----------
<S> <C> <C>
Assets
Cash....................................... $10 $3
Short-Term Investments..................... 4,010 15,180
Investment in Subsidiaries
Banking................................... 1,360,813 1,237,526
Non-Banking............................... 90,092 127,843
Investment Securities Available for Sale... 98,332 -
Premises and Equipment..................... 11,655 12,493
Intercompany Note Receivable............... 80,993 83,155
Other Assets............................... 23,727 27,898
---------- ----------
Total Assets............................. $1,669,632 $1,504,098
========== ==========
Liabilities and Shareholders' Equity
Short-Term Borrowings...................... - $75,000
Long-Term Debt and Other Borrowings........ $325,034 174,464
Accrued Interest Payable................... 4,461 4,375
Other Liabilities.......................... 33,706 35,174
Shareholders' Equity....................... 1,306,431 1,215,085
---------- ----------
Total Liabilities and
Shareholders' Equity..................... $1,669,632 $1,504,098
========== ==========
</TABLE>
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<PAGE>
Condensed Statements of Income
<TABLE>
<CAPTION>
-------------------------------------------------------------
Year ended December 31, 1995 1994 1993
(Dollars in Thousands) ----------------- ---------------- -------------
<S> <C> <C> <C>
Income
Interest Income from Subsidiaries.................................. $10,297 $4,966 $4,570
Management Fees from Subsidiaries.................................. 33,010 35,822 57,383
Interest and Fees on Loans......................................... 224 224 4,160
Investment Securities Income....................................... 308 552 955
Net Securities Gains............................................... 2,574 261 607
Intercompany Service Fees.......................................... 74 616 578
Other Non-Interest Income.......................................... 205 - 1,414
----------------- ---------------- -------------
Total Income...................................................... 46,692 42,441 69,667
Expenses
Interest on Borrowings............................................. 20,651 14,021 12,489
Salaries and Benefits.............................................. 26,738 25,197 35,627
Net Occupancy Expense.............................................. 5,610 4,578 5,528
Equipment Expense.................................................. 2,028 2,520 3,446
Restructuring and Merger-Related Charges........................... 13,937 - -
Other Non-Interest Expenses........................................ 19,741 4,782 30,808
----------------- ---------------- -------------
Total Expenses.................................................... 88,705 51,098 87,898
----------------- ---------------- -------------
Loss Before Taxes and Earnings of Subsidiaries..................... (42,013) (8,657) (18,231)
Credit For Income Taxes............................................ (9,355) (1,602) (4,803)
----------------- ---------------- -------------
Loss Before Earnings of Subsidiaries............................... (32,658) (7,055) (13,428)
Dividend Income from Subsidiaries
Banking Subsidiaries.............................................. 97,035 141,150 68,101
Non-Banking Subsidiaries.......................................... 1,600 7,200 850
Undistributed Earnings of Subsidiaries............................. 103,837 20,793 100,753
----------------- ---------------- -------------
Income Before Cumulative Effect of Changes in
Accounting Principles............................................ 169,814 162,088 156,276
Cumulative After-Tax Effect of Changes in
Accounting Principles............................................ - (2,730) 1,485
----------------- ---------------- -------------
Net Income......................................................... $169,814 $159,358 $157,761
================= ================ =============
</TABLE>
160
<PAGE>
Condensed Statements of Cash Flows
<TABLE>
<CAPTION>
----------------- ----------------- -----------------
Year ended December 31, 1995 1994 1993
----------------- ----------------- -----------------
(Dollars in Thousands)
<S> <C> <C> <C>
Cash Flows from Operating Activities
Net income.................................................. $169,814 $159,358 $157,761
Adjustments to Reconcile to Net Cash Provided by
Operating Activities
Earnings of Subsidiaries.................................. (202,472) (169,143) (169,704)
Cash Dividends Received from Subsidiaries................. 98,635 148,350 68,951
Cumulative Effect of Changes in Accounting Principles..... - 2,730 (1,485)
Depreciation and Amortization............................. 4,958 5,372 5,309
Other, Net................................................ 3,441 1,892 (2,072)
Decrease (Increase) in Other Operating Assets............. 938 31,817 (23,253)
Increase (Decrease) in Other Operating Liabilities........ (1,382) (19,286) 29,536
----------------- ----------------- -----------------
Net Cash Provided by Operating Activities............. 73,932 161,090 65,043
----------------- ----------------- -----------------
Cash Flows from Investing Activities
Sales of Investment Securities.............................. - - 64,508
Purchase of Investment Securities........................... - - (1,529)
Purchases of Investment Securities Available for Sale....... (98,292) - -
Capital Contributions and Advances to Subsidiaries.......... (122,590) (229,684) (53,036)
Repayment of Advances to Subsidiaries....................... 144,557 112,778 -
Purchases of Premises and Equipment......................... (913) (863) (3,803)
Proceeds from Sales of Premises and Equipment............... 143 917 19
----------------- ----------------- -----------------
Net Cash Provided by (Used for) Investing Activities.. (77,095) (116,852) 6,159
----------------- ----------------- -----------------
Cash Flows from Financing Activities
Cash Dividends Paid to Common Shareholders.................. (81,115) (77,303) (69,635)
Proceeds from issuances of Common Stock..................... 15,473 2,082 16,242
Purchases of Treasury Stock and ESOP Shares................. (16,503) (54,834) -
Funds Transferred to Trust for Future ESOP Purchases........ - (24,432) -
Proceeds from Borrowings.................................... - 75,000 -
Repayment of Long-Term Debt and Other Borrowings............ (75,078) (80) (43)
Proceeds from Issuance of Long Term Debt.................... 149,223 - -
----------------- ----------------- -----------------
Net Cash Used for Financing Activities................ (8,000) (79,567) (53,436)
----------------- ----------------- -----------------
Cash and Cash Equivalents
Net Increase (Decrease) During the Year..................... (11,163) (35,329) 17,766
Balance at Beginning of Year................................ 15,183 50,512 32,746
----------------- ----------------- -----------------
Balance at End of Year...................................... $4,020 $15,183 $50,512
================= ================= =================
</TABLE>
Interest payments totaled $20,565, $13,616 and $10,682 in 1995, 1994 and 1993,
respectively. Noncash financing activity consists of stock and warrants
aggregating $6,972 in 1994 and stock of $20,063 in 1993 issued as a result of
mergers. Income tax payments were $43 in 1995 and refunds were $626 in 1994.
161
<PAGE>
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE
None.
PART III
ITEM 10. DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
The name, age, term of office and principal occupation for the last five
years for each director is set forth below.
<TABLE>
<C> <C> <S>
DeLight E. Breidegam, Jr. 69 Director since November 13, 1984. Chairman,
East Penn Mfg. Co., Inc. (battery
manufacturer).
Thomas F. Burke, Jr. 49 Director since August 31, 1993. Attorney.
Director of Commonwealth Bancshares
Corporation until August 31, 1993.
President, The First Bank of Greater Pittson
until December 31, 1991.
Robert W. Cardy 59 Director since April 20, 1993. Chairman,
President, Chief Executive and Director,
Carpenter Technology Corp. (specialty steel
and alloys manufacturer) since July 1, 1992;
prior thereto, President, Chief Operating
Officer and Director, Carpenter Technology
Corp. from November 1, 1990.
Harry Corless 67 Director since April 25, 1989. Retired
Chairman, ICI Americas Inc. (chemical
manufacturer) since August 1989; prior
thereto, Chairman and Chief Executive, ICI
Americas Inc. from April 1986. Also a
director of Nalco Chemical Company and
Uniroyal Chemical Corporation.
William D. Davis 64 Director since August 31, 1993. Vice
Chairman of Pennsylvania Enterprises, Inc.
</TABLE>
162
<PAGE>
<TABLE>
<C> <C> <S>
(utility holding company) since June 1991;
Director of Pennsylvania Enterprises, Inc.
since 1981. Chairman, Chief Executive
Officer and Director, Commonwealth
Bancshares Corporation until August 31,
1993. Chairman, Commonwealth Bank until
August 31, 1993.
Julius W. Erving 46 Director since September 24, 1987.
President, The Erving Group and Dr. J.
Enterprises; part-owner, Philadelphia Coca-
Cola Bottling Company and Television Station
WKBW, Buffalo, New York. Member,
Philadelphia 76'ers basketball team until
April 1987. Also a director of Converse,
Inc.
Fred D. Hafer 55 Director since October 27, 1988. President,
Chief Operating Officer and Director,
Metropolitan Edison Company (electric
utility). President, Chief Operating
Officer and Director, Pennsylvania Electric
Co. Also a director of GPU Service
Corporation, GPU Nuclear Corporation, and
Utilities Mutual Insurance Company.
Edward J. Hobbie 58 Director since February 23, 1996. Director
of United Counties Trust Corporation until
February 23, 1996. Principal, Chamberlin &
Hobbie (law firm).
Lawrence C. Karlson 53 Director since September 23, 1991.
Chairman, President and Chief Executive
Officer, Karlson Corporation (private
holding company) since 1986. Also a
director of ABB Industrial Systems, Berwind
Industries, Inc., CDI Corp., ABB Robotics,
Inc., Vidar Systems, Inc., Harris Group,
Inc., and Amerisource Corporation. Also,
Retired
</TABLE>
163
<PAGE>
<TABLE>
<C> <C> <S>
Chairman, Spectra Physics AB (Stockholm)
(group of high technology companies) from
1990 to 1993.
Ezekiel S. Ketchum 60 Director since September 11, 1984.
President and Chief Operating Officer,
Meridian from February 1988 to May 1, 1995;
prior thereto, Vice Chairman, Meridian from
September 1984; President and Chief
Executive Officer, Meridian Bank since April
1991; prior thereto, President, Meridian
Bank (and its predecessor) since April 1982.
Sidney D. Kline, Jr. 64 Director since June 30, 1983. Chairman and
Co-Manager, Stevens & Lee (law firm).
George W. Leighow 61 Director since August 31, 1993.
Veterinarian and owner of Leighow Veterinary
Hospital. Director of Commonwealth
Bancshares Corporation until August 31,
1993.
Samuel A. McCullough 57 Director since June 30, 1983. Chairman and
Chief Executive Officer, Meridian since
February 1988; prior thereto, President and
Chief Executive Officer, Meridian from June
1983; Chairman of Meridian Bank (and its
predecessor American Bank and Trust Co. of
Pa.) since April 1982. Also a director of
Fidelity National Financial, Inc.
Joseph F. Paquette, Jr. 61 Director since April 24, 1990. Chairman
and Director, PECO Energy (electric and gas
utility) since April 1995; prior thereto,
Chairman, Chief Operating Officer and
director since April 1988.
</TABLE>
164
<PAGE>
<TABLE>
<C> <C> <S>
Daniel H. Polett 60 Director since November 13, 1984. Chairman,
Wilkie Buick Chevrolet Subaru (automobile
dealership) and owner operator of various
other automobile dealerships and related
businesses.
Lawrence R. Pugh 63 Director since January 23, 1986. Chairman,
Chief Executive Officer and Director, VF
Corp. (apparel manufacturer). Also a
director of Black & Decker, Inc., Unum
Corporation and Mercantile Stores Company,
Inc.
Paul R. Roedel 68 Director since June 30, 1983. Retired
Chairman and Chief Executive Officer,
Carpenter Technology Corp. (specialty steel
and alloys manufacturer) since June 30,
1992; prior thereto, Chairman and Chief
Executive Officer, Carpenter Technology
Corp. from July 1987; Director, Carpenter
Technology Corp. since 1973. Also a
director of General Public Utilities
Corporation and P. H. Glatfelter Co.
Wilmer R. Schultz 69 Director since November 13, 1984.
President, Wilmer R. Schultz, Inc. (general
contractors).
Robert B. Seidel 69 Director since June 30, 1983. Retired
Chairman, American Manufacturing Corporation
(private holding company) since April 1991;
prior thereto, Chairman, American
Manufacturing Corporation from March 1983.
Also a director of United National Insurance
Company.
David E. Sparks 51 Director since April 20, 1993. Vice
Chairman and Chief Financial Officer of
Meridian and Meridian Bank since February,
1991. Prior thereto, Vice Chairman,
Treasurer and Chief Financial
</TABLE>
165
<PAGE>
<TABLE>
<C> <C> <S>
Officer of Meridian and Meridian Bank from
February 1990; prior thereto, Executive Vice
President, Midlantic Corporation from March
1985.
George Strawbridge, Jr. 58 Director since January 1, 1988. Private
investor; owner and President, Augustin
Stables (sole proprietorship); adjunct
professor of Latin American History and
Political Science, Widener University. Also
a director of Delaware Trust Company and
Campbell Soup Company.
Anita A. Summers 70 Director since February 27, 1987. Professor
Emerita, Department of Public Policy and
Management, Wharton School, University of
Pennsylvania, and Senior Research Fellow,
Wharton Real Estate Center, University of
Pennsylvania. Also, Chairman of the Board
of Directors of Mathematica Policy Research,
Inc.
