<PAGE>1 1of2
FORM 10-K
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
(Mark One)
[ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the fiscal year ended December 31, 1993
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES AND EXCHANGE ACT OF 1934
For the transition period from................ to ................
COMMISSION FILE NUMBER 0-15870
MIDLANTIC CORPORATION
(Exact name of registrant as specified in its charter)
New Jersey 22-2699903
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification Number)
Metro Park Plaza, P.O. Box 600, Edison, New Jersey 08818
(Address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: (908) 321-8000
Securities registered pursuant to Section 12(b) of the Act: None
Securities registered pursuant to Section 12(g) of the Act:
Title of each class
- -------------------
Common Stock, par value $3.00 per share; 8 1/4% Convertible Subordinated
Debentures Due 2010; 9.875% Subordinated Capital Notes Due 1999; 9.20%
Subordinated Capital Notes Due 2001
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 12 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 [ ]
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. [ ]
Aggregate market value of voting shares of Midlantic Corporation as of February
25, 1994 (net of voting shares held by the trust departments of subsidiary
banks and by the officers and directors of Midlantic Corporation*):
$1,400,027,000.
<PAGE>1 2of2
Shares outstanding on February 25, 1994
- ---------------------------------------
Common Stock, par value $3.00 per share - 52,227,123 shares
Documents incorporated by reference
- -----------------------------------
Definitive proxy statement for the 1994 Annual Shareholders' Meeting filed with
the Commission pursuant to Regulation 14A - incorporated by reference in Part
III.
Annual Report to Shareholders for fiscal year ended December 31, 1993 -
incorporated by reference in Part I, Item 1; Part II, Items 5, 6, 7 and 8 and
Part IV, Item 14(a) 1
*Midlantic Corporation does not admit by virtue of the foregoing that its
officers and directors are "affiliates" as defined in Item 405 of Regulation
S-K and does not admit that it controls the shares of its voting stock held by
the trust departments of its bank subsidiaries.
<PAGE>2
MIDLANTIC CORPORATION
FORM 10-K INDEX
PART I PAGE
_______________________________________________________________________________
ITEM 1 - BUSINESS
a) Description of Business 3-10
b) Statistical Information and Analysis 11-15
ITEM 2 - PROPERTIES 16
ITEM 3 - LEGAL PROCEEDINGS 17
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17
EXECUTIVE OFFICERS OF THE REGISTRANT 18-19
PART II
_______________________________________________________________________________
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED
STOCKHOLDER MATTERS 20
ITEM 6 - SELECTED FINANCIAL DATA 20
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 21
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 21
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON
ACCOUNTING AND FINANCIAL DISCLOSURE 21
PART III
_______________________________________________________________________________
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 22
ITEM 11 - EXECUTIVE COMPENSATION 22
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS
AND MANAGEMENT 22
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 22
PART IV
_______________________________________________________________________________
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS
ON FORM 8-K 23-26
SIGNATURES 27-29
<PAGE>3
Part I
ITEM 1 - BUSINESS
a) Description of Business
Introduction
Midlantic Corporation ("MC") is a regional bank holding company headquartered
in Edison, New Jersey. MC's principal activity consists of managing,
controlling and providing services and capital funds to its direct and indirect
subsidiaries. MC directly or indirectly owns Midlantic National Bank ("MNB"),
headquartered in Newark, New Jersey and Continental Bank ("CB"), headquartered
in Norristown, Pennsylvania. The activities of MC and certain of its
subsidiaries are significantly restricted by law (see "Supervision and
Regulation").
Divestitures and Internal Mergers
In 1991, MC announced a major restructuring program (the "Restructuring
Program"), which encompassed a strategy of selling assets and subsidiaries
located outside of New Jersey and southeastern Pennsylvania in order to
strengthen its capital position and focus upon its core market. The following
actions have been taken pursuant to the Restructuring Program:
- MC's New Jersey bank subsidiaries, MNB and Midlantic National Bank/North
were merged on September 30, 1991.
- On November 15, 1991, the trust assets, branch facilities and $20.9
million of private banking and home equity loans of Midlantic National Bank and
Trust Co./Florida ("MNB/Florida") were sold for $24.2 million. In late 1993,
MNB/Florida was dissolved.
- On December 31, 1991, MC sold The York Bank and Trust Company of York,
Pennsylvania, for $129.0 million and United Penn Bank and UniPenn Realty Co.,
of Wilkes-Barre, Pennsylvania, for $90.2 million, respectively.
- On March 24, 1992, Midlantic Home Mortgage Corporation ("MHMC") a mortgage
banking subsidiary, was sold for $44.6 million.
- On July 1, 1992, MC sold Central Trust Company and Endicott Trust Company
for an aggregate sales price of $114.8 million of cash and other consideration
and on December 31, 1992, MC sold the Merchants National Bank & Trust Company
of Syracuse and Union National Bank of Albany for an aggregate sales price of
$93.3 million of cash and other consideration.
Prior to the announcement of the Restructuring Program, MC caused its wholly-
owned subsidiary, Continental Bancorp, Inc., to be merged with and into MC.
Midlantic National Bank and Continental Bank
As of December 31, 1993, MNB operated 262 bank offices in twenty counties of
New Jersey and one bank office in Philadelphia, Pennsylvania. MNB has an
offshore branch in Grand Cayman, British West Indies. Its main office is in
<PAGE>4
Newark, New Jersey and its principal executive offices are in Edison, New
Jersey. CB operated 62 bank offices in Bucks, Chester, Delaware, Montgomery
and Philadelphia counties in Pennsylvania at December 31, 1993. Its
headquarters is located in Norristown, Pennsylvania and its executive offices
are located in Philadelphia, Pennsylvania. MNB and CB operate six regional
trust offices (five in New Jersey and one in Pennsylvania).
According to "The American Banker," based upon total deposits, at December 31,
1993, MNB was the second largest commercial bank in New Jersey and CB was the
seventh largest commercial bank in Pennsylvania.
The following table provides information about MNB and CB as of December 31,
1993:
<TABLE>
<CAPTION>
Midlantic Continental
(In thousands) National Bank Bank
_________________________________________________________________________
<S> <C> <C>
Total assets $10,080,911 $3,755,145
Loans, net 5,328,542 2,576,508
Total deposits 8,571,141 3,115,091
___________ __________
</TABLE>
MNB and CB are engaged in commercial and retail banking activities. Banking
services are extended to individual, business, governmental and institutional
customers, and to correspondent banks. Such services include all the usual
deposit functions of commercial banks with demand and time account services;
the making of commercial, industrial, real estate and consumer loans; the
furnishing of collection and foreign exchange services; and rental of safe
deposit boxes. In addition, MNB and CB furnish financial and data processing
services to customers and other banks and provide cash management facilities to
commercial customers. Offshore deposit acceptances and placements are
conducted by MNB at facilities in Grand Cayman. MNB and CB provide complete
personal and corporate trust services, including administration of estates and
trusts, pension and other employee benefit plans, investment advisory and
agency accounts, and a full range of other fiduciary, corporate fiduciary, and
agency services.
Nonbank Activities
MC's major nonbank activities are conducted through the following direct or
indirect subsidiaries: Midlantic Securities Corp., a discount broker/dealer
located in Philadelphia, Pennsylvania; Lenders Life Insurance Co., an Arizona-
based affiliate, which acts as a reinsurer in connection with credit-related
insurance; and Lease and Go, Inc., which engages in the leasing of motor
vehicles.
At December 31, 1993, less than five percent of the consolidated assets of MC
were employed in nonbank activities.
Employees
As of December 31, 1993, 5,863 persons were employed full-time or part-time by
MC and its subsidiaries. Management of MC considers relations with its
employees to be satisfactory.
<PAGE>5
Competition
The banking business is highly competitive and the bank subsidiaries
("Subsidiary Banks") of MC compete not only with New Jersey, New York and
Pennsylvania commercial banks, but also with savings banks, savings and loan
associations, money market and mutual funds, insurance companies, consumer
finance companies, credit unions and other lending and deposit-gathering
institutions.
Effect of Government Monetary Policies
The earnings of MC and the Subsidiary Banks are affected by domestic and
foreign economic conditions and by the monetary and fiscal policies of the
United States government and its agencies.
The monetary policies of the Board of Governors of the Federal Reserve System
(the "FRB") have had, and will probably continue to have, an important impact
on the operating results of commercial banks through the FRB's power to
implement national monetary policy in order to, among other things, curb
inflation or combat a recession. The policies of the FRB have a major effect
upon the levels of bank loans, investments and deposits through the FRB's open
market operations in United States government securities, through its
regulation of, among other things, the discount rate on borrowings of
depository institutions, and the reserve requirements against depository
institution deposits. Recently, lower interest rates resulting from the FRB's
monetary policies have generally benefited depository institutions. It is not
possible to predict the nature and impact of future changes in monetary and
fiscal policies and their impact on MC and the Subsidiary Banks.
Supervision and Regulation
General - As a bank holding company registered under the Bank Holding Act of
1956, as amended (the "Act"), MC is subject to substantial regulation and
supervision by the FRB. The Subsidiary Banks are subject to regulation and
supervision by federal and state bank regulatory agencies, including the Office
of the Comptroller of the Currency ("OCC") and the Federal Deposit Insurance
Corporation ("FDIC"). Federal banking and other laws impose a number of
requirements and restrictions on the operations and activities of depository
institutions. In addition, the federal banking agencies periodically take
regulatory actions to implement legislation and regulatory initiatives that
might result in additional substantial restrictions on operations and
activities and increase operating costs.
Holding Company Activities - Under the Act, bank holding companies may engage
directly, or indirectly through subsidiaries, in activities which the FRB
determines to be so closely related to banking or managing or controlling banks
as to be a proper incident thereto. Acquisitions of existing companies and
engaging in activities which the FRB has not theretofore determined to be
permissible for bank holding companies normally require specific FRB approval.
MC, as well as its subsidiaries, is prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit, lease or provision of
any property or services.
<PAGE>6
Generally, the Act prohibits a bank holding company from acquiring more than
five percent of the voting shares or substantially all of the assets of any
bank without prior approval of the FRB. Subject to limited exceptions, the FRB
is prohibited from approving an application by a bank holding company to
acquire voting shares of any commercial bank in another state unless such
acquisition of a bank is specifically authorized by the laws of such other
state. Subject to certain restrictions, New Jersey law permits bank holding
companies which are located in New Jersey, such as MC, to acquire commercial
banks located outside of New Jersey. Pennsylvania law permits New Jersey bank
holding companies, like MC, to acquire commercial banks in Pennsylvania,
subject to the prior approval of the acquisition by the Pennsylvania Department
of Banking and certain other limitations. In accordance with the restrictions
in the New Jersey and Pennsylvania laws and subject to certain limitations, MC
may acquire banks or bank holding companies in any state permitting such an
acquisition. MC may, subject to approval by the FRB, also acquire savings
associations.
Dividends - The principal sources of income for MC are dividends and management
fees from the Subsidiary Banks. The limitations on the Subsidiary Banks'
ability to pay dividends to MC are described under the consolidated financial
note caption "30. Lending and dividend limitations" and the consolidated
financial note caption "31. Regulatory matters" on pages 68 and 69,
respectively, of MC's Annual Report to Shareholders for the fiscal year ended
December 31, 1993, which consolidated financial notes are incorporated herein
by reference. Regulatory agreements with the FRB and OCC that restricted MC's
and MNB's ability to declare and pay dividends were terminated in March 1994.
Capital Requirements - Federal law currently requires MC and the Subsidiary
Banks to meet certain minimum leverage and risk-based capital ratios, and
empowers the bank regulatory agencies to take a number of enforcement actions
against MC or the Subsidiary Banks if they fail to achieve the mandated ratios.
MC and the Subsidiary Banks currently meet or exceed the minimum regulatory
capital standards.
The federal bank regulatory agencies have proposed incorporating an interest
rate risk component and concentrations of credit and nontraditional activities
risk components into existing risk-based capital standards. Under the
proposals, banks and bank holding companies with greater than "normal" levels of
such risks would be required to hold additional capital. Such proposals, if
adopted, are not expected to have a material impact on MC or the Subsidiary
Banks.
Holding Company Liability - FRB policy requires bank holding companies to serve
as a source of strength to their subsidiary banks by standing ready to use
available resources to provide adequate capital funds to subsidiary banks
during periods of financial stress or adversity. A bank holding company also
could be liable under certain provisions of the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA") for the capital deficiencies of
an undercapitalized bank subsidiary. In the event of a bank holding company's
bankruptcy under Chapter 11 of the U.S. Bankruptcy Code, the trustee will be
deemed to have assumed and is required to cure immediately any deficit under
any commitment by the debtor to any of the federal banking agencies to maintain
the capital of an insured depository institution, and any claim for a
<PAGE>7
breach of such obligation will generally have priority over most other unsecured
claims.
Transactions with Subsidiary Banks - The Subsidiary Banks are subject to
certain restrictions imposed by law on extensions of credit to, and certain
other transactions with, MC and certain other subsidiaries, as described under
the consolidated financial note caption "30. Lending and dividend limitations"
on pages 68 and 69 of MC's Annual Report to Shareholders for the fiscal year
ended December 31, 1993, which consolidated financial note is incorporated
herein by reference. A regulatory agreement with the OCC that restricted MNB's
ability to declare and pay dividends was terminated in March 1994. The
Subsidiary Banks are also subject to certain restrictions on investments in MC
securities and on the taking of such securities as collateral for loans to any
borrower.
Unsafe or Unsound Practices - The appropriate federal bank regulatory
authorities also have authority to prohibit a bank or bank holding company from
engaging in any activity or transaction deemed by the federal bank regulatory
authority to be an unsafe or unsound practice. The payment of dividends could,
depending upon the financial condition of the bank or bank holding company, be
such an unsafe or unsound practice. The amount of other payments by Subsidiary
Banks to MC (including management fees) is subject to review by bank regulatory
authorities. Federal law also grants to federal banking agencies the power to
issue cease and desist orders when a depository institution or a bank holding
company or an officer or director thereof is engaged in or is about to engage
in unsafe and unsound practices. The FRB may require a bank holding company to
discontinue certain of its activities or activities of its nonbank subsidiaries
or divest itself of such nonbank subsidiaries if such activities cause serious
risk to a bank subsidiary and are inconsistent with the Act or other applicable
federal banking laws. Under certain circumstances, engaging in an unsafe or
unsound practice could be grounds for the appointment of a receiver or
conservator for an insured bank.
Other Regulatory Matters - The Subsidiary Banks are also subject to other laws
and regulations relating to required reserves, investments, loans, the opening
and closing of branches and other aspects of their operations. Certain other
regulatory matters that had affected MC and the Subsidiary Banks in recent years
are described under the heading "Regulatory Agreements" in Management's
Discussion and Analysis and the consolidated financial note caption
"31. Regulatory matters" on pages 42 and 69, respectively of MC's Annual Report
to Shareholders for the fiscal year ended December 31, 1993, each of which is
incorporated herein by reference. In March 1994, the FRB and OCC terminated the
regulatory agreements under which MC and MNB had been operating in recent
years.
New Banking Regulations - Pursuant to the provisions of FDICIA, which was
enacted in late 1991 and which provides for significant changes in the bank
regulatory system, the bank regulatory agencies have adopted or proposed for
adoption regulations that impose significant restrictions on the activities of
insured financial institutions and their holding companies. Among other
things, such regulations impose uniform standards for real estate lending,
adopt truth-in-savings disclosure requirements and prohibit or limit the
acceptance of brokered deposits by insured financial institutions that do not
meet the banking agencies' definition of "well-capitalized." The bank
<PAGE>8
regulatory agencies are also actively considering proposals that affect a wide
range of operational and managerial matters, including asset quality, earnings,
stock valuation and employee compensation, limitations on activities of state-
chartered banks, and new reporting and audit requirements.
Deposit Insurance - The deposits of the Subsidiary Banks are insured by the
FDIC through the Bank Insurance Fund ("BIF") to the extent provided by law.
Effective January 1, 1993, the FDIC implemented a risk-based insurance system
that assesses premiums of between 23 and 31 basis points per $100 of deposits
depending upon the capital and supervisory group within which the institution
falls. The Subsidiary Banks initially paid premiums at the higher end of this
range. However, premiums were reduced somewhat during 1993 and are expected to
decline again in 1994. The FDIC is considering other modifications to the
assessment system which could result in a further increase in deposit insurance
premium rates.
Community Reinvestment and Fair Lending - Pursuant to federal law, federal
regulatory authorities review the performance of MC and its Subsidiary Banks in
meeting the credit needs of the communities served by the Subsidiary Banks.
The applicable federal regulatory authority considers compliance with this law
in connection with applications for, among other things, approval of branches,
branch relocations and acquisitions of banks and bank holding companies.
Federal regulatory authorities also review the performance of MC and its
Subsidiary Banks with respect to compliance with laws prohibiting
discriminatory practices in lending including the Equal Credit Opportunity Act
and the Fair Housing Act. Under current law, federal regulators that have
reason to believe that a bank has engaged in a pattern or practice of violating
the Equal Credit Opportunity Act are required to refer the matter to the United
States Department of Justice.
Prompt Corrective Action - FDICIA prescribes the supervisory and regulatory
actions that will be taken against undercapitalized insured depository
institutions for the purposes of promptly resolving problems at such
institutions at the least possible long-term loss to the FDIC. Five categories
of depository institutions have been established by FDICIA in accordance with
their capital levels: "well-capitalized," "adequately capitalized,"
"undercapitalized," "significantly undercapitalized" and "critically
undercapitalized." The federal banking agencies have adopted uniform
regulations to implement the prompt regulatory action provision of FDICIA.
Under the uniform regulations, a well-capitalized institution has a minimum
tier 1 capital-to-total risk-based assets ratio of 6 percent, a minimum total
capital-to-total risk-based assets ratio of 10 percent and a minimum leverage
ratio of 5 percent and is not subject to any written capital order or
directive. An adequately capitalized institution meets all of its minimum
capital requirements under the existing capital adequacy guidelines. An
undercapitalized institution is one that fails to meet any one of the three
minimum capital requirements. A significantly undercapitalized institution has
a tier 1 capital-to-total risk-based assets ratio of less than 3 percent, a
tier 1 leverage ratio of less than 3 percent or a total capital-to-total risk-
based assets ratio of less than 6 percent. A critically undercapitalized
institution has a tier 1 leverage ratio of 2 percent or less. An institution
whose capital ratios meet the criteria for a well-capitalized institution may
<PAGE>9
be classified as an adequately capitalized institution due to qualitative
and/or quantitative factors other than capital adequacy. An adequately
capitalized institution or undercapitalized institution, may under certain
circumstances, be required to comply with supervisory actions as if it were in
the next lower category.
Based upon MC's understanding of the uniform regulations and of publicly
available interpretations thereof by the bank regulatory agencies, MC believes
that each of the Subsidiary Banks currently qualifies as a "well-capitalized"
institution. The categorization of depository institutions under the uniform
regulations is solely for the purpose of applying the prompt corrective action
provision of FDICIA and is not intended to be, and should not be interpreted
as, a representation of the depository institution's overall financial
condition or prospects.
An undercapitalized institution is required to submit a capital restoration
plan for acceptance by the appropriate federal banking agency and will be
subject to close monitoring of both its condition and compliance with, and
progress made pursuant to, its capital restoration plan. The capital
restoration plan will be accepted only if (i) it specifies the steps that will
be taken to become adequately capitalized and the activities in which the
institution will engage, (ii) it is based upon realistic assumptions and is
likely to succeed in restoring the institution's capital, (iii) it does not
appreciably increase the institution's risk exposure and (iv) each holding
company that controls the institution provides appropriate assurances of
performance and guarantees that the institution will comply with the plan until
the institution is adequately capitalized on an average basis for each of four
consecutive quarters. Liability under the guaranty is the lesser of (i) five
percent of the institution's total assets at the time it became
undercapitalized and (ii) the amount necessary to bring the institution into
compliance with all applicable capital standards as of the time the institution
fails to comply with the plan. An institution that fails to submit an
acceptable plan may be placed into conservatorship or receivership unless its
capital restoration plan is accepted. An undercapitalized institution will
also be subject to restrictions on asset growth, acquisitions, branching, new
activities, capital distributions and the payment of management fees.
FDICIA requires the appropriate regulatory agencies to take one or more
specific actions against significantly undercapitalized institutions and
undercapitalized institutions that fail to submit capital restoration plans or
fail to implement in a material respect their capital restoration plans, which
actions include but are not limited to (i) requiring the institution to sell
shares or other obligations to raise capital, (ii) limiting deposit interest
rates, (iii) requiring the election of a new board of directors and/or
dismissing senior executive officers and directors who held such positions for
more than 180 days before the institution became undercapitalized, (iv)
prohibiting receipt of deposits from correspondent banks, (v) requiring
divestiture or liquidation of one or more subsidiaries and (vi) requiring the
parent company to divest the institution if such divestiture will improve the
institution's financial condition and future prospects. In addition, an
insured institution that receives a less-than-satisfactory rating for asset
quality, management, earnings or liquidity may be deemed by its appropriate
federal banking regulator to be engaging in an unsafe or unsound practice for
<PAGE>10
purposes of issuing an order to cease and desist or to take certain affirmative
actions. If the unsafe or unsound practice is likely to weaken the
institution, cause insolvency or substantial dissipation of assets or
earnings or otherwise seriously prejudice the interest of depositors or the
FDIC, a receiver or conservator could be appointed. Finally, subject to certain
exceptions, FDICIA requires critically undercapitalized institutions to be
placed into receivership or conservatorship within 90 days after becoming
critically undercapitalized.
The FRB has indicated that it will consult with each federal banking agency
regulating the bank subsidiaries of a holding company to monitor required
supervisory actions and, based on an assessment of these developments, will
take appropriate action at the holding company level.
Conservatorship and Receivership Powers of Federal Banking Agencies - FDICIA
significantly expanded the authority of the federal banking regulators to place
depository institutions into conservatorship or receivership to include, among
other things, appointment of the FDIC as conservator or receiver of an
undercapitalized institution under certain circumstances. In the event a bank
is placed into conservatorship or receivership, the FDIC is required, subject
to certain exceptions, to choose the method for resolving the institution that
is least costly to the BIF, such as liquidation. In any event, if either of
the Subsidiary Banks were placed into conservatorship or receivership, because
of the cross-guarantee provisions of the Federal Deposit Insurance Act, as
amended, MC as the sole stockholder of the Subsidiary Banks would likely lose
its investment in the Subsidiary Banks.
The FDIC may provide federal assistance to a "troubled institution" without
placing the institution into conservatorship or receivership. In such case,
pre-existing debtholders and stockholders may be required to make substantial
concessions and, insofar as practical, the FDIC will succeed to their interests
in proportion to the amount of federal assistance provided.
Enforcement Actions and Administrative Sanctions - Failure to comply with
applicable laws, regulations and supervisory agreements could subject MC, the
Subsidiary Banks and officers, directors and institution-affiliated parties to
administrative sanctions and potentially substantial civil money penalties.
Proposed Legislation
From time to time various proposals are made in the United States Congress as
well as state legislatures which would alter the powers of, and place
restrictions on, different types of bank organizations as well as bank and
nonbank activities. Such legislative proposals include interstate branching,
expansion of bank powers, amendment of the Community Reinvestment Act, and
regulation of bank sales of mutual funds. It is impossible to predict whether
any of the proposals will be adopted, therefore, it is not practical to predict
the impact of such adoption on the business of MC or its subsidiaries.
<PAGE>11
b) Statistical Information and Analysis
The following tables set forth on a consolidated basis certain statistical
data concerning MC and its wholly-owned subsidiaries ("Midlantic").
I. Distribution of Assets, Liabilities and Shareholders' Equity; Interest
Rates and Interest Differential
A. Average Balances
MC responds to this segment by incorporating by reference the
material for the years 1991 through 1993 under the heading
"Comparative Consolidated Average Balance Sheet with Resultant
Interest and Average Rates" on pages 72 and 73 of MC's Annual
Report to Shareholders for the fiscal year ended December 31,
1993.
B. Average Rates Earned and Paid
MC responds to this segment by incorporating by reference the
material for the years 1991 through 1993 under the caption
"Comparative Consolidated Average Balance Sheet with Resultant
Interest and Average Rates" on pages 72 and 73 of MC's Annual
Report to Shareholders for the fiscal year ended December 31,
1993.
C. Analysis of Year-to-Year Changes in Net Interest Earnings
MC responds to this segment by incorporating by reference the
material in "Table VI - Analysis of Changes in Net Interest
Income" on page 20 of MC's Annual Report to Shareholders for the
fiscal year ended December 31, 1993.
II. Investment Portfolio
A. Book Values
MC responds to this item by incorporating by reference the amounts
for 1993 and 1992 appearing in the columns labeled "Book Value"
under the consolidated financial note caption "4. Investment
securities" on pages 52 and 53 of MC's Annual Report to Shareholders
for the fiscal year ended December 31, 1993.
At December 31, 1991, Midlantic's investment securities portfolio,
which totalled $2.656 billion, was stratified as follows: United
States Treasury securities $1.926 billion; obligations of United
States government agencies $383.665 million; obligations of states
and political subdivisions $204.835 million; and Other securities
$141.220 million.
<PAGE>12
B. Maturities and Weighted Average Interest Yields
MC responds to this item by incorporating by reference the
material contained in the maturity distribution table under the
consolidated financial note caption "4. Investment securities" on
page 53 of MC's Annual Report to Shareholders for the fiscal year
ended December 31, 1993.
C. Securities of a Single Issuer Exceeding Ten Percent of
Shareholders' Equity
At December 31, 1993, Midlantic had aggregate investments with the
Federal Home Loan Mortgage Corporation and the Federal National
Mortgage Association, which comprised 61 percent and 34 percent of
shareholders' equity, respectively.
III. Loan Portfolio
A. Types of Loans
The following table shows the amount of each type of loan of
Midlantic at the end of each of the past five years:
<TABLE>
<CAPTION>
LOAN PORTFOLIO
(In thousands)
December 31 1993 1992 1991 1990 1989
______________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Commercial and financial $2,897,656 $3,467,033 $ 4,844,756 $ 6,892,730 $ 7,552,813
Real estate
Construction and development 834,013 1,497,447 1,993,229 2,597,501 2,935,882
Mortgage 2,301,389 2,369,792 3,342,243 3,876,335 4,044,070
Loans to individuals 2,415,391 1,635,493 2,422,728 3,714,989 4,342,334
Foreign 3,492 80,274 92,838 107,821 117,491
__________ __________ ___________ ___________ ___________
Total loans 8,451,941 9,050,039 12,695,794 17,189,376 18,992,590
Less: unearned income 137,110 95,882 209,898 374,328 443,926
__________ __________ ___________ ___________ ___________
Total loans, net of unearned income $8,314,831 $8,954,157 $12,485,896 $16,815,048 $18,548,664
========== ========== =========== =========== ===========
</TABLE>
B. Maturities and Sensitivities of Loans to Changes in Interest Rates
MC responds to this segment by incorporating by reference the
material in "Table XXIX Loan Portfolio - Maturities and
Sensitivity to Changes in Interest Rates" on page 39 of MC's
Annual Report to Shareholders for the fiscal year ended December
31, 1993.
C. Risk Elements
1. Nonaccrual, Past Due and Restructured Loans
MC responds to this item by incorporating by reference the
material under the subcaptions "Nonaccrual Loans," "Renegotiated
Loans" and "Accruing Past Due Loans" including the material for
<PAGE>13 1of2
the years 1989 through 1993 in "Table XVII - Nonaccrual Loans,
Other Real Estate Owned, Net and Past Due Loans" on pages 31
through 33
of MC's Annual Report to Shareholders for the fiscal year ended
December 31, 1993.
2. Potential Problem Loans
MC responds to this item by incorporating by reference the
material under the subcaption "Potential Problem Loans" on page
34 of MC's Annual Report to Shareholders for the fiscal year
ended December 31, 1993.
3. Foreign Outstandings
At December 31, 1993, Midlantic's foreign outstandings (dollar
denominated credits owed or guaranteed by foreign countries,
foreign banks and other foreign persons) amounted to $637.9
million or 4.6 percent of total consolidated assets as compared
with $753.1 million or 5.2 percent of total assets at year-end
1992 and $315.4 million or 1.7 percent of total assets at year-
end 1991. The rise in foreign outstandings since year-end 1991
primarily reflects an increase in short-term money market
investments with domestic subsidiaries of foreign banks.
The following table relates individual country exposures as a
percent of total assets for those individual country exposures
that exceeded .75 percent of total assets during any period-end
covering the three years ended December 31, 1993.
<TABLE>
<CAPTION>
December 31
1993 1992 1991
_______________________________________________________
<S> <C> <C> <C>
France 1.08% 1.20% N/A
Japan .86 1.40 N/A
Switzerland .86 N/A N/A
____ ____ ___
<FN>
N/A - Indicates outstandings were less than .75 percent of
total assets at year-end.
</TABLE>
<PAGE>13 2of2
The following is an analysis of the changes in the aggregate
outstandings to Japan and France:
<TABLE>
<CAPTION>
JAPAN FRANCE
_____________________________________________________________________________
<S> <C> <C>
Aggregate outstandings at December 31, 1992 $204,087 $165,136
Net change in short-term outstandings during 1993 (83,971) (14,095)
________ ________
Aggregate outstandings at December 31, 1993 $120,116 $151,041
======== ========
</TABLE>
4. Loan Concentrations
At December 31, 1993, there were no additional significant
loan concentrations other than those disclosed pursuant to
section III.A. of this report.
<PAGE>14
D. Other Interest-bearing Assets
MC responds to this item by incorporating by reference the
material under the subcaption "Other Real Estate Owned" on
pages 34 and 35 and the material relating to other real estate
owned for the years 1989 through 1993 reported in "Table XVII -
Nonaccrual Loans, Other Real Estate Owned, Net and Past Due
Loans on page 31 of MC's Annual Report to Shareholders for the
fiscal year ended December 31, 1993.
IV. Summary of Loan Loss Experience
A. Analysis of Loan Loss Experience
MC responds to this item by incorporating by reference the
material under the subcaption "Allowance for Loan Losses"
including the material for the years 1989 through 1993 in
"Table XVI - Summary of Loan Loss Experience" on pages 29
through 31 of MC's Annual Report to Shareholders for the fiscal
year ended December 31, 1993.
B. Allocation of Allowance for Loan Losses and the Percentage of
Loans to Total Loans
The following table provides the allocation of the allowance
for loan losses at the end of each of the past five years as
required by Securities and Exchange Commission Industry Guide
# 3.
<TABLE>
<CAPTION>
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES
(In thousands)
December 31 1993 1992 1991 1990 1989
______________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Commercial and financial $ 74,993 $144,509 $336,242 $352,587 $152,501
Real estate
Construction and
development 106,391 302,716 188,685 211,939 78,772
Mortgage 97,619 45,797 47,747 76,195 45,685
Loans to individuals 22,688 15,396 25,338 42,986 45,683
Foreign 2,176 3,274 3,236 22,236 38,209
Unallocated 90,583 152,209 240,444 31,179 27,599
________ ________ ________ ________ ________
$394,450 $663,901 $841,692 $737,122 $388,449
======== ======== ======== ======== ========
</TABLE>
The methodology used to allocate reserves is heavily weighted by loan charge-off
history. The level of Midlantic's charge-offs in recent years may not be
indicative of future losses and, therefore, may result in higher allocations to
certain loan categories. Midlantic considers the entire allowance as available
for the entire loan portfolio.
<PAGE>15
The following table provides the percentage of loans to total loans of
Midlantic at the end of each of the past five years:
<TABLE>
<CAPTION>
PERCENTAGE OF LOANS TO TOTAL LOANS
December 31 1993 1992 1991 1990 1989
_____________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Commercial and financial 34.3% 38.3% 38.2% 40.1% 39.8%
Real estate
Construction and development 9.9 16.5 15.7 15.1 15.4
Mortgage 27.2 26.2 26.3 22.6 21.3
Loans to individuals 28.6 18.1 19.1 21.6 22.9
Foreign -- .9 .7 .6 .6
_____ _____ _____ _____ _____
100.0% 100.0% 100.0% 100.0% 100.0%
===== ===== ===== ===== =====
</TABLE>
V. Deposits
MC responds to this item by incorporating by reference the material for
the years 1991 through 1993 in "Table XXV - Average Funding Sources -
Balances and Rates Paid" and under the consolidated financial note
caption "13. Deposits" on pages 36 and 56, respectively, of MC's Annual
Report to Shareholders for the fiscal year ended December 31, 1993.
VI. Return on Equity and Assets
MC responds to this item by incorporating by reference the return on
assets, return on equity, and equity to assets ratio as well as other
key information presented for the years 1991 through 1993 under the
caption "Consolidated Statistical Information" on page 75 of MC's Annual
Report to Shareholders for the fiscal year ended December 31, 1993.
During 1993, 1992 and 1991 MC did not pay dividends to its common
shareholders and consequently had no dividend payout ratio on its common
stock.
VII. Short-term Borrowings
MC responds to this item by incorporating by reference the material
under the consolidated financial note caption "14. Short-term
borrowings" on page 56 of MC's Annual Report to Shareholders for the
fiscal year ended December 31, 1993.
<PAGE>16
ITEM 2 - PROPERTIES
The corporate headquarters of MC are located in the Metro Park commercial
complex in Edison, New Jersey. MNB's principal executive offices are also
located in the Metro Park complex while CB's principal executive offices are
located at Centre Square in Philadelphia, Pennsylvania.
MC, through its subsidiary, Parkway Management Inc., in a joint venture with an
unaffiliated party, has a 50 percent interest in the ownership and operation of
a 12-story 264,000 square foot building on land leased from an unaffiliated
third party under a long-term lease at the Metro Park commercial complex in
Edison, New Jersey. Approximately 213,000 square feet of the building have been
rented by MNB for its use and the use of MC, at a minimum annual rental of
$3.129 million. The building is encumbered by a mortgage securing a
nonrecourse 32-year loan made by an unrelated third party (which loan may be
called in 1996).
CB leases approximately 101,000 square feet of the Centre Square building, of
which approximately 10,000 square feet are utilized as a branch facility, with
the remainder housing its executive offices and certain operations. The Centre
Square lease is in the 20th year of an initial 30-year lease, of which the
minimum annual rental amounts to $994 thousand. Such lease contains five ten-
year renewal options which commence at the initial expiration date of March 31,
2004.
At December 31, 1993, the Subsidiary Banks occupied 326 bank offices (198 were
owned in fee and 128 were leased) in 20 counties of New Jersey, 5 counties of
Pennsylvania, and in Grand Cayman. The Subsidiary Banks also lease additional
office space from various unrelated firms.
MNB owns a computer and operations center comprising approximately 110,000
square feet in West Orange, New Jersey and, through its wholly-owned
subsidiary, Iron Investments Corp., in a joint venture with an unaffiliated
party, owns and operates a 70,500 square foot building in Morris County, New
Jersey, of which approximately 36,000 square feet are utilized by MNB primarily
for certain data processing operations. MNB also owns a 10-story office
building in West Paterson, New Jersey with approximately 200,000 square feet of
space and a four-story office building in Edison, New Jersey (located in the
Metro Park commercial complex) with approximately 40,000 square feet of space,
portions of which are utilized for operational functions.
CB utilizes two buildings in Norristown, Pennsylvania, which are owned in fee
and encompass approximately 87,000 square feet, for certain operations and
administrative functions. A substantial portion of CB's accounting and data
processing operations is conducted in four buildings, owned in fee, comprising
approximately 141,000 square feet in Fort Washington, Pennsylvania.
At December 31, 1993, the nonbank subsidiaries of MC had four offices, all of
which were leased.
Total consolidated occupancy rental expense of Midlantic, net of rental income
and intercompany leasing arrangements, was $17.723 million in 1993.
<PAGE>17
ITEM 3 - LEGAL PROCEEDINGS
As MC reported in "Item 1 - Legal Proceedings" of its quarterly reports on Form
10-Q for the quarters ended March 31, 1993, June 30, 1993 and September 30,
1993, MC and various directors and former officers of MC are defendants in a
consolidated action, initially commenced in March 1990, pending in Federal
District Court in New Jersey (the "Action"). The Action has been instituted by
shareholders of MC, either on behalf of MC against various directors and former
officers of MC, or directly against MC and various directors and former
officers of MC. In general, the Action seeks damages payable either to MC or
to the shareholders and holders of certain debt securities because of alleged
discrepancies between certain public statements made by MC and later results of
MC's operations. In their pleadings, plaintiffs do not seek damages in a
stated dollar amount. The Action includes claims that certain actions of MC
are void. The claims are based upon alleged violations of the United States
securities laws and New Jersey common law.
In June 1990, the plaintiffs filed a motion for class certification. The
defendants moved to dismiss the complaint on July 31, 1990. On October 11,
1990, the Court filed an opinion denying the defendants' motion to dismiss the
complaint. On December 3, 1990, an answer to the complaint was served on
behalf of those defendants who had been served with the complaint. The parties
have stipulated to the certification of a plaintiff class, which stipulation
was reflected in an order entered by the Court on March 6, 1991. On May 6,
1991, the Court entered a consent order setting forth a discovery schedule. At
present, documents are being produced and depositions are proceeding.
ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
There were no matters submitted to a vote of security holders during the fourth
quarter of 1993.
<PAGE>18
EXECUTIVE OFFICERS OF THE REGISTRANT
The following is a list of all the executive officers of MC who serve as
such at the pleasure of the Board of Directors of MC as of March 23, 1994:
Age at
1/1/94 Position
______ ________
GARRY J. SCHEURING 54 Chairman of the
Chairman of the Board, President and Chief Board, President
Executive Officer of MC since 1991; and Chief
Chairman of the Board, President and Chief Executive
Executive Officer of Midlantic National Officer
Bank since 1992; Chairman of the Board and
Chief Executive Officer of Continental Bank
since 1992; Vice Chairman of Continental Bank
Corporation (1988-1991)
HOWARD I. ATKINS 42 Executive Vice
Executive Vice President and Chief Financial President and
Officer of MC since 1991; Corporate Treasurer Chief Financial
and Treasury Executive of Chase Manhattan Bank, Officer
N.A. (1988-1991)
DONALD W. EBBERT, JR. 48 Senior Vice
Senior Vice President and Treasurer President and
(since 1992) and Senior Vice President Treasurer
and Director of Investor Relations
(1990-1992) of MC; Senior Vice President
and Treasurer of Southeast Banking
Corporation (1988-1989)
MARY ELLEN GRAY 45 Executive Vice
Executive Vice President and Director of Real President and
Estate Lending of MC since 1992; Executive Vice Director of
President for Real Estate (1989-1992) of Chemical Real Estate
Bank, N.A. of New Jersey Lending
JEFFREY S. GRIFFIE 49 Executive Vice
Executive Vice President and Director of Corporate President and
Operations of MC since 1992; Executive Vice Director of
President of Midlantic National Bank since 1985 Corporate
Operations
JAMES E. KELLY 49 Controller
Controller of MC since 1992; Executive Vice
President of Continental Bank since 1988
JOSEPH H. KOTT 45 Executive Vice
Executive Vice President and General Counsel (since President and
1993) and Senior Vice President and General Counsel General Counsel
(1991-1993) of MC; Partner, Pitney, Hardin, Kipp
& Szuch (1982-1991)
<PAGE>19
Age at
1/1/94 Position
______ ________
R. RAY LOCKHART 54 Senior Vice
Senior Vice President and Auditor of MC President and
since 1987 Auditor
JAMES J. LYNCH 43 Executive Vice
Executive Vice President and Director of President and
Commercial Banking-Pennsylvania of MC since 1992; Director of
President (since 1992) and Vice Chairman (1986-1992) Commercial Banking-
of Continental Bank Pennsylvania
EUGENE J. MCNAMARA 61 Senior Vice
Senior Vice President and Director of Human President and
Resources of MC since 1992; Senior Vice Director of
President and Northern Region Senior Operations Human Resources
Officer of Midlantic National Bank (1991-1992);
Executive Vice President and Senior Operations
Officer of Midlantic National Bank/North (1984-1991)
BARBARA Z. PARKER 44 Executive Vice
Executive Vice President and Director of Trust and President and
Investment Management (since 1993) and Senior Vice Director of Trust
President and Director of Trust and Investment and Investment
Management (1992-1993) of MC; Senior Vice President, Management
Corporate Banking (1991-1992) and Vice President,
Corporate Banking (1985-1991) of Midlantic National
Bank
ALFRED J. SCHIAVETTI, JR. 54 Executive Vice
Executive Vice President and Chief Credit Officer President and
of MC since 1991; Managing Director, Realty Group Chief Credit
of Chemical Bank (1987-1991) Officer
ALAN M. SILBERSTEIN 46 Executive Vice
Executive Vice President and Director of Retail President and
Banking of MC since 1992; Executive Vice Director of
President, Consumer Banking Group (1990-1991) Retail Banking
and Senior Vice President, Consumer Banking
(1986-1990) of Chemical Bank
FRANK T. VAN GROFSKI 49 Executive Vice
Executive Vice President and Director of Corporate President and
Banking and Commercial Banking-New Jersey of MC since Director of
1992; Senior Vice President, Corporate Banking of Corporate Banking
Midlantic National Bank (1987-1992) and Commercial
Banking-New Jersey
<PAGE>20
PART II
ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
The table below sets forth for the periods indicated the range of highest and
lowest actual transactions per share and the closing price of Midlantic
Corporation common stock, as reported by NASDAQ. The price quotations set
forth herein do not include retail markups, markdowns or commissions.
<TABLE>
<CAPTION>
Range of Common Stock Prices
(Per NASDAQ)
______________________________
High Low Close
1992
__________________________________________________________________________
<S> <C> <C> <C>
First Quarter $ 9.13 $ 4.50 $ 7.75
Second Quarter 15.00 5.88 14.63
Third Quarter 18.00 12.88 14.63
Fourth Quarter 21.88 13.25 19.88
______ ______ ______
1993
FIRST QUARTER $22.38 $18.13 $21.88
SECOND QUARTER 25.13 17.50 21.13
THIRD QUARTER 27.75 21.13 27.50
FOURTH QUARTER 28.63 22.25 25.50
====== ====== ======
</TABLE>
The number of common shareholders of record at January 28, 1994 was 30,722.
Midlantic Corporation did not declare any dividends on its common stock during
1992 or 1993.
MC also responds to this item by incorporating by reference the information
under the consolidated financial note caption "16. Capital stock - preferred
stock," the consolidated financial note caption "30. Lending and dividend
limitations" and the consolidated financial note caption "31. Regulatory
matters" on pages 57, 68 and 69, respectively, of MC's Annual Report to
Shareholders for the fiscal year ended December 31, 1993. (See also
"Supervision and Regulation"). A regulatory agreement with the FRB that
restricted MC's ability to declare and pay cash dividends was terminated in
March 1994.
ITEM 6 - SELECTED FINANCIAL DATA
MC responds to this item by incorporating by reference the material appearing
in the columns 1989 through 1993 under the caption "Selected Supplemental
Financial Data" and accompanying footnote on page 43 of MC's Annual Report to
Shareholders for the fiscal year ended December 31, 1993.
<PAGE>21
ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
MC responds to this item by incorporating by reference the material under the
section heading "Management's Analysis of the Results of Operations and
Financial Condition" and the consolidated supplementary financial and
statistical information on pages 16 through 43 and pages 71 through 75,
respectively, of MC's Annual Report to Shareholders for the fiscal year ended
December 31, 1993.
The FRB Agreement and the OCC Agreement referred to in "Regulatory Agreements"
on page 42 of MC's Annual Report to Shareholders for the year ended December
31, 1993, were terminated in March 1994.
ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
MC responds to this item by incorporating by reference the material on pages 44
through 70 of MC's Annual Report to Shareholders for the fiscal year ended
December 31, 1993.
ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
During the past two fiscal years, there was neither a change in independent
accountants nor any disagreements with independent accountants on any matter of
accounting principles or practices, financial statement disclosure, or auditing
scope or procedure.
<PAGE>22
PART III
ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT
MC responds to this item by incorporating by reference the material on pages 2
through 4 under the caption "Information About Nominees For Directors of the
Company" in MC's definitive proxy statement respecting its 1994 Annual
Shareholders' Meeting. Information regarding executive officers is included in
this report under the caption "Executive Officers of the Registrant."
ITEM 11 - EXECUTIVE COMPENSATION
MC responds to this item by incorporating by reference the material under the
caption "Executive Compensation and Other Information" on pages 6 through 15 in
MC's definitive proxy statement respecting its 1994 Annual Shareholders'
Meeting. Such incorporation by reference shall not be deemed to specifically
incorporate by reference the information referred to in Item 402(a)(8) of
Regulation S-K.
ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
MC responds to this item by incorporating by reference the material under the
captions "Principal Shareholders" on page 17 and "Securities Ownership of
Management" on pages 4 through 6 in MC's definitive proxy statement respecting
its 1994 Annual Shareholders' Meeting, except that the percentage owned by all
directors and executive officers as a group is hereby amended to be 3.43%.
ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
MC responds to this item by incorporating by reference the material under the
captions "Compensation Committee Interlocks and Insider Participation" on page
11 and "Interest of Management in Certain Transactions" on page 15 in MC's
definitive proxy statement respecting its 1994 Annual Shareholders' Meeting.
<PAGE>23
PART IV
ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
a) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS
1. FINANCIAL STATEMENTS
Midlantic Corporation and Subsidiaries Consolidated Financial
Statements*
Consolidated Statement of Income for each of the Three Years in the
Period Ended December 31, 1993
Consolidated Balance Sheet at December 31, 1993 and 1992
Consolidated Statement of Changes in Shareholders' Equity for each
of the Three Years in the Period Ended December 31, 1993
Consolidated Statement of Cash Flows for each of the Three Years in
the Period Ended December 31, 1993
Notes to Consolidated Financial Statements
Independent Auditor's Report
*Incorporated by reference to pages 44 through 70 of Midlantic
Corporation's Annual Report to Shareholders for the fiscal year
ended December 31, 1993.
2. SCHEDULES
Schedules are omitted because they are not required or are not
applicable.
3. EXHIBITS
(3) (a) Certificate of Incorporation of Midlantic Corporation, as
amended through March 12, 1990 incorporated by reference to
Exhibit 3(a) to Form 10-K of Midlantic Corporation for the
fiscal year ended December 31, 1989
(b) By-Laws of Midlantic Corporation as amended and restated
through September 16, 1992 incorporated by reference to
Exhibit 3(b) to Form 10-K of Midlantic Corporation for the
fiscal year ended December 31, 1992
(4) (a) Agreement to file instruments regarding long-term debt
(b) Rights Agreement dated as of February 23, 1990 between
Midlantic Corporation and Midlantic National Bank (including
as Exhibit A thereto Midlantic Corporation's Certificate of
Amendment of Certificate of Incorporation covering its
Series B Junior Participating Preferred Stock and including
as Exhibit B thereto the form of Rights Certificate)
incorporated by reference to Exhibit 2 to the Registration
Statement on Form 8-A of Midlantic Corporation dated
February 26, 1990
<PAGE>24
(10) (a) Purchase Agreement dated as of June 5, 1990 among Midlantic
National Bank, Midlantic Corporation, Midlantic National
Bank/Delaware and Manufacturers Hanover Trust Company
incorporated by reference to Exhibit 28(b) to Form 8-K of
Midlantic Corporation dated June 30, 1990
(b) Agreement by and between Midlantic National Bank, Newark, New
Jersey and the Office of the Comptroller of the Currency
dated December 20, 1990 incorporated by reference to Exhibit
28(a) to Form 8-K of Midlantic Corporation dated December 21,
1990
(c) Letter dated January 17, 1991 from Midlantic National Bank to
the Office of the Comptroller of the Currency amending an
Agreement dated December 20, 1990 between Midlantic National
Bank and the Office of the Comptroller of the Currency
incorporated by reference to Exhibit 19(a) to Form 10-Q of
Midlantic Corporation for the quarter ended June 30, 1991
(d) Amendment dated July 23, 1991 to an Agreement dated December
20, 1990 between Midlantic National Bank and the Office of
the Comptroller of the Currency incorporated by reference to
Exhibit 19(b) to Form 10-Q of Midlantic Corporation for the
quarter ended June 30, 1991
(e) Acquisition Agreement dated as of September 25, 1991 among
Midlantic Corporation, United Penn Bank and Mellon Bank, N.A.
incorporated by reference to Exhibit 28 to Form 8-K of
Midlantic Corporation dated October 1, 1991
(f) Amendment and Supplement dated December 18, 1991 to
Acquisition Agreement dated as of September 25, 1991 among
Midlantic Corporation, United Penn Bank and Mellon Bank, N.A.
incorporated by reference to Exhibit 28(d) to Form 8-K of
Midlantic Corporation dated December 31, 1991
(g) Stock Purchase Agreement dated as of February 21, 1992
between Midlantic Corporation and ONBANCORP, Inc.
incorporated by reference to Exhibit 28(b) to Form 8-K of
Midlantic Corporation dated February 21, 1992
(h) Written Agreement dated as of May 16, 1991 between Midlantic
Corporation and the Federal Reserve Bank of New York
incorporated by reference to Exhibit 28 to Form 8-K of
Midlantic Corporation dated May 16, 1991
(i) Stock Purchase Agreement dated as of March 23, 1992 by and
among CHMC Mortgage Company Acquisition, Inc., Midlantic
Banks Inc. and Midlantic Corporation incorporated by
reference to Exhibit 10 to Form 10-K of Midlantic Corporation
for the year ended December 31, 1991
(j) Agreement dated as of July 21, 1992 between Midlantic
Corporation and The Bank of New York Company, Inc.
incorporated by reference to Exhibit 28 to Form 8-K of
Midlantic Corporation dated July 22, 1992
<PAGE>25
Executive Compensation Plans and Arrangements
_____________________________________________
(k) Midlantic Incentive Stock and Stock Option Plan (1986), as
amended, incorporated by reference to Exhibit 4 to Midlantic
Corporation's Registration Statement on Form S-8, No.
33-50952
(l) Midlantic Incentive Plan, as amended, incorporated by
reference to Exhibit 4(c) to Midlantic Corporation's Post-
Effective Amendment No. 1 to Registration Statement on Form
S-8, No. 33-16256
(m) Continental Bancorp, Inc. 1982 Stock Option Plan, as amended,
incorporated by reference to Exhibit 4(f) to Midlantic
Corporation's Post-Effective Amendment No. 1 to Registration
Statement on Form S-8, No. 33-16256
(n) Rules and Regulations Relating to the Payment in Shares of
Common Stock for the Exercise Price of Stock Options
incorporated by reference to Exhibit 10(o) to Form 10-K of
Midlantic Corporation for the fiscal year ended December 31,
1992
(o) Rules and Regulations - Stock Awards incorporated by
reference to Exhibit 10(p) to Form 10-K of Midlantic
Corporation for the fiscal year ended December 31, 1992
(p) Rules and Regulations Relating to the Exercise of Stock
Appreciation Rights incorporated by reference to Exhibit
10(q) to Form 10-K of Midlantic Corporation for the fiscal
year ended December 31, 1992
(q) Rules and Regulations Relating to the Payment in Shares of
Common Stock of Taxes in Connection with the Vesting of an
Award incorporated by reference to Exhibit 10(r) to Form 10-K
of Midlantic Corporation for the fiscal year ended December
31, 1992
(r) Rules and Regulations Relating to the Payment in Shares of
Common Stock of Taxes in Connection with the Exercise of a
Non-Qualified Stock Option incorporated by reference to
Exhibit 10(s) to Form 10-K of Midlantic Corporation for the
fiscal year ended December 31, 1992
(s) Continental Bancorp, Inc. Survivor Benefit Plan incorporated
by reference to Exhibit 10(t) to Form 10-K of Midlantic
Corporation for the fiscal year ended December 31, 1992
(t) Midlantic Corporation Executive Supplemental Retirement Plan
incorporated by reference to Exhibit 19(a) to Form 10-Q of
Midlantic Corporation for the quarter ended June 30, 1989
(u) Midlantic Corporation Excess Benefit Plan and Amendment No. 1
dated March 20, 1991 thereto incorporated by reference to
Exhibit 19(a) to Form 10-Q of Midlantic Corporation for the
quarter ended March 31, 1991
(v) Midlantic Corporation Severance Pay Policy incorporated by
reference to Exhibit 19(c) to Form 10-Q of Midlantic
Corporation for the quarter ended September 30, 1991
(w) Form of Change of Control Agreement of Midlantic Corporation
incorporated by reference to Exhibit 10(y) to Form 10-K of
Midlantic Corporation for the fiscal year ended December 31,
1992
<PAGE>26
(x) Employment Agreement dated and effective as of April 23, 1991
between Midlantic Corporation and Garry J. Scheuring
incorporated by reference to Exhibit 28 to Form 8-K of
Midlantic Corporation dated April 11, 1991
(y) Employment Agreement dated as of July 1, 1991 between
Midlantic Corporation and Alfred J. Schiavetti, Jr.
incorporated by reference to Exhibit 19(g) to Form 10-Q of
Midlantic Corporation for the quarter ended June 30, 1991
(z) Employment Agreement dated as of September 12, 1991 between
Midlantic Corporation and Howard I. Atkins incorporated by
reference to Exhibit 19(a) to Form 10-Q of Midlantic
Corporation for the quarter ended September 30, 1991
(aa) Employment Agreement dated as of January 27, 1992 between
Midlantic Corporation and Alan M. Silberstein incorporated by
reference to Exhibit 10 to Form 10-K of Midlantic Corporation
for the year ended December 31, 1991
(bb) Change of Control Agreement dated as of January 1, 1993
between Midlantic Corporation and James J. Lynch incorporated
by reference to Exhibit 10(dd) to Form 10-K of Midlantic
Corporation for the fiscal year ended December 31, 1992
(cc) Description of tax consultation plan of Midlantic Banks Inc.
incorporated by reference to Exhibit 10(ee) to Form 10-K of
Midlantic Corporation for the fiscal year ended December 31,
1992
(dd) Midlantic Annual Incentive and Bonus Plan
(11) Statement regarding computation of income (loss) per common share
(13) Annual Report to Shareholders for the fiscal year ended December 31,
1993
(21) Subsidiaries of Midlantic Corporation
(23) Consent of Independent Accountants
(24) Powers of Attorney
Copies of the foregoing Exhibits will be furnished upon request and
payment.
b) REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the last quarter of the period
covered by this report.
<PAGE>27
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.
MIDLANTIC CORPORATION
(Registrant)
Signature Title Date
_________________________________________________________________________
By GARRY J. SCHEURING
___________________________ Chairman of the Board, March 23, 1994
Garry J. Scheuring President and Chief
Executive Officer
By HOWARD I. ATKINS
___________________________ Executive Vice President March 23, 1994
Howard I. Atkins and Chief Financial
Officer
By JAMES E. KELLY
___________________________ Controller March 23, 1994
James E. Kelly
Pursuant to the requirements of the Securities Exchange Act of 1934, this
report has been signed below by the following persons on behalf of the
registrant and in the capacities and on the dates indicated.
Signature Title Date
_________________________________________________________________________
.............................. Chairman of the Board, March 23, 1994
(Garry J. Scheuring) President and Chief
Executive Officer
*
.............................. Director March 23, 1994
(Charles E. Ehinger)
*
.............................. Director March 23, 1994
(David F. Girard-diCarlo)
*
.............................. Director March 23, 1994
(Frederick C. Haab)
*
.............................. Director March 23, 1994
(Kevork S. Hovnanian)
<PAGE>28
Signature Title Date
_________________________________________________________________________
*
.............................. Director March 23, 1994
(Arthur J. Kania)
*
.............................. Director March 23, 1994
(Aubrey C. Lewis)
*
.............................. Director March 23, 1994
(David F. McBride)
*
.............................. Director March 23, 1994
(Desmond P. McDonald)
*
.............................. Director March 23, 1994
(William E. McKenna)
*
.............................. Director March 23, 1994
(Marcy Syms Merns)
*
.............................. Director March 23, 1994
(Ralph H. O'Brien)
*
.............................. Director March 23, 1994
(Roy T. Peraino)
*
.............................. Director March 23, 1994
(Ernest L. Ransome, III)
*
.............................. Director March 23, 1994
(Ronald Rubin)
*
.............................. Director March 23, 1994
(B. P. Russell)
*
.............................. Director March 23, 1994
(Fred R. Sullivan)
*
.............................. Director March 23, 1994
(Harold L. Yoh, Jr.)
<PAGE>29
*Joseph H. Kott, by signing his name hereto, does sign this document on behalf
of each of the persons named above pursuant to powers of attorney duly executed
by such persons which are filed with the Securities and Exchange Commission.
By JOSEPH H. KOTT
_____________________________
Joseph H. Kott
Attorney-in-fact
<TABLE>
<CAPTION>
ITEM 14(a)3 - EXHIBIT 11
Midlantic Corporation and Subsidiaries
Computation of Income (Loss) Per Common Share
(In thousands, except share and per share data)
1993 1992 1991 1990 1989
_________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Earnings applicable to primary common shares
Income (loss) before cumulative
effect of the change in accounting
for income taxes $131,396 $ 7,028 $(543,303) $(195,005) $206,261
Preferred stock dividends (3,626) (3,672) (3,812) (3,812) (1,282)
__________ __________ __________ __________ __________
Income (loss) before cumulative
effect of the change in accounting
for income taxes applicable to
primary common shares 127,770 3,356 (547,115) (198,817) 204,979
Cumulative effect of the change
in accounting for income taxes 38,962 -- -- -- --
__________ __________ __________ __________ __________
Net income (loss) applicable
to primary common shares $166,732 $ 3,356 $(547,115) $(198,817) $204,979
========== ========== ========== ========== ==========
Earnings applicable to fully
diluted common shares
Income (loss) before cumulative
effect of the change in accounting
for income taxes applicable to
primary common shares $127,770 $ 3,356 $(547,115) $(198,817) $204,979
Interest expense on convertible
subordinated debentures, net of
federal income taxes 4,084 N/A N/A N/A 4,084
__________ __________ __________ __________ __________
Income (loss) before cumulative
effect of the change in accounting
for income taxes applicable to
fully diluted common shares 131,854 3,356 (547,115) (198,817) 209,063
Cumulative effect of the change in
accounting for income taxes 38,962 -- -- -- --
__________ __________ __________ __________ __________
Net income (loss) applicable to
fully diluted common shares $170,816 $ 3,356 $(547,115) $(198,817) $209,063
========== ========== ========== ========== ==========
Number of average shares
Primary
Average common shares outstanding 50,098,667 41,176,415 38,094,934 38,097,294 38,058,450
Average common share equivalents 844,657 392,671 N/A N/A 94,299
__________ __________ __________ __________ __________
Average primary common shares 50,943,324 41,569,086 38,094,934 38,097,294 38,152,749
========== ========== ========== ========== ==========
</TABLE>
Continued on next page
<PAGE>
Continued from prior page
<TABLE>
<CAPTION>
ITEM 14(a)3 - EXHIBIT 11
Midlantic Corporation and Subsidiaries
Computation of Income (Loss) Per Common Share
(In thousands, except share and per share data)
(continued)
1993 1992 1991 1990 1989
____________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Fully diluted
Average common shares outstanding 50,098,667 41,176,415 38,094,934 38,097,294 38,058,450
Average common share equivalents 907,372 777,390 N/A N/A 84,457
Average convertible subordinated
debentures converted to common
shares 1,562,500 N/A N/A N/A 1,562,500
__________ __________ __________ __________ __________
Average fully diluted common
shares 52,568,539 41,953,805 38,094,934 38,097,294 39,705,407
========== ========== ========== ========== ==========
Income (loss) per common share
Income (loss) before cumulative
effect of the change in accounting
for income taxes
Primary $2.51 $.08 $(14.36) $(5.22) $5.37
Fully diluted 2.51 .08 (14.36) (5.22) 5.27
Cumulative effect of the change for
income taxes
Primary 76 -- -- -- --
Fully diluted .74 -- -- -- --
Net income (loss)
Primary 3.27 .08 (14.36) (5.22) 5.37
Fully diluted 3.25 .08 (14.36) (5.22) 5.27
========== ========== ========== ========== ==========
<FN>
N/A - Not applicable
For 1991 and 1990, average common share equivalents were anti-dilutive and have been excluded from the per share computations.
Convertible subordinated debentures were anti-dilutive in 1992, 1991 and 1990 and have been excluded from the per share
computations for those periods.
</TABLE>
<PAGE>16 1OF2
MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION
Midlantic Corporation and Subsidiaries
INTRODUCTION
Midlantic Corporation ("MC"), headquartered in Edison, New Jersey, is a $13.9
billion bank holding company which provides financial services to its
customers, located primarily in New Jersey and southeastern Pennsylvania.
During 1993, MC and its subsidiaries ("Midlantic" or the "Corporation") made
significant progress in several respects. The Corporation substantially
reduced its level of nonaccrual assets (nonaccrual loans and other real estate
owned), significantly increased its capital ratios and steadily improved its
operating efficiencies (and consequently its core earnings base). As a result
of these and other factors described in Table II, which provides a summary of
Midlantic's results of operations for the past three years, the Corporation
reported net income of $170.4 million in 1993. This favorable performance
followed a year of modest earnings (1992) and, as the Corporation's level of
nonaccrual assets rose in tandem with a weakening economy, two consecutive
years (1990 and 1991) of significant losses, principally as a result of high
credit loss provisions. The deterioration in asset quality during 1990 and
1991 necessitated strong corrective actions in order to improve the
Corporation's declining capital base, to augment liquidity, to resolve problem
assets and ultimately to return Midlantic to profitability. These corrective
actions, which resulted in significant changes to Midlantic since 1990, are
more fully discussed in "Critical Events In Midlantic's Recent History."
The Corporation's financial performance is more fully discussed in the
following analysis by management of the results of operations for each of the
past three years and financial condition for each of the past two years. This
analysis should be read in conjunction with the consolidated financial
statements on pages 44 through 70 and the consolidated supplementary financial
and statistical information on pages 71 through 75. In order to assist the
reader in better understanding differences between current year data and data
of prior periods, the discussion of the results of operations and financial
condition in many instances refers to Midlantic's "Continuing Entities" which
treats the effect of several subsidiaries that were sold during 1991 and 1992
as if those subsidiaries had all been sold on January 1, 1991. In those tables
for which five year historical data have been shown, all data is presented for
the Continuing Entities as if subsidiaries divested during 1990 through 1992
had been sold on January 1, 1989. Gains or losses recognized on the sales of
subsidiaries have been shown, where applicable, as nonrecurring gains or losses
of the Continuing Entities for the periods in which the gains or losses
actually occurred. Midlantic's Continuing Entities include Midlantic National
Bank ("MNB"), Continental Bank ("CB"), several smaller subsidiaries and the
parent companies (Midlantic Corporation and Midlantic Banks Inc.). The results
of operations of the Continuing Entities are not necessarily indicative of the
results of operations that would have been attained if divested subsidiaries
had actually been sold on January 1, 1991 (or in the case of five year tables,
January 1, 1989).
<PAGE>16 2OF2
CRITICAL EVENTS IN MIDLANTIC'S RECENT HISTORY
I. Background
The downturn in national economic conditions that began in late 1989 negatively
affected most industries to varying degrees. As economic conditions weakened,
it became apparent that the real estate industry, which had been particularly
vibrant during the preceding several years of economic expansion, was facing
severe market value erosion. Since Midlantic had historically serviced the
financing needs of the real estate industry, the downturn in that industry, as
well as related industries, impaired the Corporation's asset quality.
Nonaccrual assets, which amounted to $509.7 million or 2.1 percent of total
assets at December 31, 1989, steadily increased during the next seven quarters,
reaching a peak level of $1.9 billion or 9.1 percent of total assets at
September 30, 1991. As a result of the growing level of problem loans, higher
provisions for loan losses became necessary in order to maintain an allowance
for loan losses adequate to absorb estimated losses in the credit portfolio.
The high credit loss provisions, accompanied by a substantial decline in the
Corporation's earning asset base, contributed to significant operating losses.
Largely as a result of operating losses and the consequent reduction in equity
capital, Midlantic began in 1990 to reposition its balance sheet for the
purposes of improving liquidity and capital. In 1990 Midlantic sold $257
million of credit card accounts and receivables and $173 million of lease
financing receivables and securitized and sold an aggregate $504 million of
automobile and home equity loans.
During the months that followed these asset sales, it became increasingly
evident to the Corporation's management that the national economic slowdown and
downturn in local real estate markets had persisted longer than had previously
been expected. Consequently, the Corporation's earnings, liquidity and capital
continued to be negatively affected and it was determined that further steps
were necessary to improve Midlantic's position.
<PAGE>17 1OF2
Midlantic Corporation and Subsidiaries
II. Restructuring Program
In July 1991, the Corporation announced that it was proceeding with the
implementation of a multi-phase restructuring program (the "Restructuring
Program"), the overall purpose of which was to strengthen and reposition the
Corporation. The first phase of the Restructuring Program was designed to
focus Midlantic's businesses in its core markets of New Jersey and southeastern
Pennsylvania and to strengthen the Corporation's capital position by selling
nonstrategic subsidiaries and businesses located primarily in northeastern and
southcentral Pennsylvania and New York state.
The sales of these subsidiaries and assets reduced Midlantic's total assets by
approximately $5.5 billion and provided proceeds of approximately $500 million,
substantially all of which were contributed to MNB and CB in order to
strengthen capital.
In 1991, Midlantic also merged its two New Jersey bank subsidiaries, MNB and
Midlantic National Bank/North ("MNB/North") in order to consolidate its New
Jersey operations.
The second and final phase of the Restructuring Program involved a functional
realignment of the Corporation's internal organization and a concurrent effort
to significantly reduce operating expenses. The new functional organization
structure provided for a single, unified company-wide management along
principal lines of business and key staff support areas. Midlantic also
launched a broad-based, corporate assessment of the ways in which it does
business ("FOCUS '92"). As a result of FOCUS '92, which was completed by mid-
1993, Midlantic identified opportunities to eliminate redundant activities,
streamline processes and consolidate operations. FOCUS '92 resulted in the
identification of approximately $100 million of annualized savings by mid-1993
in core operating expenses from the comparable annualized operating expense
levels of the fourth quarter of 1991.
III. Reduction In Problem Loans
During the past two years the Corporation's expanded loan workout/resolution
efforts have successfully contributed toward reducing nonaccrual assets to
manageable levels. Since year-end 1991, nonaccrual assets have declined by
$1.4 billion or 78.0 percent, from a level of $1.8 billion to $398.0 million at
year-end 1993. The decline in nonaccrual assets during this period primarily
reflected $1.2 billion of payments/payoffs and assets returned to accrual or
renegotiated status, $776.2 million of charge-offs and writedowns and $265.0
million of assets sold or designated to be sold in bulk sales transactions.
During this period additions to nonaccrual assets totalled $913.2 million.
The Corporation's first bulk sales program, which was announced in April 1993
and completed in September 1993, involved several transactions with an
aggregate book value of nearly $300 million representing commercial real estate
loans and other real estate owned ("OREO") located primarily in New Jersey,
Pennsylvania and Florida.
<PAGE>17 2OF2
In December 1993, the Corporation determined to proceed with a second major
bulk sales program involving loans and OREO with an aggregate book value
totalling approximately $290 million. The assets for sale, which have been
reclassified in the Corporation's year-end 1993 balance sheet to other assets
as "assets held for accelerated disposition," predominantly represent real
estate development loans and holdings of land in New Jersey and Pennsylvania.
The sales of these assets, which are expected to be completed in 1994, are
subject to successful negotiation of terms including price, execution of
definitive agreements and satisfaction of closing conditions. No assurance can
be given that the bulk sale of these assets will be consummated or that, if
consummated, all of the assets presently anticipated to be included in such
bulk sales will be sold. In anticipation of the bulk sales, the Corporation
recorded additional loss provisions totalling $44 million to cover charge-offs
against those loans and OREO properties that were transferred to assets held
for accelerated disposition. At December 31, 1993, such assets, which are
carried at fair value less the estimated cost of disposing of the properties
("net realizable value"), amounted to $158.2 million (see Table I).
<TABLE>
TABLE I - 1993 BULK SALES AND ASSETS HELD FOR ACCELERATED DISPOSITION
<CAPTION>
Assets Held for
Bulk Sales Accelerated
Finalized Disposition
(In thousands) During 1993 at Year-end 1993
_______________________________________________________________________________
<S> <C> <C>
Book value of assets sold in bulk sales or
transferred to assets held for accelerated
disposition (1)
Loans $219,482 $218,197
OREO 74,115 74,039
________ ________
Total 293,597 292,236
________ ________
Charge-offs on assets sold in bulk sales or held
for accelerated disposition 84,456 134,079(3)
________ ________
Net realizable value $209,141(2) $158,157
======== ========
Loss provisions recognized during 1993 in order
to carry assets held for accelerated disposition
at net realizable value $ 34,000 $ 44,000
======== ========
<FN>
(1) Amounts are net of prior charge-offs (if any) on these assets.
(2) Cash proceeds from the sale of these assets were not substantially different.
(3) Includes additional writedowns on OREO properties of $36.672 million.
</TABLE>
<PAGE>18 1OF2
MANAGEMENT'S ANALYSIS (continued)
IV. Common Stock Issuances
In August 1992, the Corporation raised a total of $109.5 million of capital
through the sale of an aggregate 7.65 million shares of its common stock, in
separate transactions, to overseas investors and to five United States
investors. In May 1993, Midlantic issued, in a public offering, 5.75 million
common shares for $107.1 million. The issuance of common stock has
significantly bolstered the Corporation's capital ratios and the liquidity of
the parent companies.
V. Development of Core Business Lines
A strategic focus of the Corporation is the expansion of its share of the
consumer and small to medium-size business markets. It is Midlantic's
intention not only to direct available funds to support loan demand in such
markets, but also to develop full-service customer relationships. In this
regard, Midlantic has introduced, among other things, Individual Choice
Banking sm and one-stop telephone service to enhance efficiencies in providing
banking services to its customers.
Since the end of the third quarter of 1992, loans to individuals (also referred
to as consumer loans) increased by a net $809.4 million (excluding divested
subsidiaries and the sale of over $400 million of automobile loans during late
1992) and during the third quarter of 1993 the Corporation announced its
Business Value Banking Program sm for the purpose of providing banking services
to small businesses in Midlantic's market area. In conjunction with this
program, the Corporation also announced a $1 billion lending initiative to
small and medium-sized commercial businesses.
SUMMARY OF RESULTS OF OPERATIONS
Net income in 1993 amounted to $170.4 million or $3.25 per fully diluted common
share as compared with $7.0 million or $.08 per fully diluted common share in
1992. In 1991, the Corporation recorded a net loss of $543.3 million or $14.36
per fully diluted common share. During the past three years, the Corporation
recorded various nonrecurring income and expense items which impacted results
of operations to varying degrees. Such nonrecurring items are summarized in
Table III.
Income before credit loss provisions, nonrecurring income and expenses and
income taxes ("core earnings") amounted to $226.7 million in 1993. This
compares with the similarly computed income amount for the Continuing Entities
of $129.7 million in 1992 and $95.0 million in 1991. The significant
improvement in the Corporation's core earnings during 1993 largely reflected an
increase in net interest income (primarily due to lower funding costs and a
decline in nonaccrual loans), as well as a reduction in noninterest expenses
reflecting the benefits achieved through FOCUS '92.
<PAGE>18 2OF2
<TABLE>
TABLE II - MAJOR COMPONENTS OF THE RESULTS OF OPERATIONS FOR 1993, 1992 AND 1991
<CAPTION>
1992 1991
1993 1992 Continuing 1991 Continuing
(In thousands) Actual Actual Entities Actual Entities
____________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
INCOME BEFORE CREDIT LOSS PROVISIONS, INCOME
TAXES AND NONRECURRING INCOME AND EXPENSES:
Net interest income $ 506,050 $509,664 $439,268 $ 624,583 $ 450,036
Noninterest income 188,088 212,935 190,575 253,473 182,960
Noninterest expenses
Salaries and benefits 219,332 257,221 224,785 345,679 254,165
OREO expense (excluding provision for
OREO valuations) 3,792 22,612 21,683 20,961 20,063
Other 244,265 283,284 253,655 345,165 263,758
_________ ________ ________ _________ _________
Total 226,749 159,482 129,720 166,251 95,010
_________ ________ ________ _________ _________
ADDITIONS:
Gains on the sale of subsidiaries and loans
and other nonrecurring income -- 35,208 35,208 6,796 6,796
Investment securities gains (losses) 7,005 52,753 52,753 (2,890) (2,217)
DEDUCTIONS:
Provision for loan losses 79,000 137,939 116,227 640,402 579,087
Provision for OREO valuations 130,545 77,132 74,624 102,038 99,138
Restructuring charges and other
nonrecurring expenses 3,856 22,500 22,500 14,496 14,496
_________ ________ ________ _________ _________
Income (loss) before income taxes and
cumulative effect of the change in accounting
for income taxes 20,353 9,872 4,330 (586,779) (593,132)
Income tax (benefit) expense (111,043) 2,844 2,844 (43,476) (43,476)
_________ ________ ________ _________ _________
Income (loss) before cumulative effect of the
change in accounting for income taxes 131,396 7,028 1,486 (543,303) (549,656)
Cumulative effect of the change in accounting
for income taxes 38,962 -- -- -- --
_________ ________ ________ _________ _________
Net income (loss) $ 170,358 $ 7,028 $ 1,486 $(543,303) $(549,656)
========= ======== ======== ========= =========
</TABLE>
<PAGE>19 1OF2
Midlantic Corporation and Subsidiaries
<TABLE>
TABLE III - CERTAIN NONRECURRING ITEMS INCLUDED IN THE RESULTS OF OPERATIONS
<CAPTION>
(In thousands) 1993 1992 1991
_______________________________________________________________________________________________________________________
<S> <C> <C> <C>
Cumulative effect of adoption of Statement of Financial Accounting Standards No. 109 $ 38,962 $ -- $ --
Special provisions for assets identified for accelerated disposition (78,000) -- --
Restructuring charges -- (22,500) (3,066)
Net gains on the sales of subsidiaries and other assets -- 35,208 6,796
Net gains (losses) on investment securities transactions 7,005 52,753 (2,890)
Professional fees incurred for the implementation of a security lending program (3,856) -- --
Fraud loss involving equipment lease collateral securing a commercial loan -- -- (11,430)
________ ________ ________
Aggregate (decrease) increase in income resulting from the above-listed
nonrecurring items $(35,889) $ 65,461 $(10,590)
</TABLE>
The following are certain balance sheet, asset quality, capital ratio and
noninterest expense trends for the past five quarters:
<TABLE>
TABLE IV- CERTAIN QUARTERLY TRENDS
<CAPTION>
FOR THE QUARTERS ENDED
_______________________________________________________________________
December 31 September 30 June 30 March 31 December 31
(In thousands) 1993 1993 1993 1993 1992
______________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Total assets $13,946,582 $13,490,173 $13,842,208 $14,010,413 $14,421,758
Total shareholders' equity 1,122,564 1,062,700 1,015,164 866,963 843,462
___________ ___________ ___________ ___________ ___________
Asset quality
Nonaccrual loans $ 265,299 $ 468,609 $ 528,905 $ 598,586 $ 809,669
Other real estate owned, net 132,670 273,075 326,195 365,945 450,879
___________ ___________ ___________ ___________ ___________
Total nonaccrual assets $ 397,969 $ 741,684 $ 855,100 $ 964,531 $ 1,260,548
___________ ___________ ___________ ___________ ___________
Total nonaccrual assets as a
% of total assets 2.85% 5.50% 6.18% 6.88% 8.74%
___________ ___________ ___________ ___________ ___________
Allowance for loan losses $ 394,450 $ 499,250 $ 541,243 $ 576,227 $ 663,901
Allowance for loan losses as a % of
nonaccrual loans 148.68% 106.54% 102.33% 96.26% 82.00%
___________ ___________ ___________ ___________ ___________
Capital ratios
Tier 1 risk-based 9.28% 9.04% 8.45% 7.03% 6.83%
Total capital risk-based 13.29 13.13 12.52 11.07 10.76
Leverage 6.81 6.86 6.32 5.24 5.19
___________ ___________ ___________ ___________ ___________
Noninterest expenses excluding non-
recurring charges, OREO-related
costs and FDIC assessment premiums* $ 104,315 $ 108,552 $ 103,550 $ 113,339 $ 105,815
=========== =========== =========== =========== ===========
<FN>
*Noninterest expenses for the quarter ended December 31, 1992 are presented on a Continuing Entity basis.
</TABLE>
<PAGE>19 2OF2
NET INTEREST INCOME
Excluding the effect of subsidiaries sold, net interest income ("NII") improved
during 1993, following a modest decrease in 1992 compared to 1991. For the
Continuing Entities, NII amounted to $506.1 million in 1993 as compared with
$439.3 million and $450.0 million in 1992 and 1991, respectively.
Contributing to higher levels of NII in 1993 was an increase in the net
interest margin of 63 basis points. In 1993, the improved rate of income on
earning assets more than offset a volume decline in average interest- earning
assets. In 1992, the net interest margin also improved (by 30 basis points)
but this benefit was offset by a lower level of average interest-earning
assets.
The rise in NII and the related improvement in the net interest margin were
primarily attributed to the following factors:
- A decline in the level of nonaccrual loans - Nonaccrual loans
decreased on average by $513.6 million in 1993 and $228.9 million in 1992.
Reductions in nonaccrual loans that reflect returns to accrual or renegotiated
status as well as payments and pay-offs on such loans tend to benefit both net
interest margin and NII since the earning asset base includes a higher volume
of assets for which interest income is currently being recognized.
- Growth in consumer loans - During the fourth quarter of 1992 and
continuing throughout 1993 the Corporation's consumer loan portfolio,
including home equity and automobile loans, increased a net $809.4 million.
- Lower funding costs - As market interest rates have generally declined
since 1991, the average rates for both interest-earning assets and interest-
bearing funding sources have fallen. However, the average cost to the
Corporation of interest-bearing funds has fallen at a faster rate than the
general market decline, partly due to the maturity of almost $1.4 billion of
brokered deposits (most of which matured in mid- 1992) and other high rate
retail certificates of deposit ("CDs") issued during 1990 and 1991 and partly
due to the favorable effect of the Corporation's liability-sensitive gap
position during the period (see "Asset and Liability Management-Interest
Sensitivity Management").
- An increase in the proportion and amount of noninterest-bearing
funding sources (primarily demand deposits) - Average noninterest-bearing
funding sources amounted to nearly 20 percent of average interest-earning
assets in 1993 as compared with approximately 15 percent and 12 percent in 1992
and 1991, respectively.
<PAGE>20 1OF2
MANAGEMENT'S ANALYSIS (continued)
<TABLE>
TABLE V - SUMMARY OF AVERAGE BALANCES WITH RESULTANT INTEREST AND AVERAGE RATES
<CAPTION>
1993 1992 1991
__________________________ __________________________ _________________________
INTEREST Interest Interest
AVERAGE INCOME/ AVERAGE Average Income/ Average Average Income/ Average
(In millions) BALANCE EXPENSE RATE Balance Expense Rate Balance Expense Rate
_______________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
LOANS
Actual $ 8,510 $655 7.69% $11,016 $ 834 7.57% $15,583 $1,421 9.12%
Continuing Entities 8,510 655 7.69 9,800 723 7.38 11,787 1,038 8.81
_______ ____ ____ _______ ______ ____ _______ ______ ____
ALL OTHER INTEREST-EARNING
Assets
Actual 3,880 162 4.18 3,753 218 5.81 4,224 309 7.31
Continuing Entities 3,880 162 4.18 3,496 199 5.69 3,257 236 7.24
_______ ____ ____ _______ ______ ____ _______ ______ ____
TOTAL INTEREST-EARNING ASSETS
Actual 12,390 817 6.59 14,769 1,052 7.12 19,807 1,730 8.73
Continuing Entities 12,390 817 6.59 13,296 922 6.94 15,044 1,274 8.47
_______ ____ ____ _______ ______ ____ _______ ______ ____
INTEREST-BEARING DEPOSITS
Actual 9,166 263 2.87 11,538 483 4.19 16,026 1,012 6.31
Continuing Entities 9,166 263 2.87 10,218 424 4.15 11,803 744 6.31
_______ ____ ____ _______ ______ ____ _______ ______ ____
ALL OTHER INTEREST-BEARING
SOURCES OF FUNDS
Actual 791 48 6.07 968 59 6.08 1,369 93 6.79
Continuing Entities 791 48 6.07 953 59 6.15 1,090 80 7.29
_______ ____ ____ _______ ______ ____ _______ ______ ____
INTEREST-FREE SOURCES OF FUNDS
Actual 2,433 -- -- 2,263 -- -- 2,412 -- --
Continuing Entities 2,433 -- -- 2,125 -- -- 2,151 -- --
_______ ____ ____ _______ ______ ____ _______ ______ ____
NET INTEREST INCOME/NET INTEREST
MARGIN
Actual $506 4.08% $ 510 3.45% $ 625 3.15%
Continuing Entities 506 4.08 439 3.30 450 2.99
____ ____ ______ ____ ______ ____
</TABLE>
<PAGE>20 2OF2
<TABLE>
TABLE VI- ANALYSIS OF CHANGES IN NET INTEREST INCOME(1)
<CAPTION>
1993 vs. 1992 1992 vs. 1991
____________________________________ ___________________________________
(In thousands) Volume(4) Rate(4) Total Volume(4) Rate(4) Total
____________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
INCREASE (DECREASE) IN
INTEREST INCOME
Interest-bearing deposits $ 13,157 $ (707) $ 12,450 $ (9,515) $ (7,430) $ (16,945)
Other short-term investments 20,161 932 21,093 (9,587) (23,174) (32,761)
Investment securities (50,630) (38,743) (89,373) (4,458) (36,557) (41,015)
Commercial, financial and
foreign loans (2)(3) (100,317) 40,949 (59,368) (157,103) (96,235) (253,338)
Real estate loans(2)(3) (86,912) 353 (86,559) (134,336) (85,673) (220,009)
Loans to individuals(2)(3) (9,595) (23,417) (33,012) (79,861) (33,757) (113,618)
_________ _________ _________ _________ _________ _________
Total interest-earning assets (214,136) (20,633) (234,769) (394,860) (282,826) (677,686)
_________ _________ _________ _________ _________ _________
<PAGE>20 2OF2
INTEREST EXPENSE
Domestic savings and time deposits (86,890) (133,241) (220,131) (239,648) (288,129) (527,777)
Overseas branch deposits (55) (82) (137) (414) (455) (869)
Short-term borrowings (3,989) (1,766) (5,755) (16,959) (16,459) (33,418)
Long-term debt (4,329) (803) (5,132) (1,721) 1,018 (703)
_________ _________ _________ _________ _________ _________
Total interest-bearing sources of funds
used to finance interest-earning assets (95,263) (135,892) (231,155) (258,742) (304,025) (562,767)
_________ _________ _________ _________ _________ _________
Change in net interest income $(118,873) $ 115,259 $ (3,614) $(136,118) $ 21,199 $(114,919)
========= ========= ========= ========= ========= =========
CONTINUING ENTITIES (5)
INCREASE (DECREASE) IN
Total interest-earning assets $(112,074) $ 6,823 $(105,251) $(147,438) $(204,067) $(351,505)
Total interest-bearing sources of funds used
to finance interest-earning assets (47,978) (124,055) (172,033) (97,512) (243,225) (340,737)
_________ _________ _________ _________ _________ _________
CHANGE IN NET INTEREST INCOME $ (64,096) $ 130,878 $ 66,782 $ (49,926) $ 39,158 $ (10,768)
========= ========= ========= ========= ========= =========
<FN>
(1) For average balances and average rates earned and paid see "Comparative Consolidated Average Balance Sheet with
Resultant Interest and Average Rates" on pages 72 and 73.
(2) Includes income from loan fees which is not significant.
(3) Includes nonaccrual loans.
(4) The changes which cannot be attributed solely to changes in balances (volume) or to changes in rates are allocated to
these categories on the basis of their respective percentage changes.
(5) Data for Continuing Entities has been presented consistant with actual data (see footnotes 2 through 4 above).
</TABLE>
<PAGE>21 1OF2
Midlantic Corporation and Subsidiaries
Average interest-earning assets on a Continuing Entity basis declined $905.2
million in 1993 and $1.7 billion in 1992. Included in these amounts was a
decline in average loans amounting to $1.3 billion and $2.0 billion in 1993 and
1992, respectively. The net decline in earning assets reflects lower levels of
overall funding which was partially due to the previously-noted maturity of
brokered deposits and the Corporation's intention to reduce its dependence upon
large CDs (CDs in denominations of over $100,000, both domestic and foreign)
and short-term borrowings. In addition, there is some evidence that the
decline in the level of interest-bearing deposits may also partially be a
result of a movement of depositors' funds to non-deposit instruments. For
example, Midlantic has witnessed the proceeds of some of its interest-bearing
deposits being invested in the Compass Capital Group, Midlantic's proprietary
mutual fund group.
The decrease in average loans reflected weakened loan demand, principal
paydowns and payoffs, the sale and/or securitization of certain loans, charge-
offs and transfers to OREO. While consumer loans have increased during the
past several quarters, commercial loan demand has been weak in Midlantic's
market area (commercial loan demand having only recently begun to show signs of
improvement). Consequently, total new commercial loan generation has been less
than the aggregate of principal reductions in nonaccrual loans along with
payments and maturities in the remaining commercial loan portfolio.
PROVISION FOR LOAN LOSSES
The provision for loan losses represents a charge to earnings for the purpose
of maintaining an adequate allowance for loan losses. Midlantic's provision for
loan losses declined significantly in 1993 to a level of $79.0 million (which
included $20.0 million provided in connection with charge-offs on those loans
identified for bulk sale in 1994) as compared with $137.9 million in 1992 and
$640.4 million in 1991. Lower provisioning levels during the past two years
reflect improvement in the Corporation's asset quality and stabilizing economic
conditions in Midlantic's market areas during that period. For a further
discussion of the allowance for loan loss methodology, see "The Lending
Function - Allowance for Loan Losses."
NONINTEREST INCOME AND NONINTEREST EXPENSES
Tables VII and VIII detail noninterest income and noninterest expenses. The
discussion under this heading, unless otherwise stated, addresses the data
presented for 1993 and for the Continuing Entities in the prior two year
period.
Noninterest Income
1993 VS. 1992 - Excluding nonrecurring net gains on the disposition of
securities and certain other assets, noninterest income of $188.1million in
1993 decreased by $2.5 million or 1.3 percent.
Trust income, which amounted to $41.5 million in 1993, remained level when
compared to 1992. Trust fees were unfavorably affected by the termination of a
small number of employee benefit accounts, but benefited from higher levels of
investment advisory fees from the "Compass Capital Group," Midlantic's
proprietary mutual fund group and fees generated from "Enhanced Asset
Management," a financial tool that matches asset allocation to the trust or
investment client's risk and return objectives. At the end of 1993,
Midlantic's trust assets totalled $9.7 billion, of which $5.6 billion were
under discretionary management.
