<PAGE>
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
September 30, 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 October 31, 1994
Common Stock, par value $3.00 per share - 52,499,453 shares
<PAGE> 2
Midlantic Corporation and Subsidiaries
FORM 10-Q
SEPTEMBER 30, 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 to shareholders 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.
2
<PAGE> 3
<TABLE>
Midlantic Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1994 1993 1994 1993
____________________________________________________________________________________________
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $174,284 $166,114 $505,305 $497,446
Interest on investment securities
Taxable interest income 26,685 21,095 80,144 67,319
Tax-exempt interest income 197 346 524 620
Interest on deposits with banks 4,313 4,727 13,982 14,400
Interest on other short-term investments 15,583 13,087 38,103 42,973
________ ________ ________ ________
Total interest income 221,062 205,369 638,058 622,758
________ ________ ________ ________
INTEREST EXPENSE
Interest on deposits 55,278 61,581 162,673 205,669
Interest on short-term borrowings 5,084 2,581 15,906 8,506
Interest on long-term debt 8,586 8,857 25,865 27,529
________ ________ ________ ________
Total interest expense 68,948 73,019 204,444 241,704
________ ________ ________ ________
Net interest income 152,114 132,350 433,614 381,054
Provision for loan losses 5,000 14,598 18,625 50,762
________ ________ ________ ________
Net interest income after provision
for loan losses 147,114 117,752 414,989 330,292
NONINTEREST INCOME
Trust income 11,285 10,499 31,927 31,063
Service charges on deposits 20,029 19,523 57,995 57,864
Investment securities (losses) gains -- 3 (3,374) 4,863
Net gains on disposition of assets -- -- 25,056 --
Other 18,056 13,266 55,324 45,338
________ ________ ________ ________
Total noninterest income 49,370 43,291 166,928 139,128
________ ________ ________ ________
196,484 161,043 581,917 469,420
________ ________ ________ ________
NONINTEREST EXPENSES
Salaries and benefits 58,223 55,738 172,338 162,120
Net occupancy 10,469 10,970 33,524 33,166
Equipment rental and expense 5,922 5,777 18,837 20,509
Other real estate owned, net (687) 13,251 5,282 93,044
FDIC assessment charges 7,005 8,102 21,386 25,706
Legal and professional fees 11,512 13,566 32,647 37,883
Other 22,395 21,903 76,130 70,001
________ ________ ________ ________
Total noninterest expenses 114,839 129,307 360,144 442,429
________ ________ ________ ________
</TABLE>
(continued on next page)
<PAGE> 4
<TABLE>
Midlantic Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
(continued)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1994 1993 1994 1993
____________________________________________________________________________________________
<S> <C> <C> <C> <C>
Income before income taxes and cumulative
effect of the changes in accounting principle 81,645 31,736 221,773 26,991
Income tax expense (benefit) 5,398 (15,151) 19,894 (45,345)
________ ________ ________ ________
Income before cumulative effect of the
changes in accounting principle 76,247 46,887 201,879 72,336
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 $ 76,247 $ 46,887 $194,351 $111,298
======== ======== ======== ========
INCOME APPLICABLE TO PRIMARY
COMMON SHARES
Income before cumulative effect
of the changes in accounting principle $75,341 $45,981 $199,160 $ 69,618
Net income 75,341 45,981 191,632 108,580
Income applicable to fully
diluted common shares
Income before cumulative effect
of the changes in accounting principle 76,319 47,002 202,143 72,681
Net income 76,319 47,002 194,615 111,643
======== ======== ======== ========
INCOME PER COMMON SHARE
Income before cumulative effect
of the changes in accounting principle
Primary $1.42 $.87 $3.76 $1.39
Fully diluted 1.40 .86 3.71 1.39
Cumulative effect of the changes in
accounting principle
Postemployment benefits
Primary -- -- (.14) --
Fully diluted -- -- (.14) --
Income taxes
Primary -- -- -- .77
Fully diluted -- -- -- .76
Net income
Primary 1.42 .87 3.62 2.16
Fully diluted 1.40 .86 3.57 2.15
======== ======== ======== ========
AVERAGE COMMON SHARES AND COMMON SHARE
EQUIVALENTS
Primary 53,097 52,969 52,944 50,240
Fully diluted 54,618 54,601 54,501 51,939
======== ======== ======== ========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 5 1/2
<TABLE>
Midlantic Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1994 1993
____________________________________________________________________________________
<S> <C> <C>
ASSETS
Cash and due from banks $ 923,580 $ 712,960
Interest-bearing deposits in other banks 257,723 488,821
Other short-term investments 1,202,912 1,290,000
Investment securities (market value 1994,
$2,241,104; 1993, $2,467,793) 2,305,813 2,455,410
Total loans (net of unearned income of $144,257
in 1994 and $137,241 in 1993) 8,213,030 8,409,697
Less: allowance for loan losses 357,163 400,311
___________ ___________
Net loans 7,855,867 8,009,386
___________ ___________
Premises and equipment, net 146,459 155,129
Due from customers on acceptances 11,451 11,084
Other real estate owned, net 98,863 132,670
Taxes receivable and net deferred tax assets 185,105 202,823
Other assets 300,909 450,895
___________ ___________
Total assets $13,288,682 $13,909,178
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Domestic deposits
Noninterest-bearing demand $ 2,666,200 $ 2,839,885
Interest-bearing demand 1,308,077 1,433,690
Savings 1,671,969 1,582,614
Retail money market accounts 1,985,101 2,193,582
CDs over $100,000 576,913 423,134
Other time 2,676,934 3,105,623
Overseas branch deposits 10,751 9,273
___________ ___________
Total deposits 10,895,945 11,587,801
___________ ___________
Short-term borrowings 553,717 674,497
Bank acceptances outstanding 11,451 11,084
Other liabilities 146,918 126,480
Long-term debt 373,000 386,752
___________ ___________
Total liabilities 11,981,031 12,786,614
___________ ___________
<PAGE> 5 2/2
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 52,491,042 shares in 1994 and
52,173,999 shares in 1993 157,473 156,522
Surplus 610,115 603,732
Retained earnings 491,898 312,310
Net unrealized holding losses on available
for sale securities, net of taxes (1,835) --
___________ ___________
Total shareholders' equity 1,307,651 1,122,564
___________ ___________
Total liabilities and shareholders' equity $13,288,682 $13,909,178
=========== ===========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
5
<PAGE> 6 1/2
<TABLE>
Midlantic Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30 1994 1993
______________________________________________________________________________________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 194,351 $ 111,298
Adjustments to reconcile net income
to net cash provided by operating activities
Provision for loan and OREO losses 26,125 149,810
Depreciation of premises and equipment 17,135 18,366
Amortization of goodwill and other intangibles 4,843 4,756
Deferred income tax expense 46,054 27,371
Cumulative effect of changes in accounting principle
Income taxes -- (38,962)
Postemployment benefits 7,528 --
Net accretion of investment securities (6,389) (19,731)
Accretion of net deferred loan fees (7,043) (7,570)
Net gains on the sales of assets (31,946) (11,938)
Net increase in trading account assets (2,173) (581)
Net decrease in OREO 5,226 24,927
Net increase in accrued interest receivable (22,671) (24,295)
Net decrease in accrued interest payable (7,003) (18,725)
Net (increase) decrease in taxes receivable and
net deferred tax assets (27,089) 35,354
Net decrease (increase) in other assets 37,804 (37,984)
Net increase (decrease) in other liabilities 15,588 (21,699)
Other (764) (4,278)
___________ ___________
Net cash provided by operating activities 249,576 186,119
___________ ___________
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from bulk sales of loans and OREO 222,546 220,802
Proceeds from sales of OREO and loans 53,076 74,146
Net decrease in money market investments with
an original maturity of 3 months or less 607,123 606,137
Proceeds from money market investments with an
original maturity of greater than 3 months 674,040 1,562,097
Purchases of money market investments with an
original maturity of greater than 3 months (962,977) (1,783,040)
Proceeds from sales of available-for-sale securities 889,455 577,575
Proceeds from matured investment securities 866,086 471,015
Purchases of investment securities (1,603,873) (1,043,554)
Net decrease in loans 57,631 56,644
Purchases of premises and equipment (8,701) (13,717)
Sales of premises and equipment 399 1,750
___________ ___________
Net cash provided by investing activities 794,805 729,855
___________ ___________
<PAGE> 6 2/2
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits (691,856) (1,049,092)
Net (decrease) increase in short-term borrowings (120,780) (28,847)
Payments on long-term debt (13,752) (50,360)
Cash dividends paid (13,857) --
Proceeds from issuances of common stock 6,484 108,035
___________ ___________
Net cash used by financing activities (833,761) (1,020,264)
___________ ___________
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 210,620 $ (104,290)
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 712,960 799,194
___________ ___________
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 923,580 $ 694,904
=========== ===========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
6
<PAGE> 7 1/2
<TABLE>
Midlantic Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share and per share data)
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30 1994 1993
___________________________________________________________________________________________
<S> <C> <C>
PREFERRED STOCK AT JANUARY 1 AND SEPTEMBER 30 $ 50,000 $ 50,000
========== ==========
COMMON STOCK
Balance at January 1 $ 156,522 $ 138,443
Issuance of 5,750,000 common shares
in a public offering -- 17,250
Issuance of 35,776 common shares in 1994 and
130,487 common shares in 1993 for preferred
stock dividend 107 392
Issuance of 233,528 common shares and 2,042 common
treasury shares in 1994 and 22,096 common shares
and 4,981 common treasury shares in 1993 for
stock options 701 190
Issuance of 47,589 common shares in 1994 and
5,747 common shares in 1993 purchased by
Midlantic's 401(k) and Dividend Reinvestment Plans 143 17
__________ __________
Balance at September 30 $ 157,473 $ 156,292
========== ==========
SURPLUS
Balance at January 1 $ 603,732 $ 509,464
Issuance of common shares for preferred
stock dividend 799 2,327
Issuance of common shares and common treasury
shares for stock options 4,358 446
Issuance of common shares in a public offering -- 89,890
Issuance of common shares purchased by
Midlantic's 401(k) and Dividend Reinvestment Plans 1,226 124
__________ __________
Balance at September 30 $ 610,115 $ 602,251
========== ==========
RETAINED EARNINGS
Balance at January 1 $ 312,310 $ 145,578
Net income 194,351 111,298
Cash dividends paid in 1994
Preferred stock (1,813) --
Common stock (12,044) --
Issuance of common shares for
preferred stock dividend (906) (2,719)
__________ __________
Balance at September 30 $ 491,898 $ 254,157
========== ==========
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 (3,694) --
__________ __________
Balance at September 30 $ (1,835) $ --
========== ==========
<PAGE> 7 2/2
TREASURY STOCK
Balance at January 1 $ -- $ (23)
Addition of 2,042 common shares in 1994
and 4,081 common shares in 1993 (56) (95)
Issuance of 2,042 common treasury
shares in 1994 and 4,981 common
treasury shares in 1993 for stock options 56 118
__________ __________
Balance at September 30 $ -- $ --
========== ==========
TOTAL SHAREHOLDERS' EQUITY
Balance at January 1 $1,122,564 $ 843,462
Net changes during period 185,087 219,238
__________ __________
Balance at September 30 $1,307,651 $1,062,700
========== ==========
</TABLE>
7
<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.
Effective June 30, 1994 and for all prior periods presented, the Corporation
reclassified factored receivables and the allowance for factored receivables
from other assets/other liabilities to loans and the allowance for loan
losses, respectively. Net discount income earned on factored receivables was
reclassified from noninterest income to interest income on loans while the
provision for losses on factored receivables was transferred from other
noninterest expenses to the provision for loan losses. Such reclassifications
were made to conform with general industry practice and did not have a
material effect on Midlantic's results of operations or financial condition.
ASSETS HELD FOR ACCELERATED DISPOSITION - During 1993 and 1994, the
Corporation initiated and completed two major bulk sale programs of distressed
real estate assets. Prior to their actual sales, these assets, comprised of
commercial real estate loans and other real estate owned ("OREO"), were
transferred to other assets as assets held for accelerated disposition
("AHAD"). Such assets were carried at fair value less the estimated cost of
disposing of the properties ("net realizable value").
In the first bulk sale program, Midlantic transferred loans and OREO with a
book value and a net realizable value of $292.9 million and $208.4 million,
respectively, to AHAD during the first nine months of 1993. All of the assets
identified for accelerated disposition were sold by the end of the third
quarter of 1993.
In the second bulk sale program, commenced in December 1993, the Corporation
initially transferred loans and OREO with a book value and a net realizable
value of $292.2 million and $158.2 million, respectively, to AHAD. During the
first six months of 1994, additional loans and OREO with a book value of $69.1
million and a net realizable value of $56.9 million, were transferred to AHAD.
Substantially all of the assets designated for bulk sale at year-end 1993 and
during 1994 were sold by the end of the second quarter of 1994. A gain of
$25.1 million was realized in the second quarter of 1994 on these sales. At
September 30, 1994, $18.4 million of assets designated for accelerated
disposition remained outstanding. Such assets are expected to be sold or
settled on an individual basis by year-end 1994.
CAPITAL STOCK
COMMON STOCK - On October 19, 1994, the Board of Directors of MC ("the Board")
declared a quarterly cash dividend on the Corporation's common stock of $.17
per share to shareholders of record on November 1, 1994, payable on November
14, 1994. This followed the declaration and payment of a cash dividend of
$.13 per share on the common stock during the third quarter of 1994 and $.10
per share during the second quarter of 1994.
On May 4, 1993, Midlantic issued, through a public offering, 5.750 million
shares of common stock for a net cash price of $107.1 million.
PREFERRED STOCK - On September 21, 1994, the Board 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 third
quarter 1994 dividend requirement, payable in the fourth quarter of 1994.
8
<PAGE> 9
Based upon a July 22, 1992 agreement between Midlantic and the holder of the
Preferred Stock, dividends on the Preferred Stock for the second half of 1991
(as well as payments in arrears) and all of 1992 and 1993 were paid through
the issuance of shares of Midlantic's common stock in lieu of a cash payment.
Pursuant to that agreement, 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
off-balance sheet financial instruments at September 30, 1994:
SEPTEMBER 30
(In thousands) 1994
____________________________________________________________________________
Unused commitments to extend credit $2,840,102
Financial standby letters of credit and
similar arrangements 112,407
Performance standby letters of credit and
similar arrangements 144,866
Commercial letters of credit and other short-term
trade-related contingencies 41,720
Notional amount of interest rate swaps (1)
Agreements to receive a fixed rate of interest 3,248,289
Agreements to pay a fixed rate of interest 598,500
Agreements to receive and pay a variable
rate of interest 300,000
Foreign exchange contracts (2) 55,265
============================================================================
(1) For a dicussion on interest rate swaps, see pages 24 through 26.
(2) Foreign exchange contracts are provided as a service to the Corporation's
customers or used by the Corporation for risk-management purposes.
Gains and losses on foreign exchange contracts are immaterial.
STATEMENT OF CASH FLOWS - Cash paid during the first nine months of 1994 and
1993 for interest on deposits, short-term borrowings and long-term debt
amounted to $195.0 million and $260.4 million, respectively. Net cash paid
for federal and state income taxes during the first nine months of 1994 was
$640 thousand. For the same period of 1993, a net cash refund of $85.0
million was received.
During the first nine months of 1994 and 1993, $17.9 million and $113.2
million, respectively, of loans, net of charge-offs, were transferred into
OREO. The transfer of loans to 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 net income for the first nine months of 1994 by $7.5 million
(net of taxes) or .14 per fully diluted common share. FAS No. 112 requires
accrual accounting for postemployment benefits (benefits such as severance and
disability payments to former or inactive employees after employment but
9
<PAGE> 10
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, net of
applicable income taxes, 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 September 30, 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.
The investment securities portfolio at September 30, 1994 was comprised of the
following:
(In thousands) SEPTEMBER 30, 1994
_________________________________________________________________________
Securities held to maturity $1,791,281*
Securities available for sale 492,974*
Trading securities 21,558
_________________________________________________________________________
Total investment securities $2,305,813
=========================================================================
* At September 30, 1994, the market value of securities held to maturity
amounted to $1,726,573 while the carrying value of securities available
for sale was $496,056.
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 year-to-date, September 30, 1993 net income by $39.0
million or $.76 per fully diluted common share. FAS No. 109 requires a change
from the "deferred tax method", utilized by the Corporation 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
10
<PAGE> 11
portion of a deferred tax asset for which a tax benefit is not expected to be
realized. As of September 30, 1994, the Corporation had $26.4 million of FAS
No. 109 valuation reserves which represent currently unrecognized federal and
state income tax benefits.