Judith M. von Seldeneck 55 Director since June 30, 1983. Chief
Executive Officer, The Diversified Search
Companies (executive search firm). Also a
director of Keystone Corporation and Tasty
Baking Company.
Earle A. Wootton 51 Director since August 31, 1993. President,
Montrose Publishing Company, Inc. since
1974. Director, Commonwealth Bancshares
Corporation until August 31, 1993 and County
National Bank from 1979 to 1991. Also a
director of Greenfield Printing and
Publishing Company, Inc.
</TABLE>
_____________________________
166
<PAGE>
Information regarding executive officers of the Registrant is presented in
Part I, Item 4A of this Form 10-K.
ITEM 11. EXECUTIVE COMPENSATION
Compensation Paid to Executive Officers
The following table sets forth information for each of the three years
ended December 31, 1995 concerning the annual and long-term compensation for
services in all capacities to the Registrant of those persons who were (i) the
chief executive officer of the Registrant during the fiscal year ended December
31, 1995, or (ii) the other four most highly compensated executive officers of
the Registrant serving at December 31, 1995. There were no other executive
officers for whom disclosure would have been provided but for the fact that such
individuals were not serving at the end of the 1995 fiscal year.
Summary Compensation Table
<TABLE>
<CAPTION>
Long Term Compensation
---------------------------------------------------
Annual Compensation Awards Payouts
-------------------------------------------- ------------------------- -------
Securities
Name Other Restricted Underlying
and Annual Stock Options/ LTIP All Other
Principal Salary Bonus Compensation Award(s) SARs(3) Payouts Compensa-
Position Year ($) ($)(1) ($) (2)($) (#) (4)($) tion(4)(5)
-------- ---- ------ -------- ------------ -------- ---------- ------ ----------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Samuel A. McCullough 1995 $600,000 $526,654 $ 0 $ 0 0 $ 0 $24,000
Chairman and Chief 1994 600,000 125,122 0 0 50,000 0 36,000
Executive Officer 1993 600,000 308,500 0 0 40,000 0 36,000
David E. Sparks 1995 330,000 224,928 0 0 0 0 13,200
Vice Chairman and 1994 330,000 58,152 0 0 25,000 0 19,800
Chief Financial 1993 300,000 115,500 0 0 20,000 0 18,000
Officer
William M. Fenimore, Jr. 1995 250,000 153,157 0 0 10,300 0 10,585
Group Executive 1994 250,000 19,231 0 0 15,000 0 1,721
Vice President 1993 - - - - - - -
George W. Grosz 1995 250,000 130,288 0 0 0 0 10,585
President and CEO, 1994 250,000 43,030 0 0 15,000 0 1,286
Meridian Asset 1993 - - - - - - -
Management, Inc.
P. Sue Perrotty 1995 235,000 143,968 0 0 0 0 9,400
Group Executive 1994 235,000 73,063 0 0 15,000 0 12,000
Vice President 1993 170,000 63,903 0 0 9,000 0 10,200
</TABLE>
(1) Includes (i) amounts paid under the Registrant's Executive Incentive Plan,
(ii) a special one-time bonus related to the Registrant's 59.9 expense
reduction program, and (iii) a special one-time bonus of one week of base
salary paid to all employees of the Registrant.
(2) The Registrant does not have a restricted stock award program.
167
<PAGE>
(3) Indicates number of shares for which options were granted during the
applicable period. The Registrant's Stock Option Plan is designed to grant
options on an annual basis. Grants of options are normally made at the end
of each year, and therefore occur in December or January. Grant information
for 1995 represents 1995 grants made in January 1996. Grant information for
1994 represents 1994 grants made in January 1995. Grant information for
1993 represents 1993 grants made in December 1993. No SARs or SARS granted
in tandem with stock options were awarded during any of the periods
indicated.
(4) The Registrant's only long-term incentive plan, other than the Stock Option
Plan, is the three-year Executive Intermediate Performance Plan. The
three-year cycles completed in 1993, 1994 and 1995 did not meet threshold
performance, and therefore there was no award under the Plan for these
years. Threshold and target financial performance for each cycle since the
commencement of the Plan, including the cycle commencing in 1995, have been
a return on equity of 15% and 16%, respectively.
(5) Amounts include (i) contributions to the Registrant's "thrift type" 401(k)
Savings Plan on behalf of each of the named executive officers to match
pre-tax elective deferral contributions (which are included under Salary)
made by each such officer to the Savings Plan (Mr. Sparks--$9,240; and
Ms. Perrotty--$9,240) and (ii) matching contributions credited under the
Registrant's Supplemental Salary Reduction Plan (Mr. McCullough--$24,000;
Mr. Sparks--$3,960; Mr. Fenimore--$10,584; Mr. Grosz--$10,584; and
Ms. Perrotty--$159), which is an unfunded plan which allows participants
who are adversely affected by salary reduction limitations imposed for
401(k) plans to reduce their salaries by the additional pre-tax amounts
that would be permitted in the absence of such limitations.
The following table sets forth information concerning grants of stock
options for the fiscal year ended December 31, 1995 to the named executive
officers.
Option/SAR Grants in Last Fiscal Year
<TABLE>
<CAPTION>
Individual Grants
---------------------------------------------------
Number of % of Total Potential Realizable
Securities Options/ Value at Assumed
Underlying SARs Annual Rates of
Options/ Granted to Exercise Price Appreciation
SARs Employees or Base for Option Term
Granted(1) in Fiscal Price(2) Expiration --------------------
Name (#) Year ($/Sh) Date 5%(%)(3) 10%($)(3)
---- ---------- ----------- -------- ---------- -------- ---------
<S> <C> <C> <C> <C> <C> <C>
Samuel A. McCullough 0 - - - - -
David E. Sparks 0 - - - - -
William M. Fenimore, Jr. 10,300 2.64% $46.50 2/23/06 $301,209 $763,323
George W. Grosz 0 - - - - -
P. Sue Perrotty 0 - - - - -
</TABLE>
168
<PAGE>
(1) All amounts represent nonqualified stock options; no SARs or SARs granted
in tandem with options were granted during 1995. Terms of outstanding
options are for a period of ten years and one month from the date the
option is granted. An option may only be exercised after the holder has
been an employee of the Registrant or one of its subsidiaries for one full
year from the date the option is granted or one full year from the date the
employee's employment is terminated "at the convenience of the employer,"
except that options become immediately exercisable upon a "change of
control" and the Committee of the Board which administers the Plan has
discretion to waive the one-year continuous employment requirement.
Options are not exercisable following an optionee's voluntary termination
of employment other than by reason of retirement or disability.
(2) Under the terms of the Plan, the exercise price per share must equal the
fair market value on the date the option is granted. The exercise price
may be paid in cash, in shares of common stock valued at fair market value
on the date of exercise or pursuant to a cashless exercise procedure under
which the optionee provides irrevocable instructions to a brokerage firm to
sell the purchased shares and to remit to Registrant, out of the sale
proceeds, an amount equal to the exercise price plus all applicable
withholding taxes.
(3) The dollar amounts set forth under these columns are the result of
calculations made at the 5% and 10% appreciation rates set forth in
Securities and Exchange Commission regulations and are not intended to
indicate future price appreciation, if any, of Registrant's common stock.
The following table sets forth information concerning the exercise of
options to purchase the Registrant's common stock by the named executive
officers during the fiscal year ended December 31, 1995 as well as the number of
securities underlying unexercised options and potential value of unexercised
options (both options which are presently exercisable and options granted in
1995 which are not presently exercisable) as of December 31, 1995.
169
<PAGE>
Aggregated Option/SAR Exercises in Last Fiscal Year
and Fiscal Year-End Option/SAR Value(1)
<TABLE>
<CAPTION>
Number of Value of
Securities Unexercised
Underlying In-the-Money
Options/SARs at Options/SARs at
Fiscal Fiscal Year-
Year-End (#) End ($)(3)
Shares Acquired Value Realized Exercisable/ Exercisable/
Name on Exercise (#) ($)(2) Unexercisable Unexercisable
---- --------------- ---------- --------------- ---------------
<S> <C> <C> <C> <C>
Samuel A. McCullough 67,053 $1,550,781 201,600/0 $3,927,150/$0
David E. Sparks 41,000 971,294 65,000/0 1,142,500/0
William M. Fenimore, Jr. 15,000 251,250 15,000/10,300 285,000/0
George W. Grosz 10,000 155,000 15,000/0 285,000/0
P. Sue Perrotty 0 0 44,800/0 909,600/0
</TABLE>
_________________________
(1) All amounts represent stock options. No SARs or SARs granted in tandem
with stock options were either exercised during 1995 or outstanding at
fiscal year-end 1995.
(2) Represents the aggregate market value of the underlying shares of common
stock at the date of exercise minus the aggregate exercise prices for
options exercised.
(3) "In-the-money options" are stock options with respect to which the market
value of the underlying shares of common stock exceeded the exercise price
at December 31, 1995. The value of such options is determined by
subtracting the aggregate exercise price for such options from the
aggregate fair market value of the underlying shares of common stock on
December 31, 1995.
Pension Plan
The following table indicates, for purposes of illustration, the
approximate amounts of annual retirement income which would be payable under the
terms of the Registrant's Retirement Plan, in the form of a straight life
annuity, to a participant who retired as of December 31, 1995, at age 65, under
various assumptions as to compensation and years of credited service. The
benefit amounts set forth below are not subject to further reduction for Social
Security or other offset amounts.
<TABLE>
<CAPTION>
Years of Credited Service
Average -----------------------------------------------------------------
Compensation 15 20 25 30 35
- ------------ ------ ------ ------ ------ ------
<S> <C> <C> <C> <C> <C>
$150,000 40,684 54,245 67,806 75,306 82,806
200,000 55,685 74,246 92,808 102,808 112,808
250,000 70,682 94,243 117,804 130,304 142,804
300,000 85,684 114,245 142,806 157,806 172,806
350,000 100,685 134,246 167,808 185,308 202,808
400,000 115,682 154,243 192,804 212,804 232,804
450,000 130,684 174,245 217,806 240,306 262,806
500,000 145,685 194,246 242,808 267,808 292,808
550,000 160,682 214,243 267,804 295,304 322,804
600,000 175,684 234,245 292,806 322,806 352,806
650,000 190,685 254,246 317,808 350,308 382,808
</TABLE>
170
<PAGE>
The 1995 compensation covered by the Meridian Retirement Plan for Messrs.
McCullough, Sparks, Fenimore, Grosz and Ms. Perrotty was $650,000, $380,000,
$300,000, $300,000 and $285,000, respectively. Such covered compensation
consists of (i) base salary and (ii) variable compensation (which includes
bonuses and any other incentive compensation) not to exceed $50,000 (the Salary
and Bonus columns included in the Summary Compensation Table). As of December
31, 1995, Messrs. McCullough, Sparks, Fenimore, Grosz and Ms. Perrotty had
accrued 20.25, 11, 1.33, 2.0 and 14.42 years of credited service, respectively,
under the Retirement Plan for benefit accrual purposes.
The Internal Revenue Code of 1986, as amended (the "Code"), limits the
annual benefits which may be paid from a tax-qualified retirement plan. As
permitted by the Employee Retirement Income Security Act of 1974, as amended,
the Registrant has supplemental plans which authorize the payment out of general
funds of the Registrant of any benefits calculated under provisions of the
applicable retirement plan which may be above the limits or otherwise prohibited
under these sections. Amounts payable pursuant to these plans in excess of such
Code limitations are included in the table set forth above.
Executive Change in Control Agreements
Prior to the execution of the CoreStates Merger Agreement, four executive
officers of the Registrant, Messrs. McCullough, Sparks, Grosz and Fenimore, were
parties to termination agreements. Under the terms of the CoreStates Merger
Agreement, Messrs. Fenimore and Grosz were to retain their existing termination
agreements, and Messrs. McCullough and Sparks were to enter into new termination
agreements. With the consent of CoreStates, Meridian will not enter into a new
termination agreement with Mr. McCullough, and Mr. McCullough will retain his
existing termination agreement. Mr. Sparks has not entered into a new
termination agreement as of March 31, 1996. Another executive officer of the
Registrant, Ms. P. Sue Perrotty, has entered into a new termination agreement
pursuant to the Merger Agreement.
In the event, and only in the event, an executive's employment is
terminated under the circumstances hereinafter described, each executive would
be entitled to receive cash payments ("Termination Payments"). The factors that
provide the basis for calculating Termination Payments could be determined only
as of the specific dates upon which any such payments were made. Under the
existing termination agreements for Messrs. McCullough, Fenimore and Grosz, and
the proposed termination agreement for Mr. Sparks (assuming a new termination
agreement is executed by Mr. Sparks in the form contemplated by the CoreStates
Merger Agreement), and the new termination agreement for Ms. Perrotty, if
Termination Payments were determined upon completion of the CoreStates Merger,
the total of such payments
171
<PAGE>
(exclusive of additional retirement benefits) to Messrs. McCullough, Sparks,
Fenimore, Grosz and Ms. Perrotty would be approximately $3,196,000, $1,742,000,
$766,000, $731,000, and $689,000 respectively. However, the foregoing
Termination Payments with respect to Mr. Sparks (assuming a new termination
agreement is executed by Mr. Sparks) and Ms. Perrotty would be limited to the
extent necessary to avoid application of the "golden parachute" deduction and
excise tax provisions of Sections 280G and 4999 of the Code.