<PAGE>21 2OF2
<TABLE>
TABLE VII - NONINTEREST INCOME
<CAPTION>
1992 1991
1993 1992 Continuing 1991 Continuing
(In thousands) Actual Actual Entities Actual Entities
_________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Trust income $ 41,459 $ 46,776 $ 41,554 $ 56,156 $ 42,062
Service charges on deposit accounts 78,815 79,478 72,418 78,188 63,466
Mortgage banking fees -- 6,361 -- 32,459 --
Net gains on disposition of assets and other
nonrecurring income -- 35,208 35,208 6,796 6,796
Income earned on factoring receivables 15,823 16,705 16,705 20,404 20,404
Miscellaneous
International and foreign exchange fees 7,393 9,441 9,175 14,337 12,913
Automated teller fees 6,518 5,601 5,531 4,708 4,461
Safe deposit fees 4,311 4,867 4,437 5,561 4,556
Commitment fees on revolving lines of credit 4,583 5,432 5,287 5,986 5,867
Merchant discount and other credit card-related fees 3,163 5,401 4,861 5,936 4,680
Other (primarily fees and nonbank income) 26,023 32,873 30,607 29,738 24,551
________ ________ ________ ________ ________
Total miscellaneous 51,991 63,615 59,898 66,266 57,028
________ ________ ________ ________ ________
Total noninterest income before securities transactions 188,088 248,143 225,783 260,269 189,756
Investment securities gains (losses) 7,005 52,753 52,753 (2,890) (2,217)
________ ________ ________ ________ ________
Total noninterest income $195,093 $300,896 $278,536 $257,379 $187,539
======== ======== ======== ======== ========
</TABLE>
<PAGE>22 1of2
MANAGEMENT'S ANALYSIS (continued)
Service charges on deposits advanced $6.4 million or 8.8 percent in 1993 as a
result of the repricing of services.
Net investment securities gains amounted to $7.0 million in 1993 (gross gains
of $7.5 million and gross losses of $464 thousand) and $52.8 million in 1992
(gross gains of $57.0 million and gross losses of $4.2 million). Gains in 1993
were primarily realized from the first quarter 1993 sale of $562 million of
U.S. Treasury securities that had been identified for sale in 1992. In 1992,
Midlantic sold $2.2 billion of U.S. Treasury securities and $75.6 million of
obligations of states and political subdivisions as part of a balance sheet
repositioning program (see "Investment Securities").
A decline in mortgage banking fees is largely attributable to the first quarter
1992 sale of Midlantic's former mortgage banking subsidiary, Midlantic Home
Mortgage Corporation ("MHMC"). However, as part of Midlantic's efforts to
offer its customers a complete line of banking services, the Corporation began
originating residential mortgage loans in 1993. Fees earned on the origination
of these loans are recorded as interest income.
Income earned on factoring receivables decreased $882 thousand or 5.3 percent,
reflecting a lower volume of business activity.
In 1992, net gains on the sales of subsidiaries and assets amounted to $35.2
million which included an aggregate net gain of $15.5 million on the sales of
MHMC and Midlantic's four banking subsidiaries in New York state (the "New York
Banks") and $19.7 million of other gains including those realized on the
securitization and/or sale of automobile and certain other loans.
Other noninterest income, which includes among other things, letters of credit
and international fee income, automated teller fees and computer service fees,
amounted to $52.0 million and $59.9 million in 1993 and 1992, respectively. The
decline in other noninterest income reflected reductions in international fees
and certain other fee income sources resulting from a lower level of business
activity, partially offset by a rise in automated teller fees.
1992 VS. 1991 - Noninterest income in 1992 rose $91.0 million or 48.5 percent
over 1991. However, had nonrecurring net gains or losses on the disposition of
assets and securities been excluded, the increase would have amounted to a more
modest $7.6 million or 4.2 percent.
Recurring noninterest income was favorably affected by increases in deposit
service charge income reflecting the repricing of services ($9.0 million or
14.1 percent), which was partially offset by a decline in income earned on
factoring receivables resulting from a lower level of business activity ($3.7
million). Trust fees and miscellaneous noninterest income were relatively
unchanged when compared with the prior year.
Net gains on the disposition of assets in 1992 and 1991 amounted to $35.2
million and $6.8 million, respectively. In 1991, an aggregate gain of $68.9
million was realized on subsidiaries and assets sold during the year offset by
a $62.1 million estimated loss recorded on the then planned sales of the New
York Banks. This loss was accounted for as a reduction of the remaining
intangible value recorded at the time Midlantic acquired the New York Banks.
<PAGE>22 2OF2
Transactions in the investment securities portfolio resulted in net gains of
$52.8 million in 1992 compared to net losses of $2.2 million in 1991 (gross
losses of $7.1 million and gross gains of $4.9 million). Losses in 1991
resulted primarily from the write-down or sale of certain equity securities
partially offset by gains realized on the sale of certain obligations of states
and political subdivisions, the U.S. government or its agencies.
Noninterest Expenses
1993 VS. 1992 - The Corporation's core operating expenses (total noninterest
expenses excluding OREO charges, restructuring charges, FDIC assessment charges
and nonrecurring expenses) fell $18.2 million or 4.1 percent in 1993 reflecting
the favorable impact of the full-implementation of the FOCUS '92 program. The
efficiency ratio (total noninterest expenses excluding OREO and nonrecurring
charges as a percent of net interest income plus noninterest income adjusted
for nonrecurring gains or losses) also improved, amounting to 66.8 percent for
the full year 1993 (improving to 62.9 percent by the fourth quarter of 1993) as
compared with 76.0 percent in 1992, reflecting the Corporation's efforts to
increase revenue and reduce expenses.
Salary and benefit expenses, which comprise a substantial portion of
noninterest expenses, declined in 1993 ($5.5 million or 2.4 percent). The
FOCUS '92 program identified numerous efficiencies which enabled the
Corporation to reduce significantly the size of its staff. At December 31,
1993, Midlantic employed 5,090 employees (on a full-time equivalent basis)
compared to 5,748 at December 31, 1992. Overall, since the mid-1992
commencement of the implementation of FOCUS '92 to year-end 1993, the
Corporation's full-time equivalent staff count has fallen by 1,557 or 23.4
percent. Expenses in 1993 also included contributions by the Corporation
during the latter part of the year into a recently established "401(k)"
employee savings plan as well as increases in certain other fringe benefit
expenses (including health and life insurance contributions).
Expenses for premises and fixed assets (net occupancy and equipment rental
expenses) fell $5.2 million or 6.8 percent in 1993. The decline in these
expenses resulted from the closing of 15 branches during 1992 (and the
resultant decline in depreciation expenses), the renegotiation of equipment
rental contracts and a lower overall volume of equipment rentals, partially
attributable to the implementation of FOCUS '92.
Expenses for OREO include adjustments to the carrying value of certain OREO
properties to approximate net realizable value, gains or losses (if any) on the
sale of OREO properties and operating expenses, net of rental income, on OREO
properties. In total, OREO expenses amounted to $134.3 million in 1993 as
compared with $96.3 million in 1992. Included in 1993 OREO expenses were
special provisions of $58.0 million against those OREO properties that were
sold in bulk sales or transferred to other assets as assets held for
accelerated disposition. Such special provisions represented adjustments to
carrying values necessary in the Corporation's judgment to reflect the net
realizable value of those assets when liquidated in an accelerated manner in
bulk sales transactions. Excluding the special provisions,
<PAGE>23 1of2
Midlantic Corporation and Subsidiaries
<TABLE>
TABLE VIII - NONINTEREST EXPENSES
<CAPTION>
1992 1991
1993 1992 Continuing 1991 Continuing
(In thousands) ACTUAL Actual Entities Actual Entities
____________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Salaries and benefits $219,332 $257,221 $224,785 $345,679 $254,165
Net occupancy 44,622 51,410 45,028 61,566 47,403
Equipment rental and expense 26,881 35,776 31,686 43,529 33,366
OREO, net
Provision for OREO 130,545 77,132 74,624 102,038 99,138
Other 3,792 22,612 21,683 20,961 20,063
________ ________ ________ ________ ________
Total OREO expense 134,337 99,744 96,307 122,999 119,201
________ ________ ________ ________ ________
FDIC assessment charges 33,841 34,090 30,509 40,433 30,633
Legal and professional fees 51,511* 51,403 49,294 50,803 46,076
Miscellaneous
Amortization of goodwill and other intangibles 6,334 7,696 6,581 22,741 19,727
Courier services, moving and postage 13,627 16,748 14,551 19,482 14,571
Business development, including advertising 5,694 9,147 7,118 15,032 9,392
Printing, stationery and supplies 5,988 10,300 9,388 12,957 8,708
Telephone 8,388 10,296 8,893 12,241 8,946
Other (recurring) 51,235 56,418 50,607 66,381 44,936
Other (nonrecurring) -- 22,500 22,500 14,496 14,496
________ ________ ________ ________ ________
Total miscellaneous 91,266 133,105 119,638 163,330 120,776
________ ________ ________ ________ ________
Total noninterest expenses $601,790 $662,749 $597,247 $828,339 $651,620
======== ======== ======== ======== ========
<FN>
*Includes $3.856 million of nonrecurring fees incurred for the implementation of a security lending program.
</TABLE>
adjustments to the carrying value of the Corporation's foreclosed properties
and in-substance foreclosures amounted to $72.5 million in 1993 ($49.9 million
of which occurred during the first half of the year) as compared with $74.6
million in 1992. While the Corporation has witnessed an apparent stabilization
of values in certain of its real estate markets, such as residential properties
(as evidenced by statistical data, recent appraisals and increased market
activity), the relatively high level of adjustments of the carrying value of
OREO properties in 1993 was predominantly due to the continued deterioration in
values and market stagnation in certain other real estate markets including
office buildings, land and industrial/warehouse, although such deterioration in
values is modest when compared to the deterioration in values experienced
during the preceding four years. The Corporation anticipates that in the
absence of deteriorating market conditions, adjustments to carrying values in
1994 should decline from the amounts expensed during 1993. Operating expenses,
which represent those costs incurred in holding OREO properties, net of rental
income, fell to $3.8 million in 1993 from $21.7 million in 1992, primarily
reflecting a higher level of rental income and an overall decline in the cost
of holding OREO resulting from improved efficiencies in managing OREO
properties and a faster turnover of the OREO portfolio.
<PAGE>23 2of2
FDIC assessment charges increased $3.3 million or 10.9 percent in 1993 as a
result of an increase in the premium paid by Midlantic's bank subsidiaries.
Effective January 1, 1993, the FDIC initiated a risk-based assessment system.
Under this system, the assessment for the strongest financial institutions
remained at the 1992 base rate of $.23 per $100 of deposits, while a premium of
$.03 to $.08 was imposed for weaker institutions. Midlantic's bank
subsidiaries initially paid premiums at the higher end of this range. However,
such premiums were reduced somewhat during 1993 and are expected to decline
again in 1994.
Legal and professional fees of $51.5 million increased by $2.2 million or 4.5
percent compared to the $49.3 million incurred in 1992. The level of legal and
professional fees during the past three years has been significantly affected
by loan workout expenses and a high volume of appraisals on OREO properties and
the underlying collateral supporting certain loans. In 1993, expenses incurred
for loan workouts and appraisals declined modestly. This decline was offset by
an increase in certain commissions relating to consumer loan originations and
administrative expenses related to the implementation of Midlantic's 401(k)
employee savings plan. The Corporation also incurred $3.9 million of one-time
expenses for the implementation of a security lending program (see "The Lending
Function-Loan Portfolio"). Midlantic expects that as the level of problem
assets declines over time, legal and professional fees should also decline. In
1992, the Corporation incurred restructuring charges of $22.5 million with
respect to the implementation of FOCUS '92. All other noninterest expenses
fell $5.9 million or 6.0 percent in 1993. Lower expense levels were reflected
in many categories but these were offset, in part, by a $4.2 million expense
incurred in 1993 representing an adjustment related to subsidiaries sold.
1992 VS. 1991 - Noninterest expenses declined $54.4 million or 8.3 percent in
1992. Excluding OREO expenses, FDIC assessment charges, restructuring charges
and other nonrecurring expenses, noninterest expenses would have declined $39.4
million or 8.1 percent.
Salary and benefit expenses decreased $29.4 million or 11.6 percent. Most of
this decline was attributable to reductions in staff levels during the latter
part of 1992 as a result of FOCUS '92.
OREO expenses amounted to $96.3 million in 1992 compared to $119.2 million in
1991. Adjustments to the carrying value of OREO properties to net realizable
value (fair value in 1991) amounted to $74.6 million and $99.1 million in 1992
and 1991, respectively. The remaining expenses ($21.7 million in 1992 and
$20.1 million in 1991) primarily reflected operating costs, net of rental
income, on OREO properties.
<PAGE>24 1of2
MANAGEMENT'S ANALYSIS (continued)
Legal and professional fees increased $3.2 million or 7.0 percent to a level of
$49.3 million in 1992. Expense levels in both years reflected expanded loan
workout costs and appraisal fees.
FDIC assessment charges remained relatively flat in 1992 amounting to $30.5
million as compared with $30.6 million in 1991. The assessment rate over the
period amounted to $.195 per $100 of deposits for the first six months of 1991,
increasing to $.23 for the remaining six months of 1991 and for the year 1992.
Partially offsetting the overall increase in the assessment rate in 1992 vs.
1991 was a decline in Midlantic's total deposits during the same period.
Restructuring expenses amounted to $22.5 million in 1992 and $3.1 million in
1991. Expenses in 1992 were incurred for the implementation of FOCUS '92,
while in 1991 expenditures were incurred for severance payments for the
termination of certain employees resulting from efficiencies realized in the
merger of MNB and MNB/North.
Also affecting the decrease in noninterest expenses in 1992 was a decline of
$13.1 million on amortization expenses on goodwill and other intangibles which
resulted from the 1991 write-off of a substantial portion of the intangibles
associated with the New York Banks. Additionally, a fraud loss involving
equipment lease collateral securing a commercial loan of $11.4 million was
incurred in 1991. The $4.0 million increase in all other noninterest expenses
primarily reflected higher computer servicing, insurance and examination
expenses, partially offset by a reduction in business development expenses.
POSTRETIREMENT AND POSTEMPLOYMENT BENEFIT EXPENSES
In the first quarter of 1993, the Corporation adopted Financial Accounting
Standards ("FAS") No. 106 "Employers' Accounting for Postretirement Benefits
Other Than Pensions," which requires that the projected future cost of providing
postretirement health care and other benefits be recognized on an accrual basis
during the periods employees provide services to earn those benefits. The
transition obligation, which is the unfunded and unrecognized accumulated
postretirement benefit obligation for all plan participants at the time of
adoption, is amortized by the Corporation (at its election) on a straight-line
basis over a period of 20 years, beginning in 1993 and is included as a
component of net periodic postretirement benefit cost. The net periodic
postretirement benefit cost for 1993, including such amortization expense,
amounted to $10.3 million. For the year 1992, actual postretirement expenses,
which were expensed as incurred, were $6.3 million.
In November 1992, the Financial Accounting Standards Board ("FASB") issued FAS
No. 112 "Employers' Accounting for Postemployment Benefits," which is effective
for fiscal years beginning after December 31, 1993. FAS No. 112 requires
accrual accounting for postemployment benefits (benefits such as severance and
disability payments to former or inactive employees after employment but before
retirement), under the following circumstances: if the employees' rights to
postemployment benefits are attributable to services already rendered and the
rights to those benefits accumulate or vest, and if payment of the benefits is
probable and the amount of the benefits can be reasonably estimated. If the
four criteria mentioned cannot be met, the employer should accrue an obligation
for these benefits when payment is both probable and estimable. Based upon
current estimates, the Corporation will recognize, in the first quarter of
1994, a charge to earnings ranging from $7 million to $8 million, net of income
taxes, resulting from the cumulative effect of this change in accounting
principle. The Corporation presently accounts for postemployment benefits on a
"pay-as-you-go" basis.
<PAGE>24 2of2
INCOME TAXES
Adoption Of FAS No. 109
In the first quarter of 1993, Midlantic adopted FAS No. 109 "Accounting for
Income Taxes," which required a shift from the "deferred tax method," formerly
utilized, to the "liability method" of accounting for income taxes and the
establishment, when required, of a valuation allowance for deferred tax assets.
Midlantic adopted FAS No. 109 by recognizing the effect of adoption as a
cumulative change in accounting principle. The adoption of FAS No. 109
provided the Corporation with an income credit, recognized in the first quarter
of 1993, of $39.0 million or $.74 per fully diluted common share reflecting
the cumulative effect of the change in accounting principle.
General
In 1993, the Corporation recorded an income tax benefit of $111.0 million as
compared with an income tax expense of $2.8 million in 1992 and an income tax
benefit of $43.5 million in 1991.
The income tax benefit recorded in 1993, which is exclusive of the cumulative
effect of Midlantic's adoption of FAS No. 109, was primarily comprised of a tax
benefit related to a reduction in the valuation reserve associated with
deferred tax assets, as required by FAS No. 109.
As of December 31, 1993, Midlantic's net deferred tax asset balance included a
$106.8 million valuation allowance which represents, for reporting purposes,
unrecognized future federal and state income tax benefits. Midlantic intends
to reduce this valuation allowance during 1994, based on management's
estimation at this time of continuing profitability and projected future
taxable income, such that by year-end 1994, Midlantic's remaining valuation
allowance will relate entirely to specific tax attributes (such as net
operating loss carryforwards, tax credit carryforwards, etc.) on which
Midlantic has determined that it is uncertain as to their ultimate realization
in whole or in part.
<PAGE>25 1of2
Midlantic Corporation and Subsidiaries
Based upon the accounting principles that existed prior to the effective date
of FAS No. 109, for the early portion of 1991, Midlantic recognized federal
income tax benefits generated by its pretax losses. However, for the remaining
portion of 1991 and for the year 1992, the Corporation was not able to
recognize federal income tax benefits as it had fully exhausted its ability to
carryback its reported net operating losses against prior eligible years'
reported earnings. Income tax expenses in 1992 reflected state and local
income taxes as no federal income tax expense or benefit was recognized.
MONEY MARKET INVESTMENTS
Money market investments include federal funds sold, term federal funds sold,
repurchase agreements, commercial paper and interest-bearing deposits in other
banks (certificates of deposit and eurodollars). Presently, Midlantic invests a
sizable portion of its available funds in money market investments, the
majority of which have a remaining maturity of three months or less. On
average, such investments amounted to $1.9 billion or 15.7 percent of interest
earning assets, as compared with $1.0 billion or 6.8 percent of interest-earning
assets in 1992 and $1.4 billion or 6.9 percent of interest-earning assets in
1991. The Corporation anticipates that over time a portion of these liquid
assets will be utilized to fund loan demand.
<TABLE>
TABLE IX - AVERAGE INVESTMENT SECURITIES AND MONEY MARKET INVESTMENTS
<CAPTION>
INCREASE (DECREASE)
__________________
(In millions) 1993 1992 1991 1993 1992
___________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
AVERAGE INVESTMENT SECURITIES
Actual $1,935 $2,744 $2,858 $(809) $(114)
Continuing Entities 1,935 2,423 1,886 (488) 537
______ ______ ______ _____ _____
AVERAGE MONEY MARKET INVESTMENTS
Actual 1,945 1,009 1,366 936 (357)
Continuing Entities 1,945 1,073 1,371 872 (298)
______ ______ ______ _____ _____
</TABLE>
INVESTMENT SECURITIES
Investment securities averaged $1.9 billion in 1993, $2.7 billion in 1992 and
$2.9 billion in 1991. The net unrealized appreciation of the investment
securities portfolio amounted to $12.4 million at December 31, 1993 ($13.9
million of gross unrealized gains and $1.5 million of gross unrealized losses),
$10.9 million at December 31, 1992 ($19.6 million of gross unrealized gains and
$8.7 million of gross unrealized losses) and $80.5 million at December 31, 1991
($88.6 million of gross unrealized gains and $8.1 million of gross unrealized
losses). The Corporation's investment securities portfolio is primarily
comprised of short-term U.S. Treasury obligations and longer-term mortgage-
backed securities issued by agencies sponsored by the U.S. government.
<PAGE>25 2of2
During 1992, following an extensive analysis of Midlantic's investment
portfolio, the Corporation identified $1.9 billion of U.S. Treasury securities
that might be sold prior to their contractual maturities for purposes of
interest-sensitivity and balance sheet positioning. During the fourth quarter
of 1992, $1.3 billion of U.S. Treasury securities were actually sold and $562.4
million of U.S. Treasury securities that remained identified for possible sale
were sold during the first quarter of 1993. Prior to the fourth quarter of
1992, the Corporation also sold $868.9 million of U.S. Treasury securities and
most of its remaining outstanding obligations of states and political
subdivisions. The tax-free nature of interest income on such securities had
diminished value to Midlantic in light of the Corporation's tax position. The
majority of securities remaining in the investment portfolio as of December 31,
1993 are intended to be held to their contractual maturities. A substantial
portion of such investments are currently being utilized for present or
foreseeable pledging requirements for various public deposit gathering
initiatives and as a source of collateral for other ongoing business purposes.
Securities held in Midlantic's trading account, which amounted to $19.4 million
at December 31, 1993, are carried at market value.
The average maturity of Midlantic's investment securities portfolio
approximated three years at both December 31, 1993 and 1992.
At year-end 1993, Midlantic held aggregate investments with the Federal Home
Loan Mortgage Corporation and the Federal National Mortgage Association, which
comprised 61.3 percent and 33.5 percent of shareholders' equity, respectively.
These mortgage-backed securities are sponsored by the United States government
and have little or no inherent credit risk.
Obligations of states and municipalities (excluding those in the trading
account) and other securities amounted to $5.3 million and $68.4 million,
respectively, at December 31, 1993. Other securities included Federal Reserve
Bank stock of $24.0 million, Mexican Bonds collateralized by zero coupon U.S.
Treasury securities with a book value of $33.3 million, other debt securities
of $8.3 million and equity securities of $2.8 million.
In May 1993, the FASB issued FAS No. 115 "Accounting for Certain Investments in
Debt and Equity Securities," which is effective for fiscal years beginning
after December 15, 1993. FAS No. 115 establishes the accounting and reporting
for investments in equity securities that have readily determinable fair values
and for all investments in debt securities. In accordance with FAS No. 115,
those investments will be classified into three categories: (1) held to
maturity securities, which Midlantic has both the positive intent and ability
to hold until maturity, will be reported at amortized/accreted cost; (2)
trading securities, which are purchased and held principally for the purpose of
selling in
<PAGE>26 1of2
MANAGEMENT'S ANALYSIS (continued)
the near term, will be reported at fair value with unrealized gains and losses
included in earnings; and (3) available-for-sale securities, which do not meet
the criteria of the first two categories, will be reported at fair value with
unrealized gains and losses, net of applicable income taxes, reported as a
separate component of shareholders' equity and excluded from earnings.
Midlantic estimates that FAS No. 115, which it will adopt in the first quarter
of 1994, will have no material impact on its financial condition or results of
operations at the time of adoption.
THE LENDING FUNCTION
A principal business activity of the Corporation is to finance the borrowing
needs of its diverse customer base. The following is a discussion of
Midlantic's lending function including its loan portfolio, credit
administration, allowance for loan losses and asset quality.
Loan Portfolio
Average loans amounted to $8.5 billion in 1993 as compared with $9.8 billion
and $11.8 billion in 1992 and 1991, respectively, for the Continuing Entities.
The decline in 1993 from the 1992 level reflects a number of factors including
loans sold or held for sale ($437.7 million), loans charged off ($199.4
million) and loan payments and maturities during a period when new loan growth
in many of the Corporation's markets was relatively minimal. The composition
of Midlantic's loan portfolio, for each of the past three years, is indicated
in Table X.
Historically, Midlantic has channeled a substantial amount of financing to real
estate development in its core market area and to medium-sized businesses.
Compared to periods prior to 1990, recent real estate development has been
generally slow. The Corporation's current lending focus has shifted to
increasing its market share of retail (consumer) lending while continuing to
serve the financial requirements of small and medium-sized industrial and
service businesses and certain well-capitalized and established real estate
borrowing relationships.
Throughout the past three years the Corporation's loan portfolio has contracted
for the following reasons:
- The downturn in economic conditions during the period from 1989 to 1992,
followed by a shallower than normal recovery, particularly in Midlantic's
market areas, have unfavorably affected loan demand in virtually all
sectors including real estate, commercial industries and consumer.
- Contributing to the decline in loan receivables were loan payments and
payoffs, including normal loan amortization and payments and pay-offs
resulting from the determination of many companies to replace their
existing debt by either capital formation or securing more favorable
terms on their debt in an extremely low interest rate environment.
- In 1993, Midlantic sold through bulk sales or identified for possible
bulk sale $437.7 million of commercial real estate loans. In 1992, the
Corporation securitized and sold over $400 million of automobile loans.
In 1991, approximately $55 million of commercial loans were sold.
- Loan charge-offs aggregated $1.0 billion during the past three years.
- Loan foreclosures and transfers of loans to in-substance foreclosures
("ISFs") aggregated $703.9 million since year-end 1990.
<PAGE>26 2of2
To a very large extent, future loan growth depends upon improvements in
national and, particularly, regional economic conditions. While the volume of
consumer lending increased in 1993, commercial and financial loan outstandings
continued to decline. Management believes that meaningful growth in the
commercial loan portfolio may tend to occur when business conditions improve.
<TABLE>
TABLE X - AVERAGE LOAN PORTFOLIO
<CAPTION>
PERCENT Percent Percent
(In millions) 1993 OF TOTAL 1992 of Total 1991 of Total
_________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
COMMERCIAL, FINANCIAL AND
FOREIGN
Actual $3,097 36.4% $ 4,273 38.8% $ 6,281 40.3%
Continuing Entities 3,097 36.4 3,890 39.7 5,071 43.0
______ _____ _______ _____ ________ _____
CONSTRUCTION AND DEVELOPMENT
Actual 1,154 13.6 1,772 16.1 2,383 15.3
Continuing Entities 1,154 13.6 1,746 17.8 2,264 19.2
______ _____ _______ _____ ________ _____
LONG-TERM COMMERCIAL MORTGAGE
Actual 1,838 21.6 2,219 20.1 2,944 18.9
Continuing Entities 1,838 21.6 1,914 19.5 1,949 16.5
______ _____ _______ _____ ________ _____
1-4 FAMILY RESIDENTIAL
Actual 471 5.5 697 6.3 1,112 7.1
Continuing Entities 471 5.5 494 5.1 554 4.7
______ _____ _______ _____ ________ _____
LOANS TO INDIVIDUALS
Actual 1,950 22.9 2,055 18.7 2,863 18.4
Continuing Entities 1,950 22.9 1,756 17.9 1,949 16.6
______ _____ _______ _____ ________ _____
TOTAL LOANS
Actual $8,510 100.0% $11,016 100.0% $15,583 100.0%
Continuing Entities 8,510 100.0 9,800 100.0 11,787 100.0
====== ===== ======= ===== ======= =====
</TABLE>
<PAGE>27 1of3
Midlantic Corporation and Subsidiaries
COMMERCIAL AND FINANCIAL LOANS - Commercial and financial loans largely
represent working capital and term financing for small and medium-size
businesses. Weakened economic conditions in Midlantic's market areas over the
past several years have unfavorably impacted most commercial borrowers. Partly
as a result of this, average commercial and financial loans on a Continuing
Entity basis have declined in each of the past two years ($793.5 million in
1993 and $1.2 billion in 1992). Midlantic's commercial loan portfolio is
diverse and reflects the industrial composition of its core markets (see Table
XI). The Corporation has begun to avail itself of opportunities in expanding
its commercial loan portfolio. However, such expansion is highly dependent
upon the strength of the recovery in the regional economy.
<TABLE>
TABLE XI - COMMERCIAL, FINANCIAL AND FOREIGN LOANS BY INDUSTRY CLASSIFICATION AT
DECEMBER 31, 1993
<CAPTION>
Percent
Amount of
(In thousands) Outstanding Total
___________________________________________________________________________
<S> <C> <C>
Agriculture, forestry and fishing $ 6,345 .2%
Mining 32,123 1.1
Manufacturing
Lumber/wood products 43,752 1.5
Paper/allied products 68,715 2.4
Printing and publishing 55,289 1.9
Chemicals/allied products 61,234 2.1
Rubber and miscellaneous plastics 44,308 1.5
Fabricated metal 76,712 2.7
Machinery and equipment 102,858 3.6
Other manufacturing 168,476 5.8
Transportation 88,955 3.1
Communications 81,502 2.8
Wholesale trade
Durable 209,547 7.2
Nondurable 179,446 6.2
Retail trade
Food and general merchandise stores 73,533 2.5
Auto dealers/service 125,076 4.3
Restaurants 31,128 1.1
Other retail trade 90,328 3.1
Finance, insurance and real estate
Depository and nondepository institutions 62,574 2.2
Real estate 262,922 9.1
Holding and investment companies 56,705 2.0
Other finance, insurance and real estate 26,168 .9
<PAGE>27 2of3
Services
Hotels and lodging places 63,604 2.2
Business services 147,081 5.1
Auto repair and services 57,895 2.0
Amusement and recreation 115,133 4.0
Health services 95,656 3.3
Legal services 40,106 1.4
Memberships and organizations 41,887 1.4
Engineering and management 75,796 2.6
Other services 49,505 1.7
Foreign loans 3,492 .1
Other
New loans in process at December 31 56,480 1.9
All other (primarily commercial installment loans) 203,325 7.0
__________ _____
Total $2,897,656 100.0%
========== =====
</TABLE>
Commercial loans also include highly leveraged transactions ("HLTs"), which
represent loans for the buyout, acquisition or recapitalization of an existing
business resulting in a significant increase in the leverage of the borrower.
Pursuant to the bank regulators' February 1992 revised supervisory definition
of HLTs, at December 31, 1993, Midlantic had 22 reportable HLTs outstanding in
the amount of $198.9 million and had committed to lend an additional $107.6
million principally to these HLT borrowers. At December 31, 1992, Midlantic
had 43 reportable HLTs outstanding that amounted to $354.7 million and unfunded
commitments principally to these HLT borrowers of $200.0 million. Relative to
Midlantic's total loan portfolio, HLTs comprised 2.4 percent of total loans at
December 31, 1993 and their contribution to total revenue was modest.
REAL ESTATE LOANS - Commercial real estate loans totalled $2.5 billion or 29.6
percent of total loans at December 31, 1993. This compares with levels of $3.4
billion or 37.7 percent of total loans at year-end 1992 and $4.4 billion or
35.0 percent of total loans at the end of 1991. At December 31, 1993,
construction and development loans amounted to $834.0 million and long-term
commercial real estate loans were $1.7 billion. The downturn in real estate
market conditions in the Corporation's markets over the past five years has
been severe. Corporate downsizing has reduced the demand for office and other
commercial space and the resultant high levels of unemployment have severely
weakened consumer demand resulting in what had been, until recently, a rather
soft residential real estate market and unfavorably affecting other industries
such as retail trade and the services industry. Since 1990, Midlantic has
originated a moderate amount of new commercial real estate lending. Declines
in the portfolio have primarily resulted from payments, charge-offs, transfers
to OREO, bulk sales and loans transferred to assets held for accelerated
disposition.
At December 31, 1993, Midlantic's commercial real estate portfolio was
comprised of 26.5 percent industrial/warehouse, 22.9 percent office buildings,
16.2 percent shopping centers and other retail, 10.0 percent residential and
24.4 percent all other. At year-end 1993, financing on owner-occupied
properties comprised approximately 56.1 percent of the Corporation's long-term
commercial real estate portfolio.
<PAGE>27 3OF3
Management's intention is to reduce commercial real estate exposure through
scheduled principal reductions. However, the Corporation is strategically
committed to continuing to extend credit on owner-occupied properties and to
well-capitalized, established real estate developers.
Real estate financing on 1-4 family residential properties (which includes
mortgage warehousing loans secured by 1-4 family properties) averaged $471.1
million in 1993 as compared with $697.3 million and $1.1 billion in 1992 and
1991, respectively. In 1992, the Corporation sold its mortgage banking
subsidiary and, as a result, suspended direct financing of residential
properties. During 1993, Midlantic again began to offer residential mortgage
loans. 1-4 family residential mortgage loans originated in 1993 amounted to
$163.3 million and at December 31, 1993, the Corporation had outstanding
commitments to fund an additional $37.3 million.
<PAGE>28 1OF2
MANAGEMENT'S ANALYSIS (continued)
<TABLE>
TABLE XII - GEOGRAPHIC DISTRIBUTION OF REAL ESTATE LOANS AT DECEMBER 31, 1993
<CAPTION>
Long-term Long-term
Construction and Commercial 1-4 Family
(In thousands) Development Loans Mortgages Residential Total
________________________________________________________________________
<S> <C> <C> <C> <C>
PORTFOLIO
New Jersey $520,776 $ 943,989 $507,875 $1,972,640
Pennsylvania 162,847 612,422 118,545 893,814
New York 45,509 57,672 2,527 105,708
Florida 28,280 9,968 2,934 41,182
Other 76,601 40,706 4,751 122,058
________ __________ ________ __________
Total $834,013 $1,664,757 $636,632 $3,135,402
======== ========== ======== ==========
NONACCRUAL SEGMENT
New Jersey $ 42,864 $ 42,575 $ 125 $ 85,564
Pennsylvania 3,542 19,250 4,351 27,143
New York 784 992 -- 1,776
Florida -- -- -- --
Other 2,953 614 13 3,580
________ __________ ________ __________
Total $ 50,143 $ 63,431 $ 4,489 $ 118,063
======== ========== ======== ==========
PERCENT OF NONACCRUAL
TO PORTFOLIO 6.01% 3.81% .71% 3.77%
======== ========== ======== ==========
</TABLE>
<TABLE>
TABLE XIII - CONSTRUCTION AND DEVELOPMENT LOANS - PROPERTY TYPE BY STATE AT DECEMBER 31, 1993
<CAPTION>
(In thousands) New Jersey Pennsylvania New York Florida Other Total
________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
PORTFOLIO
Office buildings $138,967 $ 57,170 $14,800 $ -- $11,649 $222,586
Shopping centers 135,760 33,384 2,908 4,000 20,479 196,531
Residential 90,194 31,683 1,759 7,860 7,186 138,682
Land 42,030 24,997 3,859 1,744 5,720 78,350
Hotels/motels 19,723 1,950 382 14,300 15,792 52,147
Industrial/warehouse 24,764 6,795 13,646 -- -- 45,205
All other 69,338 6,868 8,155 376 15,775 100,512
________ ________ _______ _______ _______ ________
Total $520,776 $162,847 $45,509 $28,280 $76,601 $834,013
======== ======== ======= ======= ======= ========
<PAGE>28 2OF2
NONACCRUAL SEGMENT
Office buildings $ 4,416 $ 291 $ -- $ -- $ -- $ 4,707
Shopping centers -- -- -- -- -- --
Residential 9,856 1,024 610 -- -- 11,490
Land 18,480 2,227 -- -- 803 21,510
Hotels/motels 4,906 -- -- -- -- 4,906
Industrial/warehouse -- -- -- -- -- --
All other 5,206 -- 174 -- 2,150 7,530
________ ________ _______ _______ _______ ________
Total $ 42,864 $ 3,542 $ 784 $ -- $ 2,953 $ 50,143
======== ======== ======= ======= ======= ========
PERCENT OF NONACCRUAL
TO PORTFOLIO 8.23% 2.18% 1.72% --% 3.86% 6.01%
======== ======== ======= ======= ======= ========
</TABLE>
<TABLE>
TABLE XIV - LONG-TERM COMMERCIAL MORTGAGE LOANS - PROPERTY TYPE BY STATE AT DECEMBER 31, 1993
<CAPTION>
(In thousands) New Jersey Pennsylvania New York Florida Other Total
__________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
PORTFOLIO
Industrial/warehouse $366,467 $188,712 $50,216 $1,026 $11,583 $ 618,004
Office buildings 178,636 162,427 3,246 -- 6,282 350,591
Retail businesses 86,875 55,350 429 -- 460 143,114
Apartment houses and other
rental properties 39,029 64,481 1,001 1,488 4,840 110,839
Hospitals, medical centers
and nursing homes 73,370 20,101 -- -- -- 93,471
Shopping centers 10,749 49,376 -- -- 5,880 66,005
Automobile and truck sales 43,438 17,682 105 -- -- 61,225
Hotels/motels 46,142 13,067 482 -- 297 59,988
All other 99,283 41,226 2,193 7,454 11,364 161,520
________ ________ _______ ______ _______ __________
Total $943,989 $612,422 $57,672 $9,968 $40,706 $1,664,757
======== ======== ======= ====== ======= ==========
NONACCRUAL SEGMENT
Industrial/warehouse $ 18,214 $ 6,489 $ 348 $ -- $ -- $ 25,051
Office buildings 3,518 1,441 -- -- -- 4,959
Retail businesses 3,452 1,099 87 -- 62 4,700
Apartment houses and other
rental properties 2,729 1,573 -- -- -- 4,302
Hospitals, medical centers
and nursing homes 261 -- -- -- -- 261
Shopping centers -- 1,723 -- -- -- 1,723
Automobile and truck sales 1,362 584 -- -- -- 1,946
Hotels/motels 1,732 5,000 -- -- -- 6,732
All other 11,307 1,341 557 -- 552 13,757
________ ________ _______ ______ _______ __________
Total $ 42,575 $ 19,250 $ 992 $ -- $ 614 $ 63,431
======== ======== ======= ====== ======= ==========
PERCENT OF NONACCRUAL
TO PORTFOLIO 4.51% 3.14% 1.72% --% 1.51% 3.81%
======== ======== ======= ====== ======= ==========
</TABLE>
<PAGE>29 1of2
Midlantic Corporation and Subsidiaries
CONSUMER LOANS - Loans to individuals, which include such consumer borrowing
vehicles as home equity loans (which generally represent junior liens on owner-
occupied residential property), automobile loans, student loans, personal loans
and overdraft checking, amounted to $2.4 billion at December 31, 1993 as
compared with $1.6 billion and $2.0 billion for the Continuing Entities at
year-end 1992 and 1991, respectively. The rise in consumer lending in 1993
reflected the Corporation's efforts to promote certain of its lending lines,
particularly home equity loans and automobile loans. While loans to individuals
declined in 1992, a major factor contributing to the decrease was the sale of
over $400 million of automobile loans. Midlantic will continue to pursue
consumer lending opportunities and anticipates further increases in this
portfolio as consumer confidence levels grow.
<TABLE>
TABLE XV - LOANS TO INDIVIDUALS AT DECEMBER 31, 1993
<CAPTION>
Amount Percent
(In thousands) Outstanding of Total
_______________________________________________________________
<S> <C> <C>
Home equity and secondary mortgages $1,230,604 50.9%
Automobile 806,612 33.4
Personal loans 182,775 7.6
Student loans 57,959 2.4
Marine 53,681 2.2
Recreational vehicles 40,367 1.7
Overdraft checking 21,389 .9
New loans in process at December 31 18,048 .7
All other 3,956 .2
__________ _____
Total $2,415,391 100.0%
========== =====
</TABLE>
FOREIGN LOANS - Foreign loans, which totalled $3.5 million at December 31,
1993, declined $76.8 million in 1993 following a $12.6 million decline in 1992.
As part of the Corporation's objectives to concentrate its business in its core
market area, in 1993, Midlantic exited the Hong Kong market by selling its Hong
Kong-based affilate. At year-end 1992, the loan portfolio of the Hong Kong
affiliate amounted to $73.5 million.
RECENT DEVELOPMENTS - In the fourth quarter of 1993, the Corporation placed
$244.1 million of tax-exempt loans in a security lending program. The program
will result in tax-exempt income from such loans (which is not currently
advantageous to the Corporation given its present tax position) being made
available to an unaffiliated third party. The Corporation invested the
proceeds of the security lending program in higher-yielding taxable securities.
The program is structured to allow Midlantic the opportunity to reaquire the
loans at a future date. Under generally accepted accounting principles, the
transaction is reported as a borrowing with the tax-exempt loans remaining on
Midlantic's balance sheet and the proceeds from the program reported in short-
term borrowings.
<PAGE>29 2of2
In May 1993, the FASB issued FAS No. 114 "Accounting by Creditors for
Impairment of a Loan," effective for fiscal years beginning after December 15,
1994. Under FAS No. 114 an impaired loan is defined as a loan for which it is
probable, based on current information, that the lender will not collect all
amounts due under the contractual terms of the loan agreement. FAS No. 114
requires that impaired loans be measured based upon either the present value of
expected future cash flows discounted at the loan's effective interest rate,
the loan's observable market price or the fair value of the collateral if the
loan is collateral dependent. Midlantic has not determined the effect of
adoption and, at this time, does not plan to elect early adoption.
Credit Administration
Midlantic controls credit risk through the review and updating, where
warranted, of its credit standards and lending policies.
In mid-1991, Midlantic began to centralize its credit function by making
revisions to organizational, administrative and reporting requirements.
During 1991, Midlantic reorganized its asset recovery activities into two
separate corporate-wide divisions, one to supervise the resolution of problem
real estate assets and the other to expedite commercial loan workouts. A
separate OREO resolution function was established in early 1992. During 1991
and 1992, the Corporation also devoted additional employee resources to its
loan resolution efforts and to acquire and dispose of its OREO properties and
reorganized and centralized its loan review function to enable more active
oversight by senior credit management.
In order to minimize credit risks, Midlantic incorporates a strategy of loan
diversification, accompanied by underwriting policies that require adherence to
a standardized approval process and monitor outstandings to individual and
related borrowers. In addition, loan to value guidelines have been established
for each loan type that is collaterlized by real estate.
Midlantic's loan administration function monitors, on an on-going basis,
weakening credits through the use of a system that assigns a numerical rating
to each loan based upon an assessment of the degree of risk inherent in the
loan. Detailed reports of loans with higher risk ratings are prepared on a
quarterly basis. The originating loan officer and department head have the
primary responsibilities for early recognition and proper risk rating of a
deteriorating loan. Risk ratings are also independently reviewed by credit
management and loan review personnel.
Allowance for Loan Losses
Through its allowance for loan loss methodology, Midlantic maintains an
allowance for loan losses at a level which the Corporation considers adequate
to absorb estimated loan charge-offs. At December 31, 1993, the allowance for
loan losses amounted to $394.5 million compared to $663.9 million and $841.7
million at December 31, 1992 and 1991, respectively.
<PAGE>30 1of2
MANAGEMENT'S ANALYSIS (continued)
Since late 1989, Midlantic's allowance for loan losses has been maintained at
historically high levels relative to loans outstanding as weakened economic
conditions resulted in deteriorating loan quality and a high volume of charge-
offs. The allowance was reduced in 1993 reflecting a lower provisioning level
as a result of improving loan quality and the Corporation's sale or designation
for sale of almost $450 million of nonaccruing and other problem loans that had
associated charge-offs totalling $181.9 million. Despite the reduction in the
level of the allowance for loan losses, the ratio of the allowance to
nonaccrual loans increased from 82 percent at year-end 1992 to 149 percent at
the end of 1993.