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" and in October 1994, issued FASB No. 118
"Accounting by Creditors for Impairment of a Loan - Income Recognition and
Disclosure", both of which are 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. FAS No. 118 amends the
provisions of FAS No. 114 regarding the recognition of interest income on
impaired loans, allowing banks to substantially use the methods of income
recognition presently in effect. Midlantic is in the process of evaluating
various adoption alternatives and has not determined the effect of adoption,
nor does the Corporation plan to elect early adoption.
11
<PAGE> 12 1/2
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 of $76.2 million or $1.40 per fully diluted common share
for the three months ended September 30, 1994 compared with net income of
$46.9 million or $.86 per fully diluted common share for the corresponding
period of 1993. For the nine months ended September 30, 1994, net income
amounted to $194.4 million or $3.57 per fully diluted common share compared
with net income of $111.3 million or $2.15 per fully diluted common share for
the first nine months of 1993.
Income before taxes, credit provisions and certain nonrecurring gains or
charges ("core earnings") amounted to $82.3 million in the third quarter of
1994 or 42.4 percent over the level recorded in the third quarter of 1993. For
the first nine months of 1994, core earnings were $222.5 million compared to
$161.9 million in 1993. The rise in core earnings primarily reflects higher
levels of net interest income due to increasing yields on earning assets,
particularly prime rate-based loans, and a decline in nonaccrual assets. The
following table summarizes Midlantic's results of operations for the three
months and nine months ended September 30, 1994 and 1993:
<PAGE> 12 2/2
<TABLE>
MAJOR COMPONENTS OF THE RESULTS OF OPERATIONS
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
(In thousands) 1994 1993 1994 1993
___________________________________________________________________________________________
<S> <C> <C> <C> <C>
INCOME BEFORE TAXES, CREDIT PROVISIONS
AND NONRECURRING ITEMS ("CORE EARNINGS")
Net interest income $152,114 $132,350 $433,614 $381,054
Noninterest income* 46,915 43,288 142,791 134,265
Noninterest expenses* 116,730 117,825 353,869 353,468
________ ________ ________ ________
CORE EARNINGS 82,299 57,813 222,536 161,851
________ ________ ________ ________
ADDITIONS
Investment securities (losses) gains -- 3 (3,374) 4,863
Net gains on the bulk sales of assets -- -- 25,056 --
Net gains on the sales of OREO 3,391 3,634 7,325 10,087
Other nonrecurring noninterest income 2,455 -- 2,455 --
DEDUCTIONS
Provision for loan losses 5,000 14,598 18,625 50,762
Provision for OREO 1,500 15,116 7,500 99,048
Expenses relating to the consolidation
of bank subsidiaries -- -- 6,100 --
________ ________ ________ ________
Income before income taxes and cumulative
effect of changes in accounting principle 81,645 31,736 221,773 26,991
Income tax expense (benefit) 5,398 (15,151) 19,894 (45,345)
________ ________ ________ ________
Income before cumulative effect of
changes in accounting principle 76,247 46,887 201,879 72,336
________ ________ ________ ________
Cumulative effect of changes in
accounting principle -- -- (7,528) 38,962
________ ________ ________ ________
NET INCOME $ 76,247 $ 46,887 $194,351 $111,298
======== ======== ======== ========
<FN>
*Noninterest income excludes investment securities gains or losses, net gains on the bulk
sale of assets and other nonrecurring noninterest income, while noninterest expenses
excludes expenses relating to the consolidation of operations of bank subsidiaries.
</TABLE>
12
<PAGE> 13
RECENT ACTIVITIES OF THE CORPORATION
____________________________________
On August 26, 1994, Continental Bank ("CB") merged into Midlantic National
Bank ("MNB") and the combined bank was named Midlantic Bank, National
Association ("MB"). Also in August 1994, in connection with this merger,
MNB's direct parent, Midlantic Banks Inc., was merged into Midlantic
Corporation ("MC"). During the second quarter of 1994, Midlantic recorded an
accrual of $6.1 million (or less than one percent of total year-to-date
revenue) for one-time expenses relating to the consolidation of bank
subsidiaries, which included the cost of communicating the change in names,
new stationery and forms and severance expenses resulting from the elimination
of duplicate operations.
In March 1994, following Midlantic's 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") terminated the written agreements under which the Corporation
and MNB operated. In addition, in April 1994, the Corporation's Board of
Directors (the "Corporation's Board") approved the first cash dividend on
Midlantic's common stock since the third quarter of 1990, of $.10 per common
share. In the following two quarters, the Corporation raised its cash
dividend to common shareholders to $.13 per common share (declared in July)
and $.17 per common share (declared in October).
During 1993 and 1994, the Corporation initiated and completed two major bulk
sales programs primarily consisting of distressed real estate assets. The
Corporation sold commercial real estate loans and other real estate owned
("OREO") with a gross book value of approximately $300 million in each of the
bulk sales programs. Prior to the sales, these assets were transferred to
other assets as "assets held for accelerated disposition" and carried at net
realizable value. The first bulk sales program was initiated and completed in
1993, while the second bulk sales program, initiated in late 1993, was
substantially completed in the second quarter of 1994. In the second quarter
of 1994, the Corporation realized a net gain on assets sold in bulk sales of
$25.1 million. At September 30, 1994, $18.4 million of assets designated for
accelerated disposition remained outstanding. Such assets are expected to be
sold or settled on an individual basis by the end of 1994.
13
<PAGE> 14
RESULTS OF OPERATIONS
THIRD QUARTER 1994 VS. THIRD QUARTER 1993
NINE MONTHS ENDED SEPTEMBER 30, 1994 VS. NINE MONTHS ENDED SEPTEMBER 30, 1993
NET INTEREST INCOME
___________________
Net interest income ("NII") for the third quarter of 1994 exceeded that of the
third quarter of 1993 by $19.8 million or 14.9 percent. For the nine months
ended September 30, 1994, NII increased $52.6 million or 13.8 percent over the
comparable period of 1993.
<TABLE>
NET INTEREST INCOME/NET INTEREST MARGIN
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
(Dollars in thousands) 1994 1993 Variance 1994 1993 Variance
_________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Net interest income $152,114 $132,350 $19,764 $433,614 $381,054 $52,560
Net interest margin* 4.98% 4.25% .73% 4.71% 4.07% .64%
________ ________ _______ ________ ________ _______
<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 nine month period ended September 30, 1994 was favorably affected
by declining funding costs accompanied by reductions in nonaccrual assets and
growth in the consumer loan portfolio which more than offset reductions in
average interest-earning assets. While funding costs, in general, began to
rise with market rates in the quarter ended September 30, 1994, earning asset
yields increased in amounts greater than the increase in funding costs.
Average interest-earning assets declined $230.6 million and $226.1 million for
the three months and nine months ended September 30, 1994, respectively, when
compared with average interest-earning assets for the corresponding periods of
1993. This primarily reflected a decline in deposits, particularly retail
certificates of deposits bearing relatively higher rates of interest. This
decline in funding was accompanied by a contraction in average loans of $258.7
million and $292.1 million for the quarter and nine months ended September 30,
1994, respectively, compared to the same periods of last year. Loans sold in
bulk sales or identified for accelerated disposition (and accompanying
writedowns to net realizable value), as well as other loan charge offs were
significant factors in the decline in loans for the quarter and year-to-date
periods of 1994 compared with the same periods of the prior year. Commercial
loans and real estate loans fell by $216.1 million or 6.7 percent and $589.0
million or 16.8 percent, respectively, when comparing average balances for the
first nine months of 1994 and 1993. This decline was partially offset by a
$512.9 million or 27.5 percent rise in average consumer loans during the same
period.
14
<PAGE> 15 1/2
<TABLE>
AVERAGE BALANCES
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
(In millions) 1994 1993 Variance 1994 1993 Variance
_______________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets $12,120 $12,351 $(231) $12,299 $12,525 $(226)
Interest-bearing
sources of funds 9,147 9,730 (583) 9,474 10,074 (600)
Noninterest-bearing
sources of funds* 2,973 2,621 352 2,825 2,451 374
_______ _______ _____ _______ _______ _____
<FN>
*Primarily comprised of noninterest-bearing demand deposits.
</TABLE>
The net interest margin increased 73 basis points and 64 basis points in the
third quarter and first nine months of 1994, respectively, as compared to the
same periods of 1993, primarily reflecting (i) the favorable impact of the
increase in short-term market interest rates on interest-earning asset yields
over funding rates and (ii) the significant rise in noninterest-bearing funds
(primarily demand deposits) supporting the earning-asset portfolio.
PROVISION FOR LOAN LOSSES
_________________________
The provision for loan losses was $5.0 million and $18.6 million for the third
quarter and first nine months of 1994, respectively, compared with $14.6
million and $50.8 million for the corresponding periods of 1993. Based upon
Midlantic's methodology for establishing an allowance for loan losses as
discussed in the "Asset Quality" and "Allowance for Loan Losses" sections of
this report, Midlantic believes that its allowance for loan losses was
adequate at September 30, 1994 to absorb estimated losses in its credit
portfolios.
NONINTEREST INCOME
__________________
<TABLE>
NONINTEREST INCOME
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
(In thousands) 1994 1993 Variance 1994 1993 Variance
__________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Trust income $11,285 $10,499 $ 786 $ 31,927 $ 31,063 $ 864
Service charges on
deposit accounts 20,029 19,523 506 57,995 57,864 131
Investment securities
(losses) gains -- 3 (3) (3,374) 4,863 (8,237)
Income earned on factoring
receivables 1,921 1,871 50 5,609 5,375 234
Net gains on bulk sales
of assets -- -- -- 25,056 -- 25,056
Miscellaneous 16,135 11,395 4,740 49,715 39,963 9,752
_______ _______ ______ ________ ________ _______
Total noninterest income $49,370 $43,291 $6,079 $166,928 $139,128 $27,800
======= ======= ====== ======== ======== =======
<PAGE> 15 2/2
</TABLE>
Trust fees for both the three month and nine month periods ended September 30,
1994 benefitted from a higher level of investment advisory fees (reflecting
both revised fee schedules and an expansion in business activity) from the
"Compass Capital Group", Midlantic's proprietary mutual fund group, fees
generated from "Enhanced Asset Management", a financial tool that matches
asset allocation to the trust or investment client's risk and return
objectives and the sales of annuity contracts. The favorable impact of such
fees was partially offset by the termination of a small number of employee
benefit accounts.
15
<PAGE> 16 1/2
For the nine months ended September 30, 1994, net investment securities losses
were $3.4 million (gross losses of $6.4 million and gross gains of $3.0
million) compared with net investment securities gains of $4.9 million (gross
gains of $5.3 million and gross losses of $.4 million) for the corresponding
period of 1993. Net losses on the sale of available for sale securities in
1994 were realized primarily from the sale of nearly $900 million of U.S.
Treasury securities, the proceeds of which were then available for
reinvestment at higher yields. Gains in 1993 were realized from the sale of
$562 million of U.S. Treasury securities in the first quarter that had been
previously identified for sale.
During the second quarter of 1994, the Corporation recorded $25.1 million of
net gains on the sale of loans and OREO that had previously been identified
for accelerated disposition (see "Recent Activities of the Corporation"). The
$4.7 million and $9.8 million rise in miscellaneous noninterest income for the
quarter and year-to-date periods of 1994, respectively, primarily reflected
revenues received from assets held for accelerated disposition prior to their
sale, income earned on the outsourcing of official checks and higher levels of
automated teller fees. In the third quarter of 1994, the Corporation also
realized $2.5 million of nonrecurring income representing interest earned on
an income tax refund of $1.5 million and a $1.0 million gain on the sale of a
loan.
NONINTEREST EXPENSES
____________________
<TABLE>
NONINTEREST EXPENSES
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
September 30 September 30
(In thousands) 1994 1993 Variance 1994 1993 Variance
_____________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Salaries and benefits $ 58,223 $ 55,738 $ 2,485 $172,338 $162,120 $ 10,218
Net occupancy 10,469 10,970 (501) 33,524 33,166 358
Equipment rental and expense 5,922 5,777 145 18,837 20,509 (1,672)
Other real estate owned, net (687) 13,251 (13,938) 5,282 93,044 (87,762)
FDIC assessment charges 7,005 8,102 (1,097) 21,386 25,706 (4,320)
Legal and professional fees 11,512 13,566 (2,054) 32,647 37,883 (5,236)
Expenses relating to the
consolidation of bank
subsidiaries -- -- -- 6,100 -- 6,100
Miscellaneous 22,395 21,903 492 70,030 70,001 29
________ ________ ________ ________ ________ ________
TOTAL NONINTEREST EXPENSES $114,839 $129,307 $(14,468) $360,144 $442,429 $(82,285)
======== ======== ======== ======== ======== ========
</TABLE>
Salaries and benefits expense increased $2.5 million or 4.5 percent for the
third quarter of 1994 and increased $10.2 million or 6.3 percent for the first
nine months of 1994. The increase in salaries and benefits expense primarily
reflected performance-based salary increases granted employees and accruals
for incentive bonus and 401(k) plans. The 401(k) plan and certain incentive
plans were not in effect during the first half of 1993.
<PAGE> 16 2/2
Expenses for premises and fixed assets (net occupancy and equipment rental
expenses) declined $356 thousand in the third quarter and $1.3 million for the
first nine months of 1994 primarily reflecting a decline in depreciation. The
year-to-date period of 1994 also included heavier than normal snow and ice
removal costs incurred earlier in the year.
Expenses associated with OREO decreased $13.9 million for the third quarter of
1994 compared to the corresponding period of 1993. On a year-to-date basis,
16
<PAGE> 17
OREO expenses in 1994 declined $87.8 million compared to the same period in
1993. Included in the third quarter and year-to-date 1994 expenses were
charges of $1.5 million and $7.5 million, respectively, which adjusted the
carrying value of certain OREO properties to approximate net realizable value.
This compares with adjustments to carrying value of $15.1 million and $99.0
million for the corresponding periods of 1993, respectively. The significant
decline in such adjustments in 1994 is primarily due to lower levels of OREO
assets and to an apparent price stabilization on many OREO properties as
reflected by appraisals received during these periods. Included in the first
quarter of 1993 was $34.0 million provided against those OREO properties
transferred to "assets held for accelerated disposition" and subsequently sold
later in the year. That special provision represented the adjustment to
carrying values necessary in the Corporation's judgment, at that time, 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 OREO sold in the normal course of business. For
both the third quarter and year-to-date periods of 1994 rental income and net
gains on the sale of OREO exceeded total operating costs.
The Federal Deposit Insurance Corporation ("FDIC") assessment decreased by
$1.1 million or 13.5 percent for the three months ended September 30, 1994 and
decreased by $4.3 million or 16.8 percent for the first nine months of 1994
largely as a result of a decline in the premium paid by Midlantic's bank
subsidiaries and a decrease in deposit funding. The level of expenses in the
first half 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. A further decrease in MB's assessment rate
is anticipated as of January 1, 1995.
The decline in legal and professional fees of $2.1 million or 15.1 percent for
the third quarter of 1994 and $5.2 million or 13.8 percent for year-to-date
1994, was primarily due to a reduction in loan workout expenses which is a
reflection of the Corporation's lower level of problem assets.
Miscellaneous noninterest expenses for the three months and nine months ended
September 30, 1994 were substantially the same when compared to the quarter
and year-to-date periods of 1993.
INCOME TAXES
____________
ADOPTION OF FAS NO. 109
In the first quarter of 1993, Midlantic adopted FAS No. 109 "Accounting for
Income Taxes" which requires a shift from the "deferred tax method," formerly
utilized by the Corporation, 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 $.76
per fully diluted common share (on a year-to-date basis). As of September 30,
1994, the Corporation had $26.4 million of FAS No. 109 valuation reserves,
which represent currently unrecognized federal and state income tax benefits.
17
<PAGE> 18
GENERAL
Midlantic recorded income tax expenses of $5.4 million and $19.9 million in
the third quarter and first nine months of 1994, respectively, and tax
benefits of $15.2 million and $45.3 million for the corresponding periods of
1993. Tax expenses recorded ins the third quarter and first nine months of
1994 were comprised of tax benefits of $27.8 million and $69.2 million,
respectively, related to a reduction in the FAS No. 109 tax valuation reserve
and $33.2 million and $89.1 million, respectively, of federal and state income
tax expenses on operating earnings. The tax benefit recorded for the third
quarter of 1993 was comprised of a tax benefit of $27.7 million primarily
related to a reduction in the tax valuation reserve less $12.5 million of
federal and state income tax expenses on operating earnings. For year-to-date
1993, a tax benefit primarily related to a reduction in the tax valuation
reserve of $53.7 million was realized, less $8.4 million of federal and state
income taxes on operating earnings. The tax valuation reserve adjustments are
the result of Midlantic's assessment of the future realization of its deferred
tax asset based upon estimated future profitability.
