<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
June 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 July 31, 1995
-----------------------------------
Common Stock, par value $3.00 per share - 52,241,194 shares
<PAGE> 2
Midlantic Corporation and Subsidiaries
FORM 10-Q
June 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 SIX MONTHS ENDED
JUNE 30 JUNE 30
1995 1994 1995 1994
____________________________________________________________________________________________
<S> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $187,203 $168,539 $361,703 $331,021
Interest on investment securities
Taxable interest income 53,893 25,933 103,671 53,459
Tax-exempt interest income 399 148 703 327
Interest on deposits with banks 1,675 4,705 4,865 9,669
Interest on other short-term investments 8,834 12,723 18,256 22,520
-------- -------- -------- --------
Total interest income 252,004 212,048 489,198 416,996
-------- -------- -------- --------
INTEREST EXPENSE
Interest on deposits 70,470 53,647 135,857 107,395
Interest on short-term borrowings 12,457 5,579 20,371 10,822
Interest on long-term debt 8,583 8,619 17,170 17,279
-------- -------- -------- --------
Total interest expense 91,510 67,845 173,398 135,496
-------- -------- -------- --------
Net interest income 160,494 144,203 315,800 281,500
Provision for loan losses 1,500 10,827 3,000 18,983
-------- -------- -------- --------
Net interest income after provision
for loan losses 158,994 133,376 312,800 262,517
NONINTEREST INCOME
Trust income 11,642 10,860 22,870 20,642
Service charges on deposits 19,530 19,020 38,375 37,966
Investment securities gains (losses) 184 (4,637) 184 (3,374)
Net gains on disposition of assets -- 25,056 3,100 25,056
Other 16,860 19,930 32,131 37,268
-------- -------- -------- --------
Total noninterest income 48,216 70,229 96,660 117,558
-------- -------- -------- --------
207,210 203,605 409,460 380,075
-------- -------- -------- --------
NONINTEREST EXPENSES
Salaries and benefits 61,706 57,901 124,129 114,115
Net occupancy 10,763 10,820 21,720 23,055
Equipment rental and expense 5,865 5,990 12,792 12,915
Other real estate owned, net (1,333) (3,423) (2,843) 611
FDIC assessment charges 5,944 7,187 11,888 14,381
Legal and professional fees 9,278 11,260 17,266 21,135
Other 24,918 29,363 49,041 53,735
-------- -------- -------- --------
Total noninterest expenses 117,141 119,098 233,993 239,947
-------- -------- -------- --------
(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 SIX MONTHS ENDED
JUNE 30 JUNE 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 90,069 84,507 175,467 140,128
Income tax expense 33,677 12,228 65,751 14,496
-------- -------- -------- --------
Income before cumulative effect
of the change in accounting for
postemployment benefits 56,392 72,279 109,716 125,632
Cumulative effect of the change in
accounting for postemployment benefits -- -- -- (7,528)
-------- -------- -------- --------
NET INCOME $ 56,392 $ 72,279 $109,716 $118,104
======== ======== ======== ========
INCOME APPLICABLE TO PRIMARY
COMMON SHARES
Income before cumulative effect
of the change in accounting
for postemployment benefits $55,485 $71,372 $107,903 $123,819
Net income 55,485 71,372 107,903 116,291
INCOME APPLICABLE TO FULLY
DILUTED COMMON SHARES
Income before cumulative effect
of the change in accounting
for postemployment benefits 56,460 72,371 109,857 125,824
Net income 56,460 72,371 109,857 118,296
======== ======== ======== ========
INCOME PER COMMON SHARE
Income before cumulative effect
of the change in accounting
for postemployment benefits
Primary $1.06 $1.35 $2.04 $2.34
Fully diluted 1.05 1.33 2.02 2.31
Cumulative effect of the change in
accounting for postemployment benefits
Primary -- -- (.14)
Fully diluted -- -- (.14)
Net income
Primary 1.06 1.35 2.04 2.20
Fully diluted 1.05 1.33 2.02 2.17
======== ======== ======== ========
AVERAGE COMMON SHARES AND COMMON SHARE
EQUIVALENTS
Primary 52,332 52,915 52,790 52,868
Fully diluted 53,912 54,467 54,461 54,445
======== ======== ======== ========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 5 1of2
<TABLE>
Midlantic Corporation and Subsidiaries
CONSOLIDATED BALANCE SHEET
(Dollars in thousands)
<CAPTION>
JUNE 30 December 31
1995 1994
____________________________________________________________________________________
<S> <C> <C>
ASSETS
Cash and due from banks $ 834,051 $ 819,928
Interest-bearing deposits in other banks 52,576 242,659
Other short-term investments 513,188 871,000
Investment securities
Held-to-maturity (market value 1995,
$2,500,914; 1994, $2,325,904) 2,478,018 2,415,635
Available-for-sale 813,598 333,295
Trading 27,300 7,613
Total loans (net of unearned income of
$166,936 in 1995 and $144,850 in 1994) 8,656,421 8,256,375
Less: allowance for loan losses 338,704 349,520
----------- -----------
Net loans 8,317,717 7,906,855
----------- -----------
Premises and equipment, net 154,978 146,523
Due from customers on acceptances 16,166 17,546
Other assets 526,255 532,484
----------- -----------
Total assets $13,733,847 $13,293,538
=========== ===========
<PAGE> 5 2of2
LIABILITIES AND SHAREHOLDERS' EQUITY
Domestic deposits
Noninterest-bearing demand $ 2,798,095 $ 2,847,782
Interest-bearing demand 1,281,685 1,361,287
Savings 1,641,486 1,636,908
Retail money market accounts 1,729,039 1,920,175
CDs over $100,000 597,283 447,590
Other time 2,835,121 2,577,893
Overseas branch deposits 4,633 15,699
----------- -----------
Total deposits 10,887,342 10,807,334
----------- -----------
Short-term borrowings 883,174 584,489
Bank acceptances outstanding 16,166 17,546
Other liabilities 177,119 136,983
Long-term debt 372,840 373,000
----------- -----------
Total liabilities 12,336,641 11,919,352
----------- -----------
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 620,180 611,205
Retained earnings 638,118 558,385
Net unrealized holding gains (losses) on
available-for-sale securities, net of taxes 4,202 (3,097)
----------- -----------
1,420,786 1,374,186
Less treasury stock at cost:
633,883 common shares in 1995 23,580 --
----------- -----------
Total shareholders' equity 1,397,206 1,374,186
----------- -----------
Total liabilities and shareholders' equity $13,733,847 $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 SIX MONTHS ENDED JUNE 30 1995 1994
__________________________________________________________________________________
<S> <C> <C>
CASH FLOWS FROM OPERATING ACTIVITIES
Net income $ 109,716 $ 118,104
Adjustments to reconcile net income
to net cash provided by operating activities
Provision for loan and OREO losses 3,000 19,625
Depreciation of premises and equipment 10,535 11,628
Amortization of goodwill and other intangibles 4,004 3,225
Deferred income tax expense 32,688 31,241
Cumulative effect of the change in
accounting for postemployment benefits -- 7,528
Net accretion of investment securities (7,023) (5,139)
Accretion of net deferred loan fees (4,535) (4,530)
Net gains on the sales of assets (6,283) (27,351)
Net (increase) decrease in trading account assets (19,687) 480
Net decrease in OREO 210 74
Net increase in accrued interest receivable (4,215) (7,585)
Net decrease in accrued interest payable (23,878) (2,482)
Net decrease in other assets 6,695 27,078
Net increase in other liabilities 60,119 21,833
Other (3,793) (621)
--------- ---------
Net cash provided by operating activities 157,553 193,108
--------- ---------
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 6,009 221,723
Proceeds from sales of OREO and loans 20,656 30,789
Net decrease in money market investments
with an original maturity of 3 months or less 355,555 333,870
Proceeds from money market investments with an
original maturity of greater than 3 months 262,565 448,040
Purchases of money market investments with an
original maturity of greater than 3 months (55,025) (858,065)
Proceeds from sales of available-for-sale securities 740 889,156
Proceeds from matured investment securities:
Held-to-maturity 52,791 392,070
Available-for-sale 374,425 156,820
Purchases of investment securities:
Held-to-maturity (114,349) (287)
Available-for-sale (780,723) (920,361)
Net increase in loans (283,948) (93,681)
Purchases of premises and equipment (15,784) (5,083)
Sales of premises and equipment 432 346
