<PAGE>1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark One)
...X.... QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
March 31, 1994
For the quarterly period ended.................................................
OR
........ TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES 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 of (I.R.S. Employer
incorporation or organization) Identification No.)
METRO PARK PLAZA, P.O. BOX 600, EDISON, NEW JERSEY 08818
...............................................................................
(Address of principal executive offices)
(Zip Code)
(908) 321-8000
...............................................................................
(Registrant's telephone number, including area code)
...............................................................................
(Former name, former address and former fiscal year, if changed since last
report.)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days.
Yes ..X... No ......
SHARES OUTSTANDING ON APRIL 29, 1994
Common Stock, par value $3.00 per share - 52,249,267 shares
<PAGE>2
Midlantic Corporation and Subsidiaries
FORM 10-Q
MARCH 31, 1994
PART I - FINANCIAL INFORMATION
INTRODUCTION The interim financial information disclosed in this
Form 10-Q should be read in conjunction with Midlantic
Corporation's 1993 Annual Report and Midlantic
Corporation's 1993 Annual Report on Form 10-K as the
disclosures contained within those reports are
considered an integral part of this Form 10-Q.
ITEM 1. FINANCIAL STATEMENTS
The accompanying interim comparative consolidated
financial statements of Midlantic Corporation ("MC") and
Subsidiaries ("Midlantic" or the "Corporation") on pages
3 through 7 and related notes on pages 8 through 11 are
unaudited and reflect adjustments of a normal recurring
nature, unless otherwise disclosed in this Form 10-Q,
which are, in the opinion of management, necessary for a
fair statement of the results for the interim periods.
Such statements were prepared in accordance with Article
10 of Regulation S-X.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS
The accompanying interim management's discussion on
pages 12 through 28 provides an analysis of material
changes in financial condition and results of operations
in accordance with Item 303(b) of Regulation S-K and
should be read in conjunction with the financial
statements and related notes (see Item 1) and the tables
presented on pages 29 through 46.
<PAGE>3 1of2
<TABLE>
Midlantic Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1994 1993
________ ________
<S> <C> <C>
INTEREST INCOME
Interest and fees on loans $160,559 $163,027
Interest on investment securities
Taxable interest income 27,526 25,053
Tax-exempt interest income 179 162
Interest on deposits with banks 4,964 4,779
Interest on other short-term investments 9,797 15,138
________ ________
Total interest income 203,025 208,159
________ ________
INTEREST EXPENSE
Interest on deposits 53,868 77,097
Interest on short-term borrowings 5,123 3,071
Interest on long-term debt 8,660 9,808
________ ________
Total interest expense 67,651 89,976
________ ________
Net interest income 135,374 118,183
Provision for loan losses 7,499 20,000
________ ________
Net interest income after provision
for loan losses 127,875 98,183
NONINTEREST INCOME
Trust income 9,782 10,233
Service charges on deposits 18,946 18,278
Investment securities gains 1,263 4,851
Income earned on factoring receivables 3,640 3,677
Other 15,621 15,457
________ ________
Total noninterest income 49,252 52,496
________ ________
177,127 150,679
________ ________
NONINTEREST EXPENSES
Salaries and benefits 56,214 54,322
Net occupancy 12,235 11,299
Equipment rental and expense 6,925 7,927
Other real estate owned, net 4,169 56,609
FDIC assessment charges 7,194 9,224
Legal and professional fees 9,875 11,413
Other 24,894 28,378
________ ________
Total noninterest expenses 121,506 179,172
________ ________
Income (loss) before income taxes and
cumulative effect of the changes in
accounting principle 55,621 (28,493)
Income tax expense (benefit) 2,268 (13,026)
________ ________
Income (loss) before cumulative effect
of the changes in accounting principle 53,353 (15,467)
<PAGE>3 2of2
Cumulative effect of the change in
accounting for postemployment benefits (7,528) --
Cumulative effect of the change
in accounting for income taxes -- 38,962
________ ________
NET INCOME $ 45,825 $ 23,495
======== ========
(continued on next page)
<PAGE>4
Midlantic Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
(continued)
THREE MONTHS ENDED
MARCH 31
1994 1993
______ ______
INCOME (LOSS) APPLICABLE TO PRIMARY
COMMON SHARES
Income (loss) before cumulative effect
of the changes in accounting principle $52,447 $(16,373)
Net income 44,919 22,589
INCOME (LOSS) APPLICABLE TO FULLY
DILUTED COMMON SHARES
Income (loss) before cumulative effect
of the changes in accounting principle 53,453 (16,373)
Net income 45,925 22,589
====== ======
INCOME (LOSS) PER COMMON SHARE
Income (loss) before cumulative effect
of the changes in accounting principle
Primary $ .98 $(.35)
Fully diluted .97 (.35)
Cumulative effect of the changes in
accounting principle
Postemployment benefits
Primary (.14) --
Fully diluted (.14) --
Income taxes
Primary -- .83
Fully diluted -- .83
Net income
Primary .84 .48
Fully diluted .83 .48
====== ======
AVERAGE COMMON SHARES AND COMMON SHARE
EQUIVALENTS
Primary 53,473 46,973
Fully diluted 55,077 47,042
====== ======
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>5 1of2
<TABLE>
Midlantic Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<CAPTION>
MARCH 31 December 31
1994 1993
___________ ___________
<S> <C> <C>
ASSETS
Cash and due from banks $ 659,410 $ 712,960
Interest-bearing deposits in other banks 632,002 488,821
Other short-term investments 890,000 1,290,000
Investment securities (market value 1994,
$2,409,626; 1993, $2,467,793) 2,414,409 2,455,410
Total loans (net of unearned income of $138,447
in 1994 and $137,110 in 1993) 8,355,976 8,314,831
Less: allowance for loan losses 381,130 394,450
___________ ___________
Net loans 7,974,846 7,920,381
___________ ___________
Premises and equipment, net 151,269 155,129
Due from customers on acceptances 13,866 11,084
Other real estate owned, net 121,002 132,670
Taxes receivable and net deferred tax assets 207,192 202,823
Other assets 644,887 577,304
___________ ___________
Total assets $13,708,883 $13,946,582
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Domestic deposits
Noninterest-bearing demand $ 2,758,783 $ 2,839,885
Interest-bearing demand 1,382,417 1,433,690
Savings 1,638,967 1,582,614
Retail money market accounts 2,163,599 2,193,582
CDs over $100,000 197,448 206,422
Other time 3,194,025 3,322,335
Overseas branch deposits 11,685 9,273
___________ ___________
Total deposits 11,346,924 11,587,801
___________ ___________
Short-term borrowings 622,699 674,497
Bank acceptances outstanding 13,866 11,084
Other liabilities 183,307 163,884
Long-term debt 375,000 386,752
___________ ___________
Total liabilities 12,541,796 12,824,018
___________ ___________
<PAGE>5 2of2
Shareholders' equity
Capital stock
Preferred stock: no par value
Authorized 40,000,000 shares
Issued 500,000 shares in 1994 and 1993 50,000 50,000
Common stock: par value $3 per share
Authorized 150,000,000 shares
Issued 52,239,697 shares in 1994 and
52,173,999 shares in 1993 156,719 156,522
Surplus 604,980 603,732
Retained earnings 357,229 312,310
Net unrealized holding losses on available
for sale securities, net of taxes (1,841) --
___________ ___________
Total shareholders' equity 1,167,087 1,122,564
___________ ___________
Total liabilities and shareholders' equity $13,708,883 $13,946,582
=========== ===========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>6 1of2
<TABLE>
Midlantic Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31 1994 1993
_________ _________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 45,825 $ 23,495
Adjustments to reconcile net income
to net cash provided by operating activities
Provision for loan and OREO losses 10,999 75,199
Depreciation of premises and equipment 5,799 6,507
Amortization of goodwill and other intangibles 1,605 1,605
Deferred income tax expense (benefit) 11,730 (15,613)
Cumulative effect of changes in accounting principle
Income taxes -- (38,962)
Postemployment benefits 7,528 --
Net accretion of investment securities (4,322) (4,303)
Accretion of net deferred loan fees (2,281) (2,609)
Net gains on the sales of assets (4,785) (5,884)
Net (increase) decrease in trading account assets (13,096) 2,453
Net decrease in OREO 1,444 7,578
Net increase in accrued interest receivable (29,496) (28,042)
Net decrease in accrued interest payable (173) (5,937)
Net (increase) decrease in taxes receivable and
net deferred tax assets (14,797) 104,763
Net increase in other assets (22,400) (41,305)
Net increase in other liabilities 14,676 6,865
Other 4 (97)
_________ _________
Net cash provided by operating activities 8,260 85,713
_________ _________
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from bulk sales of loans 13,940 --
Proceeds from sales of OREO 13,366 13,171
Net decrease in money market investments with
an original maturity of 3 months or less 664,819 249,770
Proceeds from money market investments with an
original maturity of greater than 3 months 140,000 312,430
Purchases of money market investments with an
original maturity of greater than 3 months (548,000) (931,000)
Proceeds from sales of available-for-sale securities 151,465 575,732
Proceeds from matured investment securities 403,295 164,805
Purchases of investment securities (498,256) (299,441)
Net decrease in loans (98,353) 263,512
Purchases of premises and equipment (2,038) (6,446)
Proceeds from sale of stock warrants 1,500 --
Sales of premises and equipment 284 183
_________ _________
Net cash provided by investing activities 242,022 342,716
_________ _________
<PAGE>6 2of2
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits (240,877) (553,793)
Net (decrease) increase in short-term borrowings (51,798) 169,740
Payments on long-term debt (11,752) (50,000)
Proceeds from issuances of common stock 595 33
_________ _________
Net cash used by financing activities (303,832) (434,020)
_________ _________
NET DECREASE IN CASH AND CASH EQUIVALENTS $ (53,550) $ (5,591)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 712,960 799,194
_________ _________
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 659,410 $ 793,603
========= =========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE>7 1of2
<TABLE>
Midlantic Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share and per share data)
<CAPTION>
For the Three Months Ended March 31 1994 1993
__________ ________
<S> <C> <C>
PREFERRED STOCK AT JANUARY 1 AND MARCH 31 $ 50,000 $ 50,000
========== ========
COMMON STOCK
Balance at January 1 $ 156,522 $138,443
Issuance of 35,776 common shares in 1994 and
49,040 common shares in 1993 for preferred
stock dividend 107 147
Issuance of 23,123 common shares and 2,042 common
treasury shares in 1994 and 4,170 common shares
in 1993 for stock awards 70 13
Issuance of 6,799 common shares in 1994
purchased by Midlantic's 401(k) plan 20 --
__________ ________
Balance at March 31 $ 156,719 $138,603
========== ========
SURPLUS
Balance at January 1 $ 603,732 $509,464
Issuance of common shares for preferred
stock dividend 799 759
Issuance of common shares and common treasury
shares for stock options and stock awards 284 (6)
Issuance of common shares purchased by
Midlantic's 401(k) plan 165 --
__________ ________
Balance at March 31 $ 604,980 $510,217
========== ========
RETAINED EARNINGS
Balance at January 1 $ 312,310 $145,578
Net income 45,825 23,495
Issuance of common shares for preferred
stock dividend (906) (906)
__________ ________
Balance at March 31 $ 357,229 $168,167
========== ========
NET UNREALIZED HOLDING GAINS (LOSSES)
ON AVAILABLE FOR SALE SECURITIES
Cumulative effect of adoption of change
in accounting for investment securities $ 1,859 $ --
Change in unrealized holding gains (3,700) --
__________ ________
Balance at March 31 $ (1,841) $ --
========== ========
TREASURY STOCK
Balance at January 1 $ -- $ (23)
Addition of 2,042 common shares in 1994
and 1,368 common shares in 1993 (56) (27)
Issuance of 2,042 common treasury shares
in 1994 and 1,057 common treasury shares in
1993 for stock options and stock awards 56 26
__________ ________
Balance at March 31 $ -- $ (24)
========== ========
<PAGE>7 2of2
TOTAL SHAREHOLDERS' EQUITY
Balance at January 1 $1,122,564 $843,462
Net changes during period 44,523 23,501
__________ ________
Balance at March 31 $1,167,087 $866,963
========== ========
</TABLE>
<PAGE>8
Midlantic Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RECLASSIFICATIONS - Certain captions in the financial statements presented for
prior periods have been reclassified to conform with the 1994 presentation.
ASSETS HELD FOR ACCELERATED DISPOSITION - Assets held for accelerated
disposition (included in other assets), which are carried at fair value less
the estimated cost of disposing of the properties ("net realizable value"),
amounted to $174.8 million at March 31, 1994. During the first quarter of
1994, the Corporation transferred loans and other real estate owned ("OREO")
with a book value of $43.6 million ($30.6 million after related charge-offs) to
assets held for accelerated disposition and resolved $12.3 million. During
April 1994, a portfolio of assets was sold and certain loans and OREO, not
previously identified for sale, were transferred to assets held for accelerated
disposition. In the first quarter of 1993, Midlantic transferred loans and
OREO with a book value of $244.0 million to assets held for accelerated
disposition. These assets, which at March 31, 1993 had a net realizable value
of $165.3 million, were subsequently sold in 1993.
PREFERRED STOCK - On April 13, 1994, the Board of Directors of MC declared a
cash dividend on MC's Term Adjustable Rate Cumulative Preferred Stock - Series
A (the "Preferred Stock") of $906 thousand, representing full payment of the
first quarter 1994 dividend requirement, payable in the second quarter of 1994.
Pursuant to an agreement between Midlantic and the holder of the Preferred
Stock, Midlantic, at its discretion, may pay dividends in cash or in shares of
common stock or in 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.
FINANCIAL INSTRUMENTS - The following table summarizes Midlantic's significant
0ff-balance sheet financial instruments at March 31, 1994 and December 31,
1993:
<TABLE>
<CAPTION>
MARCH 31 December 31
(In thousands) 1994 1993
__________ __________
<S> <C> <C>
Unused commitments to extend credit $2,751,549 $2,691,026
Financial standby letters of credit and
similar arrangements 124,077 128,230
Performance standby letters of credit and
similar arrangements 169,033 174,291
Commercial letters of credit and other short-term
trade-related contingencies 55,773 48,993
Notional amount of interest rate swaps
Agreements to receive a fixed rate of interest 3,358,783 3,369,117
Agreements to pay a fixed rate of interest 898,500 898,500
Agreements to receive and pay a variable
rate of interest 200,000 --
Foreign exchange contracts 61,381 58,714
Forward interest rate swap agreements 300,000 300,000
========== ==========
</TABLE>
<PAGE>9
STATEMENT OF CASH FLOWS - Cash paid during the first three months of 1994 and
1993 for interest on deposits, short-term borrowings and long-term debt
amounted to $67.8 million and $95.9 million, respectively. Net cash paid for
federal and state income taxes during the first three months of 1994 was $97.5
million and net cash received for income taxes during the first quarter of 1993
amounted to $86.7 million.
During the first three months of 1994 and 1993, $5.5 million and $53.3 million,
respectively, of loans, net of charge-offs, were transferred into OREO. The
transfer of loans into OREO and the transfer of loans and OREO to assets held
for accelerated disposition constituted non-cash transactions and, accordingly,
are not reflected in the statement of cash flows.
POSTEMPLOYMENT BENEFITS - In the first quarter of 1994, Midlantic adopted
Statement of Financial Accounting Standards ("FAS") No. 112 "Employers'
Accounting for Postemployment Benefits" as a cumulative effect of a change in
accounting principle. The cumulative effect of this change in accounting
principle reduced first quarter 1994 net income by $7.5 million or $.14 per
fully-diluted common share (net of income taxes). 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
those 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. Prior to the
adoption of FAS No. 112, Midlantic accounted for postemployment benefits on a
pay-as-you-go basis.
ACCOUNTING FOR INVESTMENTS IN DEBT AND EQUITY SECURITIES - As of January 1,
1994, Midlantic adopted FAS No. 115 "Accounting for Certain Investments in Debt
and Equity Securities" which 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 are classified and accounted for in three categories: (1) held to
maturity securities, which are reported at amortized cost; (2) trading
securities, which are reported at fair value with unrealized gains and losses
included in earnings (which is consistent with Midlantic's prior accounting
policy for such securities); and (3) available-for-sale securities, which are
reported at fair value with unrealized gains and losses reported as a separate
component of shareholders' equity and excluded from earnings. Data for periods
prior to January 1, 1994 have not been restated.