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 (on a year-to date basis). FAS
No. 112 requires accrual accounting for certain postemployment benefits
(benefits such as disability and health benefits 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.
18
<PAGE> 19
FINANCIAL CONDITION
SEPTEMBER 30, 1994 VS. DECEMBER 31, 1993
ASSET QUALITY
_____________
Nonaccrual loans and OREO ("nonaccrual assets") severely impacted Midlantic's
operations during the period 1990-1992. As a result of the disposition and
resolution of nonaccrual assets since that period, however, management
believes that nonaccrual assets no longer pose a material financial or
operating concern to the Corporation.
Nonaccrual assets have declined from the peak levels experienced in 1991,
amounting to over 12 percent of loans and OREO outstanding at that time, to
less than 4 percent as of September 30, 1994. As of September 30, 1994,
nonaccrual loans and OREO totalled $293.5 million or 3.5 percent of loans and
OREO outstanding compared to $398.0 million or 4.7 percent at the end of 1993.
The levels of nonaccrual assets are significantly influenced by national and
regional economic conditions.
Changes in nonaccrual loan totals are summarized in Table XII. At September
30, 1994, nonaccrual loans were primarily comprised of commercial, financial
and foreign loans (46.6 percent of the total), long-term commercial mortgages
(25.3 percent of the total) and construction and development loans (19.2
percent of the total). The relationship of each of these categories of
nonaccrual loans to its respective loan portfolio was 3.0 percent commercial,
financial and foreign; 3.1 percent long-term commercial mortgage; and 6.4
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 $86.6 million, of which 24.1 percent comprised office
buildings, 18.8 percent industrial/warehouse, 17.9 percent residential
properties and 12.3 percent retail business and shopping centers. Total
commercial real estate loans declined significantly during the past twelve
months as indicated in the following table:
COMMERCIAL REAL ESTATE LOANS
Sept. 30 Dec. 31 Sept. 30
FOR THE QUARTER ENDED (In millions) 1994 1993 1993
______________________________________________________________________________
Long-term commercial mortgage loans $1,580 $1,665 $1,796
Construction and development loans 585 834 1,016
______________________________________________________________________________
Total commercial real
estate loans $2,165 $2,499 $2,812
==============================================================================
The decline in total commercial real estate loans was primarily due to
principal paydowns, loans sold in bulk sales, the transfer of loans to OREO
and loan charge-offs.
19
<PAGE> 20
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. Prior to demonstrating performance,
restructured loans are classified as nonaccrual. 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.
Renegotiated loans that have demonstrated performance and have an effective
yield greater than or equal to a market interest rate at the date of closing
may be classified as accruing loans in the reporting period following the year
they were disclosed as renegotiated and were so reported in the annual
financial statements for that year. Renegotiated loans declined to $45.9
million at September 30, 1994 compared with $172.1 million at year-end 1993
(see Table XII) reflecting the sale of $96.0 million and the classification of
$29.8 million as accruing loans (pursuant to the requirements for classifi-
cation as accruing loans referred to in the preceding sentence). The average
current yield recognized as interest on accruing renegotiated loans is 8.33
percent. The effective interest rate as calculated under FAS No. 15 on these
renegotiated loans is 8.47 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, which includes in-substance foreclosures and real property for which the
Corporation has obtained legal tital ("acquired OREO properties") amounted to
$98.9 million at September 30, 1994, compared with the December 31, 1993 level
of $132.7 million. At September 30, 1994, acquired OREO properties amounted
to $80.6 million and in-substance foreclosures were $18.3 million compared
with levels of $97.2 million and $35.5 million, respectively, at December 31,
1993. The decline in total OREO since December 31, 1993 primarily reflected
payments on and sales of OREO properties (in the normal course of business) of
$43.4 million, writedowns of $7.5 million and additions to OREO totalling
$17.9 million (see Table XVII).
Accruing loans past due ninety days or more as to interest or principal
payments amounted to $27.5 million and $36.2 million at September 30, 1994 and
December 31, 1993, respectively.
As of the end of the third quarter of 1994, Midlantic had identified an
additional $25.9 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, HLTs in the amount of $118.0 million were
outstanding at September 30, 1994 and Midlantic is committed to lend an
additional $84.0 million primarily to these HLT borrowers. At December 31,
1993, Midlantic had 22 reportable HLT outstandings amounting to $198.9 million
and unfunded commitments to HLT borrowers of $107.6 million. Midlantic's
entire HLT exposure is comprised of senior debt. HLTs comprised less than 1.5
20
<PAGE> 21
percent of total loans at September 30, 1994 and their contribution to total
revenue was modest.
The Corporation's foreign outstandings (principally money market assets) at
September 30, 1994, all of which were dollar denominated, amounted to $244.4
million or 1.8 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 September 30, 1994 no outstandings to
individual countries exceeded .75 percent of total assets. At December 31,
1993, 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 4.35 percent and 4.76 percent of total
loans, net of unearned income, at September 30, 1994 and December 31, 1993,
respectively. At September 30, 1994, the ratio of the allowance for loan
losses to nonaccrual loans was 184 percent compared with 151 percent at
December 31, 1993.
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 Corporation's bulk sale of distressed real estate
loans, during 1993, the Corporation charged-off a net $181.9 million of loans.
During the first nine months of 1994, a net $7.9 million was charged-off on
loans that had been designated during this period as held for accelerated
disposition.
Midlantic's net charge-offs of $53.9 million for the first nine months of 1994
compares to $130.3 million for the corresponding period of 1993 (which
does not include the above-mentioned charge-offs on loans sold in bulk sales
transactions). Net charge-offs as a percent of average loans, on an
annualized basis, amounted to .86 percent, as compared with 2.02 percent for
the first nine months of 1993 and 1.96 percent for the year ended December 31,
1993. Net charge-offs in 1994 principally reflected net losses incurred on
<PAGE> 22
commercial and financial loans ($26.0 million), commercial real estate loans
($14.8 million) and loans to individuals ($12.0 million).
As part of its process to assess credit quality, Midlantic utilizes a 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 inherent degree of risk.
Regular audits and reviews by employees independent of the lending function
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 as of September 30, 1994 to
be adequate based upon the size and risk characteristics of the credit
portfolio outstanding at that date, 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 nine months of 1994
in order to maintain an adequate allowance for loan losses. Conversely, if
economic conditions for the Corporation's borrowers improve, future provisions
may be lower. Provisioning levels in the near future may also be lower in the
absence of further improvements in economic conditions if loan quality
continues to improve and loan loss recoveries continue at higher than expected
levels.
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) securities which the Corporation has both the
positive intent and ability to hold until maturity ("held to maturity
securities") are reported at amortized/accreted cost; (2) securities which are
purchased and held principally for the purpose of selling in the near-term
("trading securities") 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 September 30, 1994, investment securities totalled $2.3 billion down $149.6
million or 6.1 percent from the $2.5 billion recorded at December 31, 1993.
The investment securities portfolio at September 30, 1994 included $1.8
billion of held to maturity securities, $493.0 million of AFS securities and
$21.6 million of trading securities. On September 30, 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 securities
portfolio, which in management's judgement is a temporary decline caused by
the rise in market interest rates, amounted to $64.7 million at September 30,
1994, comprised of gross unrealized losses of $66.4 million and gross
unrealized gains of $1.7 million (see Table VI). At December 31, 1993, the
Corporation had net unrealized appreciation of $12.4 million on its total
investment securities portfolio, comprised of gross unrealized gains of $13.9
million and gross unrealized losses of $1.5 million.
At September 30, 1994, the AFS securities portfolio consisted of $433.5
million of U.S. Treasury obligations with a remaining average maturity of
approximately one year and debt, equity and state and municipal securities
totalling $59.5 million. The held to maturity securities portfolio is
primarily comprised of $903.9 million of federal agency mortgage-backed
securities (with a weighted average maturity of less than five years) and
$876.7 million of U.S. Treasury securities with a remaining average maturity
of approximately 1.6 years. The average maturity of the investment portfolio
outstanding on December 31, 1993 amounted to approximately three 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 September 30, 1994, money market
investments totalled $1.5 billion or 12.2 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 and other longer-term
investments.
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 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, including hedging positions
created by interest rate swaps (subsequently discussed in this section). 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 excess
of assets or liabilities (including interest rate swaps) outstanding at
<PAGE> 24
September 30, 1994, due to mature, to be repriced, or assumed to be repriced
in various time intervals. On September 30, 1994, Midlantic estimated that
more liabilities than assets were repricing or maturing during the subsequent
one year period. This estimate includes certain assumptions about the timing
of rate changes on liabilities without stated maturities and the effect on NII
of changing levels of noninterest-bearing funding such as demand deposit
balances. The actual or assumed amount of liabilities in excess of assets
subject to maturing or repricing within one year of September 30, 1994 was
$600 million, an amount which management believes would result in a negligible
change in NII if interest rates were to rise or fall by amounts similar to
recent years. On the other hand, greater market interest rate volatility
would tend to have a more significant impact on prospective NII. Midlantic
manages its interest sensitivity position with an objective of avoiding
material mismatching of the amounts of assets and liabilities subject to rate
changes within each significant 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
September 30, 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). Midlantic did not hold
any interest rate swap contracts for trading purposes.
INTEREST RATE SWAPS
SEPTEMBER 30, 1994
Net Exchange
Rate
Notional Fixed Variable Favorable
(In millions) Amounts Rate Rate (Unfavorable)
____________________________________________________________________________
Receive a fixed
rate of interest
Hedging commercial and
financial loans $1,250 5.56% 4.88% .68%
Hedging construction and
development loans 275 5.30 4.84 .46
Hedging long-term
commercial mortgage loans 300 5.83 4.82 1.01
Hedging retail certificates
of deposit 1,200 5.56 4.86 .40
Hedging repurchase agreements* 223 4.76 3.93 .83
Pay a fixed rate
of interest (all hedging
U.S. government agency
securities) 599 4.68 4.96 .28
Receive and pay a
variable rate of
interest (all hedging 300 N/A 4.65 (receive)}
long-term commercial 5.21 (pay) } (.56)
mortgage loans)
____________________________________________________________________________
* These swaps were terminated on October 20, 1994
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
<PAGE> 25
not recorded on the balance sheet. At September 30, 1994, Midlantic did not
have any interest rate swaps tied other than to a fixed rate, LIBOR or the
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 financial instruments. 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.
During the first nine months of 1994, the Corporation entered into $300.0
million (notional amount) of swap contracts in which it pays an interest rate
tied to the prime rate and receives LIBOR. The purpose of these contracts is
to hedge against the risk that funding costs might rise faster than the prime
rate on the underlying hedged prime rate-based commercial mortgage loans. As
of September 30, 1994, there were no deferred gains or losses on swaps
terminated during the year.
INTEREST RATE SWAP CONTRACTS-ACTIVITY DURING 1994
(In millions)
________________________________________________________________________
Notional amount of interest rate
swaps at December 31, 1993 $4,268
New swaps 300
Matured swaps (121)
Swaps terminated (300)
________________________________________________________________________
Notional amount of interest rate
swaps at September 30, 1994 $4,147
________________________________________________________________________
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 September 30,
1994 were associated with organizations having securities rated as investment
grade by independent rating agencies.
As of September 30, 1994, the estimated credit exposure associated with
interest rate swap contracts was approximately $43 million representing those
swaps that show a positive (favorable) mark-to-market position. Management
believes that the swap contracts it has in place as of September 30, 1994 have
been effective tools in the control of interest rate risk.
The following table describes the direct impact of interest rate swaps on NII.
During the periods indicated, Midlantic used such swaps exclusively as one of
several tools to manage interest rate risk. Any net benefit from these
interest rate contracts is intended as an offset to changing levels of NII
related to specific assets or liabilities on the Corporation's balance sheet.
IMPACT OF INTEREST RATE SWAPS ON NET INTEREST INCOME
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
(In thousands) 1994 1993 1994 1993
_____________________________________________________________________________
Interest income $ 2,210 $10,724 $ 16,446 $ 31,216
Interest expense (3,102) (6,708) (13,647) (19,493)
_____________________________________________________________________________
Net interest income $ 5,312 $17,432 $ 30,093 $ 50,709
=============================================================================
<PAGE> 26
MATURITY DISTRIBUTION AND SUMMARY OF FAIR VALUES OF
SWAP CONTRACTS IN PLACE AS OF SEPTEMBER 30, 1994
Notional Amounts
_______________________________
Receive Pay Receive and
(In millions) Fixed Fixed Pay Variable Total
______________________________________________________________________________
1994 - Fourth quarter $ 698 $ -- $ -- $ 698
1995 - First quarter 400 -- -- 400
- Second quarter -- -- -- --
- Third quarter -- -- -- --
- Fourth quarter 1,000 -- -- 1,000
1996 900 -- 300 1,200
1997 250 599 -- 849
______________________________________________________________________________
Total interest rate swaps $3,248 $ 599 $ 300 $4,147
==============================================================================
FAIR VALUE OF INTEREST RATE SWAPS
Contracts with a positive
mark-to-market position $ 10 $ 33 $ -- $ 43
Contracts with a negative
mark-to-market position (11) -- (5) (16)
______________________________________________________________________________
Net fair value of interest rate swaps $ (1) $ 33 $ (5) $ 27
==============================================================================
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 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.
Major sources of liquidity include short-term money market assets, 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 be generated by the possible sale or securitization of
existing assets as well as through increases in core deposits to the extent
available.
26
<PAGE> 27
LIQUIDITY RATIOS
SEPTEMBER 30 DECEMBER 31 SEPTEMBER 30
1994 1993 1993
___________________________________________________________________________
Liquidity ratio (1) 30.7% 31.6% 28.7%
Funding ratio (2) (6.0) (14.3) (23.3)
Total loans, net of unearned
income, as a % of total deposits 75.4 72.6 74.4
Core deposits as a % of total
loans, net of unearned income 125.5 132.6 129.0
Unfunded loan commitments as a
% of loans outstanding 34.6 32.0 30.8
___________________________________________________________________________
(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.
At September 30, 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 have not adversely affected the Corporation's liquidity.
PARENT COMPANIES
MC requires sources of funds to meet contractual obligations, including
servicing long-term debt, and cash dividend payments on the Corporation's
preferred and common stock.
MC's 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, was in excess of $230 million at both
September 30, 1994 and December 31, 1993. Ongoing parent company operating
and interest expenses and dividends are expected to be fully funded from
dividend payments and management fees from MB.
As a result of MNB's financial progress over the past several quarterly
periods, on April 13, 1994, the MNB Board of Directors ("MNB's Board")
approved a cash dividend from MNB to its parent (the last dividend paid by MNB
was in the first quarter of 1990). A cash dividend was also approved by MNB's
Board on July 20, 1994 and MB's Board of Directors approved a cash dividend on
October 20, 1994.
CAPITAL ADEQUACY
________________
Midlantic places a high priority on maintaining levels of capital that exceed
minimum bank regulatory guidelines and position the organization to compete
effectively in its market areas.
In recent years, in addition to the retention of earnings, Midlantic has
increased its capital 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 MB and its predecessors, MNB and CB,
have significantly increased. Federal bank regulators utilize risk-based and
leverage ratios to assess capital adequacy. As of September 30, 1994,
Midlantic reported a tier 1 risk-based capital ratio of 12.01 percent, a total
risk-based capital ratio (tier 1 plus tier 2 capital) of 16.10 percent and a
leverage ratio of 8.87 percent. These ratios compare with minimum regulatory
<PAGE> 28
guidelines of 4.00 percent for tier 1, 8.00 percent for total capital and 3.00
percent for leverage.
As of September 30, 1994, MB had a tier 1 risk-based capital ratio of 13.20
percent and a total risk-based capital ratio of 14.48 percent. MB's leverage
ratio as of September 30, 1994 was 9.94 percent.