--------- ---------
Net cash (used) provided by investing activities (49,628) 595,337
--------- ---------
<PAGE> 6 2of2
CASH FLOWS FROM FINANCING ACTIVITIES
Net decrease in deposits (257,110) (446,028)
Net increase (decrease)in short-term borrowings 298,543 (168,106)
Redemption of preferred stock (50,000) --
Payments on long-term debt (160) (13,752)
Cash dividends paid (29,983) (6,133)
Purchase of common treasury shares (61,185) --
Proceeds from issuances of common stock 6,093 4,872
--------- ---------
Net cash used by financing activities (93,802) (629,147)
--------- ---------
NET INCREASE IN CASH AND CASH EQUIVALENTS 14,123 159,298
CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 819,928 712,960
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 834,051 $ 872,258
========= =========
<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 SIX MONTHS ENDED JUNE 30 1995 1994
____________________________________________________________________________________________
<S> <C> <C>
PREFERRED STOCK
Balance at January 1 $ 50,000 $ 50,000
Redemption of preferred stock (50,000) --
---------- ----------
Balance at June 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 31,826 common
treasury shares in 1995 and 175,958 common shares
and 2,042 common treasury shares in 1994 for
stock options 335 528
Issuance of 85,836 common shares and 16,764 common
treasury shares in 1995 and 20,716 common shares in
1994 purchased by Midlantic's 401(k) plan and Dividend
Reinvestment and Stock Purchase Plan ("DRP") 258 62
---------- ----------
Balance at June 30 $ 158,286 $ 157,219
========== ==========
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. 5,316 --
Issuance of common shares and common treasury
shares for stock options 1,315 3,693
Issuance of common shares purchased by
Midlantic's 401(k) plan and DRP 2,344 533
---------- ----------
Balance at June 30 $ 620,180 $ 608,757
========== ==========
RETAINED EARNINGS
Balance at January 1 $ 558,385 $ 312,310
Net income 109,716 118,104
Cash dividends paid
Preferred stock (1,813) (907)
Common stock (28,170) (5,226)
Issuance of common shares for
preferred stock dividend -- (906)
---------- ----------
Balance at June 30 $ 638,118 $ 423,375
========== ==========
<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) 7,299 (3,675)
---------- ----------
Balance at June 30 $ 4,202 $ (1,816)
========== ==========
TREASURY STOCK
Balance at January 1 $ -- $ --
Addition of 1,710,373 common shares in 1995
and 2,042 common shares in 1994 (61,185) (56)
Issuance of 1,027,900 common treasury shares
for the purchase of Old York Road Bancorp, Inc. 35,764 --
Issuance of 48,590 common treasury shares in
1995 and 2,042 common treasury shares in 1994
for stock options, Midlantic's 401K plan and DRP 1,841 56
---------- ----------
Balance at June 30 $ (23,580) $ --
========== ==========
TOTAL SHAREHOLDERS' EQUITY
Balance at January 1 $1,374,186 $1,122,564
Net changes during period 23,020 114,971
---------- ----------
Balance at June 30 $1,397,206 $1,237,535
========== ==========
<FN>
See Notes to Consolidated Financial Statements.
</TABLE>
<PAGE> 8 1of2
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 PNC
creating what would, on a pro forma basis as of June 30, 1995, be a bank
holding company with total consolidated assets of nearly $79 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 and various regulatory
agencies.
CAPITAL STOCK
_____________
COMMON STOCK - On July 19, 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 August 1, 1995, payable on August 14,
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 June 30, 1995:
(In thousands)
________________________________________________________________________
Unused commitments to extend credit $2,805,359
Financial standby letters of credit and
similar arrangements 88,020
Performance standby letters of credit and
similar arrangements 166,368
Commercial letters of credit and other short-term
trade-related contingencies 62,858
Notional amount of interest rate swaps (1)
Agreements to receive a fixed rate of interest 2,800,000
Agreements to pay a fixed rate of interest 598,500
Agreements to receive and pay a variable
rate of interest 300,000
Foreign exchange contracts (2) 47,006
________________________________________________________________________
(1) For a discussion on interest rate swaps, see pages 22 through 24.
(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> 8 2of2
STATEMENT OF CASH FLOWS - Cash paid during the first six months of 1995 and
1994 for interest on deposits, short-term borrowings and long-term debt
amounted to $196.5 million and $123.8 million, respectively. Net cash paid
for federal and state income taxes during the first six months of 1995 was
$27.7 million and net cash received for taxes in the first half of 1994 was
$14.7 million.
<PAGE> 9
During the first six months of 1995 and 1994, $8.3 million and $20.2 million,
respectively, of loans, net of charge-offs, were transferred into OREO. Also,
during the first six 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 second quarter
of 1994 substantially all of these assets had been sold. A gain of $25.1
million was realized in the second quarter of 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.
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.
<PAGE> 10
CARRYING VALUE OF IMPAIRED LOANS (In thousands) JUNE 30, 1995
_________________________________________________________________________
Commercial and financial $ 42,067
Real estate
Construction and development 8,300
Long-term mortgage 68,416
Loans to individuals (not on an installment basis) 6,016
_________________________________________________________________________
TOTAL IMPAIRED LOANS $124,799
=========================================================================
REQUIRED FAS NO. 114 RESERVE $ 17,295
=========================================================================
At June 30, 1995, impaired loans carried at $55.0 million were valued based
upon discounted cash flows and $69.8 million were valued using the fair value
of collateral. Based on these methods, $17.3 million of the $338.7 million
ALL was allocated against $58.0 million of impaired loans. The remaining
impaired loans did not require a specific reserve under FAS No. 114. The
remaining ALL, totalling $321.4 million at June 30, 1995, is available to
absorb losses in the Corporation's entire credit portfolio. During the first
six months of 1995, impaired loans averaged $131.8 million. Interest income
recorded on total impaired loans and received in cash during the first six
months of 1995 was $959 thousand.
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.
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 $4.2
million at June 30, 1995 and net unrealized losses were $3.1 million at
December 31, 1994 and were included as a component of shareholders' equity.
<PAGE> 11
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 ("MB"). 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 June 30, 1995, the
Corporation had 634 thousand treasury shares after the reissuance of treasury
shares in connection with the merger of Old York with MC. 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 does not expect to repurchase any additional common shares in the
future.
<PAGE> 12 1of2
MIDLANTIC CORPORATION AND SUBSIDIARIES
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
SUMMARY
_______
Midlantic Corporation and Subsidiaries ("Midlantic" or the "Corporation")
reported net income of $56.4 million or $1.05 per fully diluted common share
for the three months ended June 30, 1995 compared with net income of $72.3
million or $1.33 per fully diluted common share for the corresponding period
of 1994. For the six months ended June 30, 1995, net income amounted to $109.7
million or $2.02 per fully diluted common share compared with net income of
$118.1 million or $2.17 per fully diluted common share for the first six
months of 1994. Income for the first six 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". Also, in the second quarter and first half of 1994, the
Corporation realized income tax credits, not available to the Corporation in
1995, amounting to $21.2 million and $41.5 million, respectively (see "Income
Taxes").