Net unrealized holding losses on available-for-sale securities were $1.8
million at March 31, 1994, compared to a $1.9 million gain which was recorded
on January 1, 1994 when FAS No. 115 was adopted, and were included as a
component of shareholders' equity.
<PAGE>10
The investment securities portfolio at March 31, 1994 was comprised of the
following:
<TABLE>
<CAPTION>
(In thousands) MARCH 31, 1994
__________
<S> <C>
Securities held to maturity $1,589,810
Securities available for sale 792,118
Trading securities 32,481
__________
Total investment securities $2,414,409
==========
</TABLE>
The following table presents the maturity distribution for available-for-sale
and held-to-maturity securities at March 31, 1994:
<TABLE>
<CAPTION>
AVAILABLE-FOR-SALE HELD-TO-MATURITY
____________________ _______________________
AMORTIZED FAIR AMORTIZED FAIR
(In thousands) COST VALUE COST VALUE
________ ________ __________ __________
<S> <C> <C> <C> <C>
0-1 years $524,923 $523,686 $ 5,922 $ 5,979
1-5 years 209,002 208,031 626,556 624,716
5-10 years -- -- 832,273 838,671
10 + years 35,091 32,520 125,059 115,661
No maturity 26,289 27,881 -- --
________ ________ __________ __________
$795,305 $792,118 $1,589,810 $1,585,027
======== ======== ========== ==========
</TABLE>
For a breakout of realized and unrealized gains/losses on investment
securities, see Table V "Investment Securities - Carrying and Fair Values and
Gross Unrealized Gains and Losses" and Table VI "Investment Securities - Gross
Realized Gains and Losses" on page 35.
INCOME TAXES - In the first quarter of 1993, the Corporation adopted FAS No.
109 "Accounting for Income Taxes" as a cumulative effect of a change in
accounting principle. The cumulative effect of this change in accounting
principle increased first quarter 1993 net income by $39.0 million or $.83 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. As of March 31, 1994, the
Corporation had approximately $84 million of FAS No. 109 valuation reserves
which represent currently unrecognized federal and state income tax benefits.
Midlantic recorded an income tax expense of $2.3 million and a benefit of $13.0
million in the first quarters of 1994 and 1993, respectively. The income tax
benefit is exclusive of the cumulative effect of Midlantic's adoption of FAS
No. 109. The tax expense recorded for the first quarter of 1994 was comprised
of a tax benefit of $23 million related to a reduction in the FAS No. 109 tax
valuation reserve less $25 million of federal and state income tax expenses on
first quarter operating earnings. The valuation
<PAGE>11
reserve adjustments are the result of Midlantic's assessment of the realization
of its deferred tax asset based upon estimated future profitability.
POSTRETIREMENT BENEFIT EXPENSES
In the first quarter of 1993, the Corporation adopted 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 cost. The
effect of the change in accounting for postretirement benefits from a cash
basis to an accrual basis did not significantly impact the Corporation's
earnings.
RECENTLY ISSUED ACCOUNTING PRONOUNCEMENT - In May, 1993, the Financial
Accounting Standards Board ("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.
<PAGE>12 1of2
MIDLANTIC CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
SUMMARY
Midlantic Corporation and Subsidiaries ("Midlantic" or the "Corporation")
reported net income for the three months ended March 31, 1994 of $45.8 million
or $.83 per fully diluted common share as compared to net income of $23.5
million, or $.48 per fully diluted common share for the corresponding period of
1993.
Income before taxes, credit provisions and certain nonrecurring gains or
charges ("operating margin") amounted to $65.4 million in the first quarter of
1994, nearly sixty percent over the level recorded in the first quarter of
1993. The increase in operating margin reflects an increase in net interest
income due to declining funding costs as well as higher loan yields resulting
from lower levels of nonaccruing loans and growth in the Corporation's consumer
loan portfolio. In addition, operating expenses were lower primarily due to
reduced FDIC assessment charges and loan workout costs as well as Midlantic's
continued commitment to expense management.
The following table summarizes Midlantic's results of operations for the three
months ended March 31, 1994 and 1993:
<TABLE>
MAJOR COMPONENTS OF THE RESULTS OF OPERATIONS
(In thousands)
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1994 1993
________ ________
INCOME BEFORE CREDIT PROVISIONS, NONRECURRING
ITEMS, INCOME TAXES AND THE CUMULATIVE EFFECT
OF CHANGES IN ACCOUNTING PRINCIPLE
<S> <C> <C>
Net interest income $135,374 $118,183
Noninterest income 47,989 47,645
Noninterest expenses
Salaries and benefits 56,214 54,322
OREO expenses, net (excluding OREO provision) 669 1,410
Other 61,123 68,241
________ ________
OPERATING MARGIN 65,357 41,855
________ ________
ADDITIONS
Investment securities gains 1,263 4,851
DEDUCTIONS
Provision for loan losses 7,499 20,000
Provision for OREO* 3,500 55,199
________ ________
Income (loss) before income taxes and cumulative
effect of changes in accounting principle 55,621 (28,493)
Income tax expense (benefit) 2,268 (13,026)
________ ________
Income (loss) before cumulative effect
of changes in accounting principle 53,353 (15,467)
Cumulative effect of changes in
accounting principle (7,528) 38,962
________ ________
NET INCOME $ 45,825 $ 23,495
======== ========
<PAGE>12 2of2
<FN>
* Results of operations for the three months ended March 31, 1993 include a $34
million special provision for OREO that was identified for accelerated
disposition.
</TABLE>
<PAGE>13
RECENT ACTIVITIES OF THE CORPORATION
Following Midlantic's recent significant improvements in financial condition
and performance, asset quality and capital ratios, the Federal Reserve Bank of
New York ("FRB") and the Office of the Comptroller of the Currency ("OCC") in
March 1994, terminated the written agreements under which the Corporation and
its lead bank, Midlantic National Bank ("MNB") operated. In addition, in April
1994, the Board of Directors approved a cash dividend on Midlantic's common
stock, to be paid in the second quarter, of $.10 per share, the first dividend
paid to common shareholders since the third quarter of 1990.
On April 21, 1994, the Corporation filed an application with the OCC to merge
Continental Bank ("CB") into MNB. Upon completion of this proposed merger, the
merged bank will be renamed Midlantic Bank, N.A.. Pending regulatory approval,
it is anticipated that this merger will be completed by the end of 1994.
During 1993, the Corporation completed a bulk sales program, initiated early in
the year, of distressed real estate assets with a book value of $293.6 million.
The assets sold were predominantly commercial real estate loans and other real
estate owned ("OREO") properties in New Jersey, Pennsylvania and Florida. In
December 1993, the Corporation determined to proceed with a second major bulk
sales program involving loans and OREO with an aggregate book value, before
charge-offs, that totalled approximately $335 million at March 31, 1994. The
assets for sale, which have been reclassified in the Corporation's 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. By the end of April 1994, Midlantic resolved or
sold approximately 20 percent of these assets. Disposition of the balance of
assets held for accelerated disposition, anticipated to be completed during the
remainder of 1994, is subject to satisfaction of various conditions including
customary closing conditions and in some cases successful negotiation of terms
and execution of definitive agreements. No assurance can be given that the
disposition 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. At March 31, 1994, assets held for accelerated disposition, which are
carried at fair value less the estimated cost of disposing of the properties
("net realizable value"), amounted to $174.8 million. In April 1994, the
Corporation added certain loans and OREO, not previously identified for sale,
to assets held for accelerated disposition.
During the third quarter of 1993 the Corporation announced its Business Value
Banking sm program for the purpose of providing banking services to small
businesses in Midlantic's market area. In conjunction with the program, the
Corporation also announced a $1 billion lending initiative to small and medium-
sized commercial businesses. A major marketing program has recently commenced
to communicate Midlantic's commitment to build a greater presence in its
business market.
In the second quarter of 1993, the Corporation bolstered its capital base
through the issuance, in a public offering, of 5.75 million shares of common
stock for net proceeds of $107.1 million.
<PAGE>14
RESULTS OF OPERATIONS
FIRST QUARTER 1994 VS FIRST QUARTER 1993
NET INTEREST INCOME
Net interest income ("NII") for the first quarter of 1994 exceeded that of the
first quarter of 1993 by $17.2 million or 14.5 percent.
<TABLE>
NET INTEREST INCOME/NET INTEREST MARGIN
(Dollars in thousands)
<CAPTION>
THREE MONTHS ENDED
MARCH 31
Increase
1994 1993 (Decrease)
________ ________ _______
<S> <C> <C> <C>
Net interest income $135,374 $118,183 $17,191
Net interest margin* 4.42% 3.76% .66%
======== ======== =======
<FN>
* Net interest income (not on a tax-equivalent basis) as a percent of those average
assets which generate contractual interest receivables.
</TABLE>
NII for the first quarter of 1994 as compared with the first quarter of 1993
was primarily affected by declining funding costs relative to asset yields.
Lower levels of nonaccrual assets moderated the unfavorable affect of a decline
in interest-earning assets on NII.
Average interest-earning assets declined $326.1 million for the three months
ended March 31, 1994 when compared with average interest-earning assets for the
corresponding period of 1993. This primarily reflected a contraction in
average loans of $438.3 million. Loans sold in bulk sales or identified for
accelerated disposition and charge offs were partly responsible for the
decrease in loans in the first quarter of 1994. On average, consumer loans
were $666.1 million or 40.4 percent higher than in the first quarter of 1993.
However, commercial loans fell by $409.4 million or 12.3 percent when comparing
average balances for the first quarters of 1994 and 1993. Excluding real
estate loans, which continue to decline as older credits runoff, loan growth
during the first quarter of 1994 was stronger than in recent quarterly periods.
Commercial loans and consumer loans increased in the aggregate by $190.7
million or 3.6 percent from the balance at December 31, 1993.
The small net decline in average interest-earning assets reflects a lower level
of interest-bearing funding. There is evidence that the decrease in interest-
bearing deposits may be partially a result of an industry-wide movement of
depositors' funds to non-deposit instruments.
<PAGE>15
<TABLE>
AVERAGE BALANCES
(In millions)
<CAPTION>
THREE MONTHS ENDED
MARCH 31
Increase
1994 1993 (Decrease)
_______ _______ _____
<S> <C> <C> <C>
Average interest-earning
assets $12,422 $12,748 $(326)
Average interest-bearing
sources of funds 9,775 10,472 (697)
Average noninterest-bearing
sources of funds* 2,647 2,276 371
======= ======= =====
<FN>
* Primarily comprised of noninterest-bearing demand deposits.
</TABLE>
The net interest margin in the first quarter of 1994 was 66 basis points higher
than in the corresponding period of 1993. The increase in net interest margin
reflected a 65 basis points decline in the rate paid on total sources of funds
(particularly retail deposits) and a 1 basis point increase in the yield on
interest-earning assets.
PROVISION FOR LOAN LOSSES
The provision for loan losses was $7.5 million for the first quarter of 1994
and $20.0 million for the first quarter of 1993. Based upon Midlantic's
methodology for establishing an allowance for loan losses as discussed under
the "Asset Quality" and "Allowance for Loan Losses" sections of this report,
Midlantic concluded that its allowance for loan losses, after giving effect to
the 1994 loan loss provision, was adequate at March 31, 1994 to absorb
estimated losses in its credit portfolios.
NONINTEREST INCOME
<TABLE>
NONINTEREST INCOME
(In thousands)
<CAPTION>
Increase
THREE MONTHS ENDED MARCH 31 1994 1993 (Decrease)
_______ _______ _______
<S> <C> <C> <C>
Trust income $ 9,782 $10,233 $ (451)
Service charges on deposit accounts 18,946 18,278 668
Investment securities gains 1,263 4,851 (3,588)
Income earned on factoring receivables 3,640 3,677 (37)
Miscellaneous 15,621 15,457 164
_______ _______ _______
TOTAL NONINTEREST INCOME $49,252 $52,496 $(3,244)
======= ======= =======
</TABLE>
Trust fees were unfavorably affected by the termination of a small number of
employee benefit accounts, but benefitted from a higher level 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.
<PAGE>16
Service charge income grew by $668 thousand or 3.7 percent for the first
quarter of 1994. The repricing of services contributed to higher income
levels.
Net investment securities gains amounted to $1.3 million for the three months
ended March 31, 1994 compared with net gains of $4.9 million during the first
quarter of 1993. Gains in 1994 were realized primarily from the sale of nearly
$150 million of U.S. Treasury securities in the Corporation's available for
sale investment portfolio. Gains in 1993 were realized from the sale of $562
million of U.S. Treasury securities that were previously identified for sale.
NONINTEREST EXPENSES
<TABLE>
NONINTEREST EXPENSES
(In thousands)
<CAPTION>
Increase
THREE MONTHS ENDED MARCH 31 1994 1993 (Decrease)
________ ________ ________
<S> <C> <C> <C>
Salaries and benefits $ 56,214 $ 54,322 $ 1,892
Net occupancy 12,235 11,299 936
Equipment rental and expense 6,925 7,927 (1,002)
Other real estate owned, net 4,169 56,609 (52,440)
FDIC assessment charges 7,194 9,224 (2,030)
Legal and professional fees 9,875 11,413 (1,538)
Miscellaneous 24,894 28,378 (3,484)
________ ________ ________
TOTAL NONINTEREST EXPENSES $121,506 $179,172 $(57,666)
======== ======== ========
</TABLE>
Salaries and benefits expense increased $1.9 million or 3.5 percent for the
three months ended March 31, 1994. The increase in salaries and benefits
expense primarily reflected expenses incurred for Midlantic's "401(k)" employee
savings plan which was established during the third quarter of 1993 and other
employee incentive plans, partially offset by an approximate 8 percent decline
in the number of full-time equivalent employees.
In regard to net occupancy and equipment related expenses, higher repairs and
maintenance expenses, due largely to heavier than normal snow and ice removal
costs, were more than offset by the renegotiation of equipment rental contracts
and a decline in depreciation.
Expenses associated with OREO declined $52.4 million for the first quarter of
1994 when compared with the corresponding period of 1993. Included in the
first quarter 1994 and 1993 expenses were charges of $3.5 million and $21.1
million, respectively, which adjusted the carrying value of certain OREO
properties to approximate net realizable value. The $17.7 million or 83.5
percent decline in such adjustments is due to lower levels of OREO holdings and
to an apparent price stabilization in many real estate markets as reflected by
appraisals received on OREO properties. In the first quarter of 1993, $34.0
million was also provided against those OREO properties that were transferred
to "assets held for accelerated disposition" and subsequently sold later in the
year. Such special provision represented the adjustment 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. OREO expenses in both 1994 and 1993 also included operating
costs, net of rental income for OREO properties and net gains or losses on the
sale of OREO.
<PAGE>17
The Federal Deposit Insurance Corporation ("FDIC") assessment decreased by $2.0
million or 22.0 percent for the three months ended March 31, 1994, as a result
of a decline in the premium paid by Midlantic's bank subsidiaries. The level
of expenses in the first quarter of 1993 had increased following imposition of
a new risk-based assessment system which was adopted by the FDIC as of January
1, 1993. The assessment fees on Midlantic's bank subsidiaries were reduced
later in 1993 and again as of January 1, 1994.
The decline in legal and professional fees of $1.5 million or 13.5 percent for
the first quarter of 1994, was primarily due to a reduction in loan workout
expenses primarily reflecting the Corporation's lower level of problem assets.
Miscellaneous expenses decreased $3.5 million or 12.3 percent in the first
quarter of 1994 compared to the first quarter of the previous year. Expense
levels were generally lower than those of last year reflecting the
Corporation's continued dedication to expense management.
INCOME TAXES
ADOPTION OF FAS NO. 109
In the first quarter of 1993, Midlantic adopted Financial Accounting Standards
("FAS") No. 109. FAS No. 109 requires 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, realized in the first quarter
of 1993, of $39.0 million or $.83 per fully diluted common share. As of March
31, 1994, the Corporation had approximately $84 million of FAS No. 109
valuation reserves, which represent currently unrecognized federal and state
income tax benefits.