The new termination agreement proposed for Mr. Sparks would have a three-
year term commencing upon completion of the Merger, and provides for severance
benefits for a period of three years in the event of the termination of the
executive's employment by CoreStates without "Cause" or by the executive with
"Good Reason" (as each such term is defined). Such severance benefits would
consist of (i) salary continuation (based on the highest salary during the year
of termination and the two-year period preceding the executive's termination);
(ii) annual payments of the greater of (A) the highest bonus paid in respect of
the year of termination or the preceding two years or (B) the highest bonus paid
with respect to calendar years 1992-1994; (iii) annual payments of the highest
amount contributed by the employer in the year of termination or the preceding
three years under any tax-qualified defined contribution plans, supplemental
salary reduction plan, defined contribution portion of a retirement restoration
plan and other nonqualified plans; (iv) accrual of additional benefits under any
tax-qualified defined benefit plan, supplemental retirement plan and defined
benefit portion of a retirement restoration plan based on the highest
compensation in the year of termination or the preceding three years; and (v)
continued participation in welfare benefit plans or tax-effected payments in
lieu thereof. The payments and benefits under this agreement would be limited
to the extent necessary to avoid application of the "golden parachute" deduction
and excise tax provisions of Sections 280G and 4999 of the Code. The new
termination agreement for Ms. Perrotty is similar to Mr. Sparks' proposed
agreement except that it provides, in general, for two years of payments and
benefits.
The existing termination agreements for Messrs. McCullough, Sparks,
Fenimore and Grosz are similar to the termination agreement described above
except that (i) such agreements do not contain the Code Sections 280G and 4999
limitation on the amount of payments and benefits and (ii) the agreements for
Messrs. Fenimore and Grosz provide, in general, for two years of payments and
benefits.
Performance Graph
Set forth below is a graph comparing the yearly percentage change in the
cumulative total shareholder return on the Registrant's common stock against the
cumulative total return on the S&P Composite-500 Stock Index and the Keefe,
Bruyette &
172
<PAGE>
Woods, Inc. 50 Index (a market capitalization weighted bank stock index
comprised of all money-center and most regional banking institutions) for the
periods indicated. The graph assumes an initial investment of $100.00 with
dividends reinvested over the periods indicated.
[PERFORMANCE GRAPH APPEARS HERE]
December December December December December December
1990 1991 1992 1993 1994 1995
MERIDIAN $100 $243 $339 $316 $311 $559
S&P 500 100 130 140 155 157 215
KBW 100 158 202 213 202 324
Compensation Paid to Directors
All directors of the Registrant are also directors of Meridian Bank.
Directors of the Registrant who are not executive officers of the Registrant are
paid an annual retainer of $18,000 (including retainers paid by Meridian Bank).
The Boards of Directors of the Registrant and Meridian Bank meet concurrently
and directors receive an additional $1,000 for each such concurrent meeting and
for each Registrant or Meridian Bank committee meeting which they attend. Also,
the Chairman of each of the Audit, Compensation and Directors' Nominating
Committees of the Registrant receives an additional annual retainer of $5,000,
$3,000 and $2,000, respectively. Under a deferred compensation plan, directors
of the Registrant who are not employees of the Registrant may elect to defer,
with interest, all or part of their compensation for future distribution. In
addition to fees paid by the Registrant, Messrs. Corless and Strawbridge
received during 1995 fees for services as directors of Delaware Trust Company, a
subsidiary of the Registrant, in the amounts of $5,900 and $6,300, respectively.
The Registrant maintains a directors and officers liability insurance
policy with CNA Insurance Companies, Great American Insurance Co. and the Chubb
Insurance Group. The policy covers all directors, officers and employees of the
Registrant and its subsidiaries for certain liability, loss, damage and expense
173
<PAGE>
which they may incur in their capacities as such, at a premium cost to the
Registrant of approximately $604,000 per year.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
Principal Shareholders
The following table sets forth information, as of February 15, 1996, as to
beneficial owners, either directly or indirectly, of 5% or more of the
outstanding shares of common stock and as to the right and power of the
Registrant, directly or indirectly, to vote shares of common stock.
<TABLE>
<CAPTION>
Amount and
Nature of Percent
Name and Address of Beneficial of
Beneficial Owner Ownership Class
------------------- ------------ --------
<S> <C> <C>
George Strawbridge, Jr., Nina S.
Strawbridge and Barton J.
Winokur, as co-trustees under
a Deed of Trust of Mr. Strawbridge,
dated January 21, 1991............... 4,200,310(1) 7.16%
Building B, Suite 100
3801 Kennett Pike
Wilmington, DE 19807
Delaware Management Holdings, Inc...... 5,494,414(2) 9.36%
2005 Market Street
Philadelphia, PA 19103
Meridian Asset Management, Inc.,
Meridian Trust Company
and Delaware Trust Capital
Management, Inc.(3)(4) . . . . . 442,669(5) .7%
c/o Meridian Bancorp, Inc.
35 North Sixth Street
Reading, PA 19601
</TABLE>
____________________
(1) As reported in a Schedule 13D, dated March 28, 1991 (as amended May 15,
1991), filed by such persons with the Securities and Exchange Commission.
As reported, Mr. Strawbridge may be deemed to have sole voting and
dispositive power over all of such shares by virtue of his power to revoke
the trust, and Mrs. Strawbridge and Mr. Winokur may be deemed to share
voting and dispositive power over such shares by virtue of their positions
as trustees of such trust. Mrs. Strawbridge and Mr. Winokur each disclaims
beneficial ownership of all of the shares owned by the trust. Mrs.
Strawbridge may also be deemed to have sole voting and dispositive power
over an additional
174
<PAGE>
5,000 shares held by a revocable trust and to share voting and dispositive
power over 5,076 shares held in a fiduciary account for the benefit of her
minor son; Mrs. Strawbridge disclaims beneficial ownership of such 5,076
shares. Mr. Strawbridge may be deemed to share voting and dispositive
power over an additional 228,120 shares held by various trusts or fiduciary
accounts for the benefit of members of his family; Mr. Strawbridge
disclaims beneficial ownership of such 228,120 shares. Mr. Strawbridge
also owns an additional 263 shares jointly with his son for which he shares
voting and dispositive power.
(2) As reported as beneficially owned by Delaware Management Holdings, Inc. as
of December 31, 1995 in filings made with the Securities and Exchange
Commission. Of such shares, Delaware Management Holdings, Inc. reports
sole voting power over 397,065 shares, shared voting power over 4,540
shares, sole dispositive power over 5,317,314 shares, and shared
dispositive power over 177,100 shares.
(3) These shares were held of record by nominees for certain trust, estate and
agency accounts administered by Meridian Asset Management, Inc., Meridian
Trust Company and Delaware Trust Capital Management, inc.
(4) As of February 15, 1996, 1,916,410 shares of common stock (approximately
3.2% of outstanding shares of common stock) were held of record by a
nominee of Meridian Trust Company ("MTC"), trustee for the Meridian
Bancorp, Inc. Savings Plan. Under the terms of the Savings Plan, these
shares are voted in the manner directed by Savings Plan participants.
Shares held under the Savings Plan for which no direction is given for or
against all matters in the same proportion as shares held under the Savings
Plan are directed and voted for and against such matters.
As of February 15, 1996, 2,000,000 shares of common stock (approximately
3.4% of outstanding shares of common stock) were held of record by a
nominee for Meridian Trust Company, trustee for the Meridian Bancorp, Inc.
Employee Stock Ownership Plan (the "ESOP"). Under the terms of the ESOP,
shares held by the ESOP are allocated to individual employee accounts as
the debt incurred to purchase the shares is repaid. Once allocated to an
individual employee account, shares are voted in the manner directed by the
employee.
(5) Pursuant to the provisions of the applicable governing instruments and/or
in accordance with the applicable principles of fiduciary law, Meridian
Asset Management, Inc., Meridian Trust Company or Delaware Trust Capital
Management, Inc. has the right and power, exercisable either alone (10,108
shares or less than one percent of outstanding shares of common stock) or
in conjunction with a co-fiduciary (432,516 shares or less than one percent
of
175
<PAGE>
outstanding shares of common stock) to vote these shares in the manner
which is deemed to be in the best interests of any such trust, estate or
agency account and the beneficiaries or principals thereof.
Security Ownership of Management
The following table sets forth information concerning the number of shares
of common stock held as of February 15, 1996 by each director, each named
executive officer set forth in the Summary compensation tables included herein,
and all directors and executive officers as a group.
<TABLE>
<CAPTION>
Amount and Nature of Beneficial Ownership
---------------------------------------------------
Sole Shared
Total Voting or Voting or Percent
Name of Beneficial Dispositive Dispositive of
Beneficial Owner Ownership Power Power Class (1)
- ----------------------------- ------------- ----------- ----------- ---------
<S> <C> <C> <C> <C>
DeLight E. Breidegam, Jr. 8,128 300 7,828 ---
Thomas F. Burke, Jr. 13,431 6,356 7,075 ---
Robert W. Cardy 800 400 400 ---
Harry Corless 1,040 40 1,000 ---
William D. Davis 62,307 59,552 2,755 ---
Julius W. Erving 1,100 1,100 --- ---
William M. Fenimore, Jr. 27,412(2) 27,412 --- ---
George W. Grosz 17,023(2) 17,023 --- ---
Fred D. Hafer 3,119 --- 3,119 ---
Edward J. Hobbie 2,500 2,500 --- ---
Lawrence C. Karlson 15,535 15,535 --- ---
Ezekiel S. Ketchum 167,312(2) 151,629 15,683 ---
Sidney D. Kline, Jr. 13,123 11,855 1,268 ---
George W. Leighow 50,276 50,276 --- ---
Samuel A. McCullough 342,267(2) 342,057 210 ---
Joseph F. Paquette 3,000 --- 3,000 ---
P. Sue Perrotty 61,354(2) 57,952 3,402 ---
Daniel H. Polett 6,533 6,533 --- ---
Lawrence R. Pugh 1,000 1,000 --- ---
Paul R. Roedel 998 998 --- ---
Wilmer R. Schultz 128,769 104,511 24,258 ---
Robert B. Seidel 9,382 8,666 716 ---
David E. Sparks 104,368(2) 103,771 597 ---
George Strawbridge, Jr.(3) 4,200,310 4,200,310 --- 7.16%
Anita A. Summers 1,853 1,853 --- ---
Judith M. von Seldeneck 1,574 264 1,310 ---
Earle A. Wootton 162,077 161,520 557 ---
All directors and executive
officers as a group
(31 persons) 5,572,557(4) 5,495,977 76,580 9.40%
</TABLE>
_____________________
(1) Unless otherwise indicated, amount owned does not exceed 1% of the total
number of shares of Common Stock outstanding as of February 15, 1996.
(2) Includes shares allocated to the accounts of Messrs. McCullough, Ketchum,
Sparks, Fenimore, Grosz and Ms. Perrotty, respectively, under the Meridian
Savings Plan. Includes the following number of shares which may be
176
<PAGE>
acquired in connection with the exercise of vested options to purchase
common stock granted under the Meridian Stock Option Plan: Mr. McCullough-
-201,600; Mr. Ketchum--129,500; Mr. Sparks--65,000; Mr. Fenimore--25,300;
Mr. Grosz--15,000; and Ms. Perrotty--44,800. Does not include shares which
may be acquired in the future in connection with options granted under the
Meridian Stock Option Plan which are not presently exercisable.
(3) See "General--Principal Shareholders," herein.
(4) Includes shares allocated to the accounts of participants under the
Meridian Savings Plan and 605,700 shares which may be acquired in
connection with vested options to purchase common stock granted under the
Meridian Stock Option Plan.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
Certain Transactions
Certain directors and executive officers of the Registrant, and their
associates (including corporations of which such persons are officers or 10%
beneficial owners), were customers of and had transactions with Meridian Bank or
its predecessors in the ordinary course of business during the Registrant's
fiscal year ended December 31, 1995. Similar transactions may be expected to
take place in the future. Such transactions included the purchase of
certificates of deposit and extensions of credit in the ordinary course of
business on substantially the same terms, including interest rates and
collateral, as those prevailing at the time for comparable transactions with
other persons and did not involve more than the normal risks of collectability
or present other unfavorable features. It is expected that any other
transactions with directors and officers and their associates in the future will
be conducted on the same basis. At December 31, 1995, the aggregate amount of
loans by the Registrant to directors and executive officers of the Registrant
and their associates was $48.6 million, which represented approximately 3.7% of
the Registrant's total consolidated shareholder's equity as of such date.