Income before taxes, credit provisions and certain nonrecurring gains or
charges ("core earnings") amounted to $90.1 million in the second quarter of
1995 or approximately 16 percent over the level recorded in the second quarter
of 1994. This followed a rise in core earnings in the first quarter of 1995
over the first quarter of 1994 of $15.7 million or nearly 25 percent. The
rise in core earnings reflects higher levels of net interest income due to
increasing yields on earning assets, particularly prime rate-based loans. The
following table summarizes Midlantic's results of operations for the second
quarter and six months ended June 30, 1995 and 1994:
<PAGE> 12 2of2
MAJOR COMPONENTS OF THE RESULTS OF OPERATIONS
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
(In thousands) 1995 1994 1995 1994
_____________________________________________________________________________
INCOME BEFORE TAXES, CREDIT
PROVISIONS AND NONRECURRING
ITEMS ("CORE EARNINGS")
Net interest income $160,494 $144,203 $315,800 $281,500
Noninterest income* 48,032 49,810 93,376 95,876
Noninterest expenses* 118,474 116,421 236,836 233,236
_____________________________________________________________________________
CORE EARNINGS 90,052 77,592 172,340 144,140
_____________________________________________________________________________
ADDITIONS
Investment securities gains (losses) 184 (4,637) 184 (3,374)
Net gains on the disposition of assets -- 25,056 3,100 25,056
Net gains on the sale of OREO 1,878 2,097 2,673 3,934
DEDUCTIONS
Provision for loan losses 1,500 10,827 3,000 18,983
Provision for OREO -- (2,723) -- 642
Other OREO expenses 545 1,397 (170) 3,903
Expenses relating to the
consolidation of operations
of bank subsidiaries -- 6,100 -- 6,100
_____________________________________________________________________________
Income before income taxes and
cumulative effect of change in
accounting principle 90,069 84,507 175,467 140,128
Income tax expense 33,677 12,228 65,751 14,496
_____________________________________________________________________________
Income before cumulative effect of
change in accounting principle 56,392 72,279 109,716 125,632
Cumulative effect of change in
accounting for postemployment
benefits in 1994 -- -- -- (7,528)
_____________________________________________________________________________
NET INCOME $ 56,392 $ 72,279 $109,716 $118,104
=============================================================================
* For purposes of this table, noninterest income excludes investment
securities gains or losses and certain nonrecurring income, while noninterest
expenses excludes OREO expenses, net, and certain nonrecurring expenses.
<PAGE> 13
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 PNC
creating what would, on a pro forma basis as of June 30, 1995, be a bank
holding company with total consolidated assets of nearly $79 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 and various regulatory
agencies.
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.
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 common stock. At
June 30, 1995, the Corporation had 634 thousand treasury shares after the
reissuance of treasury shares in connection with the merger of Old York with
MC. 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 does not expect to repurchase any additional common
shares in the future.
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,
remained at $.32 per share.
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
RESULTS OF OPERATIONS
SECOND QUARTER 1995 VS. SECOND QUARTER 1994
SIX MONTHS ENDED JUNE 30, 1995 VS. SIX MONTHS ENDED JUNE 30, 1994
NET INTEREST INCOME
____________________
On a tax-equivalent basis, net interest income ("NII") of $164.2 million
exceeded that of the second quarter of 1994 by $19.2 million or 13.3 percent.
For the six months ended June 30, 1995, NII increased by $40.1 million or 14.2
percent over the comparable period of 1994.
<TABLE>
<CAPTION>
NET INTEREST INCOME/NET INTEREST MARGIN
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
(Dollars in thousands) 1995 1994 Variance 1995 1994 Variance
___________________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Net interest income (actual) $160,494 $144,203 $16,291 $315,800 $281,500 $34,300
Net interest income (tax-equivalent basis) 164,170 144,939 19,231 323,138 283,038 40,100
Net interest margin (actual) 5.24% 4.71% .53% 5.24% 4.57% .67%
Net interest margin (tax-equivalent basis) 5.36 4.73 .63 5.36 4.60 .76
======== ======== ======= ======== ======== =======
</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 money market investments.
These factors more than offset the negative influence of rising funding costs
and a reduction in the overall volume of interest-earning assets. While
funding costs, in general, began to rise with market rates beginning in mid-
1994, earning asset yields increased in greater amounts due to larger balances
of assets subject to interest rate changes in a rising market-rate environment
and the timing of the Corporation's purchase of investment securities.
Average interest-earning assets declined $263 million or 2.1 percent for the
six months ended June 30, 1995 when compared with average interest-earning
assets for the corresponding period of 1994. The decrease in earning assets
can be attributed to declining deposit levels, which was partly due to rising
returns available in non-deposit investments. The decrease in deposits was
substantially replaced by higher levels of short-term borrowings, principally
securities sold under repurchase agreements. The decline in funding was
accompanied by a contraction in average loans of $155 million for the six
months ended June 30, 1995, compared to the same period of last year. Real
estate loans fell by $313 million or 10.5 percent when comparing average
balances for year-to-date 1995 and 1994. This was largely 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. The decline was partially offset by a $205 million or
8.8 percent rise in average consumer loans during the same period. Other
interest-earning assets, on average, fell by $108 million.
<PAGE> 15 1of2
<TABLE>
<CAPTION>
AVERAGE BALANCES
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
(In millions) 1995 1994 Variance 1995 1994 Variance
_____________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Interest-earning assets $12,278 $12,283 $ (5) $12,156 $12,419 $(263)
Interest-bearing
sources of funds 9,213 9,501 (288) 9,088 9,638 (550)
Noninterest-bearing
sources of funds supporting
interest-earning assets* 3,065 2,782 283 3,068 2,781 287
======= ======= ===== ======== ======= =====
<FN>
*Primarily comprised of noninterest-bearing demand deposits and shareholders' equity.
</TABLE>
The net interest margin on a tax-equivalent basis increased 63 basis points
and 76 basis points in the second quarter and first six months of 1995,
respectively, as compared to the same periods of 1994. 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) a
decline in nonaccrual loans and (iii) 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 $10.8 million for the
second quarter of 1995 and 1994, respectively. For the first half of 1995, the
provision for loan losses was $3.0 million as compared to $19.0 million for
the corresponding period of 1994. Based upon Midlantic's methodology which
assists in the establishment of the allowance for loan losses as discussed in
the "Allowance for Loan Losses" section of this report, Midlantic believes
that its allowance for loan losses was adequate at June 30, 1995 to absorb
estimated losses in its credit portfolios.
<PAGE> 15 2of2
NONINTEREST INCOME
__________________
[CAPTION]
<TABLE>
<CAPTION>
NONINTEREST INCOME
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
_______________________________________________________________________________________________
(In thousands) 1995 1994 Variance 1995 1994 Variance
<S> <C> <C> <C> <C> <C> <C>
Trust income $11,642 $10,860 $ 782 $22,870 $ 20,642 $ 2,228
Service charges on deposit accounts 19,530 19,020 510 38,375 37,966 409
Investment securities gains (losses) 184 (4,637) 4,821 184 (3,374) 3,558
Factoring commissions and fees 1,950 1,971 (21) 3,919 3,688 231
Gains on the disposition of assets
and other nonrecurring income -- 25,056 (25,056) 3,100 25,056 (21,956)
Miscellaneous 14,910 17,959 (3,049) 28,212 33,580 (5,368)
------- ------- -------- ------- -------- --------
TOTAL NONINTEREST INCOME $48,216 $70,229 $(22,013) $96,660 $117,558 $(20,898)
======= ======= ======== ======= ======== ========
</TABLE>
Trust income for both the three months and the six months ended June 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 both the three months and six months ended June 30, 1995, net securities
gains amounted to $184 thousand. In the second quarter of 1994, the
Corporation recorded a net loss on securities transactions of $4.6 million
which followed a net gain of $1.3 million recognized in the first quarter.
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 six months of 1995 and 1994, respectively.
<PAGE> 16 1of2
The year-to-date rise in factoring commissions and fees generally reflects a
higher level of business activity.
In the second quarter of 1994, Midlantic recognized $25.1 million of gains on
the sale of assets held for accelerated disposition.
The $3.0 million and $5.4 million decline in miscellaneous noninterest income
for the second quarter and first half of 1995 primarily reflects the absence
in 1995 of interest revenues that had been received in 1994 from assets held
for accelerated disposition prior to their sale.
