<PAGE> 1
FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D. C. 20549
(Mark One)
...X.... QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE
SECURITIES EXCHANGE ACT OF 1934
September 30, 1995
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, 1995
Common Stock, par value $3.00 per share - 52,442,505 shares
<PAGE> 2
Midlantic Corporation and Subsidiaries
FORM 10-Q
September 30, 1995
PART I - FINANCIAL INFORMATION
______________________________
INTRODUCTION The interim financial information disclosed in this Form 10-Q
should be read in conjunction with Midlantic Corporation's 1994
Annual Report to shareholders and Midlantic Corporation's 1994
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 management's discussion for the interim period
on pages 12 through 29 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 30 through 46.
<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
1995 1994 1995 1994
____________________________________________________________________________________________
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $193,578 $174,284 $555,281 $505,305
Interest on investment securities
Taxable interest income 53,004 26,685 156,675 80,144
Tax-exempt interest income 350 197 1,053 524
Interest on deposits with banks 1,125 4,313 5,990 13,982
Interest on other short-term investments 5,978 15,583 24,234 38,103
________ ________ ________ ________
Total interest income 254,035 221,062 743,233 638,058
________ ________ ________ ________
INTEREST EXPENSE
Interest on deposits 73,001 55,278 208,858 162,673
Interest on short-term borrowings 10,300 5,084 30,671 15,906
Interest on long-term debt 8,508 8,586 25,678 25,865
________ ________ ________ ________
Total interest expense 91,809 68,948 265,207 204,444
________ ________ ________ ________
Net interest income 162,226 152,114 478,026 433,614
Provision for loan losses 1,500 4,785 4,500 23,768
________ ________ ________ ________
Net interest income after provision
for loan losses 160,726 147,329 473,526 409,846
NONINTEREST INCOME
Trust income 12,460 11,285 35,330 31,927
Service charges on deposits 19,914 20,029 58,289 57,995
Investment securities gains (losses) -- -- 184 (3,374)
Net gains on disposition of assets -- 1,064 3,100 26,120
Other 18,665 16,992 50,796 54,260
________ ________ ________ ________
Total noninterest income 51,039 49,370 147,699 166,928
________ ________ ________ ________
211,765 196,699 621,225 576,774
________ ________ ________ ________
NONINTEREST EXPENSES
Salaries and benefits 65,318 58,223 189,447 172,338
Net occupancy 11,529 10,469 33,249 33,524
Equipment rental and expense 5,887 5,922 18,679 18,837
Other real estate owned, net (2,243) (472) (5,086) 139
FDIC assessment charges (415) 7,005 11,473 21,386
Legal and professional fees 9,666 11,512 26,932 32,647
Other 25,771 22,395 74,812 76,130
________ ________ ________ ________
Total noninterest expenses 115,513 115,054 349,506 355,001
________ ________ ________ ________
(continued on next page)
<PAGE> 4
<CAPTION>
Midlantic Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF INCOME
(In thousands, except per share data)
(continued)
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1995 1994 1995 1994
____________________________________________________________________________________________
<S> <C> <C> <C> <C>
Income before income taxes and
cumulative effect of the change in
accounting for postemployment benefits 96,252 81,645 271,719 221,773
Income tax expense 35,133 5,398 100,884 19,894
________ ________ ________ ________
Income before cumulative effect
of the change in accounting for
postemployment benefits 61,119 76,247 170,835 201,879
Cumulative effect of the change in
accounting for postemployment benefits -- -- -- (7,528)
________ ________ ________ ________
NET INCOME $ 61,119 $ 76,247 $170,835 $194,351
======== ======== ======== ========
INCOME APPLICABLE TO PRIMARY
COMMON SHARES
Income before cumulative effect
of the change in accounting
for postemployment benefits $ 61,119 $ 75,341 $169,022 $ 99,160
Net income 61,119 75,341 169,022 91,632
INCOME APPLICABLE TO FULLY
DILUTED COMMON SHARES
Income before cumulative effect
of the change in accounting
for postemployment benefits 62,046 76,319 171,903 202,143
Net income 62,046 76,319 171,903 194,615
======== ======== ======== ========
INCOME PER COMMON SHARE
Income before cumulative effect
of the change in accounting
for postemployment benefits
Primary $1.15 $1.42 $3.20 $3.76
Fully diluted 1.13 1.40 3.14 3.71
Cumulative effect of the change in
accounting for postemployment benefits
Primary -- -- -- (.14)
Fully diluted -- -- -- (.14)
Net income
Primary 1.15 1.42 3.20 3.62
Fully diluted 1.13 1.40 3.14 3.57
======== ======== ======== ========
AVERAGE COMMON SHARES AND COMMON SHARE
EQUIVALENTS
Primary 53,242 53,097 52,854 52,944
Fully diluted 54,766 54,618 54,672 54,501
======== ======== ======== ========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 5 1of2
<TABLE>
Midlantic Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<CAPTION>
SEPTEMBER 30 DECEMBER 31
1995 1994
____________________________________________________________________________________
<S> <C> <C>
ASSETS
Cash and due from banks $ 832,114 $ 819,928
Interest-bearing deposits in other banks 80,601 242,659
Other short-term investments 535,500 871,000
Investment securities
Held-to-maturity (market value 1995,
$2,466,268; 1994, $2,325,904) 2,444,472 2,415,635
Available-for-sale 807,251 333,295
Trading 1,194 7,613
Total loans (net of unearned income of
$164,942 in 1995 and $144,850 in 1994) 8,785,786 8,256,375
Less: allowance for loan losses 341,474 349,520
___________ ___________
Net loans 8,444,312 7,906,855
___________ ___________
Premises and equipment, net 156,721 146,523
Due from customers on acceptances 16,905 17,546
Other assets 542,277 532,484
___________ ___________
Total assets $13,861,347 $13,293,538
=========== ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
Domestic deposits
Noninterest-bearing demand $ 2,728,947 $ 2,847,782
Interest-bearing demand 1,258,345 1,361,287
Savings 1,585,302 1,636,908
Retail money market accounts 1,688,535 1,920,175
CDs over $100,000 806,628 447,590
Other time 2,781,986 2,577,893
Overseas branch deposits 6,785 15,699
___________ ___________
Total deposits 10,856,528 10,807,334
___________ ___________
Short-term borrowings 1,006,301 584,489
Bank acceptances outstanding 16,905 17,546
Other liabilities 164,222 136,983
Long-term debt 368,650 373,000
___________ ___________
Total liabilities 12,412,606 11,919,352
___________ ___________
<PAGE> 5 2of2
Shareholders' equity
Capital stock
Preferred stock: no par value
Authorized 40,000,000 shares
Issued 500,000 shares in 1994 -- 50,000
Common stock: par value $3 per share
Authorized 150,000,000 shares
Issued 52,762,097 shares in 1995 and
52,564,346 shares in 1994 158,286 157,693
Surplus 619,214 611,205
Retained earnings 682,521 558,385
Net unrealized holding gains (losses) on
available-for-sale securities, net of taxes 3,527 (3,097)
___________ ___________
1,463,548 1,374,186
Less treasury stock at cost:
402,322 common shares in 1995 14,807 --
___________ ___________
Total shareholders' equity 1,448,741 1,374,186
___________ ___________
Total liabilities and shareholders' equity $13,861,347 $13,293,538
=========== ===========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 6 1of2
<TABLE>
Midlantic Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CASH FLOWS
(In thousands)
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30 1995 1994
__________________________________________________________________________________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 170,835 $ 194,351
Adjustments to reconcile net income
to net cash provided by operating activities
Provision for loan and OREO losses 4,500 26,125
Depreciation of premises and equipment 15,357 17,135
Amortization of goodwill and other intangibles 6,868 4,843
Deferred income tax expense 41,619 46,054
Cumulative effect of the change in
accounting for postemployment benefits -- 7,528
Net accretion of investment securities (10,312) (6,389)
Accretion of net deferred loan fees (7,122) (7,043)
Net gains on the sales of assets (7,876) (31,946)
Net changes in:
Trading account assets 6,419 (2,173)
OREO 549 5,387
Accrued interest receivable (28,519) (22,671)
Accrued interest payable 9,677 (7,003)
Other assets 811 10,715
Other liabilities 14,860 15,588
Other (5,707) (764)
_________ __________
Net cash provided by operating activities 211,959 249,737
_________ __________
CASH FLOWS FROM INVESTING ACTIVITIES
Net cash received in acquisition of 3 branches 112,224 --
Net cash received in acquisition of
Old York Road Bancorp, Inc. 14,804 --
Proceeds from bulk sales of loans and OREO 6,009 222,546
Proceeds from sales of OREO and loans 28,900 53,076
Net decrease in money market investments
with an original maturity of 3 months or less 353,293 607,123
Proceeds from money market investments with an
original maturity of greater than 3 months 287,565 674,040
Purchases of money market investments with an
original maturity of greater than 3 months (128,100) (962,977)
Proceeds from sales of available-for-sale securities 49,591 889,455
Proceeds from matured investment securities:
Held-to-maturity 89,118 430,284
Available-for-sale 503,929 435,802
Purchases of investment securities:
Held-to-maturity (116,555) (303,168)
Available-for-sale (949,898) (1,300,705)
Net (increase) decrease in loans (413,049) 57,470
Purchases of premises and equipment (22,723) (8,701)
Sales of premises and equipment 660 399
_________ __________
Net cash (used) provided by investing activities (184,232) 794,644
_________ __________
<PAGE> 6 2OF2
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits (287,924) (691,856)
Net increase (decrease)in short-term borrowings 421,670 (120,780)
Redemption of preferred stock (50,000) --
Payments on long-term debt (4,350) (13,752)
Cash dividends paid (47,605) (13,857)
Purchase of common treasury shares (61,210) --
Proceeds from issuances of common stock 13,878 6,484
_________ __________
Net cash used by financing activities (15,541) (833,761)
_________ __________
NET INCREASE IN CASH AND CASH EQUIVALENTS 12,186 210,620
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 819,928 712,960
_________ __________
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 832,114 $ 923,580
========= ==========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 7 1of2
<TABLE>
Midlantic Corporation and Subsidiaries
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
(In thousands, except share and per share data)
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30 1995 1994
___________________________________________________________________________________________
<S> <C> <C>
PREFERRED STOCK
Balance at January 1 $ 50,000 $ 50,000
Redemption of preferred stock (50,000) --
__________ __________
Balance at September 30 $ -- $ 50,000
========== ==========
COMMON STOCK
Balance at January 1 $ 157,693 $ 156,522
Issuance of 35,776 common shares in 1994
for preferred stock dividend -- 107
Issuance of 111,915 common shares and 131,749 common
treasury shares in 1995 and 233,528 common shares
and 2,042 common treasury shares in 1994 for
stock options 335 701
Issuance of 85,836 common shares and 61,384 common
treasury shares in 1995 and 47,589 common shares in
1994 for Midlantic's 401(k) plan and Dividend
Reinvestment and Stock Purchase Plan ("DRP") 258 143
__________ __________
Balance at September 30 $ 158,286 $ 157,473
========== ==========
SURPLUS
Balance at January 1 $ 611,205 $ 603,732
Issuance of common shares for preferred
stock dividend -- 799
Issuance of common treasury shares for the purchase
of Old York Road Bancorp, Inc. 5,354 --
Issuance of common shares and common treasury
shares for stock options, Midlantic's 401(k) plan,
DRP and certain corporate securities 2,655 5,584
__________ __________
Balance at September 30 $ 619,214 $ 610,115
========== ==========
RETAINED EARNINGS
Balance at January 1 $ 558,385 $ 312,310
Net income 170,835 194,351
Cash dividends paid
Preferred stock (1,813) (1,813)
Common stock (44,886) (12,044)
Issuance of common shares for
preferred stock dividend -- (906)
__________ __________
Balance at September 30 $ 682,521 $ 491,898
========== ==========
PAGE 7 2OF2
NET UNREALIZED HOLDING GAINS (LOSSES)
ON AVAILABLE-FOR-SALE SECURITIES
Balance at January 1, 1995/net unrealized
holding gain recognized on adoption
of change in accounting for investment
securities in 1994 $ (3,097) $ 1,859
Change in unrealized holding gains (losses) 6,624 (3,694)
__________ __________
Balance at September 30 $ 3,527 $ (1,835)
========== ==========
TREASURY STOCK
Balance at January 1 $ -- $ --
Addition of 1,710,895 common shares in 1995
and 2,042 common shares in 1994 (61,210) (56)
Issuance of 1,028,159 common treasury shares
for the purchase of Old York Road Bancorp, Inc. 35,773 --
Issuance of 280,414 common treasury shares in
1995 and 2,042 common treasury shares in 1994
for stock options, Midlantic's 401(k) plan, DRP
and certain corporate securities 10,630 56
__________ __________
Balance at September 30 $ (14,807) $ --
========== ==========
TOTAL SHAREHOLDERS' EQUITY
Balance at January 1 $1,374,186 $1,122,564
Net changes during period 74,555 185,087
__________ __________
Balance at September 30 $1,448,741 $1,307,651
========== ==========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 8
Midlantic Corporation and Subsidiaries
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
RECLASSIFICATIONS - Certain captions in the financial statements presented for
prior periods have been reclassified to conform with the 1995 presentation.