CAPITAL RATIOS
Sept. 30 June 30 March 31 Dec. 31 Sept. 30
1994 1994 1994 1993 1993
_________________________________________________________________________
Tier 1 risk-based
Midlantic 12.01% 10.85% 9.95% 9.28% 9.04%
MB 13.20 12.34 11.54 10.83 10.58
Total risk-based
Midlantic 16.10% 14.87% 13.98% 13.29% 13.13%
MB 14.48 13.62 12.82 12.11 11.88
Leverage
Midlantic 8.87% 8.17% 7.35% 6.81% 6.86%
MB 9.94 9.27 8.52 7.96 8.08
_________________________________________________________________________
On March 23, 1994, the Corporation's Board declared the payment in cash of the
first quarter dividend on the Term Adjustable Rate Cumulative Preferred Stock
- - Series A (the "Preferred Stock"). The second and third quarter dividends on
the Preferred Stock, also paid in cash, were declared by the Corporation's
Board in June, 1994 and September, 1994, respectively. Based upon a July 22,
1992 agreement between Midlantic and the holder of the Preferred Stock,
dividends on the Preferred Stock for the second half of 1991 (as well as
payments in arrears) and all of 1992 and 1993 were paid through the issuance
of shares of Midlantic's common stock in lieu of a cash payment. Pursuant to
that 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
Corporation's Board approved a quarterly cash dividend on Midlantic's common
stock of $.10 per common share. Subsequently, on July 20, 1994 and October
19, 1994, the Corporation's Board declared quarterly cash dividends of $.13
and $.17 per common share, respectively.
28
<PAGE> 29
MIDLANTIC CORPORATION AND SUBSIDIARIES
STATISTICAL TABLES TO
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
29
<PAGE> 30
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE I - ANALYSIS OF CHANGES IN NET INTEREST INCOME
(In thousands)
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1994 VS. 1993 VOLUME(c) RATE(c)(d) TOTAL
___________________________________________________________________________________________
<S> <C> <C> <C>
INTEREST-EARNING ASSETS
Interest-bearing deposits
in other banks $ (2,138) $ 1,720 $ (418)
Other short-term investments (6,731) 1,861 (4,870)
Investment securities 16,495 (3,766) 12,729
Commercial, financial and foreign loans (a)(b) (12,997) 3,175 (9,822)
Real estate loans(a)(b) (33,800) 24,644 (9,156)
Loans to individuals(a)(b) 31,349 (4,512) 26,837
________ ________ ________
Total interest-earning assets (7,822) 23,122 15,300
________ ________ ________
INTEREST-BEARING SOURCES OF FUNDS USED TO
FINANCE INTEREST-EARNING ASSETS
Domestic savings and time deposits (17,093) (25,918) (43,011)
Overseas branch deposits (8) 23 15
Short-term borrowings 5,967 1,433 7,400
Long-term debt (1,704) 40 (1,664)
________ ________ ________
Total interest-bearing sources
of funds used to finance
interest-earning assets (12,838) (24,422) (37,260)
________ ________ ________
CHANGE IN NET INTEREST INCOME $ 5,016 $ 47,544 $ 52,560
======== ======== ========
<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.
(d) Includes the effect of interest rate swap positions.
</TABLE>
30
<PAGE> 31 1/2
<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 SEPTEMBER 30, 1994 September 30, 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 $ 395,985 $ 4,313 4.32% $ 528,817 $ 4,727 3.55%
Other short-term investments 1,375,525 15,583 4.49 1,364,439 13,087 3.81
U.S. Treasury securities 1,042,858 12,389 4.71 1,215,969 10,721 3.50
Obligations of U.S.
government agencies 922,486 13,283 5.71 606,263 9,417 6.16
Obligations of states and
political subdivisions 21,968 197 3.56 10,852 346 12.65
Other securities 64,964 1,013 6.19 69,375 957 5.47
___________ ________ ____ ___________ ________ ____
Total investment securities 2,052,276 26,882 5.20 1,902,459 21,441 4.47
___________ ________ ____ ___________ ________ ____
Commercial, financial and
foreign loans 3,052,533 63,626 8.27 3,075,695 60,987 7.87
Real estate loans 2,814,615 60,958 8.59 3,355,325 61,230 7.24
Loans to individuals 2,429,312 49,700 8.12 2,124,154 43,897 8.20
___________ ________ ____ ___________ ________ ____
Total loans(1)(2)(3) 8,296,460 174,284 8.33 8,555,174 166,114 7.70
___________ ________ ____ ___________ ________ ____
Total interest-earning assets 12,120,246 221,062 7.24 12,350,889 205,369 6.60
___________ ________ ____ ___________ ________ ____
Noninterest-earning assets
Cash and due from banks 796,738 774,443
Other assets 731,340 952,316
Allowance for loan losses (370,973) (547,216)
___________ ___________
Total noninterest-earning assets 1,157,105 1,179,543
___________ ___________
Total assets $13,277,351 $13,530,432
___________ ___________
<PAGE> 31 2/2
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Domestic savings and time
deposits $ 8,245,556 55,154 2.65 $ 8,985,991 61,516 2.72
Overseas branch deposits 12,210 124 4.03 8,492 65 3.04
Short-term borrowings 516,428 5,084 3.91 348,547 2,581 2.94
Long-term debt 373,000 8,586 9.13 386,805 8,857 9.08
___________ ________ ____ ___________ ________ ____
Total interest-bearing liabilities 9,147,194 68,948 2.99 9,729,835 73,019 2.98
___________ ________ ____ ___________ ________ ____
Noninterest-bearing liabilities
and shareholders' equity
Demand deposits 2,695,792 2,620,355
Other liabilities 164,379 154,139
___________ ___________
Total noninterest-bearing liabilities 2,860,171 2,774,494
___________ ___________
Shareholders' equity 1,269,986 1,026,103
___________ ___________
Total liabilities and shareholders' equity $13,277,351 $13,530,432
___________ ___________
NET INTEREST INCOME $152,114 $132,350
======== ========
INTEREST INCOME AS A % OF AVERAGE
INTEREST-EARNING ASSETS 7.24% 6.60%
==== ====
INTEREST EXPENSE AS A % OF AVERAGE
INTEREST-EARNING ASSETS 2.26% 2.35%
==== ====
NET INTEREST MARGIN (4) 4.98% 4.25%
==== ====
<FN>
See Notes to Comparative Consolidated Average Balance Sheet with Resultant Interest and Average Rates.
</TABLE>
31
<PAGE> 32 1/2
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE III - COMPARATIVE CONSOLIDATED AVERAGE BALANCE SHEET
WITH RESULTANT INTEREST AND AVERAGE RATES*
(In thousands)
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30, 1994 September 30, 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 $ 484,875 $ 13,982 3.86% $ 563,273 $ 14,400 3.42%
Other short-term investments 1,293,549 38,103 3.94 1,524,335 42,973 3.77
U.S. Treasury securities 1,131,358 33,531 3.96 1,101,165 33,558 4.07
Obligations of U.S.
government agencies 978,114 43,712 5.98 636,407 30,816 6.47
Obligations of states and
political subdivisions 16,548 524 4.23 9,660 620 8.58
Other securities 67,094 2,901 5.78 70,735 2,945 5.57
___________ ________ ____ ___________ ________ ____
Total investment securities 2,193,114 80,668 4.92 1,817,967 67,939 5.00
___________ ________ ____ ___________ ________ ____
Commercial, financial and
foreign loans 3,028,669 182,799 8.07 3,244,721 192,621 7.94
Real estate loans 2,919,481 177,756 8.14 3,508,465 186,912 7.12
Loans to individuals 2,379,316 144,750 8.13 1,866,376 117,913 8.45
___________ ________ ____ ___________ ________ ____
Total loans(1)(2)(3) 8,327,466 505,305 8.11 8,619,562 497,446 7.72
___________ ________ ____ ___________ ________ ____
Total interest-earning assets 12,299,004 638,058 6.93 12,525,137 622,758 6.65
___________ ________ ____ ___________ ________ ____
Noninterest-earning assets
Cash and due from banks 778,036 780,817
Other assets 855,042 1,042,178
Allowance for loan losses (383,865) (602,108)
___________ ___________
Total noninterest-earning assets 1,249,213 1,220,887
___________ ___________
Total assets $13,548,217 $13,746,024
___________ ___________
<PAGE> 32 2/2
LIABILITIES AND SHAREHOLDERS' EQUITY
Interest-bearing liabilities
Domestic savings and time
deposits $ 8,461,876 162,360 2.57 $ 9,277,195 205,371 2.96
Overseas branch deposits 11,620 313 3.60 11,946 298 3.34
Short-term borrowings 626,256 15,906 3.40 385,203 8,506 2.95
Long-term debt 374,682 25,865 9.23 399,373 27,529 9.22
___________ ________ ____ ___________ ________ ____
Total interest-bearing liabilities 9,474,434 204,444 2.89 10,073,717 241,704 3.21
___________ ________ ____ ___________ ________ ____
Noninterest-bearing liabilities
and shareholders' equity
Demand deposits 2,712,070 2,567,601
Other liabilities 159,659 166,273
___________ ___________
Total noninterest-bearing liabilities 2,871,729 2,733,874
___________ ___________
Shareholders' equity 1,202,054 938,433
___________ ___________
Total liabilities and
shareholders' equity $13,548,217 $13,746,024
___________ ___________
NET INTEREST INCOME $433,614 $381,054
======== ========
INTEREST INCOME AS A % OF
AVERAGE INTEREST-EARNING ASSETS 6.93% 6.65%
==== ====
INTEREST EXPENSE AS A % OF
AVERAGE INTEREST-EARNING ASSETS 2.22% 2.58%
==== ====
NET INTEREST MARGIN (4) 4.71% 4.07%
==== ====
<FN>
See Notes to Comparative Consolidated Average Balance Sheet with Resultant Interest and Average Rates.
</TABLE>
32
<PAGE> 33
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.
33
<PAGE> 34
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE IV - INTEREST-EARNING ASSETS AND INTEREST-BEARING LIABILITIES
WITH RESULTANT INTEREST AND AVERAGE RATES*
<CAPTION>
(In thousands) SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
FOR THE THREE MONTHS ENDED 1994 1994 1994 1993 1993
_____________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Interest-bearing deposits
Average balance $ 395,985 $ 490,166 $ 568,474 $ 431,521 $ 528,817
Interest income 4,313 4,705 4,964 3,919 4,727
Average rate 4.32% 3.85% 3.54% 3.60% 3.55%
Other short-term investments
Average balance $ 1,375,525 $ 1,311,013 $ 1,194,109 $ 1,085,775 $ 1,364,439
Interest income 15,583 12,723 9,797 8,797 13,087
Average rate 4.49% 3.89% 3.33% 3.21% 3.81%
Investment securities
Average balance $ 2,052,276 $ 2,141,463 $ 2,385,603 $ 2,286,719 $ 1,902,459
Interest income 26,882 26,081 27,705 24,109 21,441
Average rate 5.20% 4.89% 4.71% 4.18% 4.47%
Total loans
Average balance $ 8,296,460 $ 8,314,731 $ 8,371,207 $ 8,575,474 $ 8,555,174
Interest income 174,284 168,539 162,482 165,964 166,114
Average rate 8.33% 8.13% 7.87% 7.68% 7.70%
___________ ___________ ___________ ___________ ___________
Total average interest-
earning assets $12,120,246 $12,257,373 $12,519,393 $12,379,489 $12,350,889
Total interest income 221,062 212,048 204,948 202,789 205,369
Total average rate on
interest-earning assets 7.24% 6.94% 6.64% 6.50% 6.60%
=========== =========== =========== =========== ===========
INTEREST-BEARING LIABILITIES
Deposits
Average balance $ 8,257,766 $ 8,481,242 $ 8,681,480 $ 8,798,017 $ 8,994,483
Interest expense 55,278 53,647 53,748 57,217 61,581
Average rate 2.66% 2.54% 2.51% 2.58% 2.72%
Short-term borrowings
Average balance $ 516,428 $ 644,947 $ 717,393 $ 421,955 $ 348,547
Interest expense 5,084 5,579 5,243 3,080 2,581
Average rate 3.91% 3.47% 2.96% 2.90% 2.94%
Long-term debt
Average balance $ 373,000 $ 374,483 $ 376,563 $ 386,749 $ 386,805
Interest expense 8,586 8,619 8,660 8,856 8,857
Average rate 9.13% 9.23% 9.33% 9.08% 9.08%
___________ ___________ ___________ ___________ ___________
Total average interest-
bearing liabilities $ 9,147,194 $ 9,500,672 $ 9,775,436 $ 9,606,721 $ 9,729,835
Total interest expense 68,948 67,845 67,651 69,153 73,019
Total average rate on
interest-bearing liabilities 2.99% 2.86% 2.81% 2.86% 2.98%
=========== =========== =========== =========== ===========
NET INTEREST INCOME $ 152,114 $ 144,203 $ 137,297 $ 133,636 $ 132,350
=========== =========== =========== =========== ===========
NET INTEREST MARGIN 4.98% 4.72% 4.45% 4.28% 4.25%
=========== =========== =========== =========== ===========
<FN>
*Interest income and average rates are not presented on a tax-equivalent basis.
</TABLE>
<PAGE> 35
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE V - AVERAGE FUNDING SOURCES - BALANCES AND RATES PAID
(In thousands)
<CAPTION>
Sept. 30 June 30 March 31 Dec. 31 Sept. 30
FOR THE THREE MONTHS ENDED 1994 1994 1994 1993 1993
__________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
AVERAGE BALANCES
DEPOSITS
Noninterest-bearing demand $ 2,695,792 $ 2,666,221 $ 2,774,197 $ 2,762,169 $ 2,620,355
Interest-bearing demand 1,364,251 1,391,793 1,413,953 1,401,206 1,386,514
Savings 1,681,768 1,659,882 1,602,128 1,565,158 1,545,556
Retail money market accounts 2,058,531 2,128,083 2,195,337 2,230,982 2,289,938
CDs over $100,000 455,249 391,517 400,235 451,447 496,946
Other time 2,685,757 2,897,013 3,060,131 3,140,090 3,267,037
Overseas branch deposits 12,210 12,954 9,696 9,134 8,492
___________ ___________ ___________ ___________ ___________
Total average deposits $10,953,558 $11,147,463 $11,455,677 $11,560,186 $11,614,838
=========== =========== =========== =========== ===========
SHORT-TERM BORROWINGS
Federal funds purchased 30,480 $ 35,962 $ 35,672 $ 43,312 $ 51,546
Repurchase agreements 461,536 580,362 653,096 354,592 268,096
Other short-term borrowings 24,412 28,623 28,625 24,051 28,905
___________ ___________ ___________ ___________ ___________
Total average short-term
borrowings $ 516,428 $ 644,947 $ 717,393 $ 421,955 $ 348,547
=========== =========== =========== =========== ===========
LONG-TERM DEBT $ 373,000 $ 374,483 $ 376,563 $ 386,749 $ 386,805
=========== =========== =========== =========== ===========
AVERAGE RATES
DEPOSITS
Interest-bearing demand 1.17% 1.14% 1.20% 1.28% 1.57%
Savings 2.07 2.05 2.07 2.08 2.17
Retail money market accounts 2.52 2.39 2.35 2.37 2.48
CDs over $100,000 4.14 3.87 3.64 3.66 3.77
Other time 3.62 3.41 3.31 3.41 3.47
Overseas branch deposits 4.03 3.53 3.14 3.08 3.04
___________ ___________ ___________ ___________ ___________
Total average rate
paid on deposits 2.66% 2.54% 2.51% 2.58% 2.72%
=========== =========== =========== =========== ===========
SHORT-TERM BORROWINGS
Federal funds purchased 4.52% 3.86% 3.16% 2.98% 3.06%
Repurchase agreements 3.86 3.44 2.94 2.92 2.87
Other short-term borrowings 4.10 3.62 3.30 2.46 3.34
___________ ___________ ___________ ___________ ___________
Total average rate paid
on short-term borrowings 3.91% 3.47% 2.96% 2.90% 2.94%
=========== =========== =========== =========== ===========
LONG-TERM DEBT 9.13% 9.23% 9.33% 9.08% 9.08%
=========== =========== =========== =========== ===========
</TABLE>
<PAGE> 36
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE VI - INVESTMENT SECURITIES - CARRYING AND FAIR VALUES
AND GROSS UNREALIZED GAINS AND LOSSES
SEPTEMBER 30, 1994
(In thousands)
<CAPTION>
GROSS GROSS
CARRYING UNREALIZED UNREALIZED FAIR
HELD-TO-MATURITY VALUE GAINS LOSSES VALUE
____________________________________________________________________________________________
<S> <C> <C> <C> <C>
United States Treasury securities $ 876,716 $ -- $(14,520) $ 862,196
Obligations of United States
government agencies 903,911 1,575 (51,882) 853,604
Obligations of states and political
subdivisions 3,168 1 -- 3,169
Other securities 7,486 154 (36) 7,604
__________ ______ ________ __________
$1,791,281 $1,730 $(66,438) $1,726,573
========== ====== ======== ==========
<CAPTION>
GROSS GROSS
CARRYING UNREALIZED UNREALIZED FAIR
AVAILABLE-FOR-SALE VALUE GAINS LOSSES VALUE
____________________________________________________________________________________________
<S> <C> <C> <C> <C>
United States Treasury securities $ 435,091 $ -- $ (1,638) $ 433,453
Obligations of states and political
subdivisions 1,772 -- (206) 1,566
Other securities 59,193 452 (1,690) 57,955
__________ ______ ________ __________
$ 496,056 $ 452 $ (3,534) $ 492,974
========== ====== ======== ==========
</TABLE>
<TABLE>
TABLE VII - INVESTMENT SECURITIES - GROSS REALIZED GAINS AND LOSSES
(In thousands)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1994* 1993 1994* 1993
____________________________________________________________________________________________
<S> <C> <C> <C> <C>
Gross realized investment
securities gains $ -- $ 3 $ 3,031 $5,327
Gross realized investment
securities losses -- -- (6,405) (464)
_______ ___ _______ ______
Investment securities gains (losses) $ -- $ 3 $(3,374) $4,863
======= === ======= ======
<FN>
* Represents gains/losses on available-for-sale securities.