GENERAL
Midlantic recorded an income tax expense of $2.3 million in the first quarter
of 1994 and a tax benefit of $13.0 million in the first quarter 1993. The tax
expense recorded for the first quarter of 1994 was comprised of a tax benefit
of $23 million related to a reduction in the FAS No. 109 tax valuation reserve
and $25 million of federal and state income tax expenses on first quarter
operating earnings. The tax benefit for the first quarter of 1993 was related
to a reduction in the FAS No. 109 tax valuation reserve. The valuation reserve
adjustments are the result of Midlantic's assessment of the realization of its
deferred tax asset based upon estimated future profitability.
<PAGE>18
POSTEMPLOYMENT BENEFIT EXPENSES
In the first quarter of 1994, Midlantic adopted FAS No. 112 "Employers'
Accounting for Postemployment Benefits" as a cumulative effect of a change in
accounting principle amounting to a charge of $7.5 million, net of income
taxes, or $.14 per fully diluted common share. FAS No. 112 requires accrual
accounting for certain postemployment benefits (benefits such as disability and
health coverage to former or inactive employees after employment but before
retirement) under the following circumstances: if the employees' rights to
those benefits are attributable to services already rendered, 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. Midlantic
previously accounted for postemployment benefits on a pay-as-you-go basis.
POSTRETIREMENT BENEFIT EXPENSES
In the first quarter of 1993, the Corporation adopted 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 cost. The
effect of the change in accounting for postretirement benefits from a cash
basis to an accrual basis did not significantly impact the Corporation's
earnings.
<PAGE>19
FINANCIAL CONDITION
MARCH 31, 1994 VS. DECEMBER 31, 1993
ASSET QUALITY
Midlantic has made significant progress in improving asset quality in recent
years as nonaccrual loans and OREO were reduced from the peak levels
experienced in 1991, amounting to over 12 percent of loans and OREO outstanding
at that time, to less than 5 percent at the end of 1993 (excluding assets held
for accelerated disposition which are carried at net realizable value).
Further improvement is expected but, with a much smaller level of nonaccruing
and OREO assets, management expects that the rate of improvement will likely be
somewhat less rapid than in the preceding two years. As of March 31, 1994,
nonaccrual loans and OREO assets totalled $374.5 million or 4.4 percent of
loans and OREO outstanding compared to $398.0 million or 4.7 percent at the end
of 1993.
Changes in nonaccrual loan totals are summarized in Table XV. At March 31,
1994, nonaccrual loans were primarily comprised of commercial and financial
(50.4 percent of the total), long-term commercial mortgages (21.1 percent of
the total) and construction and development loans (15.9 percent of the total).
The relationship of each of these categories of nonaccrual loans to its
respective loan portfolio was 4.2 percent commercial and financial; 3.3 percent
long-term commercial mortgage; and 5.1 percent construction and development.
Construction and development loans and long-term commercial mortgage loans
("commercial real estate loans") that were nonaccrual at quarter-end 1994
collectively amounted to $93.9 million, of which 27.4 percent comprised
industrial/warehouse, 18.0 percent land, 15.3 percent residential properties,
and 9.0 percent office buildings. Total commercial real estate loans declined
significantly during the past twelve months as indicated in the following
table:
<TABLE>
COMMERCIAL REAL ESTATE LOANS
(In millions)
<CAPTION>
MARCH 31 Dec. 31 March 31
FOR THE QUARTER ENDED 1994 1993 1993
______ ______ ______
<S> <C> <C> <C>
Long-term commercial mortgage loans $1,631 $1,665 1,839
Construction and development loans 789 834 1,227
______ ______ ______
Total commercial real
estate loans $2,420 $2,499 $3,066
====== ====== ======
</TABLE>
The decline in total commercial real estate loans was primarily due to
principal paydowns, the transfer of loans to OREO, loan charge-offs and loans
sold in bulk sales or identified for possible bulk sale. In anticipation of
possible bulk sales, during the fourth quarter of 1993 and the first quarter of
1994, the Corporation transferred commercial real estate loans with an
aggregate book value of approximately $260 million to other assets as "assets
held for accelerated disposition." Management's intention is to further reduce
construction and development loan exposure through sales and paydowns.
The level of commercial nonaccrual loans, which increased $13.2 million since
December 31, 1993, reflects the continued impact of a relatively weak business
recovery in Midlantic's core market area.
<PAGE>20
Future levels of nonaccrual loans will continue to be dependent upon the
economy. Stronger than expected economic growth would tend to result in
reductions in nonaccrual loans while a deterioration in economic conditions
would tend to have the opposite effect.
It is not possible to precisely predict the extent of losses which may
ultimately be incurred from Midlantic's remaining nonaccrual loans at the end
of the first quarter of 1994. Such loans are often partially or fully secured
and since the total is much lower than the comparable totals of a year ago, the
relative aggregate risk of loss to the Corporation has been reduced.
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, restructured loans are classified as nonaccrual.
Renegotiated loans amounted to $165.5 million at March 31, 1994 compared with
$172.1 million at year-end 1993 (see Table XIII). The average current yield
recognized as interest on accruing renegotiated loans is 6.42 percent. The
effective interest rate as calculated under FAS No. 15 on these renegotiated
loans is 7.33 percent. In those cases in which 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.
OREO (in-substance foreclosures and acquired OREO properties) amounted to
$121.0 million at March 31, 1994, down $11.7 million or 8.8 percent from the
December 31, 1993 level of $132.7 million. At March 31, 1994, in-substance
foreclosures amounted to $33.5 million and acquired OREO properties were $87.5
million as compared with levels of $35.4 million and $97.2 million,
respectively, at December 31, 1993. The decline in total OREO since December
31, 1993 primarily reflected OREO properties sold of $13.1 million, writedowns
of $3.5 million and additions to OREO totalling $5.7 million (see Table XVIII).
Accruing loans past due ninety days or more as to interest or principal
payments amounted to $20.9 million and $36.2 million at March 31, 1994 and
December 31, 1993, respectively.
As of the end of the first quarter of 1994, Midlantic had identified an
additional $54.0 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.
Midlantic originated or participated in 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. Based upon the bank regulators' February 1992 revised supervisory
definition, 20 HLTs in the amount of $177.7 million were outstanding at March
31, 1994 and Midlantic is committed to lend an additional $97.9 million
primarily to these HLT borrowers. At December 31, 1993, Midlantic had 22
reportable HLT outstandings amounting to $198.9 million
<PAGE>21
and unfunded commitments to HLT borrowers of $107.6 million. Midlantic's
entire HLT exposure is comprised of senior debt. HLTs comprised 2.1 percent
of total loans at March 31, 1994 and their contribution to total revenue was
modest.
The Corporation's foreign outstandings (principally money market assets) at
March 31, 1994, all of which were dollar denominated, amounted to $680.6
million or 5.0 percent of total consolidated assets as compared with $637.9
million or 4.6 percent at year-end, 1993. The majority of foreign outstandings
are short-term money market investments with domestic subsidiaries of foreign
banks. At March 31, 1994, foreign outstandings to individual countries
exceeding .75 percent of total assets, were France, Canada and Germany
(amounting to 1.3 percent, .9 percent and .8 percent, respectively, of total
assets). At December 31, 1993, foreign outstandings to France, Japan and
Switzerland amounted to 1.1 percent, .9 percent and .9 percent of total assets,
respectively. Substantially all of these outstandings were with banks.
ALLOWANCE FOR LOAN LOSSES
Midlantic considers various factors in determining the appropriate level of the
allowance for loan losses, including an assessment of the financial condition
of individual borrowers, a determination of the value and adequacy of
underlying collateral (based on appraisals, where appropriate or 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 and criticized loans.
Such factors as the condition of the national and regional economies and the
level and trend of interest rates are also considered. Additions to the
allowance are made through provisions charged against current operations and
through any recoveries on loans previously charged off. Midlantic's allowance
for loan losses amounted to 4.56 percent and 4.74 percent of total loans, net
of unearned income, at March 31, 1994 and December 31, 1993, respectively. The
decline in this ratio reflects the decrease in nonaccrual loans and the
related allowances allocated to those nonaccrual loans. At both March 31, 1994
and December 31, 1993, the ratio of the allowance for loan losses to nonaccrual
loans amounted to approximately 150 percent.
As part of its process for assessing asset quality and the allowance for loan
losses, Midlantic refers to third party sources for data concerning economic
trends. This information indicates that the economies of Midlantic's primary
real estate lending markets have been adversely affected by overall corporate
downsizing, increasing unemployment, declining real estate values, diminishing
consumer confidence levels and relatively high debt levels. While certain
markets began to show signs of improvement or stabilization since late 1992,
this followed two years (1990 and 1991) of significant deterioration in the
value and marketability of all real estate types.
In connection with the bulk sale or designation for possible bulk sale of
distressed real estate loans, during 1993, the Corporation charged-off a net
$181.9 million of loans. During the first three months of 1994 a net $7.9
million was charged-off on loans designated during this period as held for
accelerated disposition.
Midlantic's net charge-offs of $12.9 million for the first three months of 1994
compared with $28.9 million for the corresponding period of 1993 (which
<PAGE>22
does not include the above-mentioned charge-offs on loans sold in bulk sales
transactions or loans identified for possible bulk sale). Net charge-offs as a
percent of average loans, on an annualized basis, amounted to .63 percent, as
compared with 1.35 percent for the first three months of 1993 and 1.95 percent
for the year ended December 31, 1993. Net charge-offs in 1994 principally
reflected net losses incurred on commercial and financial loans ($5.1 million),
commercial real estate loans ($4.1 million) and loans to individuals ($3.3
million).
As part of its process to assess credit quality, Midlantic utilizes its risk
rating system to analyze its loans. The risk rating system monitors the risk
trends in Midlantic's loan portfolio and assists in establishing an adequate
allowance for loan losses. The rating system assigns a separate numerical
rating to each credit based upon an assessment of the degree of risk inherent
in each loan. Regular audits and reviews test the risk ratings, the integrity
of the loan management information system and the adherence to credit policies
and procedures. Reviews are also conducted to test portfolio, industry and
borrower risk trends.
Midlantic considers its allowance for loan losses to be adequate based upon the
size and risk characteristics of the credit portfolio outstanding at March 31,
1994, including the uncertainties that prevail in the economy, most notably in
the real estate market. If economic conditions were to deteriorate
significantly, future provisions for loan losses could increase above the level
taken in the first quarter of 1994 in order to maintain an adequate allowance
for loan losses.
INVESTMENT SECURITIES
In the first quarter of 1994, Midlantic adopted FAS No. 115 "Accounting for
Certain Investments in Debt and Equity Securities". FAS No. 115 established
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 have been classified
into three categories: (1) held to maturity securities which the Corporation
has both the positive intent and ability to hold until maturity are reported at
amortized/accreted cost; (2) trading securities, which are purchased and held
principally for the purpose of selling in the near-term, are reported at fair
value with unrealized gains and losses included in earnings, (which is
consistent with Midlantic's prior accounting policy for such securities); and
(3) available for sale securities ("AFS securities"), which do not meet the
criteria of the other two categories, are reported at fair value with
unrealized gains or losses, net of applicable income taxes, reported as
"net unrealized holding gains (losses) on available for sale securities, net of
taxes," a separate category of shareholders' equity.
At March 31, 1994, investment securities totalled $2.4 billion (based upon the
provisions of FAS No. 115), virtually unchanged from the $2.5 billion recorded
at December 31, 1993. The investment securities portfolio at March 31, 1994
included $1.6 billion of held to maturity securities, $792.1 million of AFS
securities and $32.5 million of trading account securities. On March 31, 1994,
Midlantic recorded as a component of shareholders' equity, an unrealized
holding loss on AFS securities of $1.8 million, compared to a $1.9 million gain
recorded at the beginning of the year, when FAS No. 115 was adopted.
Increasing interest rates, particularly on U.S. government securities, resulted
in the unrealized holding loss.
<PAGE>23
Net unrealized depreciation on Midlantic's held to maturity portfolio amounted
to $4.8 million at March 31, 1994, which was comprised of gross unrealized
losses of $11.4 million and gross unrealized gains of $6.6 million (see Table
V). At December 31, 1993, the Corporation had net unrealized appreciation of
$12.4 million on its total investment securities portfolio, which was comprised
of gross unrealized gains of $13.9 million and gross unrealized losses of $1.5
million.
At quarter-end 1994, the available for sale portfolio consisted of $731.5
million of U.S. Treasury obligations with a remaining maturity of
approximately 1.0 years and debt, equity and state and municipal securities
totalling $60.6 million. The held to maturity portfolio, which had an average
maturity of 3.8 years at March 31, 1994, is comprised of $1.0 billion of
federal agency mortgage-backed securities (with a weighted average maturity of
approximately six years) and $577.0 million of shorter-term U.S. Treasury
securities. The average maturity of the investment portfolio outstanding on
December 31, 1993 amounted to approximately 3 years.
MONEY MARKET INVESTMENTS
The Corporation presently invests a sizable portion of its available funds in
short-term money market investments, including federal funds sold, term federal
funds sold, interest-bearing deposits in other banks, repurchase agreements and
commercial paper. At March 31, 1994, money market investments totalled $1.5
billion or 12.3 percent of total interest-earning assets compared with $1.8
billion or 14.1 percent of interest-earning assets at year-end 1993. Midlantic
anticipates that over time a portion of these liquid assets will be utilized to
fund loan demand.
INTEREST SENSITIVITY MANAGEMENT
Interest rate risk refers to the periodic and cumulative exposure from changes
in interest rates on earnings and capital. 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. Midlantic's Asset-Liability Committee
("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 percentage 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" model 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 March 31, 1994, Midlantic had approximately $545 million more liabilities
maturing or repricing than assets. This March 31, 1994 gap indicated a
possible decline in NII if interest rates increase immediately.
<PAGE>24
The calculated amount of prospective NII at risk to interest rate changes
within one year is estimated to be about 3 percent (assuming interest rate
volatility is similar to that experienced during the past several years) and in
line with the Corporation's policy parameters in this regard. 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. Most of the interest rate swaps outstanding as of March 31, 1994
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, which is
reset quarterly and generally tied to the three month LIBOR (an internationally
recognized interest rate index).
<TABLE>
INTEREST RATE SWAPS
<CAPTION>
MARCH 31, 1994
_______________________________________________
Notional Fixed Variable Net Exchange
(In millions) Amounts Rate Rate Rate
______ ____ ____ ____
<S> <C> <C> <C> <C>
Receive a fixed
rate of interest $3,358 5.38% 3.50% 1.88%
Pay a fixed rate $ 899 5.15% 3.49% 1.66%
of interest
Receive and pay a
variable rate of
interest $ 200 N/A 3.88% (receive) }
3.58% (pay) }.30%
====== ==== ==== ====
</TABLE>
The notional amounts listed in the above table 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 March 31, 1994, Midlantic did not have
any interest swaps or forward interest rate swap agreements tied other than to
a fixed rate, LIBOR or prime rate, nor did the Corporation maintain or utilize,
at that time, any exchange traded futures contracts, options or other exchange
traded 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.
At March 31, 1994, the Corporation used interest rate swaps for which it
received interest at a fixed rate to hedge certain loans and fixed cost
deposits and other funding. For those swaps on which Midlantic has agreed to
pay a fixed rate, the hedged items are generally investment securities bearing
fixed rates of interest with stated maturities of five to seven years.
During the first quarter of 1994, the Corporation entered into $200.0 million
(notional amount) of swap contracts in which it pays an interest rate tied to
the prime rate and receives LIBOR (representing the only significant activity
in the Corporation's interest rate swap accounts during the quarter). The
purpose of these contracts is to hedge against the risk that funding costs
could rise faster than the interest earned on earnings assets whose yields
adjust to changes in the prime rate. As of March 31, 1994, there were no
terminated swap contracts and accordingly, no deferred gains or losses.
<PAGE>25
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 March 31, 1994
were associated with organizations having securities rated as investment grade
by independent rating agencies.