During 1995, the law firm in which the Registrant director Kline is a
partner received fees from the Registrant and its subsidiaries of approximately
$2.7 million. Such sum does not include fees received from borrowers who
engage bank counsel principally in commercial and real estate lending
transactions with Meridian Bank or its predecessors or any other subsidiaries of
the Registrant.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES AND REPORTS ON FORM 8-K
The following documents are filed as part of this report:
A.1. Financial Statements (included under Item 8)
177
<PAGE>
(a) Meridian Bancorp, Inc. and Subsidiaries
- Independent Auditors' Report
- Consolidated Balance Sheets
- Consolidated Statements of Income
- Consolidated Statements of Changes in Shareholders' Equity
- Consolidated Statements of Cash Flows
- Notes to Consolidated Financial Statements
2. All financial schedules are omitted because they are not applicable,
the data are not significant or the required information is shown in the Annual
Report. (The information that would be shown in Meridian Bancorp, Inc.'s
(Parent Company Only) Statements of Changes in Shareholders' Equity is identical
to the information supplied in the Consolidated Statements of Changes in
Shareholders' Equity which appears herein.)
3. Exhibits (numbered as in Item 601 of Regulation S-K)
(3.1) Articles of Incorporation of Meridian Bancorp, Inc., as
amended, incorporated herein by reference to Exhibit 3.2 of
the Annual Report on Form 10-K of the Registrant for the
year ended December 31, 1994.
(3.2) By-laws of Meridian Bancorp, Inc., as amended, incorporated
herein by reference to Exhibit 3.2 of the Annual Report on
Form 10-K of the Registrant for the year ended December 31,
1991.
(4) Agreement to furnish instruments defining the rights of
holders of long-term debt of Meridian Bancorp, Inc. and its
consolidated subsidiaries, incorporated herein by reference
to Exhibit 4 of the Annual Report on Form 10-K of the
Registrant for the year ended December 31, 1991.
(9) Voting Trust Agreement (none).
(10.1) Meridian Bancorp, Inc. Executive Annual Incentive Plan, as
amended, incorporated herein by reference to Exhibit 10.1 of
the Annual Report on Form 10-K of the Registrant for the
year ended December 31, 1991.*
(10.2) Meridian Bancorp, Inc. Retirement Restoration Plan, as
amended, incorporated herein by reference to Exhibit 10.2 of
the Annual Report on Form 10-K of the Registrant for the
year ended December 31, 1991.*
(10.3) Meridian Bancorp, Inc. Stock Option Plan, as amended,
incorporated herein by reference to Exhibit 10.3 of the
Annual Report on Form 10-K of the Registrant for the year
ended December 31, 1991.*
178
<PAGE>
(10.4) Meridian Bancorp, Inc. Stock Appreciation Rights Plan,
incorporated herein by reference to Exhibit 10.4 of the
Annual Report on Form 10-K of the Registrant for the year
ended December 31, 1992.*
(10.5) Meridian Bancorp, Inc. Directors' Deferred Compensation Plan
dated July 1, 1983, incorporated herein by reference to
Exhibit 10.8 of the Annual Report on Form 10-K of the
Registrant for the year ended December 31, 1990.*
(10.6) Form of Deferred Compensation Agreements entered into on
January 12, 1987 between Meridian Bancorp, Inc. and Samuel
A. McCullough, incorporated herein by reference to Exhibit
10.6 of the Annual Report on Form 10-K of the Registrant for
the year ended December 31, 1991.*
(10.7) Form of Directors' Deferred Compensation Agreement,
incorporated herein by reference to Exhibit 10.7 of the
Annual Report on Form 10-K of the Registrant for the year
ended December 31, 1991.*
(10.8) Termination Agreement between Meridian Bancorp, Inc. and
Samuel A. McCullough dated as of July 1, 1986, incorporated
herein by reference to Exhibit 10.8 of the Annual Report on
Form 10-K of the Registrant for the year ended December 31,
1991.*
(10.9) Termination Agreement between Meridian Bancorp, Inc. and
David E. Sparks dated as of January 23, 1990, incorporated
by reference to Exhibit 10.22 of the Annual Report on Form
10-K of the Registrant for the year ended December 31,
1990.*
(10.10) Meridian Bancorp, Inc. Supplemental Salary Reduction Plan,
as amended, incorporated herein by reference to Exhibit
10.14 of the Annual Report on Form 10-K of the Registrant
for the year ended December 31, 1991.*
(10.11) Meridian Bancorp, Inc. Supplemental Executive Retirement
Plan, incorporated herein by reference to Exhibit 10.15 of
the Annual Report on Form 10-K of the Registrant for the
year ended December 31, 1991.*
(10.12) Meridian Bancorp, Inc. Executive Intermediate Performance
Plan adopted January 1, 1990, incorporated herein by
reference to Exhibit 10.23 of the Annual Report on Form 10-K
of the Registrant for the year ended December 31, 1990.*
(10.13) Rights Agreement dated as of July 25, 1989 between Meridian
Bancorp, Inc. and Meridian Trust Company, as Rights Agent,
incorporated herein by
179
<PAGE>
reference to Exhibit 1 of the Registration Statement on Form
8-A of the Registrant, filed on August 14, 1989.
(10.14) Amendment to Rights Agreement, dated as of June 28, 1994,
between Meridian Bancorp, Inc. and Meridian Trust Company,
as Rights Agent, incorporated herein by reference to Exhibit
2.2 of Amendment No. 1, filed July 25, 1994, to the
Registration Statement on Form 8-A of the Registrant, filed
August 14, 1989.
(10.15) Amendment to Rights Agreement, dated as of October 10, 1995,
between Meridian Bancorp, Inc. and Meridian Trust Company,
as Rights agent, incorporated herein by reference to Exhibit
2.3 to Amendment No. 2 on Form 8-A/A, dated November 6,
1995, to the Registration Statement on Form 8-A dated August
11, 1989 of the Registrant.
(10.16) Agreement and Plan of Merger, dated as of October 10, 1995,
by and between Meridian Bancorp, Inc. and CoreStates
Financial Corp, incorporated herein by reference to Exhibit
99.2 to the Current Report on Form 8-K, dated October 10,
1995, of the Registrant.
(10.17) Stock Option Agreement, dated as of October 10, 1995, by and
between Meridian Bancorp, Inc., as issuer, and CoreStates
Financial Corp, as grantee, incorporated herein by reference
to Exhibit A to Exhibit 99.2 to the Current Report on Form
8-K, dated October 10, 1995, of the Registrant.
(10.18) Stock Option Agreement, dated as of October 10, 1995, by and
between CoreStates Financial Corp, as issuer, and Meridian
Bancorp, Inc., as grantee, incorporated herein by reference
to Exhibit B to Exhibit 99.2 to the Current Report on Form
8-K, dated October 10, 1995, of the Registrant.
(10.19) Form of Termination Agreement between Meridian Bancorp, Inc.
and P. Sue Perrotty as of December 1995 (included herein).
(10.20) Form of Termination Agreement between Meridian Bancorp, Inc.
and William M. Fenimore, Jr. as of August 21, 1995 (included
herein).
(10.21) Form of Termination Agreement between Meridian Bancorp, Inc.
and George W. Grosz as of August 21, 1995 (included herein).
(11) Statement regarding Computation of Per Share Earnings
(included herein).
180
<PAGE>
(12) Statement regarding Computation of Ratios (not applicable).
(18) Letter regarding Change in Accounting Principles (not
applicable).
(21) List of Subsidiaries of the Registrant (included herein).
(22) Published Report Regarding Matters Submitted to a Vote of
Security Holders (none).
(23) Consent of KPMG Peat Marwick (included herein).
(24) Power of Attorney (none).
(27) Financial Data Schedules (included herein).
(28) Information from reports furnished to state insurance
regulatory authorities (not applicable).
(99) Additional Exhibits (none).
________________________
*Denotes compensatory plan or arrangement.
B.1 Reports on Form 8-K.
On October 20, 1995, Meridian filed a Current Report on Form 8-K dated
October 10, 1995 with the Commission, reporting information under Items 5 and
7(c). The Form 8-K did not contain any financial statements.
On December 29, 1995, Meridian filed a Current Report on Form 8-K
dated December 28, 1995 with the Commission, reporting information under Items 5
and 7. (Containing consolidated financial statements of CoreStates for the
three years ended December 31, 1994 and the nine months ended September 30, 1995
and September 30, 1994.)
181
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized.
MERIDIAN BANCORP, INC.
(Registrant)
/s/ Samuel A. McCullough
----------------------------------
Samuel A. McCullough, Chairman and
Chief Executive Officer
Date: March 26, 1996
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed by the following persons on behalf of the Registrant and
in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
- --------- ----- ----
<S> <C> <C>
/s/ Samuel A. McCullough
- ----------------------------- Chairman, March 26, 1996
Samuel A. McCullough Chief Executive
Officer and Director
(Principal Executive
Officer)
/s/ David E. Sparks
- ----------------------------- Vice Chairman, March 26, 1996
David E. Sparks Chief Financial
Officer and Director
(Principal
Financial Officer)
/s/ Michael B. High
- ----------------------------- Senior Vice March 26, 1996
Michael B. High President and
Chief Accounting
Officer (Principal
Accounting Officer)
/s/ DeLight E. Breidegam, Jr.
- ----------------------------- Director March 26, 1996
DeLight E. Breidegam, Jr.
/s/ Thomas F. Burke, Jr.
- ----------------------------- Director March 26, 1996
Thomas F. Burke, Jr.
- ----------------------------- Director March 26, 1996
Robert W. Cardy
/s/ Harry Corless
- ----------------------------- Director March 26, 1996
Harry Corless
/s/ William D. Davis
- ----------------------------- Director March 26, 1996
William D. Davis
- ----------------------------- Director March 26, 1996
Julius W. Erving
</TABLE>
182
<PAGE>
<TABLE>
<S> <C> <C>
/s/ Fred D. Hafer
- ---------------------------- Director March 26, 1996
Fred D. Hafer
/s/ Edward J. Hobbie
- ---------------------------- Director March 26, 1996
Edward J. Hobbie
- ---------------------------- Director March 26, 1996
Lawrence C. Karlson
/s/ Ezekiel S. Ketchum
- ---------------------------- Director March 26, 1996
Ezekiel S. Ketchum
/s/ Sidney D. Kline, Jr.
- ---------------------------- Director March 26, 1996
Sidney D. Kline, Jr.
/s/ George W. Leighow
- ---------------------------- Director March 26, 1996
George W. Leighow
/s/ Joseph F. Paquette, Jr.
- ---------------------------- Director March 26, 1996
Joseph F. Paquette, Jr.
/s/ Daniel H. Polett
- ---------------------------- Director March 26, 1996
Daniel H. Polett
/s/ Lawrence R. Pugh
- ---------------------------- Director March 26, 1996
Lawrence R. Pugh
- ---------------------------- Director March 26, 1996
Paul R. Roedel
/s/ Wilmer R. Schultz
- ---------------------------- Director March 26, 1996
Wilmer R. Schultz
- ---------------------------- Director March 26, 1996
Robert B. Seidel
/s/ George Strawbridge, Jr.
- ---------------------------- Director March 26, 1996
George Strawbridge, Jr.
/s/ Anita A. Summers
- ---------------------------- Director March 26, 1996
Anita A. Summers
- ---------------------------- Director March 26, 1996
Judith M. von Seldeneck
/s/ Earle A. Wootton
- ---------------------------- Director March 26, 1996
Earle A. Wootton
</TABLE>
183
<PAGE>
EXHIBIT INDEX
Number Description
- ------ -----------
(3.1) Articles of Incorporation of Meridian
Bancorp, Inc., as amended, incorporated
herein by reference to Exhibit 3.2 of
the Annual Report on Form 10-K of the
Registrant for the year ended
December 31, 1994.
(3.2) By-laws of Meridian Bancorp, Inc., as
amended, incorporated herein by reference
to Exhibit 3.2 of the Annual Report on
Form 10-K of the Registrant for the year
ended December 31, 1991.
(4) Agreement to furnish instruments defining
the rights of holders of long-term debt
of Meridian Bancorp, Inc. and its
consolidated subsidiaries, incorporated
herein by reference to Exhibit 4 of the
Annual Report on Form 10-K of the
Registrant for the year ended
December 31, 1991.
(9) Voting Trust Agreement (none).
(10.1) Meridian Bancorp, Inc. Executive Annual
Incentive Plan, as amended, incorporated
herein by reference to Exhibit 10.1 of
the Annual Report on Form 10-K of the
Registrant for the year ended
December 31, 1991.*
(10.2) Meridian Bancorp, Inc. Retirement
Restoration Plan, as amended, incorporated
herein by reference to Exhibit 10.2 of the
Annual Report on Form 10-K of the Registrant
for the year ended December 31, 1991.*
(10.3) Meridian Bancorp, Inc. Stock Option Plan,
as amended, incorporated herein by reference
to Exhibit 10.3 of the Annual Report on
Form 10-K of the Registrant for the year
ended December 31, 1991.*
(10.4) Meridian Bancorp, Inc. Stock Appreciation
Rights Plan, incorporated herein by
reference to Exhibit 10.4 of the Annual
Report on Form 10-K of the Registrant for
the year ended December 31, 1992.*
(10.5) Meridian Bancorp, Inc. Directors' Deferred
Compensation Plan dated July 1, 1983,
<PAGE>
incorporated herein by reference to
Exhibit 10.8 of the Annual Report on
Form 10-K of the Registrant for the year
ended December 31, 1990.*
(10.6) Form of Deferred Compensation Agreements
entered into on January 12, 1987 between
Meridian Bancorp, Inc. and Samuel A.