</TABLE>
<PAGE> 37
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE VIII - LOANS
<CAPTION>
SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
(In thousands) 1994 1994 1994 1993 1993
______________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Commercial, financial
and foreign loans $3,041,452 $3,176,688 $3,155,468 $2,996,145 $3,069,301
Real estate
Construction and development 585,404 692,454 789,445 834,013 1,015,701
Long-term commercial
mortgage 1,579,890 1,590,226 1,631,406 1,664,757 1,795,809
Long-term 1-4 family
residential 542,271 555,883 566,278 636,632 414,112
Loans to individuals 2,608,270 2,524,202 2,457,718 2,415,391 2,302,193
__________ __________ __________ __________ __________
Total loans 8,357,287 8,539,453 8,600,315 8,546,938 8,597,116
Less: unearned income 144,257 141,794 138,777 137,241 127,406
__________ __________ __________ __________ __________
Total loans, net of
unearned income $8,213,030 $8,397,659 $8,461,538 $8,409,697 $8,469,710
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE IX - CONSTRUCTION AND DEVELOPMENT LOANS - PROPERTY TYPE BY STATE
(In thousands)
<CAPTION>
SEPTEMBER 30, 1994 NEW JERSEY PENNSYLVANIA NEW YORK FLORIDA OTHER TOTAL
________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
PORTFOLIO
Office buildings $ 56,471 $ 55,703 $14,300 $ -- $11,003 $137,477
Shopping centers 50,167 42,598 -- 4,000 20,334 117,099
Residential 64,239 31,451 291 9,138 4,924 110,043
Land 32,776 22,996 3,237 1,744 3,949 64,702
Hotels/motels 16,216 1,649 288 13,200 15,623 46,976
Industrial/warehouse 25,579 10,789 6,991 -- 1,010 44,369
Other 44,379 9,788 4,776 68 5,727 64,738
________ ________ _______ _______ _______ ________
Total $289,827 $174,974 $29,883 $28,150 $62,570 $585,404
======== ======== ======= ======= ======= ========
NONACCRUAL SEGMENT
Office buildings $ 1,144 $ 14,691 $ -- $ -- $ -- $ 15,835
Shopping centers 924 -- 64 -- -- 988
Residential 5,658 696 291 -- -- 6,645
Land 7,999 -- -- -- 623 8,622
Hotels/motels 1,453 -- -- -- -- 1,453
Industrial/warehouse -- -- -- -- -- --
Other 1,528 -- 174 -- 2,150 3,852
________ ________ _______ _______ _______ ________
Total $ 18,706 $ 15,387 $ 529 $ -- $ 2,773 $ 37,395
======== ======== ======= ======= ======= ========
PERCENT OF NONACCRUAL
TO PORTFOLIO 6.5% 8.8% 1.8% --% 4.4% 6.4%
======== ======== ======= ======= ======= ========
</TABLE>
<PAGE> 38
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE X - LONG-TERM COMMERCIAL MORTGAGE LOANS - PROPERTY TYPE BY STATE
(In thousands)
<CAPTION>
SEPTEMBER 30, 1994 NEW JERSEY PENNSYLVANIA NEW YORK FLORIDA OTHER TOTAL
___________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
PORTFOLIO
Industrial/warehouse $245,969 $165,495 $27,992 $ 925 $ 8,075 $ 448,456
Office buildings 200,566 136,463 4,557 -- -- 341,586
Retail businesses 144,014 61,310 6,891 -- 385 212,600
Hospitals, medical
centers and nursing
homes 94,365 37,337 1,351 -- -- 133,053
Apartment houses and
other rental properties 62,591 59,417 2,206 1,484 6,937 132,635
Shopping centers 25,128 44,309 -- -- 5,837 75,274
Automobile and truck
sales 47,108 16,270 6 -- -- 63,384
Hotels/motels 41,448 7,013 2,453 -- 293 51,207
Other 62,141 47,547 1,944 7,244 2,819 121,695
________ ________ _______ ______ _______ __________
Total $923,330 $575,161 $47,400 $9,653 $24,346 $1,579,890
======== ======== ======= ====== ======= ==========
NONACCRUAL SEGMENT
Industrial/warehouse $ 10,493 $ 5,797 $ -- $ -- $ -- $ 16,290
Office buildings 4,276 787 -- -- -- 5,063
Retail businesses 7,574 1,138 348 -- -- 9,060
Hospitals, medical
centers and nursing
homes -- -- -- -- -- --
Apartment houses and
other rental
properties 6,579 1,998 307 -- -- 8,884
Shopping centers -- 575 -- -- -- 575
Automobile and truck
sales 2,464 479 -- -- -- 2,943
Hotels/motels 1,022 4,889 -- -- -- 5,911
Other 48 238 229 -- -- 515
________ ________ _______ ______ _______ __________
Total $ 32,456 $ 15,901 $ 884 $ -- $ -- $ 49,241
======== ======== ======= ====== ======= ==========
PERCENT OF NONACCRUAL
TO PORTFOLIO 3.5% 2.8% 1.9% --% --% 3.1%
======== ======== ======= ====== ======= ==========
</TABLE>
38
<PAGE> 39
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE XI - SUMMARY OF LOAN LOSS EXPERIENCE/ALLOWANCE FOR LOAN LOSSES
(In thousands)
<CAPTION>
SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
FOR THE THREE MONTHS ENDED 1994 1994 1994 1993 1993
______________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Allowance at beginning of period $373,345 $387,374 $400,311 $505,827 $547,784
Provision charged to operating
expense 5,000 5,604 8,021 30,581 14,598
Net charge-offs related to loans
sold in bulk sales or transferred
to "assets held for accelerated
disposition" -- -- 7,901 97,407 15,362
Loans charged off*
Commercial and financial 11,196 20,096 10,604 23,169 23,964
Real estate
Construction and development 8,025 1,858 4,335 7,569 9,597
Long-term commercial mortgage 2,166 1,937 2,449 10,245 7,690
Long-term 1-4 family residential 513 180 422 666 172
Loans to individuals 7,059 6,281 5,887 8,089 5,424
________ ________ ________ ________ ________
Total loans charged off 28,959 30,352 23,697 49,738 46,847
________ ________ ________ ________ ________
Recoveries on loans *
Commercial and financial 4,141 6,433 5,356 7,539 2,945
Real estate
Construction and development 932 1,255 2,029 1,824 382
Long-term commercial mortgage 834 285 674 340 626
Long-term 1-4 family residential 1 2 1 2 8
Loans to individuals 1,869 2,744 2,580 1,343 1,693
________ ________ ________ ________ ________
Total recoveries on loans 7,777 10,719 10,640 11,048 5,654
________ ________ ________ ________ ________
Net loans charged off 21,182 19,633 13,057 38,690 41,193
________ ________ ________ ________ ________
Allowance at end of period $357,163 $373,345 $387,374 $400,311 $505,827
======== ======== ======== ======== ========
<FN>
*Excludes charge-offs and recoveries related to loans sold in bulk sales or transferred to
"assets held for accelerated disposition."
</TABLE>
39
<PAGE> 40
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE XII - NONACCRUAL LOANS, OTHER REAL ESTATE OWNED, NET,
RENEGOTIATED LOANS AND PAST DUE LOANS
(In thousands)
<CAPTION>
Sept. 30 June 30 March 31 Dec. 31 Sept. 30
1994 1994 1994 1993 1993
__________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
NONACCRUAL LOANS
Commercial, financial
and foreign $ 90,716 $114,980 $127,799 $114,632 $137,233
Real estate
Construction and development 37,395 36,476 40,397 50,143 160,937
Long-term commercial mortgage 49,241 48,173 53,550 63,431 132,269
Long-term 1-4 family
residential -- 4,262 4,068 4,489 5,222
Loans to individuals 17,274 21,083 27,641 32,604 32,948
________ ________ ________ ________ ________
TOTAL NONACCRUAL LOANS $194,626 $224,974 $253,455 $265,299 $468,609
======== ======== ======== ======== ========
ALLOWANCE FOR LOAN LOSSES
AS A % OF NONACCRUAL LOANS 183.5% 166.0% 152.8% 150.9% 107.9%
======== ======== ======== ======== ========
OTHER REAL ESTATE OWNED, NET
Acquired properties $ 80,612 $ 86,647 $ 87,503 $ 97,238 $178,313
In-substance foreclosures 18,251 21,661 33,499 35,432 94,762
________ ________ ________ ________ ________
TOTAL OTHER REAL ESTATE
OWNED, NET $ 98,863 $108,308 $121,002 $132,670 $273,075
======== ======== ======== ======== ========
TOTAL NONACCRUAL LOANS AND
OTHER REAL ESTATE OWNED, NET $293,489 $333,282 $374,457 $397,969 $741,684
======== ======== ======== ======== ========
TOTAL RENEGOTIATED LOANS $ 45,937 $108,064 $165,516 $172,058 $181,320
======== ======== ======== ======== ========
ACCRUING LOANS PAST DUE 90
DAYS OR MORE AS TO
INTEREST OR PRINCIPAL
PAYMENTS $ 27,521 $ 40,032 $ 20,862 $ 36,161 $ 50,389
======== ======== ======== ======== ========
</TABLE>
40
<PAGE> 41
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE XIII YEAR-TO-DATE INTEREST INCOME ON NONACCRUAL
AND RENEGOTIATED LOANS OUTSTANDING AT END OF PERIOD
(In thousands)
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30 1994 1993
______________________________________________________________________________
<S> <C> <C>
NONACCRUAL LOANS
Interest income that would have been
recorded on nonaccrual loans
outstanding at period-end in
accordance with original terms $13,274 $28,734
Interest income actually recorded
on nonaccrual loans 2,256 2,070
_______ _______
Net decrease in interest income
on nonaccrual loans $11,018 $26,664
======= =======
RENEGOTIATED LOANS
Interest income that would have been
recorded on renegotiated loans
outstanding at period-end in
accordance with original terms $ 2,647 $ 7,514
Interest income actually recorded
on renegotiated loans 3,206 6,029
_______ _______
Net (increase) decrease in interest
income on renegotiated loans $ (559) $ 1,485
======= =======
</TABLE>
<TABLE>
TABLE XIV - NONACCRUAL LOANS ACTIVITY
(In thousands)
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30 1994 1993
_____________________________________________________________________________
<S> <C> <C>
Balance at beginning of year $265,299 $ 809,669
Additions 136,517 238,535
Payments (100,655) (145,493)
Returned to accrual status (21,765) (49,842)
Charge-offs (67,796) (140,918)
Transfers to OREO (12,998) (112,554)
Transfers to renegotiated loans -- (7,295)
Transfers to "assets held for
accelerated disposition" (884) (120,759)
Other (3,092) (2,734)
________ _________
BALANCE AT SEPTEMBER 30 $194,626 $ 468,609
======== =========
</TABLE>
<PAGE> 42
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE XV - IN-SUBSTANCE FORECLOSURES - PROPERTY TYPE BY STATE
(In thousands)
<CAPTION>
SEPTEMBER 30, 1994 NEW JERSEY NEW YORK TOTAL
__________________________________________________________________________________
<S> <C> <C> <C>
Office buildings $ 9,357 $ -- $ 9,357
Land 3,752 443 4,195
Industrial/warehouse 529 86 615
Residential tract 378 -- 378
Hotels/motels -- -- --
Shopping centers -- -- --
Other 3,225 481 3,706
_______ ______ _______
TOTAL $17,241 $1,010 $18,251
======= ====== =======
</TABLE>
<TABLE>
TABLE XVI - ACQUIRED OREO PROPERTIES - PROPERTY TYPE BY STATE
(In thousands)
<CAPTION>
SEPTEMBER 30, 1994 NEW JERSEY PENNSYLVANIA NEW YORK FLORIDA OTHER TOTAL
__________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Land $36,069 $1,977 $ -- $939 $ -- $38,985
Residential tract 7,460 2,394 268 30 2,397 12,549
Industrial/warehouse 6,744 2,485 -- -- -- 9,229
Shopping centers 3,202 576 212 -- -- 3,990
Office buildings 3,510 161 -- -- -- 3,671
Hotels/motels 641 -- -- -- -- 641
Other 8,889 1,470 1,188 -- -- 11,547
_______ ______ ______ ____ ______ _______
TOTAL $66,515 $9,063 $1,668 $969 $2,397 $80,612
======= ====== ====== ==== ====== =======
</TABLE>
<TABLE>
TABLE XVII - OTHER REAL ESTATE OWNED ACTIVITY
<CAPTION>
FOR THE NINE MONTHS ENDED IN-SUBSTANCE ACQUIRED OREO
SEPTEMBER 30, 1994 (In thousands) FORECLOSURES PROPERTIES TOTAL
__________________________________________________________________________________________
<S> <C> <C> <C>
Balance December 31, 1993 $ 35,432 $ 97,238 $132,670
Transfers from loans -- 17,949 17,949
Advances 250 101 351
Charges to operating expenses to
absorb declines in net realizable value (1,693) (5,807) (7,500)
Transfers from in-substance
foreclosures to acquired OREO properties (10,345) 10,345 --
Sales of properties and payments (5,079) (38,355) (43,434)
Transfers to "assets held for
accelerated disposition" -- (876) (876)
Transfers to renegotiated loans
or accruing loans (368) -- (368)
Other 54 17 71
________ ________ ________
BALANCE SEPTEMBER 30, 1994 $ 18,251 $ 80,612 $ 98,863
======== ======== ========
</TABLE>
<PAGE> 43
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE XVIII - SUPPLEMENTAL DATA ON NONACCRUAL LOANS AND
IN-SUBSTANCE FORECLOSURES (1)
(In thousands)
<CAPTION>
CASH INTEREST PAYMENTS
AT SEPTEMBER 30, 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 $11,231 $ -- 8.9% $341 $ 405
Payment in full of
principal or interest
in doubt 787 -- .6 -- 124
________________________________________________________________________________________________
CONTRACTUALLY PAST DUE
Substantial performance(4) 20,100 -- 16.0 121 1,036
Limited performance(5) 6,098 9,196 4.8 -- 2,088
No performance 87,832 6,883 69.7 -- 1,339
________________________________________________________________________________________________
<FN>
(1) Disclosure has been limited to nonaccrual loans and in-substance foreclosures
whose principal balance at September 30, 1994 was $500 thousand or above.
Nonaccrual loans of $500 thousand or more comprised 52.4 percent of total
nonaccrual loans. Substantially all in-substance foreclosures outstanding
at September 30, 1994 had carrying values in excess of $500 thousand.
(2) Nonaccrual loans as a percent of total nonaccrual loans of over $500 thousand.