NONINTEREST EXPENSES
____________________
[CAPTION]
<TABLE>
NONINTEREST EXPENSES
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
(In thousands) 1995 1994 Variance 1995 1994 Variance
_____________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Salaries and benefits $ 61,706 $ 57,901 $ 3,805 $124,129 $114,115 $10,014
Net occupancy 10,763 10,820 (57) 21,720 23,055 (1,335)
Equipment rental and expense 5,865 5,990 (125) 12,792 12,915 (123)
Other real estate owned, net (1,333) (3,423) 2,090 (2,843) 611 (3,454)
FDIC assessment charges 5,944 7,187 (1,243) 11,888 14,381 (2,493)
Legal and professional fees 9,278 11,260 (1,982) 17,266 21,135 (3,869)
Miscellaneous 24,918 29,363 (4,445) 49,041 53,735 (4,694)
-------- -------- ------- -------- -------- -------
TOTAL NONINTEREST EXPENSES $117,141 $119,098 $(1,957) $233,993 $239,947 $(5,954)
======== ======== ======= ======== ======== =======
</TABLE>
Salary and benefit expenses increased $3.8 million or 6.6 percent for the
second quarter of 1995 and increased $10.0 million or 8.8 percent for the
first six months of 1995. The increase in both periods reflects additional
full-time equivalent employees primarily in customer service and sales
positions.
Expenses for premises and fixed assets (net occupancy and equipment rental
expenses) declined $182 thousand in the second quarter of 1995 following a
$1.3 million decrease in the first quarter of 1995 primarily reflecting a
decline in depreciation as well as lower snow and ice removal costs, which
were particularly heavy in early 1994.
Net OREO credits in the second quarter and first six months of 1995 as well as
in the first quarter of 1994 primarily resulted from rental income and net
gains on the sale of OREO more than offsetting OREO operating expenses. Also
in the second quarter of 1994, the Corporation reversed a net $2.7 million of
amounts previously reserved against possible writedowns on OREO properties as
such reserves were no longer deemed necessary by management.
<PAGE> 16 2of2
The Federal Deposit Insurance Corporation ("FDIC") assessment decreased by
$1.2 million or 17.3 percent and $2.5 million or 17.3 percent for the three
months and six months ended June 30, 1995 compared to the same periods of
1994, largely as a result of a decline in the premium rate assessed against
Midlantic's bank subsidiary along with a decrease in deposit funding.
The decline in legal and professional fees of $2.0 million or 17.6 percent for
the second quarter of 1995 and $3.9 million or 18.3 percent for the first half
of 1995, reflects, in part, lower loan workout expenses which is the result of
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.
<PAGE> 17
As a result of $6.1 million of expenses incurred in the second quarter of 1994
for the then proposed consolidation of CB and MNB, miscellaneous expenses
declined by $4.4 million and $4.7 million in the second quarter and first six
months of 1995, respectively.
INCOME TAXES
____________
Midlantic recorded income tax expenses of $33.7 million and $12.2 million in
the second quarters of 1995 and 1994, respectively. For the first six months
of 1995 and 1994 income tax expenses amounted to $65.8 million and $14.5
million, respectively. The tax provision for the second 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 second quarter of 1994 were comprised of tax benefits
of $21.2 million, related to a reduction in the tax valuation reserve, and
$33.4 million of federal and state income tax expenses on operating earnings.
For the first six months of 1994, tax benefits related to a reduction in the
tax valuation reserve amounted to $41.5 million, while federal and state
income tax expenses totalled $56.0 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 1of2
FINANCIAL CONDITION
JUNE 30, 1995 VS. DECEMBER 31, 1994
ASSET QUALITY
_____________
As of June 30, 1995, nonaccrual loans and OREO ("nonaccrual assets") totalled
$187 million or 1.36 percent of total assets compared to $248 million or 1.9
percent at the end of 1994. Included in nonaccrual assets at June 30, 1995
was $13 million from the acquisition of Old York. At June 30, 1995, total
nonaccrual loans amounted to $129 million of which $125 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 $55 million or 29.8 percent, while OREO has declined by $6
million or 9.3 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 June 30,
1995, nonaccrual loans were primarily comprised of long term commercial
mortgages (53.1 percent of the total) and commercial and financial loans (32.6
percent of the total). The relationship of each of these categories of
nonaccrual loans to its respective loan portfolio was 4.16 percent commercial
mortgages and 1.31 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 $77 million, of which 37.8 percent comprised
industrial/warehouse, 13.9 percent office buildings and 13.6 percent
residential properties (see Tables IX and X). Total commercial real estate
loans continued to contract during the past twelve months as indicated in the
following table:
COMMERCIAL REAL ESTATE LOANS
JUNE 30 Dec. 31 June 30
FOR THE QUARTER ENDED (In millions) 1995 1994 1994
___________________________________________________________________________
Long-term commercial mortgage loans $1,644 $1,576 $1,607
Construction and development loans 526 598 697
___________________________________________________________________________
Total commercial real
estate loans $2,170 $2,174 $2,304
===========================================================================
The decline in total commercial real estate loans was primarily due to
principal paydowns, the transfer of loans to OREO, and loan charge-offs.
<PAGE> 18 2of2
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 $38 million at June 30, 1995
compared with $60 million at year-end 1994. The effective interest rate as
calculated under GAAP on these renegotiated loans is 9.33 percent. In those
cases in which average current yield differs from the effective yield,
Midlantic's management has elected to recognize income prospectively on the
more conservative average current yield basis until certain contingencies are
met. At both June 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 six months of 1995, Midlantic did not restructure any
loans that would have been 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 $58 million at June 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 $18 million,
partially offset by additions to OREO totalling $13 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 $32 million and $30 million at June 30, 1995 and
December 31, 1994, respectively.
Midlantic originated or participated in highly leveraged transactions
("HLTs"), which represent loans for the buyout, acquisition or
recapitalization of an existing business resulting in a significant increase
in the leverage of the borrower. As previously defined by bank regulators, 10
HLTs in the amount of $97 million were outstanding at June 30, 1995 and
Midlantic is committed to lend an additional $55 million to these HLT
borrowers. At December 31, 1994, Midlantic had 13 reportable HLT outstandings
amounting to $85 million and unfunded commitments to HLT borrowers of $52
million. Midlantic's entire HLT exposure is comprised of senior debt. HLTs
comprised 1.1 percent of total loans at June 30, 1995 and their contribution
to total revenue was modest.
The Corporation's foreign outstandings (nearly two-thirds representing money
market assets) at June 30, 1995, all of which were dollar denominated,
amounted to $118 million or .9 percent of total consolidated assets as
compared with $151 million or 1.1 percent at year-end, 1994. At both June 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 3.91
percent and 4.23 percent of total loans, net of unearned income, at June 30,
1995 and December 31, 1994, respectively. At June 30, 1995, the ratio of the
ALL to nonaccrual loans was 263 percent compared with 191 percent at December
31, 1994.
<PAGE> 20
In connection with the Corporation's bulk sale of distressed real estate
assets, during the first six months of 1994, $8 million was charged-off on
loans that had been designated during that period as held for accelerated
disposition.
Midlantic's net charge-offs of $19.9 million for the first six months of 1995
compares to $38.0 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 .49 percent, as compared with .92 percent for
the first six months of 1994 and .80 percent for the year ended December 31,
1994. Net charge-offs in 1995 principally reflected net losses incurred on
commercial real estate loans ($9 million), loans to individuals ($6 million)
and commercial and financial loans ($4 million).