McCullough, incorporated herein by reference
to Exhibit 10.6 of the Annual Report on
Form 10-K of the Registrant for the year
ended December 31, 1991.*
(10.7) Form of Directors' Deferred Compensation
Agreement, incorporated herein by reference
to Exhibit 10.7 of the Annual Report on
Form 10-K of the Registrant for the year
ended December 31, 1991.*
(10.8) Termination Agreement between Meridian
Bancorp, Inc. and Samuel A. McCullough
dated as of July 1, 1986, incorporated
herein by reference to Exhibit 10.8 of
the Annual Report on Form 10-K of the
Registrant for the year ended
December 31, 1991.*
(10.9) Termination Agreement between Meridian
Bancorp, Inc. and David E. Sparks dated
as of January 23, 1990, incorporated by
reference to Exhibit 10.22 of the Annual
Report on Form 10-K of the Registrant for
the year ended December 31, 1990.*
(10.10) Meridian Bancorp, Inc. Supplemental
Salary Reduction Plan, as amended,
incorporated herein by reference to
Exhibit 10.14 of the Annual Report
on Form 10-K of the Registrant for
the year ended December 31, 1991.*
(10.11) Meridian Bancorp, Inc. Supplemental
Executive Retirement Plan, incorporated
herein by reference to Exhibit 10.15
of the Annual Report on Form 10-K of
the Registrant for the year ended
December 31, 1991.*
(10.12) Meridian Bancorp, Inc. Executive
Intermediate Performance Plan adopted
January 1, 1990, incorporated herein
by reference to Exhibit 10.23 of the
Annual Report on Form 10-K of the
Registrant for the year ended
December 31, 1990.*
(10.13) Rights Agreement dated as of July 25,
1989 between Meridian Bancorp, Inc.
and Meridian Trust Company, as Rights
<PAGE>
Agent, incorporated herein by reference
to Exhibit 1 of the Registration Statement
on Form 8-A of the Registrant, filed on
August 14, 1989.
(10.14) Amendment to Rights Agreement, dated as
of June 28, 1994, between Meridian Bancorp,
Inc. and Meridian Trust Company, as Rights
Agent, incorporated herein by reference to
Exhibit 2.2 of Amendment No. 1, filed
July 25, 1994, to the Registration Statement
on Form 8-A of the Registrant, filed
August 14, 1989.
(10.15) Amendment to Rights Agreement, dated as
of October 10, 1995, between Meridian
Bancorp, Inc. and Meridian Trust Company,
as Rights agent, incorporated herein by
reference to Exhibit 2.3 to Amendment
No. 2 on Form 8-A/A, dated November 6, 1995,
to the Registration Statement on Form 8-A
dated August 11, 1989 of the Registrant.
(10.16) Agreement and Plan of Merger, dated as
of October 10, 1995, by and between
Meridian Bancorp, Inc. and CoreStates
Financial Corp, incorporated herein by
reference to Exhibit 99.2 to the Current
Report on Form 8-K, dated October 10, 1995,
of the Registrant.
(10.17) Stock Option Agreement, dated as of
October 10, 1995, by and between Meridian
Bancorp, Inc., as issuer, and CoreStates
Financial Corp, as grantee, incorporated
herein by reference to Exhibit A to
Exhibit 99.2 to the Current Report on
Form 8-K, dated October 10, 1995, of the
Registrant.
(10.18) Stock Option Agreement, dated as of
October 10, 1995, by and between CoreStates
Financial Corp, as issuer, and Meridian
Bancorp, Inc., as grantee, incorporated
herein by reference to Exhibit B to
Exhibit 99.2 to the Current Report on
Form 8-K, dated October 10, 1995, of
the Registrant.
(10.19) Form of Termination Agreement between
Meridan Bancorp, Inc. and P. Sue Perrotty
as of December 1995 (included herein).
(10.20) Form of Termination Agreement between
Meridian Bancorp, Inc. and William M.
Fenimore, Jr. as of August 21, 1995
(included herein).
(10.21) Form of Termination Agreement between
Meridian Bancorp, Inc. and George W.
Grosz as of August 21, 1995 (included herein).
<PAGE>
(11) Statement regarding Computation of Per
Share Earnings (included herein).
(12) Statement regarding Computation of
Ratios (not applicable).
(18) Letter regarding Change in Accounting
Principles (not applicable).
(21) List of Subsidiaries of the Registrant
(included herein).
(22) Published Report Regarding Matters
Submitted to a Vote of Security Holders
(none).
(23) Consent of KPMG Peat Marwick (included
herein).
(24) Power of Attorney (none).
(27) Financial Data Schedules (included herein).
(28) Information from reports furnished to
state insurance regulatory authorities
(not applicable).
(99) Additional Exhibits (none).
<PAGE>
Exhibit 10.19
TERMINATION AGREEMENT
---------------------
THIS AGREEMENT made as of this ____ day of December, 1995, by and
between MERIDIAN BANCORP, INC. ("Meridian"), a Pennsylvania business corporation
having its principal office at 35 North Sixth Street, Reading, Berks County,
Pennsylvania, and P. SUE PERROTTY (the "Executive"), an adult individual.
WITNESSETH
----------
WHEREAS, the Executive is presently serving as an executive of
Meridian; and
WHEREAS, Meridian considers the continued services of the Executive to
be in the best interests of Meridian and its stockholders and desires to induce
the Executive to remain in the employ of Meridian; and
WHEREAS, Meridian and CoreStates Financial Corp (the "Company") have
entered into an Agreement and Plan of Merger (the "Merger") and Meridian and the
Company wish to provide a Termination Agreement to Executive, contingent upon
completion of the Merger; and
WHEREAS, the Company, as successor by Merger to Meridian wishes to
provide the Termination Payments to Executives in the circumstances set forth in
this Agreement.
AGREEMENT:
---------
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Term of Agreement.
-----------------
(a) This Agreement shall be for a three (3) year period
commencing on the Effective Date of the Merger (the "Effective Date") and ending
on the third anniversary of the Effective Date.
(b) Notwithstanding the provisions of Section 1(a) of this
Agreement, this Agreement shall terminate automatically upon termination by the
Company of the Executive's employment for Cause. As used in this Agreement,
"Cause" shall mean (A) the Executive's conviction of or plea of guilty or nolo
contendere to a felony or the actual incarceration of the Executive for a period
of forty-five (45) consecutive days, (B) the issuance by any federal or state
banking authority of an order directing that the Company terminate the
Executive's employment with the Company or relieve the Executive of the duties
being performed by the Executive for the Company or (C) the Executive's willful
misconduct or gross negligence in the performance of the Executive's duties.
1
<PAGE>
If the Executive's employment is terminated for Cause, the Executive's rights
under this Agreement shall cease as of the effective date of such termination.
(c) Notwithstanding the provisions of Section 1(a) of this
Agreement, this Agreement shall terminate automatically upon termination of the
Executive's employment as a result of the Executive's voluntary termination
(other than in accordance with Section 2 of this Agreement), retirement at the
Executive's election, or death and the Executive's rights under this Agreement
shall cease as of the date of such voluntary termination, retirement at the
Executive's election, or death; provided, however, that if the Executive dies
after a Notice of Termination (as defined in Section 2 of this Agreement) is
delivered by the Executive, the provisions of Section 8(b) of this Agreement
shall apply.
(d) Notwithstanding the provisions of Section 1(a) of this
Agreement, this Agreement shall terminate automatically upon termination of the
Executive's employment as a result of the Executive's disability and the
Executive's rights under this Agreement shall cease as of the date of such
termination; provided, however, that, if the Executive becomes disabled after a
Notice of Termination (as defined in Section 2 of this Agreement) is delivered
by the Executive, the Executive shall nevertheless be absolutely entitled to
receive all of the compensation and benefits provided for in, and for the term
set forth in, Section 3 of this Agreement. For purposes of this Agreement,
"disability" shall mean the Executive's incapacitation by accident, sickness, or
otherwise which renders the Executive mentally or physically incapable of
performing the services required of the Executive for three hundred sixty (360)
consecutive days.
2. Termination Provisions. If at any time during the term of this
----------------------
Agreement, there shall be:
(i) any involuntary termination of the Executive (other than
as set forth in Section 1(b), 1(c), or 1(d) of this Agreement);
(ii) the assignment to the Executive of duties materially
inconsistent with the Executive's office immediately after the Effective
Date or as the same may be increased from time to time after the Effective
Date;
(iii) any reduction in the sum of Executive's annual base
salary and target bonus in effect on the Effective Date or as the same may
be increased from time to time after the Effective Date;
(iv) any failure to provide the Executive with a target bonus
comparable to similarly situated executives at the Company;
2
<PAGE>
(v) any failure to provide the Executive with benefits at
least as favorable as those enjoyed by similarly situated executives at the
Company under the Company's pension, life insurance, medical, health and
accident, disability or other employee plans;
(vi) any requirement that the Executive travel in performance
of Executive's duties on behalf of the Company for a significantly greater
period of time during any year than was required of the Executive during
the year preceding the year in which the Effective Date occurred; or
(vii) any material breach of this Agreement on the part of the
Company;
then, at the option of the Executive, exercisable by the Executive within thirty
(30) days after the occurrence of each and every of the foregoing events, the
Executive may resign from employment with the Company (or, if involuntarily
terminated, give notice of intention to collect benefits under this Agreement)
by delivering a notice in writing (the "Notice of Termination") to the Company
and the provisions of Section 3 of this Agreement shall apply.
3. Rights in Event of Termination.
------------------------------
(a) In the event that the Executive delivers a Notice of
Termination to the Company in accordance with Section 2 above, the Executive
shall be entitled to receive the compensation and benefits set forth below for
the remaining term of this Agreement, but not exceeding twenty-four (24) months,
as follows:
(i) the Executive shall continue to receive payments of annual
base salary at the highest amount in effect during the two (2) calendar
years preceding the year in which the Notice of Termination is delivered,
payable in the same manner as salaries paid to other executive employees of
the Company;
(ii) the Executive shall receive, no later than the fifth (5th)
calendar day of each month, an amount equal to one-twelfth (/1//\\12\\) of
the annual dollar amount the Executive would have received under the
Meridian Bancorp, Inc. Executive Annual Incentive Plan, based on the
Executive's annual base salary in effect during, and based on the target
percentage award of annual base salary under such Plan during, the calendar
year in which the Effective Date occurs;
(iii) the Executive shall receive, no later than the fifth (5th)
calendar day of each month, an amount equal to one-twelfth (/1//\\12\\) of
the amount of the contribution made by Meridian or the Company to the
Meridian Bancorp, Inc.
3
<PAGE>
Savings Plan, or any successor plan, on behalf of the Executive for the
calendar year prior to the year in which the Notice of Termination is
delivered;
(iv) the Executive shall be entitled to continue to participate
in the Meridian Bancorp, Inc. Employee's Retirement Plan and the Meridian
Bancorp, Inc. Retirement Restoration Plan, or any other supplemental
executive retirement plan or other plan in effect during the term of this
Agreement designed to supplement payments made under the Meridian
Employee's Retirement Plan, or any successor plan, as if the Executive's
employment had not terminated; and
(v) the Company shall provide the Executive with life,
disability, and medical insurance benefits at levels equivalent to the
levels to which Executive would have been entitled had the Executive
remained in the Company's employ during such period.
(b) In the event that the Executive is ineligible to continue
participation in the Meridian Employee's Retirement Plan (and any successor
plan) or in any of the life, disability, or medical insurance plans or programs
referred to in Section 3(a) of this Agreement, the Company shall, in lieu of
such participation, pay the Executive a dollar amount equal to the dollar amount
of the benefit forfeited by the Executive as a result of such ineligibility in
the case of the Retirement Plan or a dollar amount equal to the cost to the
Executive to obtain such benefits in the case of any life, disability, or
medical insurance plans or programs.
(c) The Company shall pay to the Executive all legal fees and
expenses incurred by the Executive as a result of the Executive's delivery of a
Notice of Termination (including all such fees and expenses, if any, incurred in
contesting or disputing any termination of employment or in seeking to obtain or
enforce any right or benefit provided by this Agreement); unless a court
determines an Executive instituted an action or otherwise acted in bad faith.
(d) The Executive shall not be required to mitigate the amount of
any payment provided for in this Section 3 by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided for in this
Section 3 be reduced by any compensation earned by the Executive as the result
of employment by another employer or by reason of the Executive's receipt of or
right to receive any retirement or other benefits after the date of termination
of employment or otherwise; provided, however, that the payments provided for in
this Section 3 shall be reduced by the amount actually received by the Executive
under the severance policy of the Company then in effect.