(3) Represents the cash interest payments received since loans outstanding as of
September 30, 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>
43
<PAGE> 44 1/2
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE XIX - CONSOLIDATED SUMMARY OF INCOME
(In thousands, except per share data)
<CAPTION>
SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
FOR THE THREE MONTHS ENDED 1994 1994 1994 1993 1993
_________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $174,284 $168,539 $162,482 $165,964 $166,114
Interest on investment securities 26,882 26,081 27,705 24,109 21,441
Interest on deposits with banks 4,313 4,705 4,964 3,919 4,727
Interest on other short-term
investments 15,583 12,723 9,797 8,797 13,087
________ ________ ________ ________ ________
Total interest income 221,062 212,048 204,948 202,789 205,369
________ ________ ________ ________ ________
INTEREST EXPENSE
Interest on deposits 55,278 53,647 53,748 57,217 61,581
Interest on short-term borrowings 5,084 5,579 5,243 3,080 2,581
Interest on long-term debt 8,586 8,619 8,660 8,856 8,857
________ ________ ________ ________ ________
Total interest expense 68,948 67,845 67,651 69,153 73,019
________ ________ ________ ________ ________
Net interest income 152,114 144,203 137,297 133,636 132,350
Provision for loan losses 5,000 5,604 8,021 30,581 14,598
Net interest income after
provision for loan losses 147,114 138,599 129,276 103,055 117,752
________ ________ ________ ________ ________
NONINTEREST INCOME
Trust income 11,285 10,860 9,782 10,396 10,499
Service charges on deposits 20,029 19,020 18,946 20,951 19,523
Investment securities (losses) gains -- (4,637) 1,263 2,142 3
Net gains on disposition of assets -- 25,056 -- -- --
Other 18,056 19,930 17,338 13,836 13,266
________ ________ ________ ________ ________
Total noninterest income 49,370 70,229 47,329 47,325 43,291
________ ________ ________ ________ ________
196,484 208,828 176,605 150,380 161,043
________ ________ ________ ________ ________
NONINTEREST EXPENSES
Salaries and benefits 58,223 57,901 56,214 57,212 55,738
Net occupancy 10,469 10,820 12,235 11,456 10,970
Equipment rental and expense 5,922 5,990 6,925 6,372 5,777
Other real estate owned, net (687) 1,800 4,169 41,293 13,251
FDIC assessment charges 7,005 7,187 7,194 8,135 8,102
Legal and professional fees 11,512 11,260 9,875 13,628 13,566
Other 22,395 29,363 24,372 18,922 21,903
________ ________ ________ ________ ________
Total noninterest expenses 114,839 124,321 120,984 157,018 129,307
________ ________ ________ ________ ________
<PAGE> 44 2/2
Income (loss) before income taxes
and cumulative effect of the
change in accounting for
postemployment benefits 81,645 84,507 55,621 (6,638) 31,736
Income tax expense (benefit) 5,398 12,228 2,268 (65,698) (15,151)
________ ________ ________ ________ ________
Income before cumulative effect
of the change in accounting for
postemployment benefits 76,247 72,279 53,353 59,060 46,887
________ ________ ________ ________ ________
Cumulative effect of the change in
accounting for postemployment
benefits -- -- (7,528) -- --
________ ________ ________ ________ ________
NET INCOME $ 76,247 $ 72,279 $ 45,825 $ 59,060 $ 46,887
======== ======== ======== ======== ========
</TABLE>
(continued on next page)
44
<PAGE> 45
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE XIX - CONSOLIDATED SUMMARY OF INCOME
(In thousands, except per share data)
(continued)
<CAPTION>
SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
FOR THE THREE MONTHS ENDED 1994 1994 1994 1993 1993
_________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
INCOME APPLICABLE TO PRIMARY
COMMON SHARES
Income before cumulative effect
of the change in accounting for
postemployment benefits $75,341 $71,372 $52,447 $58,153 $45,981
Net income 75,341 71,372 44,919 58,153 45,981
INCOME APPLICABLE TO FULLY
DILUTED COMMON SHARES
Income before cumulative effect
of the change in accounting for
postemployment benefits 76,319 72,371 53,453 59,174 47,002
Net income 76,319 72,371 45,925 59,174 47,002
======= ======= ======= ======= =======
INCOME PER COMMON SHARE
Income before cumulative effect
of the change in accounting for
postemployment benefits
Primary $1.42 $1.35 $.99 $1.10 $.87
Fully diluted 1.40 1.33 .98 1.08 .86
Cumulative effect of the change
in accounting for postemployment
benefits
Primary -- -- (.14) -- --
Fully diluted -- -- (.14) -- --
Net income
Primary 1.42 1.35 .85 1.10 .87
Fully diluted 1.40 1.33 .84 1.08 .86
======= ======= ======= ======= =======
AVERAGE COMMON SHARES AND
COMMON SHARE EQUIVALENTS
Primary 53,097 52,915 52,821 53,030 52,969
Fully diluted 54,618 54,467 54,403 54,610 54,601
======= ======= ======= ======= =======
</TABLE>
45
<PAGE> 46
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE XX - CONSOLIDATED SHARE AND PER SHARE INFORMATION AND PERFORMANCE RATIOS
<CAPTION>
SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
FOR THE THREE MONTHS ENDED 1994 1994 1994 1993 1993
__________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
BOOK VALUE AT QUARTER-END $23.96 $22.66 $21.38 $20.56 $19.44
______ ______ ______ ______ ______
MARKET PRICES OF COMMON STOCK
High $30.63 $31.88 $30.88 $28.63 $27.75
Low 27.88 27.50 24.25 22.25 21.13
Close 27.63 29.25 28.13 25.50 27.50
______ ______ ______ ______ ______
OPERATING RATIOS
Net interest margin 4.98% 4.72% 4.45% 4.28% 4.25%
Return on average assets 2.28 2.14 1.34 1.72 1.37
Return on average common equity 24.50 25.05 16.66 22.43 18.69
Return on average total equity 23.82 24.31 16.25 21.72 18.13
______ ______ ______ ______ ______
LIQUIDITY AND FUNDING RATIOS
Liquidity ratio (1) 30.7% 29.5% 28.6% 31.6% 28.7%
Funding ratio (2) (6.0) (11.6) (10.4) (14.3) (23.3)
______ ______ ______ ______ ______
CAPITAL RATIOS
Risk-adjusted ratios
Tier 1 capital ratio 12.01% 10.85% 9.95% 9.28% 9.04%
Total capital ratio 16.10 14.87 13.98 13.29 13.13
Leverage ratio 8.87 8.17 7.35 6.81 6.86
Average equity as a % of
average assets 9.57 8.82 8.26 7.94 7.58
______ ______ ______ ______ ______
LOAN QUALITY RATIOS
As a % of total period-end
loans, net of unearned income
Allowance for loan losses
at period-end 4.35% 4.45% 4.58% 4.76% 5.97%
Nonaccrual loans at
period-end 2.37 2.68 3.00 3.15 5.53
As a % of average loans, net
of unearned income
Net charge-offs (3) 1.01 .95 .63 1.79 1.91
Provision for loan losses .24 .27 .39 1.41 .68
______ ______ ______ ______ ______
AVERAGE TOTAL LOANS, NET OF
UNEARNED INCOME, AS A % OF
AVERAGE TOTAL DEPOSITS 75.74% 75.37% 73.07% 74.18% 73.66%
______ ______ ______ ______ ______
NONFINANCIAL DATA
Total number of employees 5,997 5,984 5,928 5,863 5,861
Total number of full-time
equivalent employees 5,213 5,194 5,129 5,090 5,100
Total number of banking offices 325 326 326 326 330
______ ______ ______ ______ ______
<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) 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 and in "Item 1 - Legal
Proceedings" of its Quarterly Reports on Form 10-Q for the
quarters ended March 31, 1994 and June 30, 1994, 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.
47
<PAGE> 48
ITEM 6A. EXHIBITS
10 Midlantic Corporation Executive Severance Plan
27 Financial Data Schedule
ITEM 6B. REPORTS ON FORM 8-K
No reports on Form 8-K were filed during the period covered by this
report.
48
<PAGE> 49
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
Date November 10, 1994 Howard I. Atkins
___________________ ____________________________
Executive Vice President and
Chief Financial Officer
By
Date November 10, 1994 James E. Kelly
___________________ ____________________________
Controller
49
<PAGE> 50
INDEX OF EXHIBITS
_________________
EXHIBIT NUMBER
PER ITEM 601 OF
REGULATION S-K PAGE NUMBER
_______________ _____________
10 Midlantic Corporation Executive Severance Plan 51
27 Financial Data Schedule 80
50
Page 51
MIDLANTIC CORPORATION
EXECUTIVE SEVERANCE PLAN
(Adopted by Executive Compensation
Committee on September 21, 1994)
The following is the Midlantic Corporation Executive
Severance Plan:
PREAMBLE
________
The Executive Compensation Committee of the Board of
Directors of Midlantic Corporation has determined that:
It is in the best interests of Midlantic and its
shareholders to enhance the ability to attract and
retain key members of management;
It is in the best interests of Midlantic and its
shareholders to provide compensation arrangements
that will tend to eliminate distractions to
certain key executives related to personal
uncertainties and risks arising out of termination
of employment on and after a change in control of
Midlantic; and
It is in the best interests of Midlantic and its
shareholders to provide the compensation
arrangements in the Plan for certain key
executives of the Company to recognize the value
to the Company and its shareholders of the
services such executives have provided to
Midlantic and are expected in the future to
provide to the Company.
1. Definitions
___________
Exhibit A contains definitions of certain terms for purposes
of the Plan.
2. Participation
_____________
(a) The Committee shall from time to time select the key
executives of the Company or Subsidiaries who shall
participate in the Plan. An executive so selected
shall be provided with a Notice of Participation,
signed by the Chief Executive Officer of the Company.
The Notice of Participation shall describe all
determinations made by the Committee under the Plan
with respect to the executive and shall contain such
other provisions not inconsistent with the Plan as the
Committee shall determine.
51
<PAGE>Page 52
(b) An executive shall become a Participating Executive
upon the executive's execution and delivery of a copy
of the Notice of Participation, and shall remain a
Participating Executive for the period indicated in the
Notice of Participation, provided, however, that
--------
termination of an executive's status as a Participating
Executive shall not affect the Company's obligations
under the Plan to the Participating Executive after a
termination of employment which shall occur during the
Severance Protection Period.
3. The Committee
_____________
The Committee shall have the sole authority to make all
determinations with respect to participation in the Plan and
to make such other determinations as are expressly
contemplated by the Plan.
4. Participating Executive Agreements
__________________________________
As a condition to participation in the Plan:
(a) A Participating Executive shall agree to the following:
During the period of participation in the Plan and
for two years after the termination of the
Participating Executive's employment with the
Company and/or Subsidiaries, the Participating
Executive shall not, without the written consent
of the Board or a person authorized thereby,
disclose to any person, other than an employee of
the Company or a Subsidiary or a person to whom
disclosure is reasonably necessary or appropriate
in connection with the performance by the
Participating Executive of his or her duties as an
executive of the Company or a Subsidiary, any
material confidential information obtained by the
Participating Executive while in the employ of the
Company or any Subsidiary with respect to any of
the Company's or any Subsidiary's products,
customers, methods or future plans, the disclosure
of which the Participating Executive knows will be
materially damaging to the Company or the
Subsidiary; provided, however, that, for the
purposes of the Plan, "confidential information"
does not include (i) any information known
generally to the public (other than as a result of
unauthorized disclosure by or at the direction of
the Participating Executive), (ii) any information
which becomes available to the Participating
Executive after termination of employment from a
source not believed by the Participating Executive
to be bound by any obligation of confidentiality
52
<PAGE>Page 53
to the Company or a Subsidiary or (iii) any
information of a type not otherwise generally
considered confidential by persons engaged in the
same business or a business similar to that
conducted by the Company. This confidentiality
obligation is in addition to and not in lieu of
any other obligation of confidentiality the
Participating Executive may have under any other
agreement, plan, common law, statute or otherwise.
(b) a Participating Executive shall agree to all of the
other obligations that he or she would have as a
Participating Executive under the Plan.
5. Severance Protection Period
___________________________
The Committee shall determine the period of time on and
after the date a Change in Control shall have occurred
during which termination of a Participating Executive's
employment would entitle him or her to receive Severance
Benefits under the Plan, provided, however, that the
Severance Protection Period shall include a period of not
more than three years after any Change in Control that shall
have occurred during the Participating Executive's
participation in the Plan. The Committee's determination
shall be indicated in the Notice of Participation.
6. Severance Benefits
__________________
If a Participating Executive's employment with the
Designated Employer is terminated during the Severance
Protection Period by the Designated Employer other than by
reason of the Participating Executive's death, Disability,
Retirement or for Cause
or
if a Participating Executive shall terminate his or her
employment for Good Reason,
then, subject to Paragraph 7 of the Plan:
(a) The Company shall pay the Participating Executive Base
Salary through the Date of Termination.
(b) As compensation for services rendered to Midlantic, the
Company shall pay the Participating Executive an amount
equal to two times Base Salary in equal monthly
installments over a period of 24 consecutive months
following the Date of Termination, commencing with the
first calendar month after the Date of Termination.
(c) The Company shall pay to the Participating Executive a
lump sum amount equal to the sum of (i) any Incentive
53
<PAGE>Page 54
Compensation which has been allocated or awarded to the
Participating Executive but which has not yet been
paid, (ii) a pro rata portion of the Participating
Executive's Incentive Compensation (determined by
multiplying such Incentive Compensation by a fraction,
the numerator of which is the number of days the
Participating Executive is employed by the Designated
Employer in the calendar year in which the
Participating Executive's Date of Termination occurs
and the denominator of which is 365); and (iii) the
amount of all cash awards and deferred cash
compensation (other than such compensation deferred at
the election of the Participating Executive) payable
but not theretofore paid to the Participating
Executive, assuming all conditions precedent to such
payments shall have been met as of the date the Notice
of Termination is given.
(d) For a period of two years after the Date of
Termination, the Company shall provide the
Participating Executive with life insurance and health
benefits substantially similar to those which the
Participating Executive shall be receiving immediately
prior to the date a Change in Control shall have
occurred. The Company may, in its discretion, satisfy
its obligation to provide coverage pursuant to this
subparagraph (d) by purchasing an individual or group
insurance policy covering the Participating Executive.
The Participating Executive agrees to apply for any
such individual or group policy as directed by the
Company and to cooperate with the Company in its
efforts to obtain such a policy, including submitting
to any physical examination which may be a prerequisite
to the issuance of a policy. To the extent a purchase
of an individual or group policy is not made or to the
extent the individual or group policy does not provide
substantially similar benefits, the Company will
otherwise meet its obligation to provide substantially
similar benefits by whatever other method it may
select.
(e) The Participating Executive will be entitled to receive
Adjusted Retirement Benefits from the Company in order
to provide the Participating Executive with
approximately the same total retirement benefits the
Participating Executive would have received under all
retirement plans of the Company and Subsidiaries in
which the Participating Executive participates as if
the Participating Executive were fully vested under
such retirement plans and had continued in the employ
of the Company or a Subsidiary for twenty four months
following the Date of Termination or until his or her
Retirement, if earlier. Adjusted Retirement Benefits
will be provided on an unfunded basis, are not intended
54
<PAGE>Page 55
to meet the qualification requirements of Section 401
of the Internal Revenue Code, shall be payable solely
from the general assets of the Company and shall be
payable at the times and in the manner that pension
benefits are generally payable under the applicable
retirement plans, disregarding any amendment(s) to such
retirement plans occurring after a Change in Control
shall have occurred, if such amendment(s) adversely
affect the Participating Executive.
(f) The payments provided for in subparagraph (b) shall be
made not later than the fifth day of the month when
due; the payment provided for in subparagraph (c) shall
be made not later than the fifth day following the Date
of Termination.
(g) In the event that any Severance Benefits are not paid
or provided, when due, the Company shall also pay
Interest to the Participating Executive Interest on the
overdue amount (or on the amount expended by the
Participating Executive to purchase a Severance Benefit
not provided).
(h) The Participating Executive shall not be required to
mitigate the amount of any Severance Benefit by seeking
other employment or otherwise, nor shall the amount of
any Severance Benefit be reduced by any compensation
earned by the Participating Executive as the result of
employment by another employer after the Date of
Termination, or otherwise.
7. Reduction of Severance Benefits
_______________________________
The Severance Benefits shall be subject to reduction as
follows:
(a) The amount of Severance Benefits payable under
Paragraph 6(b) shall be reduced on a dollar for dollar
basis by the cash amount actually paid to the
Participating Executive with respect to termination of
employment under the Midlantic Severance Pay Policy.
Any cash amount so received shall reduce the amounts
payable under Paragraph 6(b) in the order in which they
are payable.
(b) If the Participating Executive shall at any time within
24 months after the Date of Termination be engaged in
Covered Employment, the Participating Executive shall
promptly provide notice of such Covered Employment to
the Company (including the date the Participating
Executive became engaged in such Covered Employment)
and the Company's obligation to make monthly payments
under Paragraph 6(b) shall immediately cease as of the
date the Participating Executive became so engaged; in
55
<PAGE>Page 56
lieu of any further such monthly payments to the
Participating Executive under Paragraph 6(b), the
Company shall pay the Executive a lump sum payment
equal to 50% of the aggregate amount of the payments so
subject to cessation (subject to a maximum lump sum
payment of $1,000,000) reduced by any monthly payments
under Paragraph 6(b) made after the date the
Participating Executive became engaged in such Covered
Employment; such lump sum payment shall be made within
30 days after the date the Company receives notice of
such Covered Employment.