As part of its process to assess credit quality, Midlantic utilizes a risk
rating system to analyze its loans. The risk rating system monitors the risk
trends in Midlantic's loan portfolio and assists in establishing an adequate
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 June 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 (including
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 June 30, 1995, investment securities totalled $3.3 billion, up $562 million
or 20.4 percent from the $2.8 billion recorded at December 31, 1994. The
investment securities portfolio at June 30, 1995 included $2.5 billion of
held-to-maturity securities, $814 million of available-for-sale ("AFS")
securities and $27 million of trading securities. On June 30, 1995, Midlantic
recorded, as a component of shareholders' equity, an unrealized holding gain
on AFS securities, net of taxes, of $4.2 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 $23 million at June 30, 1995, comprised of gross
unrealized gains of $41 million and gross unrealized losses of $18 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
<PAGE> 21
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 June 30, 1995.
At June 30, 1995, the held-to-maturity securities portfolio was primarily
comprised of $828 million of federal agency mortgage-backed securities (with a
weighted average maturity of less than six years) and $1.6 billion of U.S.
Treasury securities with a remaining average maturity of approximately 1.7
years. The AFS securities portfolio consisted of $703 million of U.S.
Treasury obligations with a remaining average maturity of approximately 2
years, $49 million of federal agency mortgage-backed securities (substantially
all of which were sold in July 1995) and $62 million of equity and state and
municipal securities.
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 June 30, 1995, money market investments
totalled $565.8 million or 4.5 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 June 30, 1995, reflects increased levels of investment securities
and loans outstanding.
<PAGE> 22
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 (subsequently discussed in this
section). 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 June 30, 1995, that are due to mature, to be repriced, or
assumed to be repriced in various time intervals. On June 30, 1995, Midlantic
estimated that slightly 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 June 30, 1995 was approximately $720 million, an amount which
management believes would result in an acceptable (within policy limits)
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.
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
June 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 June 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 funding costs might rise faster
than the prime rate on the underlying hedged prime rate-based commercial
mortgage loans. Midlantic did not hold any interest rate swap contracts for
trading purposes.
<PAGE> 23 1of2
INTEREST RATE SWAPS JUNE 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% 6.11% (.12)%
Hedging construction and
development loans 25 5.39 6.25 (.86)
Hedging long-term
commercial mortgage loans 300 5.83 6.18 (.35)
Hedging retail certificates
of deposit 825 5.71 6.18 (.47)
Hedging money market
investments 200 7.23 6.01 1.22
Pay a fixed rate of interest
(all hedging U.S. government
agency securities) 599 4.68 6.14 1.46
Receive and pay a
variable rate of
interest (all hedging 300 N/A {5.50 receive {
long-term commercial { {(.96)
mortgage loans) {6.46 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 June 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.
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 June 30, 1995 $3,699
======================================================================
<PAGE> 23 2of2
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 June 30, 1995
were associated with organizations having securities rated as investment grade
by independent rating agencies.
As of June 30, 1995, the estimated credit exposure associated with interest
rate swap contracts was approximately $32 million representing those swaps
that show a positive (favorable) mark-to-market position. Management believes
that the swap contracts it had in place as of June 30, 1995 have been
effective tools in the control of interest rate risk.
<PAGE> 24 1of2
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
SIX MONTHS ENDED
JUNE 30
Favorable (Unfavorable)
_______________________________
(In thousands) 1995 1994
___________________________________________________________________________
Interest income $ 754 $14,236
Interest expense (2,265) 10,545
___________________________________________________________________________
Net interest income $(1,511) $24,781
===========================================================================
[CAPTION]
<TABLE>
MATURITY DISTRIBUTION AND SUMMARY OF FAIR VALUES
OF SWAP CONTRACTS IN PLACE AS OF JUNE 30, 1995
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 $16,544 $14,874 $ 151 $31,569
Contracts with a negative
mark-to-market position (3,976) -- (985) (4,961)
------- ------- ----- -------
Net fair value of interest rate swaps $12,568 $14,874 $(834) $26,608
======= ======= ===== =======
</TABLE>
<PAGE> 24 2of2
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.
<PAGE> 25 1of2
To fund possible future growth in loans and other longer-term interest-earning
assets, Midlantic expects to first utilize a major portion of its money market
investments and proceeds from scheduled loan payments. Liquidity may also be
generated by the possible sale or securitization of existing assets as well as
through increases in core deposits to the extent available.
LIQUIDITY RATIOS
June 30 December 31 June 30
1995 1994 1994
___________________________________________________________________________
Liquidity ratio (1) 28.70% 30.72% 29.46%
Funding ratio (2) .53 (7.77) (11.80)
Total loans, net of unearned
income, as a % of total deposits 79.51 76.40 75.57
Core deposits as a % of total
loans, net of unearned income 118.82 125.29 127.48
Unfunded loan commitments as a
% of loans outstanding 32.41 33.00 35.22
===========================================================================
(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 June 30, 1995, Midlantic had unfunded loan commitments outstanding of $2.8
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 $250 million at June
30, 1995. During the first six 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. 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.
<PAGE> 25 2of2
CAPITAL ADEQUACY
________________
Midlantic places a high priority on maintaining levels of capital that exceed
minimum bank regulatory guidelines and position the organization to compete
effectively in its market areas.
In recent years, in addition to the retention of earnings, Midlantic has
increased its capital through a variety of actions, including common stock
offerings in August 1992 and May 1993. As a result, the Corporation's capital
ratios, as well as the capital ratios of MB and its predecessors, MNB and CB,
have significantly increased. Federal bank regulators utilize risk-based and
leverage ratios to assess capital adequacy. As of June 30, 1995, Midlantic
reported a tier 1 risk-based capital ratio of 12.57 percent, a total risk-
based capital ratio (tier 1 plus tier 2 capital) of 16.63 percent and a
leverage ratio of 9.08 percent. These ratios compare with minimum regulatory
<PAGE> 26
guidelines of 4.00 percent for tier 1, 8.00 percent for total capital and 3.00
percent for leverage.
As of June 30, 1995, MB had a tier 1 risk-based capital ratio of 13.79 percent
and a total risk-based capital ratio of 15.07 percent. MB's leverage ratio as
of June 30, 1995 was 10.13 percent.
<TABLE>
<CAPTION>
CAPITAL RATIOS
JUNE 30 March 30 Dec. 31 Sept. 30 June 30
1995 1995 1994 1994 1994
_____________________________________________________________________________________
<S> <C> <C> <C> <C> <C>
Tier 1 risk-based
Midlantic 12.57% 13.58% 13.07% 12.01% 10.85%
MB 13.79 14.17 14.12 13.20 12.34
Total risk-based
Midlantic 16.63 17.77 17.22 16.10 14.87
MB 15.07 15.45 15.40 14.48 13.62
Leverage
Midlantic 9.08 9.43 9.43 8.87 8.17
MB 10.13 10.04 10.39 9.94 9.27
===== ===== ===== ===== =====
</TABLE>
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 common
stock continued to increase to $.22 (declared in January) and $.32 (declared
in April). The third quarter dividend (declared in July) 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),"
Midlantic announced in April 1995, that its Board authorized repurchase of up
to five million shares of MC's common stock. Also, 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 six months ended June 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>
<CAPTION>
LINE OF BUSINESS RESULTS
SIX MONTHS ENDED SIX MONTHS ENDED
JUNE 30, 1995 June 30, 1994
NET AVERAGE Net Average
(In thousands) INCOME ASSETS ROA Income Assets roa
________________________________________________________________________________________
<S> <C> <C> <C> <C> <C> <C>
Commercial $ 29,556(1) $ 4,754,840 1.25% $ 35,092(1) $ 5,269,324 1.34%
Retail Banking 60,286 4,262,579 2.85 43,548 4,113,152 2.14
Trust and Financial
Management Services 3,704 27,710 N/M 4,521 25,700 N/M
All Other Activities 16,170 4,219,153 .77 (6,499)(2) 4,275,474 (.31)
FAS No. 109 Tax Benefits -- -- -- 41,442 -- --
-------- ----------- ---- -------- ----------- ----
Total $109,716 $13,264,282 1.67% $118,104 $13,683,650 1.74%
======== =========== ==== ======== =========== ====
<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 $15.284 million in 1994. Excluding these one-time credits, net
income amounted to $27.665 million (or an ROA of 1.17 percent) in 1995 and $19.808
million (or an ROA of .76 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 $495 million or 9.2 percent from the
first six months of 1994 compared to the same period in 1995. 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. Most loan
originations have been with customers in the Corporation's market area
(Midlantic has generally not originated or purchased loans from borrowers
located outside its market). 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 $7.9
million or 39.7 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 1.15 percent in 1995 as compared to .79 percent in 1994.