As of March 31, 1994, the estimated credit exposure associated with interest
rate swap contracts was approximately $85 million representing those swaps that
show a positive (favorable) mark-to-market position (see table below). The
following table summarizes the maturities of the notional amounts of all swap
contracts in place as of March 31, 1994. Net interest income recorded by the
Corporation in the first quarter of 1994 for all interest rate swap contracts
amounted to $14.3 million. Management believes that the swap contracts it has
in place as of March 31, 1994 have been effective tools in the control of
interest rate risk.
<TABLE>
MATURITY OF DISTRIBUTION OF SWAP CONTRACTS IN PLACE AS OF
MARCH 31, 1994*
<CAPTION>
Notional Amounts
________________________________
Receive Pay Receive and
(In millions) Fixed Fixed Pay Variable
______ _____ _____
<S> <C> <C> <C>
1994 - Second quarter $ 50 $ -- $ --
- Third quarter 50 -- --
- Fourth quarter 709 -- --
1995 - First quarter 400 -- --
- Second quarter -- -- --
- Third quarter -- -- --
- Fourth quarter 1,000 -- --
1996 900 -- 200
1997 250 599 --
1998 and after -- 300 --
______ _____ _____
Total interest rate swaps $3,359 $ 899 $ 200
====== ===== =====
Fair value of interest rate swaps (gross) $ 50 $ 35 $ (1)
====== ===== =====
<FN>
* Excludes $300 million of forward interest rate swap agreements for which
Midlantic had a firm commitment for delivery, which occurred in early April,
1994.
</TABLE>
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.
<PAGE>26
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 CD's,
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.
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.
<TABLE>
LIQUIDITY RATIOS
<CAPTION>
MARCH 31 December 31 March 31
1994 1993 1993
_____ _____ _____
<S> <C> <C> <C>
Liquidity ratio (1) 28.6% 31.6% 30.3%
Funding ratio (2) (21.0) (25.0) (23.9)
Total loans, net of unearned
income, as a % of total deposits 73.6 71.8 70.2
Core deposits as a % of total
loans, net of unearned income 133.3 136.8 136.1
Unfunded loan commitments as a
% of loans outstanding 32.9 32.4 33.0
===== ===== =====
<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>
At March 31, 1994, Midlantic had unfunded loan commitments outstanding of $2.8
billion as compared with $2.7 billion at December 31, 1993. Takedowns on
commitments have been occurring during the normal course of business at levels
that are historically predictable.
PARENT COMPANIES
Midlantic Corporation ("MC") and its lower-tier holding company, Midlantic
Banks Inc. ("parent companies") require sources of funds to meet contractual
obligations, including servicing long-term debt, and cash dividend payments on
the Corporation's preferred and common stock.
The parent companies' liquidity (cash on hand, money market investments and
available for sale securities), which is managed in conjunction with the short-
term resources of the Corporation's nonbank subsidiaries, aggregated $224.5
million at March 31, 1994 compared to $234.6 million at December 31, 1993.
During the first quarter of 1993, the Corporation paid at maturity $50 million
of its 11.35% Notes and obtained a federal income tax refund of approximately
$40 million. The parent companies' liquidity position was enhanced in the
second quarter of 1993 by the proceeds of $107.1 million from the issuance of
common stock (see "Recent Activities of the Corporation"). In the first
quarter of 1994, the Corporation redeemed at par value ($11.8 million), the
remaining outstanding 7 3/4% Debentures. Ongoing parent company
<PAGE>27
operating and interest expenses and dividends are expected to be fully funded
from dividend payments and management fees from MNB and CB.
As a result of MNB's financial progress over the past several quarterly
periods, on April 13, 1994, the Board of Directors approved a cash dividend by
MNB to its parent (the last dividend paid by MNB was in the first quarter of
1990). Under certain circumstances, CB requires advance approval from the FDIC
and the Pennsylvania Department of Banking to pay dividends. CB has remitted
uninterrupted dividends since the third quarter of 1992.
CAPITAL ADEQUACY
Midlantic places a high priority on capital adequacy in order to exceed minimum
bank regulatory guidelines and position the organization to compete effectively
in its market areas.
In recent years, Midlantic has increased its capital position through a variety
of actions including common stock offerings in August 1992 and May 1993. As a
result, the Corporation's capital ratios as well as the capital ratios of MNB
and CB have significantly improved. Federal bank regulators utilize risk-based
and leverage ratios to assess capital adequacy. As of March 31, 1994,
Midlantic reported a tier 1 risk-based capital ratio of 9.95 percent, a total
risk-based capital ratio (tier 1 plus tier 2 capital) of 13.98 percent and a
leverage ratio of 7.35 percent. These ratios compare with minimum regulatory
guidelines of 4.00 percent for tier 1, 8.00 percent for total capital and 3.00
percent for leverage.
As of March 31, 1994, MNB had a tier 1 risk-based capital ratio of 11.97
percent and a total risk-based capital ratio of 13.26 percent. MNB's leverage
ratio as of March 31, 1994 was 8.52 percent. At March 31, 1994, CB exceeded
all risk-based capital requirements with a tier 1 risk-based capital ratio of
9.99 percent, a total risk-based capital ratio of 11.26 percent and a leverage
ratio of 8.12 percent.
<PAGE>28
<TABLE>
CAPITAL RATIOS (1)
<CAPTION>
FOR THE THREE MONTHS MARCH 31 Dec. 31 Sept. 30 June 30 March 31
ENDED 1994 1993 1993 1993 1993
_____ _____ _____ _____ _____
<S> <C> <C> <C> <C> <C>
Tier 1 risk-based
Midlantic 9.95% 9.28% 9.04% 8.45% 7.03%
MNB 11.97 11.03 10.71 9.96 9.50
CB 9.99 9.88 9.75 9.62 9.38
Total risk-based
Midlantic 13.98% 13.29% 13.13% 12.52% 11.07%
MNB 13.26 12.32 12.03 11.28 10.82
CB 11.26 11.15 11.03 10.90 10.66
Leverage
Midlantic 7.35% 6.81% 6.86% 6.32% 5.24%
MNB 8.52 7.89 7.91 7.23 6.93
CB 8.12 7.79 8.11 7.97 7.63
===== ===== ===== ===== =====
<FN>
(1) Capital ratios 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.
</TABLE>
On March 23, 1994, the Board of Directors approved the payment of the second
quarter dividend on the Term Adjustable Rate Cumulative Preferred Stock -
Series A (the "Preferred Stock") in cash. Prior to this, based upon a July
22, 1992 agreement between Midlantic and the holders of the Preferred Stock,
dividends on the Preferred Stock were paid through the issuance of shares of
Midlantic's common stock in lieu of a cash payment. Pursuant to the agreement,
Midlantic may at its discretion pay 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.
As mentioned in "Recent Activities of the Corporation," on April 13, 1994, the
Board of Directors reinstated a quarterly cash dividend on Midlantic's common
stock of $.10 per common share.
<PAGE>29
MIDLANTIC CORPORATION AND SUBSIDIARIES
STATISTICAL TABLES TO
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
<PAGE>30
<TABLE>
Midlantic Corporation And Subsidiaries
TABLE I - ANALYSIS OF CHANGES IN NET INTEREST INCOME
(In thousands)
<CAPTION>
FOR THE THREE MONTHS
ENDED MARCH 31, 1994 VS. 1993 VOLUME(c) RATE(c) TOTAL
________ ________ ________
<S> <C> <C> <C>
INTEREST-EARNING ASSETS
Interest-bearing deposits
in other banks $ 205 $ (20) $ 185
Other short-term investments (3,890) (1,451) (5,341)
Investment securities 8,846 (6,356) 2,490
Commercial, financial and foreign loans (a)(b) (8,013) 707 (7,306)
Real estate loans(a)(b) (15,801) 10,224 (5,577)
Loans to individuals(a)(b) 12,898 (2,483) 10,415
________ ________ ________
Total interest-earning assets (5,755) 621 (5,134)
________ ________ ________
INTEREST-BEARING SOURCES OF FUNDS USED TO
FINANCE INTEREST-EARNING ASSETS
Domestic savings and time deposits (6,955) (16,205) (23,160)
Overseas branch deposits (61) (8) (69)
Short-term borrowings 2,045 7 2,052
Long-term debt (1,014) (134) (1,148)
________ ________ ________
Total interest-bearing sources
of funds used to finance
interest-earning assets (5,985) (16,340) (22,325)
________ ________ ________
CHANGE IN NET INTEREST INCOME $ 230 $ 16,961 $ 17,191
======== ======== ========
<FN>
(a) Includes income from loan fees which is not significant.
(b) Includes nonaccrual loans.
(c) The changes which cannot be attributed solely to changes in the balances (volume) or
to changes in the rates are allocated to these categories on the basis of their
respective percentage changes.
</TABLE>
<PAGE>31 1of2
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE II - COMPARATIVE CONSOLIDATED AVERAGE BALANCE SHEET
WITH RESULTANT INTEREST AND AVERAGE RATES*
(In thousands)
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31, 1994 MARCH 31, 1993
_______________________________ _______________________________
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
___________ ________ ____ ___________ ________ ____
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets
Interest-bearing deposits $ 568,474 $ 4,964 3.54% $ 545,018 $ 4,779 3.56%
Other short-term investments 1,194,109 9,797 3.33 1,653,908 15,138 3.71
U.S. Treasury securities 1,260,779 12,056 3.88 1,088,310 12,809 4.77
Obligations of U.S.
government agencies 1,041,042 14,533 5.66 666,943 11,227 6.83
Obligations of states and
political subdivisions 14,372 178 5.02 8,791 162 7.47
Other securities 69,410 938 5.48 72,952 1,017 5.65
___________ ________ ____ ___________ ________ ____
Total investment securities 2,385,603 27,705 4.71 1,836,996 25,215 5.57
___________ ________ ____ ___________ ________ ____
Commercial, financial and
foreign loans 2,913,274 56,968 7.93 3,322,624 64,274 7.85
Real estate loans 3,047,675 57,889 7.70 3,742,747 63,466 6.88
Loans to individuals 2,312,681 45,702 8.01 1,646,578 35,287 8.69
___________ ________ ____ ___________ ________ ____
Total loans(1)(2)(3) 8,273,630 160,559 7.87 8,711,949 163,027 7.59
___________ ________ ____ ___________ ________ ____
Total interest-earning
assets 12,421,816 203,025 6.63 12,747,871 208,159 6.62
___________ ________ ____ ___________ ________ ____
Noninterest-earning assets
Cash and due from banks 773,911 784,090
Other assets 1,074,339 1,202,234
Allowance for loan losses (395,888) (670,932)
___________ ___________
Total noninterest-earning
assets 1,452,362 1,315,392
___________ ___________
Total assets $13,874,178 $14,063,263
___________ ___________
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing liabilities
Domestic savings and time
deposits $ 8,671,784 53,793 2.52 $ 9,602,896 76,953 3.25
Overseas branch deposits 9,696 75 3.14 17,615 144 3.32
Short-term borrowings 717,393 5,123 2.90 430,981 3,071 2.89
Long-term debt 376,563 8,660 9.33 420,445 9,808 9.46
___________ ________ ____ ___________ ________ ____
Total interest-bearing
liabilities 9,775,436 67,651 2.81 10,471,937 89,976 3.48
___________ ________ ____ ___________ ________ ____
<PAGE>31 2of2
Noninterest-bearing liabilities
and shareholders' equity
Demand deposits 2,774,197 2,521,818
Other liabilities 181,164 215,861
___________ ___________
Total noninterest-bearing
liabilities 2,955,361 2,737,679
___________ ___________
Shareholders' equity 1,143,381 853,647
___________ ___________
Total liabilities and
shareholders' equity $13,874,178 $14,063,263
___________ ___________
NET INTEREST INCOME $135,374 $118,183
======== ========
INTEREST INCOME AS A % OF
AVERAGE INTEREST-EARNING ASSETS 6.63% 6.62%
==== ====
INTEREST EXPENSE AS A % OF
AVERAGE INTEREST-EARNING ASSETS 2.21% 2.86%
==== ====
NET INTEREST MARGIN (4) 4.42% 3.76%
==== ====
<FN>
See Notes to Comparative Consolidated Average Balance Sheet with Resultant Interest and Average Rates.
<PAGE>32
Midlantic Corporation and Subsidiaries
NOTES TO COMPARATIVE CONSOLIDATED AVERAGE BALANCE SHEET
WITH RESULTANT INTEREST AND AVERAGE RATES
* Interest income and average rates are not presented on a tax-equivalent basis.
(1) Includes loan fees. Such income is not significant.
(2) Includes nonaccrual loans.
(3) Net of unearned income.
(4) Net interest margin is net interest income as a percent of average interest-earning
assets.
</TABLE>
<PAGE>33
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE III - INTEREST-EARNING ASSETS AND INTEREST-BEARING LIABILITIES
WITH RESULTANT INTEREST AND AVERAGE RATES*
(In thousands)
<CAPTION>
MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31
FOR THE THREE MONTHS ENDED 1994 1993 1993 1993 1993
___________ ___________ ___________ ___________ ___________
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Interest-bearing deposits
Average balance $ 568,474 $ 431,521 $ 528,817 $ 615,984 $ 545,018
Interest income 4,964 3,919 4,727 4,894 4,779
Average rate 3.54% 3.60% 3.55% 3.19% 3.56%
Other short-term
investments
Average balance $ 1,194,109 $ 1,085,775 $ 1,364,439 $ 1,554,658 $ 1,653,908
Interest income 9,797 8,797 13,087 14,748 15,138
Average rate 3.33% 3.21% 3.81% 3.80% 3.71%
Investment securities
Average balance $ 2,385,603 $ 2,286,719 $ 1,902,459 $ 1,714,446 $ 1,836,996
Interest income 27,705 24,109 21,441 21,283 25,215
Average rate 4.71% 4.18% 4.47% 4.98% 5.57%
Total loans
Average balance $ 8,273,630 $ 8,481,633 $ 8,455,081 $ 8,391,929 $ 8,711,949
Interest income 160,559 163,851 163,931 163,961 163,027
Average rate 7.87% 7.66% 7.69% 7.84% 7.59%
___________ ___________ ___________ ___________ ___________
Total average interest
earning assets $12,421,816 $12,285,648 $12,250,796 $12,277,017 $12,747,871
Total interest income 203,025 200,676 203,186 204,886 208,159
Total average rate on
interest earning assets 6.63% 6.48% 6.58% 6.69% 6.62%
=========== =========== =========== =========== ===========
INTEREST-BEARING LIABILITIES
Deposits
Average balance $ 8,681,480 $ 8,798,017 $ 8,994,483 $ 9,252,429 $ 9,620,511
Interest expense 53,868 57,217 61,581 66,991 77,097
Average rate 2.52% 2.58% 2.72% 2.90% 3.25%
Short-term borrowings
Average balance $ 717,393 $ 421,955 $ 348,547 $ 376,081 $ 430,981
Interest expense 5,123 3,080 2,581 2,854 3,071
Average rate 2.90% 2.90% 2.94% 3.04% 2.89%
Long-term debt
Average balance $ 376,563 $ 386,749 $ 386,805 $ 390,869 $ 420,445
Interest expense 8,660 8,856 8,857 8,864 9,808
Average rate 9.33% 9.08% 9.08% 9.10% 9.46%
___________ ___________ ___________ ___________ ___________
Total average interest
bearing liabilities $ 9,775,436 $ 9,606,721 $ 9,729,835 $10,019,379 $10,471,937
Total interest expense 67,651 69,153 73,019 78,709 89,976
Total average rate on
interest- bearing
liabilities 2.81% 2.86% 2.98% 3.15% 3.48%
=========== =========== =========== =========== ===========
NET INTEREST INCOME $ 135,374 $ 131,523 $ 130,167 $ 126,177 $ 118,183
=========== =========== =========== =========== ===========
NET INTEREST MARGIN 4.42% 4.25% 4.22% 4.12% 3.76%
=========== =========== =========== =========== ===========
<FN>
*Interest income and average rates are not presented on a tax-equivalent basis.