This includes the reclassification for all periods presented of in-substance
foreclosures ("ISFs") from other real estate owned ("OREO") to loans (see
"Accounting for loan impairment").
MERGER ANNOUNCEMENT - On July 10, 1995, PNC Bank Corp. ("PNC") and MC
announced approval by the boards of directors of both institutions of a
definitive merger agreement whereby MC will be merged with and into a wholly-
owned subsidiary of PNC, creating what would be, on a pro forma basis as of
September 30, 1995, a bank holding company with total consolidated assets of
nearly $78 billion. Under the terms of the agreement, PNC will exchange 2.05
shares of PNC common stock for each share of MC common stock. The merger,
which is to be accounted for as a pooling-of-interests, is expected to be
consummated by year-end 1995, pending approval by shareholders of both
companies.
CAPITAL STOCK
COMMON STOCK - On October 18, 1995, the Board of Directors of MC ("the Board")
declared a quarterly cash dividend on the Corporation's common stock of $.32
per share to shareholders of record on November 1, 1995, payable on November
13, 1995.
PREFERRED STOCK - On June 30, 1995, the Corporation redeemed the 500,000
outstanding shares of MC's Term Adjustable Rate Cumulative Preferred Stock -
Series A for the par value of $50 million.
FINANCIAL INSTRUMENTS - The following table summarizes Midlantic's significant
off-balance sheet financial instruments at September 30, 1995:
(In thousands)
________________________________________________________________________
Unused commitments to extend credit $2,941,334
Financial standby letters of credit and
similar arrangements 91,750
Performance standby letters of credit and
similar arrangements 206,091
Commercial letters of credit and other short-term
trade-related contingencies 51,028
Notional amount of interest rate swaps (1)
Agreements to receive a fixed rate of interest 2,800
Agreements to pay a fixed rate of interest 599
Agreements to receive and pay a variable
rate of interest 300
Foreign exchange contracts (2) 37,440
========================================================================
(1) For a discussion on interest rate swaps, see pages 22 through 23.
(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.
<PAGE> 9
STATEMENT OF CASH FLOWS - Cash paid during the first nine months of 1995 and
1994 for interest on deposits, short-term borrowings and long-term debt
amounted to $255.3 million and $195.0 million, respectively. Net cash paid
for federal and state income taxes during the first nine months of 1995 and
1994 was $56.7 million and $640 thousand, respectively.
During the first nine months of 1995 and 1994, $12.1 million and $24.8
million, respectively, of loans, net of charge-offs, were transferred into
OREO. Also, during the first nine months of 1994, the Corporation transferred
loans and OREO with a book value of $69.1 million ($56.9 million after related
charge-offs) to assets held for accelerated disposition. By the end of the
third quarter of 1994 substantially all of these assets had been sold. A gain
of $26.1 million was realized in 1994 on these sales. 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.
ACCOUNTING FOR LOAN IMPAIRMENT - In the first quarter of 1995, Midlantic
adopted Statement of Financial Accounting Standards ("FAS") No. 114
"Accounting by Creditors for Impairment of a Loan" and FAS No. 118 "Accounting
by Creditors for Impairment of a Loan - Income Recognition and Disclosure."
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 according to the contractual terms of the loan agreement.
Midlantic classifies as impaired loans all nonaccrual loans except those loans
which are excluded from the scope of FAS No. 114, principally consumer
installment loans, residential mortgages and lease financing receivables. For
purposes of comparison, nonaccrual loans excluded from the scope of FAS No.
114 were considered to be immaterial at December 31, 1994. 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. If the calculated measurement of an
impaired loan is less than the recorded investment in the loan, the deficiency
is recognized through a provision to the allowance for loan losses ("ALL").
FAS No. 118 amended 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 previously in effect. While a loan is
classified as impaired and the future collectibility of the recorded loan
balance is doubtful, collections of interest and principal are generally
applied as a reduction to principal outstanding. When the future
collectibility of the recorded loan balance is expected, interest income may
be recognized on a cash basis. In the case where an impaired loan had been
partially charged off, recognition of interest on a cash basis is limited to
that which would have been recognized on the recorded loan balance at the
contractual interest rate. Cash interest receipts in excess of that amount
are recorded as recoveries to the ALL until prior charge-offs have been fully
recovered.
<PAGE> 10
FAS No. 114 also provides for the reclassification of all ISFs outstanding
from OREO to the loan portfolio as nonaccrual loans at their current carrying
value. The reclassification of ISFs to loans has been made for all periods
presented. The Corporation will no longer be required to identify and isolate
future loans that may meet the former criteria for ISF classification.
Accounting policies relating to the ALL, charge-offs and income recognition
for impaired loans are consistent with the accounting for nonaccrual loans.
The adoption of FAS Nos. 114 and 118 in the first quarter of 1995 did not have
a material impact on Midlantic's financial condition or results of operations
at the time of adoption and does not materially affect the comparability of
loans, the ALL or income with prior periods.
CARRYING VALUE OF IMPAIRED LOANS (In thousands) SEPTEMBER 30, 1995
_________________________________________________________________________
Commercial and financial $ 36,884
Real estate
Construction and development 7,320
Long-term mortgage 68,719
Loans to individuals (not on an installment basis) 9,359
_________________________________________________________________________
TOTAL IMPAIRED LOANS $122,282
=========================================================================
REQUIRED FAS NO. 114 RESERVE $ 15,395
=========================================================================
At September 30, 1995, impaired loans carried at $79.3 million were valued
based upon discounted cash flows and $43.0 million were valued using the fair
value of collateral. Based on these methods, $15.4 million of the $341.5
million ALL was allocated against $53.1 million of impaired loans. The
remaining impaired loans did not require a specific reserve under FAS No. 114.
The remaining ALL, totalling $326.1 million at September 30, 1995, is
available to absorb losses in the Corporation's entire credit portfolio.
During the first nine months of 1995, impaired loans averaged $128.6 million.
Interest income recorded on total impaired loans and received in cash during
the first nine months of 1995 was $2.0 million.
See Table XI on page 40 for the reconciliation of the ALL.
POSTEMPLOYMENT BENEFITS - 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 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 before retirement), under the following circumstances: if the
employees' rights to postemployment benefits are attributable to services
already rendered; if the rights to those benefits accumulate or vest; 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 must nevertheless accrue for any 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.
<PAGE> 11
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 established 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.
Net unrealized holding gains on available-for-sale securities were $3.5
million at September 30, 1995 and net unrealized losses were $3.1 million at
December 31, 1994 and were included as a component of shareholders' equity.
RECENT ACTIVITIES OF THE CORPORATION - At the close of business June 30, 1995,
Old York Road Bancorp, Inc. ("Old York"), headquartered in Willow Grove,
Pennsylvania, merged with and into MC. Substantially all of the purchase price
of $41.1 million was paid through the reissuance of 1.028 million common
treasury shares. Old York's principal subsidiary, Bank and Trust Company of
Old York Road ("BOYR"), was simultaneously merged into Midlantic Bank,
National Association. At the date of closing, BOYR reported total assets of
approximately $225 million and had 15 branch locations in southeastern
Pennsylvania.
On January 20, 1995, Midlantic acquired from the Resolution Trust Corporation
approximately $126 million in deposits of three branches of Carteret Federal
Savings Bank of New Jersey, located in Newark and Dover, New Jersey, for a
premium of $12.5 million.
In April 1995, the Corporation announced that its Board authorized repurchase
of up to five million shares of MC's common stock. At September 30, 1995, the
Corporation had 402 thousand treasury shares. These repurchased common shares
may be used to meet the requirements of the Corporation's dividend
reinvestment plan, stock-based benefit plans and certain corporate securities.
In connection with the merger agreement between MC and PNC, Midlantic has
agreed not to repurchase any additional common shares.
<PAGE> 12
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 $61.1 million or $1.13 per fully diluted common share
for the three months ended September 30, 1995 compared with net income of
$76.2 million or $1.40 per fully diluted common share for the corresponding
period of 1994. For the nine months ended September 30, 1995, net income
amounted to $170.8 million or $3.14 per fully diluted common share compared
with net income of $194.4 million or $3.57 per fully diluted common share for
the first nine months of 1994. In the third quarter and first nine months of
1994, Midlantic realized income tax credits, not available to the Corporation
in 1995, amounting to $27.8 million or $.51 per fully diluted common share
and $69.2 million or $1.27 per fully diluted common share, respectively (see
"Income Taxes"). Also, income for the first nine months of 1994 included a
$7.5 million charge incurred upon the adoption on January 1, 1994 of Financial
Accounting Standards ("FAS") No. 112 "Employers' Accounting for Postemployment
Benefits".
INCOME BEFORE TAXES
___________________
Income before taxes amounted to $96.2 million in the third quarter of 1995 or
17.9 percent over the level recorded in the third quarter of 1994. On a year-
to-date basis, the rise in pretax earnings amounted to $49.9 million or 22.5
percent over 1994. The rise in earnings reflects increased levels of net
interest income due to higher yields on earning assets, particularly prime
rate-based loans and a shift from lower-yielding money market investments to
higher-yielding investment securities.
MERGER ANNOUNCEMENT
___________________
On July 10, 1995, PNC Bank Corp. ("PNC") and Midlantic Corporation ("MC")
announced approval by the boards of directors of both institutions of a
definitive merger agreement whereby MC will be merged with and into a wholly-
owned subsidiary of PNC, creating what would be, on a pro forma basis as of
September 30, 1995, a bank holding company with total consolidated assets of
nearly $78 billion. Under the terms of the agreement, PNC will exchange 2.05
shares of PNC common stock for each share of MC common stock. The merger,
which is to be accounted for as a pooling-of-interests, is expected to be
consummated by year-end 1995, pending approval by shareholders of both
companies.
RECENT ACTIVITIES OF THE CORPORATION (1994 AND 1995)
____________________________________________________
At the close of business June 30, 1995, Old York Road Bancorp, Inc. ("Old
York"), headquartered in Willow Grove, Pennsylvania, merged with and into MC.
Substantially all of the purchase price of $41.7 million was paid through the
reissuance of 1.028 million common treasury shares. Old York's principal
subsidiary, Bank and Trust Company of Old York Road ("BOYR"), was
simultaneously merged into Midlantic Bank, National Association ("MB"). At
the date of closing, BOYR reported total assets of approximately $225 million
and had 15 branch locations in southeastern Pennsylvania.
<PAGE> 13
On June 30, 1995, Midlantic redeemed the 500,000 outstanding shares of MC's
Term Adjustable Rate Cumulative Preferred Stock - Series A ("Preferred Stock -
A) for $50 million.
In April 1995, MC's Board of Directors ("MC's Board") announced that it had
authorized repurchase of up to five million shares of MC's common stock. At
September 30, 1995, the Corporation had 402 thousand common treasury shares.
These repurchased common shares may be used to meet the requirements of the
Corporation's dividend reinvestment plan, stock-based benefit plans and
certain corporate securities. In connection with the merger agreement between
MC and PNC, Midlantic has agreed not to repurchase any additional common
shares.
In January 1995, Midlantic acquired from the Resolution Trust Corporation
approximately $126 million in deposits of three branches of Carteret Federal
Savings Bank of New Jersey, for a premium of $12.5 million.
In April 1994, MC's Board declared the first cash dividend to common
shareholders (amounting to $.10 per common share) since the third quarter of
1990. For each subsequent quarter of 1994 through the second quarter of 1995,
the Corporation successively increased the quarterly dividend ($.13 declared
in the third quarter of 1994, $.17 declared in the fourth quarter of 1994,
$.22 declared in the first quarter of 1995 and $.32 declared in the second
quarter of 1995). The third quarter 1995 dividend, declared on July 19, 1995,
and the fourth quarter dividend, declared on October 18, 1995, remained at
$.32 per share, consistent with MC's obligation under the merger agreement
between MC and PNC.
In August 1994, Midlantic consolidated its two bank subsidiaries by merging
Continental Bank ("CB") in Pennsylvania into Midlantic National Bank ("MNB"),
a New Jersey banking company. The combined bank was renamed Midlantic Bank,
National Association. Also in August 1994, MNB's direct parent, Midlantic
Banks Inc., was merged into MC.
<PAGE> 14 1OF2
RESULTS OF OPERATIONS
THIRD QUARTER 1995 VS. THIRD QUARTER 1994
NINE MONTHS ENDED SEPTEMBER 30, 1995 VS. NINE MONTHS ENDED SEPTEMBER 30, 1994
NET INTEREST INCOME
____________________
On a tax-equivalent basis, net interest income ("NII") of $166.0 million
exceeded that of the third quarter of 1994 by $13.2 million or 8.6 percent.