4
<PAGE>
(e) The Executive's right to receive payments under this
Agreement shall not decrease the amount of, or otherwise adversely affect, any
benefits payable to the Executive under any plan, agreement, or arrangement
relating to employee benefits provided by the Company.
(f) Notwithstanding the foregoing provisions of this Section 3,
the present value (determined in accordance with the provisions of Section 280G
of the Internal Revenue Code of 1986, as amended (the "Code")) of the total
amount of all payments under this Section 3, when aggregated with any other
payments to Executive, which constitute parachute payments (within the meaning
of Section 280G of the Code) shall in no event exceed 2.99 times the Executive's
"base amount" (as determined under Section 280G of the Code).
4. SERP Benefits. Meridian, CoreStates and the Executive
-------------
acknowledge and agree (i) that the Executive is a participant in the Meridian
Bancorp, Inc. Supplemental Executive Retirement Plan (the "SERP") and (ii) that
a "change in control" involving CoreStates subsequent to the Merger will
constitute a "change in control" for purposes of this Agreement within the
meaning of Article IX of the SERP so that the Executive shall be entitled to the
special benefits provided by Article IX of the SERP following such "change in
control" of CoreStates. Notwithstanding the foregoing or anything in this
Agreement to the contrary, Meridian, CoreStates and the Executive agree that the
Merger will not constitute a "change in control" for purposes of this Agreement
within the meaning of Article IX of the SERP. For purposes of this Section 4, a
"change in control" shall mean execution of a definitive agreement relating to a
merger, consolidation, share exchange or other business combination transaction
involving CoreStates in which CoreStates is not the surviving corporation, or
any tender or exchange offer or other plan, proposal or offer by any person to
acquire in any manner 10% or more of the shares of voting securities or 20% or
more of the assets of CoreStates or any of its significant subsidiaries.
5. Notices. Except as otherwise provided in this Agreement, any
-------
notice required or permitted to be given under this Agreement shall be deemed
properly given if in writing and if mailed by registered or certified mail,
postage prepaid with return receipt requested, to the Executive's residence, in
the case of notices to the Executive, and to the principal office of the
Company, Attention: General Counsel, in the case of notices to the Company.
6. Waiver. No provision of this Agreement may be modified, waived,
------
or discharged unless such waiver, modification, or discharge is agreed to in
writing and signed by the Executive and the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar
5
<PAGE>
provisions or conditions at the same or at any prior or subsequent time.
7. Assignment. This Agreement shall not be assignable by either
----------
party, except by the Company to any successor in interest to the Company's
business.
8. Entire Agreement. This Agreement contains the entire agreement
----------------
of the parties relating to the subject matter of this Agreement.
9. Successors; Binding Agreement.
-----------------------------
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure by the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall constitute a breach of
this Agreement and the provisions of Section 3 of this Agreement shall apply.
As used in this Agreement, "Company" shall mean the Company as defined
previously and any successor to its business and/or assets as aforesaid which
assumes and agrees to perform this Agreement by operation of law or otherwise.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, heirs, distributees, devisees, and legatees. If the Executive
should die after a Notice of Termination is delivered by the Executive and any
amounts would be payable to the Executive under this Agreement if the Executive
had continued to live, all such amounts shall be paid in accordance with the
terms of this Agreement to the Executive's devisee, legatee, or other designee,
or, if there is no such designee, to the Executive's estate.
10. Validity. The invalidity or unenforceability of any provision of
--------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
11. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the domestic laws (but not the law of conflicts of
law) of the Commonwealth of Pennsylvania.
12. Headings. The headings of the Sections of this Agreement are for
--------
convenience only and shall not control or
6
<PAGE>
affect the meaning or construction or limit the scope or intent of any of the
provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
MERIDIAN BANCORP, INC.
By
--------------------------------
Chairman of the Board
(SEAL)
Attest:
---------------------------
Secretary
Witness:
(SEAL)
- -------------------------- -----------------------------
P. Sue Perrotty
Agreed to as of this _______ day of
December, 1995 (including, without
limitation, Section 4 hereof)
CORESTATES FINANCIAL CORP
By
----------------------------
7
<PAGE>
Exhibit 10.20
TERMINATION AGREEMENT
---------------------
THIS AGREEMENT made as of this 21st day of August, 1995, by and
between MERIDIAN BANCORP, INC. (the "Company"), a Pennsylvania business
corporation having its principal office at 35 North Sixth Street, Reading, Berks
County, Pennsylvania, and WILLIAM M. FENIMORE, JR. (the "Executive"), an adult
individual.
WITNESSETH:
----------
WHEREAS, the Executive is presently serving as Group Executive Vice
President and Chief Technology & Strategic Planning Officer of the Company; and
WHEREAS, the Company considers the continued services of the Executive
to be in the best interests of the Company and its stockholders and desires to
induce the Executive to remain in the employ of the Company on an impartial and
objective basis in the event of a nonnegotiated tender or exchange offer for the
Company's securities, a proxy contest for control of the Company, or certain
other nonnegotiated attempts to obtain control of the Company.
AGREEMENT:
---------
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Term of Agreement. (a) This Agreement shall be for a three (3) year
-----------------
period commencing on August 21, 1995 and ending on August 20, 1998; provided,
however, that this Agreement shall be automatically renewed on August 21, 1996
for the three (3) year period commencing August 21, 1996 and ending on August
20, 1999 unless either party shall give written notice of nonrenewal to the
other party on or before June 15, 1996 in which case this Agreement shall
continue in effect through August 20, 1998; and further provided that if this
Agreement is renewed on August 21, 1996 it shall be automatically
renewed on August 21 of each subsequent year (the "Annual Renewal Date") for a
period ending three (3) years from each Annual Renewal Date unless either party
shall give written notice of nonrenewal to the other party at least sixty (60)
days prior to an Annual Renewal Date in which case this Agreement shall continue
in effect for a term ending two (2) years from the Annual Renewal Date
immediately following such notice.
(b) Notwithstanding the provisions of Section 1(a) of this
Agreement, this Agreement shall terminate automatically upon termination by the
Company of the Executive's employment for Cause. As used in this Agreement,
"Cause" shall mean the following:
(i) prior to a Change in Control (as defined in Section 2(b) of
this Agreement) Cause shall mean
1
<PAGE>
termination by the Company of the Executive's employment for any reason if
such termination is deemed by the Board of Directors of the Company to be
in the best interests of the Company and its stockholders; or
(ii) following a Change in Control (as defined in Section 2(b)
of this Agreement) Cause shall mean (A) the Executive's conviction of or
plea of guilty or nolo contendere to a felony or the actual incarceration
of the Executive for a period of forty-five (45) consecutive days or (B)
the issuance by any federal or state banking authority of an order
directing that the Company terminate the Executive's employment with the
Company or relieve the Executive of the duties being performed by the
Executive for the Company.
If the Executive's employment is terminated for Cause, the Executive's rights
under this Agreement shall cease as of the effective date of such termination.
(c) Notwithstanding the provisions of Section 1(a) of this
Agreement, this Agreement shall terminate automatically upon termination of the
Executive's employment as a result of the Executive's voluntary termination
(other than in accordance with Section 2 of this Agreement), retirement at the
Executive's election, or death and the Executive's rights under this Agreement
shall cease as of the date of such voluntary termination, retirement at the
Executive's election, or death; provided, however, that if the Executive dies
after a Notice of Termination (as defined in Section 2(a) of this Agreement) is
delivered by the Executive, the provisions of Section 8(b) of this Agreement
shall apply.
(d) Notwithstanding the provisions of Section 1(a) of this
Agreement, this Agreement shall terminate automatically upon termination of the
Executive's employment as a result of the Executive's disability and the
Executive's rights under this Agreement shall cease as of the date of such
termination; provided, however, that, if the Executive becomes disabled after a
Notice of Termination (as defined in Section 2(a) of this Agreement) is
delivered by the Executive, the Executive shall nevertheless be absolutely
entitled to receive all of the compensation and benefits provided for in, and
for the term set forth in, Section 3 of this Agreement. For purposes of this
Agreement, "disability" shall mean the Executive's incapacitation by accident,
sickness, or otherwise which renders the Executive mentally or physically
incapable of performing the services required of the Executive for three hundred
sixty (360) consecutive days.
2
<PAGE>
2. Termination Following Change in Control.
---------------------------------------
(a) If a Change in Control (as defined in Section 2(b) of this
Agreement) shall occur and if thereafter, at any time during the term of this
Agreement, there shall be:
(i) any involuntary termination of the Executive (other than as
set forth in Section 1(b), 1(c), or 1(d) of this Agreement);
(ii) any reduction in the Executive's title, responsibilities,
including reporting responsibilities, or authority, including such title,
responsibilities, or authority as such title, responsibilities, or
authority may be increased from time to time during the term of this
Agreement;
(iii) the assignment to the Executive of duties inconsistent
with the Executive's office on the date of a Change in Control or as the
same may be increased from time to time after a Change in Control;
(iv) any reassignment of the Executive to a location greater
than one hundred (100) miles from 35 North Sixth Street, Reading,
Pennsylvania;
(v) any reduction in the Executive's annual base salary in
effect on the date of a Change in Control or as the same may be increased
from time to time after a Change in Control;
(vi) any failure to continue the Executive's participation, on
substantially similar terms, in any of the Company's incentive compensation
or bonus plans in which the Executive participated at the time of the
Change in Control or any change or amendment to any of the substantive
provisions of any of such plans which would materially decrease the
potential benefits to the Executive under any of such plans;
(vii) any failure to provide the Executive with benefits at
least as favorable as those enjoyed by the Executive under any of the
Company's pension, life insurance, medical, health and accident, disability
or other employee plans in which the Executive participated at the time of
the Change in Control, or the taking of any action that would materially
reduce any of such benefits in effect at the time of the Change in Control,
unless such reduction relates to a reduction in benefits applicable to all
employees generally;
(viii) any requirement that the Executive travel in performance
of his duties on behalf of the Company for a significantly greater period
of time during any year
3
<PAGE>
than was required of the Executive during the year preceding the year in
which the Change in Control occurred;
(ix) any sustained pattern of interruption or disruption of the
Executive for matters substantially unrelated to the Executive's discharge
of the Executive's duties on behalf of the Company; or
(x) any breach of this Agreement of any nature whatsoever on the
part of the Company;
then, at the option of the Executive, exercisable by the Executive within ninety
(90) days of the occurrence of each and every of the foregoing events, the
Executive may resign from employment with the Company (or, if involuntarily
terminated, give notice of intention to collect benefits under this Agreement)
by delivering a notice in writing (the "Notice of Termination") to the Company
and the provisions of Section 3 of this Agreement shall apply.
(b) As used in this Agreement, "Change in Control" shall mean the
occurrence of any of the following:
(i) any "Person" or "group" (as those terms are defined or used
in Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange
Act"), as enacted and in force on the date hereof) is or becomes the
"beneficial owner" (as that term is defined in Rule 13d-3 under the
Exchange Act, as enacted and in force on the date hereof) of securities of
the Company representing 24.99% or more of the combined voting power of the
Company's securities then outstanding;
(ii) there occurs a merger, consolidation, or other
reorganization involving the Company and another entity or a sale,
exchange, transfer, or other disposition of substantially all of the stock
or assets of the Company (a sale of the Company's banking subsidiary to be
deemed a sale of substantially all of the Company's assets) to another
entity or other person, or a purchase by the Company of substantially all
of the stock or assets of another entity, unless (A) such merger,
consolidation, reorganization, sale, exchange, transfer, purchase or
disposition is approved in advance by eighty percent (80%) or more of the
members of the Company's Board of Directors who are not interested in the
transaction, and (B) stockholders who held at least a majority of the
---
voting power of the Company's outstanding securities immediately prior to
consummation of any such transaction hold at least a majority of the voting
power of the outstanding securities of the legal entity resulting from or
existing after any such transaction, and (C) a majority of the members of
---
the Board of Directors of the legal entity resulting from or
4
<PAGE>
existing after any such transaction are former members of the Board of
Directors of the Company;
(iii) there occurs a contested proxy solicitation of the
Company's stockholders which results in the contesting party obtaining the
ability to elect twenty-five percent (25%) or more of the members of the
Board of Directors standing for election at any meeting of the Company's
stockholders;
(iv) at any meeting of the Company's stockholders at which
directors are elected, less than fifty-one percent (51%) of the directors
nominated for election were nominated by the members of the Board of
Directors in office at the time of such meeting; or
(v) there occurs a change in control of a nature that would be
required to be reported in response to Item 5(f) of Schedule 14A of
Regulation 14A promulgated under the Exchange Act, as enacted and in force
on the date hereof, whether or not the Company is then subject to such
reporting requirement.