Average consumer loans increased by $162 million or 5.0 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 June 30, 1995 amounted to $11.8 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 six months
ended June 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 SIX MONTHS
ENDED JUNE 30, 1995 VS. 1994 VOLUME(a) RATE(a)(b) TOTAL
________ _______ _______
<S> <C> <C> <C>
INTEREST-EARNING ASSETS
Interest-bearing deposits
in other banks $ (8,829) $ 4,025 $(4,804)
Other short-term investments (15,593) 11,329 (4,264)
Investment securities (c) 22,437 30,265 52,702
Commercial and financial loans(d)(e)(f) (1,896) 20,122 18,226
Real estate loans(d)(e)(f) (13,030) 14,533 1,503
Loans to individuals(d)(e)(f) 8,577 6,062 14,639
________ _______ _______
Total interest-earning assets (8,334) 86,336 78,002
________ _______ _______
INTEREST-BEARING SOURCES OF FUNDS USED TO
FINANCE INTEREST-EARNING ASSETS
Domestic savings and time deposits (6,712) 35,127 28,415
Overseas branch deposits (49) 96 47
Short-term borrowings 640 8,909 9,549
Long-term debt (120) 11 (109)
________ _______ _______
Total interest-bearing sources
of funds used to finance
interest-earning assets (6,241) 44,143 37,902
________ _______ _______
CHANGE IN NET INTEREST INCOME $ (2,093) $42,193 $40,100
======== ======= =======
<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 $2.114 million adjusted to a tax-equivalent basis,
using a 35 percent federal income tax rate.
(d) Includes a net increase of $3.686 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> 1of2
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE II - COMPARATIVE CONSOLIDATED AVERAGE BALANCE SHEET
WITH RESULTANT INTEREST AND AVERAGE RATES
(In thousands)
<CAPTION>
FOR THE THREE MONTHS ENDED JUNE 30, 1995 JUNE 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 $ 107,978 $ 1,675 6.22% $ 490,166 $ 4,705 3.85%
Other short-term investments 545,479 8,834 6.50 1,311,013 12,723 3.89
U.S. Treasury securities 2,351,310 37,453 6.39 1,090,437 9,086 3.34
Obligations of U.S.
government agencies 841,927 15,216 7.25 970,814 15,896 6.57
Obligations of states and
political subdivisions(1) 33,763 676 8.03 13,304 228 6.87
Other securities 61,282 2,118 13.86 66,908 950 5.70
___________ ________ _____ ___________ ________ ____
Total investment securities 3,288,282 55,463 6.77 2,141,463 26,160 4.90
___________ ________ _____ ___________ ________ ____
Commercial and financial
loans 3,065,093 72,705 9.51 3,093,633 61,555 7.98
Real estate loans 2,673,062 60,452 9.07 2,874,082 58,763 8.20
Loans to individuals 2,598,115 56,551 8.73 2,372,945 48,878 8.26
___________ ________ _____ ___________ ________ ____
Total loans(1)(2)(3)(4) 8,336,270 189,708 9.13 8,340,660 169,196 8.14
___________ ________ _____ ___________ ________ ____
Total interest-earning
assets 12,278,009 255,680 8.35 12,283,302 212,784 6.95
___________ ________ _____ ___________ ________ ____
Noninterest-earning assets
Cash and due from banks 774,041 763,459
Other assets 690,841 858,598
Allowance for loan losses (340,383) (378,875)
___________ ___________
Total noninterest-earning
assets 1,124,499 1,243,182
___________ ___________
Total assets $13,402,508 $13,526,484
___________ ___________
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing liabilities
Domestic savings and time
deposits $ 7,975,797 70,385 3.54 $ 8,468,288 53,533 2.54
Overseas branch deposits 6,194 85 5.50 12,954 114 3.53
Short-term borrowings 858,607 12,457 5.82 644,947 5,579 3.47
Long-term debt 372,849 8,583 9.23 374,483 8,619 9.23
___________ ________ _____ ___________ ________ ____
Total interest-bearing
liabilities 9,213,447 91,510 3.98 9,500,672 67,845 2.86
___________ ________ _____ ___________ ________ ____
<PAGE> 32 2of2
Noninterest-bearing liabilities
and shareholders' equity
Demand deposits 2,595,539 2,666,221
Other liabilities 195,745 166,796
___________ ___________
Total noninterest-bearing
liabilities 2,791,284 2,833,017
___________ ___________
Shareholders' equity 1,397,777 1,192,795
___________ ___________
Total liabilities and
shareholders' equity $13,402,508 $13,526,484
___________ ___________
NET INTEREST INCOME $164,170 $144,939
======== ========
INTEREST INCOME AS A % OF
AVERAGE INTEREST-EARNING ASSETS 8.35% 6.95%
===== ====
INTEREST EXPENSE AS A % OF
AVERAGE INTEREST-EARNING ASSETS 2.99% 2.22%
===== ====
NET INTEREST MARGIN (5) 5.36% 4.73%
===== ====
<FN>
See Notes to Comparative Consolidated Average Balance Sheet with Resultant Interest and
Average Rates.
</TABLE>
<PAGE> 33 1of2
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE III - COMPARATIVE CONSOLIDATED AVERAGE BALANCE SHEET
WITH RESULTANT INTEREST AND AVERAGE RATES
(In thousands)
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30, 1995 JUNE 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 $ 164,693 $ 4,865 5.96% $ 529,320 $ 9,669 3.68%
Other short-term investments 588,604 18,256 6.25 1,252,561 22,520 3.63
U.S. Treasury securities 2,241,131 70,655 6.36 1,175,608 21,142 3.63
Obligations of U.S.
government agencies 852,269 30,629 7.25 1,005,928 30,429 6.10
Obligations of states and
political subdivisions 29,305 1,214 8.35 13,838 497 7.24
Other securities 61,590 4,160 13.62 68,159 1,888 5.59
___________ ________ _____ ___________ ________ ____
Total investment securities 3,184,295 106,658 6.75 2,263,533 53,956 4.81
___________ ________ _____ ___________ ________ ____
Commercial and financial loans 3,004,933 138,818 9.32 3,052,242 120,592 7.97
Real estate loans 2,665,310 118,709 8.98 2,978,111 117,206 7.94
Loans to individuals 2,547,831 109,230 8.65 2,342,813 94,591 8.14
___________ ________ _____ ___________ ________ ____
Total loans(1)(2)(3)(4) 8,218,074 366,757 9.00 8,373,166 332,389 8.01
___________ ________ _____ ___________ ________ ____
Total interest-earning
assets 12,155,666 496,536 8.24 12,418,580 418,534 6.80
___________ ________ _____ ___________ ________ ____
Noninterest-earning assets
Cash and due from banks 761,894 768,685
Other assets 692,285 886,696
Allowance for loan losses (345,563) (390,311)
___________ ___________
Total noninterest-earning
assets 1,108,616 1,265,070
___________ ___________
Total assets $13,264,282 $13,683,650
___________ ___________
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing liabilities
Domestic savings and time
deposits $ 7,990,594 135,621 3.42 $ 8,570,036 107,206 2.52
Overseas branch deposits 8,787 236 5.42 11,325 189 3.37
Short-term borrowings 716,109 20,371 5.74 681,170 10,822 3.20
Long-term debt 372,918 17,170 9.28 375,523 17,279 9.28
___________ ________ _____ ___________ ________ ____
Total interest-bearing
liabilities 9,088,408 173,398 3.85 9,638,054 135,496 2.83
___________ ________ _____ ___________ ________ ____
<PAGE> 33 2of2
Noninterest-bearing liabilities
and shareholders' equity
Demand deposits 2,596,775 2,720,209
Other liabilities 183,156 157,299
___________ ___________
Total noninterest-bearing
liabilities 2,779,931 2,877,508
___________ ___________
Shareholders' equity 1,395,943 1,168,088
___________ ___________
Total liabilities and
shareholders' equity $13,264,282 $13,683,650
___________ ___________
NET INTEREST INCOME $323,138 $283,038
======== ========
INTEREST INCOME AS A % OF
AVERAGE INTEREST-EARNING ASSETS 8.24% 6.80%
===== ====
INTEREST EXPENSE AS A % OF
AVERAGE INTEREST-EARNING ASSETS 2.88% 2.20%
===== ====
NET INTEREST MARGIN (5) 5.36% 4.60%
===== ====
<FN>
See Notes to Comparative Consolidated Average Balance Sheet with Resultant Interest and
Average Rates.