For the nine months ended September 30, 1995, NII of $489.2 million increased
by $53.3 million or 12.2 percent over the comparable period of 1994.
<TABLE>
NET INTEREST INCOME/NET INTEREST MARGIN
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
(Dollars in thousands) 1995 1994 Variance 1995 1994 Variance
_________________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Net interest income (actual) $162,226 $152,114 $10,112 $478,026 $433,614 $44,412
Net interest income (tax-equivalent basis) 166,013 152,832 13,181 489,151 435,870 53,281
Net interest margin (actual) 5.21% 4.97% .24% 5.23% 4.70% .53%
Net interest margin (tax-equivalent basis) 5.33 4.99 .34 5.35 4.73 .62
======== ======== ======= ======== ======== =======
</TABLE>
The improvement in NII for the periods under analysis was due to higher loan
and investment security yields, coupled with an increase in the proportion of
higher-yielding investment securities relative to shorter-term, generally
lower yielding, money market investments. These factors more than offset the
negative influence of rising funding costs, which, in general, began to rise
with market rates beginning in early 1994.
Average interest-earning assets increased $221 million or 1.8 percent for the
three months ended September 30, 1995 when compared with average interest-
earning assets for the corresponding period of 1994. This followed two
quarters of modest declines in earning assets (principally in lower-yielding
money market assets) which is reflected in a year-to-date September 30, 1995
decline in average interest-earning assets of $101 million or .8 percent. For
both the third quarter and year-to-date periods, growth was evidenced in both
average investment securities (up $1.2 billion and $1.0 billion, respectively)
and loans (up $358 million and $16 million, respectively).
<PAGE> 14 2OF2
Increased loan and investment balances were primarily funded by reduced levels
of average money market investments ($1.4 billion in the third quarter and
$1.1 billion for the first nine months of 1995). For the first nine months of
1995, interest-bearing liability sources of funds declined by $336 million,
partially offset by an increase in noninterest-bearing funds (primarily
through net earnings retention) of $235 million. The decline in interest-
bearing sources can be attributed to declining deposit levels, which was
partially due to rising returns available in non-bank investment
relationships. The decrease in deposits was partially replaced by higher
levels of short-term borrowings, principally securities sold under repurchase
agreements. In the third quarter of 1995, the decline in deposit levels had
narrowed somewhat, due principally to the generation of higher levels of
certificates of deposit in denominations of over $100,000. Consequently,
interest-bearing sources of funds increased by $90 million during the third
quarter, while noninterest-bearing sources also grew by $131 million.
Average loan growth was reflected in loans to individuals (up $304 million or
12.5 percent for the third quarter and $230 million or 9.7 percent for the
year-to-date) and commercial loans (up $82 million or 2.7 percent for the
third quarter and $22 million or .7 percent for the year-to-date). Real
estate loans continued to fall in 1995 as a result of the sale, charge-off or
workout of problem credits and the Corporation's continuing policy of exiting
transactional (in contrast to relationship-based) real estate lending.
<PAGE> 15 1OF2
<TABLE>
AVERAGE BALANCES
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
(In millions) 1995 1994 Variance 1995 1994 Variance
_____________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets $12,362 $12,141 $221 $12,225 $12,326 $(101)
Interest-bearing
sources of funds 9,237 9,147 90 9,138 9,474 (336)
Noninterest-bearing
sources of funds supporting
interest-earning assets* 3,125 2,994 131 3,087 2,852 235
======= ======= ==== ======= ======= =====
<FN>
*Primarily comprised of noninterest-bearing demand deposits and shareholders' equity.
</TABLE>
The net interest margin on a tax-equivalent basis increased from 4.99 percent
to 5.33 percent and from 4.73 percent to 5.35 percent in the third quarter and
first nine months of 1995, respectively. The improvement primarily reflects
(i) the relatively favorable impact of the increase in market interest rates
on asset yields over funding costs due to the Corporation's large holdings of
prime rate-based earning assets, (ii) the decision to increase the level of
investment securities relative to generally lower-yielding money market
investments, (iii) a decline in nonaccrual loans and (iv) an increased
proportion of noninterest-bearing sources of funds primarily reflecting a rise
in shareholders' equity.
PROVISION FOR LOAN LOSSES
_________________________
The provision for loan losses was $1.5 million and $4.8 million for the third
quarters of 1995 and 1994, respectively. For the first nine months of 1995,
the provision for loan losses was $4.5 million as compared to $23.8 million
for the corresponding period of 1994. The Corporation uses a methodology
which assists in the establishment of the level of the provision for loan
losses that is required to maintain an adequate allowance for loan losses (see
the "Allowance for Loan Losses" section of this report). Midlantic believes
that its allowance for loan losses was adequate at September 30, 1995 to
absorb estimated losses in its credit portfolios.
<PAGE> 15 2OF2
NONINTEREST INCOME
__________________
<TABLE>
NONINTEREST INCOME
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
(In thousands) 1995 1994 Variance 1995 1994 Variance
_________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Trust income $12,460 $11,285 $1,175 $ 35,330 $ 31,927 $ 3,403
Service charges on deposit accounts 19,914 20,029 (115) 58,289 57,995 294
Investment securities gains (losses) -- -- -- 184 (3,374) 3,558
Factoring commissions and fees 1,873 1,921 (48) 5,792 5,609 183
Gains on the disposition of assets
and other nonrecurring income -- 1,064 (1,064) 3,100 26,120 (23,020)
Miscellaneous 16,792 15,071 1,721 45,004 48,651 (3,647)
_______ _______ ______ ________ ________ ________
Total noninterest income $51,039 $49,370 $1,669 $147,699 $166,928 $(19,229)
======= ======= ====== ======== ======== ========
</TABLE>
Trust income for both the three months and the nine months ended September 30,
1995 compared with the same periods of 1994 benefitted from increased fees
from sales of mutual funds and annuities, some of which are associated with
higher operating expenses, particularly sales commissions that are reflected
in salary and benefit expenses.
For the nine months ended September 30, 1995, net securities gains amounted to
$184 thousand as compared to net losses of $3.4 million for the comparable
period of 1994. Net gains or losses on securities transactions were realized
on the sale of $740 thousand of other securities and $889 million of primarily
U.S. Treasury securities during the first nine months of 1995 and 1994,
respectively.
<PAGE> 16 1of2
In the third quarter of 1994, Midlantic recognized $1.1 million of gains on
the sale of assets held for accelerated disposition. This followed similar
gains totalling $25.1 million in the second quarter of 1994. Net gains on the
sale of assets held for accelerated disposition totalled $3.1 million in 1995,
all of which were realized in the first quarter.
The $1.7 million rise in miscellaneous noninterest income for the third
quarter of 1995 resulted from increases in servicing income on loans sold,
commitment fees on revolving lines of credit and automated teller fees. The
year-to-date decline in miscellaneous income of $3.6 million primarily
reflects the absence in 1995 of interest revenues that had been received in
the first and second quarters of 1994 from assets held for accelerated
disposition prior to their sale.
NONINTEREST EXPENSES
____________________
<TABLE>
NONINTEREST EXPENSES
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
(In thousands) 1995 1994 Variance 1995 1994 Variance
_______________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Salaries and benefits $ 65,318 $ 58,223 $ 7,095 $189,447 $172,338 $17,109
Net occupancy 11,529 10,469 1,060 33,249 33,524 (275)
Equipment rental and expense 5,887 5,922 (35) 18,679 18,837 (158)
Other real estate owned, net (2,243) (472) (1,771) (5,086) 139 (5,225)
FDIC assessment charges (415) 7,005 (7,420) 11,473 21,386 (9,913)
Legal and professional fees 9,666 11,512 (1,846) 26,932 32,647 (5,715)
Miscellaneous 25,771 22,395 3,376 74,812 76,130 (1,318)
________ ________ _______ ________ ________ _______
TOTAL NONINTEREST EXPENSES $115,513 $115,054 $ 459 $349,506 $355,001 $(5,495)
======== ======== ======= ======== ======== =======
</TABLE>
Salary and benefit expenses increased $7.1 million or 12.2 percent for the
third quarter of 1995 and increased $17.1 million or 9.9 percent for the first
nine months of 1995. The increase in both periods reflects additional full-
time equivalent employees primarily in customer service and sales positions
plus annual performance-based salary and incentive increases.
Expenses for premises and fixed assets (net occupancy and equipment rental
expenses) increased $1.0 million in the third quarter of 1995 and decreased
$433 thousand for the first nine months of 1995. The increase in expenses in
the third quarter of 1995 primarily reflected expenditures recently incurred
for repairs and minor renovations required at certain branch locations. The
decline in expenses in the first nine months of 1995 reflected a decrease in
depreciation as well as lower snow and ice removal costs which were
particularly heavy in early 1994.
Net OREO credits in the third quarters of 1995 and 1994, as well as the first
nine months of 1995, primarily resulted from rental income and net gains on the
sale of OREO more than offsetting OREO-related operating expenses. For the
first nine months of 1994, the Corporation provided $2.4 million to reduce the
carrying value of OREO properties. This charge to expense along with other
OREO-related operating expenses exceeded rental income and net gains on the
sale of OREO.
<PAGE> 16 2of2
The Federal Deposit Insurance Corporation ("FDIC") assessment decreased by
$7.4 million and $9.9 million for the three months and nine months ended
September 30, 1995 compared to the same periods of 1994, largely as a result
of a $6.5 million rebate received from the FDIC in September 1995 applicable
to payments made for the first nine months of the year. The Corporation is
presently accruing at the revised lower assessment rate in the fourth quarter
of 1995.
<PAGE> 17
The decline in legal and professional fees of $1.8 million or 16.0 percent for
the third quarter of 1995 and $5.7 million or 17.5 percent for the first nine
months of 1995, reflects, in part, lower loan workout expenses resulting from
the Corporation's declining level of problem assets. Also, during the fourth
quarter of 1994, Midlantic discontinued utilizing the services of an outside
third party to assist in the origination of loans to automobile purchasers
that are originated through the selling dealer. Midlantic now originates such
loans directly through various automobile retailers with which it has a
customer relationship. Prior to this change, fees amounting to approximately
$2.5 million on an annualized basis were recognized as professional fees.
The $3.4 million increase in miscellaneous expenses in the third quarter of
1995 primarily reflected increased business development expenses and higher
amortization of goodwill and intangibles resulting from the acquisition of Old
York. As a result of the $6.1 million of expenses recorded in the second
quarter of 1994 for the subsequent consolidation of Midlantic's two bank
subsidiaries, miscellaneous expenses declined by $1.3 million for the first
nine months of 1995.
INCOME TAXES
____________
Midlantic recorded income tax expenses of $35.1 million and $5.4 million in
the third quarters of 1995 and 1994, respectively. For the first nine months
of 1995 and 1994, income tax expenses amounted to $100.9 million and $19.9
million, respectively. The tax provision for the third quarter and year-to-
date 1995 reflected the Corporation's federal and state income taxes on
operating earnings without benefit of significant income tax credits. Tax
expenses recorded in the third quarter of 1994 were comprised of tax benefits
of $27.8 million, related to a reduction in the tax valuation reserve, and
$33.2 million of federal and state income tax expenses on operating earnings.
For the first nine months of 1994, tax benefits related to a reduction in the
tax valuation reserve amounted to $69.2 million, while federal and state
income tax expenses totalled $89.1 million. The tax valuation reserve
adjustments were the result of Midlantic's assessment of the future
realization of its deferred tax asset based upon estimated future
profitability. At December 31, 1994, the Corporation determined that a tax
valuation reserve was no longer necessary.
POSTEMPLOYMENT BENEFIT EXPENSES
_______________________________
In the first quarter of 1994, Midlantic adopted FAS No. 112 "Employers'
Accounting for Postemployment Benefits" as a cumulative effect of a change in
accounting principle amounting to a charge of $7.5 million, net of income
taxes, or $.14 per fully diluted common share. FAS No. 112 requires accrual
accounting for certain postemployment benefits (benefits such as disability
and health 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; if the rights
to those benefits accumulate or vest; if payment of the benefits is probable;
and if the amount of the benefits can be reasonably estimated. If the four
criteria mentioned cannot be met, the employer must nevertheless 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.