(c) Health benefits to be provided to a Participating
Executive pursuant to Paragraph 6(d) of the Plan shall
be terminated or reduced, to the extent that the
Participating Executive receives Alternate Health
Coverage, as follows: If the Alternate Health Coverage
is comparable or superior to the coverage to be
provided pursuant to Paragraph 6(b), the Company's
obligation to provide health benefits shall terminate.
Otherwise, to the extent not inconsistent with law,
health benefits provided under Paragraph 6(d) shall be
secondary to any Alternate Health Coverage received by
the Participating Executive. Life insurance benefits
provided to a Participating Executive pursuant to
Paragraph 6(d) shall be reduced to the extent
comparable life insurance benefits are received by the
Participating Executive in connection with subsequent
employment. The Participating Executive shall give
notice to the Company of any Alternative Health
Coverage or any life insurance benefits actually
received by him or her.
(d) If a Participating Executive (or any other person or
entity on behalf of the Participating Executive) shall
have received or shall be entitled to receive "payments
in the nature of compensation" treated as "parachute
payments", within the meaning of Section 280G of the
Internal Revenue Code (whether such payments in the
nature of compensation are payable under the Plan or
otherwise), the Severance Benefits (but not, unless
otherwise agreed or waived by the Participating
Executive, other payments in the nature of
compensation) shall be reduced to the extent required
to cause the Participating Executive not to be
receiving Severance Benefits that would not be
deductible under Section 280G of the Internal Revenue
Code, subject to the following:
(i) Notwithstanding anything in the Plan to
the contrary, the Severance Benefit referred to in
Paragraph 6(b) of the Plan shall not be reduced to
less than an amount equal to one times Base Salary
payable in equal monthly installments over a
56
<PAGE>Page 57
period of 12 months following the Date of
Termination, less cash amounts actually paid to
the Participating Executive with respect to
termination of employment under the Midlantic
Severance Pay Policy as contemplated under
subparagraph (a) of this Paragraph 7.
(ii) The terms "reduce" and "reduction" as
used in this subparagraph (d) shall include, but
shall not be limited to, elimination of, reduction
in, and extension of the date(s) of payment of,
the Severance Benefit.
(iii) The Company shall determine which
Severance Benefit(s) shall be reduced to effect
the reduction contemplated by this Subsection (d),
but only after (A) giving effect to the effective
waiver by the Participating Executive of receipt
or enjoyment of a payment in the nature of
compensation within the meaning of Section 280G,
and (b) giving the Participating Executive a
reasonable opportunity to request a method of
reduction, and good faith consideration by the
Company of compliance with any such request.
(iv) If Severance Benefits are reduced to a
Participating Executive under this subparagraph
(d), and Severance Benefits are also reduced or
terminated pursuant to subparagraphs (b) or (c) of
this Paragraph 7, the Company shall pay to the
Participating Executive the lesser of (A) the
amount of such decrease in the Severance Benefit
under subparagraphs (b) or (c) or (B) the maximum
amount which can be paid to the Participating
Executive without being, or causing any other
payment to be, not deductible under Section 280G
of the Internal Revenue Code; such amount shall be
paid to the Participating Executive on or before
the 15th day after the Participating Executive
shall have given the notice required under
subparagraph (b) or (c), whichever is applicable.
(v) If the amount of any reduction of
Severance Benefits as provided in this
subparagraph (d) cannot be finally determined on
or before the date such Severance Benefit is to be
provided under the Plan, the Company shall pay the
Participating Executive on such date an estimate
of the minimum amount of such Severance Benefit
which the Company in good faith has determined
would not be so subject to reduction and shall
provide the remainder of such Severance Benefit
(together with Interest from the date such
Severance Benefit would otherwise have been due)
57
<PAGE>Page 58
as soon as the amount thereof can be determined,
but in no event later than the thirtieth day after
the Date of Termination. In the event that the
amount of the estimate so provided exceeds the
Severance Benefit subsequently determined to have
been due, such excess shall constitute a loan by
the Company to the Participating Executive,
payable on the 10th day after demand by the
Company (together with Interest from the date such
estimated Severance Benefit was provided to the
Participating Executive).
(vi) If a Participating Executive's Severance
Benefits are reduced under this subparagraph (d),
the Company, promptly after it has made a
calculation of the amount of the estimated or
final reduction, shall provide to the
Participating Executive a statement of the basis
for such reduction which identifies in reasonable
detail the Participating Executive's parachute
payments (within the meaning of Section 280G of
the Internal Revenue Code) and which includes a
calculation in reasonable detail of the amount and
basis of the reduction; if a payment is due to or
from the Participating Executive under
subparagraph (d)(iv), such payment shall be
accompanied by a calculation in reasonable detail
of the basis for such payment.
(vii) Notwithstanding subparagraph (d)(iii) of
this Paragraph 7, if the Participating Executive
provides to the Company a reasoned opinion of
legal counsel who is reasonably acceptable to the
Company's independent auditors that all or any
portion of the amount of Severance Benefits or
other payments under this Plan are likely to be
deductible under Section 280G of the Internal
Revenue Code, the Company shall not reduce the
Severance Benefits by any amount which such legal
counsel so opines is so deductible and shall pay
or provide such amount to the Participating
Executive, when due, or within 5 days after the
receipt of such legal opinion, whichever is later.
In the event it is ultimately determined by a
court of competent jurisdiction or in a
compromise, settlement or other final resolution
of a proceeding which shall bind the Participating
Executive pursuant to Paragraph 11 of the Plan,
that all or any portion of the Severance Benefit
which is not so reduced is not deductible, the
Participating Executive shall pay the amount which
is not so deductible to the Company (together with
Interest from the date such amount(s) was paid to
the Participating Executive).
58
<PAGE>Page 59
8. Additional Payments to a Participating Executive in
___________________________________________________
Certain Circumstances
_____________________
If after giving effect to Paragraph 7 of the Plan, as a
result of the payment to the Participating Executive of any
Severance Benefit, any amount under this Paragraph 8, or any
amount pending resolution of a Dispute, the Participating
Executive shall be obligated to pay any excise tax under
Section 4999 of the Internal Revenue Code, or any similar
federal, state or local tax law, the Company shall pay to
the Participating Executive within ten days after a written
demand therefore, the amount of such excise tax (whether
such excise tax is payable with respect to the Severance
Benefit, any amount under this Paragraph 8, any amount paid
pending resolution of a Dispute, or otherwise), plus the
amount of all federal, state and local income taxes payable
on such excise tax(es) and on such income taxes, applying
the Participating Executive's marginal income tax rates.
If, as a result of the operation of subparagraphs (d)(iv) or
(d)(v) of Paragraph 7 or of subparagraph (c) of Paragraph 9,
the Participating Executive shall become entitled to a
refund of any excise taxes, or income taxes payable with
respect to such excise taxes (or income taxes on such income
taxes), the Participating Executive shall pay, within 10
days after receipt of such refund, the amount of such refund
to the Company (together with Interest from the date of
receipt of such refund).
9. Notice of Termination and Disputes
__________________________________
(a) Any purported termination of employment of a
Participating Executive by a Designated Employer by
reason of Disability or for Cause, or by a
Participating Executive for Good Reason shall be
communicated by written Notice of Termination to the
other party. A Notice of Termination shall state the
date the Participating Executive's employment is to be
terminated, the specific basis for termination and the
facts and circumstances claimed to support such basis
(set forth in reasonable detail). A Participating
Executive shall be entitled to give a Notice of
Termination that his or her employment is being
terminated for Good Reason at any time not later than
eighteen months after any occurrence of an event
alleged to constitute Good Reason.
(b) If there shall be a Dispute as to the basis for the
Participating Executive's termination, until the
Dispute is finally determined or until the
Participating Executive shall be engaged in Covered
Employment, whichever is earlier, the Company shall pay
the Participating Executive Base Salary and to provide
the Participating Executive with the same or
59
<PAGE>Page 60
substantially comparable welfare benefits and
perquisites (including participation in the Company's
or a Subsidiary's retirement plans, profit sharing
plans, incentive plans, stock option plans and stock
and cash award plans) that the Participating Executive
was paid or provided immediately prior to the date
Notice of Termination was given.
(c) Should a Dispute ultimately be determined in favor of
the Designated Employer, (i) all cash amounts paid by
the Company or a Subsidiary to the Participating
Executive under subparagraph (b) of this Paragraph 9
from the date of termination specified in the Notice of
Termination until the obligation of the Company under
subparagraph (b) shall have terminated shall be repaid
promptly by the Participating Executive to the Company
(with Interest from the date received by the
Participating Executive), (ii) all stock options, stock
awards and rights granted to the Participating
Executive pursuant to subparagraph (b) of this
Paragraph 9 shall be cancelled or returned to the
Company and (iii) no service as an employee shall be
credited to the Participating Executive for such period
for pension purposes. The Participating Executive
shall not be obligated to pay the Company or a
Subsidiary the cost of providing the Participating
Executive with other welfare benefits and perquisites
for such period unless the final judgment, order or
decree of a court or other body resolving the Dispute
determines that the Participating Executive acted in
bad faith in giving a notice of Dispute.
(d) Should a Dispute ultimately be determined in favor of
the Participating Executive, (i) the Participating
Executive shall be entitled to retain all cash amounts,
welfare benefits and perquisites paid to the
Participating Executive under subparagraph (b) of this
Paragraph 9 pending resolution of the Dispute and shall
be entitled to receive the Severance Benefits and other
payments or benefits to which he or she is entitled
under the Plan.
10. Reimbursement of Legal Fees
___________________________
The Company shall pay to a Participating Executive the
amount of Termination Related Legal Fees, subject to the
following:
(a) The Company shall pay all Termination Related Legal
Fees incurred by the Participating Executive (i) in
connection with a Dispute, or (ii) in seeking to obtain
any amount or benefit under the Plan which the
Participating Executive in good faith shall believe the
Company has not paid or provided, or shall not be
60
<PAGE>Page 61
intending to pay or provide, when due (including,
without limitation, any amount payable to the
Participating Executive under subparagraph (d)(vii) of
Paragraph 7), (iii) in seeking to enforce or obtain any
right under the Plan which the Participating Executive
in good faith shall believe he or she has under the
Plan or the Notice of Participation but which the
Company has not provided or is not intending to
provide, (iv) in seeking to enforce any other
obligation which the Participating Executive in good
faith shall believe the Company has to the
Participating Executive under the Plan or the Notice of
Participation or (v) in monitoring and understanding
the legal issues raised in any proceeding of the type
referred to in Paragraph 11 and the status of such
proceeding. Such Termination Related Legal Fees shall
be paid by the Company whether or not the Participating
Executive shall have commenced litigation or any other
proceedings.
(b) The Company's aggregate obligation for all Termination
Related Legal Fees other than those referred to in
subparagraph (a) of this Paragraph 10 shall be limited
to $5,000.
(c) Notwithstanding the foregoing, the Company shall have
no obligation under this Paragraph 10 if it shall be
determined by final judgment, order or decree of a
court of competent jurisdiction that Termination
Related Legal Fees were incurred in a proceeding
brought in bad faith by or on behalf of the
Participating Executive.
11. Certain Tax Matters.
____________________
The Participating Executive and the Company shall each
promptly notify the other upon receipt of a notice of the
institution of a judicial or administrative proceeding,
whether formal or informal (including an audit), in which
the federal or state tax treatment of, deductibility of, or
excise or income tax paid or payable with respect to, any
amount paid or payable under the Plan is being reviewed or
is in dispute. The Company will assume control at its sole
expense over all legal matters pertaining to such
proceeding. The Participating Executive shall cooperate
fully with the Company in any such proceeding and the
Company shall keep the Participating Executive fully
informed about such proceeding and the issues raised therein
(inasmuch as they relate to such tax treatment,
deductibility or tax paid or payable). The Participating
Executive shall not enter into any compromise or settlement,
or otherwise prejudice any rights the Company may have, in
connection with such proceeding, without the prior consent
of the Company. The Participating Executive shall not be
61
<PAGE>Page 62
bound by, nor shall any payments or benefits provided under
the Plan be affected by, any final resolution of such
proceeding (whether by compromise, settlement or otherwise),
unless (i) the Participating Executive shall have consented
thereto or (ii) the Company shall have diligently provided a
defense in such a proceeding to all claims in connection
with amounts paid or payable under the Plan, including
diligently pursuing and exhausting all appeals except
appeals on such issues which in the opinion of legal counsel
to the Company reasonably acceptable to the Participating
Executive, would be frivolous.
12. Additional Provisions
_____________________
(a) The Company's obligation to pay and provide the
Participating Executive the Severance Benefits and
other payments or benefits under the Plan shall be
absolute and unconditional and shall not be affected by
any circumstance, including, without limitation, any
setoff, counterclaim, recoupment, defense or other
right which the Company may have against the
Participating Executive or anyone else.
(b) All amounts payable by the Company hereunder shall be
due without notice or demand.
(c) Except as provided in Paragraphs 7 and 9 of this Plan,
each and every Severance Benefit or other payment made
under the Plan by the Company shall be final and the
Company will not seek to recover for any reason all or
any part of such Severance Benefit or payment from the
Participating Executive or any other person entitled to
receive such Severance Benefit or payment.
(d) The Company will require any successor (whether direct
or indirect, by purchase, merger, consolidation or
otherwise, but excluding a successor in a transaction
pursuant to which the Federal Deposit Insurance
Corporation provides assistance under Section 13 of the
Federal Deposit Insurance Act) to all or substantially
all of the business and/or assets of the Company, by
written agreement in form and substance satisfactory to
the Participating Executive, to expressly assume and
agree to perform all of the Company's obligations to
the Participating Executive under the Plan.
(e) The obligations of the Company under the Plan to a
Participating Executive shall inure to the benefit of,
and be enforceable by, the Participating Executive's
personal or legal representatives, executors,
administrators, successors, heirs, distributees,
devisees and legatees. If a Participating Executive
should die while any amounts remain payable to the
Participating Executive under the Plan, all such
62
<PAGE>Page 63
amounts, unless otherwise provided herein, shall be
paid in accordance with the terms of the Plan to the
Participating Executive's designee or, if the
Participating Executive or his or her legal
representative executor or administrator shall not have
given notice to the Company of such designee, to the
Participating Executive's estate. Subject to the
foregoing, the rights of the Participating Executive
under the Plan shall not be assignable.
(f) Nothing in the Plan or a Notice of Participation shall
be deemed to entitle a Participating Executive to
continued employment with the Company or a Subsidiary,
and the rights of the Company or a Subsidiary to
terminate the employment of the Participating Executive
shall continue as fully as though this Plan were not in
effect.
(g) For purposes of the Plan and a Notice of Participation,
notices and all other communications provided for in
the Plan or in the Notice of Participation shall be in
writing and shall be deemed to have been duly given
when delivered or mailed by United States registered
mail, return receipt requested, postage prepaid,
addressed as provided in the Notice of Participation;
provided, that notices given to effect a change of
address shall be deemed given only when received.
(h) No waiver by the Company, the Participating Executive
or the Designated Employer of any breach by any other
party of, or compliance with, any condition or
provision of the Plan or the Notice of Participation
shall be effective unless in writing nor shall such a
waiver be deemed a waiver at any other time of the same
provision or condition or at any time of any other
provision or condition.
(i) The rights provided to the Participating Executive in
the Plan are in addition to, and not in lieu of, any
other rights in any plan providing for payments to or
benefits for the Participating Executive or in any
agreement now existing, or which hereafter may be
entered into, between the Company and the Participating
Executive.
(j) The validity, interpretation, construction and
performance of the Plan and each Notice of
Participation shall be governed by the laws of the
State of New Jersey.
(k) All amounts due and benefits provided under the Plan
shall constitute general obligations of the Company.
The Participating Executive shall have only an
63
<PAGE>Page 64
unsecured right to payment thereof out of the general
assets of the Company.
(l) The invalidity or unenforceability of any provisions of
the Plan or a Notice of Participation shall not affect
the validity or enforceability of any other provision
of the Plan or of a Notice of Participation. Any
provision in the Plan or a Notice of Participation
which is prohibited or unenforceable in any
jurisdiction shall, as to such jurisdiction, be
ineffective only to the extent of such prohibition or
unenforceability without invalidating or affecting the
remaining provisions, and any such prohibition or
unenforceability in any jurisdiction shall not
invalidate or render unenforceable such provision in
any other jurisdiction.
(m) All Severance Benefits and other payments and benefits
provided for in the Plan shall be provided net of any
applicable withholding required under any federal,
state or local law.