<PAGE> 34
Midlantic Corporation and Subsidiaries
NOTES TO COMPARATIVE CONSOLIDATED AVERAGE BALANCE SHEET
WITH RESULTANT INTEREST AND AVERAGE RATES
<FN>
(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 $1.171 million and $79 thousand for the three months ended June 30, 1995 and 1994,
respectively, and $2.284 million and $170 thousand for the six months ended June 30,
1995 and 1994, respectively. The tax-equivalent adjustment for loans amounted to
$2.505 million and $657 thousand for the three months ended June 30, 1995 and 1994,
respectively, and $5.054 million and $1.368 million for the six months ended June 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 5.24 percent and 4.71 percent for the three months
ended June 30, 1995 and 1994, respectively, and 5.24 percent and 4.58 percent for the
six months ended June 30, 1995 and 1994, respectively.
</TABLE>
<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>
JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30
FOR THE THREE MONTHS ENDED 1995 1995 1994 1994 1994
___________ ___________ ___________ ___________ ___________
<S> <C> <C> <C> <C> <C>
INTEREST-EARNING ASSETS
Interest-bearing deposits
Average balance $ 107,978 $ 221,408 $ 286,183 $ 395,985 $ 490,166
Interest income 1,675 3,190 3,604 4,313 4,705
Average rate 6.22% 5.84% 5.00% 4.32% 3.85%
Other short-term
investments
Average balance $ 545,479 $ 631,729 $ 1,099,417 $ 1,375,525 $ 1,311,013
Interest income 8,834 9,422 14,167 15,583 12,723
Average rate 6.50% 6.05% 5.11% 4.49% 3.89%
Investment securities
Average balance $ 3,288,282 $ 3,080,308 $ 2,439,842 $ 2,052,276 $ 2,141,463
Interest income(1) 55,463 51,195 36,369 26,982 26,160
Average rate(1) 6.77% 6.74% 5.91% 5.22% 4.90%
Total loans
Average balance $ 8,336,270 $ 8,099,878 $ 8,151,921 $ 8,317,699 $ 8,340,660
Interest income(1) 189,708 177,049 173,651 174,902 169,196
Average rate(1) 9.13% 8.86% 8.45% 8.34% 8.14%
___________ ___________ ___________ ___________ ___________
Total average interest-
earning assets $12,278,009 $12,033,323 $11,977,363 $12,141,485 $12,283,302
Total interest income 255,680 240,856 227,791 221,780 212,784
Total average rate on
interest-earning assets 8.35% 8.12% 7.55% 7.25% 6.95%
=========== =========== =========== =========== ===========
<PAGE> 35 2of2
INTEREST-BEARING LIABILITIES
Deposits
Average balance $ 7,981,991 $ 8,016,771 $ 8,103,600 $ 8,257,766 $ 8,481,242
Interest expense 70,470 65,387 60,693 55,278 53,647
Average rate 3.54% 3.31% 2.97% 2.66% 2.54%
Short-term borrowings
Average balance $ 858,607 $ 573,611 $ 459,920 $ 516,428 $ 644,947
Interest expense 12,457 7,914 5,222 5,084 5,579
Average rate 5.82% 5.60% 4.50% 3.91% 3.47%
Long-term debt
Average balance $ 372,849 $ 372,987 $ 373,000 $ 373,000 $ 374,483
Interest expense 8,583 8,587 8,588 8,586 8,619
Average rate 9.23% 9.34% 9.13% 9.13% 9.23%
___________ ___________ ___________ ___________ ___________
Total average interest-
bearing liabilities $ 9,213,447 $ 8,963,369 $ 8,936,520 $ 9,147,194 $ 9,500,672
Total interest expense 91,510 81,888 74,503 68,948 67,845
Total average rate on
interest-bearing
liabilities 3.98% 3.71% 3.31% 2.99% 2.86%
=========== =========== =========== =========== ===========
NET INTEREST INCOME $ 164,170 $ 158,968 $ 153,288 $ 152,832 $ 144,939
=========== =========== =========== =========== ===========
NET INTERET MARGIN(2) 5.36% 5.36% 5.08% 4.99% 4.73%
=========== =========== =========== =========== ===========
<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
$1.171 million, $1.113 million, $150 thousand, $100 thousand, and $79 thousand for the
quarters ended June 30, 1995, March 31, 1995, December 31, 1994, September 30, 1994 and
June 30, 1994, respectively. For each of those same periods, the tax-equivalent
adjustment for loans amounted to $2.505 million, $2.549 million, $2.215 million, $618
thousand and $657 thousand, respectively.
(2) Net interest margin on an actual basis (not on a tax-equivalent basis) amounted
to 5.24 percent, 5.23 percent, 5.00 percent, 4.97 percent and 4.71 percent for the
quarters ended June 30, 1995, March 31, 1995, December 31, 1994, September 30, 1994 and
June 30, 1994, respectively.