<PAGE> 18
FINANCIAL CONDITION
SEPTEMBER 30, 1995 VS. DECEMBER 31, 1994
ASSET QUALITY
_____________
As of September 30, 1995, nonaccrual loans and OREO ("nonaccrual assets")
totalled $181 million or 1.3 percent of total assets compared to $248 million
or 1.9 percent at the end of 1994. Included in nonaccrual assets at September
30, 1995 was $13 million from the acquisition of Old York. At September 30,
1995, total nonaccrual loans amounted to $126 million, of which $122 million
were determined by the Corporation to be impaired under the guidelines
pursuant to FAS No. 114 (see "Notes to Consolidated Financial Statements -
Accounting for loan impairment"). Loans are generally reported as nonaccrual
(and with limited exception as impaired, pursuant to the requirements of FAS
No. 114) if they are past due as to maturity or payment of principal and/or
interest for a period of more than ninety days. Since December 31, 1994,
nonaccrual loans have fallen by $57 million or 31.3 percent, while OREO has
declined by $9 million or 14.0 percent. 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, 1995, nonaccrual loans were primarily comprised of long-term commercial
mortgages (54.5 percent of the total) and commercial and financial loans (29.4
percent of the total). The relationship of each of these categories of
nonaccrual loans to its respective loan portfolio was 4.17 percent commercial
mortgages and 1.16 percent commercial and financial.
Construction and development loans and long-term commercial mortgage loans
("commercial real estate loans") that were nonaccrual at quarter-end 1995
collectively amounted to $76 million, of which 33.5 percent comprised
industrial/warehouse, 17.9 percent office buildings and 10.8 percent
residential properties (see Tables IX and X). Total commercial real estate
loans were relatively unchanged 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) 1995 1994 1994
___________________________________________________________________________
Long-term commercial mortgage loans $1,647 $1,576 $1,593
Construction and development loans 569 598 590
___________________________________________________________________________
Total commercial real estate loans $2,216 $2,174 $2,183
===========================================================================
Midlantic has restructured certain loans in instances where a determination
was made that greater economic value would be realized under new terms than
through foreclosure, liquidation or other disposition. Such loans are
accounted for in accordance with generally accepted accounting principles
("GAAP"). Renegotiated loans amounted to $40 million at September 30, 1995
compared with $60 million at year-end 1994. The effective interest rate as
calculated under GAAP on these renegotiated loans is 8.68 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. At both September 30, 1995 and December 31, 1994, the average current
yield and the effective interest rate on renegotiated loans were substantially
the same. During the first nine months of 1995, Midlantic restructured one
loan in the amount of $2.5 million that is accounted for under the provisions
of FAS No. 114.
<PAGE> 19
OREO, which represents real property for which the Corporation has obtained
legal title, amounted to $55 million at September 30, 1995, compared with the
December 31, 1994 level of $64 million (which has been restated to exclude in-
substance foreclosures). Pursuant to FAS No. 114, on January 1, 1995, in-
substance foreclosures were reclassified from OREO to loans. Midlantic also
elected to reclassify all appropriate historical data (see "Notes to Financial
Statements - Accounting for loan impairment"). The decline in OREO since
December 31, 1994 primarily reflected sales of OREO properties of $25 million,
partially offset by additions to OREO totalling $15 million (see Table XVI).
Accruing loans past due ninety days or more as to interest or principal
payments which do not meet the criteria for loan impairment under FAS No. 114
(in 1995) amounted to $30 million at both September 30, 1995 and December 31,
1994.
The Corporation's foreign outstandings at September 30, 1995 (all of which are
dollar-denominated and approximately three-quarters representing money market
assets), amounted to $165 million or 1.2 percent of total consolidated assets
as compared with $151 million or 1.1 percent at year-end, 1994. At both
September 30, 1995 and December 31, 1994, no individual country exposure
exceeded .75 percent of total assets.
ALLOWANCE FOR LOAN LOSSES
_________________________
Midlantic considers various factors in determining the appropriate level of
the allowance for loan losses ("ALL"), 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. Such factors as the condition of the national and regional
economies and the level and trend of interest rates are also considered.
Beginning in 1995, the recognition of impaired loans and specific allowances
that must be determined for such loans are also factored into the
Corporation's determination of an adequate ALL (see "Notes to Financial
Statements - Accounting for loan impairment"). Additions to the ALL are made
through provisions charged against current operations and through any
recoveries on loans previously charged off. Midlantic's ALL amounted to 3.89
percent and 4.23 percent of total loans, net of unearned income, at September
30, 1995 and December 31, 1994, respectively. At September 30, 1995, the
ratio of the ALL to nonaccrual loans was 271 percent compared with 191 percent
at December 31, 1994.
In connection with the Corporation's bulk sale of distressed real estate
assets, during the first nine months of 1994, $8 million was charged-off on
loans that were then designated as held for accelerated disposition.
Midlantic's net charge-offs of $19.0 million for the first nine months of 1995
compares to $59.0 million for the corresponding period of 1994 (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 .30 percent, as compared with .94 percent for
the first nine months of 1994 and .80 percent for the year ended December 31,
1994. Net charge-offs in 1995 principally reflected net losses incurred on
loans to individuals ($10 million), commercial real estate loans ($6 million),
and commercial and financial loans ($2 million).
<PAGE> 20
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
ALL. 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 ALL as of September 30, 1995 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 (such as, but
not limited to, the uncertainties in the real estate market). Management
believes that provisioning levels in the near-term will remain low.
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
(see "Notes to Consolidated Financial Statements - Accounting for investments
in debt and equity securities").
At September 30, 1995, investment securities totalled $3.3 billion, up $496
million or 18.0 percent from the $2.8 billion recorded at December 31, 1994.
The investment securities portfolio at September 30, 1995 included $2.4
billion of held-to-maturity securities, $807 million of available-for-sale
("AFS") securities and $1 million of trading securities. On September 30,
1995, Midlantic recorded, as a component of shareholders' equity, an
unrealized holding gain on AFS securities, net of taxes, of $3.5 million,
compared to a $3.1 million unrealized holding loss, net of taxes, recorded at
the end of 1994. Upon adoption of FAS No. 115 in the first quarter of 1994,
Midlantic had recorded a $1.9 million gain, net of taxes, on AFS securities.
Net unrealized appreciation on Midlantic's held-to-maturity securities
portfolio, amounted to $22 million at September 30, 1995, comprised of gross
unrealized gains of $37 million and gross unrealized losses of $15 million
(see Table VI). At December 31, 1994, net unrealized depreciation on the
Corporation's held-to-maturity portfolio amounted to $90 million, comprised of
gross unrealized losses of $91 million and gross unrealized gains of $1
million. The unrealized depreciation on the held-to-maturity portfolio at
year-end 1994 in management's judgment was a temporary decline caused by the
rise in market interest rates. Stabilizing interest rates in 1995 coupled
with changes in the mix of the held-to-maturity portfolio contributed to net
unrealized appreciation at September 30, 1995.
At September 30, 1995, the held-to-maturity securities portfolio was primarily
comprised of $2.4 billion of U.S. Treasury and federal agency mortgage-backed
securities (with an aggregate weighted average maturity of approximately three
years). The AFS securities portfolio consisted of $742 million of U.S.
Treasury and federal agency obligations with an aggregate remaining average
maturity of approximately 1.4 years and $65 million of other debt, equity and
state and municipal securities. At September 30, 1995, Midlantic did not have
any mortgage-backed securities that met the regulatory definition for
classification as high-risk collateralized mortgage obligations, nor were
there any mortgage-backed securities that contained imbedded options.
<PAGE> 21
MONEY MARKET INVESTMENTS
________________________
The Corporation presently invests a 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, reverse repurchase
agreements and commercial paper. At September 30, 1995, money market
investments totalled $616 million or 4.9 percent of total interest-earning
assets compared with $1.1 billion or 9.2 percent of interest-earning assets at
year-end 1994. The decrease in money market investments since year-end 1994
compared to September 30, 1995, reflects increased levels of investment
securities and loans outstanding.
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 institution, 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 various alternative balance sheet structures and
under a variety of interest rate scenarios. The amount of such risk as so
determined is typically maintained at a manageable percentage of net interest
income and capital, as set by policy.
Earnings exposure to interest rates arises from a variety of factors, a
primary source of which is mismatches in the maturity and repricing
distribution of the Corporation's assets and liabilities, including hedging
positions created by interest rate swaps (discussed below). For example, at
any specified period of 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 calculates the
excess of assets or liabilities (including interest rate swaps) outstanding at
September 30, 1995, that are due to mature, to be repriced, or assumed to be
repriced in various time intervals. On September 30, 1995, 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, 1995 was approximately $970 million, an amount which management believes
would result in an acceptable 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 the
objective of avoiding material mismatching of the amounts of assets and
liabilities subject to rate changes within each significant time interval.
<PAGE> 22
INTEREST RATE SWAPS
___________________
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, 1995 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 six month LIBOR
(an internationally recognized interest rate index). At September 30, 1995,
Midlantic also held $300 million (notional value) of interest-rate swaps for
which it pays an interest rate tied to the prime rate and receives LIBOR.
Such swaps are utilized as hedges against the risk that the difference between
funding costs and the prime rate may compress or narrow from recent levels.
The Corporation utilizes interest rate swaps solely as hedging instruments for
asset/liability risk management and does not hold any interest rate swap
contracts for trading purposes.
INTEREST RATE SWAPS AT SEPTEMBER 30, 1995
Weighted Weighted Net Exchange
Average Average Rate
Notional Fixed Variable Favorable
(In millions) Amounts Rate Rate (Unfavorable)
_____________________________________________________________________________
Receive a fixed
rate of interest
Hedging commercial and
financial loans $1,450 5.99% 5.93% .06%
Hedging construction and
development loans 25 5.39 5.81 (.42)
Hedging long-term
commercial mortgage loans 300 5.83 5.89 (.06)
Hedging retail certificates
of deposit 825 5.71 5.91 (.20)
Hedging money market
investments 200 7.23 5.88 1.35
Pay a fixed rate of interest
(all hedging U.S. government
agency securities) 599 4.68 5.88 1.20
Receive and pay a
variable rate of
interest (all hedging 300 N/A {5.72 receive {
long-term commercial { {(.49)
mortgage loans) {6.21 pay {
=============================================================================
The notional amounts listed in the above table represent the base on which
interest due each counterparty is calculated. The notional amounts do not
represent amounts actually exchanged by the counterparties and are therefore
not recorded on the balance sheet. At September 30, 1995, 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.
Midlantic is not a party to any leveraged derivative contract.
<PAGE> 23 1of2
INTEREST RATE SWAP CONTRACTS-ACTIVITY DURING 1995
(In millions)
______________________________________________________________________
Notional amount of interest rate
swaps at December 31, 1994 $3,449
New swaps (all receiving a fixed interest rate) 650
Matured swaps (all receiving a fixed interest rate) (400)
______________________________________________________________________
Notional amount of interest rate
swaps at September 30, 1995 $3,699
======================================================================
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,
1995 were associated with organizations having securities rated as investment
grade by independent rating agencies.
As of September 30, 1995, the estimated credit exposure associated with
interest rate swap contracts was approximately $28 million representing
exposure with respect to those swaps that show a positive (favorable) mark-to-
market position. Management believes that the swap contracts it had in place
as of September 30, 1995 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.
Therefore, the net interest income from swap contracts alone (see table below)
is not necessarily indicative of the effectiveness of the hedged position as a
whole.
IMPACT OF INTEREST RATE SWAPS ON NET INTEREST INCOME
NINE MONTHS ENDED
SEPTEMBER 30
Favorable (Unfavorable)
(In thousands) 1995 1994
___________________________________________________________________________
Interest income $ 2,184 $16,446
Interest expense (3,083) 13,647
___________________________________________________________________________
Net interest income $ (899) $30,093
===========================================================================
<PAGE> 23 2of2
<TABLE>
MATURITY DISTRIBUTION AND SUMMARY OF FAIR VALUES
OF SWAP CONTRACTS IN PLACE AS OF SEPTEMBER 30, 1995
<CAPTION>
Notional Amounts
_____________________________________________
Receive Pay Receive and
(In millions) Fixed Fixed Pay Variable Total
__________________________________________________________________________________
<S> <C> <C> <C> <C>
1995 - Fourth quarter $1,000 $ -- $ -- $1,000
1996 900 -- 300 1,200
1997 250 599 -- 849
1998 and after 650 -- -- 650
______ _______ _____ ______
Total interest rate swaps $2,800 $ 599 $ 300 $3,699
====== ======= ===== ======
<CAPTION>
FAIR VALUE OF INTEREST RATE SWAPS
(In thousands)
__________________________________________________________________________________
<S> <C> <C> <C> <C>
Contracts with a positive
mark-to-market position $15,131 $13,292 $ 19 $28,442
Contracts with a negative
mark-to-market position (2,191) -- (502) (2,693)
_______ _______ ----- _______
Net fair value of interest rate swaps $12,940 $13,292 $(483) $25,749
======= ======= ===== =======
</TABLE>
<PAGE> 24
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 company 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.
Net cash flows as measured by changes in cash and due form banks increased by
$12 million between year-end 1994 and September 30, 1995 as higher levels of
reserve balances and deposits in the process of collection were largely offset
by lower levels of cash in the branch system. For the similar period of 1994,
cash balances increased by $211 million reflecting higher levels of reserve
balances and deposits in the process of collection (see "Consolidated
Statement of Cash Flows" on page 6). Cash balances on any given day may
fluctuate based on deposit activity and the timing of other transactions,
including targeted reserve balances maintained with the Federal Reserve
System.