<TABLE>
TABLE XVI - SUMMARY OF LOAN LOSS EXPERIENCE
<CAPTION>
YEAR ENDED DECEMBER 31
(In thousands) 1993 1992 1991 1990 1989
___________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
AVERAGE LOANS, NET OF UNEARNED INCOME $8,510,148 $11,015,804 $15,582,526 $17,844,680 $16,674,595
__________ ___________ ___________ ___________ ___________
TOTAL LOANS, NET OF UNEARNED INCOME $8,314,831 $ 8,954,157 $12,485,896 $16,815,048 $18,548,664
========== =========== =========== =========== ===========
ALLOWANCE AT BEGINNING OF YEAR $ 663,901 $ 841,692 $ 737,122 $ 388,449 $ 266,482
__________ ___________ ___________ ___________ ___________
ALLOWANCES RELATED TO SUBSIDIARIES
SOLD AND TO ACQUIRED SUBSIDIARIES (712) (41,413) (57,237) (7,500) 26,695
__________ ___________ ___________ ___________ ___________
CHARGE-OFFS ON LOANS SOLD IN BULK SALES OR
TRANSFERRED TO "ASSETS HELD FOR ACCELERATED
DISPOSITION" (181,863) -- -- -- --
__________ ___________ ___________ ___________ ___________
PROVISION CHARGED TO OPERATING EXPENSE 79,000 137,939 640,402 694,221 190,477
__________ ___________ ___________ ___________ ___________
LOANS CHARGED OFF
Commercial and financial 71,951 111,317 264,519 207,941 70,701
Real estate-construction and development 77,219 155,396 156,023 87,096 11,153
Real estate-long-term commercial mortgage 25,285 20,271 47,602 { {
Real estate-long-term 1-4 family residential 954 2,276 3,454 {19,758 {3,023
Loans to individuals 24,009 28,956 39,608 35,133 27,017
Foreign loans -- 809 2,043 13,315 1,296
__________ ___________ ___________ ___________ ___________
Total 199,418 319,025 513,249 363,243 113,190
__________ ___________ ___________ ___________ ___________
RECOVERIES ON LOANS
Commercial and financial 17,684 27,163 22,133 16,867 11,744
Real estate-construction and development 6,075 6,512 1,196 174 134
Real estate-long-term commercial mortgage 2,402 1,085 848 { {
Real estate-long-term 1-4 family residential 26 101 86 { 564 { 445
Loans to individuals 7,348 9,429 10,391 7,590 5,607
Foreign loans 7 418 -- -- 55
__________ ___________ ___________ ___________ ___________
Total 33,542 44,708 34,654 25,195 17,985
__________ ___________ ___________ ___________ ___________
NET LOANS CHARGED OFF 165,876 274,317 478,595 338,048 95,205
__________ ___________ ___________ ___________ ___________
ALLOWANCE FOR LOAN LOSSES AT END OF YEAR $ 394,450 $ 663,901 $ 841,692 $ 737,122 $ 388,449
========== =========== =========== =========== ===========
<PAGE>30 2of2
NET CHARGE-OFFS AS A % OF AVERAGE
RELATED LOAN PORTFOLIO*
Commercial and financial 1.77% 2.01% 3.92% 2.60% .87%
Real estate-construction and development 6.16 8.40 6.50 3.04 .40
Real estate-long-term commercial mortgage 1.24 .86 1.59 { {
Real estate-long-term 1-4 family residential .20 .31 .30 { .46 { .07
Loans to individuals .85 .95 1.02 .82 .62
Foreign loans (.02) .43 1.97 11.97 1.16
__________ ___________ ___________ ___________ ___________
TOTAL NET CHARGE-OFFS AS A % OF AVERAGE
LOANS, NET OF UNEARNED INCOME 1.95% 2.49% 3.07% 1.89% .57%
__________ ___________ ___________ ___________ ___________
ALLOWANCE FOR LOAN LOSSES AS A % OF TOTAL
LOANS, NET OF UNEARNED INCOME 4.74% 7.41% 6.74% 4.38% 2.09%
========== =========== =========== =========== ===========
CONTINUING ENTITIES
Allowance at beginning of year $ 663,901 $ 809,338 $ 674,517 $ 334,942 $ 245,096
Allowance related to assets/subsidiaries sold
or held for sale (182,575) -- -- -- --
Provision charged to operating expense 79,000 116,227 579,087 659,109 172,912
Loans charged off 199,418 304,469 475,342 339,903 98,999
Recoveries on loans 33,542 42,805 31,076 20,369 15,933
__________ ___________ ___________ ___________ ___________
Allowance for loan losses at end of year $ 394,450 $ 663,901 $ 809,338 $ 674,517 $ 334,942
========== =========== =========== =========== ===========
<FN>
* Charge-off ratios for 1993 do not include charge-offs on loans sold in bulk sales or loans identified for accelerated
disposition.
</TABLE>
The Corporation's allowance for loan loss methodology takes into consideration
various factors in determining the appropriate level of the allowance. These
include an assessment of the financial condition of individual borrowers, a
determination of the value or adequacy of underlying collateral (including
appraisals as required), the composition and balance of the credit portfolio
and trends of delinquencies, charge-offs and the risk ratings of the various
loan categories. Such factors as the condition of the national and regional
economies and the level and trend of interest rates are also considered. A
detailed analysis of the allowance for loan losses is made on a quarterly basis
and is reviewed by the board of directors ("Board") and executive management of
MC.
The previously referred to risk rating system is also utilized to monitor the
trends in the Corporation's loan portfolio, thereby assisting in establishing
an adequate
<PAGE>31 1of2
Midlantic Corporation and Subsidiaries
allowance for loan losses. Regular audits and reviews have been instituted to
test the risk ratings, the integrity of the loan management information system
and the adherence to credit polices and procedures. Reviews are also conducted
to test portfolio, industry and borrower risk trends.
Net charge-offs amounted to $165.9 million in 1993 (excluding charge-offs of
$181.9 million on loans that were sold or have been identified to be sold in
bulk sales transactions), $274.3 million in 1992 and $478.6 million in 1991.
Charge-offs are generally made when any loans or portions of loans are
determined to be uncollectible, primarily due to the financial deterioration of
the borrower and/or declines in the value of net realizable collateral.
Certain exceptions are made for installment loans. Unsecured personal
installment loans are generally charged off after 120 days of default. Secured
installment loans are generally liquidated or charged off within six months to
one year from their date of default.
Midlantic considers its allowance for loan losses to be adequate based upon the
size and risk characteristics of the credit portfolio outstanding at December
31, 1993. If economic conditions deteriorate significantly, future provisions
for loan losses could increase above the level taken in 1993 in order to
maintain an adequate allowance for loan losses.
Asset Quality
The following discusses the risk elements of the Corporation's credit
portfolio: nonaccrual loans; renegotiated loans; OREO (including loans
classified as ISFs); accruing loans past due 90 days; and foreign outstandings.
NONACCRUAL LOANS - It is the Corporation's policy to generally discontinue
interest accruals once a loan is past due as to interest and/or principal
payments for a period of 90 days. Midlantic may also place certain loans on
nonaccrual status even though they are less than 90 days past due if, in
management's judgment, there is little likelihood that the borrower will be
able to comply with the repayment terms of the loan or if management concludes
that there exists other imminent signs of significant deterioration. Also, the
Corporation may place an entire lending relationship on nonaccrual status if
one of the borrower's loans meets the nonaccrual criteria. The determination
to place the entire relationship on nonaccrual status is made on a case-by-case
basis. In some instances, Midlantic may continue to accrue interest on certain
loans that are adequately secured and in the process of collection even though
these loans are past due for 90 days or more ("accruing past due loans").
<PAGE>31 2of2
<TABLE>
TABLE XVII - NONACCRUAL LOANS, OTHER REAL ESTATE OWNED, NET AND PAST DUE LOANS
<CAPTION>
December 31
_____________________________________________________________
(In thousands) 1993 1992 1991 1990 1989
____________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
NONACCRUAL LOANS
Commercial and financial $114,632 $ 208,442 $ 429,272 $ 480,213 $175,937
Real estate
Construction and development 50,143 373,344 569,117 407,628 176,684
Long-term commercial mortgage 63,431 173,572 172,489 { {
Long-term 1-4 family residential 4,489 4,798 18,605 {186,366 { 90,788
Loans to individuals 32,604 47,500 60,683 54,135 22,828
Foreign -- 2,013 2,874 3,845 4,217
________ __________ __________ __________ ________
Total nonaccrual loans $265,299 $ 809,669 $1,253,040 $1,132,187 $470,454
======== ========== ========== ========== ========
ALLOWANCE FOR LOAN LOSSES AS A % OF NONACCRUAL LOANS 148.7% 82.0% 67.2% 65.1% 82.6%
======== ========== ========== ========== ========
OTHER REAL ESTATE OWNED ("OREO"), NET
Acquired OREO properties $ 97,238 $ 169,862 $ 120,342 $ 35,817 $ 39,208
In-substance foreclosures 35,432 281,017 438,301 314,075 --
________ __________ __________ __________ ________
OREO, net $132,670 $ 450,879 $ 558,643 $ 349,892 $ 39,208
======== ========== ========== ========== ========
TOTAL NONACCRUAL LOANS AND OREO, NET $397,969 $1,260,548 $1,811,683 $1,482,079 $509,662
======== ========== ========== ========== ========
ACCRUING LOANS PAST DUE 90 DAYS OR MORE AS TO
INTEREST OR PRINCIPAL PAYMENTS $ 36,161 $ 44,697 $ 132,544 $ 185,821 $125,803
======== ========== ========== ========== ========
CONTINUING ENTITITES
Total nonaccrual loans $265,299 $ 809,669 $1,220,285 $1,065,551 $423,181
OREO, net 132,670 450,879 551,922 337,525 34,990
________ __________ __________ __________ ________
Total nonaccrual loans and OREO, net $397,969 $1,260,548 $1,772,207 $1,403,076 $458,171
________ __________ __________ __________ ________
Accruing loans past due 90 days or more
as to interest or principal payments $ 36,161 $ 44,697 $ 125,413 $ 176,884 $113,223
======== ========== ========== ========== ========
</TABLE>
<PAGE>32 1of2
MANAGEMENT'S ANALYSIS (continued)
<TABLE>
TABLE XVIII - NONACCRUAL LOANS - ACTIVITY DURING 1993 AND 1992
<CAPTION>
1992
1993 1992 Continuing
(In thousands) ACTUAL Actual Entities
____________________________________________________________________________________________
<S> <C> <C> <C>
Balance at beginning of year $ 809,669 $1,253,040 $1,220,285
Additions 310,032 575,606 539,741
Payments (207,699) (325,802) (316,473)
Returned to accrual status (58,778) (88,371) (83,715)
Transfers to renegotiated status (7,295) (131,918) (131,918)
Loans sold in bulk sales or transferred to "assets held
for accelerated disposition," net of charge-offs (153,551) -- --
Charge-offs (301,172) (267,328) (258,043)
Transfers to OREO (122,857) (161,936) (154,761)
Sales of subsidiaries -- (38,175) --
Other (primarily transfers to other repossessed assets) (3,050) (5,447) (5,447)
_________ __________ __________
Balance at end of year $ 265,299 $ 809,669 $ 809,669
========= ========== ==========
</TABLE>
<TABLE>
TABLE XIX - YEAR-TO-DATE LOSS OF INTEREST INCOME ON NONACCRUAL LOANS OUTSTANDING AT END OF PERIOD
<CAPTION>
(In thousands) 1993 1992 1991 1990 1989
__________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Interest income that would have been recorded on
nonaccrual loans in accordance with original terms $27,904 $68,130 $133,030 $105,855 $40,936
Interest income actually recorded on
nonaccrual loans 4,933 7,304 19,799 24,629 7,164
_______ _______ ________ ________ _______
Loss of interest income on nonaccrual loans $22,971 $60,826 $113,231 $ 81,226 $33,772
======= ======= ======== ======== =======
</TABLE>
<TABLE>
TABLE XX - SUPPLEMENTAL DATA ON NONACCRUAL LOANS AND IN-SUBSTANCE FORECLOSURES (ISFs) (1)
<CAPTION>
CASH INTEREST PAYMENTS
DECEMBER 31, 1993 IN 1993 APPLIED AS (3)
______________________________________ _______________________
Nonaccrual In-substance Performance Interest Reduction
(In thousands) Loans Foreclosures Ratio (2) Income of Principal
_________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
CONTRACTUALLY CURRENT
Payment in full of principal or interest expected $18,988 $ -- 15.5% $347 $1,433
Payment in full of principal or interest in doubt 3,236 -- 2.6 -- 149
_______ _______ _____ ____ ______
<PAGE>32 2of2
CONTRACTUALLY PAST DUE
Substantial performance (4) $11,135 $ -- 9.1% $ 21 $1,072
Limited performance (5) 19,425 10,516 15.9 488 2,423
No performance 69,609 24,916 56.9 -- 1,838
======= ======= ===== ==== ======
<FN>
(1) Disclosure has been limited to nonaccrual loans whose principal balance at December 31, 1993 was $500 thousand or above.
Nonaccrual loans of $500 thousand or more comprised 46.1 percent of total consolidated nonaccrual loans. All ISFs
outstanding at year-end 1993 have been disclosed.
(2) Nonaccrual loans as a percent of total nonaccrual loans of over $500 thousand.
(3) Represents the cash interest payments received since loans or assets outstanding as of December 31, 1993 were
categorized as nonaccrual or ISFs.
(4) Periodic (at least quarterly) payments received represent at least 75% of the contractual principal and/or interest due.
(5) Periodic (at least quarterly) payments received represent between 1% and 75% of the contractual principal and/or
interest due.
</TABLE>
Nonaccrual loans declined $544.4 million or 67.2 percent in 1993 to a level of
$265.3 million at December 31, 1993 following a decrease of $443.4 million or
35.4 percent in 1992. Since reaching their peak level of $1.4 billion at June
30, 1991, nonaccrual loans have successively fallen by $1.1 billion or 81.0
percent. The decline in nonaccrual loans during this period was primarily due
to the following factors:
- Payments and returns to accrual or renegotiated status of $1.0 billion;
- Charge-offs of $790.9 million;
- Transfers of loans to OREO of $429.0 million;
- Loans sold or anticipated to be sold in bulk sales transactions (net of
charge-offs) of $153.4 million; and
- Nonaccrual loans of subsidiaries sold of $128.4 million.
These factors were partially offset by additions to nonaccrual loans of $1.4
billion.
The decline in nonaccrual loans resulting from loan payments and transfers to
accruing or renegotiated status, which occurred while economic conditions in
Midlantic's market areas remained less than optimal, is attributable to the
Corporation's commitment of substantial management and professional resources
to problem asset recognition and resolution.
Nonaccrual loans at the end of 1993 were primarily comprised of commercial and
financial (43.2 percent); long-term commercial mortgage (23.9 percent); and
construction and development (18.9 percent). The relationship of each of these
categories of nonaccrual loans to its respective total loan portfolio was: 4.0
percent commercial and financial; 3.8 percent long-term commercial mortgage;
and 6.0 percent construction and development. At December 31, 1993, a majority
of the credits comprising nonaccrual loans had principal balances of less than
$2 million. At the end of 1993, Midlantic had a total of five nonaccrual loans
or lending relationships that exceeded $5 million, which aggregated $32.2
million or 12.1 percent of total nonaccrual loans.
The downturn in real estate conditions in Midlantic's market area and its
adverse impact on real estate-related industries was the primary reason for the
rise in nonaccrual loans during 1990 and 1991. In the latter half of the
1980's, Midlantic originated a substantial volume of commercial mortgage and
real estate-related loans. As conditions in Midlantic's markets deteriorated,
real estate borrowers were severely impacted by the sluggish economy, slow
absorption of vacant space, falling real estate values, tightened lending
<PAGE>33 1of2
Midlantic Corporation and Subsidiaries
and appraisal standards and a lack of liquidity. The rise in nonaccrual
commercial and financial loans was also directly influenced by the effect of
the national and regional economic downturn on Midlantic's commercial borrowing
customers.
While the national economic recession officially ended in late 1991, the
recovery period has been uneven and slow. Further, the modest expansion in
economic activities in Midlantic's core market area continues to lag behind the
improvement in national economic conditions. Particularly noteworthy is the
extended duration of high unemployment rates (especially in New Jersey) that
have occurred partly as a result of corporate downsizing, consolidations and
bankruptcies. Management believes that the key to significant and sustainable
economic growth in the Corporation's market area will be the accelerated
assimilation of displaced workers and the resultant improvement in consumer
confidence levels. However, as yet, management has not perceived any
sustainable economic stimuli that will result in significant job creation in
the Corporation's markets at least in the near-term. As a result, it is
possible that the current business cycle will eventually peak at a much lower
level than has occurred in past cycles.
As part of its process for assessing asset quality, Midlantic also refers to
third party sources for data concerning economic trends. The statistics and
trends from such sources as summarized in the following paragraph are used in
conjunction with internal information sources to evaluate the impact that
regional and local economic activity might have on Midlantic's real estate
assets.
The demand for office and manufacturing space has suffered particularly since
the beginning of the recession and vacancy rates, while showing stabilizing
trends during the past two years, continue to remain high. In Midlantic's core
market areas, vacancies for office space remain around or in excess of 20
percent, accompanied by low or in some cases, negative absorption. The demand
for both office and industrial space has contracted in tandem with declines in
business activities and the resultant efforts of companies to reduce overhead
and consolidate operations. However, the housing industry has shown signs of
growth in response to an extremely low interest rate environment, particularly
since mid-1992. Residential building permits increased in 1992 over 1991 and
increased again in 1993. Retail sales in 1992 and 1993 also increased
modestly. However, retail leasing remains rather mixed as regional shopping
malls continue to weather the general economic uncertainty while vacancy rates
on strip shopping malls, especially those that are not anchored, continue to
evidence slower lease-up. Land development remains at a virtual standstill and
is highly dependent not only upon the absorption of existing construction
projects but also upon demand for new development. The value of most types of
real estate has fallen by as much as 50 percent since peaking in the late
1980's. Recent appraisals, however, generally indicate that values in many
real estate markets have stabilized or may stabilize in the near future.
Although a substantial portion of Midlantic's nonaccrual loans at the end of
1993 were partially or fully secured, it is not possible to accurately predict
the extent of losses which may ultimately be incurred from this group of
problem assets. At year-end 1993, the Corporation's loan loss reserves
amounted to nearly 1.5 times the level of nonaccrual loans.
<PAGE>33 2of2
Prospectively, the level of nonaccrual loans will ultimately depend upon the
economic climate in the Corporation's core market area. While Midlantic has
been able to significantly reduce its volume of nonaccrual loans during a
relatively weak economic recovery, further significant progress in reducing the
level of nonaccrual loans may be at a somewhat slower pace unless it occurs in
tandem with a more rapid upswing in economic activity. If economic conditions
begin to deteriorate, such a downturn could adversely impact loan quality.
RENEGOTIATED LOANS - Midlantic has restructured certain loans in accordance
with the requirements of FAS No. 15 "Accounting by Debtors and Creditors for
Troubled Debt Restructurings" in instances where a determination was made that
greater economic value would be realized under new terms than through
foreclosure, liquidation or other disposition. When restructured loans can
demonstrate performance (as generally evidenced by six months of pre- or post-
restructuring payment performance in accordance with the restructured terms,
or by the presence of other significant factors) such loans are classified by
the Corporation as "renegotiated loans" and accrual of interest resumes.
Prior to demonstrating performance, Midlantic classifies restructured loans as
nonaccrual. Renegotiated loans amounted to $172.1 million at December 31,
1993 as compared with $159.7 million at year-end 1992 (see Table XXI). The
average current yield recognized as interest on accruing renegotiated loans is
8.33 percent. The effective interest rate as calculated under FAS No. 15 on
these renegotiated loans is 8.90 percent. In those cases where average
current yield differs from the effective yield, Midlantic's management has
elected to recognize income prospectively on the more conservative average
current yield basis until certain contingencies are met.
<TABLE>
TABLE XXI - RENEGOTIATED LOANS AND YEAR-TO-DATE LOSS OF INTEREST INCOME ON RENEGOTIATED
LOANS OUTSTANDING AT END OF PERIOD
<CAPTION>
(In thousands) 1993 1992
______________________________________________________________________________
<S> <C> <C>
Renegotiated loans $172,058 $159,685
======== ========
Interest income that would have been recorded on
renegotiated loans in accordance with original terms $ 9,970 $ 8,258
Interest income actually recorded on renegotiated loans 8,092 5,506
________ ________
Loss of interest income on renegotiated loans $ 1,878 $ 2,752
======== ========
<FN>
The loans presented in the above table are performing in accordance with their new terms.
Troubled debt restructurings prior to 1992 have been reclassified to nonaccrual loans in
accordance with Midlantic's renegotiated loans policy adopted in 1992.
</TABLE>
ACCRUING PAST DUE LOANS - The Corporation held accruing past due loans of $36.2
million, $44.7 million and $132.5 million at the end of each of the past three
years, respectively.
<PAGE>34 1of2
MANAGEMENT'S ANALYSIS (continued)
POTENTIAL PROBLEM LOANS - As of year-end 1993, Midlantic identified an
additional $64.2 million of currently performing loans outstanding for which
there is serious doubt as to whether the borrowers will be able to fully comply
with the present repayment terms of the loans.
OTHER REAL ESTATE OWNED - OREO includes real property for which the Corporation
has obtained legal title ("acquired OREO") and ISFs, which are loans secured by
real estate that meet certain criteria (pursuant to generally accepted
accounting principles) for classification as ISF. In the normal course of
business, the collateral supporting a substantial portion of ISFs is eventually
acquired by the Corporation through foreclosure.
Midlantic acquires real estate as a last resort in those cases where a
determination has been made by management that the resolution of a problem
credit through other workout arrangements is not likely to be attainable.
Occasionally, the borrower will surrender to Midlantic the title to the real
estate securing a loan. However, in most cases, the Corporation must initiate
and proceed with the foreclosure process which, in the Corporation's market
areas, is generally lengthy and in many cases held up through bankruptcy
delays. Once title is acquired, Midlantic will usually offer the property for
sale. However, in some instances, as in the case of partially completed
construction projects, the Corporation may contract to complete the project
prior to sale. While holding title to OREO properties, Midlantic is required
to maintain the property and must pay the customary costs associated with
holding real property such as property taxes, management fees and insurance.
OREO properties that are rented or leased provide cash flows that partially
offset the costs of holding such properties. It is Midlantic's policy to
reappraise its acquired OREO on at least an annual basis.
Acquired OREO amounted to $97.3 million at year-end 1993 as compared with
$169.9 million at December 31, 1992 and $120.3 million at December 31, 1991.
Since year-end 1991, the level of acquired OREO has been influenced primarily
by acquisitions of real property totalling $363.7 million, sales and payments
aggregating $271.7 million, (including $39.2 million sold in bulk sales
transactions or identified for possible bulk sale in 1993) and writedowns
amounting to $113.0 million.
ISFs amounted to $35.4 million, $281.0 million and $438.3 million at December
31, 1993, 1992 and 1991, respectively. A loan is classified as an ISF when the
borrower has little or no equity in the collateral considering its current fair
value; the repayment can only be expected to come from the operation or sale of
the collateral; and the debtor has either formally or effectively abandoned
control of the collateral or it is doubtful that the borrower will be able to
rebuild equity in the collateral. The collateral supporting a total of $160.9
million of ISFs was acquired since year-end 1991.
Acquired OREO properties are carried at net realizable value, while ISFs are
carried at the lower of the recorded investment in the loan or net realizable
value. Upon transfer to acquired OREO or ISF, the asset is written down, where
appropriate, to net realizable value. At that time the excess book value is
charged directly against the allowance for loan losses. Any subsequent
depreciation in value is charged against operating earnings.
<PAGE>34 2of2
Although real estate market conditions remain mixed, the Corporation has had
success in disposing of substantial portions of its inventory of OREO
properties. In 1993, the ratio of OREO properties sold (excluding those sold
in bulk sales or transferred to assets held for accelerated disposition) as a
percentage of OREO outstanding at the beginning of the year amounted to 82.0
percent and in 1992 this ratio amounted to 75.7 percent. While the Corporation
has acquired or foreclosed upon over $360 million of real estate supporting
nonaccrual loans and ISFs during the past two years, it is anticipated that
future levels of foreclosures should decline, reflecting the Corporation's
lower volume of nonaccrual and other problem assets.
<TABLE>
TABLE XXII - IN-SUBSTANCE FORECLOSURES - PROPERTY TYPE BY STATE AT DECEMBER 31, 1993
<CAPTION>
(In thousands) New Jersey Pennsylvania New York Florida Total
________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Land $14,070 $ -- $ 628 $979 $15,677
Office buildings 10,830 -- -- -- 10,830
Industrial/warehouse 1,178 1,858 96 -- 3,132
Residential tracts 1,292 -- -- -- 1,292
All other 4,031 -- 470 -- 4,501
_______ ______ ______ ____ _______
Total $31,401 $1,858 $1,194 $979 $35,432
======= ====== ====== ==== =======
</TABLE>
<TABLE>
TABLE XXIII - ACQUIRED OREO PROPERTIES - PROPERTY TYPE BY STATE AT DECEMBER 31, 1993
<CAPTION>
(In thousands) New Jersey Pennsylvania New York Florida Other Total
_______________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Land $32,862 $ 3,659 $ 601 $-- $ 49 $37,171
Residential tracts 13,130 2,535 795 33 4,717 21,210
Industrial/warehouse 7,825 3,384 -- -- -- 11,209
Office buildings 5,223 2,165 1,309 -- 2,127 10,824
Shopping centers 2,682 149 -- -- -- 2,831
Hotels/motels 1,306 -- -- -- -- 1,306
All other 9,405 2,111 1,171 -- -- 12,687
_______ _______ ______ ___ ______ _______
Total $72,433 $14,003 $3,876 $33 $6,893 $97,238
======= ======= ====== === ====== =======
</TABLE>
<PAGE>35 1of2
Midlantic Corporation and Subsidiaries
<TABLE>
TABLE XXIV - OTHER REAL ESTATE OWNED (OREO) - ACTIVITY DURING 1993 AND 1992
<CAPTION>
1993 1992
________________________________________ _________________________________________
IN-SUBSTANCE ACQUIRED OREO In-substance Acquired OREO
(In thousands) FORECLOSURES PROPERTIES TOTAL OREO Foreclosures Properties Total OREO
____________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Balance at beginning of year $281,017 $ 169,862 $ 450,879 $438,301 $120,342 $558,643
Transfers from loans 26,425 99,928 126,353 66,772 99,876 166,648
Advances 11,707 378 12,085 4,564 2,665 7,229
Transfers from in-substance
foreclosures to acquired
OREO properties (71,559) 71,559 -- (89,332) 89,332 --
Provision (64,962) (65,583) (130,545) (29,719) (47,413) (77,132)
Sales of properties (5,446) (139,226) (144,672) (29,556) (91,143) (120,699)
Payments (46,283) (934) (47,217) (44,344) (1,210) (45,554)
OREO sold in bulk sales or
transferred to "assets held
for accelerated disposition" (72,299) (39,183) (111,482) -- -- --
Transfer to renegotiated loans
or accruing loans (24,222) -- (24,222) (30,169) -- (30,169)
Sales of subsidiaries -- -- -- (5,500) (4,713) (10,213)
Other 1,054 437 1,491 -- 2,126 2,126
________ _________ _________ ________ ________ _________
Balance at end of year $ 35,432 $ 97,238 $ 132,670 $281,017 $169,862 $ 450,879
======== ========= ========= ======== ======== =========
</TABLE>
FOREIGN OUTSTANDINGS - Foreign outstandings, all of which are dollar
denominated, are largely money market investments placed with foreign banks or
financial institutions. Investments with foreign banks located in the United
States are also classified as foreign outstandings by the Corporation
regardless of whether the bank is a branch or a subsidiary of its foreign
domiciled parent.
At December 31, 1993, foreign outstandings totalled $637.9 million or 4.6
percent of total assets compared to $753.1 million or 5.2 percent of total
assets in 1992 and $315.4 million or 1.7 percent of total assets in 1991. The
level of foreign outstandings primarily reflects Midlantic's investment of a
portion of its available funds in short-term money market instruments with
domestic subsidiaries or branches of foreign banks.
PREMISES AND EQUIPMENT
The Corporation owns a substantial amount of its banking premises, computers
and other equipment. Premises and equipment, net of accumulated depreciation,
amounted to $155.1 million, $168.6 million and $245.4 million at the end of
1993, 1992 and 1991, respectively. Premises and equipment of those
subsidiaries sold pursuant to Midlantic's Restructuring Program comprised $31.4
million of total premises and equipment at year-end 1991.
<PAGE>35 2of2
Capital expenditures made primarily to maintain and upgrade, where necessary,
data processing equipment and to purchase automated teller machines amounted to
$16.1 million in 1993, $12.7 million in 1992 and $32.1 million in 1991. Actual
expenditures in 1992 did not include certain purchases that had been approved
but not actually made until 1993, as part of Midlantic's FOCUS '92 initiative.
In the near-term, the Corporation has no plans to significantly increase its
capital expenditures over historical levels.
DEPOSITS
Midlantic has been successful in maintaining a strong core deposit base (local
depositors that maintain ongoing relations with Midlantic's banking
subsidiaries). Total deposits averaged $11.8 billion in 1993 as compared with
levels of $12.7 billion and $14.3 billion for the Continuing Entities in 1992
and 1991, respectively. The decline in deposits since 1991 is partially due to
Midlantic's efforts to eliminate its reliance on non-core deposits such as
brokered deposit sources and to reduce its outstandings of large CDs. Core
deposits, which now comprise all deposits except large CDs, totalled $11.4
billion at December 31, 1993 and amounted to over 98 percent of total deposits.
Most of Midlantic's core deposits are derived from retail sources. Presently,
the Corporation's customers generally hold such deposits in more liquid savings
and money market accounts and shorter-term CDs due to the low interest rate
environment which has also increased the appeal of non-deposit instruments.
In this regard, Midlantic has offered the several funds of the Compass Capital
Group, the Corporation's proprietary mutual fund group, as an alternative.
On a Continuing Entities basis, average savings deposits, interest- bearing
demand deposits, retail time deposits and retail money market accounts in the
aggregate declined $855.5 million or 8.9 percent in 1993 and $996.5 million or
9.4 percent in 1992. These deposit vehicles, which comprised nearly 75 percent
of the Corporation's total deposits at year-end 1993, are primarily retail in
nature. The decline in these deposit sources, as mentioned previously, was
partially due to the maturity of brokered CDs ($288.2 million in 1992 and $85.8
million in 1993) that were originated in 1990.
<PAGE>36 1 of 2
MANAGEMENT'S ANALYSIS (continued)
Noninterest-bearing demand deposits, which include correspondent bank balances,
compensating and deficiency balances and corporate and retail checking accounts
averaged $2.6 billion in 1993 and $2.5 billion for the Continuing Entities in
both 1992 and 1991. The percentage of noninterest-bearing demand deposits to
total deposits has risen to a level of 24.5 percent at December 31, 1993 as
compared with 22.4 percent and 18.5 percent at year-end 1992 and 1991,
respectively.
Large CDs totalled $215.7 million, $441.6 million and $888.8 million at the end
of each of the past three years, respectively. Large CDs comprised only 1.9
percent of total deposits at December 31, 1993. Substantially all of these
deposits were directly sold to existing customers in Midlantic's core market
area.
<TABLE>
TABLE XXV - AVERAGE FUNDING SOURCES - BALANCES AND RATES PAID
<CAPTION>
(In thousands) 1993 1992 1991 1990 1989
___________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
AVERAGE BALANCES
DEPOSITS
Noninterest-bearing demand $ 2,616,243 $ 2,759,284 $ 3,047,091 $ 3,414,732 $ 3,314,240
Interest-bearing demand 1,383,764 1,479,906 1,537,567 1,453,798 1,270,074
Savings 1,504,561 1,453,083 1,781,976 1,838,717 1,880,793
Retail money market accounts 2,324,327 3,190,586 3,833,633 4,132,198 3,197,984
CDs over $100,000 353,304 608,227 1,640,215 2,540,510 2,831,508
Other time 3,589,161 4,793,015 7,212,558 6,230,469 4,022,412
Overseas branch deposits 11,243 12,739 20,371 97,518 95,684
___________ ___________ ___________ ___________ ___________
Total average deposits $11,782,603 $14,296,840 $19,073,411 $19,707,942 $16,612,695
=========== =========== =========== =========== ===========
SHORT-TERM BORROWINGS
Commercial paper $ -- $ -- $ 2,274 $ 153,734 $ 211,609
Federal funds purchased 46,726 65,584 138,245 637,153 1,124,185
Repurchase agreements 318,985 408,755 583,957 830,674 793,393
Other short-term borrowings 28,680 50,861 183,689 304,621 262,518
___________ ___________ ___________ ___________ ___________
Total average short-term borrowings $ 394,391 $ 525,200 $ 908,165 $ 1,926,182 $ 2,391,705
=========== =========== =========== =========== ===========
LONG-TERM DEBT $ 396,217 $ 443,213 $ 461,013 $ 448,946 $ 325,057
=========== =========== =========== =========== ===========
AVERAGE RATES
DEPOSITS
Interest-bearing demand 1.70% 2.84% 4.68% 4.78% 4.90%
Savings 2.28 3.43 4.87 5.13 5.02
Retail money market accounts 2.55 3.56 5.52 6.80 7.15
CDs over $100,000 3.66 4.38 6.65 8.19 8.98
Other time 3.69 5.23 7.36 8.26 8.33
Overseas branch deposits 3.28 3.97 6.75 8.60 9.77
___________ ___________ ___________ ___________ ___________
Total average rate paid on deposits 2.87% 4.19% 6.31% 7.22% 7.41%
=========== =========== =========== =========== ===========
<PAGE>36 2of2
SHORT-TERM BORROWINGS
Commercial paper --% --% 7.30% 8.57% 9.32%
Federal funds purchased 2.99 3.52 6.65 8.46 9.34
Repurchase agreements 2.91 3.22 5.55 7.74 8.63
Other short-term borrowings 3.12 3.72 4.91 7.08 7.94
___________ ___________ ___________ ___________ ___________
Total average rate paid on short-term borrowings 2.94% 3.30% 5.59% 7.94% 9.01%
=========== =========== =========== =========== ===========
LONG-TERM DEBT 9.18% 9.37% 9.16% 9.39% 9.46%
=========== =========== =========== =========== ===========
CONTINUING ENTITIES
AVERAGE BALANCES
Total average deposits $11,782,603 $12,692,146 $14,310,883 $15,274,694 $14,122,544
___________ ___________ ___________ ___________ ___________
Total average short-term borrowings 394,391 512,403 645,801 1,551,575 2,002,557
___________ ___________ ___________ ___________ ___________
Long-term debt 396,217 439,880 443,450 443,480 318,514
=========== =========== =========== =========== ===========
AVERAGE RATES
Total average rate paid on deposits 2.87% 4.15% 6.31% 7.26% 7.48%
___________ ___________ ___________ ___________ ___________
Total average rate paid on short-term borrowings 2.94 3.35 5.85 8.35 9.19
___________ ___________ ___________ ___________ ___________
Long-term debt 9.18 9.41 9.38 9.40 9.47
=========== =========== =========== =========== ===========
</TABLE>
<PAGE>37 1of2
Midlantic Corporation and Subsidiaries
SHORT-TERM BORROWINGS
In the aggregate, short-term borrowings amounted to $674.5 million or 6.9
percent of total interest-bearing sources of funds at December 31, 1993. This
compares with $370.7 million or 3.5 percent and $588.1 million or 4.2 percent
of interest-bearing sources at year-end 1992 and 1991, respectively. Included
in year-end 1993 short-term borrowings was $244.1 million of repurchase
agreements representing the proceeds from a recently established security
lending program (see "The Lending Function - Loan Portfolio").
Excluding the repurchase agreements relating to the security lending program,
the low levels of short-term borrowings reflect Midlantic's objective of
minimizing its reliance upon purchased funds (large dollar, usually non-local,
funding sources) to fund longer-term earning assets. Also, the sale of MHMC in
1992 eliminated short-term funding from nonaffiliated financial institutions
which MHMC utilized to fund a significant portion of its mortgage banking
operations. Presently, a significant source of short-term funding is in the
form of repurchase agreements which Midlantic enters into principally as an
investment vehicle for local customers, including those who utilize the
Corporation's cash management services. The proceeds from this activity are
placed in short-term money market assets. Midlantic also purchases federal
funds primarily from local banks with which the Corporation has a correspondent
relationship.
MC ceased issuing commercial paper in January 1991 and all commercial paper
outstandings matured by the end of the second quarter of that year.
LONG-TERM DEBT
Largely due to scheduled repayments and sales of subsidiaries, long-term debt
has fallen in each of the past two years. Long-term debt amounted to $386.8
million at December 31, 1993, $437.1 million at December 31, 1992 and $464.0
million at December 31, 1991. The contraction in long-term debt in 1993
reflected the payment at maturity of $50 million of MBI's 11.35% Notes, while
in 1992, $22.0 million of long-term obligations were eliminated through the
sale of MHMC. In 1992, MBI also redeemed its remaining outstanding 9% Senior
Notes due in 1998 for $3.8 million (reflecting a premium of approximately $90
thousand). In January 1994, Midlantic also redeemed its remaining outstanding
7 3/4% Debentures due March 1, 1998, which amounted to $11.8 million at year-
end 1993. Since year-end 1991, Midlantic's debt to equity ratio (ratio of
long-term debt to shareholders' equity plus long-term debt) has improved
significantly from a level of 38.9 percent to 25.6 percent at December 31,
1993.
In recent months, the Corporation has received credit rating upgrades by
several national rating agencies. As a result, the credit rating on
Midlantic's long-term securities have been designated at or near "investment
grade" by such rating agencies.
ASSET AND LIABILITY MANAGEMENT
Midlantic maintains a comprehensive asset-liability management process to help
achieve its financial objectives under alternative operating plans and under
inherently uncertain economic and market conditions. This process is overseen
by Midlantic's Asset-Liability Committee ("ALCO") which monitors and controls,
among other variables, the liquidity, balance sheet structure and interest rate
risk of the consolidated Corporation and its two subsidiary banks within policy
parameters, established by and reviewed at least annually with the Boards of
Directors.
<PAGE>37 2of2
Interest Sensitivity Management
Interest rate risk refers to the periodic and cumulative exposure to earnings
and capital from changes in interest rates. While Midlantic, like any
financial intermediary, will typically incur some amount of interest rate risk
in the normal course of providing services to its borrowing customers and
depositors, the Corporation's policy is to protect its earnings and capital
from undue exposure to volatile interest rates. ALCO assesses the degree of
this risk by simulating the Corporation's earnings under alternative balance
sheet structures and under a variety of interest rate scenarios, with the
actual amount of such risk typically maintained at a manageable percent of core
net interest income and capital.
Earnings exposure to interest rates arises from a variety of factors, a primary
source being any mismatches in the maturity and repricing distribution of the
Corporation's assets and liabilities. For example, at any point in time, if
more of the Corporation's outstanding assets are scheduled to mature or to
reprice earlier than its liabilities, the Corporation's earnings may be
vulnerable to a decline in the general level of interest rates because in this
circumstance the Corporation's asset yields would decline sooner than its
funding costs. Conversely, if more of the Corporation's liabilities reprice or
mature earlier than its assets, earnings may be exposed to an increase in the
general level of interest rates since funding costs would tend to rise before
asset yields. This type of risk is approximately illustrated in the "static
gap" calculation (Table XXVI) which expresses the assets and liabilities due to
mature, to be repriced, or assumed to be repriced in various time intervals.
Within one year of December 31, 1993, the Corporation had $550.8 million more
liabilities maturing or repricing than assets. While this gap at December 31,
1993 indicated a possible decline in NII if interest rates increase
immediately, the calculated amount of NII at risk to interest rate changes
within one year is generally estimated to be insignificant, in
<PAGE>38 1of2
MANAGEMENT'S ANALYSIS (continued)
<TABLE>
TABLE XXVI - INTEREST-SENSITIVITY ANALYSIS
<CAPTION>
DECEMBER 31, 1993
_______________________________________________________________________
Daily Due After Due After Due After
Floating and Three Months Six Months One Year or
Due Within but Within but Within Noninterest-
(In thousands) Three Months Six Months One Year sensitive Total
________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Money market investments $ 1,292,606 $ 251,007 $ 235,208 $ -- $ 1,778,821
Investment securities 375,842 67,699 460,412 1,551,457 2,455,410
Loans 5,202,150 184,580 297,903 2,630,198 8,314,831
___________ ___________ __________ ___________ ___________
Total interest-earning assets $ 6,870,598 $ 503,286 $ 993,523 $ 4,181,655 $12,549,062
___________ ___________ __________ ___________ ___________
SOURCES OF FUNDS SUPPORTING
INTEREST-EARNING ASSETS
Savings and time deposits $ 4,471,502 $ 924,790 $ 884,190 $ 2,467,434 $ 8,747,916
Short-term borrowings 430,297 -- 244,200 -- 674,497
Long-term debt 11,752 -- -- 375,000 386,752
Noninterest-bearing sources of funds -- -- -- 2,739,897 2,739,897
___________ ___________ __________ ___________ ___________
Total sources of funds supporting
interest-earning assets 4,913,551 924,790 1,128,390 5,582,331 12,549,062
___________ ___________ __________ ___________ ___________
NET ASSETS (LIABILITIES) BEFORE NET
INTEREST RATE SWAPS $ 1,957,047 $ (421,504) $ (134,867) $(1,400,676) $ --
___________ ___________ __________ ___________ ___________
NET INTEREST RATE SWAPS $(2,526,500) $ 50,000 $ 525,000 $ 1,951,500 $ --
___________ ___________ __________ ___________ ___________
INTEREST-SENSITIVITY GAP $ (569,453) $ (371,504) $ 390,133 $ 550,824 $ --
___________ ___________ __________ ___________ ___________
CUMULATIVE INTEREST-SENSITIVITY GAP $ (569,453) $ (940,957) $ (550,824) $ -- $ --
___________ ___________ __________ ___________ ___________
INTEREST-SENSITIVE ASSETS TO
INTEREST-SENSITIVE LIABILITIES .92:1 .60:1 1.35:1 1.10:1 1:1
___________ ___________ __________ ___________ ___________
CUMULATIVE RATIO OF INTEREST-SENSITIVE
ASSETS TO INTEREST-SENSITIVE
LIABILITIES .92:1 .89:1 .94:1 1:1 1:1
___________ ___________ __________ ___________ ___________
CUMULATIVE RATIO OF INTEREST-SENSITIVE
ASSETS TO INTEREST-SENSITIVE
LIABILITIES (EXCLUDING NET INTEREST RATE SWAPS) 1.40:1 1.26:1 1.20:1 1:1 1:1
=========== =========== ========== =========== ===========
</TABLE>
<PAGE>38 2of2
line with the Corporation's policy of avoiding undue swings in NII. Midlantic
manages its interest sensitivity position with an objective of avoiding
material mismatching of the amounts of assets and liabilities subject to rate
changes within each time interval. In order to maintain earnings and capital
exposure to interest rate changes within prudent bounds, Midlantic utilizes
interest rate swaps to hedge existing balance sheet items that have a high
degree of inverse rate correlation to the swap. Interest rate swaps
outstanding as of December 31, 1993 entitled Midlantic to receive or pay a
fixed rate of interest to the final maturity of each swap in exchange for a
variable rate of interest, generally the three month LIBOR (an internationally
recognized interest rate index), which is reset quarterly.