</TABLE>
<PAGE>34
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE IV - AVERAGE FUNDING SOURCES - BALANCES AND RATES PAID
(In thousands)
<CAPTION>
MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31
FOR THE THREE MONTHS ENDED 1994 1993 1993 1993 1993
___________ ___________ ___________ ___________ ___________
<S> <C> <C> <C> <C> <C>
AVERAGE BALANCES
DEPOSITS
Noninterest-bearing demand $ 2,774,197 $ 2,762,169 $ 2,620,355 $ 2,560,630 $ 2,521,818
Interest-bearing demand 1,413,953 1,401,206 1,386,514 1,379,754 1,367,582
Savings 1,602,128 1,565,158 1,545,556 1,493,326 1,414,204
Retail money market
accounts 2,195,337 2,230,982 2,289,938 2,322,228 2,454,160
CDs over $100,000 199,317 234,735 308,509 410,514 459,458
Other time 3,261,049 3,356,802 3,455,474 3,636,876 3,907,492
Overseas branch deposits 9,696 9,134 8,492 9,731 17,615
___________ ___________ ___________ ___________ ___________
Total average deposits $11,455,677 $11,560,186 $11,614,838 $11,813,059 $12,142,329
=========== =========== =========== =========== ===========
SHORT-TERM BORROWINGS
Federal funds purchased $ 35,672 $ 43,312 $ 51,546 $ 41,190 $ 50,856
Repurchase agreements 653,096 354,592 268,096 307,038 346,214
Other short-term
borrowings 28,625 24,051 28,905 27,853 33,911
___________ ___________ ___________ ___________ ___________
Total average short-term
borrowings $ 717,393 $ 421,955 $ 348,547 $ 376,081 $ 430,981
=========== =========== =========== =========== ===========
LONG-TERM DEBT $ 376,563 $ 386,749 $ 386,805 $ 390,869 $ 420,445
=========== =========== =========== =========== ===========
AVERAGE RATES
DEPOSITS
Interest-bearing demand 1.20% 1.28% 1.57% 1.87% 2.09%
Savings 2.07 2.08 2.17 2.36 2.55
Retail money market
accounts 2.35 2.37 2.48 2.58 2.76
CDs over $100,000 3.96 3.89 3.95 3.32 3.67
Other time 3.33 3.41 3.47 3.68 4.17
Overseas branch deposits 3.14 3.08 3.04 3.67 3.32
___________ ___________ ___________ ___________ ___________
Total average rate
paid on deposits 2.52% 2.58% 2.72% 2.90% 3.25%
=========== =========== =========== =========== ===========
SHORT-TERM BORROWINGS
Federal funds purchased 3.16% 2.98% 3.06% 2.93% 2.99%
Repurchase agreements 2.86 2.92 2.87 2.99 2.88
Other short-term
borrowings 3.30 2.46 3.34 3.83 2.83
___________ ___________ ___________ ___________ ___________
Total average rate paid
on short-term borrowings 2.90% 2.90% 2.94% 3.04% 2.89%
=========== =========== =========== =========== ===========
LONG-TERM DEBT 9.33% 9.08% 9.08% 9.10% 9.46%
=========== =========== =========== =========== ===========
</TABLE>
<PAGE>35
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE V - INVESTMENT SECURITIES - CARRYING AND FAIR VALUES
AND GROSS UNREALIZED GAINS AND LOSSES
MARCH 31, 1994
(In thousands)
<CAPTION>
GROSS GROSS
BOOK UNREALIZED UNREALIZED FAIR
HELD-TO-MATURITY VALUE GAINS LOSSES VALUE
__________ ______ _______ __________
<S> <C> <C> <C> <C>
United States Treasury securities $ 576,988 $ -- $ 7,592 $ 569,396
Obligations of United States
government agencies 1,001,090 6,616 3,812 1,003,894
Obligations of states and political
subdivisions 3,444 2 -- 3,446
Other securities 8,288 8 5 8,291
__________ ______ _______ __________
$1,589,810 $6,626 $11,409 $1,585,027
========== ====== ======= ==========
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE-FOR-SALE COST GAINS LOSSES VALUE
__________ ______ _______ __________
United States Treasury securities $ 733,706 $ -- $ 2,208 $ 731,498
Obligations of states and political
subdivisions 1,763 -- 243 1,520
Other securities 59,836 1,623 2,359 59,100
__________ ______ _______ __________
$ 795,305 $1,623 $ 4,810 $ 792,118
========== ====== ======= ==========
</TABLE>
<TABLE>
TABLE VI - INVESTMENT SECURITIES - GROSS REALIZED GAINS AND LOSSES
(In thousands)
<CAPTION>
THREE MONTHS ENDED
MARCH 31
1994(*) 1993
______ ______
<S> <C> <C>
Gross realized investment
securities gains $1,263 $5,315
Gross realized investment
securities losses -- (464)
______ ______
Investment securities gains $1,263 $4,851
====== ======
<FN>
(*) Represents gains/losses on available-for-sale securities.
</TABLE>
<PAGE>36
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE VII - LOANS
(In thousands)
<CAPTION>
MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31
1994 1993 1993 1993 1993
__________ __________ __________ __________ __________
<S> <C> <C> <C> <C> <C>
Commercial and financial
and lease financing
receivables $3,046,075 $2,897,656 $2,966,619 $3,158,737 $3,248,438
Real estate
Construction and development 789,445 834,013 1,015,701 1,063,419 1,226,765
Long term commercial
mortgage 1,631,406 1,664,757 1,795,809 1,849,367 1,838,946
Long-term 1-4 family
residential 566,278 636,632 414,112 456,467 371,431
Loans to individuals 2,457,718 2,415,391 2,302,193 2,067,278 1,781,279
Foreign 3,501 3,492 4,520 5,409 65,150
__________ __________ __________ __________ __________
Total loans 8,494,423 8,451,941 8,498,954 8,600,677 8,532,009
Less: unearned income 138,447 137,110 127,218 113,113 101,489
__________ __________ __________ __________ __________
Total loans, net of
unearned income $8,355,976 $8,314,831 $8,371,736 $8,487,564 $8,430,520
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
TABLE VIII - GEOGRAPHIC DISTRIBUTION OF REAL ESTATE LOANS
(In thousands)
<CAPTION>
LONG-TERM LONG-TERM
CONSTRUCTION COMMERCIAL 1-4 FAMILY
AND DEVELOPMENT MORTGAGE RESIDENTIAL TOTAL
MARCH 31, 1994 LOANS LOANS LOANS PORTFOLIO
________ __________ ________ __________
<S> <C> <C> <C> <C>
PORTFOLIO
New Jersey $481,636 $ 950,628 $378,293 $1,810,557
Pennsylvania 162,161 583,818 140,546 886,525
New York 42,392 48,684 31,855 122,931
Florida 28,228 9,812 2,918 40,958
Other 75,028 38,464 12,666 126,158
________ __________ ________ __________
Total $789,445 $1,631,406 $566,278 $2,987,129
======== ========== ======== ==========
NONACCRUAL SEGMENT
New Jersey $ 33,273 $ 35,750 $ 123 $ 69,146
Pennsylvania 3,510 16,757 3,932 24,199
New York 465 1,043 -- 1,508
Florida 376 -- -- 376
Other 2,773 -- 13 2,786
________ __________ ________ __________
Total $ 40,397 $ 53,550 $ 4,068 $ 98,015
======== ========== ======== ==========
PERCENT OF NONACCRUAL
TO PORTFOLIO 5.12% 3.28% .72% 3.28%
======== ========== ======== ==========
</TABLE>
<PAGE>37
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE IX - CONSTRUCTION AND DEVELOPMENT LOANS - PROPERTY TYPE BY STATE
(In thousands)
<CAPTION>
MARCH 31, 1994 NEW JERSEY PENNSYLVANIA NEW YORK FLORIDA OTHER TOTAL
________ ________ _______ _______ _______ ________
<S> <C> <C> <C> <C> <C> <C>
PORTFOLIO
Office buildings $129,455 $ 57,075 $14,600 $ -- $11,615 $212,745
Shopping centers 137,614 34,673 4,267 4,000 20,419 200,973
Residential 93,445 30,527 1,234 7,958 6,500 139,664
Land 40,642 24,761 3,237 1,744 5,073 75,457
Hotels/motels 16,687 1,485 353 14,150 15,729 48,404
Industrial/warehouse 25,540 6,780 10,634 -- -- 42,954
Other 38,253 6,860 8,067 376 15,692 69,248
________ ________ _______ _______ _______ ________
Total $481,636 $162,161 $42,392 $28,228 $75,028 $789,445
======== ======== ======= ======= ======= ========
NONACCRUAL SEGMENT
Office buildings $ 3,803 $ 291 $ -- $ -- $ -- $ 4,094
Shopping centers -- -- -- -- -- --
Residential 9,395 1,033 291 -- -- 10,719
Land 14,145 2,186 -- -- 623 16,954
Hotels/motels 1,372 -- -- -- -- 1,372
Industrial/warehouse 158 -- -- -- -- 158
Other 4,400 -- 174 376 2,150 7,100
________ ________ _______ _______ _______ ________
Total $ 33,273 $ 3,510 $ 465 $ 376 $ 2,773 $ 40,397
======== ======== ======= ======= ======= ========
PERCENT OF NONACCRUAL
TO PORTFOLIO 6.91% 2.16% 1.10% 1.33% 3.70% 5.12%
======== ======== ======= ======= ======= ========
</TABLE>
<PAGE>38
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE X - LONG-TERM COMMERCIAL MORTGAGE LOANS - PROPERTY TYPE BY STATE
(In thousands)
<CAPTION>
MARCH 31, 1994 NEW JERSEY PENNSYLVANIA NEW YORK FLORIDA OTHER TOTAL
________ ________ _______ ______ _______ __________
<S> <C> <C> <C> <C> <C> <C>
PORTFOLIO
Industrial/warehouse $359,986 $185,821 $40,475 $ 992 $13,104 $ 600,378
Office buildings 199,661 142,302 4,465 -- 4,167 350,595
Shopping centers 66,573 55,775 -- -- 5,864 128,212
Apartment houses and
other rental
properties 50,502 61,247 982 1,487 7,091 121,309
Hospitals, medical
centers and nursing
homes 83,559 19,790 -- -- -- 103,349
Retail businesses 48,442 47,212 603 -- 394 96,651
Automobile and truck
sales 40,090 17,339 70 -- -- 57,499
Hotels/motels 43,967 7,182 461 -- 296 51,906
Other 57,848 47,150 1,628 7,333 7,548 121,507
________ ________ _______ ______ _______ __________
Total $950,628 $583,818 $48,684 $9,812 $38,464 $1,631,406
======== ======== ======= ====== ======= ==========
NONACCRUAL SEGMENT
Industrial/warehouse $ 18,585 $ 6,605 $ 348 $ -- $ -- $ 25,538
Office buildings 3,379 965 -- -- -- 4,344
Shopping centers 700 393 -- -- -- 1,093
Apartment houses and
other rental
properties 1,954 1,711 -- -- -- 3,665
Hospitals, medical
centers and nursing
homes -- -- -- -- -- --
Retail businesses 2,793 1,078 -- -- -- 3,871
Automobile and truck
sales 1,213 723 -- -- -- 1,936
Hotels/motels 1,341 5,000 -- -- 6,341
Other 5,785 282 695 -- -- 6,762
________ ________ _______ ______ _______ __________
Total $ 35,750 $16,757 $ 1,043 $ -- $ -- $ 53,550
======== ======== ======= ====== ======= ==========
PERCENT OF NONACCRUAL
TO PORTFOLIO 3.76% 2.87% 2.14% --% --% 3.28%
======== ======== ======= ====== ======= ==========
</TABLE>
<PAGE>39 1of2
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE XI - SUMMARY OF LOAN LOSS EXPERIENCE/ALLOWANCE FOR LOAN LOSSES
(In thousands)
<CAPTION>
MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31
FOR THE THREE MONTHS ENDED 1994 1993 1993 1993 1993
________ ________ ________ ________ ________
<S> <C> <C> <C> <C> <C>
Allowance at beginning of period $394,450 $499,250 $541,243 $576,227 $663,901
Allowances of divested subsidiaries -- -- (712) --
Provision charged to operating
expense 7,499 30,000 14,000 15,000 20,000
Charge-offs related to loans sold
in bulk sales or transferred to
"assets held for accelerated
disposition" (7,901) (97,407) (15,362) 9,676 (78,770)
Loans charged off*
Commercial and financial and
lease financing receivables 10,064 21,640 23,135 14,736 12,440
Real estate
Construction and development 4,335 7,569 9,597 41,572 18,481
Long-term commercial mortgage 2,449 10,245 7,690 2,904 4,446
Long-term 1-4 family residential 422 666 172 -- 116
Loans to individuals 5,887 8,089 5,424 7,117 3,379
Foreign -- -- -- -- --
________ ________ ________ ________ ________
Total loans charged off 23,157 48,209 46,018 66,329 38,862
________ ________ ________ ________ ________
Recoveries on loans
Commercial and financial and
lease financing receivables 4,955 7,307 2,678 4,087 3,612
Real estate
Construction and development 2,029 1,824 382 868 3,001
Long-term commercial mortgage 674 340 626 319 1,117
Long-term 1-4 family residential 1 2 8 7 9
Loans to individuals 2,580 1,343 1,693 2,100 2,212
Foreign -- -- -- -- 7
________ ________ ________ ________ ________
Total recoveries on loans 10,239 10,816 5,387 7,381 9,958
________ ________ ________ ________ ________
Net loans charged off 12,918 37,393 40,631 58,948 28,904
________ ________ ________ ________ ________
Allowance at end of period $381,130 $394,450 $499,250 $541,243 $576,227
======== ======== ======== ======== ========
<FN>
* Excludes charge-offs related to loans sold in bulk sales or transferred to "assets held for
accelerated disposition".