For the nine months ended September 30, 1995, operating cash flows amounted to
$212 million compared to $250 million a year earlier. Operating cash flows
were largely utilized in 1995 to fund growth in the loan and investment
securities portfolios. In 1994, operating cash flows, supplemented by funds
generated through reductions in the loan and investment securities portfolios,
were utilized to fund deposit outflows as well as reduced levels of short-term
borrowings.
To fund possible future growth in loans and other longer-term interest-earning
assets, Midlantic expects to benefit from deposit growth and proceeds from
scheduled loan payments. Liquidity may also be generated by the possible sale
or securitization of existing assets.
<PAGE> 25
LIQUIDITY RATIOS
SEPTEMBER 30 December 31 September 30
1995 1994 1994
____________________________________________________________________________
Liquidity ratio (1) 28.5% 30.7% 30.8%
Funding ratio (2) 1.8 (7.8) (6.0)
Total loans, net of unearned
income, as a % of total deposits 80.9 76.4 75.5
Core deposits as a % of total
loans, net of unearned income 114.3 125.3 125.2
Unfunded loan commitments as a
% of loans outstanding 33.5 33.0 35.3
============================================================================
(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 percent of investment securities due in more than
one year and total loans, net of unearned income.
At September 30, 1995, Midlantic had unfunded loan commitments outstanding of
$2.9 billion compared to $2.7 billion outstanding at December 31, 1994.
Takedowns on commitments have been occurring during the normal course of
business at levels that have not adversely affected the Corporation's
liquidity.
PARENT COMPANY
MC requires sources of funds to meet contractual obligations, including
servicing long-term debt, and cash dividend payments on the Corporation's
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 $300 million at
September 30, 1995. During the first nine months of 1995, a portion of MC's
liquid assets was used to fund the Corporation's repurchase of 1.7 million of
its common shares for a total of $61.2 million and $50.0 million for the
redemption of its Preferred Stock-A for $50 million. See "Recent Activities
of the Corporation (1994 and 1995)". Ongoing parent company operating and
interest expenses and dividends are expected to be fully funded from dividend
payments and management fees from MB.
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.
<PAGE> 26
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, 1995,
Midlantic reported a tier 1 risk-based capital ratio of 12.85 percent, a total
risk-based capital ratio (tier 1 plus tier 2 capital) of 16.80 percent and a
leverage ratio of 9.43 percent. These ratios compare with minimum regulatory
guidelines of 4.00 percent for tier 1, 8.00 percent for total capital and 3.00
percent for leverage.
As of September 30, 1995, MB had a tier 1 risk-based capital ratio of 13.57
percent and a total risk-based capital ratio of 14.84 percent. MB's leverage
ratio as of September 30, 1995 was 10.15 percent.
CAPITAL RATIOS
Sept. 30 June 30 March 30 Dec. 31 Sept. 30
1995 1995 1995 1994 1994
______________________________________________________________________________
Tier 1 risk-based
Midlantic 12.85% 12.57% 13.58% 13.07% 12.01%
MB 13.57 13.79 14.17 14.12 13.20
Total risk-based
Midlantic 16.80 16.63 17.77 17.22 16.10
MB 14.84 15.07 15.45 15.40 14.48
Leverage
Midlantic 9.43 9.08 9.43 9.43 8.87
MB 10.15 10.13 10.04 10.39 9.94
==============================================================================
In April 1994, MC's Board approved a quarterly cash dividend on MC's common
stock of $.10 per common share. Subsequently, in July 1994 and October 1994,
MC's Board declared quarterly cash dividends of $.13 and $.17 per common
share, respectively. In 1995, quarterly cash dividends declared on MC's
common stock continued to increase to $.22 (declared in January) and $.32
(declared in April). The third quarter dividend (declared in July) and the
fourth quarter dividend (declared in October) remained at $.32 per common
share. See "Recent Activities of the Corporation (1994 and 1995)."
As mentioned in "Recent Activities of the Corporation (1994 and 1995)," on
June 30, 1995, the Corporation redeemed all outstanding shares of Preferred
Stock-A for $50 million.
<PAGE>27
LINE OF BUSINESS RESULTS
________________________
Midlantic is organized and managed along its major lines of business:
Commercial, Retail Banking and Trust and Financial Management Services. The
Corporation separately accounts for these activities in order to facilitate
management's analysis of performance by defined business lines. Unlike
financial accounting, which has been formalized by generally accepted
accounting principles as set by recognized rulemaking bodies, cost and revenue
allocations used to develop business line results are less standardized. The
methodologies employed for these allocations are part of an evolving process
and are under periodic review for changing circumstances. A summary of
operating results for the nine months ended September 30, 1995 and 1994 by
major business line is presented in the "Line of Business Results" table on
the following page.
Midlantic defines its major business lines as follows:
Commercial: Responsible for managing relationships with commercial
businesses, real estate developers and financial
institutions. Services delivered to this market segment
include credit-based products such as secured and
unsecured loans, commercial real estate financing, asset-
based finance and factoring, as well as cash management
and account information services, trade finance and
foreign exchange.
Retail Banking: Responsible for delivering products and services to the
consumer, community and small business market segments
including home finance, auto finance and other lending
products as well as deposit and other investment
services.
Trust and Financial
Management
Services: Responsible for delivering personal and corporate trust
services to the wealth, affluent and business markets.
Provides asset management services for corporate benefit
plans, acts as manager for the Compass Mutual Funds
(Midlantic's proprietary mutual fund family) and manages
Midlantic Securities Corp., a subsidiary engaged in
discount brokerage services.
All Other
Activities: Income and expenses associated with the Corporation's
investment portfolio and money market investments plus
unallocated revenues and expenses.
Corporate overhead, processing and support costs are allocated to each
business line. A matched maturity transfer pricing system is used to allocate
interest income and interest expense. The loan loss provision and allowance
for loan losses are allocated based on the level of outstandings, evaluations
of certain loan portfolios within the business line, credit loss experience
and other factors. Shareholders' equity is allocated based on levels of fixed
cost, perceived levels of risk within the business lines asset mix and other
factors.
<PAGE> 28 1of2
<TABLE>
LINE OF BUSINESS RESULTS
<CAPTION>
NINE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30, 1995 SEPTEMBER 30, 1994
NET AVERAGE Net Average
(IN THOUSANDS) INCOME ASSETS ROA Income Assets ROA
________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 45,590(1) $ 4,830,905 1.26% $ 49,858(1) $ 5,176,702 1.29%
Retail Banking 93,751 4,332,843 2.89 72,589 4,154,044 2.34
Trust and Financial
Management Services 5,873 27,824 N/M 6,491 33,888 N/M
All Other Activities 25,621 4,160,522 .82 (3,806)(2) 4,183,583 (.12)
FAS #109 Tax Benefits -- -- -- 69,219 -- --
________ ___________ ____ ________ ___________ ____
Total $170,835 $13,352,094 1.71% $194,351 $13,548,217 1.92%
======== =========== ==== ======== =========== ====
<FN>
ROA - Return on average assets (net income as a percent of average assets)
N/M - Not Meaningful
(1) Includes the after-tax contribution of net gains on asset dispositions of $1.891
million in 1995 and $15.933 million in 1994. Excluding these one-time credits, net
income amounted to $43.699 million (or an ROA of 1.21 percent) in 1995 and $33.925
million (or an ROA of .88 percent) in 1994.
(2) Includes a $7.528 million charge representing the cumulative effect of the change
in accounting for postemployment benefits.
</TABLE>
Comments regarding the 1995 results follow.
Commercial
__________
Commercial loans on average decreased by $332 million or 6.3 percent from the
first nine months of 1994. This decline primarily reflects the bulk sales of
real estate assets and other actions by management to reduce problem assets
along with the runoff of construction loan outstandings and modest demand for
new lending, although in recent months such demand appears to be increasing.
Absent the decline in loan balances due to continuing asset quality
improvement efforts, commercial loans would have reflected a small increase
similar to Midlantic's regional peers. In recent years, most loan
originations have been with customers in the Corporation's market area.
During the first quarter of 1995, MB signed an agreement with Morgan Guaranty
Trust Company of New York ("Morgan") to provide long-term commercial mortgage
financing to Midlantic's clients. Under the terms of the agreement, MB will
originate and service commercial mortgage loans, which Morgan will package,
securitize and sell to investors.
Excluding net gains on the disposition of assets, net income rose by $9.8
million or 28.8 percent primarily reflecting the favorable impact on prime-
based loans of the increase in market interest rates together with the
Corporation's continuing efforts to control operating expenses.
<PAGE>28 2of2
Retail Banking
______________
In addition to loans and other consumer-related interest-earning assets, the
Retail Banking group is credited with interest income on deposit funding it
generates but which is employed by other business lines. Therefore, part of
the income credited to the consumer business line is not related to the
average asset base it specifically manages. Consequently, the ROA calculated
in the table above is high relative to the commercial business lines which
employ some of the funding generated by the consumer group. An adjusted ROA
to include all of the funding that Retail Banking generates for other business
lines would amount to 1.18 percent in 1995 as compared to .88 percent in 1994.
Average consumer loans increased by $198 million or 6.0 percent from year-to-
date 1994 reflecting increasing penetration of Midlantic's targeted retail
markets.
<PAGE> 29
Trust and Financial Management Services
_______________________________________
Assets under management at September 30, 1995 amounted to $12.5 billion at
market values. Revenues in this business line are derived from estate
management fees, investment advisory fees and service fees such as those
generated by discount brokerage activities. The decline in net income for the
nine months ended September 30, 1995 reflected higher salary and benefits paid
to sales personnel to promote mutual fund and annuity sales. These sales
efforts are anticipated to benefit future periods.
All Other Activities
____________________
The bulk of the assets in this group are associated with the money market and
investment securities portfolios.
<PAGE>30
MIDLANTIC CORPORATION AND SUBSIDIARIES
Statistical Tables to
Management's Discussion and Analysis
of Financial Condition and Results
of Operations
<PAGE> 31
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE I - ANALYSIS OF CHANGES IN NET INTEREST INCOME (TAX-EQUIVALENT BASIS)
(In thousands)
<CAPTION>
FOR THE NINE MONTHS
ENDED SEPTEMBER 30, 1995 VS. 1994 VOLUME(a) RATE(a)(b) TOTAL
________________________________________________________________________________________
<S> <C> <C> <C>
INTEREST-EARNING ASSETS
Interest-bearing deposits
in other banks $(13,215) $ 5,223 $ (7,992)
Other short-term investments (29,986) 16,117 (13,869)
Investment securities (c) 40,551 39,794 80,345
Commercial and financial loans(d)(e)(f) 1,186 27,409 28,595
Real estate loans(d)(e)(f) (14,871) 17,527 2,656
Loans to individuals(d)(e)(f) 14,566 9,743 24,309
________ ________ ________
Total interest-earning assets (1,769) 115,813 114,044
________ ________ ________
INTEREST-BEARING SOURCES OF FUNDS USED TO
FINANCE INTEREST-EARNING ASSETS
Domestic savings and time deposits (5,437) 51,595 46,158
Overseas branch deposits (101) 128 27
Short-term borrowings 2,748 12,017 14,765
Long-term debt (187) -- (187)
________ ________ ______
Total interest-bearing sources
of funds used to finance
interest-earning assets (2,977) 63,740 60,763
________ ________ ________
CHANGE IN NET INTEREST INCOME $ 1,208 $ 52,073 $ 53,281
======== ======== ========
<FN>
(a) 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.
(b) Includes the effect of interest rate swap positions.
(c) Includes a net increase of $3.285 million adjusted to a tax-equivalent basis,
using a 35 percent federal income tax rate.
(d) Includes a net increase of $5.584 million adjusted to a tax-equivalent basis, using a
35 percent federal income tax rate.
(e) Includes income from loan fees which is not significant.
(f) Includes nonaccrual loans.