<TABLE>
TABLE XXVII - INTEREST RATE SWAPS
<CAPTION>
DECEMBER 31, 1993
_____________________________________________
Notional Fixed Variable Net Exchange
(In millions) Amounts Rate Rate Rate
______________________________________________________________________________
<S> <C> <C> <C> <C>
Midlantic receives fixed rate $3,369 5.36% 3.44% 1.92%
Midlantic pays fixed rate $ 899 5.15% 3.40% 1.75%
______________________________________________________________________________
</TABLE>
The notional amounts listed in Table XXVII represent the base on which interest
due each counterparty is calculated. The notional amounts do not represent
amounts actually exchanged by the counterparties and are therefore not recorded
on the balance sheet. At December 31, 1993, Midlantic did not have any
interest rate swaps or forward interest rate swap agreements tied other than to
a fixed rate or LIBOR, nor did the Corporation maintain or utilize, at that
time, any exchange traded futures contracts, options or other off-balance sheet
derivative transactions. At that date, Midlantic did not engage in any swap
transactions as an intermediary, although the Corporation may decide to do so
in the future if customer demand warrants.
To illustrate the effectiveness of interest rate swaps, approximately $1.3
billion of notional principal amount of swap contracts is hedging a similar
amount of loans whose yields are indexed to the prime rate. In the event of a
general decline in interest rates that leads to a reduction in the prime rate,
the reduction in interest income from these loans would be largely offset by an
increase in the net exchange rate earned on the swap contracts by Midlantic,
although not precisely, inasmuch as the changes in the prime rate and the
changes in LIBOR may not be identical. This occurs as the variable LIBOR
rates on these swaps are repriced at lower levels. In the event of an increase
in the prime rate and LIBOR, loan interest income would increase but the net
exchange rate on the swaps would decline. Most of the other swaps on which
Midlantic receives interest at a fixed rate are hedging fixed cost deposits and
funding.
<PAGE>39 1of2
Midlantic Corporation and Subsidiaries
In the case of interest rate swap contracts under which Midlantic has agreed to
pay a fixed rate and receive a variable rate, the hedged items are generally
investment securities bearing fixed rates of interest and stated original
maturities of five to seven years. The purpose of these hedges is to reduce
the risk that over the term of the investment the yield on similar securities
increases and consequently the value of Midlantic's investment declines.
The static gap Table XXVI shows the amount of gross assets or gross liabilities
hedged with swaps as of December 31, 1993. During 1993, Midlantic entered into
$944.1 million (notional amount) of new swap contracts where it receives a
fixed rate of interest, it entered into $898.5 million (notional amount) of new
swap contracts on which is pays a fixed rate of interest and $100.0 million
(notional amount) of swap contracts matured. As of December 31, 1993, there
were no terminated swap contracts and accordingly, no deferred gains or losses.
The use of interest rate swaps and their effectiveness as hedging tools is
monitored in detail by ALCO.
Credit risk associated with interest rate swap contracts arises from the
potential for a counterparty to default on its obligations. Midlantic attempts
to limit credit risk by transacting only with the most creditworthy
counterparties. All counterparties to contracts in place as of December 31,
1993 were associated with organizations having securities rated as investment
grade by independent rating agengies. The list of eligible counterparties,
setting of counterparty limits and monitoring of credit exposure for swaps is
overseen by the Credit Policy Committee. Utilizing standard methodologies, the
credit risk portion of all swaps is included in risk assets for the purpose of
calculating risk-based capital ratios.
As of December 31, 1993, the estimated credit exposure associated with interest
rate swap contracts was $87.9 million (which excludes $4.9 million on forward
swap agreements). Table XXVIII summarizes the maturities of the notional
amounts of all swap contracts in place as of December 31, 1993. Net interest
income recorded by the Corporation in 1993 for all interest rate swap contracts
amounted to $65.8 million. Management believes that the swap contracts it has
in place as of December 31, 1993 have been effective tools in the control of
interest rate risk.
TABLE XXVIII - MATURITY OF DISTRIBUTION OF SWAP CONTRACTS
IN PLACE AS OF DECEMBER 31, 1993
Notional Amounts
______________________________
(In millions) Receive Fixed Pay Fixed
___________________________________________________________
1994 - First quarter $ -- $ --
- Second quarter 50 --
- Third quarter 50 --
- Fourth quarter 719 --
<PAGE>39 2of2
1995 - First quarter 400 --
- Second quarter -- --
- Third quarter -- --
- Fourth quarter 1,000 --
1996 900 --
1997 250 599
1998 and after* -- 300
______ ____
Total interest rate swaps $3,369 $899
====== ====
Fair value of interest rate swaps $ 86 $ 2
====== ====
*Excludes $300 million of forward interest rate swap agreements for which
Midlantic has a firm commitment for delivery on April 1, 1994.
Liquidity
GENERAL - Liquidity represents the Corporation's ability to efficiently fulfill
its funding obligations at reasonable cost. Through its ALCO, Midlantic
addresses the liquidity requirements of its holding companies and its major
bank and nonbank subsidiaries on both a short-term and long-term basis using a
variety of operating scenarios that take into account the effect of both
quantitative and qualitative influences. These influences include national and
regional economic conditions, the interest rate environment, loan quality,
unfunded commitments, projections of deposit and loan growth and key ratio
analyses. On a longer-term basis, liquidity is projected using investment and
funding alternatives that take into consideration the Corporation's strategic
objectives.
<TABLE>
TABLE XXIX - LOAN PORTFOLIO - MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES(1)(2)
<CAPTION>
DECEMBER 31, 1993
__________________________________________
Due in Due After
One Year One Year Due
or Less or Through After Five
(In thousands) on Demand Five Years Years
____________________________________________________________________________________________________________________
<S> <C> <C> <C>
Commercial and financial $1,750,914 $ 946,868 $ 199,874
Real estate - construction and development 387,634 382,834 63,545
Real estate - mortgage 659,881 564,260 1,077,248
Loans to individuals 111,812 959,749 1,343,830
Foreign 3,492 -- --
__________ __________ __________
Total loans $2,913,733 $2,853,711 $2,684,497
========== ========== ==========
Loans due after one year which have predetermined interest rates $1,637,460 $1,378,098
Loans due after one year which have floating or adjustable interest rates 1,216,251 1,306,399
__________ __________
Total loans due after one year $2,853,711 $2,684,497
========== ==========
<FN>
(1) Loans are stated gross of unearned income.
(2) The actual maturities of Midlantic's loan portfolio are subject to market developments and the unpredictable aging of
demand loans.
</TABLE>
<PAGE>40 1of2
MANAGEMENT'S ANALYSIS (continued)
<TABLE>
TABLE XXX - LIQUIDITY AND FUNDING RATIOS
<CAPTION>
DECEMBER 31
1993 1992 1991 1990 1989
_______________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Liquidity ratio (1) 31.6% 29.8% 20.9% 17.3% 11.2%
_____ _____ _____ _____ ____
Funding ratio (2) (25.0) (19.2) (3.2) 3.9 20.5
_____ _____ _____ _____ ____
Total loans, net of unearned income, as a
% of total deposits 71.8 71.3 77.6 83.4 99.3
_____ _____ _____ _____ ____
Core deposits as a % of total loans,
net of unearned income 136.8 135.3 121.7 108.7 85.5
_____ _____ _____ _____ ____
Unfunded loan commitments as a % of
loans outstanding 32.4 30.8 31.5 30.2 34.2
===== ===== ===== ===== ====
<FN>
(1) Ratio of net short-term assets to net funding liabilities.
(2) Total purchased funds and money market investments less investment securities due in
one year as a percent of investment securities due in more than one year and total loans,
net of unearned income.
</TABLE>
Major sources of liquidity include short-term money market investments,
maturing investments in U.S. government and other investment securities and
proceeds from loan maturities or paydowns, as well as core deposits and the
ability to access large liability funding sources (primarily large CDs, federal
funds purchased and repurchase agreements). Such sources of liquidity may be
used to fund loan originations, depositor withdrawals and other demands on the
Corporation's liquid resources.
During the past three years the Corporation has accumulated a highly liquid
position which has resulted from the sale of subsidiaries, the sale and/or
securitization of certain assets, the substantial decline in loan volume and
the proceeds of recent common stock offerings. These factors have also
facilitated Midlantic's ability to eliminate its reliance upon purchased
funding sources and brokered deposits (those involving the mediation of a
broker or those bearing interest rates significantly higher than rates
prevailing in Midlantic's market area).
To fund future loan growth, Midlantic expects to first utilize a major portion
of its money market investments and proceeds from scheduled loan payments.
Liquidity may also continue to be generated by the possible sale or
securitization of existing assets as well as through increases in core deposits
to the extent available under market conditions.
<PAGE>40 2of2
PARENT HOLDING COMPANIES - Liquidity requirements at the parent company level
(MC and its lower-tier holding company, MBI) primarily include interest and
amortization on long-term debt and normal parent company operating expenses.
Parent company liquidity, which is managed in conjunction with the short-term
resources of the Corporation's nonbank subsidiaries, primarily consists of cash
on hand, short-term money market investments and short-term investment
securities. Such liquid assets totalled $234.6 million at December 31, 1993 as
compared with $118.6 million at year-end 1992. Debt servicing and normal
operating expense payments are primarily funded by management fees from MNB and
CB and dividend payments from CB. CB has paid uninterrupted quarterly
dividends to MC since the third quarter of 1992.
During 1993, major cash inflows included proceeds totalling $107.1 million from
the issuance of 5.75 million common shares and a tax refund amounting to
approximately $40 million. This was partially offset by the $50 million
payment at maturity of MBI's 11.35% Notes.
The Office of the Comptroller of the Currency ("OCC") has regulations that
determine the dividend paying capacity of national banks. Under these
regulations, net profits available for the payment of dividends is generally
consistent with net profits determined in accordance with generally accepted
accounting principles. Capital requirements (see next paragraph) imposed by
federal and state regulators further limit dividends available to MC from its
banks.
Under a capital program submitted to the regulators, MNB, the largest Midlantic
subsidiary, was not projected to pay any dividends to its parent until at least
1995. In view of MNB's financial progress since the submission of its capital
program, management at MNB currently expects to consider the restoration in
1994 of MNB's dividend. Payment of a dividend by MNB must be approved by the
Board of MNB and, pursuant to a formal agreement with the OCC, approval must
also be obtained from the OCC (see "Regulatory Agreements"). No assurance can
be given that MNB will pay dividends in 1994. CB may pay dividends to MC,
although in certain circumstances, prior regulatory approval is required.
Management expects that the parent companies will have sufficient cash to meet
their presently anticipated cash obligations in the foreseeable future. The
parent companies do not have any long-term debt maturing before 1999. However,
the Corporation, in the normal course of business, may from time-to-time,
consider retiring or refinancing certain debt issues, or portions thereof,
prior to the actual maturity of such issues.
<PAGE>41 1of2
Midlantic Corporation and Subsidiaries
Capital Adequacy
The Corporation places a high priority on maintaining capital ratios that
exceed minimum regulatory requirements. Midlantic's capital ratios presently
exceed all regulatory minimums. Bank regulators utilize risk-based capital
and leverage ratio guidelines to assess capital adequacy. The risk-based
capital guidelines take into account both balance sheet and off-balance sheet
credit risk by assigning specific risk weights to balance sheet and off-balance
sheet assets and contingencies. Capital is divided into core capital (tier 1
capital) which consists primarily of shareholders' equity less goodwill,
certain other intangibles and a portion of deferred taxes, and tier 2 capital
which generally consists of a qualifying portion of the allowance for loan
losses and certain long-term debt. At December 31, 1993, Midlantic's tier 1
capital ratio amounted to 9.28 percent of risk-weighted assets and the total
capital ratio (tier 1 capital plus tier 2 capital) amounted to 13.29 percent of
risk-weighted assets. The leverage ratio, which is defined as tier 1 capital
as a percent of total assets less goodwill, certain other intangibles and a
portion of deferred taxes, amounted to 6.81 percent at December 31, 1993.
These ratios compare with required minimum ratios of 4.00 percent for tier 1
capital, 8.00 percent for total capital and 3.00 percent for leverage (see
Table XXXI).
MNB and CB also exceeded all minimum regulatory capital ratios at December 31,
1993 (see Table XXXII).
The federal banking regulators established in late 1992 several uniform capital
ratio categories which are designed to implement the prompt resolution of
under-capitalized institutions. As required by the Federal Deposit Insurance
Corporation Improvement Act of 1991 ("FDICIA"), under the regulations issued by
the federal banking regulators, an insured depository institution whose tier 1
and total risk-based capital ratios exceeded 6.00 percent and 10.00 percent,
respectively, and whose leverage ratio exceeded 5.00 percent, would generally
be categorized as "well-capitalized." Based upon MC's understanding of such
regulations and of publicly available interpretations thereof by the bank
regulatory agencies, MC believes that MNB and CB each currently qualify as a
"well-capitalized" institution. The categorization of depository institutions
under such regulations is solely for the purpose of applying the prompt
corrective action provision of FDICIA and is not intended to be, and should not
be interpreted as, a representation of the depository institution's overall
financial condition or prospects.
<PAGE>41 2of2
<TABLE>
TABLE XXXI - CAPITAL
<CAPTION>
December 31
___________________________________________
(In thousands) 1993(1) 1992 1991(2)
_____________________________________________________________________________________________
<S> <C> <C> <C>
RISK-BASED CAPITAL
Tier 1 capital
Total shareholders' equity $ 1,122,564 $ 843,462 $ 727,299
Less: Goodwill and disallowed intangibles 103,601 99,891 107,300
Disallowed portion of deferred tax asset 81,568 -- --
___________ ___________ ___________
Total tier 1 capital $ 937,395 $ 743,571 $ 619,999
=========== =========== ===========
Tier 2 capital
Qualifying allowance for loan losses $ 129,559 $ 142,623 $ 188,709
Qualifying long-term debt 275,000 285,862 301,989
___________ ___________ ___________
Total tier 2 capital $ 404,559 $ 428,485 $ 490,698
___________ ___________ ___________
Total capital (tier 1 + tier 2) $ 1,341,954 $ 1,172,056 $ 1,110,697
=========== =========== ===========
Risk-adjusted assets $10,099,816 $10,888,565 $14,443,750
=========== =========== ===========
RATIO OF TIER 1 CAPITAL TO RISK-ADJUSTED ASSETS 9.28% 6.83% 4.29%
=========== =========== ===========
RATIO OF TOTAL CAPITAL TO RISK-ADJUSTED ASSETS 13.29% 10.76% 7.69%
=========== =========== ===========
LEVERAGE RATIO 6.81% 5.19% 3.43%
=========== =========== ===========
CONTINUING ENTITIES
Total tier 1 capital $ 937,395 $ 743,571 $ 621,819
___________ ___________ ___________
Total capital (tier 1 + tier 2) $ 1,341,954 $ 1,172,056 $ 1,088,563
___________ ___________ ___________
Risk-adjusted assets $10,099,816 $10,888,565 $12,425,243
___________ ___________ ___________
RATIO OF TIER 1 CAPITAL TO RISK-ADJUSTED ASSETS 9.28% 6.83% 5.00%
=========== =========== ===========
RATIO OF TOTAL CAPITAL TO RISK-ADJUSTED ASSETS 13.29% 10.76% 8.76%
=========== =========== ===========
LEVERAGE RATIOS 6.81% 5.19% 3.98%
=========== =========== ===========
<FN>
(1) Capital ratios for 1993 take into account regulatory changes that became effective
during 1993 including (i) a limitation in the amount of deferred tax assets includable in
tier 1 capital and (ii) a revision to the capital guidelines which specifies those intangibles
that are includable in tier 1 capital.
(2) Risk-based capital ratios for year-end 1991 have been calculated based upon full implementation
requirements which became effective on December 31, 1992.
</TABLE>
<PAGE>42 1of2
MANAGEMENT'S ANALYSIS (continued)
<TABLE>
TABLE XXXII - CAPITAL RATIOS OF MIDLANTIC'S BANK SUBSIDIARIES
<CAPTION>
DECEMBER 31, 1993
__________________________________________
Tier 1 Total
Capital Capital Leverage
Ratio Ratio Ratio
___________________________________________________________________
<S> <C> <C> <C>
Midlantic National Bank 11.03% 12.32% 7.89%
Continental Bank 9.88 11.15 7.79
===== ===== ====
</TABLE>
As part of ongoing compliance with agreements with the Federal Reserve Bank of
New York ("FRB") and OCC (see "Regulatory Agreements"), Midlantic submits
updated operating plans and capital plans for both the consolidated
organization and for its bank subsidiaries. MC, pursuant to its written
agreement with the FRB, and MNB, pursuant to its written agreement with the
OCC, as amended, have submitted a capital program ("Capital Program") to the
FRB and the OCC. Neither the agreement with the FRB nor the agreement with the
OCC requires Midlantic and MNB, respectively, to maintain any specific leverage
or other capital ratio, nor have the FRB or the OCC indicated to Midlantic that
it expects Midlantic or MNB to maintain any specific leverage or other capital
ratio. Under MNB's written agreement with the OCC, as amended, the OCC
reserves the right to impose specific ratio requirements upon MNB at its
discretion.
Under its agreement with the FRB, MC is restricted from paying cash dividends
without the prior written approval of the FRB. Pursuant to its agreement with
the OCC, MNB may not declare dividends without the approval of the OCC. Under
certain circumstances, CB may not pay dividends without the advance approval of
the FDIC and the Pennsylvania Department of Banking. As mentioned in "Asset
and Liability Management - Liquidity - Parent Companies," MNB may consider
restoration of its dividend in 1994.
On July 22, 1992, Midlantic entered into an agreement with the holder of its
Term Adjustable Rate Cumulative Preferred Stock - Series A (the "Preferred
Stock") pursuant to which Midlantic paid the full cumulative dividends in
arrears and the dividend for the second quarter of 1992 by issuing shares of
Midlantic's common stock in lieu of a cash payment. Pursuant to the agreement,
Midlantic may, at its discretion, pay future dividends in cash or shares of
common stock or any combination thereof, so long as any such issuance would not
result in the holder of the Preferred Stock being the beneficial owner of more
than 4.99 percent of the outstanding shares of Midlantic's common stock.
In view of MC's financial progress over the past few quarterly periods,
management of MC currently expects to consider the restoration in 1994 of MC's
common dividend and the payment of cash dividends on the Preferred Stock.
Payment of such dividends by MC must be approved by the Board of MC and, under
the written agreement, by the FRB. No assurance can be given that MC will pay
common dividends or cash dividends on the Preferred Stock in 1994.
<PAGE>42 2of2
REGULATORY AGREEMENTS
The Board of MC entered into a written agreement (the "FRB Agreement") with the
FRB in May 1991. In connection with the FRB Agreement, MC reviewed various
aspects of its operations including credit risk management, the assessment of
loan loss reserve adequacy, management succession, compensation and severance
policies, monitoring of intercompany transactions and its capital, liquidity
and operating plans. The Board of MC also agreed, among other things, that MC
will not pay cash dividends on its common or preferred stock without the prior
written approval of the FRB and will not incur certain indebtedness.
Pursuant to a written agreement (the "OCC Agreement") with the OCC, which
became effective December 31, 1990, the Board of MNB committed MNB to certain
restrictions and objectives related to such areas as management structure and
practices, loan administration, monitoring of asset quality, liquidity,
intercompany transactions, its capital adequacy and development of capital and
profit plans. In July 1991, a written amendment to the OCC Agreement was
executed, which removed specified capital ratios and required MNB to submit a
Capital Program. The Capital Program was approved by the OCC in October 1991
and a revised Capital Program was approved by the OCC in September 1992. MC
and MNB maintain ongoing programs to monitor and maintain compliance with all
applicable regulatory agreements.
MC believes that, in all material respects, it is in compliance with the FRB
Agreement and that MNB is in compliance with the OCC Agreement.
<PAGE>43
Midlantic Corporation and Subsidiaries
EFFECTS OF INFLATION
Inflation, as measured by the Consumer Price Index, has been relatively steady
during the past three years advancing 2.7 percent in 1993, 2.9 percent in 1992
and 3.1 percent in 1991. Since Midlantic's assets and liabilities are
predominantly monetary, the effects of inflation on Midlantic's performance are
primarily measured by the level and volatility of interest rates earned and
paid. During the past three years, the prime rate changed seven times ranging
from 10.0 percent to 6.0 percent (the 6.0 percent rate remaining steady during
the past 18 months). During this period, Midlantic was able to control
interest rate risk, as a result of its continuing policy of managing its
interest-sensitive assets and liabilities.
<TABLE>
SELECTED SUPPLEMENTAL FINANCIAL DATA
<CAPTION>
YEAR ENDED DECEMBER 31
________________________________________________________________
(In thousands, except per share data and total assets) 1993 1992 1991 1990 1989
__________________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Interest income $816,907 $1,051,676 $1,729,362 $2,193,611 $2,103,549
Interest expense 310,857 542,012 1,104,779 1,370,822 1,232,022
Net interest income 506,050 509,664 624,583 822,789 871,527
Income (loss) from continuing operations 131,396 7,028 (543,303) (195,005) 206,261
Cumulative effect of the change
in accounting for income taxes 38,962 -- -- -- --
Net income (loss) 170,358 7,028 (543,303) (195,005) 206,261
Income (loss) per common share - fully diluted
Continuing operations 2.51 .08 (14.36) (5.22) 5.27
Cumulative effect of the change
in accounting for income taxes .74 -- -- -- --
Net income 3.25 .08 (14.36) (5.22) 5.27
Cash dividends declared per common share -- -- -- 1.19 1.76
Obligations under capital leases 8,861 9,386 9,627 9,814 10,142
Long-term debt 386,752 437,112 463,989 448,178 450,884
Total assets (in millions) 13,947 14,422 18,170 23,586 23,723
======== ========== ========== ========== ==========
<FN>
On August 31, 1989, Midlantic acquired four banks located in New York state. These banks, which had total assets of $2.2
billion at year-end 1989, were sold by the Corporation in 1992. For the effect of the divestiture of these banks, as well
as certain other divestitures during 1991 and 1992 (which, in total, reduced total assets by approximately $5.5 billion),
this table should be reviewed in conjunction with the financial analysis (see "Introduction" and "Critical Events in Midlantic's
Recent History").
</TABLE>
<PAGE>44 1of2
<TABLE>
Midlantic Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
<CAPTION>
YEAR ENDED DECEMBER 31 1993 1992 1991
____________________________________________________________________________
<S> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $654,770 $ 833,709 $1,420,674
Interest on investment securities
Taxable interest income 91,036 171,188 200,144
Tax-exempt interest income 1,012 10,233 22,292
Interest on deposits in other banks 18,319 5,869 22,814
Interest on other short-term investments 51,770 30,677 63,438
________ __________ __________
Total interest income 816,907 1,051,676 1,729,362
________ __________ __________
INTEREST EXPENSE
Interest on deposits 262,886 483,154 1,011,800
Interest on short-term borrowings 11,586 17,341 50,759
Interest on long-term debt 36,385 41,517 42,220
________ __________ __________
Total interest expense 310,857 542,012 1,104,779
________ __________ __________
Net interest income 506,050 509,664 624,583
Provision for loan losses 79,000 137,939 640,402
________ __________ __________
Net interest income (loss) after
provision for loan losses 427,050 371,725 (15,819)
NONINTEREST INCOME
Trust income 41,459 46,776 56,156
Service charges on deposits 78,815 79,478 78,188
Investment securities gains (losses) 7,005 52,753 (2,890)
Mortgage banking fees -- 6,361 32,459
Income on factoring receivables 15,823 16,705 20,404
Net gains on disposition of assets -- 35,208 6,796
Other 51,991 63,615 66,266
________ __________ __________
Total noninterest income 195,093 300,896 257,379
________ __________ __________
622,143 672,621 241,560
________ __________ __________
NONINTEREST EXPENSES
Salaries and benefits 219,332 257,221 345,679
Net occupancy 44,622 51,410 61,566
Equipment rental and expense 26,881 35,776 43,529
Other real estate owned, net 134,337 99,744 122,999
FDIC assessment charges 33,841 34,090 40,433
Legal and professional fees 51,511 51,403 50,803
Restructuring charges -- 22,500 3,066
Other 91,266 110,605 160,264
________ __________ __________
Total noninterest expenses 601,790 662,749 828,339
________ __________ __________
<PAGE>44 2of2
Income (loss) before income taxes
and cumulative effect of the change
in accounting for income taxes 20,353 9,872 (586,779)
Income tax (benefit) expense (111,043) 2,844 (43,476)
________ __________ __________
Income (loss) before cumulative effect of
the change in accounting for income taxes 131,396 7,028 (543,303)
Cumulative effect of the change
in accounting for income taxes 38,962 -- --
________ __________ __________
NET INCOME (LOSS) $170,358 $ 7,028 $ (543,303)
======== ========== ==========
INCOME (LOSS) PER COMMON SHARE
Income (loss) before cumulative effect of
the change in accounting for
income taxes
Primary $ 2.51 $ .08 $ (14.36)
Fully diluted 2.51 .08 (14.36)
Cumulative effect of the change
in accounting for income taxes
Primary .76 -- --
Fully diluted .74 -- --
Net income (loss)
Primary 3.27 .08 (14.36)
Fully diluted 3.25 .08 (14.36)
======== ========== ==========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>45 1of2
<TABLE>
Midlantic Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<CAPTION>
DECEMBER 31 1993 1992
____________________________________________________________________________
<S> <C> <C>
ASSETS
Cash and due from banks $ 712,960 $ 799,194
Interest-bearing deposits in other banks 488,821 407,515
Other short-term investments 1,290,000 1,588,166
Investment securities (market value 1993,
$2,467,793; 1992, $1,562,037) 2,455,410 1,552,425
Investment securities identified for sale
(market value 1992, $563,721) -- 562,387
Loans (net of unearned income of $137,110
in 1993 and $95,882 in 1992) 8,314,831 8,954,157
Less: allowance for loan losses 394,450 663,901
___________ ___________
Net loans 7,920,381 8,290,256
___________ ___________
Premises and equipment, net 155,129 168,630
Due from customers on acceptances 11,084 22,166
Other real estate owned, net 132,670 450,879
Taxes receivable and net deferred tax assets 202,823 139,247
Other assets 577,304 440,893
___________ ___________
Total assets $13,946,582 $14,421,758
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Domestic deposits
Noninterest-bearing demand $ 2,839,885 $ 2,811,931
Interest-bearing demand 1,433,690 1,411,541
Savings 1,582,614 1,384,826
Retail money market accounts 2,193,582 2,529,743
CDs over $100,000 206,422 427,929
Other time 3,322,335 3,980,344
Overseas branch deposits 9,273 13,715
___________ ___________
Total deposits 11,587,801 12,560,029
___________ ___________
Short-term borrowings 674,497 370,718
Bank acceptances outstanding 11,084 22,166
Other liabilities 163,884 188,271
Long-term debt 386,752 437,112
___________ ___________
Total liabilities 12,824,018 13,578,296
___________ ___________
<PAGE>45 2of2
Commitments and contingent liabilities
Shareholders' equity
Capital stock
Preferred stock: no par value
Authorized 40,000,000 shares
Issued 500,000 shares in 1993 and 1992 50,000 50,000
Common stock: par value $3 per share
Authorized 150,000,000 shares
Issued 52,173,999 shares in 1993 and
46,147,818 shares in 1992 156,522 138,443
Surplus 603,732 509,464
Retained earnings 312,310 145,578
___________ ___________
1,122,564 843,485
Less treasury stock at cost:
900 common shares in 1992 -- 23
___________ ___________
Total shareholders' equity 1,122,564 843,462
___________ ___________
Total liabilities and shareholders' equity $13,946,582 $14,421,758
=========== ===========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>46 1of2
<TABLE>
Midlantic Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<CAPTION>
YEAR ENDED DECEMBER 31 1993 1992 1991
_____________________________________________________________________________________________
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 170,358 $ 7,028 $ (543,303)
Adjustments to reconcile net income (loss)
to net cash provided by operating activities
Provisions for loan and OREO losses 209,545 215,071 742,440
Depreciation of premises and equipment 23,909 30,323 37,735
Amortization of goodwill and other intangibles 6,334 7,696 22,741
Deferred income tax (benefit) expense (74,023) 97,390 122,818
Cumulative effect of the change in
accounting for income taxes (38,962) -- --
Net (accretion) amortization of
investment securities (26,460) 34,535 5,527
Accretion of net deferred loan fees (9,324) (9,093) (13,791)
Restructuring charges (net of cash payments
of $11,708 in 1992 and $3,066 in 1991) -- 10,792 --
Net gains on the sales of assets (11,107) (74,965) (3,399)
Net (increase) decrease in trading
account assets (12,720) 17,382 (8,343)
Net increase in residential mortgage loans
that are originated/purchased for resale -- (4,942) (30,157)
Net decrease in OREO, net 33,697 56,534 46,296
Net decrease in accrued interest receivable 3,191 43,447 54,980
Net decrease in accrued interest payable (16,876) (76,592) (49,132)
Net decrease (increase) in taxes receivable
and net deferred tax assets 49,409 71,153 (154,233)
Net decrease in other assets 14,252 350 49,947
Net (decrease) increase in other liabilities (10,865) 15,713 (30,568)
Other (4,415) (9,810) (2,168)
___________ ___________ ___________
Net cash provided by operating activities 305,943 432,012 247,390
___________ ___________ ___________
<PAGE>46 2of2
CASH FLOWS FROM INVESTING ACTIVITIES
Sales of subsidiaries (exclusive of cash and
due from banks of $682 in 1993,
$139,425 in 1992 and $98,757 in 1991
and net of disposition costs paid
of $2,860 in 1992 and $123 in 1991) 15,322 46,283 142,518
Cash received in the purchase of two branches -- -- 30,523
Bulk sales of loans and OREO 220,802 -- --
Sales/securitizations of loans -- 383,745 57,318
Sales of OREO 145,340 99,668 29,562
Net decrease (increase) in money market
investments with an original maturity
of 3 months or less 155,225 (314,566) (164,224)
Proceeds from money market investments with
an original maturity greater than 3 months 2,272,097 226,000 234,000
Purchases of money market investments with an
original maturity greater than 3 months (2,165,040) (869,097) (180,000)
Proceeds from sales of investment securities 580,255 2,328,315 587,679
Proceeds from matured investment securities 1,493,930 774,128 1,239,166
Purchases of investment securities (2,369,924) (3,011,470) (2,282,234)
Net (increase) decrease in loans (119,156) 957,577 1,478,338
Purchases of premises and equipment (16,087) (12,723) (32,056)
Sales of premises and equipment 1,533 2,944 1,564
___________ ___________ ___________
Net cash provided by investing activities 214,297 610,804 1,142,154
___________ ___________ ___________
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits (968,732) (1,317,632) (1,552,082)
Net increase (decrease) in short-term
borrowings 303,779 (125,903) (610,804)
Payments on long-term debt (50,360) (4,877) (4,011)
Proceeds from issuance of long-term debt -- -- 22,000
Proceeds from issuance of common stock 108,839 109,990 --
Dividends paid -- -- (2,859)
___________ ___________ ___________
Net cash used by financing activities (606,474) (1,338,422) (2,147,756)
___________ ___________ ___________
NET DECREASE IN CASH AND CASH EQUIVALENTS $ (86,234) $ (295,606) $ (758,212)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 799,194 1,094,800 1,853,012
=========== =========== ===========
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 712,960 $ 799,194 $ 1,094,800
=========== =========== ===========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>47
<TABLE>
Midlantic Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share and per share data)
<CAPTION>
FOR THE THREE YEARS ENDED Preferred Common Retained Treasury
DECEMBER 31, 1993 Stock Stock Surplus Earnings Stock
_____________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Balance at January 1, 1991 $50,000 $114,308 $420,348 $ 688,436 $ (317)
_______ ________ ________ _________ _______
Net loss -- -- -- (543,303) --
Cash dividends declared on preferred
stock, $3.81 per share -- -- -- (1,906) --
Addition of 10,786 common shares to
the treasury -- -- -- -- (318)
Issuance of 8,480 common treasury
shares for stock options and stock
awards -- -- (223) -- 274
_______ ________ ________ _________ _______
Balance at December 31, 1991 50,000 114,308 420,125 143,227 (361)
_______ ________ ________ _________ _______
Net income -- -- -- 7,028 --
Issuance of 288,941 common shares
for preferred stock dividends -- 867 3,810 (4,677) --
Issuance of 7,650,000 common shares -- 22,950 86,534 -- --
Addition of 38,612 common shares to
the treasury -- -- -- -- (1,037)
Issuance of 106,312 common shares
and 48,188 common treasury shares
for stock options and stock awards -- 318 (1,005) -- 1,375
_______ ________ ________ _________ _______
Balance at December 31, 1992 50,000 138,443 509,464 145,578 (23)
_______ ________ ________ _________ _______
Net income -- -- -- 170,358 --
Issuance of 163,556 common shares
for preferred stock dividend -- 491 3,135 (3,626) --
Issuance of 5,750,000 common shares -- 17,250 89,890 -- --
Addition of 4,081 common shares
to the treasury -- -- -- -- (95)
Issuance of 97,498 common shares
and 4,981 common treasury shares
for stock options and stock awards -- 293 918 -- 118
Issuance of 15,127 common shares
purchased by Midlantic 401(k) plan -- 45 325 -- --
_______ ________ ________ _________ _______
BALANCE AT DECEMBER 31, 1993 $50,000 $156,522 $603,732 $ 312,310 $ --
======= ======== ======== ========= =======
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>48 1of2
Midlantic Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES
The accounting and reporting policies of Midlantic Corporation and Subsidiaries
follow generally accepted accounting principles and general practices
applicable to both the banking and bank-related industries. The policies
which materially affect the determination of results of operations, financial
position and cash flows are summarized below.
Principles of Consolidation
- ---------------------------
The consolidated financial statements of Midlantic Corporation ("MC") and its
wholly-owned subsidiaries ("Midlantic" or the "Corporation") include the
accounts of Midlantic National Bank ("MNB"); Continental Bank ("CB"); several
smaller subsidiaries; and Midlantic Banks Inc. ("MBI"), the lower-tier holding
company. All significant intercompany accounts and transactions have been
eliminated.
Reclassifications
- -----------------
Certain amounts in the financial statements presented for prior periods have
been reclassified to conform with the 1993 presentation.
Statement Of Cash Flows
- -----------------------
The statement of cash flows is presented using the indirect method.
Cash equivalents, for the purpose of this statement, are defined as cash and
due from banks.
The changes in accrued interest payable on interest rate swap contracts are
netted against the changes in accrued interest receivable.
The changes in assets and liabilities presented in the cash flow statement are
net of the effects of divestitures and acquisitions which are disclosed as the
net proceeds received or paid in such transactions.
Money Market Investments
- ------------------------
Money market investments are defined as interest-bearing deposits in other
banks and other short-term investments. Other short-term investments include
federal funds sold, term federal funds sold, commercial paper and securities
purchased under resale agreements.
Investment Securities
- ---------------------
Investments in debt securities that Midlantic has both the intent and ability
to hold until maturity are stated at cost, adjusted for amortization of
premiums and discounts. Premiums/discounts are amortized/accreted over the
contractual lives of debt securities. Debt securities identified for sale
prior to their contractual maturities in order to meet asset and liability
management objectives and marketable equity securities are carried at the
lower of aggregate cost or market value. Trading account securities are
carried at market value. Securities gains or losses are determined using the
specific identification method.
<PAGE>48 2of2
In May 1993, the Financial Acounting Standards Board ("FASB") issued Statement
of Financial Accounting Standards ("FAS") No. 115 "Accounting for Certain
Investments in Debt and Equity Securities," which is effective for fiscal
years beginning after December 15, 1993. FAS No. 115 establishes the
accounting and reporting for investments in equity securities that have
readily determinable fair values and for all investments in debt securities.
Under the provisions of FAS No. 115, those investments will be classified into
three categories: (1) held to maturity securities, which Midlantic has both
the positive intent and ability to hold until maturity, will be reported at
amortized/accreted cost; (2) trading securities, which are purchased and held
principally for the purpose of selling in the near term, will be reported at
fair value with unrealized gains and losses included in earnings; and (3)
available-for-sale securities, which do not meet the criteria of the other two
categories, will be reported at fair value with unrealized gains and losses,
net of applicable income taxes, reported as a separate component of
shareholders' equity and excluded from earnings. Midlantic estimates that
this statement, which will be adopted in the first quarter of 1994, will have
no material impact on its financial condition or results of operations at the
time of adoption.
Loans
- -----
Loan origination fees and certain direct loan origination costs are deferred
and the net amounts are amortized as adjustments of the loans' yields.
Midlantic generally amortizes net loan fees over the contractual lives of the
related loans.
Unearned interest income on all loan categories is taken into earnings over the
terms of the related loans.
Nonaccrual Loans And Other Real Estate Owned
- --------------------------------------------
Loans are generally reported as nonaccrual if they are past due as to maturity
or payment of principal or interest for a period of more than 90 days, unless
such loans are well-secured and in the process of collection. If a loan or a
portion of a loan is classified as doubtful or is partially charged off, the
loan is classified as nonaccrual. Loans that are on a current payment status
or past due less than 90 days may also be classified as nonaccrual if repayment
in full of principal and/or interest is determined to be in jeopardy. Loans,
with the exception of partially charged off loans or loans with any portion
classified as doubtful, may be placed back on accrual status when all
principal and interest amounts contractually due (including arrearages) are
reasonably assured of repayment within an acceptable period of time and there
is a sustained period of repayment performance (generally a minimum of six
months) by the borrower, in accordance with the contractual terms, involving
payments of cash or cash equivalents. The remaining recorded balance of a
partially charged off loan, however, may be returned to accrual status if the
entire contractual loan balance, together with all unpaid contractual
interest, is determined to be fully collectible.
While a loan is classified as nonaccrual and the future collectibility of the
recorded loan balance is doubtful, collections of interest and principal are
generally applied as a
<PAGE>49 1of2
Midlantic Corporation and Subsidiaries
reduction to principal outstanding. When the future collectibility of the
recorded loan balance is expected, interest income may be recognized on a cash
basis. In the case where a nonaccrual loan had been partially charged off,
recognition of interest on a cash basis is limited to that which would have
been recognized on the recorded loan balance at the contractual interest rate.
Cash interest receipts in excess of that amount are recorded as recoveries to
the allowance for loan losses until prior charge-offs have been fully
recovered.
Other real estate owned ("OREO") consists principally of real estate collateral
whereby Midlantic has foreclosed and/or has obtained title to the properties
and "in-substance" foreclosures ("ISF(s)"). A loan is classified as an ISF
when conditions exist where the debtor has little or no equity in the
supporting collateral, considering the current fair value of such collateral;
the proceeds for repayment of the loan can be expected only from the operation
or sale of such collateral; and the debtor has either formally or effectively
abandoned control of the collateral to the lender or retained control, but his
ability to rebuild equity in the collateral or otherwise repay the loan in the
foreseeable future is doubtful. A loan does not have to be in default to be
classified as an ISF.
OREO is carried at the lower of the recorded investment in the loan or the fair
value less estimated costs of disposal of the property ("net realizable
value"). Upon transfer of a loan to OREO status, an appraisal is made of the
foreclosed property (or the underlying collateral in the case of an ISF) and
any excess of the loan balance over net realizable value is charged against
the allowance for loan losses.
Subsequent adjustments to net realizable value, primarily determined through
appraisals of the properties and the overall condition of the real estate
market, are recognized through a provision charged to OREO expense. Costs
incurred for the holding of OREO properties, net of rental income (if any),
are also charged directly to OREO expense.
When a loan is transferred to nonaccrual status or directly to OREO, it is
Midlantic's general policy to reverse interest income accrued but not received
for the current period and charge interest accrued but not yet received for
prior periods against the allowance for loan losses.
Renegotiated Loans
- ------------------
Loans are considered troubled debt restructurings under FAS No. 15 "Accounting
by Debtors and Creditors for Troubled Debt Restructurings" if, for economic or
legal reasons, a concession has been granted to the borrower related to the
borrower's financial difficulties that the creditor would not otherwise
consider. Midlantic has restructured certain loans in instances where a
determination was made that greater economic value will be realized under new
terms than through foreclosure, liquidation or other disposition. Midlantic
classifies restructured loans as "renegotiated loans" and accrual of interest
resumes when such loans can demonstrate performance (as generally evidenced by
six months of pre- or post-restructuring payment performance in accordance
with the restructured terms, or by the presence of other significant factors).
Prior to demonstrating performance, Midlantic classifies restructured loans as
nonaccrual. In those cases where the average current yield differs from the
effective yield, interest income on renegotiated loans is recognized on the
more conservative average current yield basis until certain contingencies are
<PAGE>49 2of2
met. A renegotiated loan that has demonstrated performance and has an
effective yield greater than or equal to a market interest rate at the date of
closing is classified as an accruing loan in the reporting period immediately
following the year it was disclosed as renegotiated and was so disclosed in
the annual report for that year.
Allowance For Loan Losses
- -------------------------
The allowance for loan losses is established through charges to earnings in the
form of a provision for loan losses. Loans, or portions of loans, which are
determined to be uncollectible are charged against the allowance account and
subsequent recoveries, if any, are credited to the account. In establishing
an appropriate allowance, factors that are considered include an assessment of
the financial condition of individual borrowers, a determination of the value
and adequacy of underlying collateral, including appraisals as required, the
composition and balance of the credit portfolio, a review of historical loss
experience, and an analysis of the levels and trends of delinquencies, charge-
offs and the risk ratings of the various loan categories. Such factors as the
level and trend of interest rates and the condition of the national and local
economies are also considered.
Accounting For Loan Impairment
- ------------------------------
In May 1993, the FASB issued FAS No. 114 "Accounting by Creditors for
Impairment of a Loan," which is effective for fiscal years beginning after
December 15, 1994. Under FAS No. 114 an impaired loan is defined as a loan for
which it is probable, based on current information, that the lender will not
collect all amounts due under the contractual terms of the loan agreement.
FAS No. 114 requires that impaired loans be measured based upon either the
present value of expected future cash flows discounted at the loan's effective
interest rate, the loan's observable market price or the fair value of the
collateral if the loan is collateral dependent. Midlantic has not determined
the effect of adoption and, at this time, does not plan to elect early
adoption.
Premises And Equipment, Net
- ---------------------------
Premises and equipment are stated at cost less accumulated depreciation and
amortization. Depreciation is computed principally on the straight-line method
over the estimated useful lives of the assets. Leasehold improvements are
amortized on a straight-line basis over the shorter of the terms of the leases
or the estimated useful lives of the improvements. Expenditures for
maintenance and repairs are charged to expense; major replacements, renewals
and betterments are capitalized. Gains and losses on dispositions are
reflected in current operations.
Assets Held For Accelerated Disposition
- ---------------------------------------
Assets held for accelerated disposition, included in other assets, consist of
accruing and nonaccrual loans and OREO properties. These assets are carried
at net realizable value.
<PAGE>50 1of2
CONSOLIDATED NOTES (continued)
Intangible Assets
- -----------------
Goodwill (excess cost over net assets acquired) resulting from various
acquisitions is amortized generally on a straight-line basis over the
estimated period to be benefited. The remaining amortization period averages
16.4 years. Other intangibles, primarily consisting of the present value of
excess servicing of loans that were securitized and sold, are being amortized
over the estimated periods of benefit. The remaining amortization period
averages 1.8 years.
Offsetting Of Certain Assets And Liabilities
- --------------------------------------------
In March 1992, the FASB issued FASB Interpretation ("FIN") No. 39 "Offsetting
of Amounts Related to Certain Contracts," which is effective for fiscal years
beginning after December 31, 1993. Under FIN No. 39, assets and liabilities
may not be netted unless a right of setoff exists. However, the fair value of
interest rate swap, forward, currency swap or other exchange contracts with
the same counterparty under master netting arrangements may be offset as well
as their accrual components. FIN No. 39, which will be adopted by Midlantic
in the first quarter of 1994, will have no material impact on the
Corporation's financial statements.