</TABLE>
<PAGE>39 2of2
<TABLE>
TABLE XII - SUMMARY OF ALLOWANCE FOR OTHER REAL ESTATE OWNED ("OREO")
(In thousands)
<CAPTION>
MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31
FOR THE THREE MONTHS ENDED 1994 1993 1993 1993 1993
________ ________ ________ _______ ________
<S> <C> <C> <C> <C> <C>
Balance at beginning of period $ 37,032 $ 67,731 $ 71,276 $51,935 $ 46,101
Allowances of divested subsidiaries -- -- -- -- --
Allowances related to OREO transferred
to "Assets held for accelerated
disposition" -- (36,672) -- -- (40,355)
Provision charged to OREO expense 3,500 31,497 15,116 28,733 55,199
Write-downs and sales (5,793) (25,524) (18,661) (9,392) (9,010)
________ ________ ________ _______ ________
Balance at end of period $ 34,739 $ 37,032 $ 67,731 $71,276 $ 51,935
======== ======== ======== ======= ========
</TABLE>
<PAGE>40
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE XIII- NONACCRUAL LOANS, OTHER REAL ESTATE OWNED, NET
RENEGOTIATED LOANS AND PAST DUE LOANS
(In thousands)
<CAPTION>
MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31
1994 1993 1993 1993 1993
________ ________ ________ ________ ________
<S> <C> <C> <C> <C> <C>
NONACCRUAL LOANS
Commercial and financial
and lease financing
receivables $127,799 $114,632 $137,233 $165,055 $189,486
Real estate
Construction and development 40,397 50,143 160,937 174,423 206,347
Long-term commercial mortgage 53,550 63,431 132,269 146,011 150,422
Long-term 1-4 family
residential 4,068 4,489 5,222 4,474 4,625
Loans to individuals 27,641 32,604 32,948 38,942 47,463
Foreign -- -- -- -- 243
________ ________ ________ ________ ________
TOTAL NONACCRUAL LOANS $253,455 $265,299 $468,609 $528,905 $598,586
======== ======== ======== ======== ========
ALLOWANCE FOR LOAN LOSSES
AS A % OF NONACCRUAL LOANS 150.4% 148.7% 106.5% 102.3% 96.3%
======== ======== ======== ======== ========
OTHER REAL ESTATE OWNED, NET
Foreclosures $ 87,503 $ 97,238 $178,313 $208,578 $149,876
In-substance foreclosures 33,499 35,432 94,762 117,617 216,069
________ ________ ________ ________ ________
Total other real estate
owned, net $121,002 $132,670 $273,075 $326,195 $365,945
======== ======== ======== ======== ========
TOTAL NONACCRUAL LOANS AND
OTHER REAL ESTATE OWNED, NET $374,457 $397,969 $741,684 $855,100 $964,531
======== ======== ======== ======== ========
TOTAL RENEGOTIATED LOANS $165,516 $172,058 $181,320 $162,974 $162,833
======== ======== ======== ======== ========
ACCRUING LOANS PAST DUE 90
DAYS OR MORE AS TO
INTEREST OR PRINCIPAL
PAYMENTS $ 20,862 $ 36,161 $ 50,389 $ 35,735 $ 33,712
======== ======== ======== ======== ========
</TABLE>
<PAGE>41
<TABLE>
TABLE XIV - YEAR-TO-DATE LOSS OF INTEREST INCOME ON NONACCRUAL
AND RENEGOTIATED LOANS OUTSTANDING AT END OF PERIOD
(In thousands)
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31 1994 1993
______ _______
<S> <C> <C>
NONACCRUAL LOANS
Interest income that would have been
recorded on nonaccrual loans in
accordance with original terms $4,684 $12,768
Interest income actually recorded
on nonaccrual loans 137 348
______ _______
Loss of interest income on
nonaccrual loans $4,547 $12,420
====== =======
RENEGOTIATED LOANS
Interest income that would have been
recorded on renegotiated loans in
accordance with original terms $2,336 $ 2,866
Interest income actually recorded
on renegotiated loans 1,860 2,122
______ _______
Loss of interest income on
renegotiated loans $ 476 $ 744
====== =======
</TABLE>
<TABLE>
TABLE XV - NONACCRUAL LOANS ACTIVITY
(In thousands)
<CAPTION>
FOR THE THREE MONTHS ENDED MARCH 31 1994 1993
________ _________
<S> <C> <C>
Balance at beginning of year $265,299 $ 809,669
Additions 56,523 94,457
Payments (33,321) (64,951)
Returned to accrual status (9,447) (10,788)
Charge-offs (20,747) (36,640)
Transfers to OREO (3,675) (53,189)
Transfer to renegotiated loans -- (2,987)
Transfers to "assets held for
accelerated disposition" (884) (135,970)
Other (primarily transfers to
other repossessed assets) (293) (1,015)
________ _________
Balance at March 31 $253,455 $ 598,586
======== =========
</TABLE>
<PAGE>42
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE XVI - IN-SUBSTANCE FORECLOSURES - PROPERTY TYPE BY STATE
(In thousands)
<CAPTION>
MARCH 31, 1994 NEW JERSEY PENNSYLVANIA NEW YORK FLORIDA TOTAL
_______ ______ ______ ____ _______
<S> <C> <C> <C> <C> <C>
Land $14,055 $ -- $ 447 $979 $15,481
Office buildings 10,431 -- -- -- 10,431
Industrial/warehouse 808 1,800 87 -- 2,695
Residential tract 375 -- -- -- 375
Other 4,031 -- 486 -- 4,517
_______ ______ ______ ____ _______
TOTAL $29,700 $1,800 $1,020 $979 $33,499
======= ====== ====== ==== =======
</TABLE>
<TABLE>
TABLE XVII - ACQUIRED OREO PROPERTIES - PROPERTY TYPE BY STATE
(In thousands)
<CAPTION>
MARCH 31, 1994 NEW JERSEY PENNSYLVANIA NEW YORK OTHER TOTAL
_______ _______ ______ ______ _______
<S> <C> <C> <C> <C> <C>
Land $32,507 $ 3,988 $ -- $ 41 $36,536
Residential tract 10,086 2,552 745 2,547 15,930
Office buildings 4,569 2,244 1,270 1,991 10,074
Industrial/warehouse 6,444 3,395 -- -- 9,839
Shopping centers 2,506 143 205 -- 2,854
Hotels/motels 1,266 -- -- -- 1,266
Other 8,351 1,516 1,137 -- 11,004
_______ _______ ______ ______ _______
TOTAL $65,729 $13,838 $3,357 $4,579 $87,503
======= ======= ====== ====== =======
</TABLE>
<TABLE>
TABLE XVIII - OTHER REAL ESTATE OWNED ACTIVITY
(In thousands)
<CAPTION>
FOR THE THREE MONTHS ENDED IN-SUBSTANCE ACQUIRED OREO
MARCH 31, 1994 FORECLOSURES PROPERTIES TOTAL
_______ ________ ________
<S> <C> <C> <C>
Balance December 31, 1993 $35,432 $ 97,238 $132,670
Transfers from loans -- 5,517 5,517
Advances 40 101 141
Charges to operating expenses to
absorb declines in net realizable value (238) (3,262) (3,500)
Transfers from in-substance
foreclosures to foreclosed properties (340) 340 --
Sales of properties and payments (1,448) (11,651) (13,099)
Transfers to "assets held for
accelerated disposition" -- (876) (876)
Other 53 96 149
_______ ________ ________
Balance March 31, 1994 $33,499 $ 87,503 $121,002
======= ======== ========
</TABLE>
<PAGE>43
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE XIX - SUPPLEMENTAL DATA ON NONACCRUAL LOANS AND
IN-SUBSTANCE FORECLOSURES (1)
(In thousands)
<CAPTION>
CASH INTEREST PAYMENTS
AT MARCH 31, 1994 IN 1994 APPLIED AS(3)
Nonaccrual In-substance Performance Interest Reduction of
Loans Foreclosures Ratio(2) Income Principal
_______ _______ ____ ___ ____
<S> <C> <C> <C> <C> <C>
CONTRACTUALLY CURRENT
Payment in full of
principal and interest
expected $16,766 $ -- 14.3% $99 $324
Payment in full of
principal or interest
in doubt -- -- -- -- --
_______ _______ ____ ___ ____
CONTRACTUALLY PAST DUE
Substantial performance(4) $15,638 $ -- 13.3% $-- $374
Limited performance(5) 12,898 10,117 11.0 -- 680
No performance 72,147 23,382 61.4 -- 455
======= ======= ==== === ====
<FN>
(1) Disclosure has been limited to nonaccrual loans and in-substance foreclosures whose
principal balance at March 31, 1994 was $500 thousand or above at Midlantic National
Bank ("MNB") and Continental Bank ("CB"). Nonaccrual loans of $500 thousand or more
at MNB and CB comprised 46.3 percent of total consolidated nonaccrual loans. All in-
substance foreclosures outstanding at March 31, 1994 have been disclosed.
(2) Nonaccrual loans as a percent of total nonaccrual loans of MNB and CB of over $500
thousand.
(3) Represents the cash interest payments received since loans outstanding as of
March 31, 1994 were categorized as nonaccrual or in-substance foreclosures.
(4) Periodic (at least quarterly) payments received represent at least 75 percent of
the contractual principal and/or interest due.
(5) Periodic (at least quarterly) payments received represent between 1 percent and 75
percent of the contractual principal and/or interest due.
</TABLE>
<PAGE>44 1of2
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE XX - CONSOLIDATED SUMMARY OF INCOME
(In thousands, except per share data)
<CAPTION>
MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31
FOR THE THREE MONTHS ENDED 1994 1993 1993 1993 1993
________ ________ ________ ________ ________
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $160,559 $163,851 $163,931 $163,961 $163,027
Interest on investment securities 27,705 24,109 21,441 21,283 25,215
Interest on deposits with banks 4,964 3,919 4,727 4,894 4,779
Interest on other short-term
investments 9,797 8,797 13,087 14,748 15,138
________ ________ ________ ________ ________
Total interest income 203,025 200,676 203,186 204,886 208,159
________ ________ ________ ________ ________
INTEREST EXPENSE
Interest on deposits 53,868 57,217 61,581 66,991 77,097
Interest on short-term borrowings 5,123 3,080 2,581 2,854 3,071
Interest on long-term debt 8,660 8,856 8,857 8,864 9,808
________ ________ ________ ________ ________
Total interest expense 67,651 69,153 73,019 78,709 89,976
________ ________ ________ ________ ________
Net interest income 135,374 131,523 130,167 126,177 118,183
Provision for loan losses 7,499 30,000 14,000 15,000 20,000
________ ________ ________ ________ ________
Net interest income after provision
for loan losses 127,875 101,523 116,167 111,177 98,183
NONINTEREST INCOME
Trust income 9,782 10,396 10,499 10,091 10,233
Service charges on deposits 18,946 20,951 19,523 20,063 18,278
Investment securities gains 1,263 2,142 3 9 4,851
Income on factoring receivables 3,640 3,921 4,054 4,171 3,677
Other 15,621 12,028 11,395 13,351 15,457
________ ________ ________ ________ ________
Total noninterest income 49,252 49,438 45,474 47,685 52,496
________ ________ ________ ________ ________
177,127 150,961 161,641 158,862 150,679
________ ________ ________ ________ ________
NONINTEREST EXPENSES
Salaries and benefits 56,214 57,212 55,738 52,060 54,322
Net occupancy 12,235 11,456 10,970 10,897 11,299
Equipment rental and expense 6,925 6,372 5,777 6,805 7,927
Other real estate owned, net 4,169 41,293 13,251 23,184 56,609
FDIC assessment charges 7,194 8,135 8,102 8,380 9,224
Legal and professional fees 9,875 13,628 13,566 12,904 11,413
Other 24,894 19,503 22,501 20,884 28,378
________ ________ ________ ________ ________
Total noninterest expenses 121,506 157,599 129,905 135,114 179,172
________ ________ ________ ________ ________
Income (loss) before income taxes and
cumulative effect of the changes in
accounting principle 55,621 (6,638) 31,736 23,748 (28,493)
Income tax expense (benefit) 2,268 (65,698) (15,151) (17,168) (13,026)
________ ________ ________ ________ ________
Income (loss) before cumulative
effect of the changes in accounting
principle 53,353 59,060 46,887 40,916 (15,467)
<PAGE>44 2of2
Cumulative effect of the change in
accounting for postemployment
benefits (7,528) -- -- -- --
Cumulative effect of the change in
accounting for income taxes -- -- -- -- 38,962
________ ________ ________ ________ ________
NET INCOME $ 45,825 $ 59,060 $ 46,887 $ 40,916 $ 23,495
======== ======== ======== ======== ========
(continued on next page)
<PAGE>45
Midlantic Corporation and Subsidiaries
TABLE XX - CONSOLIDATED SUMMARY OF INCOME
(IN THOUSANDS, EXCEPT PER SHARE DATA)
(continued)
MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31
FOR THE THREE MONTHS ENDED 1994 1993 1993 1993 1993
_______ _______ _______ _______ ________
INCOME (LOSS) APPLICABLE TO PRIMARY
COMMON SHARES
Income (loss) before cumulative
effect of the changes in
accounting principle $52,447 $58,153 $45,981 $40,010 $(16,373)
Net income 44,919 58,153 45,981 40,010 22,589
INCOME (LOSS) APPLICABLE TO FULLY
DILUTED COMMON SHARES
Income (loss) before cumulative
effect of the changes in
accounting principle 53,453 59,174 47,002 41,031 (16,373)
Net income 45,925 59,174 47,002 41,031 22,589
======= ======= ======= ======= ========
INCOME (LOSS) PER COMMON SHARE
Income (loss) before cumulative
effect of the changes in
accounting principle
Primary $.98 $1.10 $.87 $.79 $(.35)
Fully diluted .97 1.08 .86 .78 (.35)
Cumulative effect of the changes in
accounting principle
Postemployment benefits
Primary (.14) -- -- -- --
Fully diluted (.14) -- -- -- --
Income taxes
Primary -- -- -- -- .83
Fully diluted -- -- -- -- .83
Net income
Primary .84 1.10 .87 .79 .48
Fully diluted .83 1.08 .86 .78 .48
======= ======= ======= ======= ========
AVERAGE COMMON SHARES AND
COMMON SHARE EQUIVALENTS
Primary 53,473 53,030 52,969 50,715 46,973
Fully diluted 55,077 54,610 54,601 52,277 47,042
======= ======= ======= ======= ========
</TABLE>
<PAGE>46
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE XXI - CONSOLIDATED SHARE AND PER SHARE INFORMATION AND PERFORMANCE RATIOS
<CAPTION>
MARCH 31 DEC. 31 SEPT. 30 JUNE 30 MARCH 31
FOR THE THREE MONTHS ENDED 1994 1993 1993 1993 1993
______ ______ ______ ______ ______
<S> <C> <C> <C> <C> <C>
BOOK VALUE AT QUARTER-END $21.38 $20.56 $19.44 $18.56 $17.68
______ ______ ______ ______ ______
MARKET PRICES OF COMMON STOCK
High $30.88 $28.63 $27.75 $25.13 $22.38
Low 24.25 22.25 21.13 17.50 18.13
Close 28.13 25.50 27.50 21.13 21.88
______ ______ ______ ______ ______
OPERATING RATIOS
Net interest margin 4.42% 4.25% 4.22% 4.12% 3.76%
Return on average assets 1.34 1.72 1.37 1.20 .68
Return on average common equity 16.66 22.43 18.69 18.12 11.40
Return on average total equity 16.25 21.72 18.13 17.54 11.16
______ ______ ______ ______ ______
LIQUIDITY AND FUNDING RATIOS
Liquidity ratio (1) 28.6% 31.6% 28.7% 31.0% 30.3%
Funding ratio (2) (21.0) (25.0) (30.9) (33.7) (23.9)
______ ______ ______ ______ ______
CAPITAL RATIOS
Risk-adjusted ratios
Tier 1 capital ratio (3) 9.95% 9.28% 9.04% 8.45% 7.03%
Total capital ratio (3) 13.98 13.29 13.13 12.52 11.07
Leverage ratio 7.35 6.81 6.86 6.3 5.24
Average equity as a % of
average assets 8.24 7.91 7.56 6.82 6.07
______ ______ ______ ______ ______
LOAN QUALITY RATIOS
As a % of total period-end
loans, net of unearned income
Allowance for loan losses at period-end 4.56% 4.74% 5.96% 6.38% 6.84%
Nonaccrual loans at period-end 3.03 3.19 5.60 6.23 7.10
As a % of average loans, net
of unearned income
Net charge-offs (4) .63 1.75 1.91 2.82 1.35
Provision for loan losses .37 1.40 .66 .72 .93
______ ______ ______ ______ ______
AVERAGE TOTAL LOANS, NET OF
UNEARNED INCOME, AS A % OF
AVERAGE TOTAL DEPOSITS 72.22% 73.37% 72.80% 71.04% 71.75%
______ ______ ______ ______ ______
NONFINANCIAL DATA
Total number of employees 5,928 5,863 5,861 6,024 6,316
Total number of full-time
equivalent employees 5,129 5,090 5,100 5,256 5,567
Total number of banking offices 326 326 330 331 330
______ ______ ______ ______ ______
<FN>
(1) Ratio of net short-term assets to net funding liabilities.
(2) Total purchased funds less investment securities due in one year and money market
investments as a percentage of investment securities due in more than one year and
total loans, net of unearned income.
(3) Based upon full implementation regulatory standards in effect at December 31, 1992.
(4) Ratios exclude net charge-offs on loans that were sold in bulk sales or transferred
to assets held for accelerated disposition.
</TABLE>
<PAGE>47
ITEM 1. LEGAL PROCEEDINGS
As Midlantic Corporation ("MC") reported in "Item
3 - Legal Proceedings" of its Annual Report on
Form 10-K for the fiscal year ended December 31,
1993, MC and various present and former directors
and 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 officers of
MC, or directly against MC and various directors
and 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,
plantiffs do not seek damages in a stated dollar
amount.
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 for the
production of documents by MC. Currently,
documents are being produced and depositions are
being conducted.
ITEM 6A. EXHIBITS
10 Agreement and Plan of Merger among Midlantic Banks Inc.,
Midlantic National Bank and Continental Bank as amended
through May 5, 1994.
ITEM 6B. REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the period covered
by this report:
<PAGE>48
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned thereunto duly authorized.