</TABLE>
<PAGE> 32 1OF 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, 1995 SEPTEMBER 30, 1994
_________________________ __________________________
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
_________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets
Interest-bearing deposits $ 75,095 $ 1,125 5.94% $ 395,985 $ 4,313 4.32%
Other short-term investments 359,056 5,978 6.61 1,375,525 15,583 4.49
U.S. Treasury securities 2,334,215 37,239 6.63 1,042,858 12,389 4.71
Obligations of U.S.
government agencies 819,650 14,526 7.03 922,486 13,283 5.71
Obligations of states and
political subdivisions(1) 34,447 601 6.92 21,968 297 5.36
Other securities 64,467 2,259 13.90 64,964 1,013 6.19
___________ ________ _____ ___________ ________ ____
Total investment securities 3,252,779 54,625 6.66 2,052,276 26,982 5.22
___________ ________ _____ ___________ ________ ____
Commercial and financial
loans 3,134,587 73,027 9.24 3,052,533 62,658 8.14
Real estate loans 2,807,486 63,204 8.93 2,835,854 62,051 8.68
Loans to individuals 2,733,561 59,863 8.69 2,429,312 50,193 8.20
___________ ________ _____ ___________ ________ ____
Total loans(1)(2)(3)(4) 8,675,634 196,094 8.97 8,317,699 174,902 8.34
___________ ________ _____ ___________ ________ ____
Total interest-earning
assets 12,362,564 257,822 8.27 12,141,485 221,780 7.25
___________ ________ _____ ___________ ________ ____
Noninterest-earning assets
Cash and due from banks 801,377 796,738
Other assets 708,785 710,101
Allowance for loan losses (345,008) (370,973)
___________ ___________
Total noninterest-earning
assets 1,165,154 1,135,866
___________ ___________
Total assets $13,527,718 $13,277,351
___________ ___________
<PAGE> 32 2 of 2
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing liabilities
Domestic savings and time
deposits $ 8,137,285 72,897 3.55 $ 8,245,556 55,154 2.65
Overseas branch deposits 7,680 104 5.37 12,210 124 4.03
Short-term borrowings 721,731 10,300 5.66 516,428 5,084 3.91
Long-term debt 370,392 8,508 9.11 373,000 8,586 9.13
___________ ________ _____ ___________ ________ ____
Total interest-bearing
liabilities 9,237,088 91,809 3.94 9,147,194 68,948 2.99
___________ ________ _____ ___________ ________ ____
Noninterest-bearing liabilities
and shareholders' equity
Demand deposits 2,679,899 2,695,792
Other liabilities 194,640 164,379
___________ ___________
Total noninterest-bearing
liabilities 2,874,539 2,860,171
___________ ___________
Shareholders' equity 1,416,091 1,269,986
___________ ___________
Total liabilities and
shareholders' equity $13,527,718 $13,277,351
___________ ____________
NET INTEREST INCOME $166,013 $152,832
======== ========
INTEREST INCOME AS A % OF
AVERAGE INTEREST-EARNING ASSETS 8.27% 7.25%
===== ====
INTEREST EXPENSE AS A % OF
AVERAGE INTEREST-EARNING ASSETS 2.94% 2.26%
===== ====
NET INTEREST MARGIN (5) 5.33% 4.99%
===== ====
<FN>
See Notes to Comparative Consolidated Average Balance Sheet with Resultant Interest and
Average Rates.
</TABLE>
<PAGE> 33 1 of 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, 1995 SEPTEMBER 30, 1994
_________________________ ____________________________
AVERAGE AVERAGE AVERAGE AVERAGE
BALANCE INTEREST RATE BALANCE INTEREST RATE
_________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
ASSETS
Interest-earning assets
Interest-bearing deposits $ 134,827 $ 5,990 5.94% $ 484,875 $ 13,982 3.86%
Other short-term investments 512,088 24,234 6.33 1,293,549 38,103 3.94
U.S. Treasury securities 2,272,159 107,894 6.35 1,131,358 33,531 3.96
Obligations of U.S.
government agencies 841,396 45,155 7.18 978,114 43,712 5.98
Obligations of states and
political subdivisions (1) 31,019 1,815 7.82 16,548 794 6.42
Other securities 62,549 6,419 13.72 67,094 2,901 5.78
___________ ________ _____ ___________ ________ ____
Total investment securities 3,207,123 161,283 6.72 2,193,114 80,938 4.93
___________ ________ _____ ___________ ________ ____
Commercial and financial
loans 3,048,151 211,845 9.29 3,028,669 183,250 8.09
Real estate loans 2,712,702 181,913 8.97 2,946,692 179,257 8.13
Loans to individuals 2,609,741 169,093 8.66 2,379,316 144,784 8.14
___________ ________ _____ ___________ ________ ____
Total loans (1)(2)(3)(4) 8,370,594 562,851 8.99 8,354,677 507,291 8.12
___________ ________ _____ ___________ ________ ____
Total interest-earning
assets 12,224,632 754,358 8.25 12,326,215 640,314 6.95
___________ ________ _____ ___________ ________ ____
Noninterest-earning assets
Cash and due from banks 775,055 778,036
Other assets 697,785 827,831
Allowance for loan losses (345,378) (383,865)
___________ ___________
Total noninterest-earning
assets 1,127,462 1,222,002
___________ ___________
Total assets $13,352,094 $13,548,217
___________ ___________
<PAGE> 33 2 of 2
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing liabilities
Domestic savings and time
deposits $ 8,039,491 208,518 3.47 $ 8,461,876 162,360 2.57
Overseas branch deposits 8,418 340 5.40 11,620 313 3.60
Short-term borrowings 717,983 30,671 5.71 626,256 15,906 3.40
Long-term debt 372,076 25,678 9.23 374,682 25,865 9.23
___________ ________ _____ ___________ ________ ____
Total interest-bearing
liabilities 9,137,968 265,207 3.88 9,474,434 204,444 2.89
___________ ________ _____ ___________ ________ ____
Noninterest-bearing liabilities
and shareholders' equity
Demand deposits 2,624,483 2,712,070
Other liabilities 186,984 159,659
___________ ___________
Total noninterest-bearing
liabilities 2,811,467 2,871,729
___________ ___________
Shareholders' equity 1,402,659 1,202,054
___________ ___________
Total liabilities and
shareholders' equity $13,352,094 $13,548,217
___________ ___________
NET INTEREST INCOME $489,151 $435,870
======== ========
INTEREST INCOME AS A % OF
AVERAGE INTEREST-EARNING ASSETS 8.25% 6 95%
===== ====
INTEREST EXPENSE AS A % OF
AVERAGE INTEREST-EARNING ASSETS 2.90% 2.22%
===== ====
NET INTEREST MARGIN (5) 5.35% 4.73%
===== ====
<FN>
See Notes to Comparative Consolidated Average Balance Sheet with Resultant Interest and
Average Rates.
</TABLE>
<PAGE> 34
Midlantic Corporation and Subsidiaries
NOTES TO COMPARATIVE CONSOLIDATED AVERAGE BALANCE SHEET
WITH RESULTANT INTEREST AND AVERAGE RATES
(1) Interest income is reflected on a tax-equivalent basis using a 35 percent
federal income tax rate. The tax-equivalent adjustment for investment
securities amounted to $1.271 million and $100 thousand for the three
months ended September 30, 1995 and 1994, respectively, and $3.555 million
and $270 thousand for the nine months ended September 30, 1995 and 1994,
respectively. The tax-equivalent adjustment for loans amounted to $2.516
million and $618 thousand for the three months ended September 30, 1995
and 1994, respectively, and $7.570 million and $1.986 million for the nine
months ended September 30, 1995 and 1994, respectively.
(2) Includes loan fees. Such income is not significant.
(3) Includes nonaccrual loans.
(4) Net of unearned income.
(5) Net interest margin is net interest income (on a tax-equivalent basis) as
a percent of average interest-earning assets. On an actual basis (not on
a tax-equivalent basis) net interest margin was 5.21 percent and 4.97
percent for the three months ended September 30, 1995 and 1994,
respectively, and 5.23 percent and 4.70 percent for the nine months ended
September 30, 1995 and 1994, respectively.
<PAGE> 35 1of2
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE IV - INTEREST-EARNING ASSETS AND INTEREST-BEARING LIABILITIES
WITH RESULTANT INTEREST AND AVERAGE RATES
(In thousands)
<CAPTION>
SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
FOR THE THREE MONTHS ENDED 1995 1995 1995 1994 1994
______________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Interest-bearing deposits
Average balance $ 75,095 $ 107,978 $ 221,408 $ 286,183 $ 395,985
Interest income 1,125 1,675 3,190 3,604 4,313
Average rate 5.94% 6.22% 5.84% 5.00% 4.32%
Other short-term
investments
Average balance $ 359,056 $ 545,479 $ 631,729 $ 1,099,417 $ 1,375,525
Interest income 5,978 8,834 9,422 14,167 15,583
Average rate 6.61% 6.50% 6.05% 5.11% 4.49%
Investment securities
Average balance $ 3,252,779 $ 3,288,282 $ 3,080,308 $ 2,439,842 $ 2,052,276
Interest income(1) 54,625 55,463 51,195 36,369 26,982
Average rate(1) 6.66% 6.77% 6.74% 5.91% 5.22%
Total loans
Average balance $ 8,675,634 $ 8,336,270 $ 8,099,878 $ 8,151,921 $ 8,317,699
Interest income(1) 196,094 189,708 177,049 173,651 174,902
Average rate(1) 8.97% 9.13% 8.86% 8.45% 8.34%
___________ ___________ ___________ ___________ ___________
Total average interest-
earning assets $12,362,564 $12,278,009 $12,033,323 $11,977,363 $12,141,485
Total interest income 257,822 255,680 240,856 227,791 221,780
Total average rate on
interest-earning assets 8.27% 8.35% 8.12% 7.55% 7.25%
=========== =========== =========== =========== ===========
INTEREST-BEARING LIABILITIES
Deposits
Average balance $ 8,144,965 $ 7,981,991 $ 8,016,771 $ 8,103,600 $ 8,257,766
Interest expense 73,001 70,470 65,387 60,693 55,278
Average rate 3.56% 3.54% 3.31% 2.97% 2.66%
Short-term borrowings
Average balance $ 721,731 $ 858,607 $ 573,611 $ 459,920 $ 516,428
Interest expense 10,300 12,457 7,914 5,222 5,084
Average rate 5.66% 5.82% 5.60% 4.50% 3.91%
Long-term debt
Average balance $ 370,392 $ 372,849 $ 372,987 $ 373,000 $ 373,000
Interest expense 8,508 8,583 8,587 8,588 8,586
Average rate 9.11% 9.23% 9.34% 9.13% 9.13%
___________ ___________ ___________ ___________ ___________
Total average interest-
bearing liabilities $ 9,237,088 $ 9,213,447 $ 8,963,369 $ 8,936,520 $ 9,147,194
Total interest expense 91,809 91,510 81,888 74,503 68,948
Total average rate on
interest-bearing
liabilities 3.94% 3.98% 3.71% 3.31% 2.99%
=========== =========== =========== =========== ===========
<PAGE> 35 2of2
NET INTEREST INCOME $ 166,013 $ 164,170 $ 158,968 $ 153,288 $ 152,832
=========== =========== =========== =========== ===========
NET INTEREST MARGIN(2) 5.33% 5.36% 5.36% 5.08% 4.99%
=========== =========== =========== =========== ===========
<FN>
(1) Interest income is presented on a tax-equivalent basis. The tax-equivalent adjustment
for investment securities using a 35 percent federal income tax rate amounted to $1.271
million, $1.171 million, $1.113 million, $150 thousand and $100 thousand for the quarters
ended September 30, 1995, June 30, 1995, March 31, 1995, December 31, 1994 and
September 30, 1994, respectively. For each of those same periods, the tax-equivalent
adjustment for loans amounted to $2.516 million, $2.505 million, $2.549 million, $2.215
million and $618 thousand, respectively.
(2) Net interest margin on an actual basis (not on a tax-equivalent basis) amounted
to 5.21 percent, 5.24 percent, 5.23 percent, 5.00 percent and 4.97 percent for
the quarters ended September 30, 1995, June 30, 1995, March 31, 1995, December
31, 1994 and September 30, 1994, respectively.