3. Rights in Event of Termination Following Change in Control.
----------------------------------------------------------
(a) In the event that the Executive delivers a Notice of Termination
to the Company, the Executive shall be absolutely entitled to receive the
compensation and benefits set forth below for the remaining term of this
Agreement, but not exceeding twenty-four (24) months, as follows:
(i) the Executive shall continue to receive payments of annual
base salary at the highest amount in effect during the three (3) calendar
years preceding the year in which the Notice of Termination is delivered,
payable in the same manner as salaries paid to other executive employees of
the Company;
(ii) the Executive shall receive, no later than the fifth (5th)
calendar day of each month, an amount equal to one-twelfth (1/12) of the
annual dollar amount the Executive would have received under the Meridian
Bancorp, Inc. Executive Annual Incentive Plan, based on the Executive's
highest annual base salary in effect during, and based on the highest
percentage award of annual base salary received by the Executive under such
Plan during, the three (3) calendar years preceding the year in which the
Notice of Termination is delivered;
(iii) the Executive shall receive, no later than the fifth (5th)
calendar day of each month, an amount equal to one-twelfth (1/12) of the
amount of the contribution made by the Company to the Meridian Bancorp,
5
<PAGE>
Inc. Savings Plan on behalf of the Executive for the calendar year prior
to the year in which the Notice of Termination is delivered;
(iv) the Executive shall be entitled to continue to participate
in the Meridian Bancorp, Inc. Employee's Retirement Plan and the Meridian
Bancorp, Inc. Retirement Restoration Plan, or any other supplemental
executive retirement plan or other plan in effect during the term of this
Agreement designed to supplement payments made under the Meridian Bancorp,
Inc. Employee's Retirement Plan, as if the Executive's employment had not
terminated; and
(v) the Company shall provide the Executive with life,
disability, and medical insurance benefits at levels equivalent to the
highest levels in effect for the Executive during the two (2) calendar
years preceding the year in which the Notice of Termination is delivered.
(b) In the event that the Executive is ineligible to continue
participation in the Meridian Bancorp, Inc. Employee's Retirement Plan or in
any of the life, disability, or medical insurance plans or programs listed in
Section 3(a) of this Agreement, the Company shall, in lieu of such
participation, pay the Executive a dollar amount equal to the dollar amount of
the benefit forfeited by the Executive as a result of such ineligibility in the
case of the Retirement Plan or a dollar amount equal to the cost to the
Executive to obtain such benefits in the case of any life, disability, or
medical insurance plans or programs.
(c) The Company shall pay to the Executive all legal fees and expenses
incurred by the Executive as a result of the Executive's delivery of a Notice of
Termination (including all such fees and expenses, if any, incurred in
contesting or disputing any termination of employment or in seeking to obtain or
enforce any right or benefit provided by this Agreement).
(d) The Executive shall not be required to mitigate the amount of any
payment provided for in this Section 3 by seeking other employment or otherwise,
nor shall the amount of any payment or benefit provided for in this Section 3 be
reduced by any compensation earned by the Executive as the result of employment
by another employer or by reason of the Executive's receipt of or right to
receive any retirement or other benefits after the date of termination of
employment or otherwise; provided, however, that the payments provided for in
this Section 3 shall be reduced by the amount actually received by the Executive
under the severance policy of the Company then in effect.
(e) Upon written request of the Executive, the Company's obligation to
make payments under this Section 3 shall be secured in total (i) by a stand-by
letter of credit obtained
6
<PAGE>
by the Company from a recognized financial institution the long-term obligations
of which are rated, on the date of such request, investment grade or better by
Standard & Poor's Corporation or Moody's Investors Service, Inc. or (ii) by such
other security as the Executive shall approve.
(f) The Executive's right to receive payments under this Agreement
shall not decrease the amount of, or otherwise adversely affect, any benefits
payable to the Executive under any plan, agreement, or arrangement relating to
employee benefits provided by the Company.
4. Notices. Except as otherwise provided in this Agreement, any
-------
notice required or permitted to be given under this Agreement shall be deemed
properly given if in writing and if mailed by registered or certified mail,
postage prepaid with return receipt requested, to the Executive's residence, in
the case of notices to the Executive, and to the principal office of the
Company, in the case of notices to the Company.
5. Waiver. No provision of this Agreement may be modified, waived,
------
or discharged unless such waiver, modification, or discharge is agreed to in
writing and signed by the Executive and an executive officer specifically
designated by the Board of Directors of the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
6. Assignment. This Agreement shall not be assignable by either
----------
party, except by the Company to any successor in interest to the Company's
business.
7. Entire Agreement. This Agreement contains the entire agreement
----------------
of the parties relating to the subject matter of this Agreement.
8. Successors; Binding Agreement.
-----------------------------
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure by the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall constitute a breach of
this Agreement and the provisions of Section 3 of this Agreement shall apply.
As used in this Agreement, "Company" shall mean the Company as defined
previously and any successor to its business and/or assets as aforesaid
7
<PAGE>
which assumes and agrees to perform this Agreement by operation of law or
otherwise.
(b) This Agreement shall inure to the benefit of and be enforceable by
the Executive's personal or legal representatives, executors, administrators,
heirs, distributees, devisees, and legatees. If the Executive should die after
a Notice of Termination is delivered by the Executive and any amounts would be
payable to the Executive under this Agreement if the Executive had continued to
live, all such amounts shall be paid in accordance with the terms of this
Agreement to the Executive's devisee, legatee, or other designee, or, if there
is no such designee, to the Executive's estate.
9. Validity. The invalidity or unenforceability of any provision of
--------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
10. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the domestic laws (but not the law of conflicts of
law) of the Commonwealth of Pennsylvania.
11. Headings. The headings of the Sections of this Agreement are for
--------
convenience only and shall not control or affect the meaning or construction or
limit the scope or intent of any of the provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
MERIDIAN BANCORP, INC.
By________________________________
Chairman of the Board
(SEAL)
Attest:___________________________
Secretary
("Company")
Witness:
_________________________ ____________________________(SEAL)
William M. Fenimore, Jr.
("Executive")
8
<PAGE>
Exhibit 10.21
TERMINATION AGREEMENT
---------------------
THIS AGREEMENT made as of this 21st day of August, 1995, by and
between MERIDIAN BANCORP, INC. (the "Company"), a Pennsylvania business
corporation having its principal office at 35 North Sixth Street, Reading, Berks
County, Pennsylvania, and GEORGE W. GROSZ (the "Executive"), an adult
individual.
WITNESSETH:
----------
WHEREAS, the Executive is presently serving as President and Chief
Executive Officer of Meridian Asset Management, Inc. ("MAM"), a subsidiary of
the Company; and
WHEREAS, the Company considers the continued services of the Executive
to be in the best interests of the Company and its stockholders and desires to
induce the Executive to remain in the employ of the Company on an impartial and
objective basis in the event of a nonnegotiated tender or exchange offer for the
Company's securities, a proxy contest for control of the Company, or certain
other nonnegotiated attempts to obtain control of the Company.
AGREEMENT:
---------
NOW, THEREFORE, the parties hereto, intending to be legally bound,
hereby agree as follows:
1. Term of Agreement. (a) This Agreement shall be for a three (3)
-----------------
year period commencing on August 21, 1995 and ending on August 20, 1998;
provided, however, that this Agreement shall be automatically renewed on August
21, 1996 for the three (3) year period commencing August 21, 1996 and ending on
August 20, 1999 unless either party shall give written notice of nonrenewal to
the other party on or before June 15, 1996 in which case this Agreement shall
continue in effect through August 20, 1998; and further provided that if this
Agreement is renewed on August 21, 1996 it shall be automatically renewed on
August 21 of each subsequent year (the "Annual Renewal Date") for a period
ending three (3) years from each Annual Renewal Date unless either party shall
give written notice of nonrenewal to the other party at least sixty (60) days
prior to an Annual Renewal Date in which case this Agreement shall continue in
effect for a term ending two (2) years from the Annual Renewal Date immediately
following such notice.
(b) Notwithstanding the provisions of Section 1(a) of this
Agreement, this Agreement shall terminate automatically upon termination by the
Company of the Executive's employment for Cause. As used in this Agreement,
"Cause" shall mean the following:
(i) prior to a Change in Control (as defined in Section
2(b) of this Agreement) Cause shall mean
1
<PAGE>
termination by the Company of the Executive's employment for any reason if
such termination is deemed by the Board of Directors of the Company to be
in the best interests of the Company and its stockholders; or
(ii) following a Change in Control (as defined in Section
2(b) of this Agreement) Cause shall mean (A) the Executive's conviction of
or plea of guilty or nolo contendere to a felony or the actual
incarceration of the Executive for a period of forty-five (45) consecutive
days or (B) the issuance by any federal or state banking authority of an
order directing that the Company terminate the Executive's employment with
the Company or relieve the Executive of the duties being performed by the
Executive for the Company.
If the Executive's employment is terminated for Cause, the Executive's rights
under this Agreement shall cease as of the effective date of such termination.
(c) Notwithstanding the provisions of Section 1(a) of this
Agreement, this Agreement shall terminate automatically upon termination of the
Executive's employment as a result of the Executive's voluntary termination
(other than in accordance with Section 2 of this Agreement), retirement at the
Executive's election, or death and the Executive's rights under this Agreement
shall cease as of the date of such voluntary termination, retirement at the
Executive's election, or death; provided, however, that if the Executive dies
after a Notice of Termination (as defined in Section 2(a) of this Agreement) is
delivered by the Executive, the provisions of Section 8(b) of this Agreement
shall apply.
(d) Notwithstanding the provisions of Section 1(a) of this
Agreement, this Agreement shall terminate automatically upon termination of the
Executive's employment as a result of the Executive's disability and the
Executive's rights under this Agreement shall cease as of the date of such
termination; provided, however, that, if the Executive becomes disabled after a
Notice of Termination (as defined in Section 2(a) of this Agreement) is
delivered by the Executive, the Executive shall nevertheless be absolutely
entitled to receive all of the compensation and benefits provided for in, and
for the term set forth in, Section 3 of this Agreement. For purposes of this
Agreement, "disability" shall mean the Executive's incapacitation by accident,
sickness, or otherwise which renders the Executive mentally or physically
incapable of performing the services required of the Executive for three hundred
sixty (360) consecutive days.
2
<PAGE>
2. Termination Following Change in Control.
---------------------------------------
(a) If a Change in Control (as defined in Section 2(b) of this
Agreement) shall occur and if thereafter, at any time during the term of this
Agreement, there shall be:
(i) any involuntary termination of the Executive (other
than as set forth in Section 1(b), 1(c), or 1(d) of this Agreement);
(ii) any reduction in the Executive's title,
responsibilities, including reporting responsibilities, or authority,
including such title, responsibilities, or authority as such title,
responsibilities, or authority may be increased from time to time during
the term of this Agreement;
(iii) the assignment to the Executive of duties
inconsistent with the Executive's office on the date of a Change in Control
or as the same may be increased from time to time after a Change in
Control;
(iv) any reassignment of the Executive to a location
greater than one hundred (100) miles from the principal executive offices
of MAM;
(v) any reduction in the Executive's annual base salary in
effect on the date of a Change in Control or as the same may be increased
from time to time after a Change in Control;
(vi) any failure to continue the Executive's participation,
on substantially similar terms, in any of the Company's incentive
compensation or bonus plans in which the Executive participated at the time
of the Change in Control or any change or amendment to any of the
substantive provisions of any of such plans which would materially decrease
the potential benefits to the Executive under any of such plans;
(vii) any failure to provide the Executive with benefits at
least as favorable as those enjoyed by the Executive under any of the
Company's pension, life insurance, medical, health and accident, disability
or other employee plans in which the Executive participated at the time of
the Change in Control, or the taking of any action that would materially
reduce any of such benefits in effect at the time of the Change in Control,
unless such reduction relates to a reduction in benefits applicable to all
employees generally;
(viii) any requirement that the Executive travel in
performance of his duties on behalf of the Company for a significantly
greater period of time during any year
3
<PAGE>
than was required of the Executive during the year preceding the year in
which the Change in Control occurred;
(ix) any sustained pattern of interruption or disruption of
the Executive for matters substantially unrelated to the Executive's
discharge of the Executive's duties on behalf of the Company; or
(x) any breach of this Agreement of any nature whatsoever
on the part of the Company;
then, at the option of the Executive, exercisable by the Executive within ninety
(90) days of the occurrence of each and every of the foregoing events, the
Executive may resign from employment with the Company (or, if involuntarily
terminated, give notice of intention to collect benefits under this Agreement)
by delivering a notice in writing (the "Notice of Termination") to the Company
and the provisions of Section 3 of this Agreement shall apply.