Trust Income
- ------------
Trust income is recognized generally on a cash basis. The results of trust
operations would not be materially different if reported on an accrual method.
Pension Plans
- --------------
Midlantic has a noncontributory defined benefit pension plan which covers
substantially all employees. Benefits are based upon years of service and
generally upon the employee's average compensation during the four consecutive
years prior to normal retirement which produces the highest average. Annual
contributions to the plans are at least equal to the minimum amount, if any,
required by the Employee Retirement Income Security Act of 1974 but no greater
than the maximum amount that can be deducted for federal income tax purposes.
Postretirement Benefits
- -----------------------
In the first quarter of 1993, the Corporation adopted FAS No. 106 "Employers'
Accounting for Postretirement Benefits Other Than Pensions." FAS No. 106
requires that the projected future cost of providing postretirement health
care and other benefits be recognized on an accrual basis during the periods
employees provide services to earn those benefits. Midlantic has elected to
amortize the transition obligation on a straight-line basis over a period of
20 years, beginning in 1993, and such transition obligation is included as a
component of net periodic postretirement benefit cost. The transition
obligation is the unrecognized amount of the accumulated postretirement
benefit obligation ("APBO") in excess of the fair value of plan assets plus
any recognized accrued postretirement benefit cost or less any recognized
prepaid postretirement benefit cost for all plan participants at the point of
adoption. Prior to 1993, Midlantic accounted for postretirement costs on a
"pay-as-you-go" basis.
<PAGE>50 2of2
Postemployment Benefits
- -----------------------
In November 1992, the FASB issued FAS No. 112 "Employers' Accounting for
Postemployment Benefits" which is effective for fiscal years beginning after
December 15, 1993. FAS No. 112 requires accrual accounting for postemployment
benefits (benefits such as severance and disability payments to former or
inactive employees after employment but before retirement), under the
following circumstances: if the employees' rights to postemployment benefits
are attributable to services already rendered and the rights to those benefits
accumulate or vest, and if payment of the benefits is probable and the amount
of the benefits can be reasonably estimated. If the four criteria mentioned
cannot be met, the employer should accrue an obligation for these benefits
when payment is both probable and estimable. Based upon current estimates,
the Corporation will recognize, in the first quarter of 1994, a charge to
earnings ranging from $7 million to $8 million, net of income taxes, resulting
from the cumulative effect of this change in accounting principle. The
Corporation presently accounts for postemployment benefits on a "pay-as-you-
go" basis.
Off-balance Sheet Financial Instruments
- ---------------------------------------
In the ordinary course of business the Corporation has entered into off-
balance sheet financial instruments including commitments to extend credit,
standby and commercial letters of credit and interest rate swap contracts.
Amounts due or payable on such instruments are recorded on the balance sheet.
Midlantic enters into interest rate swap contracts to manage interest rate
risk (the risk that changes in Midlantic's net interest income will occur from
fluctuations in market interest rates, unscheduled payments and other events).
Such instruments are used as interest rate hedges for certain groups of
interest-earning assets and interest-bearing liabilities. The net periodic
payments or receipts arising from these swaps are recognized on a settlement
basis as adjustments to interest income/interest expense depending upon the
underlying asset or liability that is hedged.
Income Taxes
- ------------
Midlantic adopted FAS No. 109 "Accounting for Income Taxes" in the first
quarter of 1993 as a cumulative effect of a change in accounting principle.
The cumulative effect of this change in accounting principle increased net
income by $38.962 million or $.74 per fully diluted common share. FAS No. 109
requires a change from the "deferred tax method," utilized prior to 1993, to a
comprehensive tax allocation using the "liability method" of accounting for
income taxes. Under the liability method, deferred income taxes are provided
for temporary differences based upon the expected tax rates in the years that
payment or receipt of such taxes is expected, and adjustment of the deferred
tax asset or liability is required to reflect subsequent changes in income tax
rates. The establishment of a valuation allowance is required for that
portion of a deferred tax asset for which a tax benefit is not expected to be
realized.
Prior to 1993, the Corporation accounted for income taxes in conformity with
Accounting Principles Board Opinion No. 11 "Accounting for Income Taxes." A
detail of the components of deferred federal income expense for 1992 and 1991
is presented in Note 24.
<PAGE>51 1of2
Midlantic Corporation and Subsidiaries
Income (Loss) Per Common Share
- ------------------------------
Primary income per common share ("primary EPS") is computed by dividing net
income (less preferred stock dividends, declared or in arrears) by the
weighted average number of common shares and common share equivalents
outstanding during each year. Fully diluted income per common share ("fully
diluted EPS") is determined by dividing net income (plus interest expense, net
of federal income taxes on convertible subordinated debentures; less preferred
stock dividends, declared or in arrears) by the weighted average number of
common shares and common share equivalents outstanding during each year plus
the number of shares issuable on conversion of debentures only if the effect
of the interest expense and number of shares relating to the debentures are
dilutive. Where applicable, primary and fully diluted loss per common share
are computed by dividing net loss (less preferred stock dividends, declared or
in arrears) by the weighted average number of common shares outstanding during
the period.
Primary and fully diluted income per common share before the cumulative effect
of the change in accounting principle are computed by dividing income before
the cumulative effect of the change in accounting principle by the same
factors as those used to compute primary and fully diluted EPS.
2. DIVESTITURES AND INTERNAL MERGERS
As part of Midlantic's objective to concentrate its business in its core market
area, in 1993, Midlantic exited the Hong Kong market by selling its Hong Kong-
based affiliate for a price of $16.004 million (which was substantially equal
to book value). At December 31, 1992, the Hong Kong-based affiliate had total
assets of $107.640 million.
During 1991 and 1992, MC completed the following transactions pursuant to a
restructuring program initiated during 1991 which encompassed a strategy to
sell assets and subsidiaries located outside of New Jersey and southeastern
Pennsylvania and consolidate operations in New Jersey in order to strengthen
MC's capital position and focus on its core market:
. On December 31, 1992, The Merchants National Bank & Trust Company of
Syracuse ("Merchants") and Union National Bank ("Union") were sold to
ONBANCorp, Inc. for a price of $93.290 million in cash and other
consideration. At December 31, 1992, Merchants and Union had combined
assets and shareholder's equity totalling $994.002 million and $77.681
million, respectively, and had combined net income for 1992 of $2.685
million.
. On July 1, 1992, Central Trust Company ("Central") and Endicott Trust
Company ("Endicott") were sold to Manufacturers & Traders Trust Company,
a subsidiary of First Empire State Corporation, for a price of $114.801
million in cash and other consideration. At June 30, 1992, Central and
Endicott had combined assets and shareholder's equity totalling $1.384
billion and $70.947 million, respectively, and had combined net income
for 1992 through date of sale of $3.382 million.
. On March 24, 1992, MC sold Midlantic Home Mortgage Corporation ("MHMC"),
a mortgage banking subsidiary, for a total consideration of $44.618
million.
<PAGE>51 2of2
. On December 31, 1991, MC sold The York Bank and Trust Company ("York") to
First Maryland Bancorp for a price of $129.000 million. At December 31,
1991, York had total assets of $1.374 billion and had a net loss for 1991
of $2.547 million.
. On December 31, 1991, MC sold United Penn Bank and UniPenn Realty Co.
(collectively "United") to Mellon Bank, N.A. for a price of $90.200
million. At December 31, 1991, United had total assets of $1.458 billion
and had a net loss for 1991 of $14.103 million.
. On November 15, 1991, Midlantic National Bank and Trust Co./Florida
("MNB/Florida") sold its trust assets, branch facilities and $20.928
million in private banking and home equity loans to Comerica Trust
Company of Florida, N.A. and Comerica Bank-Florida, F.S.B. for a price of
$24.198 million.
. On September 30, 1991, Midlantic National Bank/North was merged with and
into MNB in order to consolidate MC's New Jersey operations.
Midlantic recognized pretax gains in 1992 aggregating $15.499 million relating
to the divestitures of Merchants and Union, Central and Endicott, and MHMC,
which included net pension curtailment and settlement gains totalling $4.805
million (see Note 20). In 1991, Midlantic recognized pretax gains totalling
$63.841 million relating to the divestitures of York, United and the asset
sales of MNB/Florida, which included pension curtailment and settlement gains
of $4.285 million related to York and United (see Note 20). In 1991, Midlantic
also recorded an estimated loss of $62.063 million for the then prospective
sales of Merchants and Union, and Central and Endicott.
Restructuring charges of $22.500 million and $3.066 million were recorded in
1992 and 1991, respectively. The restructuring charges in 1992 were
recognized as a part of Midlantic's "FOCUS '92" program designed to reduce
operating expenses and improve Midlantic's effectiveness in serving its
customers and was comprised of $12.500 million for severance pay and
outplacement services and $10.000 million for the write-off of leases and
leasehold improvements, primarily for operational support buildings.
Restructuring charges in 1991 were principally comprised of provisions for
employee severance payments.
On May 15, 1991, Continental Bancorp, Inc. ("CBI"), a subsidiary bank holding
company of MC, was merged with and into MC. CBI's subsidiaries at date of
merger became direct subsidiaries of MC.
Unaudited pro forma consolidated results of operations for 1992 as if the
divestitures of MHMC, Central, Endicott, Merchants and Union had occurred on
January 1, 1992 and for 1991 as if the divestitures of York, United, MHMC,
Central, Endicott, Merchants and Union had occurred on January 1, 1991 are:
<PAGE>52 1of2
CONSOLIDATED NOTES (continued)
<TABLE>
<CAPTION>
(In thousands, except per share data) 1992 1991
__________________________________________________________________
<S> <C> <C>
(Unaudited)
INTEREST INCOME
Interest and fees on loans $720,345 $1,033,077
Interest on investment securities
Taxable interest income 152,829 132,516
Tax-exempt interest income 6,563 14,857
Interest on deposits with banks 5,790 17,152
Interest on other short-term investments 29,348 47,707
________ __________
Total interest income 914,875 1,245,309
________ __________
INTEREST EXPENSE
Interest on deposits 424,343 744,255
Interest on short-term borrowings 17,165 37,791
Interest on long-term debt 41,382 41,581
________ __________
Total interest expense 482,890 823,627
________ __________
Net interest income 431,985 421,682
Provision for loan losses 116,227 579,087
________ __________
Net interest income (loss) after
provision for loan losses 315,758 (157,405)
________ __________
Noninterest income 278,536 204,491
________ __________
Noninterest expenses 597,247 651,620
________ __________
Loss before income taxes (2,953) (604,534)
Income tax expense (benefit) 2,844 (43,476)
________ __________
NET LOSS (5,797) (561,058)
Preferred stock dividends (3,672) (3,812)
________ __________
NET LOSS APPLICABLE TO PRIMARY AND
Fully Diluted Common Shares $ (9,469) $ (564,870)
======== ==========
LOSS PER COMMON SHARE
Primary $ (.23) $ (14.83)
Fully diluted (.23) (14.83)
======== ==========
</TABLE>
The pro forma consolidated results are not necessarily indicative of the
results of operations that would have been obtained if the divestitures of
MHMC, Central, Endicott, Merchants and Union had actually occurred on January
1, 1992 or if the divestitures of York, United, MHMC, Central, Endicott,
Merchants and Union had actually occurred on January 1, 1991. The pro forma
consolidated results do not provide for interest income earned upon the
<PAGE>52 2of2
assumed investment of the sales proceeds. Under the assumption of investing
the sales proceeds in short-term investments and other interest-earning
assets, the pro forma consolidated results would reflect total interest income
of $922.158 million and $1.274 billion, net income of $1.486 million and a net
loss of $532.704 million, and a loss per common share of $.05 and $14.08 for
1992 and 1991, respectively.
3. CASH AND DUE FROM BANKS
Average cash balances reserved to meet regulatory requirements of the Federal
Reserve Board and cash balances maintained at other banks for compensating
balance requirements amounted to $380.761 million and $347.333 million at
December 31, 1993 and 1992, respectively.
4. INVESTMENT SECURITIES
At December 31, 1993 and 1992, the book and quoted market values and gross
unrealized gains and losses of the securities portfolio are as follows:
<TABLE>
<CAPTION>
DECEMBER 31, 1993
__________________________________________________
Gross Gross
Book Unrealized Unrealized Market
(In thousands) Value Gains Losses Value
__________ __________ __________ __________
<S> <C> <C> <C> <C>
United States Treasury securities $1,278,711 $ 458 $ (144) $1,279,025
Obligations of United States government
agencies 1,083,674 9,753 (689) 1,092,738
Obligations of states and political
subdivisions 24,665 4 (562) 24,107
Other securities 68,360 3,732 (169) 71,923
__________ __________ __________ __________
$2,455,410 $13,947 $(1,564) $2,467,793
========== ========== ========== ==========
</TABLE>
<PAGE>53 1of2
<TABLE>
Midlantic Corporation and Subsidiaries
<CAPTION>
December 31, 1992
__________________________________________________
Gross Gross
Book Unrealized Unrealized Market
(In thousands) Value Gains Losses Value
__________ __________ __________ __________
<S> <C> <C> <C> <C>
United States Treasury securities
Permanent portfolio $ 779,144 $ 7,189 $(2,653) $ 783,680
Identified for sale 562,387 1,334 -- 563,721
Obligations of United States government
agencies 679,316 10,006 (266) 689,056
Obligations of states and political
subdivisions 15,002 589 (737) 14,854
Other securities 78,963 561 (5,077) 74,447
__________ __________ __________ __________
$2,114,812 $19,679 $(8,733) $2,125,758
========== ========== ========== ==========
</TABLE>
The components of realized investment securities gains and losses for 1993,
1992 and 1991 are as follows:
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
___________________________________________________________________________
<S> <C> <C> <C>
Gross realized investment securities gains $7,469 $56,977 $ 4,977
Gross realized investment securities losses (464) (4,224) (7,867)
______ _______ _______
Investment securities gains (losses) $7,005 $52,753 $(2,890)
====== ======= =======
</TABLE>
<PAGE>53 2of2
At December 31, 1993, a maturity distribution of the book and quoted market
values and weighted average interest rates of the securities portfolio are as
follows:
<TABLE>
<CAPTION>
December 31, 1993
_______________________________________________________
Obligations Obligations
of U.S. of States
U.S.Treasury Government and Political Other
(In thousands) Securities Agencies Subdivisions Securities
____________ __________ _____________ __________
<S> <C> <C> <C> <C>
0-1 Year
Book value $ 703,313 $ 48,278 $18,612 $ 1,750
Market value 703,283 48,341 18,616 1,750
Average yield(1) 3.26% 5.93% 3.15% 6.07%
1-5 Years
Book value $ 575,197 $ 741,304 $ 844 $ 2,103
Market value 575,541 743,442 844 2,106
Average yield(1) 4.26% 6.01% 5.89% 5.89%
5-10 Years
Book value $ 201 $ 242,626 $ 552 $ 1,344
Market value 201 246,746 552 1,349
Average yield(1) 4.00% 6.90% 5.53% 5.97%
10+ Years
Book value $ -- $ 51,466 $ 4,657 $36,405
Market value -- 54,209 4,095 36,286
Average yield(1) --% 8.46% 5.50% 4.92%
No maturity(2)
Book value $ -- $ -- $ -- $26,758
Market value -- -- -- 30,432
____________ __________ _____________ __________
Total
Book value $1,278,711 $1,083,674 $24,665 $68,360
Market value 1,279,025 1,092,738 24,107 71,923
Average yield(1) 3.71% 6.32% 3.74% 5.05%
============ ========== ============= ==========
<FN>
(1) Average yields are computed on a yield-to-maturity basis and the total
average yield excludes securities with no maturity.
(2) Investment securities with no stated maturity include Federal Reserve
Bank stock and other equity securities.
</TABLE>
Investment securities carried at $849.562 million at December 31, 1993 and
$837.598 million at December 31, 1992 were pledged for fiduciary powers,
securities sold under repurchase agreements, and other purposes required by
law. Trading account securities included in obligations of states and
political subdivisions aggregated $19.384 million and $6.664 million at
December 31, 1993 and 1992, respectively. At December 31, 1993, Midlantic had
aggregate investments with the Federal Home Loan Mortgage Corporation and the
Federal National Mortgage Association ("FNMA"), which comprised 61 percent and
34 percent of shareholders' equity, respectively.
<PAGE>54 1of2
CONSOLIDATED NOTES (continued)
5. LOANS
Loans at December 31, 1993 and 1992 consist of the following:
<TABLE>
<CAPTION>
(In thousands) 1993 1992
_______________________________________________________________
<S> <C> <C>
Commercial and financial $2,897,656 $3,467,033
Real estate
Construction and development 834,013 1,497,447
Long-term commercial mortgage 1,664,757 1,915,445
Long-term 1-4 family residential 636,632 454,347
Loans to individuals 2,415,391 1,635,493
Foreign 3,492 80,274
__________ __________
Total loans 8,451,941 9,050,039
Less: unearned income* 137,110 95,882
__________ __________
Total loans, net of unearned income 8,314,831 8,954,157
Less: allowance for loan losses 394,450 663,901
__________ __________
Net loans $7,920,381 $8,290,256
========== ==========
<FN>
*Includes net deferred loan fees of $9.642 million in 1993 and $11.234 million
in 1992.
</TABLE>
6. ALLOWANCE FOR LOAN LOSSES
An analysis of the allowance for loan losses for 1993, 1992 and 1991 is as
follows:
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
___________________________________________________________________
<S> <C> <C> <C>
Balance at beginning of period $ 663,901 $ 841,692 $ 737,122
Allowances related to
subsidiaries sold (712) (41,413) (57,237)
Charge-offs on loans sold in
bulk sales or transferred to
assets held for accelerated
disposition (181,863) -- --
Provision charged to operating
expense 79,000 137,939 640,402
Recoveries on loans 33,542 44,708 34,654
Loans charged off (199,418) (319,025) (513,249)
_________ _________ _________
Balance at end of period $ 394,450 $ 663,901 $ 841,692
========= ========= =========
</TABLE>
<PAGE>54 2of2
7. LOANS TO RELATED PARTIES
Loans to related parties include loans made to directors and executive officers
(and to any associates of such persons) of MC, MBI, MNB and CB. Associates of
a director or executive officer include his immediate family and any
corporation, venture or organization of which such director or executive
officer is a general partner or is, directly or indirectly, the beneficial
owner of ten percent or more of any class of equity securities. The following
analysis shows the activity of related party loans for 1993:
<TABLE>
<CAPTION>
(In thousands)
_______________________________________________________________
<S> <C>
Balance at December 31, 1992 $ 148,342
Additions 244,180
Repayments (249,919)
Other reductions* (179)
_________
Balance at December 31, 1993 $ 142,424
=========
<FN>
*Represents removal of one loan to a former executive officer of Midlantic.
</TABLE>
At December 31, 1993, there were no related party loans classified as
nonaccrual.
8. NONACCRUAL LOANS
Nonaccrual loans at December 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
(In thousands) 1993 1992
_________________________________________________________________________
<S> <C> <C>
Nonaccrual loans
Commercial and financial $114,632 $208,442
Real estate
Construction and development 50,143 373,344
Long-term commercial mortgage 63,431 173,572
Long-term 1-4 family residential 4,489 4,798
Loans to individuals 32,604 47,500
Foreign -- 2,013
________ ________
Total nonaccrual loans $265,299 $809,669
======== ========
Impact on income
Interest income that would have been recorded
during the year on nonaccrual loans outstanding
at period-end in accordance with original terms $ 27,904 $ 68,130
Less: interest income actually recorded on such
nonaccrual loans during the year 4,933 7,304
________ ________
Loss of interest income on nonaccrual
loans outstanding at period-end $ 22,971 $ 60,826
======== ========
</TABLE>
<PAGE>55 1of2
Midlantic Corporation and Subsidiaries
9. RENEGOTIATED LOANS
Renegotiated loans at December 31, 1993 and 1992 are as follows:
<TABLE>
<CAPTION>
(In thousands) 1993 1992
__________________________________________________________________________
<S> <C> <C>
Renegotiated loans $172,058 $159,685
======== ========
Impact on income
Interest income that would have been recorded
during the year on renegotiated loans outstanding
at period-end in accordance with original terms $ 9,970 $ 8,258
Less: interest income actually recorded on
such renegotiated loans during the year 8,092 5,506
________ ________
Loss of interest income on renegotiated
loans outstanding at period-end $ 1,878 $ 2,752
======== ========
</TABLE>
The loans presented in the above table are performing in accordance with their
new terms. At December 31, 1993, unused commitments to extend credit on
renegotiated loans amounted to $27.000 million.
10. PREMISES AND EQUIPMENT, NET
At December 31, 1993 and 1992, premises and equipment, net, consist of the
following:
<TABLE>
<CAPTION>
(In thousands) 1993 1992
___________________________________________________________________________
<S> <C> <C>
Land $ 24,946 $ 25,681
Buildings 133,501 133,633
Vaults, equipment and fixtures 196,132 190,864
Leasehold improvements 45,400 43,855
Capitalized leases 12,067 12,067
________ ________
412,046 406,100
Less: allowance for depreciation and amortization 256,917 237,470
________ ________
$155,129 $168,630
======== ========
</TABLE>
<PAGE>55 2of2
11. OTHER ASSETS
At December 31, 1993 and 1992, other assets consist of the following:
<TABLE>
<CAPTION>
(In thousands) 1993 1992
_______________________________________________________________
<S> <C> <C>
Assets held for accelerated disposition $158,157 $ --
Receivables purchased under factoring
arrangements, net 118,254 102,009
Goodwill 93,799 99,891
Accrued interest receivable 77,281 80,442
Other intangibles 10,464 31,136
Other 119,349 127,415
________ ________
$577,304 $440,893
======== ========
</TABLE>
At December 31, 1993, the Corporation identified loans and OREO with an
aggregate book value of $292.236 million which it placed for possible bulk
sale. The assets for sale were reclassified to other assets at net realizable
value of $158.157 million. The sales of these assets (which primarily
represent real estate development loans and holdings of land in New Jersey and
Pennsylvania) are expected to be finalized in 1994 and are subject to
successful negotiation of terms including price, execution of definitive
agreements and satisfaction of closing conditions. No assurance can be given
that the bulk sale of these assets will be consummated or that, if
consummated, all of the assets presently anticipated to be included in such
bulk sales will be sold.
12. ALLOWANCE FOR OREO
An analysis of the allowance for OREO for 1993, 1992 and 1991 is as follows:
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
________________________________________________________________________
<S> <C> <C> <C>
Balance at beginning of period $ 46,101 $ 48,609 $ 42,035
Allowances related to subsidiaries sold -- (1,250) (1,128)
Charge-offs on OREO sold in bulk sales
or transfered to assets held for
accelerated disposition (77,027) -- --
Provision charged to operating expense 130,545 77,132 102,038
Write-downs to net realizable value
(fair value in 1991) (62,587) (78,390) (94,336)
________ ________ ________
Balance at end of period $ 37,032 $ 46,101 $ 48,609
======== ======== ========
</TABLE>
<PAGE>56 1of2
CONSOLIDATED NOTES (continued)
13. DEPOSITS
The following shows the time remaining to maturity of domestic time
certificates of deposit of $100,000 or more at December 31, 1993:
<TABLE>
<CAPTION>
(In thousands)
_______________________________________________________________
<S> <C>
Three months or less $148,328
Over three through six months 33,973
Over six through twelve months 4,092
Over twelve months 20,029
________
$206,422
========
</TABLE>
The majority of overseas branch deposits is in denominations of $100,000 or
more.
14. SHORT-TERM BORROWINGS
At December 31, 1993, 1992 and 1991, short-term borrowings consist of the
following:
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
_______________________________________________________________________________________________
<S> <C> <C> <C>
Federal funds purchased
At December 31 - Balance $ 34,754 $ 50,605 $ 86,480
- Weighted average interest rate 3.03% 2.87% 4.13%
During the year- Maximum outstanding at any month-end $ 80,880 $101,220 $172,585
- Daily average 46,726 65,584 138,245
- Weighted average interest rate paid 2.99% 3.52% 6.65%
Securities sold under repurchase agreements
At December 31 - Balance $609,743 $286,492 $356,964
- Weighted average interest rate 3.13% 2.83% 3.74%
During the year- Maximum outstanding at any month-end $609,743 $459,616 $725,307
- Daily average 318,985 408,755 583,957
- Weighted average interest rate paid 2.91% 3.22% 5.55%
Other borrowings
At December 31 - Balance $ 30,000 $ 33,621 $144,688
- Weighted average interest rate 2.71% 2.41% 2.41%
During the year- Maximum outstanding at any month-end $ 34,920 $150,789 $255,608
- Daily average 28,680 50,861 185,963
- Weighted average interest rate paid 3.12% 3.72% 4.91%
======== ======== ========
</TABLE>
<PAGE>56 2of2
Included in securities sold under repurchase agreements at December 31, 1993
was $244.177 million of borrowings (with a maturity of 364 days) which
Midlantic assumed under a security lending program. Under the security
lending program, the Corporation made available to an unaffiliated third
party, tax-exempt income on certain loans and invested the proceeds in higher-
yielding taxable securities. The program is structured to allow Midlantic the
opportunity to reacquire the loans at a future date. The transaction is
reported as a borrowing with the tax-exempt loans remaining on Midlantic's
consolidated balance sheet and the proceeds reported in short-term borrowings.
Most federal funds purchased mature in one day and, with the exception of the
previously mentioned borrowings related to the security lending program, the
majority of securities sold under repurchase agreements mature within 30 days.
Other borrowings consist principally of demand notes to the U.S. Treasury and
short-term borrowings with other banks.
At December 31, 1991, other borrowings included $79.315 million of borrowings
of MHMC which was divested during 1992 (see Note 2).
15. LONG-TERM DEBT
At December 31, 1993 and 1992, long-term debt consists of:
<TABLE>
<CAPTION>
(In thousands) 1993 1992
______________________________________________________________________________________
<C> <C> <C>
9.20% Subordinated Capital Notes Due August 1, 2001 $100,000 $100,000
9.875% Subordinated Capital Notes Due December 1, 1999 100,000 100,000
9 1/4% Notes Due September 1, 1999 100,000 100,000
8 1/4% Convertible Subordinated Debentures Due July 1, 2010 75,000 75,000
11.35% Notes due March 1, 1993 -- 50,000
7 3/4% Debentures due March 1, 1998 (redeemed in January, 1994) 11,752 12,112
________ ________
$386,752 $437,112
======== ========
</TABLE>
<PAGE>57 1of2
Midlantic Corporation and Subsidiaries
In January 1994, the Corporation redeemed the remaining outstanding 7 3/4%
debentures at par value totalling $11.752 million. During the next five years
(1994-1998) there are no scheduled principal payments or maturities on any
long-term obligations.
The 9 1/4% notes are unsecured, rank on a parity with all other unsecured and
unsubordinated indebtedness of MC and are not redeemable prior to maturity.
The 9.20% and 9.875% subordinated capital notes are to be exchanged at maturity
for common stock or perpetual preferred stock of MC having a market value
equal to the principal amount of the notes or, upon satisfaction of certain
conditions, MC may elect to repay the notes in cash. As defined in the
indenture covering the notes, MC may exercise this election to the extent it
has issued capital securities and designated proceeds. The notes may not be
exchanged or redeemed prior to maturity, except upon the occurrence of certain
events relating to the federal income tax treatment of the notes.
The 8 1/4% debentures are convertible into MC common stock at any time on or
before maturity unless previously redeemed, at a conversion price of $48 per
share, subject to adjustments in certain events. The debentures are
redeemable by MBI at a price equal to 102.25% of principal amount and at
prices declining to 100% of principal amount on and after July 1, 1996.
The 8 1/4% debentures are subordinated to all current and future indebtedness
of MBI and the 9.20% and 9.875% notes are subordinated to all current and
future indebtedness of MC only for borrowed money and certain other
indebtedness unless such future indebtedness is specified as not superior in
right of payment to the 8 1/4% debentures or the 9.20% or 9.875% notes. The
8 1/4% debentures are senior in right of payment to MC's 9.20% and 9.875% notes.
MC is jointly and severally liable with MBI for the 8 1/4% debentures and had
guaranteed performance of all obligations of MBI pursuant to the indenture for
MBI's 7 3/4% debentures.
The indentures under which MC's 9.20% and 9.875% subordinated notes and 9 1/4%
notes were issued limit the sale or other disposition of the voting stock or
assets of MNB and CB or the merger or consolidation of MNB or CB with an
unaffiliated corporation. The indentures under which MBI's 8 1/4% debentures
were issued impose similar restrictions with respect to its subsidiary, MNB.
The indenture under which the 7 3/4% debentures were issued placed restrictions
on the incurrence of liens, the sale of shares of, and the issuance of
preferred stock by, bank and certain nonbank subsidiaries and the payment of
dividends and other distributions.
<PAGE>57 2of2
16. CAPITAL STOCK
Preferred stock
- ---------------
MC's Term Adjustable Rate Cumulative Preferred Stock - Series A ("Preferred
Stock-A"), no par value, had an annual dividend rate of 7.625% in 1991 and the
first quarter of 1992 and was 7.25% for the remainder of 1992 and 1993, based
upon a $100 stated value per share. On July 22, 1992, pursuant to an
agreement with the sole holder of Preferred Stock-A, MC issued 169,621 shares
of its common stock in full satisfaction of $2.859 million of preferred
dividends in arrears in lieu of cash dividends. Future quarterly dividends on
Preferred Stock-A may be paid, at MC's option, in cash or common stock,
subject to certain limitations. When paid through the issuance of common
stock, the number of shares is determined based upon the average market price
of MC common stock for the five business days immediately preceding the date
the dividend is declared. The dividend rate of 7.25% will remain in effect
for dividend periods commencing prior to April 1, 1997. The dividend rate
thereafter is adjusted in relationship to rates derived from certain U.S.
Treasury obligations, but in no event shall the annual dividend rate be less
than 6% or more than 12%. The Preferred Stock-A can be redeemed solely at the
option of MC at a redemption price of $100 per share plus accrued and unpaid
dividends to the date of redemption provided, however, that prior approval for
redemption must be obtained from the Federal Reserve Bank of New York ("FRB").
Preferred Stock-A has a liquidation value of $100 per share plus accrued and
unpaid dividends to the date of final distribution prior to any distribution
to holders of the common stock of MC. No dividends may be paid on the common
stock of MC unless full cumulative dividends on all outstanding shares of
Preferred Stock-A have been paid or declared and set aside for payment for all
dividend periods. On December 22, 1993, the Board of Directors (the "Board")
of MC declared a dividend on Preferred Stock-A of $906 thousand, representing
full payment of the fourth quarter 1993 dividend requirement, payable in the
first quarter of 1994 through the issuance of 35,776 common shares of MC. The
fourth quarter dividend, which solely affects equity accounts, will be
reflected in MC's financial statements in the first quarter of 1994. Pursuant
to the agreement with the sole holder of Preferred Stock-A, MC was not in
arrears on dividends on Preferred Stock-A at both December 31, 1993 and 1992.
Common stock
- ------------
On May 4, 1993, MC issued, through a public offering, 5.750 million shares of
common stock for a net cash price of $107.140 million.
On August 13, 1992, pursuant to an agreement entered into with Fox-Pitt, Kelton
N.V. ("FPK"), an international investment banking firm, FPK purchased 6.6
million shares of MC common stock for a net cash price of $94.128 million.
On August 24, 1992, five United States investors purchased, through a private
placement, a total of 1.050 million shares of MC common stock for an aggregate
cash price of $15.356 million.
<PAGE>58 1of2
CONSOLIDATED NOTES (continued)
17. STOCK PURCHASE RIGHTS
The stock purchase rights ("Rights") are equivalent to one Right for each
outstanding common share of MC and will be exercisable if a person or group
acquires beneficial ownership of 15 percent or more of MC's outstanding common
stock or voting securities, or commences a tender or exchange offer that would
result in such person or group acquiring beneficial ownership of 15 percent or
more of MC's outstanding common stock or voting securities. Each Right will
initially entitle its holder to buy one one-hundredth of a share of a new
series of participating preferred stock of MC at an exercise price of $125.
In the event a person or group acquires 15 percent or more of the common stock
or voting securities of MC (except in transactions approved by the Board) or
thereafter MC is acquired in a merger or other business combination or more
than 50 percent of its assets, earning power or cash flow is sold, each Right
will then entitle its holder to acquire shares of MC or the acquiring person,
as the case may be, having a value of twice the Right's exercise price. MC
may redeem the Rights at $.01 per Right any time until the tenth business day
following public announcement that a 15 percent position has been acquired.
The Rights will expire on March 12, 2000.
18. FINANCIAL INSTRUMENTS FAIR VALUE
FAS No. 107 "Disclosures about Fair Value of Financial Instruments" requires
the disclosure of the fair value of financial instruments, both recognized and
unrecognized on the consolidated balance sheet, for which it is practicable to
estimate fair value. A financial instrument is defined as cash, evidence of
an ownership interest in an entity, or a contract that both: (i) imposes on
one entity a contractual obligation to deliver cash or another financial
instrument to a second entity or to exchange other financial instruments on
potentially unfavorable terms with the second entity; and (ii) conveys to that
second entity a contractual right to receive cash or another financial
instrument from the first entity or to exchange other financial instruments on
potentially favorable terms with the first entity.
In determining the fair value of financial instruments, FAS No. 107 requires
the use of quoted market prices, if available. In situations where quoted
market prices are not available, fair values are based on Midlantic's best
estimate of fair value using techniques that include the present value of
future cash flows. Those techniques are significantly affected by the
assumptions used, including projections of future cash flows and discount
rates. Changes in either the assumptions used or the discount rates could
have a material impact on the calculated fair values of these financial
instruments. Midlantic's estimate of fair value for certain financial
instruments cannot be substantiated by comparison to independent markets, nor
may the estimated fair value represent the amounts that would actually be
realized in the sale or liquidation of the financial instrument. Furthermore,
Midlantic's assumptions about the fair value of financial instruments are
based on estimates of market conditions at the balance sheet date and do not
reflect changes in those conditions subsequent to that date. FAS No. 107
permits the use of simplified assumptions in order to provide a reasonable
estimate of fair value at a reasonable cost. FAS No. 107 excludes certain
financial instruments from its scope, does not estimate the value of
anticipated future operations and excludes all nonfinancial instruments from
its disclosure requirements. For these and other reasons, the aggregate fair
<PAGE>58 2of2
value of financial instruments presented do not represent the underlying value
of Midlantic taken as a whole and should not be compared to the fair value of
other financial institutions, which may differ depending upon the assumptions
made and the valuation techniques employed.
The inherent volatility of the fair value of financial instruments is, in part,
created by changes in market interest rates. Midlantic manages interest rate
risk as part of its overall asset and liability management process. It is a
result of that process that unrealized gains or losses on the asset side of
the balance sheet will, to some degree, offset unrealized gains or losses on
the liability side. Certain unrealized gains as measured under FAS No. 107
may not always be actualized by Midlantic due to liquidity needs, contractual
restrictions and favorable terms relative to what would be currently
negotiated in the market.
The following methods and significant assumptions were used to estimate the
fair value of Midlantic's financial instruments:
Cash And Due From Banks And Money Market Investments - The carrying amounts
reported in the consolidated balance sheet represent a reasonable estimate of
those assets' fair values. Money market investments primarily mature in six
months or less and do not present unanticipated credit concerns.
Investment Securities - Fair values are based on quoted market prices, if
available. If quoted market prices are not available, fair values are based
on quoted market prices of comparable instruments.
Loans - The fair value of loans is determined by segmenting the loan portfolio
based on loan type, credit quality and interest rate repricing
characteristics. Performing variable rate loans, which are primarily indexed
to the prime rate, have a fair value equal to the present value of future
projected cash flows, discounted at the current spread over prime, reduced for
credit risk by estimating future credit losses. The fair value of performing
fixed rate loans is based upon the present value of future projected cash
flows. Discount rates used in estimating fair value for fixed rate
installment loans are based upon the current rates offered by Midlantic for
similar loans with the same remaining maturities. Discount rates used in
estimating fair value for fixed rate loans other than installment loans are
derived from corporate debt yields with comparable remaining maturities and
similar credit grades, adjusted for servicing costs. The fair value of
nonaccrual loans is based upon either: (i) an individual loan valuation for
collateral dependent loans utilizing a discounted cash flow analysis of the
underlying collateral using a rate estimated to be commensurate with the risk
involved; or (ii) management's estimate of the
<PAGE>59 1of2
Midlantic Corporation and Subsidiaries
expected cash flows for noncollateral dependent loans using an interest rate
estimated to be commensurate with the risk involved. Midlantic has and may
continue to securitize segments of its loan portfolio and has also sold, or
identified for sale, certain problem loans in bulk transactions; however, the
loan portfolio is generally intended to be held until maturity and unrealized
gains and losses are not expected to be realized in the ordinary course of
business.
Other Assets - Financial instruments included in other assets consist of
accrued interest receivable and amounts due from customers on acceptances
(both of which have a carrying value that approximates fair value due to their
short-term maturities) and excess servicing fee receivables (which have a fair
value approximating carrying value as they are periodically adjusted to
approximate market). Other assets also include assets held for accelerated
disposition. The carrying amounts of the loans included in this
classification approximate those assets' fair values net of the estimated
costs of sale.
Deposits - The fair values of noninterest-bearing demand deposits, interest-
bearing demand deposits and savings accounts are, by definition under FAS No.
107, the amount payable on demand at the balance sheet date. The carrying
amounts for variable rate deposits represent a reasonable estimate of fair
value. The fair value of fixed rate certificates of deposit is based on the
discounted value of the future expected cash flows. Discount rates are based
on the current rates offered by Midlantic for similar deposits with the same
remaining maturities.
Short-term Borrowings - The carrying amounts reported in the balance sheet
represent a reasonable estimate of fair value as these borrowings primarily
mature in six months or less.
Other Liabilities - Financial instruments included in other liabilities consist
of accrued interest payable and bank acceptances outstanding which have a
carrying value that approximates fair value due to their short-term maturities.
Long-term Debt - Midlantic's long-term debt instruments are publicly traded and
quoted market prices are used to estimate fair value.
Off-balance Sheet Financial Instruments - The fair value of unused commitments
to extend credit and letter of credit agreements is based upon the fees
currently charged to enter into similar agreements which take into account the
remaining maturities of the agreements and credit risk. The fair value of
such instruments represents a liability to Midlantic since these instruments
are an obligation of the issuer even though such instruments generate income
through the fees charged. The fair value of interest rate swaps and forward
rate agreements are based upon quoted market prices obtained from dealers.
The fair value of foreign exchange contracts represents the amount that
Midlantic would receive, using quoted market prices, if the contracts were
settled and Midlantic had been required to purchase or sell the foreign
currencies on its own account.
<PAGE>59 2of2
The estimated fair values of the Corporation's consolidated balance sheet
financial instruments are as follows:
<TABLE>
<CAPTION>
(In thousands) 1993 1992
_______________________________________________________________________
<S> <C> <C>
Financial assets
Cash and due from banks and money market
investments $ 2,491,781 $ 2,794,875
Investment securities 2,467,793 2,114,812
Loans* 8,164,308 8,591,500
Other assets 219,221 133,203
Financial liabilities
Deposits* 11,635,613 12,622,198
Short-term borrowings 674,497 370,718
Other liabilities 20,106 81,023
Long-term debt 426,627 409,422
=========== ===========
<FN>
* The weighted average discount rate used in the discounted cash flow
calculations for loans was equal to 6.72 percent compared to a weighted
average contractual yield of 7.45 percent in 1993 and a discount rate of
7.19 percent compared to a contractual yield of 8.37 percent in 1992. The
weighted average discount rate used in the discounted cash flow calculations
for deposits was equal to 2.60 percent compared to a weighted average
contractual yield of 4.08 percent in 1993 and a discount rate of 3.23
percent compared to a contractual yield of 4.85 percent in 1992. The
weighted average contractual yields do not include benefits realized (if
any) from interest rate swap positions.
</TABLE>
The estimated fair values of Midlantic's financial instruments, whose notional
amounts are not recorded in the consolidated balance sheet at December 31,
1993 and 1992, are as follows:
<TABLE>
<CAPTION>
(In thousands) 1993 1992
_____________________________________________________________________________________________________
<S> <C> <C>
Asset (liability)
Unused commitments to extend credit $(18,654) $(17,735)
Financial standby letters of credit and similar arrangements (561) (1,461)
Performance standby letters of credit and similar arrangements (1,572) (1,123)
Commercial letters of credit and other short-term trade-related contingencies (122) (124)
Interest rate swaps, net 87,883 9,410
Forward interest rate swap agreements 4,875 --
Foreign exchange contracts --* --*
======== ========
<FN>*The fair value of foreign exchange contracts at both December 31, 1993 and 1992 has been determined to be insignificant.
</TABLE>
The fair value of Midlantic's loan portfolio is in excess of its carrying value
primarily because the unallocated portion of the allowance for loan losses
includes consideration of credit losses related to other financial
instruments, largely unused commitments to extend credit and letters of
credit. Further, the total fair value of loans has been favorably affected by
the low interest rate environment, which similarly had a negative impact on
the fair value of deposits.
<PAGE>60 1of2
CONSOLIDATED NOTES (continued)
19. INCENTIVE AND PROFIT SHARING PLANS
Midlantic has a formal plan that provides for the granting to key employees
supplementary compensation in the form of awards of MC common stock, incentive
or nonqualified stock options to purchase MC common stock and stock
appreciation rights or a combination thereof. MC common stock can be
purchased through incentive or nonqualified stock options at not less than the
fair market value on the dates the options are granted, but in no event less
than the par value of MC common stock. The stock appreciation rights, which
relate to specific options granted, permit the qualifying employee, under
certain limitations, to exercise a right, in lieu of the related option, to
receive in cash or MC common stock an amount equal to the excess of the fair
market value of the shares subject to such options over the option price per
share. At December 31, 1993, MC had reserved 3,272,319 shares of authorized
common stock for issuance in connection with outstanding nonqualified or
incentive stock options under its current plan and predecessor plans and those
shares which remain available for grant as stock awards or options.
Data with respect to outstanding options follows:
<TABLE>
<CAPTION>
Number of Number of
Options Options
Outstanding at Exercise Outstanding at Exercise
Date of Grant December 31,1993 Price Date of Grant December 31, 1993 Price
_____________________________________________________________________________________________________
<S> <C> <C> <S> <C> <C>
May 16, 1984 15,941 $17.84 July 17, 1991 80,000 $ 5.63
June 20, 1984 8,600 22.50 September 20, 1991 80,000 6.25
May 15, 1985 24,151 24.31 October 16, 1991 40,000 6.00
June 19, 1985 12,200 39.38 November 20, 1991 27,000 5.56
May 21, 1986 21,377 44.67 February 25, 1992 80,000 7.94
June 18, 1986 17,750 49.69 May 20, 1992 50,000 11.63
January 18, 1990 354,604 27.82 June 17, 1992 899,850 12.50
January 18, 1990 58,600* 27.82 July 21, 1992 3,000 15.88
June 20, 1990 2,800 15.50 September 16, 1992 6,000 13.81
January 16, 1991 35,500 3.25 December 16, 1992 7,500 17.25
April 11, 1991 200,000 6.81
<FN>
*Stock appreciation rights are associated with these options.
</TABLE>
Subject to certain exceptions, options generally become exercisable one year
after date of grant and expire ten years after date of grant, unless earlier
terminated, pursuant to the terms of the relevant plan or option agreement.