</TABLE>
<PAGE> 36
<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 1995 1995 1995 1994 1994
_______________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
AVERAGE BALANCES
DEPOSITS
Noninterest-bearing demand $ 2,679,899 $ 2,595,539 $ 2,598,011 $ 2,680,786 $ 2,695,792
Interest-bearing demand 1,284,956 1,280,015 1,308,677 1,346,315 1,364,251
Savings 1,613,222 1,623,998 1,641,782 1,652,802 1,681,768
Retail money market
accounts 1,730,355 1,738,056 1,865,454 1,961,889 2,058,531
CDs over $100,000 700,775 577,916 492,974 533,295 455,249
Other time 2,807,977 2,755,812 2,696,504 2,595,063 2,685,757
Overseas branch deposits 7,680 6,194 11,380 14,236 12,210
___________ ___________ ___________ ___________ ___________
Total average deposits $10,824,864 $10,577,530 $10,614,782 $10,784,386 $10,953,558
=========== =========== =========== =========== ===========
SHORT-TERM BORROWINGS
Federal funds purchased $ 67,903 $ 56,290 $ 43,204 $ 39,718 $ 30,480
Repurchase agreements 629,582 778,055 503,171 395,862 461,536
Other short-term
borrowings 24,246 24,262 27,236 24,340 24,412
___________ ___________ ___________ ___________ ___________
Total average short-term
borrowings $ 721,731 $ 858,607 $ 573,611 $ 459,920 $ 516,428
=========== =========== =========== =========== ===========
LONG-TERM DEBT $ 370,392 $ 372,849 $ 372,987 $ 373,000 $ 373,000
=========== =========== =========== =========== ===========
AVERAGE RATES
DEPOSITS
Interest-bearing demand 1.19% 1.24% 1.24% 1.21% 1.17%
Savings 2.07 2.17 2.21 2.18 2.07
Retail money market
accounts 3.06 3.12 3.06 2.81 2.52
CDs over $100,000 5.65 5.61 5.18 4.64 4.14
Other time 5.27 5.24 4.80 4.16 3.62
Overseas branch deposits 5.37 5.50 5.38 4.40 4.03
___________ ___________ ___________ ___________ ___________
Total average rate
paid on deposits 3.56% 3.54% 3.31% 2.97% 2.66%
=========== =========== =========== =========== ===========
SHORT-TERM BORROWINGS
Federal funds purchased 5.82% 5.98% 5.84% 5.12% 4.52%
Repurchase agreements 5.65 5.81 5.57 4.41 3.86
Other short-term
borrowings 5.48 5.70 5.61 5.02 4.10
___________ ___________ ___________ ___________ ___________
Total average rate paid
on short-term borrowings 5.66% 5.82% 5.60% 4.50% 3.91%
=========== =========== =========== =========== ===========
LONG-TERM DEBT 9.11% 9.23% 9.34% 9.13% 9.13%
=========== =========== =========== =========== ===========
</TABLE>
<PAGE> 37
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE VI - INVESTMENT SECURITIES - CARRYING AND FAIR VALUES
AND GROSS UNREALIZED GAINS AND LOSSES
SEPTEMBER 30, 1995
(In thousands)
<CAPTION>
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
HELD-TO-MATURITY COST GAINS LOSSES VALUE
_________________________________________________________________________________________
<S> <C> <C> <C> <C>
United States Treasury securities $1,623,290 $36,796 $ (1,683) $1,658,403
Obligations of United States
government agencies 795,299 -- (13,447) 781,852
Obligations of states and
political subdivisions 19,769 45 (4) 19,810
Other securities 6,114 106 (17) 6,203
__________ _______ ________ __________
$2,444,472 $36,947 $(15,151) $2,466,268
========== ======= ======== ==========
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE-FOR-SALE COST GAINS LOSSES VALUE
_________________________________________________________________________________________
United States Treasury securities $ 730,929 $11,457 $ (67) $ 742,319
Obligations of United States
government agencies 206 -- -- 206
Obligations of states and
political subdivisions 6,288 -- (165) 6,123
Other securities 64,004 135 (5,536) 58,603
__________ _______ ________ __________
$ 801,427 $11,592 $ (5,768) $ 807,251
========== ======= ======== ==========
</TABLE>
<TABLE>
TABLE VII - INVESTMENT SECURITIES - GROSS REALIZED GAINS AND LOSSES*
(In thousands)
<CAPTION>
THREE MONTHS ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
1995 1994 1995 1994
_________________________________________________________________________________________
<S> <C> <C> <C> <C>
Gross realized investment
securities gains $ -- $ -- $ 184 $ 3,031
Gross realized investment
securities losses -- -- -- (6,405)
______ _______ ______ ________
Investment securities gains (losses) $ -- $ -- $ 184 $ (3,374)
====== ======= ====== ========
<FN>
* Represents gains/losses on available-for-sale securities.
</TABLE>
<PAGE> 38
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE VIII - LOANS
(In thousands)
<CAPTION>
SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
1995 1995 1995 1994 1994
______________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Commercial and financial
loans $3,196,121 $3,222,804 $3,060,195 $3,018,972 $3,041,452
Real estate
Construction and development 569,188 525,799 510,335 598,232 589,695
Long-term commercial
mortgage 1,646,848 1,644,155 1,611,088 1,575,685 1,593,468
Long-term 1-4 family
residential 648,577 592,976 527,671 544,428 542,653
Loans to individuals 2,889,994 2,837,623 2,666,960 2,663,908 2,608,270
__________ __________ __________ __________ __________
Total loans 8,950,728 8,823,357 8,376,249 8,401,225 8,375,538
Less: unearned income 164,942 166,936 153,362 144,850 144,257
__________ __________ __________ __________ __________
Total loans, net of
unearned income $8,785,786 $8,656,421 $8,222,887 $8,256,375 $8,231,281
========== ========== ========== ========== ==========
</TABLE>
<TABLE>
TABLE IX - CONSTRUCTION AND DEVELOPMENT LOANS - PROPERTY TYPE BY STATE
(In thousands)
<CAPTION>
SEPTEMBER 30, 1995 NEW JERSEY PENNSYLVANIA NEW YORK FLORIDA OTHER TOTAL
_____________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
PORTFOLIO
Office buildings $ 58,626 $ 64,104 $13,700 $ -- $ 9,109 $145,539
Shopping centers 46,659 33,502 13,234 -- 27,215 120,610
Residential 61,032 28,446 1,013 1,209 235 91,935
Land 26,440 20,823 2,677 1,644 1,741 53,325
Industrial/warehouse 17,165 10,697 6,909 -- -- 34,771
Hotels/motels 15,996 -- -- 12,873 -- 28,869
Other 52,541 6,240 14,491 -- 20,867 94,139
________ ________ _______ _______ _______ ________
Total $278,459 $163,812 $52,024 $15,726 $59,167 $569,188
======== ======== ======= ======= ======= ========
NONACCRUAL SEGMENT
Office buildings $ 788 $ -- $ -- $ -- $ 1 $ 789
Shopping centers -- -- -- -- -- --
Residential 2,235 188 186 -- -- 2,609
Land 872 -- -- -- -- 872
Industrial/warehouse -- 190 -- -- -- 190
Hotels/motels 1,309 -- -- -- -- 1,309
Other -- -- -- -- 1,551 1,551
________ ________ _______ _______ _______ ________
Total $ 5,204 $ 378 $ 186 $ -- $ 1,552 $ 7,320
======== ======== ======= ======= ======= ========
PERCENT OF NONACCRUAL
TO PORTFOLIO 1.87% .23% .36% --% 2.62% 1.29%
======== ======== ======= ======= ======= ========
</TABLE>
<PAGE> 39
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE X - LONG-TERM COMMERCIAL MORTGAGE LOANS - PROPERTY TYPE BY STATE
(In thousands)
<CAPTION>
SEPTEMBER 30, 1995 NEW JERSEY PENNSYLVANIA NEW YORK FLORIDA OTHER TOTAL
______________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
PORTFOLIO
Industrial/warehouse $269,246 $168,782 $20,186 $ 1,199 $ 7,964 $ 467,377
Office buildings 187,245 118,928 7,010 -- 8,717 321,900
Retail businesses 130,229 105,091 3,473 -- 10,063 248,856
Apartment houses and
other rental
properties 94,547 43,916 1,068 2,361 8,960 150,852
Hospitals, medical
centers and nursing
homes 90,647 34,373 1,053 -- -- 126,073
Hotels/motels 47,242 2,013 2,285 -- 15,720 67,260
Automobile and truck
sales 50,662 15,085 80 -- -- 65,827
Shopping centers 30,785 17,387 363 4,000 -- 52,535
Other 70,664 63,022 2,078 6,667 3,737 146,168
________ ________ _______ _______ _______ __________
Total $971,267 $568,597 $37,596 $14,227 $55,161 $1,646,848
======== ======== ======= ======= ======= ==========
NONACCRUAL SEGMENT
Industrial/warehouse $ 14,594 $ 4,030 $ 6,489 $ -- $ 148 $ 25,261
Office buildings 4,193 8,424 -- -- 210 12,827
Retail businesses 3,818 2,231 -- -- -- 6,049
Apartment houses and
other rental
properties 2,724 2,846 30 -- -- 5,600
Hospitals, medical
centers and nursing
homes -- -- -- -- -- --
Hotels/motels 529 4,827 -- -- -- 5,356
Automobile and truck
sales 923 482 -- -- -- 1,405
Shopping centers 1,402 57 -- -- -- 1,459
Other 6,245 4,162 346 -- 9 10,762
________ ________ _______ _______ _______ __________
Total $ 34,428 $ 27,059 $ 6,865 $ -- $ 367 $ 68,719
======== ======== ======= ======= ======= ==========
PERCENT OF NONACCRUAL
TO PORTFOLIO 3.54% 4.76% 18.26% --% .67% 4.17%
======== ======== ======= ======= ======= ==========
</TABLE>
<PAGE> 40
<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 1995 1995 1995 1994 1994
______________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Allowance at beginning of period $338,704 $337,170 $349,520 $357,163 $373,345
Allowance of acquired bank (BOYR) -- 6,105 -- -- --
Provision charged to operating
expense 1,500 1,500 1,500 (433) 4,785
Loans charged off
Commercial and financial 5,790 5,276 12,673* 12,687 11,196
Real estate
Construction and development -- 163 107 101 7,856
Long-term commercial mortgage 2,524 7,663 3,589 285 2,120
Long-term 1-4 family residential 89 197 155 13 513
Loans to individuals 6,404 5,474 5,580 5,475 7,059
________ ________ ________ ________ ________
Total loans charged off 14,807 18,773 22,104 18,561 28,744
________ ________ ________ ________ ________
Recoveries on loans
Commercial and financial 7,828 9,910 3,923 4,580 4,141
Real estate
Construction and development 1,166 320 989 3,931 932
Long-term commercial mortgage 4,454 330 864 629 834
Long-term 1-4 family residential -- 55 2 1 1
Loans to individuals 2,629 2,087 2,476 2,210 1,869
________ ________ ________ ________ ________
Total recoveries on loans 16,077 12,702 8,254 11,351 7,777
________ ________ ________ ________ ________
Net loan (recoveries) charge-offs (1,270) 6,071 13,850 7,210 20,967
________ ________ ________ ________ ________
Allowance at end of period $341,474 $338,704 $337,170 $349,520 $357,163
======== ======== ======== ======== ========
<FN>
* Includes $7 million of charge-offs on factoring receivables.
</TABLE>
<PAGE> 41
<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
1995 1995 1995 1994 1994
____________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
NONACCRUAL LOANS
Commercial and financial $ 37,024 $ 42,067 $ 68,431 $ 81,304 $ 90,716
Real estate
Construction and development 7,320 8,300 9,484 28,765 41,686
Long-term mortgage 68,719 68,416 64,093 58,876 62,819
Loans to individuals 13,029 10,068 12,495 14,473 17,274
________ ________ ________ ________ ________
Total nonaccrual loans $126,092 $128,851 $154,503 $183,418 $212,495
======== ======== ======== ======== ========
ALLOWANCE FOR LOAN LOSSES
AS A % OF NONACCRUAL LOANS 270.8% 262.9% 218.2% 190.6% 168.1%
======== ======== ======== ======== ========
OTHER REAL ESTATE OWNED, NET $ 55,374 $ 58,369 $ 60,050 $ 64,388 $ 80,612
======== ======== ======== ======== ========
TOTAL NONACCRUAL LOANS AND
OTHER REAL ESTATE OWNED, NET $181,466 $187,220 $214,553 $247,806 $293,107
======== ======== ======== ======== ========
TOTAL RENEGOTIATED LOANS $ 39,817 $ 37,842 $ 38,000 $ 59,821 $ 45,937
======== ======== ======== ======== ========
ACCRUING LOANS PAST DUE 90
DAYS OR MORE AS TO
INTEREST OR PRINCIPAL
PAYMENTS $ 29,624 $ 32,158 $ 31,051 $ 30,369 $ 27,903
======== ======== ======== ======== ========
</TABLE>
<PAGE> 42
<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 1995 1994
_______________________________________________________________________________________
<S> <C> <C>
NONACCRUAL LOANS
Interest income that would have been
recorded on nonaccrual loans
outstanding at period-end in
accordance with original terms $9,322 $15,417
Interest income actually recorded
on nonaccrual loans 1,992 2,323
______ _______
Net decrease in interest income
on nonaccrual loans $7,330 $13,094
====== =======
RENEGOTIATED LOANS
Interest income that would have been
recorded on renegotiated loans
outstanding at period-end in
accordance with original terms $3,738 $ 3,455
Interest income actually recorded
on renegotiated loans 2,921 3,206
______ _______
Net decrease in interest income
on renegotiated loans $ 817 $ 249
====== =======
</TABLE>
<TABLE>
TABLE XIV - NONACCRUAL LOANS ACTIVITY
(In thousands)
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30 1995 1994
_______________________________________________________________________________________
<S> <C> <C>
Balance at beginning of year $183,418 $ 300,731
Nonaccrual loans of acquired bank (BOYR) 10,456 --
Additions 74,035 136,767
Payments (97,567) (105,734)
Returned to accrual or renegotiated status (13,676) (22,133)
Charge-offs (24,488) (69,489)
Transfers to OREO (7,364) (23,343)
Transfers from (to) "assets held for
accelerated disposition" 561 (884)
Other 717 (3,420)
________ _________
BALANCE AT SEPTEMBER 30 $126,092 $ 212,495
======== =========
</TABLE>
<PAGE> 43
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE XV - ACQUIRED OREO PROPERTIES - PROPERTY TYPE BY STATE
(In thousands)
<CAPTION>
SEPTEMBER 30, 1995 NEW JERSEY PENNSYLVANIA NEW YORK OTHER TOTAL
_____________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Hotels/motels $22,013 $ -- $ -- $ -- $22,013
Industrial/warehouse 5,237 3,434 -- 825 9,496
Land 7,973 380 448 -- 8,801
Residential tract 5,895 916 263 -- 7,074
Office buildings 2,231 1,080 -- -- 3,311
Shopping centers 1,235 -- -- -- 1,235
Other 2,510 934 -- -- 3,444
_______ ______ ____ ____ _______
TOTAL $47,094 $6,744 $711 $825 $55,374
======= ====== ==== ==== =======
</TABLE>
<TABLE>
TABLE XVI - OTHER REAL ESTATE OWNED ACTIVITY
(In thousands)
<CAPTION>
FOR THE NINE MONTHS ENDED SEPTEMBER 30 1995 1994
____________________________________________________________________________________
<S> <C> <C>
Balance at beginning of year $64,388 $97,238
Transfers from loans 12,144 24,844
OREO of acquired bank (BOYR) 2,830 --
Advances -- 101
Charges to operating expenses to
absorb declines in net realizable value -- (2,357)
Sales of properties (24,514) (37,749)
Transfers from (to) "assets held for
accelerated disposition" 1,700 (876)
Other (1,174)* (589)
_______ _______
BALANCE AT SEPTEMBER 30 $55,374 $80,612
======= =======
<FN>
* Primarily represents land transferred from OREO to the Corporation's land and
building portfolio.