(n) The Company shall be deemed to be the named fiduciary
under ERISA for the purposes of the Plan.
13. Amendment, Suspension and Termination of the Plan
_________________________________________________
The Plan may be amended, suspended or discontinued at any
time by resolution approved by the Committee and reflected
in its minutes, but any such amendment, suspension or
discontinuance which shall adversely affect any rights of a
Participating Executive shall not be effective as to such
Participating Executive without his or her express written
consent. In the absence of such consent, notwithstanding
anything in the Plan or the Participating Executive's Notice
of Participation to the contrary, all references to the Plan
in the Participating Executive's Notice of Participation
shall be deemed to be references to the Plan without giving
effect to such amendment, suspension or discontinuance.
64
<PAGE>Page 65
Exhibit A
Midlantic Corporation
Executive Severance Plan
Definitions
The following terms shall have the following meanings for
the purposes of the Plan:
"Adjusted Retirement Benefit" means the amount payable to the
- -----------------------------
Participating Executive or his or her beneficiaries which is
equal to the excess of (1) the benefits that would be paid to
the Participating Executive or his or her beneficiaries, under
all retirement plans of the Company and Subsidiaries in which
the Participating Executive shall have participated at the
date a Change in Control shall have occurred, assuming (A) the
Participating Executive were fully vested under such
retirement plans, (B) the twenty- four (24) month period (or
the period until Retirement, if less) following the Date of
Termination were added to credited service under such
retirement plans, (C) such retirement plans were not amended
after the date a Change in Control occurs in a way that
adversely affects the Participating Executive, and (D) the
Participating Executive's highest average annual compensation
as defined under such retirement plans were calculated as if
the Participating Executive were employed by the Company or a
Subsidiary for a twenty-four (24) month period (or the period
until Retirement, if earlier) following the Date of
65
<PAGE>Page 66
Termination and as if the Participating Executive's
compensation for purposes of such retirement plans during such
period were equal to the Participating Executive's Base Salary
and Incentive Compensation; over (2) the benefits that are
payable to the Participating Executive or his beneficiaries
under all such retirement plans; Adjusted Retirement Benefits
also include all ancillary benefits, such as early retirement
and survivor rights and benefits, under such retirement plans,
disregarding any such amendments; for the purposes of the
definition of "Adjusted Retirement Benefits" only, the term
"retirement plans" includes all plans and employment contracts
which provide for benefits payable on or following retirement
(including excess benefit or "high hat" plans and any other
plans or employment contracts that provide for the payment of
defined benefits on retirement) but do not include the
Midlantic Savings & Investment Plan, or any successor thereto.
"Alternative Health Benefits" means health care coverage
- -----------------------------
received by a Participating Executive after the termination of
employment in connection with employment of the Participating
Executive other than by the Company or a Subsidiary, or as a
result of medicare entitlement or coverage as a dependant
under a group health plan of the Participating Executive's
spouse.
"Base Salary" means the amount determined by multiplying the
- -------------
Participating Executive's highest bi-weekly or other periodic
66
<PAGE>Page 67
rate of gross base pay payable to the Participating Executive
during the twelve-month period immediately prior to the date a
Change in Control shall have occurred by the number of pay
periods in the calendar year in which such highest rate of
gross base pay was payable to the Participating Executive.
The following items are not part of base pay, as used herein:
reimbursed expenses, any amount paid on account of overtime or
holiday work, payment by the Company or a Subsidiary on
account of either insurance premiums or other contributions
made to other welfare or benefit plans, any Incentive
Compensation or other year-end or other bonuses, commissions
and gifts.
"Board" means the Board of Directors of the Company.
- -------
"Cause" means:
- -------
(A) the conviction of the Participating Executive
for commission of a felony or equivalent offense, or
the willful commission by the Participating
Executive of a criminal or other act that in the
judgment of the Board causes or will probably cause
substantial economic damage to the Company or a
Subsidiary or substantial injury to the business
reputation of the Company or a Subsidiary;
67
<PAGE>Page 68
(B) the commission by the Participating Executive of
an act of fraud in the performance of such
Participating Executive's duties on behalf of the
Company or a Subsidiary;
(C) the continuing willful failure of the
Participating Executive to perform his or her duties
to the Company or a Subsidiary (other than any such
failure resulting from the Participating Executive's
incapacity due to physical or mental illness and
other than termination by the Participating
Executive of his or her employment for Good Reason
or based upon an event or circumstance which the
Participating Executive in good faith believes would
constitute Good Reason) after written notice thereof
(specifying the particulars thereof in reasonable
detail) and a reasonable opportunity to be heard
and cure such failure are given to the Participating
Executive by the Committee; or
(D) the order of a federal or state bank regulatory
agency or a court of competent jurisdiction
requiring the termination of the Participating
Executive's employment.
No act, or failure to act, by the Participating Executive
shall be considered "willful" if the Participating Executive
68
<PAGE>Page 69
acted or failed to act (i) other than in bad faith and (ii)
other than with a reasonable belief that the action or
failure to act was not in the best interests of the Company
or a Subsidiary.
"Change in Control" means (1) the ownership or acquisition,
- ------------------
directly or indirectly, by any person (as defined below),
other than a trustee or other fiduciary holding securities
under an employee benefit plan of the Company or a Subsidiary,
of beneficial ownership (as determined below) of securities of
Midlantic representing 25% or more of the combined voting
power of Midlantic's then outstanding securities; or (2)
during any period of two consecutive years, a change in
composition of the Board of Directors of Midlantic so that 50%
or less of the members of such Board are Continuing Directors;
or (3) approval by the shareholders of Midlantic (or, if no
such shareholder approval is required, consummation) of a
merger, consolidation, sale or similar transaction of
Midlantic or any Principal Subsidiary with, into or to any
other business entity, or a binding share exchange involving
Midlantic's securities, other than any such transaction under
this clause (3) as a result of which the voting securities of
Midlantic outstanding immediately prior thereto continue to
represent at least 75% of the combined voting power of the
voting securities of Midlantic outstanding immediately after
such transaction, or (4) approval by the shareholders of
Midlantic of a plan of complete liquidation of Midlantic or of
69
<PAGE>Page 70
an agreement for the sale or disposition by Midlantic of all
or substantially all Midlantic's assets. A "Change in
Control" shall not include, however, (A) any transaction
pursuant to which the Federal Deposit Insurance Corporation
provides assistance under Section 13 of the Federal Deposit
Insurance Act or (B) any acquisition of an option or warrant
to purchase Midlantic voting securities approved by the vote
of more than 50% of the Continuing Directors in connection
with a transaction referred to in clause (3) above. For the
purposes of the definition of "Change in Control" only,
"person" shall have the meaning used in Sections 13(d) and
14(d) of the Securities Exchange Act of 1934, as amended, and
"beneficial ownership" shall be determined pursuant to Rule
13d-3 under the Securities Exchange Act of 1934, as amended.
"Committee" means the Executive Compensation Committee of the
- -----------
Board, or such other committee of the Board, however
designated, as shall be duly delegated responsibility with
respect to matters of executive compensation, or if no
committee is so delegated, the Board.
"Company" means Midlantic Corporation, a New Jersey
- ---------
corporation, its successors and assigns and such other
successors to its business and/or assets, as referred to in
Subparagraph (d) of Paragraph 12 of the Plan.
70
<PAGE>Page 71
"Continuing Director" means an individual who (1) at the
- ---------------------
beginning of the period for determining whether a Change in
Control shall have occurred, was a member of the Board of
Directors of Midlantic, (2) was elected by such Board of
Directors or (3) was nominated by such Board of Directors for
election by Midlantic shareholders, provided, that in the case
of clauses (2) and (3), such election or nomination occurred
by a vote of at not less than two-thirds (2/3) of the
Continuing Directors.
"Covered Employment" means full-time employment by an employer
- --------------------
or self-employment, provided, that the business of such
employer or self-employed Participating Executive shall have
been in existence for more than two years. A person shall be
"engaged" in Covered Employment at such time as the applicable
business shall have been in existence for more than two years.
"Date of Termination" means the date of termination of the
- ---------------------
Participating Executive's employment specified in the Notice
of Termination, which shall not be more than ninety (90) days
after such Notice of Termination is given, subject to the
following: If within thirty (30) days after any Notice of
Termination is given, the party who receives such Notice of
Termination notifies the other party in writing that a Dispute
exists, the Date of Termination shall be extended to either
the date on which the Dispute is finally determined or the
date the Participating Executive shall be engaged in Covered
71
<PAGE>Page 72
Employment, whichever is earlier; provided, that the Date of
Termination shall be extended by a notice of Dispute only if
such notice is given in good faith and the party giving such
notice pursues the resolution of such Dispute with reasonable
diligence.
"Designated Employer" means the Company, unless otherwise
- ---------------------
indicated in the Notice of Participation.
"Disability" means the Participating Executive's incapacity
- ------------
due to physical or mental illness such that the Participating
Executive shall have become qualified to receive benefits
under the Company's or a Subsidiary's long- term disability
plan, if any.
"Dispute" means (i) in the case of termination of employment
- ---------
of a Participating Executive by the Designated Employer for
Disability or Cause, that the Participating Executive
challenges the existence of Disability or Cause and (ii) in
the case of termination of employment of a Participating
Executive by the Participating Executive for Good Reason, that
the Designated Employer challenges the existence of Good
Reason. A Dispute is "finally determined" when it is resolved
by mutual written agreement of the parties or by a final
judgment, order or decree of a court of competent jurisdiction
(the time for appeal therefore having expired and no appeal
having been perfected).
72
<PAGE>Page 73
"ERISA" means Employee Retirement Income Security Act of 1974, as amended.
"Good Reason" means:
- -------------
(i) The assignment to the Participating Executive of
duties without the Participating Executive's express
written consent, which (A) are materially different
or require travel significantly more time consuming
or extensive than the Participating Executive's
duties or business travel obligations immediately
prior to the Change in Control, or (B) result in
either a significant reduction in the Participating
Executive's authority and responsibility as a senior
executive of the Designated Employer when compared
to the highest level of authority and responsibility
assigned to the Participating Executive at any time
during the six (6) month period prior to the Change
in Control, or, (C) without the Participating
Executive's express written consent, the removal of
the Participating Executive from, or any failure to
reappoint or reelect the Participating Executive to,
the highest title held at the Designated Employer
within the six (6) month period prior to the Change
in Control, except in connection with a termination
of the Participating Executive's employment for
73
<PAGE>Page 74
Cause, or by reason of the Participating Executive's
death, Disability or Retirement;
(ii) A reduction of the Participating Executive's
Base Salary, or the failure to grant increases in
the Participating Executive's Base Salary on a basis
at least substantially comparable to those granted
to other senior executives of the Company;
(iii) The Participating Executive being required to
be based at a location which is more than a
Reasonable Commuting Distance between the location
at which the Participating Executive was based
immediately prior to the Change in Control and the
Participating Executive's residence (and, if so
indicated in the Notice of Participation, the
Participating Executive being required to be based
anywhere other than the principal office of the
Company) except for required travel on the Company's
or a Subsidiary's business to an extent
substantially consistent with the Participating
Executive's business travel obligations immediately
prior to the Change in Control; or in the event of any
relocation of the Participating Executive with
the Participating Executive's express written
consent, the failure by the Company or a Subsidiary
to pay (or reimburse the Participating Executive
74
<PAGE>Page 75
for) all reasonable moving expenses by the
Participating Executive relating to a change of
principal residence in connection with such
relocation and to indemnify the Participating
Executive against any loss realized in the sale of
the Participating Executive's principal residence in
connection with any such change of residence, all to
the effect that the Participating Executive shall
incur no loss upon such sale on an after-tax basis;
(iv) The failure by the Company or a Subsidiary to
continue to provide the Participating Executive with
either (A) substantially the same welfare benefits
(which for purposes of the Plan shall mean benefits
under all welfare plans as that term is defined in
Section 3(1) of ERISA, and perquisites, (which for
the purposes of the Plan shall include participation
on a comparable basis in the Company's or a
Subsidiary's retirement plans (including the
Midlantic Savings & Investment Plan), incentive
plans, stock option plans, stock award plans, and
other plans in which senior executives of the
Company participate and as were provided to the
Participating Executive immediately prior to such
Change in Control), or (B) a package of welfare
benefits and perquisites, that, taken as a whole, is
substantially comparable in all material respects to
75
<PAGE>Page 76
the welfare benefits and perquisites in which senior
executives of the Company participate and as were
provided to the Participating Executive immediately
prior to such Change in Control; or
(v) The failure of the Company to obtain the express
written assumption of and agreement to perform its
obligations to the Participating Executive under the
Plan by any successor, as contemplated in
Subparagraph (d) of Paragraph 12 of the Plan.
"Incentive Compensation" means the total of (1) the amount of
- ------------------------
the cash award paid to the Participating Executive under the
Incentive Plan with respect to the calendar year immediately
prior to the date a Change in Control occurs, and (2) the
value, as of the date of grant, of stock awards granted as a
short-term incentive in lieu of cash with respect to such
calendar year.
"Incentive Plan" means the Midlantic Annual Incentive and
- ----------------
Bonus Plan, as amended, and any successor plan(s) thereto.
"Interest" means interest determined under Section 1274(d) of
- ----------
the Internal Revenue Code (calculated on a fixed basis on the
applicable determination date as if the following were the
term of a debt instrument: the period from the date from
76
<PAGE>Page 77
which Interest is payable under the Plan to the date payment
is actually made).
"Internal Revenue Code" means the Internal Revenue Code of
- -----------------------
1986, as amended, and the regulations thereunder.
"Midlantic" means Midlantic Corporation, a New Jersey
- -----------
corporation, and its successors and assigns prior to a Change
in Control having occurred.
"Midlantic Severance Pay Policy" means the Midlantic Severance
- --------------------------------
Pay Policy, as in effect from time to time, or as it may be
amended (or any successor severance plan or policy providing
cash severance payments to employees generally).
"Notice of Participation" means the notice provided to a
- -------------------------
Participating Executive under Paragraph 2 of the Plan, as such
Notice of Participation may from time to time be amended with
the consent of the Participating Executive.
"Notice of Termination" means the notice given by the
- -----------------------
Designated Employer or the Participating Executive as
contemplated under Paragraph 9 of the Plan.
"Participating Executive" means an executive employed by the
- -------------------------
Company or a Subsidiary who has become a Participating
Executive under Paragraph 2 of the Plan.
77
<PAGE>Page 78
"Plan" means the Executive Severance Plan as adopted by the
- ------
Committee on September 21, 1994, as from time to time amended
pursuant to the Plan. The Plan includes the definitions in
this Exhibit A.
"Principal Subsidiary" means Midlantic Bank, National
- ----------------------
Association, its successors and assigns and any other
Subsidiary designated by the Committee as a "Principal
Subsidiary" for the purposes of the Plan.
"Reasonable Commuting Distance" means the greater of (1) 45
- -------------------------------
miles or (2) the distance between the Participating
Executive's residence and the location at which the
Participating Executive was based immediately prior to the
Change in Control of the Company.
"Retirement" means that the Participating Executive shall have
- ------------
voluntarily retired under all of the Company's and a
Subsidiary's retirement plans applicable to such Executive.
"Severance Benefits" means the amounts payable, and benefits
- --------------------
to be made available, to a Participating Executive under
Paragraph 6 of the Plan and for the purposes of Paragraph 8 of
the Plan shall include any amounts paid by the Company
pursuant to Paragraph 7 of the Plan.
78
<PAGE>Page 79
"Severance Protection Period" means the period determined by
the Committee, under Paragraph 5 of the Plan.
"Subsidiary" means (1) Midlantic Bank, National Association,
- ------------
(2) any other company (including without limitation a bank, a
business corporation, a partnership, a limited liability
company or a joint venture) 50% or more of the voting
securities or other voting interests of which are directly or
indirectly owned by Midlantic Corporation, (3) such other
companies, if any, as are designated as Subsidiaries by the
Committee and (4) the respective successors and assigns of
Subsidiaries under clauses (1), (2) and (3).
"Termination Related Legal Fees" means legal fees and
- --------------------------------
disbursements incurred by the Participating Executive from
time to time in connection with his or her termination of
employment by the Designated Company, in connection with
termination of employment by the Participating Executive for
Good Reason or in connection with a judicial or administrative
proceeding of the type referred to in Paragraph 11 of the
Plan.
79
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<ALLOWANCE-UNALLOCATED> 0
<FN>
<F1>Excludes charge-offs of $11.885 million related to loans transferred to "assets
held for accelerated disposition."
<F2>Excludes recoveries of $3.984 million related to loans transferred to "assets
held for accelerated disposition."
</FN>
</TABLE>