<PAGE>60 2of2
<TABLE>
<CAPTION>
Weighted
Average
Price
Nonqualified and Incentive Stock Options Shares per Share
__________________________________________________________________________
<S> <C> <C>
Outstanding at January 1, 1991 1,025,482 $30.18
_________ ______
Granted in 1991 741,700 5.48
Cancelled in 1991 (157,234) 26.36
Expired in 1991 (4,576) 12.64
_________ ______
Outstanding at December 31, 1991 1,605,372 19.19
_________ ______
Granted in 1992 1,130,000 12.19
Cancelled in 1992 (398,343) 26.02
Exercised in 1992 (144,500) 4.24
_________ ______
Outstanding at December 31, 1992 2,192,529 15.32
_________ ______
Cancelled in 1993 (78,193) 27.30
Exercised in 1993 (86,314) 10.91
Expired in 1993 (3,149) 17.97
_________ ______
Outstanding at December 31, 1993 2,024,873 $15.04
========= ======
</TABLE>
During 1993, the Corporation established a 401(k) employee savings plan to
provide for defined contributions and named it the Midlantic Savings and
Investment Plan which covers substantially all employees of MC and its
subsidiaries. Midlantic's contributions to the plan are a matching percentage
of each employee's contribution up to 3.0 percent of the employee's salary.
An additional contribution of up to 2.0 percent may be made, subject to
certain conditions. Employer contributions to the plan amounted to $1.884
million in 1993.
<PAGE>61 1of3
Midlantic Corporation and Subsidiaries
20. PENSION PLAN
The following table sets forth the funded status and amounts recognized in the
consolidated balance sheet for Midlantic's pension plan at December 31, 1993
and 1992:
<TABLE>
<CAPTION>
(In thousands) 1993 1992
____________________________________________________________________________________________________
<C> <C> <C>
Actuarial present value of benefit obligations
Accumulated benefit obligation, including vested
benefits of $201,160 and $185,502 in 1993 and
1992, respectively $ 205,251 $ 188,274
========== =========
Projected benefit obligation $ (229,918) $(209,220)
Plan assets at fair value* 265,596 251,867
__________ _________
Plan assets at fair value in excess of projected benefit plan obligation 35,678 42,647
Unrecognized net gain (12,170) (19,629)
Prior service cost not yet recognized in net periodic pension cost 13,394 16,815
Unrecognized net assets at January 1 being recognized over 10 years (21,483) (25,289)
__________ _________
Prepaid pension cost recognized in the consolidated balance sheet $ 15,419 $ 14,544
========== =========
<FN>
*Primarily comprised of equity and stock funds, fixed income funds, short-term funds, and U.S.
government and agency obligations.
</TABLE>
Net pension (credit) cost for 1993, 1992, and 1991 for Midlantic included the
following components:
<TABLE>
<CAPTION>
(In thousands) 1993 1992 1991
_____________________________________________________________________________________
<S> <C> <C> <C>
Service cost of benefits earned during the period $ 5,797 $ 7,548 $ 7,514
Interest cost on projected benefit obligation 16,251 15,931 16,243
Actual return on plan assets (27,656) (23,295) (48,797)
Net amortization and deferral 4,725 (811) 27,236
________ ________ ________
Net pension (credit) cost $ (883) $ (627) $ 2,196
======== ======== ========
</TABLE>
The weighted average discount rate was 7.5 percent in 1993, 8.0 percent in
1992 and 8.5 percent in 1991 and the rate of increase in future compensation
levels was 5.0 percent for 1993 and 4.0 percent in both 1992 and 1991 which
were used in the calculation of the actuarial present value of the projected
benefit obligation of Midlantic. The expected long-term rate of return on
assets was 8.5 percent in 1993 and 9.0 percent in both 1992 and 1991.
<PAGE>61 2of3
As a result of the divestiture of Merchants, Union, Central, Endicott and MHMC
and the termination of employees through the FOCUS '92 program, Midlantic
recognized pension curtailment gains of $6.499 million and pension settlement
losses of $1.273 million in 1992. In 1991, Midlantic recognized pension
curtailment and settlement gains totalling $2.910 million and $1.375 million,
respectively, relating to the divestiture of York and United.
21. POSTRETIREMENT BENEFITS
Midlantic offers health care and life insurance benefits (although it has no
contractual obligation to do so) to employees who retire from the Corporation
at age 55 or later and who meet certain eligibility requirements. The
postretirement health care plan costs are shared between the Corporation and
its retired employees. The postretirement life insurance plan is
noncontributory. The plans are funded through a Voluntary Employee
Beneficiary Association trust and postretirement benefit claims are paid as
incurred.
The following table reconciles the funded status of the postretirement plans to
the amounts recognized in the consolidated balance sheet at December 31, 1993:
<TABLE>
<CAPTION>
(In thousands)
__________________________________________________________________________________
<S> <C>
Accumulated postretirement benefit obligation ("APBO")
Retirees $ 49,872
Fully eligible active plan participants 5,391
Other active plan participants 12,975
________
Total accumulated postretirement benefit obligation $ 68,238
========
Plan assets at fair value $ --
Accumulated postretirement benefit obligation in excess of plan assets 68,238
Unrecognized net gain 4,845
Unrecognized transition obligation (66,918)
________
Accrued postretirement benefit cost $ 6,165
========
</TABLE>
The components of net periodic postretirement benefit cost accrued for 1993
include the following:
<TABLE>
<CAPTION>
(In thouands)
__________________________________________________________________________
<S> <C>
Service cost of benefits earned during the period $ 1,423
Interest cost on accumulated postretirement benefit obligation 5,390
Amortization of transition obligation over 20 years 3,522
________
Net periodic postretirement benefit cost $ 10,335
========
</TABLE>
<PAGE>61 3of3
Postretirement benefits expensed as incurred totalled $6.311 million and $5.737
million in 1992 and 1991, respectively.
The weighted-average discount rate used in determining the APBO was 7.0
percent. The health care cost trend rate used to measure the expected cost of
benefits covered by the plans for 1994 is 5.0 percent and future increases in
such costs are, thereafter, capped at 5.0 percent. The expected trend in
health care costs is expected to exceed the 5.0 percent cap indefinitely,
therefore, the impact of a 1.0 percent increase in the assumed health care
cost trend rates on the Corporation's future cost and the APBO at December 31,
1993 is insignificant.
<PAGE>62 1of2
CONSOLIDATED NOTES (continued)
22. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK OR CONCENTRATIONS OF
CREDIT RISK
In the normal course of business, there are various financial instruments which
are properly not recorded in the consolidated financial statements.
Midlantic's risk of accounting loss due to the credit risks and market risks
associated with these off-balance sheet instruments varies with the type of
financial instrument. Principal or notional amounts may not necessarily
indicate the degree of exposure involved. Credit risk represents the
possibility of a loss occurring from the failure of another party to perform
in accordance with the terms of a contract. Market risk represents the
possibility that future changes in market prices may make a financial
instrument less valuable or more onerous.
The following table summarizes the notional amounts of Midlantic's significant
off-balance sheet financial instruments at December 31, 1993 and 1992:
<TABLE>
<CAPTION>
(In thousands) 1993 1992
_________________________________________________________________________________________________________
<S> <C> <C>
Unused commitments to extend credit $2,691,026 $2,761,633
Financial standby letters of credit and similar arrangements 128,230 186,557
Performance standby letters of credit and similar arrangements 174,291 133,076
Commercial letters of credit and other short-term trade-related contingencies 48,993 49,470
Interest rate swaps 4,267,617 2,525,000
Forward interest rate swap agreements 300,000 --
Foreign exchange contracts 58,714 89,136
========== ==========
</TABLE>
Credit policies and procedures for commitments to extend credit and standby and
commercial letters of credit are the same as those applicable to loans and the
credit risk associated with these instruments is considered in management's
assessment of the adequacy of the allowance for loan losses.
Commitments to extend credit represent legally binding agreements to lend to a
customer at a specified rate with fixed expiration dates or other termination
clauses and generally have maturities ranging from less than one year to three
years. The collateral requirements, if any, vary depending upon the type of
commitment and creditworthiness of the customer. The nature of collateral
held varies with the type of commitment, but is usually in the form of real
estate, machinery and equipment, accounts receivable, securities and
inventory. Since many of the commitments normally expire without being drawn
upon, the total commitment amounts do not necessarily represent future cash
requirements for Midlantic. Commitment clauses are utilized which enable
Midlantic to control funding based upon the financial condition of the
customer or other contingencies and reduce the credit risk associated with
these obligations.
Financial standby letters of credit and similar arrangements are irrevocable
obligations to fund outstanding loans or debt instruments of customers in the
event of default of principal and/or interest payments to third parties. In
1993 and 1992, these instruments principally supported the debt of private
corporations.
<PAGE>62 2of2
Performance standby letters of credit and similar arrangements are irrevocable
obligations to fund, in the event of default, the contractual nonfinancial
performance of a customer to a third party.
Standby letters of credit generally have terms of one year, but may contain
renewal clauses at the option of Midlantic. Collateral requirements for
standby letters of credit are based upon a credit assessment of the customer
in conjunction with an evaluation of other credit extensions to that customer
and the type of collateral held is usually in the form of compensating
balances, securities, real estate, accounts receivable and inventory.
Commercial letters of credit and other short-term trade-related contingencies
are normally instruments with maturities of up to 180 days that are used to
facilitate the shipment of merchandise from exporter to importer (Midlantic's
customer) by ensuring payment directly by Midlantic to the exporter after
presentation of a draft or other documents in accordance with the instrument's
terms. The customer has a nonqualified obligation to reimburse Midlantic.
Midlantic may have the right, as security, to title and disposal of all
merchandise covered by the letter of credit, which reduces the credit risk
associated with these instruments.
The Corporation enters into interest rate swap arrangements for hedging
purposes. The notional amount listed in the table represents the base on which
interest due each counterparty is calculated. The notional amounts do not
represent values exchanged by the counterparties and are not recorded on the
balance sheet.
Under the contracts in which Midlantic receives a fixed rate of interest (on a
notional amount of $3.372 billion), as of December 31, 1993, the weighted
average rate to be paid was 3.44 percent while the weighted average rate to be
received was 5.36 percent. The variable rates are generally based on the 90
day LIBOR index (an internationally recognized interest rate index) and are
reset quarterly. Midlantic entered into these contracts in order to hedge
certain interest-earning assets and interest-bearing liabilities that have a
high degree of inverse rate correlation to the hedge instruments.
In the case of interest rate swap contracts under which Midlantic has agreed to
pay a fixed rate and receive a variable rate (representing a notional amount
of $898.5 million), the hedged items are generally investment securities
bearing fixed rates of interest and stated original maturities of five to
seven years. The purpose of these hedges is to reduce the risk that over the
term of the investment the yield on similar securities increase and
consequently the value of Midlantic's investment declines. At December 31,
1993, the weighted average rate to be paid on these contracts was 5.15 percent
and the weighted average rate to be received was 3.40 percent.
At December 31, 1993, Midlantic held a firm commitment for delivery on April 1,
1994, of $300.000 million of interest rate swap contracts.
Credit risk associated with interest rate swap contracts arises from the
potential for a counterparty to default on its obligations. Midlantic attempts
to limit credit risk by dealing with counterparties that are creditworthy.
All counterparties to contracts in place as of December 31, 1993 were
associated with organizations rated by independent
<PAGE>63 1of2
Midlantic Corporation and Subsidiaries
rating agencies as having investment grade securities outstanding. In addition,
Midlantic is presently seeking collateral to support any underlying credit
exposure and is now pursuing master netting agreements. These agreements will
provide for the net settlement of covered contracts with the same counterparty
in the event of default or other cancellation of the agreement. At December
31, 1993, Midlantic's estimated total credit exposure on all contracts
(including forward interest rate swap agreements) amounted to approximately $93
million.
Foreign exchange contracts and spot contracts are agreements in which a seller
agrees to deliver and a buyer agrees to purchase a foreign currency at a
future date. The exchange date, amount and rate are specified in the contract.
Foreign exchange contracts are generally for periods ranging from one week to
one year and usually require the customer to have a supporting line of credit,
whereas spot contracts usually have two day terms. Midlantic generally enters
into such agreements on behalf of its customers who provide the necessary
funding on or before the exchange date. Failure of a customer to fund the
contract and failure of a contract counterparty to buy/sell the contracted
foreign currency represent the credit risk associated with this instrument.
Market risk, resulting from possible fluctuations in currency exchange rates,
occurs when a customer or contract counterparty fails to fulfill his
obligation under the contract and Midlantic is then obligated to purchase or
sell the foreign currency on its own account. Losses on foreign exchange
contracts and spot contracts have been historically minimal.
Since Midlantic's predominant focus in mortgage lending has been to finance
real estate in its immediate market area, individual state concentrations of
credit risk exist in commercial mortgage loans (long-term commercial mortgages
and construction and development loans) in New Jersey and Pennsylvania.
Commercial mortgage lending in these states is similarly affected by economic
conditions such as housing and commercial development starts, building
occupancy rates and real estate values. At December 31, 1993 and 1992,
consolidated commercial mortgage loans, which are primarily secured by the
underlying real estate, totalled $2.499 billion and $3.413 billion,
respectively. New Jersey and Pennsylvania comprised 58.6 percent, and 31.0
percent, respectively, of the balance outstanding at year-end 1993. Gross
charge-offs on commercial mortgage loans in these states comprised the
majority of the consolidated mortgage amounts. Included in amounts disclosed
in the table, commitments to extend credit and standby letters of credit for
commercial mortgage loans in these states aggregated $361.390 million and
$32.289 million at December 31, 1993, respectively and $389.177 million and
$44.170 million at December 31, 1992, respectively.
23. OTHER COMMITMENTS AND CONTINGENCIES
Minimum lease payments at December 31, 1993, under net noncancelable real
property operating lease commitments for succeeding years are: $14.705 million
in 1994; $13.621 million in 1995; $11.600 million in 1996; $9.071 million in
1997; $6.955 million in 1998; and $21.785 million thereafter. Operating
expenses include equipment and occupancy rentals of $18.833 million in 1993,
$22.418 million in 1992 and $24.924 million in 1991.
MC and various directors and former officers of MC are defendants in a
consolidated action, initially commenced in March 1990, pending in Federal
District Court in New Jersey (the "Action"). The Action has been instituted by
<PAGE>63 2of2
shareholders of MC, either on behalf of MC against various directors and
former officers of MC, or directly against MC and various directors and former
officers of MC. In general, the Action seeks damages payable either to MC or
to the shareholders and holders of certain debt securities because of alleged
discrepancies between certain public statements made by MC and later results
of MC's operations. The Action includes claims that certain actions of MC are
void. The claims are based upon alleged violations of the United States
securities laws and New Jersey common law. In their pleadings, plaintiffs do
not seek damages in a stated dollar amount.
Midlantic is subject to claims and lawsuits which arise primarily in the
ordinary course of business and the Action. Based upon information currently
available and advice received from legal counsel representing Midlantic in
connection with such claims, lawsuits and the Action, it is the opinion of
management that the disposition or ultimate determination of such claims,
lawsuits and the Action will not have a material adverse effect on the
consolidated financial position of Midlantic.
24. INCOME TAXES
Income tax (benefit) expense includes the following components:
<TABLE>
<CAPTION>
(In thousands) 1993* 1992 1991
_______________________________________________________________________________
<S> <C> <C> <C>
Current tax (benefit) expense
Federal $ (39,444) $ (97,390) $(171,471)
State 2,424 2,844 5,177
_________ _________ _________
Total current (37,020) (94,546) (166,294)
_________ _________ _________
Deferred tax (benefit) expense
Federal (55,524) 97,390 122,818
State (18,499) -- --
_________ _________ _________
Total deferred (74,023) 97,390 122,818
_________ _________ _________
Total income tax (benefit) expense $(111,043) $ 2,844 $ (43,476)
========= ========= =========
<FN>
*Excludes cumulative effect of the accounting change.
</TABLE>
<PAGE>64 1of3
CONSOLIDATED NOTES (continued)
A reconciliation of income taxes computed at the statutory federal income tax
rate to "income tax (benefit) expense" is as follows:
<TABLE>
<CAPTION>
(In thousands) 1993* 1992 1991
_____________________________________________________________________________
<C> <C> <C> <C>
Computed "expected" tax expense
(benefit) $ 7,124 $ 3,356 $(199,505)
Reduction in federal taxes resulting
from tax-exempt income (7,823) (13,124) (23,268)
Increase resulting from interest
incurred to carry tax-exempt
investments 450 947 1,877
Increase resulting from the
amortization of goodwill 2,133 2,009 6,053
Decrease resulting from purchase
accounting accretion income -- (3,757) (529)
State taxes on income, net of
federal tax benefit 3,502 1,877 3,417
Increase (decrease) resulting from
the sale of subsidiaries 425 (49,409) 47,976
Increase resulting from tax
benefits not recognized -- 60,334 121,111
Decrease resulting from reduction
of FAS No. 109 valuation allowance (109,998) -- --
Decrease resulting from federal tax
legislation and tax rate
differentials on loss carryback refunds (3,613) -- --
Other (3,243) 611 (608)
_________ ________ _________
Income tax (benefit) expense $(111,043) $ 2,844 $ (43,476)
========= ======== =========
<FN>
*Excludes cumulative effect of the accounting change.
</TABLE>
During 1993, deferred income taxes reflected the impact of differences between
the financial statements and income tax bases of assets and liabilities and
available tax carryforwards. The temporary differences and tax carryforwards
which created deferred tax assets and liabilities at December 31, 1993 are as
follows:
<PAGE>64 2of3
<TABLE>
<CAPTION>
(In thousands)
_______________________________________________________________
<S> <C>
DEFERRED TAX ASSETS
Loan loss provision $ 169,601
State net operating loss carryforwards 82,079
Minimum tax 41,471
OREO 25,305
Other 49,784
_________
368,240
Valuation allowance (106,815)
_________
Total deferred tax assets $ 261,425
=========
DEFERRED TAX LIABILITIES
Federal benefit of state temporary differences $ 38,509
Leasing 9,215
Depreciation 12,153
Other 24,679
_________
Total deferred tax liabilities $ 84,556
=========
Net deferred tax assets $ 176,869
=========
</TABLE>
The components of deferred federal income tax expense for the years ended
December 31, 1992 and 1991 are as follows:
<TABLE>
<CAPTION>
(In thousands) 1992 1991
____________________________________________________________________________________
<S> <C> <C>
Excess of tax over book income on lease financing $ (7,671) $ (6,643)
Excess of tax over book provision for loan losses
net of unrecognized tax benefits 56,955 142,571
Excess of tax over book recognition of income from
excess servicing fees (794) (5,499)
Excess of book over tax provision for OREO (3,146) (7,499)
Minimum tax credit carryforward (12,479) (8,040)
Excess of (book over tax) tax over book depreciation expense (2,015) 157
Excess of tax over book (book over
tax) pension/welfare benefits expense 13,519 (658)
Effect of not fully recognizing tax benefits on pretax
book income adjusted for permanent tax differences 49,833 --
Other 3,188 8,429
________ ________
Deferred federal income tax expense $ 97,390 $122,818
======== ========
</TABLE>
<PAGE>64 3of3
For 1993, Midlantic recognized tax benefits of $111.043 million comprised of a
tax benefit related to a reduction in the FAS No. 109 tax valuation reserve of
$109.998 million, plus a tax benefit of $6.676 million related to the impact
on Midlantic of the 1993 federal tax legislation and the tax rate differential
associated with Midlantic's tax loss carryback refunds, less $5.631 million of
federal and state income tax expenses on operating earnings. The valuation
reserve adjustments are the result of Midlantic's assessment of the
realization of its deferred tax asset based upon estimated future
profitability.
Income tax expenses in 1992 were attributable to state and local income taxes
imposed on Midlantic's profitable subsidiaries. From mid-1991 through the
fourth quarter of 1992, Midlantic was not able to recognize federal income tax
benefits on its reported pretax loss based upon the accounting principles that
existed prior to FAS No. 109.
As of December 31, 1993, Midlantic had available a minimum tax credit
carryforward of $41.471 million which may be carried over indefinitely to
offset regular taxes due in any future year in excess of the minimum tax
liability for that year, a capital loss carryforward of $5.606 million
available to offset future capital gains but limited to a five year
utilization period ending December 31, 1997, a regular net
<PAGE>65 1of2
Midlantic Corporation and Subsidiaries
operating loss carryforward for federal purposes of $40.319 million expiring
December 31, 2008, and an $875.514 million New Jersey state net operating loss
carryforward. The New Jersey net operating loss carryforward is attributable
to MNB and expires during the period 1997 through 2000. In addition, Midlantic
has various other federal credit carryforwards totalling $5.630 million at
December 31, 1993 and expiring at various dates from 1994 through 2007.
25. INCOME (LOSS) PER COMMON SHARE
The following table summarizes the computation of income (loss) per common
share for the years ended December 31, 1993, 1992 and 1991:
<TABLE>
<CAPTION>
(In thousands, except share and per share data) 1993 1992 1991
________________________________________________________________________________________________
<S> <C> <C> <C>
EARNINGS APPLICABLE TO PRIMARY COMMON SHARES
Income (loss) before cumulative effect of the
change in accounting for income taxes $131,396 $ 7,028 $(543,303)
Preferred stock dividends (3,626) (3,672) (3,812)
__________ __________ __________
Income (loss) before cumulative effect of
the change in accounting for income
taxes applicable to primary common shares 127,770 3,356 (547,115)
Cumulative effect of the change in accounting
for income taxes 38,962 -- --
__________ __________ __________
Net income (loss) applicable to
primary common shares $166,732 $ 3,356 $(547,115)
========== ========== ==========
EARNINGS APPLICABLE TO FULLY DILUTED COMMON SHARES
Income (loss) before cumulative effect of
the change in accounting for income taxes
applicable to primary common shares $127,770 $ 3,356 $(547,115)
Interest expense on convertible subordinated
debentures, net of income taxes 4,084 N/A N/A
__________ __________ __________
Income (loss) before cumulative effect of
the change in accounting for income taxes
applicable to fully diluted common shares 131,854 3,356 (547,115)
Cumulative effect of the change in accounting
for income taxes 38,962 -- --
__________ __________ __________
Net income (loss) applicable to fully
diluted common shares $170,816 $ 3,356 $(547,115)
========== ========== ==========
NUMBER OF AVERAGE SHARES
Primary
Average common shares outstanding 50,098,667 41,176,415 38,094,934
Average common share equivalents 844,657 392,671 N/A
__________ __________ __________
Average primary common shares 50,943,324 41,569,086 38,094,934
========== ========== ==========
<PAGE>65 2of2
Fully diluted
Average common shares outstanding 50,098,667 41,176,415 38,094,934
Average common share equivalents 907,372 777,390 N/A
Average convertible subordinated debentures
converted to common shares 1,562,500 N/A N/A
__________ __________ __________
Average fully diluted common shares 52,568,539 41,953,805 38,094,934
========== ========== ==========
INCOME (LOSS) PER COMMON SHARE
Income (loss) before cumulative effect of the change
in accounting for income taxes
Primary $2.51 $.08 $(14.36)
Fully diluted 2.51 .08 (14.36)
Cumulative effect of the change in accounting for
income taxes
Primary .76 -- --
Fully diluted .74 -- --
Net income (loss)
Primary 3.27 .08 (14.36)
Fully diluted 3.25 .08 (14.36)
========== ========== ==========
<FN>
N/A - Not applicable
</TABLE>
For 1991, average common share equivalents were anti-dilutive and have been
excluded from the per share computations. Convertible subordinated debentures
were anti-dilutive in 1992 and 1991 and have been excluded from the per common
share computations for those periods.
26. CASH FLOW DATA
Cash paid during 1993, 1992 and 1991 for interest on deposits, short-term
borrowings and long-term debt amounted to $327.733 million, $625.565 million
and $1.175 billion, respectively. Net cash received for federal and state
income taxes was $81.508 million in 1993 and $165.245 million in 1992, and
cash payments for federal and state income taxes were $11.179 million in 1991.
In several bulk sale transactions during 1993, Midlantic sold $219.482 million
of distressed real estate loans (with charge-offs against the related
allowance for loan losses of $84.456 million) and $74.115 million of OREO for
cash proceeds of $220.802 million.
During 1992, Midlantic sold $410.956 million of automobile loan asset-backed
certificates.
In late 1993, Midlantic identified for possible bulk sale $218.197 million of
distressed real estate loans (with related charge-offs of $97.407 million) and
$37.367 million of OREO (net of writedowns of $36.672 million) and transferred
the net balance to other assets. During 1993, 1992 and 1991, $126.353
million, $166.648 million and $410.934 million, respectively, of loans, net of
charge-offs, were transferred into OREO. Also, during 1991, $61.926 million
of 1-4 family residential mortgage loans were exchanged with FNMA for FNMA
mortgage-backed securities of substantially equal principal value. These
activities constituted non-cash transactions and, accordingly, are not
reflected in the statement of cash flows.
<PAGE>66 1of2
CONSOLIDATED NOTES (continued)
27. PARENT COMPANY FINANCIAL STATEMENTS
The following condensed financial information for MC should be read in
conjunction with the other notes to consolidated financial statements:
<TABLE>
<CAPTION>
BALANCE SHEET AT DECEMBER 31 (In thousands) 1993 1992
_____________________________________________________________________________
<S> <C> <C>
ASSETS
Cash and due from banks $ 446 $ 234
Other short-term investments 13,400 3,000
Investment securities 93,266 7,003
Loans 9,226 21,995
Advances to subsidiaries 745 9,680
Investments in subsidiaries
Bank holding companies 1,001,851 789,875
Banks 292,614 288,447
Nonbanks 11,657 11,229
Other assets 24,473 33,323
__________ __________
Total assets $1,447,678 $1,164,786
========== ==========
LIABILITIES AND SHAREHOLDERS' EQUITY
Other liabilities $ 25,114 $ 21,324
Long-term debt 300,000 300,000
__________ __________
Total liabilities 325,114 321,324
__________ __________
Shareholders' equity
Preferred stock 50,000 50,000
Common stock 156,522 138,443
Surplus 603,732 509,464
Retained earnings 312,310 145,578
Treasury stock at cost -- (23)
__________ __________
Total shareholders' equity 1,122,564 843,462
__________ __________
Total liabilities and shareholders' equity $1,447,678 $1,164,786
========== ==========
</TABLE>
The individual assets and liabilities presented above for the single entity MC
are managed in conjunction with the resources of MBI, a lower-tier holding
company and nonbank subsidiaries. As of December 31, 1993, MBI held $121.944
million in short-term liquidity, including investment securities due in less
than one year. In combination with the $104.196 million of similar assets
reflected above for MC, the total of liquid assets for MC, MBI and their
nonbank subsidiaries amounted to $234.550 million as of December 31, 1993.
MC has assumed joint and several liability for MBI's 8 1/4% Convertible
Subordinated Debentures Due July 1, 2010 (see Note 15).
<PAGE>66 2of2
<TABLE>
<CAPTION>
STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31 1993 1992 1991
(In thousands)
_______________________________________________________________________________________
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries
Bank holding companies $82,500 $ -- $ 1,396
Banks 18,458 42,043 9,134
Nonbanks -- 8,000 63,550
Interest on deposits with banks 510 1,197 2,199
Interest on advances to subsidiaries 420 906 1,093
Interest on other short-term investments 285 721 514
Interest on investment securities 924 127 65
Interest on loans 2,074 847 8
Net (losses) gains on disposition of assets (48) 5,777 3,172
Management fees from subsidiaries 18,012 9,433 960
Investment securities gains -- 54 52
Other income 237 2,841 --
________ ________ _________
123,372 71,946 82,143
________ ________ _________
EXPENSES
Interest 28,325 28,724 28,724
Provision for loan losses -- 1,630 --
Salaries and benefits 13,833 5,024 6,670
Other 12,515 4,352 17,336
________ ________ _________
54,673 39,730 52,730
________ ________ _________
Income before income taxes, the cumulative
effect of the change in accounting for
income taxes and undistributed earnings
(losses) of subsidiaries 68,699 32,216 29,413
Income tax benefit (16,524) (1,664) (4,053)
________ ________ _________
Income before the cumulative effect of the
change in accounting for income taxes and
undistributed earnings (losses) of
subsidiaries 85,223 33,880 33,466
Cumulative effect of the change in accounting
for income taxes 10,919 -- --
Equity in undistributed earnings (losses)
of subsidiaries 74,216 (26,852) (576,769)
________ ________ _________
NET INCOME (LOSS) $170,358 $ 7,028 $(543,303)
======== ======== =========
</TABLE>
<PAGE>67 1of2
Midlantic Corporation and Subsidiaries
<TABLE>
<CAPTION>
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31 1993 1992 1991
(In thousands)
_____________________________________________________________________________________________
<S> <C> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss) $ 170,358 $ 7,028 $(543,303)
Adjustments to reconcile net income (loss) to net
cash provided by operating activities
Equity in undistributed (earnings) losses
of subsidiaries (74,216) 87 576,769
Amortization of goodwill and other intangibles -- -- 11,291
Net loss (gain) on sale of assets 78 (5,811) (3,224)
Provision for loan losses -- 1,630 --
Cumulative effect of the change
in accounting for income taxes (10,919) -- --
Deferred income tax (benefit) expense (7,339) 54,626 17,122
Net decrease in other assets 19,141 4,280 3,646
Net change in taxes receivable and
net deferred tax assets 8,670 (55,993) (34,644)
Net increase (decrease) in other liabilities 2,537 (4,704) 3,340
Other (247) (686) 157
_________ _________ _________
Net cash provided by operating activities 108,063 457 31,154
_________ _________ _________
CASH FLOWS FROM INVESTING ACTIVITIES
Cash received from the merger of CBI with and into MC -- -- 494
Net cash proceeds from the sale of subsidiaries -- 148,380 217,077
Net decrease (increase) in advances to subsidiaries 8,935 13,210 (12,890)
Net (increase) decrease in money market investments
with an original maturity of 3 months or less (9,104) (90,901) 52,000
Purchase of money market investments with an
original maturity greater than 3 months -- (49,000) --
Maturities of money market investments with an
original maturity greater than 3 months -- 49,000 --
Purchases of investment securities (90,933) (1,501) (2,235)
Maturities of investment securities 3,702 -- --
Distributions from partnership investments 296 153 172
Decrease (increase) in loans 12,769 (7,148) (9,000)
Capital injections to subsidiaries (142,355) (176,000) (270,562)
_________ _________ _________
Net cash used by investing activities (216,690) (113,807) (24,944)
_________ _________ _________
CASH FLOWS FROM FINANCING ACTIVITIES
Dividends paid -- -- (2,859)
Proceeds from issuance of common stock 108,839 109,990 --
_________ _________ _________
Net cash provided (used) by financing
activities 108,839 109,990 (2,859)
_________ _________ _________
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 212 $ (3,360) $ 3,351
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 234 3,594 243
_________ _________ _________
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 446 $ 234 $ 3,594
========= ========= =========
</TABLE>
<PAGE>67 2of2
28. CONSOLIDATED QUARTERLY FINANCIAL DATA (unaudited)
<TABLE>
<CAPTION>
QUARTERS ENDED 1993
____________________________________________
(In thousands, except per share data) 3/31 6/30 9/30 12/31
_____________________________________________________________________________________
<S> <C> <C> <C> <C>
Interest income $208,159 $204,886 $203,186 $200,676
Interest expense 89,976 78,709 73,019 69,153
Net interest income 118,183 126,177 130,167 131,523
Provision for loan losses 20,000 15,000 14,000 30,000
Noninterest income
Investment securities gains 4,851 9 3 2,142
Other noninterest income 47,645 47,676 45,471 47,296
Noninterest expenses 179,172 135,114 129,905 157,599
Income (loss) before income taxes
and cumulative effect of the change
in accounting for income taxes (28,493) 23,748 31,736 (6,638)
Cumulative effect of the change
in accounting for income taxes 38,962 -- -- --
Net income 23,495 40,916 46,887 59,060
Income (loss) per common share*
Income (loss) before cumulative
effect of the change in accounting
for income taxes
Primary (.35) .79 .87 1.10
Fully diluted (.35) .78 .86 1.08
Cumulative effect of the change
in accounting for income taxes
Primary .83 -- -- --
Fully diluted .83 -- -- --
Net income
Primary .48 .79 .87 1.10
Fully diluted .48 .78 .86 1.08
Cash dividends per common share -- -- -- --
Weighted average common shares and
common share equivalents*
Primary 46,973 50,715 52,969 53,030
Fully diluted 47,042 52,277 54,601 54,610
======== ======== ======== ========
<FN>
*For the quarter ended March 31, 1993, convertible subordinated debentures
for fully diluted are anti-dilutive and have been excluded from the per
share computations.
</TABLE>
<PAGE>68 1of2
CONSOLIDATED NOTES (continued)
<TABLE>
<CAPTION>
Quarters Ended 1992
____________________________________________
(In thousands, except per share data) 3/31 6/30 9/30 12/31
_______________________________________________________________________________________
<S> <C> <C> <C> <C>
Interest income $297,480 $285,468 $239,992 $228,736
Interest expense 173,410 144,376 117,596 106,630
Net interest income 124,070 141,092 122,396 122,106
Provision for loan losses 46,480 26,449 17,689 47,321
Noninterest income
Investment securities gains 12,462 633 18,051 21,607
Net gains on disposition of
assets (see Note 2) 10,200 9,970 975 14,063
Other noninterest income 61,651 54,226 48,719 48,339
Noninterest expenses
Restructuring charges (see Note 2) 25,500 -- -- (3,000)
Other noninterest expenses 164,821 170,600 154,623 150,205
Income (loss) before income taxes (28,418) 8,872 17,829 11,589
Net income (loss) (29,044) 7,814 17,052 11,206
Income (loss) per primary common share* (.79) .18 .38 .22
Income (loss) per fully diluted
common share* (.79) .18 .38 .22
Cash dividends per common share -- -- -- --
Weighted average common shares and
common share equivalents*
Primary 38,097 38,396 42,837 46,732
Fully diluted 38,097 38,526 42,837 46,889
======== ======== ======== ========
<FN>
*For the quarter ended March 31, 1992, common share equivalents for both
primary and fully diluted are anti-dilutive and have been excluded from the
per share computations. Convertible subordinated debentures for fully diluted
EPS are anti-dilutive and have been excluded from the per share computations
for all periods presented.
</TABLE>
29. SELECT FINANCIAL DATA OF MIDLANTIC BANKS INC. AND SUBSIDIARIES
The following is condensed financial information for MBI and Subsidiaries:
<TABLE>
<CAPTION>
INCOME STATEMENT DATA FOR THE YEAR ENDED DECEMBER 31 (In thousands) 1993 1992 1991
_________________________________________________________________________________________________________
<S> <C> <C> <C>
Net interest income $ 375,283 $309,617 $ 313,874
Net interest income (loss) after provision for loan losses 313,283 210,517 (140,546)
Noninterest income 175,053 260,712 208,710
Noninterest expenses 461,229 494,225 537,818
Income (loss) before income taxes 27,107 (22,996) (469,654)
Income tax (benefit) expense (100,444) 1,954 (33,330)
Income (loss) before cumulative effect of the change in
accounting for income taxes 127,551 (24,950) (436,324)
Cumulative effect of the change in accounting for income taxes 24,570 -- --
Net income (loss) 152,121 (24,950) (436,324)
========= ======== =========
</TABLE>
<PAGE>68 2of2
<TABLE>
<CAPTION>
BALANCE SHEET DATA AT DECEMBER 31 (In thousands) 1993 1992
_______________________________________________________________________________
<S> <C> <C>
ASSETS
Money market investments $ 1,353,711 $ 1,539,374
Investment securities 2,010,684 1,753,186
Net loans 5,424,490 5,587,419
Total assets 10,244,549 10,493,403
LIABILITIES AND SHAREHOLDER'S EQUITY
Noninterest-bearing demand deposits 2,220,702 2,180,462
Savings and time deposits 6,350,264 7,013,498
Short-term borrowings 467,960 226,727
Long-term debt 86,752 137,112
Total liabilities 9,242,698 9,703,528
Shareholder's equity 1,001,851 789,875
=========== ===========
</TABLE>
30. LENDING AND DIVIDEND LIMITATIONS
Under federal law, subject to exceptions (including transactions between MC's
bank subsidiaries), no bank subsidiary of MC may extend credit to MC or to its
affiliates on terms and under circumstances which are not substantially the
same or at least as favorable to the bank subsidiary as comparable extensions
of credit to nonaffiliates and no extension of credit may be made by a bank
subsidiary of MC to MC or its affiliates which is in excess of 10 percent of
the capital stock and surplus of such subsidiary or in excess of 20 percent of
the capital and surplus of such subsidiary as to extensions of credit to MC
and its affiliates in the aggregate. Such extensions of credit, with limited
exceptions, must be fully collateralized.
The approval of bank regulatory authorities is required if dividends declared in
any year by a national bank exceed the bank's net profits for that year
combined with the retained profits of that bank for the two immediately
preceding years. Pennsylvania state-chartered banks may pay dividends out of
accumulated retained earnings, provided that capital remains unimpaired and
remaining surplus equals 100 percent of capital stock. National banks are
prohibited by law from declaring dividends when the bank has losses equal to or
exceeding the bank's undivided profits and no dividends can be paid in an
amount greater than the bank's net profits then on hand after deducting losses
and bad debts. However, bank regulatory authorities are authorized to prohibit
banks and bank holding companies from paying dividends which would constitute an
unsafe and
<PAGE>69 1of2
Midlantic Corporation and Subsidiaries
unsound banking practice. The Board of Governors of the Federal Reserve and the
OCC have indicated that it would generally be an unsafe and unsound banking
practice for banks to pay dividends except out of current operating earnings.
Capital requirements imposed by federal and state regulators further limit
dividends available to MC from its banks. Under its agreement with the OCC,
MNB, which had shareholder's equity of $878.829 million at December 31, 1993,
may not declare dividends without the approval of the OCC (see Note 31). Under
its agreement with the the FRB, MC is restricted from paying dividends without
the prior written approval of the FRB (see Note 31). CB, which had
shareholder's equity of $292.614 million at year-end 1993, is prohibited in
certain circumstances from paying dividends without the advance approval of the
Federal Deposit Insurance Corporation and the Pennsylvania Department of
Banking. CB has paid uninterrupted quarterly dividends to MC since the third
quarter of 1992. MC and MNB have not paid dividends since the third quarter
and first quarter of 1990, respectively.
31. REGULATORY MATTERS
The Board of MC entered into a written agreement (the "FRB Agreement") with the
FRB in May 1991. In connection with the FRB Agreement, MC reviewed various
aspects of its operations including credit risk management, the assessment of
loan loss reserve adequacy, management succession, compensation and severance
policies, monitoring of intercompany transactions and its capital, liquidity
and operating plans. MC also agreed that it will not pay dividends on its
common or preferred stock without the prior written approval of the FRB and
will not incur certain indebtedness.
Pursuant to a written agreement (the "OCC Agreement") with the Office of the
Comptroller of the Currency ("OCC"), which became effective December 31, 1990,
the Board of MNB committed MNB to certain restrictions and objectives related
to such areas as management structure and practices, loan administration,
monitoring of asset quality, liquidity, monitoring of intercompany
transactions, capital adequacy and development of capital and profit plans.
In July 1991, MNB negotiated a written amendment to the OCC Agreement which
removed specified capital ratios pursuant to which MNB was required to submit
a capital program ("Capital Program"). The Capital Program was approved by
the OCC on October 10, 1991 and a revised Capital Program was approved by the
OCC in September 1992.
MC and MNB maintain ongoing programs to monitor and maintain compliance with
all applicable regulatory agreements. MC believes that, in all material
respects, it is in compliance with the FRB Agreement and that MNB is in
compliance with the OCC Agreement.
<PAGE>69 2of2
Bank regulators currently establish several capital ratios as guidelines for
banking institutions such as Midlantic and its bank subsidiaries. The tier 1
ratio relates shareholders' equity, net of goodwill, certain intangibles and a
portion of deferred tax assets, to total risk-weighted assets (including the
credit risk equivalent of certain off-balance sheet items). The total capital
ratio relates the sum of tier 1 capital, qualifying long-term debt and a
portion of the allowance for loan losses to total risk-weighted assets. The
leverage ratio relates tier 1 equity to total assets, reduced by goodwill,
certain intangibles and a portion of deferred tax assets. The minimum
regulatory guidelines for these capital ratios are 4 percent, 8 percent and 3
percent, respectively. Midlantic and each of its bank subsidiaries currently
exceed the aforementioned capital ratio minimums. At December 31, 1993, risk-
based and leverage ratios for Midlantic and its two bank subsidiaries are:
<TABLE>
<CAPTION>
Tier 1 Total Leverage
Capital Ratio Capital Ratio Ratio
_____________________________________________________________________
<S> <C> <C> <C>
Midlantic 9.28% 13.29% 6.81%
MNB 11.03 12.32 7.89
CB 9.88 11.15 7.79
</TABLE>
As part of ongoing compliance with its agreements with the FRB and the OCC,
Midlantic submits updated operating plans for both of its bank subsidiaries
along with projected effects on the banks' capital plans.
<PAGE>70
INDEPENDENT AUDITOR'S REPORT
Coopers & Lybrand
Independent Certified Public Accountants
Board of Directors and Shareholders One Sylvan Way
Midlantic Corporation Parsippany, New Jersey 07054
We have audited the accompanying consolidated balance sheet of Midlantic
Corporation and Subsidiaries as of December 31, 1993 and 1992, and the related
consolidated statements of income, changes in shareholders' equity and cash
flows for each of the three years in the period ended December 31, 1993.
These consolidated financial statements are the responsibility of Midlantic
Corporation's management. Our responsibility is to express an opinion on
these consolidated financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to
obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on
a test basis, evidence supporting the amounts and disclosures in the
consolidated 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 consolidated financial position of
Midlantic Corporation and Subsidiaries as of December 31, 1993 and 1992, and
the consolidated results of their operations and their cash flows for each of
the three years in the period ended December 31, 1993, in conformity with
generally accepted accounting principles.
As discussed in Notes 1, 21 and 24 of notes to consolidated financial
statements, Midlantic Corporation changed its methods of accounting for
postretirement benefits other than pensions and income taxes in 1993.