</TABLE>
<PAGE> 44
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE XVII - 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 1995 1995 1995 1994 1994
___________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $193,578 $187,203 $174,500 $171,436 $174,284
Interest on investment securities 53,354 54,292 50,082 36,219 26,882
Interest on deposits with banks 1,125 1,675 3,190 3,604 4,313
Interest on other short-term
investments 5,978 8,834 9,422 14,167 15,583
________ ________ ________ ________ ________
Total interest income 254,035 252,004 237,194 225,426 221,062
________ ________ ________ ________ ________
INTEREST EXPENSE
Interest on deposits 73,001 70,470 65,387 60,693 55,278
Interest on short-term borrowings 10,300 12,457 7,914 5,222 5,084
Interest on long-term debt 8,508 8,583 8,587 8,588 8,586
________ ________ ________ ________ ________
Total interest expense 91,809 91,510 81,888 74,503 68,948
________ ________ ________ ________ ________
Net interest income 162,226 160,494 155,306 150,923 152,114
Provision for loan losses 1,500 1,500 1,500 (433) 4,785
________ ________ ________ ________ ________
Net interest income after
provision for loan losses 160,726 158,994 153,806 151,356 147,329
NONINTEREST INCOME
Trust income 12,460 11,642 11,228 11,336 11,285
Service charges on deposits 19,914 19,530 18,845 19,342 20,029
Investment securities gains (losses) -- 184 -- (3,289) --
Net gains on disposition of assets -- -- 3,100 6,180 1,064
Other 18,665 16,860 15,271 13,713 16,992
________ ________ ________ ________ ________
Total noninterest income 51,039 48,216 48,444 47,282 49,370
________ ________ ________ ________ ________
211,765 207,210 202,250 198,638 196,699
________ ________ ________ ________ ________
NONINTEREST EXPENSES
Salaries and benefits 65,318 61,706 62,423 54,338 58,223
Net occupancy 11,529 10,763 10,957 10,830 10,469
Equipment rental and expense 5,887 5,865 6,927 4,705 5,922
Other real estate owned, net (2,243) (1,333) (1,510) 3,363 (472)
FDIC assessment charges (415) 5,944 5,944 7,021 7,005
Legal and professional fees 9,666 9,278 7,988 12,527 11,512
Other 25,771 24,918 24,123 23,622 22,395
________ ________ ________ ________ ________
Total noninterest expenses 115,513 117,141 116,852 116,406 115,054
________ ________ ________ ________ ________
Income before income taxes 96,252 90,069 85,398 82,232 81,645
Income tax expense 35,133 33,677 32,074 5,006 5,398
________ ________ ________ ________ ________
NET INCOME $ 61,119 $ 56,392 $ 53,324 $ 77,226 $ 76,247
======== ======== ======== ======== ========
(continued on next page)
<PAGE> 45
<CAPTION>
Midlantic Corporation and Subsidiaries
TABLE XVII - CONSOLIDATED SUMMARY OF INCOME
(In thousands, except per share data)
(continued)
SEPT. 30 JUNE 30 MARCH 31 DEC. 31 SEPT. 30
FOR THE THREE MONTHS ENDED 1995 1995 1995 1994 1994
_______________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
NET INCOME APPLICABLE TO PRIMARY
COMMON SHARES $61,119 $55,485 $52,418 $75,414 $75,341
NET INCOME APPLICABLE TO FULLY
DILUTED COMMON SHARES 62,046 56,460 53,397 76,393 76,319
======= ======= ======= ======= =======
NET INCOME PER COMMON SHARE
Primary $ 1.15 $ 1.06 $ .98 $ 1.42 $ 1.42
Fully diluted 1.13 1.05 .97 1.40 1.40
======= ======= ======= ======= =======
AVERAGE COMMON SHARES AND
COMMON SHARE EQUIVALENTS
Primary 53,242 52,332 53,244 53,079 53,097
Fully diluted 54,766 53,912 54,900 54,600 54,618
======= ======= ======= ======= =======
</TABLE>
<PAGE> 46 1of2
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE XVIII - 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 1995 1995 1995 1994 1994
___________________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
BOOK VALUE AT QUARTER-END $27.67 $26.80 $25.93 $25.19 $23.96
______ ______ ______ ______ ______
MARKET PRICES OF COMMON STOCK
High $55.00 $40.25 $34.88 $28.63 $30.63
Low 39.75 33.88 26.25 24.00 27.63
Close 54.25 40.00 34.25 26.50 27.63
______ ______ ______ ______ ______
OPERATING RATIOS
Net interest margin (actual) 5.21% 5.24% 5.23% 5.00% 4.97%
Net interest margin (tax-equiv-
alent basis) 5.33 5.36 5.36 5.08 4.99
Return on average assets 1.79 1.69 1.65 2.33 2.28
Return on average common
equity 17.12 16.51 15.82 23.43 24.50
Return on average total equity 17.12 16.18 15.51 22.83 23.82
______ ______ ______ ______ ______
LIQUIDITY AND FUNDING RATIOS
Liquidity ratio (1) 28.5% 28.7% 31.8% 30.7% 30.8%
Funding ratio (2) 1.8 .5 (2.5) (7.8) (6.0)
______ ______ ______ ______ ______
CAPITAL RATIOS
Risk-adjusted ratios
Tier 1 capital ratio 12.85% 12.57% 13.58% 13.07% 12.01%
Total capital ratio 16.80 16.63 17.77 17.22 16.10
Leverage ratio 9.43 9.08 9.43 9.43 8.87
Average equity as a % of
average assets 10.47 10.43 10.62 10.22 9.57
______ ______ ______ ______ ______
LOAN QUALITY RATIOS
As a % of total period-end
loans, net of unearned income
Allowance for loan losses
at period-end 3.89% 3.91% 4.10% 4.23% 4.34%
Nonaccrual loans at
period-end 1.44 1.49 1.88 2.22 2.58
As a % of average loans, net
of unearned income
Net (recoveries) charge-offs (.06) .29 .69 .35 1.00
Provision for loan losses .07 .07 .08 (.02) .23
______ ______ ______ ______ ______
AVERAGE TOTAL LOANS, NET OF
UNEARNED INCOME, AS A % OF
AVERAGE TOTAL DEPOSITS 80.15% 78.81% 76.31% 75.59% 75.94%
______ ______ ______ ______ ______
NONFINANCIAL DATA
Total number of employees 6,221 6,434 6,289 6,174 5,997
Total number of full-time
equivalent employees 5,394 5,565 5,416 5,327 5,213
Total number of domestic and
foreign banking offices 337 339 328 325 325
====== ====== ====== ====== ======
<PAGE> 46 2of2
<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.
</TABLE>
<PAGE> 47
Item 1. Legal Proceedings
MC, its directors and PNC have been named as defendants in a
lawsuit filed in the Superior Court of New Jersey, Middlesex
County, Law Division, by a purported shareholder allegedly on
behalf of all persons other than the defendants who own securities
of MC and who are similarly situated (the "Lawsuit"). An amended
complaint in the Lawsuit ("the Complaint") was served on MC on
July 31, 1995. In the Complaint, the plaintiff alleges, among
other things, that the proposed merger of MC and PNC (the "MC/PNC
Merger") is unfair to MC's "public shareholders" and will deny the
purported class members the right to share proportionately in the
true value of MC's assets, business and future growth in profits
and earnings; that the defendants have willfully participated in
unfair dealings towards plaintiff and other members of the
purported class and have engaged in, or aided and abetted,
breaches of fiduciary duties owed to the purported class; and that
the consideration to be paid in the MC/PNC Merger is grossly
unfair, inadequate, and substantially below the fair or inherent
value of Midlantic.
The plaintiff seeks, among other things, injunctions preliminarily
and permanently enjoining the MC/PNC Merger; in the event the
MC/PNC Merger is consummated, rescission of the MC/PNC Merger; an
accounting of all profits realized or to be realized by defendants
as a result of the MC/PNC Merger; an order requiring defendants to
permit a shareholders' committee to participate in the process
undertaken in connection with the "sale" of MC; and unquantified
compensatory damages. The plaintiff also seeks costs and
disbursements, including reasonable attorneys' and experts' fees
and expenses.
MC has filed a motion to dismiss the Complaint. Management of MC
believes the allegations in the Complaint are entirely without
merit and intends to contest the Lawsuit vigorously.
<PAGE> 48
Item 6a. Exhibits
27 Financial Data Schedule
Item 6B. Reports on Form 8-K
Dated July 10, 1995 respecting Item 5 to report that MC,
PNC Bank Corp. and PNC Bancorp, Inc. entered into an
Agreement and Plan of Reorganization and a related
Agreement and Plan of Merger providing for, among other
things, the merger of MC with and into PNC Bancorp, Inc.
<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 Howard I. Atkins
_________________________________
Date November 9, 1995 Howard I. Atkins
Executive Vice President and
Chief Financial Officer
By James E. Kelly
_________________________________
Date November 9, 1995 James E. Kelly
Controller
<PAGE>
Index of Exhibits
Exhibit Number
Per Item 601 of
Regulation S-K Page Number
27 Financial Data Schedule
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
SEPTEMBER 30, 1995 STATEMENTS OF INCOME AND FINANCIAL CONDITION AND IS
QUALIFIED IN ITS ENTIRETY BY REFERENCE TO SUCH FINANCIAL STATEMENTS.
</LEGEND>
<CIK> 0000793548
<NAME> CATHERINE MILLER
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> SEP-30-1995
<CASH> 832,114
<INT-BEARING-DEPOSITS> 80,601
<FED-FUNDS-SOLD> 535,500
<TRADING-ASSETS> 1,194
<INVESTMENTS-HELD-FOR-SALE> 807,251
<INVESTMENTS-CARRYING> 2,444,472
<INVESTMENTS-MARKET> 2,466,268
<LOANS> 8,785,786
<ALLOWANCE> 341,474
<TOTAL-ASSETS> 13,861,347
<DEPOSITS> 10,856,528
<SHORT-TERM> 1,006,301
<LIABILITIES-OTHER> 181,127
<LONG-TERM> 368,650
<COMMON> 158,286
0
0
<OTHER-SE> 1,290,455
<TOTAL-LIABILITIES-AND-EQUITY> 13,861,347
<INTEREST-LOAN> 555,281
<INTEREST-INVEST> 157,728
<INTEREST-OTHER> 30,224
<INTEREST-TOTAL> 743,233
<INTEREST-DEPOSIT> 208,858
<INTEREST-EXPENSE> 265,207
<INTEREST-INCOME-NET> 478,026
<LOAN-LOSSES> 4,500
<SECURITIES-GAINS> 184
<EXPENSE-OTHER> 349,506
<INCOME-PRETAX> 271,719
<INCOME-PRE-EXTRAORDINARY> 170,835
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 170,835
<EPS-PRIMARY> 3.20
<EPS-DILUTED> 3.14
<YIELD-ACTUAL> 5.23
<LOANS-NON> 126,092
<LOANS-PAST> 29,624
<LOANS-TROUBLED> 39,817
<LOANS-PROBLEM> 0
<ALLOWANCE-OPEN> 338,704
<CHARGE-OFFS> 14,807
<RECOVERIES> 16,077
<ALLOWANCE-CLOSE> 341,474
<ALLOWANCE-DOMESTIC> 341,474
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 0
</TABLE>