Midlantic Corporation
_____________________
Registrant
By Howard I. Atkins
_____________________
Date May 13, 1994 Howard I. Atkins
_____________________________ Executive Vice President and
Chief Financial Officer
By James E. Kelly
_____________________
Date May 13, 1994 James E. Kelly
_____________________________ Controller
<PAGE>49
INDEX OF EXHIBITS
EXHIBIT NUMBER
PER ITEM 601 OF
REGULATION S-K PAGE NUMBER
_______________ ___________
10 Agreement and Plan of Merger among Midlantic
Banks Inc., Midlantic National Bank and
Continental Bank as amended through May 5, 1994 50 - 69
<PAGE> 50
EXHIBIT 10
__________
AGREEMENT AND PLAN OF MERGER
among
MIDLANTIC BANKS INC.,
MIDLANTIC NATIONAL BANK
and
CONTINENTAL BANK
This AGREEMENT AND PLAN OF MERGER is made as of March 23,
1994 among MIDLANTIC BANKS INC. ("MBI"), a New Jersey
corporation, MIDLANTIC NATIONAL BANK ("MNB"), a national
banking association and CONTINENTAL BANK ("CB"), a
Pennsylvania banking institution.
WHEREAS, MNB is a national banking association duly
organized under the laws of the United States of America with
its principal office in Newark, Essex County, New Jersey. The
authorized capital stock of MNB as of December 31, 1993 was
$114,128,105 divided into 3,511,634 common shares of the par
value of $32.50 each (the "MNB Common Stock"), all of which
shares were issued and outstanding as of December 31, 1993.
As of December 31, 1993, MNB had surplus of $689,051,052.15
and undivided profits of $97,582,432.74; and
WHEREAS, CB is a bank duly organized under the laws of
the Commonwealth of Pennsylvania with its principal office in
Norristown, Montgomery County, Pennsylvania. The authorized
capital stock of CB as of December 31, 1993 was $30,625,000
divided into 6,125,000 shares of Common Stock of the par value
of $5.00 each (the "CB Common Stock"), of which 4,706,180
shares were issued and outstanding as of December 31, 1993.
As of December 31, 1993, CB had surplus of $81,259,566.47 and
undivided profits of $187,823,416.86; and
WHEREAS, all of the outstanding CB Common Stock is owned
by Midlantic Corporation and all of the outstanding MNB Common
Stock is owned by MBI, which is a wholly-owned subsidiary of
Midlantic Corporation; and
WHEREAS, the sole director of MBI, a majority of the
entire Board of Directors of MNB and a majority of the entire
Board of Directors of CB have, respectively, approved and made
this Agreement and Plan of Merger and authorized its
execution.
NOW, THEREFORE, in consideration of the premises and of
the agreements herein contained, the parties agree as follows:
1. CB shall be merged into and under the Charter and
Articles of Association of MNB pursuant to the provisions of,
and with the effect provided in, Section 2 of Chapter 209 of
the Act of Congress, of November 7, 1918, as amended (12
U.S.C. 215a).
<PAGE> 51
2. Upon the merger becoming effective, (i) the name of
the receiving association (hereinafter called the "Continuing
Bank" whenever reference is made to it as of the time of the
merger or thereafter) shall be "Midlantic Bank, National
Association", (ii) its Articles of Association shall be as set
forth in Schedule A attached hereto and made a part hereof
with such amendments authorized by the respective shareholders
of MNB and CB at or before the time the merger becomes
effective, (iii) the By-Laws of MNB in effect immediately
prior to the effective date of the merger shall be the By-Laws
of the Continuing Bank, subject to amendment as therein
provided, and (iv) the Main Office and established branches of
MNB shall become the Main Office and the established and
authorized branches of the Continuing Bank and the Main Office
and established branches of CB shall become the established
and authorized branches of the Continuing Bank.
3. Upon the merger becoming effective, the corporate
existence of MNB and CB shall, as provided by the
aforementioned Act of Congress, be merged into and continued
in the Continuing Bank, and the Continuing Bank shall be
deemed to be the same corporation as CB and MNB. All rights,
franchises and interests of CB and MNB, respectively, in and
to every type of property (real, personal and mixed) and
choses in action shall be transferred to and vested in the
Continuing Bank by virtue of such merger without any deed or
other transfer, and the Continuing Bank, without any order or
other action on the part of any court or otherwise, shall hold
and enjoy all rights of property, franchises, and interests,
including appointments, designations and nominations and all
other rights and interests as trustee, executor,
administrator, registrar of stocks and bonds, guardian of
estates, assignee, receiver, and committee of estates of
lunatics, and in every other fiduciary capacity in the same
manner and to the same extent as such rights, franchises and
interests were held or enjoyed by MNB and CB respectively, at
the time the merger becomes effective. The Continuing Bank
shall be liable for all liabilities of CB, and all deposits,
debts, liabilities, obligations and contracts of CB and of
MNB, respectively, matured or unmatured, whether accrued,
absolute, contingent or otherwise, and whether or not
reflected or reserved against on balance sheets, books of
account, or records of CB or MNB, as the case may be, shall be
those of the Continuing Bank, and shall not be released or
impaired by the merger, and all rights of creditors and other
obligees and all liens on property of either CB or MNB shall
be preserved unimpaired.
4. Upon the merger becoming effective:
(a) The holder of the outstanding shares of CB Common
Stock shall be entitled to receive from MBI in exchange for
the aggregate of all shares of CB Common Stock held by such
holder 600 shares of the Common Stock of MBI, of no par value
(the "MBI Common Stock").
<PAGE> 52
(b) On the date the merger becomes effective, each
outstanding share of CB Common Stock, shall ipso facto and
without any action on the part of the holder thereof, become
and be converted into such number of shares of MBI Common
Stock, as are issuable in the merger with respect thereto.
Outstanding certificates evidencing shares of CB Common
Stock shall, after the time the merger becomes effective,
evidence only the right of the holder thereof to receive
certificates for shares of MBI Common Stock. Upon the
effective date of the merger, MBI will deliver to the CB
Common Stock shareholder a certificate for the aggregate
number of shares of MBI Common Stock to which such shareholder
shall be entitled, determined as provided herein. Upon
surrender of said certificates representing CB Common Stock
and acceptance thereof by MBI, the CB Common Stock shareholder
will receive in exchange therefor a certificate for the number
of whole shares of MBI Common Stock to which such shareholder
is entitled hereunder.
(c) The amount and the number of shares of the capital
stock of the Continuing Bank outstanding upon the merger
becoming effective shall be $114,128,105 divided into
3,511,634 shares of the par value of $32.50 each.
(d) The shares of capital stock of MNB issued and
outstanding at the time the merger becomes effective shall
continue to be issued and outstanding shares of the Continuing
Bank.
5. The members of the Board of Directors of MNB and the
members of the Board of Directors of CB immediately prior to
the effective date of the merger shall serve as the Board of
Directors of the Continuing Bank until the next annual meeting
of its shareholders and until such time as their successors
have been elected and qualified. The officers of MNB
immediately prior to the effective date of the merger shall
serve as the officers of the Continuing Bank until their
successors have been elected and qualified, subject to the
By-Laws of the Continuing Bank and applicable law.
6. This Agreement and Plan of Merger shall be submitted
to the sole shareholders of CB and MNB for ratification and
confirmation in accordance with the applicable provisions of
law and their respective charters and by-laws. CB and MNB
shall proceed expeditiously and cooperate fully in the
procurement of any other consents and approvals and in the
taking of any other action, and the satisfaction of all other
requirements prescribed by law or otherwise, necessary for
consummation of the merger, and the other transactions
contemplated hereby, on the terms herein provided.
7. Effectuation of the merger herein provided for is
subject to the following conditions:
(a) This Agreement and Plan of Merger shall have been
ratified and confirmed by the vote of the sole shareholder of
each of CB and MNB, as required by law.
<PAGE> 53
(b) The unconditional consents and approvals of all
regulatory authorities having jurisdiction in the premises
free of any restriction or requirement by reason of the
acceptance of any such consent or approval or by reason of any
action taken pursuant thereto, shall have been procured, all
waiting periods prescribed by law have expired and all other
requirements prescribed by law shall have been satisfied,
which are necessary for the consummation of the merger and the
other transactions contemplated hereby, for the continuation
by the Continuing Bank after the merger of the banking
business of CB and MNB at all of the locations at which such
business is carried on immediately before the merger becomes
effective, and for the Continuing Bank to have and exercise
full right of ownership with respect thereto and with respect
to all property of CB and MNB.
(c) No suit, action or other proceeding shall be pending
or threatened before any court or governmental agency in which
it is sought to restrain or prohibit or to obtain damages or
other relief in connection with this Agreement and Plan of
Merger, or the consummation of the merger; and the time for
appeal of any judgment or order in any such suit, action or
other proceeding theretofore entered shall have expired.
8. This Agreement and Plan of Merger may be terminated
at any time before the merger becomes effective by written
notice by any one of CB, MNB and MBI to the other parties
hereto, authorized and approved by resolution adopted by the
Board of Directors of the party giving such notice. Upon
termination as provided in this Section, this Agreement and
Plan of Merger shall be void and of no further effect, and
there shall be no liability by reason of this Agreement and
Plan of Merger or the termination thereof on the part of CB,
MNB, MBI or the directors, officers, employees, agents or
shareholders of any of them.
9. Upon satisfaction of all requirements of law and
subject to the terms and conditions specified in this
Agreement and Plan of Merger, including, among other
conditions, receipt of the approval of the Comptroller of the
Currency specified in the Act of Congress referred to in
Section 1 hereof, the merger shall become effective at the
time specified in the certificate to be issued by the
Comptroller of the Currency under the seal of his office
approving the merger.
10. This Agreement and Plan of Merger shall be governed
and construed according to the laws of the State of New
Jersey.
11. The parties hereto by mutual consent of their
respective Boards of Directors or the responsible officers
authorized by such Boards of Directors may amend, modify or
supplement this Agreement and Plan of Merger in such a manner
as may be agreed upon in writing.
<PAGE> 54
12. This Agreement and Plan of Merger shall be binding
upon and inure to the benefit of the parties named herein and
their respective successors and assigns, provided that neither
this Agreement and Plan of Merger nor any of the rights,
interests or obligations hereunder shall be assigned by any of
the parties hereto without the prior written consent of each
of the other parties.
13. This Agreement and Plan of Merger may be executed in
two or more counterparts, each of which shall be deemed an
original, but all of which together shall constitute one and
the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Agreement and Plan of Merger to be executed by their duly
authorized officers and their corporate seals to be hereunto
affixed as of the 23rd day of March, 1994, and directors
constituting a majority of the Board of Directors of each of
MNB and CB have hereunto subscribed their names.
{SEAL} MIDLANTIC BANKS INC.
By _____________________________
Garry J. Scheuring
Chairman of the Board,
President & Chief Executive
Officer
Attest:
_________________________________
John M. Sperger
Senior Vice President & Secretary
[signatures continued on next page]
<PAGE> 55
{SEAL} MIDLANTIC NATIONAL BANK
By _____________________________
Garry J. Scheuring
Chairman of the Board,
President & Chief Executive
Officer
Attest:
_______________________________
John M. Sperger
Senior Vice President & Cashier
A majority of the Directors of Midlantic National Bank:
________________________ _______________________
Charles E. Ehinger Marcy Syms Merns
________________________ _______________________
Kevork S. Hovnanian Ralph H. O'Brien
________________________ _______________________
Aubrey C. Lewis Ernest L. Ransome, III
________________________ _______________________
David F. McBride B. P. Russell
________________________ _______________________
Desmond P. McDonald Garry J. Scheuring
________________________ _______________________
William E. McKenna Fred R. Sullivan
[signatures continued on next page]
<PAGE> 56
{SEAL} CONTINENTAL BANK
By __________________________
James J. Lynch
President
ATTEST:
_________________________________
John M. Sperger
Senior Vice President & Secretary
A majority of the Directors of Continental Bank:
________________________ ___________________________
David F. Girard-diCarlo Roy T. Peraino
________________________ ___________________________
Frederick C. Haab Ronald Rubin
________________________ ___________________________
Arthur J. Kania Garry J. Scheuring
________________________ ___________________________
James J. Lynch Harold L. Yoh, Jr.
<PAGE> 57
Schedule A
MIDLANTIC BANK, NATIONAL ASSOCIATION
ARTICLES OF ASSOCIATION
FIRST: The title of this Association shall be Midlantic
Bank, National Association.
SECOND: The main office of this Association shall be in
the City of Newark, County of Essex, State of New Jersey. The
general business of this Association shall be conducted at its
main office and its branches.
THIRD: The Board of Directors of this Association shall
consist of not less than five nor more than twenty-five persons,
the exact number of directors within such minimum and maximum
limits to be fixed and determined, from time to time, by
resolution of a majority of the full Board of Directors or by
resolution of the shareholders at any annual or special meeting
thereof. Unless otherwise provided by the laws of the United
States, any vacancy in the Board of Directors for any reason,
including an increase in the number thereof, may be filled by
action of the Board of Directors.
FOURTH: The annual meeting of the shareholders for the
election of directors and the transaction of whatever other
business as may be brought before said meeting shall be held at
the main office or such other place as the Board of Directors may
designate, on the day of each year specified therefor in the By-
Laws but if no election is held on that day, it may be held on
any subsequent day according to the provisions of law; and all
elections shall be held according to such lawful regulations as
may be prescribed by the Board of Directors.
Any action required or permitted to be taken at a meeting of
shareholders may be taken without a meeting if all the
shareholders consent thereto in writing. The written consents of
the shareholders shall be filed with the minutes of proceedings
of shareholders.
FIFTH: The amount of capital stock of this Association
shall be One Hundred Fourteen Million One Hundred Twenty-eight
Thousand One Hundred Five Dollars ($114,128,105) divided into
3,511,634 shares of common stock of the par value of Thirty-two
Dollars and Fifty Cents ($32.50) each; but said capital stock may
be increased or decreased from time to time, in accordance with
the provisions of the laws of the United States.
No holder of shares of the capital stock of any class of
this Association shall have any pre-emptive or preferential right
of subscription to any shares of any class of stock of this
Association, whether now or hereafter authorized, or to any
obligations convertible into stock of this Association, issued or
sold, nor any right of subscription to any thereof other than
such, if any, as the Board of Directors, in its discretion, may
from time to time determine and at such price as the Board of
Directors may from time to time fix.
<PAGE> 58
This Association, at any time and from time to time, may
authorize and issue debt obligations, whether or not
subordinated, without the approval of the shareholders.
SIXTH: The Board of Directors shall appoint one of its
members President of this Association, who shall be Chairman of
the Board, unless the Board appoints another director to be the
Chairman. The Board of Directors shall have the power to appoint
a Vice Chairman of the Board, and one or more Vice Presidents;
and to appoint a Cashier and such other officers and employees as
may be required to transact the business of this Association.
The Board of Directors shall have the power to define the
duties of the officers and employees of this Association; to fix
the salaries to be paid to them; to dismiss them; to require
bonds from them and to fix the penalty thereof; to regulate the
manner in which any increase of the capital of this Association
shall be made; to manage and administer the business and affairs
of this Association; to make all By-Laws that it may be lawful
for them to make; and generally to do and perform all acts that
it may be legal for a Board of Directors to do and perform.
SEVENTH: The Board of Directors shall have the power to
change the location of the main office to any other place within
the limits of the City of Newark, without the approval of the
shareholders, but subject to the approval of the Comptroller of
the Currency; and shall have the power to establish or change the
location of any branch or branches of this Association to any
other location without the approval of the shareholders but
subject to the approval of the Comptroller of the Currency.
EIGHTH: The corporate existence of this Association shall
continue until terminated in accordance with the laws of the
United States.
NINTH: The Board of Directors of this Association, or any
one or more shareholders owing, in the aggregate, not less than
ten percent (10%) of the stock of this Association, may call a
special meeting of shareholders at any time. Unless otherwise
provided by the laws of the United States, a notice of the time,
place and purpose of every annual and special meeting of the
shareholders shall be given by first class mail, postage prepaid,
mailed at least ten days prior to the date of such meeting to
each shareholder of record at his address as shown upon the books
of this Association.