(b) As used in this Agreement, "Change in Control" shall mean
the occurrence of any of the following:
(i) any "Person" or "group" (as those terms are defined or
used in Section 13(d) of the Securities Exchange Act of 1934 (the "Exchange
Act"), as enacted and in force on the date hereof) is or becomes the
"beneficial owner" (as that term is defined in Rule 13d-3 under the
Exchange Act, as enacted and in force on the date hereof) of securities of
the Company representing 24.99% or more of the combined voting power of the
Company's securities then outstanding;
(ii) there occurs a merger, consolidation, or other
reorganization involving the Company and another entity or a sale,
exchange, transfer, or other disposition of substantially all of the stock
or assets of the Company (a sale of the Company's banking subsidiary to be
deemed a sale of substantially all of the Company's assets) to another
entity or other person, or a purchase by the Company of substantially all
of the stock or assets of another entity, unless (A) such merger,
consolidation, reorganization, sale, exchange, transfer, purchase or
disposition is approved in advance by eighty percent (80%) or more of the
members of the Company's Board of Directors who are not interested in the
transaction, and (B) stockholders who held at least a majority of the
---
voting power of the Company's outstanding securities immediately prior to
consummation of any such transaction hold at least a majority of the voting
power of the outstanding securities of the legal entity resulting from or
existing after any such transaction, and (C) a majority of the members of
---
the Board of Directors of the legal entity resulting from or
4
<PAGE>
existing after any such transaction are former members of the Board of
Directors of the Company;
(iii) there occurs a contested proxy solicitation of the
Company's stockholders which results in the contesting party obtaining the
ability to elect twenty-five percent (25%) or more of the members of the
Board of Directors standing for election at any meeting of the Company's
stockholders;
(iv) at any meeting of the Company's stockholders at which
directors are elected, less than fifty-one percent (51%) of the directors
nominated for election were nominated by the members of the Board of
Directors in office at the time of such meeting; or
(v) there occurs a change in control of a nature that would
be required to be reported in response to Item 5(f) of Schedule 14A of
Regulation 14A promulgated under the Exchange Act, as enacted and in force
on the date hereof, whether or not the Company is then subject to such
reporting requirement.
3. Rights in Event of Termination Following Change in Control.
----------------------------------------------------------
(a) In the event that the Executive delivers a Notice of
Termination to the Company, the Executive shall be absolutely entitled to
receive the compensation and benefits set forth below for the remaining term of
this Agreement, but not exceeding twenty-four (24) months, as follows:
(i) the Executive shall continue to receive payments of
annual base salary at the highest amount in effect during the three (3)
calendar years preceding the year in which the Notice of Termination is
delivered, payable in the same manner as salaries paid to other executive
employees of the Company;
(ii) the Executive shall receive, no later than the fifth
(5th) calendar day of each month, an amount equal to one-twelfth (1/12) of
the annual dollar amount the Executive would have received under the
Meridian Bancorp, Inc. Executive Annual Incentive Plan, based on the
Executive's highest annual base salary in effect during, and based on the
highest percentage award of annual base salary received by the Executive
under such Plan during, the three (3) calendar years preceding the year in
which the Notice of Termination is delivered;
(iii) the Executive shall receive, no later than the fifth
(5th) calendar day of each month, an amount equal to one-twelfth (1/12) of
the amount of the contribution made by the Company to the Meridian Bancorp,
5
<PAGE>
Inc. Savings Plan on behalf of the Executive for the calendar year prior
to the year in which the Notice of Termination is delivered;
(iv) the Executive shall be entitled to continue to
participate in the Meridian Bancorp, Inc. Employee's Retirement Plan and
the Meridian Bancorp, Inc. Retirement Restoration Plan, or any other
supplemental executive retirement plan or other plan in effect during the
term of this Agreement designed to supplement payments made under the
Meridian Bancorp, Inc. Employee's Retirement Plan, as if the Executive's
employment had not terminated; and
(v) the Company shall provide the Executive with life,
disability, and medical insurance benefits at levels equivalent to the
highest levels in effect for the Executive during the two (2) calendar
years preceding the year in which the Notice of Termination is delivered.
(b) In the event that the Executive is ineligible to continue
participation in the Meridian Bancorp, Inc. Employee's Retirement Plan or in
any of the life, disability, or medical insurance plans or programs listed in
Section 3(a) of this Agreement, the Company shall, in lieu of such
participation, pay the Executive a dollar amount equal to the dollar amount of
the benefit forfeited by the Executive as a result of such ineligibility in the
case of the Retirement Plan or a dollar amount equal to the cost to the
Executive to obtain such benefits in the case of any life, disability, or
medical insurance plans or programs.
(c) The Company shall pay to the Executive all legal fees and
expenses incurred by the Executive as a result of the Executive's delivery of a
Notice of Termination (including all such fees and expenses, if any, incurred in
contesting or disputing any termination of employment or in seeking to obtain or
enforce any right or benefit provided by this Agreement).
(d) The Executive shall not be required to mitigate the amount
of any payment provided for in this Section 3 by seeking other employment or
otherwise, nor shall the amount of any payment or benefit provided for in this
Section 3 be reduced by any compensation earned by the Executive as the result
of employment by another employer or by reason of the Executive's receipt of or
right to receive any retirement or other benefits after the date of termination
of employment or otherwise; provided, however, that the payments provided for in
this Section 3 shall be reduced by the amount actually received by the Executive
under the severance policy of the Company then in effect.
(e) Upon written request of the Executive, the Company's
obligation to make payments under this Section 3 shall be secured in total (i)
by a stand-by letter of credit obtained
6
<PAGE>
by the Company from a recognized financial institution the long-term obligations
of which are rated, on the date of such request, investment grade or better by
Standard & Poor's Corporation or Moody's Investors Service, Inc. or (ii) by such
other security as the Executive shall approve.
(f) The Executive's right to receive payments under this
Agreement shall not decrease the amount of, or otherwise adversely affect, any
benefits payable to the Executive under any plan, agreement, or arrangement
relating to employee benefits provided by the Company.
4. Notices. Except as otherwise provided in this Agreement, any
-------
notice required or permitted to be given under this Agreement shall be deemed
properly given if in writing and if mailed by registered or certified mail,
postage prepaid with return receipt requested, to the Executive's residence, in
the case of notices to the Executive, and to the principal office of the
Company, in the case of notices to the Company.
5. Waiver. No provision of this Agreement may be modified, waived,
------
or discharged unless such waiver, modification, or discharge is agreed to in
writing and signed by the Executive and an executive officer specifically
designated by the Board of Directors of the Company. No waiver by either party
hereto at any time of any breach by the other party hereto of, or compliance
with, any condition or provision of this Agreement to be performed by such other
party shall be deemed a waiver of similar or dissimilar provisions or conditions
at the same or at any prior or subsequent time.
6. Assignment. This Agreement shall not be assignable by either
----------
party, except by the Company to any successor in interest to the Company's
business.
7. Entire Agreement. This Agreement contains the entire agreement
----------------
of the parties relating to the subject matter of this Agreement.
8. Successors; Binding Agreement.
-----------------------------
(a) The Company will require any successor (whether direct or
indirect, by purchase, merger, consolidation, or otherwise) to all or
substantially all of the business and/or assets of the Company to expressly
assume and agree to perform this Agreement in the same manner and to the same
extent that the Company would be required to perform it if no such succession
had taken place. Failure by the Company to obtain such assumption and agreement
prior to the effectiveness of any such succession shall constitute a breach of
this Agreement and the provisions of Section 3 of this Agreement shall apply.
As used in this Agreement, "Company" shall mean the Company as defined
previously and any successor to its business and/or assets as aforesaid
7
<PAGE>
which assumes and agrees to perform this Agreement by operation of law or
otherwise.
(b) This Agreement shall inure to the benefit of and be
enforceable by the Executive's personal or legal representatives, executors,
administrators, heirs, distributees, devisees, and legatees. If the Executive
should die after a Notice of Termination is delivered by the Executive and any
amounts would be payable to the Executive under this Agreement if the Executive
had continued to live, all such amounts shall be paid in accordance with the
terms of this Agreement to the Executive's devisee, legatee, or other designee,
or, if there is no such designee, to the Executive's estate.
9. Validity. The invalidity or unenforceability of any provision of
--------
this Agreement shall not affect the validity or enforceability of any other
provision of this Agreement, which shall remain in full force and effect.
10. Applicable Law. This Agreement shall be governed by and
--------------
construed in accordance with the domestic laws (but not the law of conflicts of
law) of the Commonwealth of Pennsylvania.
11. Headings. The headings of the Sections of this Agreement are for
--------
convenience only and shall not control or affect the meaning or construction or
limit the scope or intent of any of the provisions of this Agreement.
IN WITNESS WHEREOF, the parties have executed this Agreement as of the
date first above written.
MERIDIAN BANCORP, INC.
By________________________________
Chairman of the Board
(SEAL)
Attest:___________________________
Secretary
("Company")
Witness:
_________________________ ____________________________(SEAL)
George W. Grosz
("Executive")
8
<PAGE>
EXHIBIT 11
COMPUTATION OF EARNINGS PER SHARE
---------------------------------
<TABLE>
<CAPTION>
Year Ended December 31
--------------------------------------------------------------------------------
1995 1994 1993 1992 1991 1990
---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Net Income $ 169,814 $ 159,358 $ 157,761 $ 136,705 $ 117,686 $ 36,684
Average Common Shares Outstanding 55,950,527 57,661,043 57,194,411 55,201,126 52,052,879 51,014,585
Stock options considered to be
common stock equivalents,
net of shares assumed to be
repurchased under the treasury
stock method, and convertible
preferred stock 1,049,972 379,267 479,647 609,684 740,146 340,929
---------- ----------- ----------- ----------- ----------- -----------
Total Stock and Stock equivalents 57,000,499 58,040,310 57,674,058 55,810,810 52,793,025 51,355,514
========== =========== =========== =========== =========== ===========
Net Income per common share $ 2.98 $ 2.75 $ 2.74 $ 2.44 $ 2.23 $ 0.71
========== =========== =========== =========== =========== ===========
</TABLE>
<PAGE>
EXHIBIT 21
LIST OF SUBSIDIARIES
<TABLE>
<CAPTION>
Name State of Incorporation
____ ______________________
<S> <C>
McGlinn Capital Management, Inc. Pennsylvania
Meridian Acceptance Corporation New Jersey
Meridian Asset Acceptance Corporation Delaware
Meridian Asset Management, Inc. Pennsylvania
Meridian Trust Company Pennsylvania
Meridian Investment Company Pennsylvania
Meridian Trust Company of California California
Meridian Securities, Inc. Pennsylvania
Meridian Capital Corp. Pennsylvania
Meridian Commercial Finance Corporation Pennsylvania
Meridian Delaware Investments, Inc. Delaware
Meridian Funding Corp. Pennsylvania
Meridian Life Insurance Company Arizona
Delaware Trust Company Delaware
Delaware Trust Capital Management, Inc. Delaware
Griffin Corporate Services, Inc. Delaware
Meridian Bank Pennsylvania
Callowhill Consumer Discount Company Pennsylvania
Meridian Auto Leasing, Inc. Pennsylvania
Meridian Community Partnership
Development Corporation Pennsylvania
Limited Holdings Corporation Pennsylvania
Meridian Leasing, Inc. Pennsylvania
Meridian Mortgage Corporation Pennsylvania
Meridian Properties, Inc. Pennsylvania
Meridian Bank, New Jersey New Jersey
Unitrust Financial Corporation New Jersey
United Counties Service Corporation New Jersey
United Capital Corporation New Jersey
</TABLE>
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 9
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> DEC-31-1995
<CASH> 839,010
<INT-BEARING-DEPOSITS> 67,461
<FED-FUNDS-SOLD> 5,069
<TRADING-ASSETS> 145,882
<INVESTMENTS-HELD-FOR-SALE> 1,289,570
<INVESTMENTS-CARRYING> 1,338,548
<INVESTMENTS-MARKET> 1,343,170
<LOANS> 10,163,851
<ALLOWANCE> 164,151
<TOTAL-ASSETS> 14,758,226
<DEPOSITS> 11,149,846
<SHORT-TERM> 1,518,181
<LIABILITIES-OTHER> 270,003
<LONG-TERM> 513,765
0
0
<COMMON> 293,440
<OTHER-SE> 1,012,991
<TOTAL-LIABILITIES-AND-EQUITY> 14,758,226
<INTEREST-LOAN> 896,976
<INTEREST-INVEST> 196,524
<INTEREST-OTHER> 16,922
<INTEREST-TOTAL> 1,110,422
<INTEREST-DEPOSIT> 371,727
<INTEREST-EXPENSE> 494,740
<INTEREST-INCOME-NET> 615,682
<LOAN-LOSSES> 39,377
<SECURITIES-GAINS> 7,965
<EXPENSE-OTHER> 578,419
<INCOME-PRETAX> 254,451
<INCOME-PRE-EXTRAORDINARY> 169,814
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 169,814
<EPS-PRIMARY> 3.00
<EPS-DILUTED> 2.98
<YIELD-ACTUAL> 4.67
<LOANS-NON> 75,900
<LOANS-PAST> 27,354
<LOANS-TROUBLED> 848
<LOANS-PROBLEM> 22,000
<ALLOWANCE-OPEN> 169,402
<CHARGE-OFFS> 60,255
<RECOVERIES> 15,627
<ALLOWANCE-CLOSE> 164,151
<ALLOWANCE-DOMESTIC> 119,242
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 44,909
</TABLE>