Coopers & Lybrand
January 20, 1994
<PAGE>71 1OF2
<TABLE>
Midlantic Corporation and Subsidiaries
CONSOLIDATED SUMMARY OF INCOME
(In thousands, except share and per share data)
<CAPTION>
YEAR ENDED DECEMBER 31 1993 1992 1991 1990 1989
____________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $ 654,770 $ 833,709 $1,420,674 $1,873,761 $1,896,951
Interest on investment securities
Taxable interest income 91,036 171,188 200,144 167,648 124,294
Tax-exempt interest income 1,012 10,233 22,292 34,999 36,024
Interest on deposits with banks 18,319 5,869 22,814 29,020 26,048
Interest on other short-term
investments 51,770 30,677 63,438 88,183 20,232
_________ __________ __________ __________ __________
Total interest income 816,907 1,051,676 1,729,362 2,193,611 2,103,549
_________ __________ __________ __________ __________
INTEREST EXPENSE
Interest on deposits 262,886 483,154 1,011,800 1,175,719 985,666
Interest on short-term borrowings 11,586 17,341 50,759 152,925 215,607
Interest on long-term debt 36,385 41,517 42,220 42,178 30,749
_________ __________ __________ __________ __________
Total interest expense 310,857 542,012 1,104,779 1,370,822 1,232,022
_________ __________ __________ __________ __________
Net interest income 506,050 509,664 624,583 822,789 871,527
Provision for loan losses 79,000 137,939 640,402 694,221 190,477
_________ __________ __________ __________ __________
Net interest income (loss) after
provision for loan losses 427,050 371,725 (15,819) 128,568 681,050
NONINTEREST INCOME
Trust income 41,459 46,776 56,156 52,725 47,765
Service charges on deposit accounts 78,815 79,478 78,188 70,848 60,073
Investment securities gains (losses) 7,005 52,753 (2,890) (16,360) 1,552
Mortgage banking fees -- 6,361 32,459 32,616 21,095
Other 67,814 115,528 93,466 159,270 85,543
_________ __________ __________ __________ __________
Total noninterest income 195,093 300,896 257,379 299,099 216,028
_________ __________ __________ __________ __________
622,143 672,621 241,560 427,667 897,078
_________ __________ __________ __________ __________
NONINTEREST EXPENSES
Salaries and benefits 219,332 257,221 345,679 336,958 319,325
Net occupancy 44,622 51,410 61,566 63,690 54,877
Equipment rental and expense 26,881 35,776 43,529 44,768 40,590
Other real estate owned, net 134,337 99,744 122,999 56,700 4,807
FDIC assessment charges 33,841 34,090 40,433 22,154 12,973
Legal and professional fees 51,511 51,403 50,803 39,273 29,382
Other 91,266 133,105 163,330 159,963 142,161
_________ __________ __________ __________ __________
Total noninterest expenses 601,790 662,749 828,339 723,506 604,115
_________ __________ __________ __________ __________
<PAGE>71 2OF2
Income (loss) before income taxes and
cumulative effect of the change in
accounting for income taxes 20,353 9,872 (586,779) (295,839) 292,963
Income tax (benefit) expense (111,043) 2,844 (43,476) (100,834) 86,702
_________ __________ __________ __________ __________
Income (loss) before cumulative
effect of the change in accounting
for income taxes 131,396 7,028 (543,303) (195,005) 206,261
Cumulative effect of the change in
accounting for income taxes 38,962 -- -- -- --
_________ __________ __________ __________ __________
NET INCOME (LOSS) $ 170,358 $ 7,028 $ (543,303) $ (195,005) $ 206,261
========= ========== ========== ========== ==========
INCOME (LOSS) APPLICABLE TO PRIMARY
COMMON SHARES *
Income (loss) before cumulative
effect of the change in accounting
for income taxes $ 127,770 $ 3,356 $ (547,115) $ (198,817) $ 204,979
Net income (loss) 166,732 3,356 (547,115) (198,817) 204,979
========= ========== ========== ========== ==========
INCOME (LOSS) APPLICABLE TO FULLY
DILUTED COMMON SHARES*
Income (loss) before cumulative
effect of the change in
accounting for income taxes $ 131,854 $ 3,356 $ (547,115) $ (198,817) $ 209,063
Net income (loss) 170,816 3,356 (547,115) (198,817) 209,063
========= ========== ========== ========== ==========
INCOME (LOSS) PER COMMON SHARE*
Income (loss) before cumulative
effect of the change in accounting
for income taxes
Primary $2.51 $.08 $(14.36) $(5.22) $5.37
Fully diluted 2.51 .08 (14.36) (5.22) 5.27
Cumulative effect of the change in
accounting for income taxes
Primary .76 -- -- -- --
Fully diluted .74 -- -- -- --
Net income (loss)
Primary 3.27 .08 (14.36) (5.22) 5.37
Fully diluted 3.25 .08 (14.36) (5.22) 5.27
========= ========== ========== ========== ==========
AVERAGE COMMON SHARES AND
COMMON SHARE EQUIVALENTS*
Primary 50,943 41,569 38,095 38,097 38,153
Fully diluted 52,569 41,954 38,095 38,097 39,705
========= ========== ========== ========== ==========
<FN>
*Common share equivalents for both primary and fully diluted in 1991 and 1990 and convertible
subordinated debentures for fully diluted in 1992, 1991 and 1990 are anti-dilutive and have been
excluded from the per share computations.
</TABLE>
<PAGE>72 1OF2
<TABLE>
Midlantic Corporation and Subsidiaries
COMPARATIVE CONSOLIDATED AVERAGE BALANCE SHEET WITH RESULTANT INTEREST AND AVERAGE RATES(1)
(In thousands)
<CAPTION>
1993 1992
_____________________________ _______________________________
AVERAGE AVERAGE Average Average
BALANCE INTEREST RATE Balance Interest Rate
___________________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets
Interest-bearing deposits $ 530,335 $ 18,319 3.45% $ 145,859 $ 5,869 4.02%
Other short-term investments 1,414,695 51,770 3.66 863,056 30,677 3.55
U.S. Treasury securities 1,130,657 44,375 3.92 2,058,784 131,355 6.38
Obligations of U.S. government agencies 723,501 42,761 5.91 421,350 33,311 7.91
Obligations of states and political subdivisions 10,773 1,012 9.39 151,655 10,233 6.75
Other securities 70,224 3,900 5.55 112,014 6,522 5.82
___________ ________ ____ ___________ __________ ____
Total investment securities 1,935,155 92,048 4.76 2,743,803 181,421 6.61
___________ ________ ____ ___________ __________ ____
Commercial, financial and foreign loans 3,096,820 246,849 7.97 4,273,349 306,217 7.17
Real estate loans (2) 3,463,730 245,896 7.10 4,687,987 332,455 7.09
Loans to individuals 1,949,598 162,025 8.31 2,054,468 195,037 9.49
___________ ________ ____ ___________ __________ ____
Total loans (3)(4)(5) 8,510,148 654,770 7.69 11,015,804 833,709 7.57
___________ ________ ____ ___________ __________ ____
Total interest-earning assets 12,390,333 816,907 6.59 14,768,522 1,051,676 7.12
___________ ________ ____ ___________ __________ ____
Noninterest-earning assets
Cash and due from banks 790,118 889,332
Other assets 1,137,139 1,424,341
Allowance for loan losses (571,508) (804,258)
___________ ___________
Total noninterest-earning assets 1,355,749 1,509,415
___________ ___________
Total assets $13,746,082 $16,277,937
___________ ___________
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Domestic savings and time deposits $ 9,155,117 262,517 2.87 $11,524,817 482,648 4.19
Overseas branch deposits 11,243 369 3.28 12,739 506 3.97
Short-term borrowings 394,391 11,586 2.94 525,200 17,341 3.30
Long-term debt 396,217 36,385 9.18 443,213 41,517 9.37
___________ ________ ____ ___________ __________ ____
Total interest-bearing liabilities 9,956,968 310,857 3.12 12,505,969 542,012 4.33
___________ ________ ____ ___________ __________ ____
Noninterest-bearing liabilities and
shareholders' equity
Demand deposits 2,616,243 2,759,284
Other liabilities 199,393 249,283
___________ ___________
Total noninterest-bearing liabilities 2,815,636 3,008,567
___________ ___________
Shareholders' equity 973,478 763,401
___________ ___________
Total liabilities and shareholders' equity $13,746,082 $16,277,937
___________ ___________
<PAGE>72 2OF2
NET INTEREST INCOME $506,050 $ 509,664
======== ==========
INTEREST INCOME AS A PERCENT OF
AVERAGE INTEREST-EARNING ASSETS 6.59% 7.12%
==== ====
INTEREST EXPENSE AS A PERCENT OF
AVERAGE INTEREST-EARNING ASSETS 2.51% 3.67%
==== ====
NET INTEREST MARGIN (6) 4.08% 3.45%
==== ====
<FN>
(1) Interest income and average rates are not presented on a tax-equivalent basis.
(2) Data for 1993 includes loans that were sold in bulk sales or identified for bulk sale.
(3) Includes loan fees. Such income is not significant.
(4) Includes nonaccrual loans.
(5) Net of unearned income.
(6) Net interest margin is net interest income as a percent of average interest-earning assets.
</TABLE>
<PAGE>73 1OF2
<TABLE>
<CAPTION>
1991 1990 1989
________________________________ ________________________________ ________________________________
Average Average Average Average Average Average
Balance Interest Rate Balance Interest Rate Balance Interest Rate
_________________________________________________________________________________________________________
<C> <C> <C> <C> <C> <C> <C> <C> <C>
$ 323,717 $ 22,814 7.05% $ 342,740 $ 29,020 8.47% $ 276,723 $ 26,048 9.41%
1,042,439 63,438 6.09 1,063,757 88,183 8.29 222,577 20,232 9.09
1,962,382 152,922 7.79 1,499,059 132,245 8.82 1,118,018 96,907 8.67
391,723 34,511 8.81 238,728 21,715 9.10 158,641 14,101 8.89
321,718 22,292 6.93 519,780 34,999 6.73 525,795 36,024 6.85
182,560 12,711 6.96 172,516 13,688 7.93 185,014 13,286 7.18
___________ __________ _____ ___________ __________ _____ ___________ __________ _____
2,858,383 222,436 7.78 2,430,083 202,647 8.34 1,987,468 160,318 8.07
___________ __________ _____ ___________ __________ _____ ___________ __________ _____
6,280,219 559,555 8.91 7,461,958 780,458 10.46 6,917,916 798,692 11.55
6,439,179 552,464 8.58 7,003,784 716,293 10.23 6,284,274 701,216 11.16
2,863,128 308,655 10.78 3,378,938 377,010 11.16 3,472,405 397,043 11.43
___________ __________ _____ ___________ __________ _____ ___________ __________ _____
15,582,526 1,420,674 9.12 17,844,680 1,873,761 10.50 16,674,595 1,896,951 11.38
___________ __________ _____ ___________ __________ _____ ___________ __________ _____
19,807,065 1,729,362 8.73 21,681,260 2,193,611 10.12 19,161,363 2,103,549 10.98
___________ __________ _____ ___________ __________ _____ ___________ __________ _____
1,088,692 1,372,440 1,323,534
1,742,436 1,382,958 1,002,715
(836,123) (528,922) (296,103)
___________ ___________ ___________
1,995,005 2,226,476 2,030,146
___________ ___________ ___________
$21,802,070 $23,907,736 $21,191,509
___________ ___________ ___________
$16,005,949 1,010,425 6.31 $16,195,692 1,167,331 7.21 $13,202,771 976,322 7.39
20,371 1,375 6.75 97,518 8,388 8.60 95,684 9,344 9.77
908,165 50,759 5.59 1,926,182 152,925 7.94 2,391,705 215,607 9.01
461,013 42,220 9.16 448,946 42,178 9.39 325,057 30,749 9.46
___________ __________ _____ ___________ __________ _____ ___________ __________ _____
17,395,498 1,104,779 6.35 18,668,338 1,370,822 7.34 16,015,217 1,232,022 7.69
___________ __________ _____ ___________ __________ _____ ___________ __________ _____
3,047,091 3,414,732 3,314,240
326,120 373,479 417,482
___________ ___________ ___________
3,373,211 3,788,211 3,731,722
___________ ___________ ___________
1,033,361 1,451,187 1,444,570
___________ ___________ ___________
$21,802,070 $23,907,736 $21,191,509
___________ ___________ ___________
<PAGE>73 2OF2
$ 624,583 $ 822,789 $ 871,527
========== ========== ==========
8.73% 10.12% 10.98%
===== ===== =====
5.58% 6.33% 6.43%
===== ===== =====
3.15% 3.79% 4.55%
===== ===== =====
</TABLE>
<PAGE>74
<TABLE>
Midlantic Corporation and Subsidiaries
SUMMARY OF CONSOLIDATED QUARTERLY INFORMATION
(In thousands)
<CAPTION>
December 31 September 30 June 30 March 31 December 31
FOR THE THREE MONTHS ENDED 1993 1993 1993 1993 1992
_______________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
NET INTEREST INCOME $ 131,523 $ 130,167 $ 126,177 $ 118,183 $ 122,106
AVERAGES
Interest-earning assets
Money market investments $ 1,517,296 $ 1,893,256 $ 2,170,642 $ 2,198,926 $ 1,669,035
Investment securities 2,286,719 1,902,459 1,714,446 1,836,996 2,632,092
Loans 8,481,633 8,455,081 8,391,929 8,711,949 9,709,616
Total interest-earning
assets 12,285,648 12,250,796 12,277,017 12,747,871 14,010,743
Interest-bearing liabilities
Interest-bearing deposits 8,798,017 8,994,483 9,252,429 9,620,511 10,602,108
Short-term borrowings 421,955 348,547 376,081 430,981 522,020
Long-term debt 386,749 386,805 390,869 420,445 437,339
Total interest-bearing
liabilities 9,606,721 9,729,835 10,019,379 10,471,937 11,561,467
Shareholders' equity 1,078,613 1,026,103 935,549 853,647 852,498
___________ ___________ ___________ ___________ ___________
AVERAGE YIELDS EARNED
Interest-earning assets
Money market investments 3.32% 3.73% 3.63% 3.67% 3.24%
Investment securities 4.18 4.47 4.98 5.57 5.84
Loans 7.66 7.69 7.84 7.59 7.23
Total interest-earning
assets 6.48 6.58 6.69 6.62 6.49
___________ ___________ ___________ ___________ ___________
AVERAGE RATES PAID
Interest-bearing liabilities
Interest-bearing deposits 2.58% 2.72% 2.90% 3.25% 3.47%
Short-term borrowings 2.90 2.94 3.04 2.89 2.87
Long-term debt 9.08 9.08 9.10 9.46 9.36
Total interest-bearing
liabilities 2.86 2.98 3.15 3.48 3.67
___________ ___________ ___________ ___________ ___________
NET INTEREST MARGIN 4.25% 4.22% 4.12% 3.76% 3.47%
___________ ___________ ___________ ___________ ___________
OPERATING RATIOS
Return on average assets 1.72% 1.37% 1.20% .68% .29%
Return on average common equity 22.43 18.69 18.12 11.40 5.11
Return on average total equity 21.72 18.13 17.54 11.16 5.23
___________ ___________ ___________ ___________ ___________
LOAN LOSS RATIOS
As a % of total period-end loans,
net of unearned income
Allowance for loan losses
at period-end 4.74% 5.96% 6.38% 6.84% 7.41%
Nonaccrual loans at period-end 3.19 5.60 6.23 7.10 9.04
As a % of average loans, net of
unearned income
Net charge-offs* 1.75 1.91 2.82 1.35 4.69
Provision for loan losses 1.40 .66 .72 .93 1.94
=========== =========== =========== =========== ===========
<FN>
*Ratios for all four quarters of 1993 exclude charge-offs on loans that were sold in bulk sales
or transferred to assets held for accelerated disposition.
</TABLE>
<PAGE>75
<TABLE>
Midlantic Corporation and Subsidiaries
CONSOLIDATED STATISTICAL INFORMATION
<CAPTION>
1993 1992 1991 1990 1989
____________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
BOOK VALUE PER COMMON SHARE(1) $20.56 $17.19 $17.78 $32.10 $38.88
______ ______ ______ ______ ______
OPERATING RATIOS
Net interest margin 4.08% 3.45% 3.15% 3.79% 4.55%
Return on average assets 1.24 .04 (2.49) (.82) .97
Return on average common equity 18.05 .47 (55.64) (14.19) 14.36
Return on average total equity 17.50 .92 (52.58) (13.44) 14.28
______ ______ ______ ______ ______
LIQUIDITY AND FUNDING RATIOS
Liquidity ratio(2) 31.61% 29.81% 20.91% 17.33% 11.21%
Funding ratio(3) (25.04) (19.18) (3.22) 3.93 20.49
______ ______ ______ ______ ______
CAPITAL RATIOS
Risk-adjusted ratios(4)
Tier 1 capital ratio 9.28% 6.83% 4.29% 5.93% 6.50%
Total capital ratio 13.29 10.76 7.69 8.86 9.32
Leverage ratio 6.81 5.19 3.43 4.81 5.88
Average shareholders' equity as a % of average assets 7.08 4.69 4.74 6.07 6.82
______ ______ ______ ______ ______
LOAN LOSS RATIOS
As a % of total year-end loans, net of unearned income
Allowance for loan losses at year-end 4.74% 7.41% 6.74% 4.38% 2.09%
Nonaccrual loans at year-end 3.19 9.04 10.04 6.73 2.54
As a % of average loans, net of unearned income
Net charge-offs(5) 1.95 2.49 3.07 1.89 .57
Provision for loan losses .93 1.25 4.11 3.89 1.14
______ ______ ______ ______ ______
RATIOS: AS A % OF AVERAGE TOTAL DEPOSITS
Average total loans, net of unearned income 72.23% 77.05% 81.70% 90.55% 100.47%
Average investment securities 16.42 19.19 14.99 12.33 11.86
Average shareholders' equity 8.26 5.34 5.42 7.36 8.70
Average noninterest-bearing demand deposits 22.20 19.30 15.98 17.33 19.95
Average interest-bearing deposits 77.80 80.70 84.02 82.67 80.05
______ ______ ______ ______ ______
NONFINANCIAL DATA
Common shareholders of record 30,804 29,655 30,847 31,115 28,439
Total number of employees 5,863 6,342 9,561 11,637 12,182
Total number of full-time equivalent employees 5,090 5,748 9,086 10,935 11,384
Total number of banking offices 326 331 426 484 484
______ ______ ______ ______ ______
<FN>
(1)Assumes conversion of convertible subordinated debentures for the year 1989.
(2)Ratio of net short-term assets to net funding liabilities.
(3)Total purchased funds and money market investments less investment securities due in one year as
a percentage of investment securities due in more than one year and total loans, net of
unearned income.
(4)Based upon full-implementation regulatory standards in effect at December 31, 1992.
(5)Ratio for 1993 excludes charge-offs on those loans that were sold in bulk sales or transferred to
assets held for accelerated disposition.
</TABLE>
ITEM 14(a)3 - EXHIBIT 21
Midlantic Corporation and Subsidiaries
Subsidiaries Listing
December 31, 1993
Jurisdiction
Owned by of
Name Parent Parent Organization
________________________________________________________________________________
Registrant
- ----------
Midlantic Corporation -- -- New Jersey
Subsidiaries
- ------------
Midlantic Banks Inc. Midlantic Corporation Wholly-owned New Jersey
Continental Bank* Midlantic Corporation Wholly-owned Pennsylvania
Midlantic Securities Corp. Midlantic Corporation Wholly-owned New Jersey
Midlantic Funding Corp. Midlantic Corporation Wholly-owned New Jersey
Lenders Life Insurance Co. Midlantic Corporation Wholly-owned Arizona
Voploans Acquisition Co. Midlantic Corporation Wholly-owned New Jersey
Midlantic National Bank* Midlantic Banks Inc. Wholly-owned United States
Midlantic Commercial Leasing
Corp. Midlantic Banks Inc. Wholly-owned New York
Midlantic International Inc. Midlantic Banks Inc. Wholly-owned New Jersey
Greater Jersey Mortgage Co. Midlantic Banks Inc. Wholly-owned New Jersey
Parkway Management Inc. Midlantic Banks Inc. Wholly-owned New Jersey
Central Investment Corp. Midlantic National Wholly-owned New York
Bank
Midlantic Overseas Ltd. Midlantic National
Bank Wholly-owned United States
Metuchen Management, Inc. Midlantic National
Bank Wholly-owned New Jersey
Midlantic National Leasing Midlantic National
Corp. Bank Wholly-owned New Jersey
Midlantic Financial Services Midlantic National
Corp. Bank Wholly-owned Florida
Iron Investments Corp. Midlantic National
Bank Wholly-owned New Jersey
Midlantic Agency Midlantic National
Bank Wholly-owned New Jersey
499 Holding Inc. Midlantic National
Bank Wholly-owned New Jersey
MNL Corporation Midlantic National
Bank Wholly-owned New Jersey
Parkway Sussex Inc. Midlantic National
Bank Wholly-owned New Jersey
NE Investment Inc. Midlantic National
Bank Wholly-owned New Jersey
MNBN Holding Inc. Midlantic National
Bank Wholly-owned New Jersey
Tournament of Stars,
Philadelphia, Inc. Continental Bank Wholly-owned Pennsylvania
Continued on next page
<PAGE>
Continued from prior page
Jurisdiction
Owned by of
Name Parent Parent Organization
________________________________________________________________________________
Lincoln Community Foundation Continental Bank Wholly-owned Pennsylvania
Numidia Realty, Inc. Continental Bank Wholly-owned Pennsylvania
Lease and Go, Inc. Continental Bank Wholly-owned New Jersey
Continental/Von Louhr Inc. Continental Bank Wholly-owned Pennsylvania
Midlantic Commercial Co.,Inc. MNBN Holding Inc. Wholly-owned New Jersey
Alfieri-Parkway Associates Parkway Management Inc. 50% owned New Jersey
* Constitutes a significant subsidiary as defined in Rule 1-02(v) of
Regulation S-X.
In addition to the subsidaries listed above, Midlantic National Bank,
Continental Bank, and MNBN Holding Inc. have 83 subsidiaries, 2 subsidiaries,
and 13 subsidiaries, respectively, for the purpose of holding assets acquired
through foreclosure and Midlantic Corporation has subsidiaries in the following
jurisdictions for the purpose of name saving in such jurisdictions: Connecticut,
Delaware, District of Columbia, Florida, Georgia, Indiana, Kentucky, Maryland,
Michigan, Missouri, New York, Ohio, South Carolina, Tennessee, Virginia and
Wisconsin.
ITEM 14(a)3 - EXHIBIT 23
Consent of Independent Accountants
We consent to the incorporation by reference in the Prospectus constituting
part of the Registration Statement on Form S-3 (No. 33-30504) and in the
Prospectuses constituting part of the Registration Statements on Form S-8,
(Nos. 33-16256, 33-23396 and 33-63222), of Midlantic Corporation of our report,
which contains an explanatory paragraph stating that Midlantic Corporation
changed its methods of accounting for postretirement benefits other than
pensions and income taxes in 1993, dated January 20, 1994, on our audits of the
consolidated financial statements of Midlantic Corporation and Subsidiaries as
of December 31, 1993 and 1992, and for each of the three years in the period
ended December 31, 1993, which report appears on page 70 of the 1993 Annual
Report to Shareholders which is incorporated by reference in this Annual Report
on Form 10-K.
COOPERS & LYBRAND
Coopers & Lybrand
March 23, 1994
Parsippany, New Jersey
ITEM 14(a)3 - EXHIBIT 4 (a)
Agreement to File Instruments Regarding Long-term Debt
Midlantic Corporation hereby agrees to supply to the Securities and Exchange
Commission upon request instruments defining the rights of holders of
long-term indebtedness of Midlantic Corporation and its subsidiaries by which
consolidated or unconsolidated financial statements are required to be filed
with the Form 10-K to which this agreement is an exhibit.
MIDLANTIC CORPORATION
Date March 23, 1994 By HOWARD I. ATKINS
______________ __________________________
Howard I. Atkins
Executive Vice President &
Chief Financial Officer
<PAGE>
MIDLANTIC CORPORATION
Midlantic Annual Incentive and Bonus Plan
(Approved July 21, 1993)
1. The purpose of the Midlantic Annual Incentive and Bonus Plan is to promote
the success of Midlantic Corporation and its affiliated companies (collectively,
the "Company") by providing an incentive, through the allocation and payment of
cash bonuses and other incentive compensation on an annual basis ("incentive
compensation"), to key employees of the Company, to encourage key employees to
remain in the employ of the Company and to increase the personal interest of
key employees in the continued success and progress of the Company.
2. This Plan shall be administered by the Executive Compensation Committee of
the Board of Directors of Midlantic Corporation (the "Committee"). In
administering the Plan, the Committee shall have the duties, responsibilities
and powers set forth in this Plan.
3. The Committee shall determine from time to time
the key employees for the purposes of this Plan,
the amount of incentive compensation, if any, that shall be available for
allocation and payment under this Plan to key employees,
the performance criteria that should be achieved in order for incentive
compensation to be paid,
whether such performance criteria have been achieved,
the allocation of incentive compensation among key employees,
the manner and terms and conditions, if any, of payment of the incentive
compensation. and
all other matters with respect to the Plan.
<PAGE>
In so doing, the Committee shall make determinations with respect to the Company
as a whole, and it may, to the extent the Committee deems it advisable, make
determinations with respect to individual business units or functional areas of
the Company, whether or not the business unit or functional area is constituted
as a separate legal entity.
4. Notwithstanding anything in this Plan to the contrary, to the extent that
the Committee determines that any incentive compensation is to be paid under
this Plan in stock, stock options, or stock appreciation rights ("stock based
compensation"), such stock based compensation shall be paid under, subject to,
and in all respects consistent with, the Midlantic Incentive Stock and Stock
Option Plan (1986) or any other similar plan of the Company (a "Company stock
plan") and any decision of the Committee with respect to stock based
compensation shall be deemed to be made only under a Company stock plan and not
pursuant to this Plan.
5. The Committee may delegate to a specified officer or officers of the Company
any of its duties, responsibilities and powers under this Plan. However, the
Committee may not delegate to any officer any determination with respect to such
officer's own incentive compensation under this Plan.
6. All determinations under this Plan by the Committee (or by an officer or
officers to whom the determination has been duly delegated) shall be conclusive
and binding on all affected employees of the Company.
7. This Plan may be amended, suspended or discontinued at any time by the Board
or the Committee.
8. This Plan and any action or determination taken hereunder shall not confer
upon any employee the right to be retained in the employ of the Company or to
continue to be a key employee for the purposes of this Plan.
9. This Plan shall not be deemed an exclusive method of providing incentive
compensation for the officers and employees of the Company, nor shall it
preclude the Board of Directors of the Company or a duly authorized committee
<PAGE>
or officers from authorizing or approving other forms of incentive compensation.
In addition, to the extent other Company compensation plans or resolutions of
the Board of Directors of Midlantic Corporation or of a board of directors of an
affiliated company require additional authorizations and approvals for the
payment of compensation, nothing in this Plan is intended to supersede those
requirements.
<PAGE>
POWER OF ATTORNEY
1993 FORM 10-K
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make,
constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E.
Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me
and in my name (with full power of substitution) to sign, execute, attest,
acknowledge and deliver and to do all other acts and things on my behalf as a
Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey
corporation, as said agent and attorney-in-fact may deem necessary or advisable
to enable Midlantic to comply with the Securities Exchange Act of 1934, as
amended, and any rules and regulations and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing of annual
reports for the year ended December 31, 1993 on Form 10-K (the "Annual
Reports") under the Securities Exchange Act of 1934, as amended, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign the name of the undersigned in his capacity as Director
and/or Officer of Midlantic to said Annual Reports, and to any and all
amendments thereto, and to any and all instruments and documents filed as part
of or in connection with the said Annual Reports or amendments thereto; HEREBY
RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents as of
the 22nd day of December, 1993.
Charles E. Ehinger
______________________________
Charles E. Ehinger
Attest:
John M. Sperger
__________________________
John M. Sperger
Vice President & Secretary
<PAGE>
<PAGE>
POWER OF ATTORNEY
1993 FORM 10-K
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make,
constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E.
Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me
and in my name (with full power of substitution) to sign, execute, attest,
acknowledge and deliver and to do all other acts and things on my behalf as a
Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey
corporation, as said agent and attorney-in-fact may deem necessary or advisable
to enable Midlantic to comply with the Securities Exchange Act of 1934, as
amended, and any rules and regulations and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing of annual
reports for the year ended December 31, 1993 on Form 10-K (the "Annual
Reports") under the Securities Exchange Act of 1934, as amended, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign the name of the undersigned in his capacity as Director
and/or Officer of Midlantic to said Annual Reports, and to any and all
amendments thereto, and to any and all instruments and documents filed as part
of or in connection with the said Annual Reports or amendments thereto; HEREBY
RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents as of
the 22nd day of December, 1993.
David F. Girard-diCarlo
______________________________
David F. Girard-diCarlo
Attest:
John M. Sperger
__________________________
John M. Sperger
Vice President & Secretary
<PAGE>
POWER OF ATTORNEY
1993 FORM 10-K
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make,
constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E.
Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me
and in my name (with full power of substitution) to sign, execute, attest,
acknowledge and deliver and to do all other acts and things on my behalf as a
Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey
corporation, as said agent and attorney-in-fact may deem necessary or advisable
to enable Midlantic to comply with the Securities Exchange Act of 1934, as
amended, and any rules and regulations and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing of annual
reports for the year ended December 31, 1993 on Form 10-K (the "Annual
Reports") under the Securities Exchange Act of 1934, as amended, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign the name of the undersigned in his capacity as Director
and/or Officer of Midlantic to said Annual Reports, and to any and all
amendments thereto, and to any and all instruments and documents filed as part
of or in connection with the said Annual Reports or amendments thereto; HEREBY
RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents as of
the 22nd day of December, 1993.
Frederick C. Haab
______________________________
Frederick C. Haab
Attest:
John M. Sperger
__________________________
John M. Sperger
Vice President & Secretary
<PAGE>
POWER OF ATTORNEY
1993 FORM 10-K
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make,
constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E.
Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me
and in my name (with full power of substitution) to sign, execute, attest,
acknowledge and deliver and to do all other acts and things on my behalf as a
Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey
corporation, as said agent and attorney-in-fact may deem necessary or advisable
to enable Midlantic to comply with the Securities Exchange Act of 1934, as
amended, and any rules and regulations and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing of annual
reports for the year ended December 31, 1993 on Form 10-K (the "Annual
Reports") under the Securities Exchange Act of 1934, as amended, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign the name of the undersigned in his capacity as Director
and/or Officer of Midlantic to said Annual Reports, and to any and all
amendments thereto, and to any and all instruments and documents filed as part
of or in connection with the said Annual Reports or amendments thereto; HEREBY
RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents as of
the 22nd day of December, 1993.
Kevork S. Hovnanian
______________________________
Kevork S. Hovnanian
Attest:
John M. Sperger
__________________________
John M. Sperger
Vice President & Secretary
<PAGE>
POWER OF ATTORNEY
1993 FORM 10-K
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make,
constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E.
Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me
and in my name (with full power of substitution) to sign, execute, attest,
acknowledge and deliver and to do all other acts and things on my behalf as a
Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey
corporation, as said agent and attorney-in-fact may deem necessary or advisable
to enable Midlantic to comply with the Securities Exchange Act of 1934, as
amended, and any rules and regulations and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing of annual
reports for the year ended December 31, 1993 on Form 10-K (the "Annual
Reports") under the Securities Exchange Act of 1934, as amended, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign the name of the undersigned in his capacity as Director
and/or Officer of Midlantic to said Annual Reports, and to any and all
amendments thereto, and to any and all instruments and documents filed as part
of or in connection with the said Annual Reports or amendments thereto; HEREBY
RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents as of
the 22nd day of December, 1993.
Aubrey C. Lewis
______________________________
Aubrey C. Lewis
Attest:
John M. Sperger
__________________________
John M. Sperger
Vice President & Secretary
<PAGE>
POWER OF ATTORNEY
1993 FORM 10-K
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make,
constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E.
Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me
and in my name (with full power of substitution) to sign, execute, attest,
acknowledge and deliver and to do all other acts and things on my behalf as a
Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey
corporation, as said agent and attorney-in-fact may deem necessary or advisable
to enable Midlantic to comply with the Securities Exchange Act of 1934, as
amended, and any rules and regulations and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing of annual
reports for the year ended December 31, 1993 on Form 10-K (the "Annual
Reports") under the Securities Exchange Act of 1934, as amended, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign the name of the undersigned in his capacity as Director
and/or Officer of Midlantic to said Annual Reports, and to any and all
amendments thereto, and to any and all instruments and documents filed as part
of or in connection with the said Annual Reports or amendments thereto; HEREBY
RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents as of
the 22nd day of December, 1993.
Desmond P. McDonald
______________________________
Desmond P. McDonald
Attest:
John M. Sperger
__________________________
John M. Sperger
Vice President & Secretary
<PAGE>
POWER OF ATTORNEY
1993 FORM 10-K
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make,
constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E.
Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me
and in my name (with full power of substitution) to sign, execute, attest,
acknowledge and deliver and to do all other acts and things on my behalf as a
Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey
corporation, as said agent and attorney-in-fact may deem necessary or advisable
to enable Midlantic to comply with the Securities Exchange Act of 1934, as
amended, and any rules and regulations and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing of annual
reports for the year ended December 31, 1993 on Form 10-K (the "Annual
Reports") under the Securities Exchange Act of 1934, as amended, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign the name of the undersigned in his capacity as Director
and/or Officer of Midlantic to said Annual Reports, and to any and all
amendments thereto, and to any and all instruments and documents filed as part
of or in connection with the said Annual Reports or amendments thereto; HEREBY
RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents as of
the 22nd day of December, 1993.
William E. McKenna
______________________________
William E. McKenna
Attest:
John M. Sperger
__________________________
John M. Sperger
Vice President & Secretary
<PAGE>
POWER OF ATTORNEY
1993 FORM 10-K
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make,
constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E.
Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me
and in my name (with full power of substitution) to sign, execute, attest,
acknowledge and deliver and to do all other acts and things on my behalf as a
Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey
corporation, as said agent and attorney-in-fact may deem necessary or advisable
to enable Midlantic to comply with the Securities Exchange Act of 1934, as
amended, and any rules and regulations and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing of annual
reports for the year ended December 31, 1993 on Form 10-K (the "Annual
Reports") under the Securities Exchange Act of 1934, as amended, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign the name of the undersigned in his capacity as Director
and/or Officer of Midlantic to said Annual Reports, and to any and all
amendments thereto, and to any and all instruments and documents filed as part
of or in connection with the said Annual Reports or amendments thereto; HEREBY
RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents as of
the 22nd day of December, 1993.
Ralph H. O'Brien
______________________________
Ralph H. O'Brien
Attest:
John M. Sperger
__________________________
John M. Sperger
Vice President & Secretary
<PAGE>
POWER OF ATTORNEY
1993 FORM 10-K
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make,
constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E.
Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me
and in my name (with full power of substitution) to sign, execute, attest,
acknowledge and deliver and to do all other acts and things on my behalf as a
Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey
corporation, as said agent and attorney-in-fact may deem necessary or advisable
to enable Midlantic to comply with the Securities Exchange Act of 1934, as
amended, and any rules and regulations and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing of annual
reports for the year ended December 31, 1993 on Form 10-K (the "Annual
Reports") under the Securities Exchange Act of 1934, as amended, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign the name of the undersigned in his capacity as Director
and/or Officer of Midlantic to said Annual Reports, and to any and all
amendments thereto, and to any and all instruments and documents filed as part
of or in connection with the said Annual Reports or amendments thereto; HEREBY
RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents as of
the 22nd day of December, 1993.
Roy T. Peraino
______________________________
Roy T. Peraino
Attest:
John M. Sperger
__________________________
John M. Sperger
Vice President & Secretary
<PAGE>
POWER OF ATTORNEY
1993 FORM 10-K
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make,
constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E.
Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me
and in my name (with full power of substitution) to sign, execute, attest,
acknowledge and deliver and to do all other acts and things on my behalf as a
Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey
corporation, as said agent and attorney-in-fact may deem necessary or advisable
to enable Midlantic to comply with the Securities Exchange Act of 1934, as
amended, and any rules and regulations and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing of annual
reports for the year ended December 31, 1993 on Form 10-K (the "Annual
Reports") under the Securities Exchange Act of 1934, as amended, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign the name of the undersigned in his capacity as Director
and/or Officer of Midlantic to said Annual Reports, and to any and all
amendments thereto, and to any and all instruments and documents filed as part
of or in connection with the said Annual Reports or amendments thereto; HEREBY
RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents as of
the 22nd day of December, 1993.
Ernest L. Ransome, III
______________________________
Ernest L. Ransome, III
Attest:
John M. Sperger
__________________________
John M. Sperger
Vice President & Secretary
<PAGE>
POWER OF ATTORNEY
1993 FORM 10-K
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make,
constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E.
Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me
and in my name (with full power of substitution) to sign, execute, attest,
acknowledge and deliver and to do all other acts and things on my behalf as a
Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey
corporation, as said agent and attorney-in-fact may deem necessary or advisable
to enable Midlantic to comply with the Securities Exchange Act of 1934, as
amended, and any rules and regulations and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing of annual
reports for the year ended December 31, 1993 on Form 10-K (the "Annual
Reports") under the Securities Exchange Act of 1934, as amended, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign the name of the undersigned in his capacity as Director
and/or Officer of Midlantic to said Annual Reports, and to any and all
amendments thereto, and to any and all instruments and documents filed as part
of or in connection with the said Annual Reports or amendments thereto; HEREBY
RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents as of
the 22nd day of December, 1993.
Ronald Rubin
______________________________
Ronald Rubin
Attest:
John M. Sperger
__________________________
John M. Sperger
Vice President & Secretary
<PAGE>
POWER OF ATTORNEY
1993 FORM 10-K
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make,
constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E.
Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me
and in my name (with full power of substitution) to sign, execute, attest,
acknowledge and deliver and to do all other acts and things on my behalf as a
Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey
corporation, as said agent and attorney-in-fact may deem necessary or advisable
to enable Midlantic to comply with the Securities Exchange Act of 1934, as
amended, and any rules and regulations and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing of annual
reports for the year ended December 31, 1993 on Form 10-K (the "Annual
Reports") under the Securities Exchange Act of 1934, as amended, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign the name of the undersigned in his capacity as Director
and/or Officer of Midlantic to said Annual Reports, and to any and all
amendments thereto, and to any and all instruments and documents filed as part
of or in connection with the said Annual Reports or amendments thereto; HEREBY
RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents as of
the 22nd day of December, 1993.
B.P. Russell
______________________________
B.P. Russell
Attest:
John M. Sperger
__________________________
John M. Sperger
Vice President & Secretary
<PAGE>
POWER OF ATTORNEY
1993 FORM 10-K
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make,
constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E.
Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me
and in my name (with full power of substitution) to sign, execute, attest,
acknowledge and deliver and to do all other acts and things on my behalf as a
Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey
corporation, as said agent and attorney-in-fact may deem necessary or advisable
to enable Midlantic to comply with the Securities Exchange Act of 1934, as
amended, and any rules and regulations and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing of annual
reports for the year ended December 31, 1993 on Form 10-K (the "Annual
Reports") under the Securities Exchange Act of 1934, as amended, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign the name of the undersigned in his capacity as Director
and/or Officer of Midlantic to said Annual Reports, and to any and all
amendments thereto, and to any and all instruments and documents filed as part
of or in connection with the said Annual Reports or amendments thereto; HEREBY
RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents as of
the 22nd day of December, 1993.
Fred R. Sullivan
______________________________
Fred R. Sullivan
Attest:
John M. Sperger
__________________________
John M. Sperger
Vice President & Secretary
<PAGE>
POWER OF ATTORNEY
1993 FORM 10-K
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make,
constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E.
Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me
and in my name (with full power of substitution) to sign, execute, attest,
acknowledge and deliver and to do all other acts and things on my behalf as a
Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey
corporation, as said agent and attorney-in-fact may deem necessary or advisable
to enable Midlantic to comply with the Securities Exchange Act of 1934, as
amended, and any rules and regulations and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing of annual
reports for the year ended December 31, 1993 on Form 10-K (the "Annual
Reports") under the Securities Exchange Act of 1934, as amended, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign the name of the undersigned in his capacity as Director
and/or Officer of Midlantic to said Annual Reports, and to any and all
amendments thereto, and to any and all instruments and documents filed as part
of or in connection with the said Annual Reports or amendments thereto; HEREBY
RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents as of
the 22nd day of December, 1993.
Harold L. Yoh, Jr.
______________________________
Harold L. Yoh, Jr.
Attest:
John M. Sperger
__________________________
John M. Sperger
Vice President & Secretary
<PAGE>
POWER OF ATTORNEY
1993 FORM 10-K
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make,
constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E.
Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me
and in my name (with full power of substitution) to sign, execute, attest,
acknowledge and deliver and to do all other acts and things on my behalf as a
Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey
corporation, as said agent and attorney-in-fact may deem necessary or advisable
to enable Midlantic to comply with the Securities Exchange Act of 1934, as
amended, and any rules and regulations and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing of annual
reports for the year ended December 31, 1993 on Form 10-K (the "Annual
Reports") under the Securities Exchange Act of 1934, as amended, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign the name of the undersigned in his capacity as Director
and/or Officer of Midlantic to said Annual Reports, and to any and all
amendments thereto, and to any and all instruments and documents filed as part
of or in connection with the said Annual Reports or amendments thereto; HEREBY
RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents as of
the 22nd day of December, 1993.
Arthur J. Kania
______________________________
Arthur J. Kania
Attest:
John M. Sperger
__________________________
John M. Sperger
Vice President & Secretary
<PAGE>
POWER OF ATTORNEY
1993 FORM 10-K
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make,
constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E.
Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me
and in my name (with full power of substitution) to sign, execute, attest,
acknowledge and deliver and to do all other acts and things on my behalf as a
Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey
corporation, as said agent and attorney-in-fact may deem necessary or advisable
to enable Midlantic to comply with the Securities Exchange Act of 1934, as
amended, and any rules and regulations and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing of annual
reports for the year ended December 31, 1993 on Form 10-K (the "Annual
Reports") under the Securities Exchange Act of 1934, as amended, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign the name of the undersigned in his capacity as Director
and/or Officer of Midlantic to said Annual Reports, and to any and all
amendments thereto, and to any and all instruments and documents filed as part
of or in connection with the said Annual Reports or amendments thereto; HEREBY
RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents as of
the 22nd day of December, 1993.
David F. McBride
______________________________
David F. McBride
Attest:
John M. Sperger
__________________________
John M. Sperger
Vice President & Secretary
<PAGE>
POWER OF ATTORNEY
1993 FORM 10-K
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make,
constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E.
Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me
and in my name (with full power of substitution) to sign, execute, attest,
acknowledge and deliver and to do all other acts and things on my behalf as a
Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey
corporation, as said agent and attorney-in-fact may deem necessary or advisable
to enable Midlantic to comply with the Securities Exchange Act of 1934, as
amended, and any rules and regulations and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing of annual
reports for the year ended December 31, 1993 on Form 10-K (the "Annual
Reports") under the Securities Exchange Act of 1934, as amended, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign the name of the undersigned in his capacity as Director
and/or Officer of Midlantic to said Annual Reports, and to any and all
amendments thereto, and to any and all instruments and documents filed as part
of or in connection with the said Annual Reports or amendments thereto; HEREBY
RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents as of
the 22nd day of December, 1993.
Marcy Syms Merns
______________________________
Marcy Syms Merns
Attest:
John M. Sperger
__________________________
John M. Sperger
Vice President & Secretary
<PAGE>
POWER OF ATTORNEY
1993 FORM 10-K
KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make,
constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E.
Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me
and in my name (with full power of substitution) to sign, execute, attest,
acknowledge and deliver and to do all other acts and things on my behalf as a
Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey
corporation, as said agent and attorney-in-fact may deem necessary or advisable
to enable Midlantic to comply with the Securities Exchange Act of 1934, as
amended, and any rules and regulations and requirements of the Securities and
Exchange Commission in respect thereof, in connection with the filing of annual
reports for the year ended December 31, 1993 on Form 10-K (the "Annual
Reports") under the Securities Exchange Act of 1934, as amended, including
specifically, but without limiting the generality of the foregoing, the power
and authority to sign the name of the undersigned in his capacity as Director
and/or Officer of Midlantic to said Annual Reports, and to any and all
amendments thereto, and to any and all instruments and documents filed as part
of or in connection with the said Annual Reports or amendments thereto; HEREBY
RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or
cause to be done by virtue thereof.
IN WITNESS WHEREOF, the undersigned has subscribed these presents as of
the 22nd day of December, 1993.
Garry J. Scheuring
______________________________
Garry J. Scheuring
Attest:
John M. Sperger
__________________________
John M. Sperger
Vice President & Secretary