<PAGE> 59
TENTH: This Association shall indemnify to the full
extent from time to time permitted by New Jersey law, any person
made, or threatened to be made, a party to, or a witness or other
participant in, any threatened, pending or completed action, suit
or proceeding, whether civil, criminal, administrative,
arbitrative, legislative, investigative or of any other kind, by
reason of the fact that such person is or was a director,
officer, employee or agent of this Association or any subsidiary
of this Association or serves or served any other enterprise at
the request of this Association (including service as a fiduciary
with respect to any employee benefit plan) against expenses,
judgments, fines, penalties and amounts paid in settlement,
actually and reasonably incurred by such person in connection
with such action, suit or proceeding, or any appeal therein;
provided, that no indemnification shall be granted for expenses,
civil penalties or other payments incurred by any such person in
an administrative proceeding by a federal bank regulatory agency
resulting in a final unappealable order assessing such penalties
or requiring payments to this Association; and provided further,
that as long as this Association is controlled directly or
indirectly by Midlantic Corporation or any successors thereto, no
indemnification shall be granted to any such person without the
approval of Midlantic Corporation or such successor thereto. The
rights provided by this Article to any person shall inure to the
benefit of such person's legal representative. Neither the
amendment or repeal of this Article, nor the adoption of any
provision of these Articles of Association inconsistent with this
Article, shall deprive any person of rights hereunder arising out
of any matter which occurred prior to such amendment, repeal or
adoption.
This Association shall have the authority to purchase and
maintain insurance covering its directors, officers, employees
and agents against expenses and liabilities incurred in
connection with any action or proceeding in which any of such
persons is a participant because of such person's service to this
Association, any subsidiary of this Association or any other
enterprise at the request of this Association.
To the full extent from time to time permitted by New Jersey
law, expenses incurred by a person in defending a civil or
criminal action, suit or proceeding shall be paid by this
Association in advance of the final disposition of such action
upon receipt of an undertaking by or on behalf of such person to
repay such amount to the extent the expenses so advanced exceed
the indemnification to which it is ultimately determined that
such person is entitled; provided that as long as this
Association is controlled directly or indirectly by Midlantic
Corporation or any successors thereto, no advancement of expenses
shall be granted to any such person without the approval of
Midlantic Corporation or such successor thereto.
<PAGE> 60
To the full extent from time to time permitted by New Jersey
law, no director or officer of this Association shall be
personally liable to this Association or its shareholders for
damages for breach of any duty owed to this Association or its
shareholders. Neither the amendment or repeal of this Article,
nor the adoption of any provision of these Articles of
Association inconsistent with this Article, shall eliminate or
reduce the protection afforded by this Article to a director or
officer of this Association with respect to any matter which
occurred, or any cause of action, suit or claim which but for
this Article would have accrued or arisen, prior to such
amendment, repeal or adoption.
ELEVENTH: These Articles of Association may be amended at
any regular or special meeting of the shareholders by the
affirmative vote of the holders of a majority of the stock of
this Association, unless the vote of the holders of a greater
amount of stock is required by law, and in that case by the vote
of the holders of such greater amount.
<PAGE> 61
AMENDMENT NO. 1
to
AGREEMENT AND PLAN OF MERGER
among
MIDLANTIC BANKS INC.,
MIDLANTIC NATIONAL BANK
and
CONTINENTAL BANK
THIS AMENDMENT NO. 1 is made as of May 5, 1994 among
MIDLANTIC BANKS INC. ("MBI"), a New Jersey corporation, MIDLANTIC
NATIONAL BANK ("MNB"), a national banking association and
CONTINENTAL BANK ("CB"), a Pennsylvania banking institution.
WHEREAS, MBI, MNB and CB entered into an Agreement and Plan
of Merger dated as of March 23, 1994 (the "Merger Agreement"),
providing for the merger of CB into MNB under the charter of MNB
and the title "Midlantic Bank, National Association"; and
WHEREAS, it has been proposed that, prior to the effective
date of the merger, MBI will be merged with and into its parent
holding company, Midlantic Corporation ("MC"), and the separate
existence of MBI shall cease; and
WHEREAS, MBI, MNB and CB wish to amend the Merger Agreement
to reflect the proposed merger of MBI into MC.
NOW, THEREFORE, in consideration of the premises and of the
agreements herein contained, the parties agree as follows:
1. Each capitalized term used herein which is defined in
the Merger Agreement shall have the meaning specified therein.
2. Section 2 of the Merger Agreement is hereby amended to
provide that upon the merger becoming effective, the Articles of
Association of the Continuing Bank shall be as set forth in
Schedule 1 attached to this Amendment No. 1 and made a part
hereof, with such amendments authorized by the respective
shareholders of MNB and CB at or before the time the merger
becomes effective.
3. Section 4 of the Merger Agreement is hereby amended and
restated to read in its entirety as follows:
<PAGE> 62
"4. Upon the merger becoming effective:
"(a) The holder of the outstanding shares of CB
Common Stock shall be entitled to receive
from the Continuing Bank, in exchange for the
aggregate of all shares of CB Common Stock
held by such holder, 3,224,322 shares of the
Common Stock of the Continuing Bank, $32.50
par value (the "Continuing Bank Common
Stock").
"(b) On the date the merger becomes effective,
each outstanding share of CB Common Stock,
shall ipso facto and without any action on
the part of the holder thereof, become and be
converted into such number of shares of
Continuing Bank Common Stock, as are issuable
in the merger with respect thereto.
"Outstanding certificates evidencing shares
of CB Common Stock shall, after the time the
merger becomes effective, evidence only the
right of the holder thereof to receive
certificates for shares of Continuing Bank
Common Stock. Upon the effective date of the
merger, the Continuing Bank will deliver to
the CB Common Stock shareholder a certificate
for the aggregate number of shares of
Continuing Bank Common Stock to which such
shareholder shall be entitled, determined as
provided herein. Upon surrender of said
certificates representing CB Common Stock and
acceptance thereof by the Continuing Bank,
the CB Common Stock shareholder will receive
in exchange therefor a certificate for the
number of whole shares of Continuing Bank
Common Stock to which such shareholder is
entitled hereunder.
"(c) The amount and the number of shares of the
capital stock of the Continuing Bank
outstanding upon the merger becoming
effective shall be $218,918,570 divided into
6,735,956 shares of the par value of $32.50
each.
"(d) The shares of capital stock of MNB issued and
outstanding at the time the merger becomes
effective shall continue to be issued and
outstanding shares of the Continuing Bank."
4. The first sentence of Section 5 of the Merger Agreement
is hereby amended and restated to read in its entirety as
follows:
<PAGE> 63
"Each of the following persons and such other persons
as may subsequently be chosen by the Boards of
Directors of MNB and CB shall serve as the Board of
Directors of the members of the Board of Directors of
the Continuing Bank until the next annual meeting of
its shareholders and until such time as their
successors have been elected and qualified, provided
that such person continues to serve as a director of
either CB or MNB immediately prior to the effective
date of the merger: Charles E. Ehinger, David F.
Girard-diCarlo, Frederick C. Haab, Kevork S. Hovnanian,
Arthur J. Kania, Aubrey C. Lewis, David F. McBride,
Desmond P. McDonald, William E. McKenna, Marcy Syms
Merns, Ralph H. O'Brien, Roy T. Peraino, Ernest L.
Ransome, III, Ronald Rubin, B. P. Russell, Garry J.
Scheuring, Fred R. Sullivan and Harold L. Yoh, Jr.
5. Except as otherwise provided herein, the Merger
Agreement shall remain in full force and effect.
6. This Amendment No. 1 may be executed in two or more
counterparts, each of which shall be deemed an original, but all
of which together shall constitute one and the same instrument.
IN WITNESS WHEREOF, the parties hereto have caused this
Amendment No. 1 to be executed by their duly authorized officers
and their corporate seals to be hereunto affixed as of the 5th
day of May, 1994, and directors constituting a majority of the
Board of Directors of each of MNB and CB have hereunto subscribed
their names.
{SEAL} MIDLANTIC BANKS INC.
By _____________________________
Garry J. Scheuring
Chairman of the Board,
President & Chief Executive
Officer
Attest:
_________________________________
John M. Sperger
Senior Vice President & Secretary
[signatures continued on next page]
<PAGE> 64
{SEAL} MIDLANTIC NATIONAL BANK
By _____________________________
Garry J. Scheuring
Chairman of the Board,
President & Chief Executive
Officer
Attest:
_______________________________
John M. Sperger
Senior Vice President & Cashier
A majority of the Directors of Midlantic National Bank:
________________________ _______________________
Charles E. Ehinger Marcy Syms Merns
________________________ _______________________
Kevork S. Hovnanian Ralph H. O'Brien
________________________ _______________________
Aubrey C. Lewis Ernest L. Ransome, III
________________________ _______________________
David F. McBride B. P. Russell
________________________ _______________________
Desmond P. McDonald Garry J. Scheuring
________________________ _______________________
William E. McKenna Fred R. Sullivan
[signatures continued on next page]
<PAGE> 65
{SEAL} CONTINENTAL BANK
By __________________________
James J. Lynch
President
ATTEST:
_________________________________
John M. Sperger
Senior Vice President & Secretary
A majority of the Directors of Continental Bank:
________________________ ___________________________
David F. Girard-diCarlo Roy T. Peraino
________________________ ___________________________
Frederick C. Haab Ronald Rubin
________________________ ___________________________
Arthur J. Kania Garry J. Scheuring
________________________ ___________________________
James J. Lynch Harold L. Yoh, Jr.
<PAGE> 66
Schedule 1
MIDLANTIC BANK, NATIONAL ASSOCIATION
ARTICLES OF ASSOCIATION
FIRST: The title of this Association shall be
Midlantic Bank, National Association.
SECOND: The main office of this Association shall be
in the City of Newark, County of Essex, State of New Jersey.
The general business of this Association shall be conducted
at its main office and its branches.
THIRD: The Board of Directors of this Association
shall consist of not less than five nor more than twenty-
five persons, the exact number of directors within such
minimum and maximum limits to be fixed and determined, from
time to time, by resolution of a majority of the full Board
of Directors or by resolution of the shareholders at any
annual or special meeting thereof. Unless otherwise
provided by the laws of the United States, any vacancy in
the Board of Directors for any reason, including an increase
in the number thereof, may be filled by action of the Board
of Directors.
FOURTH: The annual meeting of the shareholders for
the election of directors and the transaction of whatever
other business as may be brought before said meeting shall
be held at the main office or such other place as the Board
of Directors may designate, on the day of each year
specified therefor in the By-Laws but if no election is held
on that day, it may be held on any subsequent day according
to the provisions of law; and all elections shall be held
according to such lawful regulations as may be prescribed by
the Board of Directors.
Any action required or permitted to be taken at a
meeting of shareholders may be taken without a meeting if
all the shareholders consent thereto in writing. The
written consents of the shareholders shall be filed with the
minutes of proceedings of shareholders.
FIFTH: The amount of capital stock of this
Association shall be Two Hundred Eighteen Million Nine
Hundred Eighteen Thousand Five Hundred Seventy Dollars
($218,918,570) divided into 6,735,956 shares of common stock
of the par value of Thirty-two Dollars and Fifty Cents
($32.50) each; but said capital stock may be increased or
decreased from time to time, in accordance with the
provisions of the laws of the United States.
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No holder of shares of the capital stock of any class
of this Association shall have any pre-emptive or
preferential right of subscription to any shares of any
class of stock of this Association, whether now or hereafter
authorized, or to any obligations convertible into stock of
this Association, issued or sold, nor any right of
subscription to any thereof other than such, if any, as the
Board of Directors, in its discretion, may from time to time
determine and at such price as the Board of Directors may
from time to time fix.
This Association, at any time and from time to time,
may authorize and issue debt obligations, whether or not
subordinated, without the approval of the shareholders.
SIXTH: The Board of Directors shall appoint one of
its members President of this Association, who shall be
Chairman of the Board, unless the Board appoints another
director to be the Chairman. The Board of Directors shall
have the power to appoint a Vice Chairman of the Board, and
one or more Vice Presidents; and to appoint a Cashier and
such other officers and employees as may be required to
transact the business of this Association.
The Board of Directors shall have the power to define
the duties of the officers and employees of this
Association; to fix the salaries to be paid to them; to
dismiss them; to require bonds from them and to fix the
penalty thereof; to regulate the manner in which any
increase of the capital of this Association shall be made;
to manage and administer the business and affairs of this
Association; to make all By-Laws that it may be lawful for
them to make; and generally to do and perform all acts that
it may be legal for a Board of Directors to do and perform.
SEVENTH: The Board of Directors shall have the power
to change the location of the main office to any other place
within the limits of the City of Newark, without the
approval of the shareholders, but subject to the approval of
the Comptroller of the Currency; and shall have the power to
establish or change the location of any branch or branches
of this Association to any other location without the
approval of the shareholders but subject to the approval of
the Comptroller of the Currency.
EIGHTH: The corporate existence of this Association
shall continue until terminated in accordance with the laws
of the United States.
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NINTH: The Board of Directors of this Association,
or any one or more shareholders owing, in the aggregate, not
less than ten percent (10%) of the stock of this
Association, may call a special meeting of shareholders at
any time. Unless otherwise provided by the laws of the
United States, a notice of the time, place and purpose of
every annual and special meeting of the shareholders shall
be given by first class mail, postage prepaid, mailed at
least ten days prior to the date of such meeting to each
shareholder of record at his address as shown upon the books
of this Association.
TENTH: This Association shall indemnify to the full
extent from time to time permitted by New Jersey law, any
person made, or threatened to be made, a party to, or a
witness or other participant in, any threatened, pending or
completed action, suit or proceeding, whether civil,
criminal, administrative, arbitrative, legislative,
investigative or of any other kind, by reason of the fact
that such person is or was a director, officer, employee or
agent of this Association or any subsidiary of this
Association or serves or served any other enterprise at the
request of this Association (including service as a
fiduciary with respect to any employee benefit plan) against
expenses, judgments, fines, penalties and amounts paid in
settlement, actually and reasonably incurred by such person
in connection with such action, suit or proceeding, or any
appeal therein; provided, that no indemnification shall be
granted for expenses, civil penalties or other payments
incurred by any such person in an administrative proceeding
by a federal bank regulatory agency resulting in a final
unappealable order assessing such penalties or requiring
payments to this Association; and provided further, that as
long as this Association is controlled directly or
indirectly by Midlantic Corporation or any successors
thereto, no indemnification shall be granted to any such
person without the approval of Midlantic Corporation or such
successor thereto. The rights provided by this Article to
any person shall inure to the benefit of such person's legal
representative. Neither the amendment or repeal of this
Article, nor the adoption of any provision of these Articles
of Association inconsistent with this Article, shall deprive
any person of rights hereunder arising out of any matter
which occurred prior to such amendment, repeal or adoption.
This Association shall have the authority to purchase
and maintain insurance covering its directors, officers,
employees and agents against expenses and liabilities
incurred in connection with any action or proceeding in
which any of such persons is a participant because of such
person's service to this Association, any subsidiary of this
Association or any other enterprise at the request of this
Association.
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To the full extent from time to time permitted by New
Jersey law, expenses incurred by a person in defending a
civil or criminal action, suit or proceeding shall be paid
by this Association in advance of the final disposition of
such action upon receipt of an undertaking by or on behalf
of such person to repay such amount to the extent the
expenses so advanced exceed the indemnification to which it
is ultimately determined that such person is entitled;
provided that as long as this Association is controlled
directly or indirectly by Midlantic Corporation or any
successors thereto, no advancement of expenses shall be
granted to any such person without the approval of Midlantic
Corporation or such successor thereto.
To the full extent from time to time permitted by New
Jersey law, no director or officer of this Association shall
be personally liable to this Association or its shareholders
for damages for breach of any duty owed to this Association
or its shareholders. Neither the amendment or repeal of
this Article, nor the adoption of any provision of these
Articles of Association inconsistent with this Article,
shall eliminate or reduce the protection afforded by this
Article to a director or officer of this Association with
respect to any matter which occurred, or any cause of
action, suit or claim which but for this Article would have
accrued or arisen, prior to such amendment, repeal or
adoption.
ELEVENTH: These Articles of Association may be amended
at any regular or special meeting of the shareholders by the
affirmative vote of the holders of a majority of the stock
of this Association, unless the vote of the holders of a
greater amount of stock is required by law, and in that case
by the vote of the holders of such greater amount.