</TABLE>
<PAGE> 36
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE V - AVERAGE FUNDING SOURCES - BALANCES AND RATES PAID
(In thousands)
<CAPTION>
JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30
FOR THE THREE MONTHS ENDED 1995 1995 1994 1994 1994
___________ ___________ ___________ ___________ ___________
<S> <C> <C> <C> <C> <C>
AVERAGE BALANCES
DEPOSITS
Noninterest-bearing demand $ 2,595,539 $ 2,598,011 $ 2,680,786 $ 2,695,792 $ 2,666,221
Interest-bearing demand 1,280,015 1,308,677 1,346,315 1,364,251 1,391,793
Savings 1,623,998 1,641,782 1,652,802 1,681,768 1,659,882
Retail money market
accounts 1,738,056 1,865,454 1,961,889 2,058,531 2,128,083
CDs over $100,000 577,916 492,974 533,295 455,249 391,517
Other time 2,755,812 2,696,504 2,595,063 2,685,757 2,897,013
Overseas branch deposits 6,194 11,380 14,236 12,210 12,954
___________ ___________ ___________ ___________ ___________
Total average deposits $10,577,530 $10,614,782 $10,784,386 $10,953,558 $11,147,463
=========== =========== =========== =========== ===========
SHORT-TERM BORROWINGS
Federal funds purchased $ 56,290 $ 43,204 $ 39,718 $ 30,480 $ 35,962
Repurchase agreements 778,055 503,171 395,862 461,536 580,362
Other short-term
borrowings 24,262 27,236 24,340 24,412 28,623
___________ ___________ ___________ ___________ ___________
Total average short-term
borrowings $ 858,607 $ 573,611 $ 459,920 $ 516,428 $ 644,947
=========== =========== =========== =========== ===========
LONG-TERM DEBT $ 372,849 $ 372,987 $ 373,000 $ 373,000 $ 374,483
=========== =========== =========== =========== ===========
AVERAGE RATES
DEPOSITS
Interest-bearing demand 1.24% 1.24% 1.21% 1.17% 1.14%
Savings 2.17 2.21 2.18 2.07 2.05
Retail money market
accounts 3.12 3.06 2.81 2.52 2.39
CDs over $100,000 5.61 5.18 4.64 4.14 3.87
Other time 5.24 4.80 4.16 3.62 3.41
Overseas branch deposits 5.50 5.38 4.40 4.03 3.53
___________ ___________ ___________ ___________ ___________
Total average rate
paid on deposits 3.54% 3.31% 2.97% 2.66% 2.54%
=========== =========== =========== =========== ===========
SHORT-TERM BORROWINGS
Federal funds purchased 5.98% 5.84% 5.12% 4.52% 3.86
Repurchase agreements 5.81 5.57 4.41 3.86 3.44
Other short-term
borrowings 5.70 5.61 5.02 4.10 3.62
___________ ___________ ___________ ___________ ___________
Total average rate paid
on short-term borrowings 5.82% 5.60% 4.50% 3.91% 3.47%
=========== =========== =========== =========== ===========
LONG-TERM DEBT 9.23% 9.34% 9.13% 9.13% 9.23%
=========== =========== =========== =========== ===========
</TABLE>
<PAGE> 37
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE VI - INVESTMENT SECURITIES - CARRYING AND FAIR VALUES
AND GROSS UNREALIZED GAINS AND LOSSES
JUNE 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 $1,621,925 $40,027 $ (4,020) $1,657,932
Obligations of United States government agencies 828,464 845 (14,101) 815,208
Obligations of states and political subdivisions 21,068 58 (4) 21,122
Other securities 6,561 110 (19) 6,652
__________ _______ ________ __________
$2,478,018 $41,040 $(18,144) $2,500,914
========== ======= ======== ==========
GROSS GROSS
AMORTIZED UNREALIZED UNREALIZED FAIR
AVAILABLE-FOR-SALE COST GAINS LOSSES VALUE
__________ _______ ________ __________
United States Treasury securities $ 689,433 $13,154 $ (2) $ 702,585
Obligations of United States government agencies 48,768 -- (5) 48,763
Obligations of states and political subdivisions 6,284 -- (421) 5,863
Other securities 62,163 101 (5,877) 56,387
__________ _______ ________ __________
$ 806,648 $13,255 $ (6,305) $ 813,598
========== ======= ======== ==========
</TABLE>
<TABLE>
TABLE VII - INVESTMENT SECURITIES - GROSS REALIZED GAINS AND LOSSES*
(In thousands)
<CAPTION>
THREE MONTHS ENDED SIX MONTHS ENDED
JUNE 30 JUNE 30
1995 1994 1995 1994
____ _______ ____ _______
<S> <C> <C> <C> <C>
Gross realized investment
securities gains $184 $ 1,768 $184 $ 3,031
Gross realized investment
securities losses -- (6,405) -- (6,405)
____ _______ ____ _______
Investment securities gains $184 $(4,637) $184 $(3,374)
==== ======= ==== =======
<FN>
* Represents gains/losses on available-for-sale securities.
</TABLE>
<PAGE> 38 1of2
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE VIII - LOANS
(In thousands)
<CAPTION>
JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30
1995 1995 1994 1994 1994
__________ __________ __________ __________ __________
<S> <C> <C> <C> <C> <C>
Commercial and financial
loans $3,222,804 $3,060,195 $3,018,972 $3,041,452 $3,176,688
Real estate
Construction and development 525,799 510,335 598,232 589,695 697,014
Long-term commercial
mortgage 1,644,155 1,611,088 1,575,685 1,593,468 1,607,327
Long-term 1-4 family
residential 592,976 527,671 544,428 542,653 555,883
Loans to individuals 2,837,623 2,666,960 2,663,908 2,608,270 2,524,202
__________ __________ __________ __________ __________
Total loans 8,823,357 8,376,249 8,401,225 8,375,538 8,561,114
Less: unearned income 166,936 153,362 144,850 144,257 141,794
__________ __________ __________ __________ __________
Total loans, net of
unearned income $8,656,421 $8,222,887 $8,256,375 $8,231,281 $8,419,320
========== ========== ========== ========== ==========
</TABLE>
<PAGE> 38 2of2
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE IX - CONSTRUCTION AND DEVELOPMENT LOANS - PROPERTY TYPE BY STATE
(In thousands)
<CAPTION>
JUNE 30, 1995 NEW JERSEY PENNSYLVANIA NEW YORK FLORIDA OTHER TOTAL
________ ________ _______ _______ _______ ________
<S> <C> <C> <C> <C> <C> <C>
PORTFOLIO
Office buildings $ 57,268 $ 62,249 $13,850 $ -- $ -- $133,367
Shopping centers 38,630 29,179 9,101 -- 20,302 97,212
Residential 50,426 28,569 653 8,822 660 89,130
Land 26,494 18,276 3,237 1,744 2,041 51,792
Industrial/warehouse 26,218 9,761 6,921 -- -- 42,900
Hotels/motels 16,190 -- -- 12,911 -- 29,101
Other 67,987 773 8,166 -- 5,371 82,297
________ ________ _______ _______ _______ ________
Total $283,213 $148,807 $41,928 $23,477 $28,374 $525,799
======== ======== ======= ======= ======= ========
NONACCRUAL SEGMENT
Office buildings $ 941 $ -- $ -- $ -- $ -- $ 941
Shopping centers -- -- -- -- -- --
Residential 2,428 183 -- -- -- 2,611
Land 547 706 -- -- -- 1,253
Industrial/warehouse -- -- -- -- -- --
Hotels/motels 1,345 -- -- -- -- 1,345
Other -- -- -- -- 2,150 2,150
________ ________ _______ _______ _______ ________
Total $ 5,261 $ 889 $ -- $ -- $ 2,150 $ 8,300
======== ======== ======= ======= ======= ========
PERCENT OF NONACCRUAL
TO PORTFOLIO 1.86% .60% --% --% 7.58% 1.58%
======== ======== ======= ======= ======= ========
</TABLE>
<PAGE> 39
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE X - LONG-TERM COMMERCIAL MORTGAGE LOANS - PROPERTY TYPE BY STATE
(In thousands)
<CAPTION>
JUNE 30, 1995 NEW JERSEY PENNSYLVANIA NEW YORK FLORIDA OTHER TOTAL
________ ________ _______ _______ _______ __________
<S> <C> <C> <C> <C> <C> <C>
PORTFOLIO
Industrial/warehouse $271,535 $172,125 $21,611 $ 1,040 $ 7,712 $ 474,023
Office buildings 192,129 138,084 7,251 -- 8,738 346,202
Retail businesses 120,483 69,397 3,582 -- 371 193,833
Apartment houses and
other rental
properties 85,381 44,349 1,097 1,379 9,180 141,386
Hospitals, medical
centers and nursing
homes 80,693 39,002 1,053 -- -- 120,748
Shopping centers 35,344 54,928 369 4,000 9,733 104,374
Automobile and truck
sales 49,843 16,053 83 -- -- 65,979
Hotels/motels 43,741 2,041 2,328 -- 15,797 63,907
Other 67,614 53,245 2,078 6,996 3,770 133,703
________ ________ _______ _______ _______ __________
Total $946,763 $589,224 $39,452 $13,415 $55,301 $1,644,155
======== ======== ======= ======= ======= ==========
NONACCRUAL SEGMENT
Industrial/warehouse $ 13,197 $ 9,603 $ 5,611 $ -- $ 590 $ 29,001
Office buildings 3,881 5,862 -- -- -- 9,743
Retail businesses 4,298 -- -- -- -- 4,298
Apartment houses and
other rental
properties 5,596 2,217 30 -- -- 7,843
Hospitals, medical
centers and nursing
homes 75 1,343 -- -- -- 1,418
Shopping centers 119 335 -- -- -- 454
Automobile and truck
sales 985 447 -- -- -- 1,432
Hotels/motels 537 4,835 -- -- -- 5,372
Other 6,312 2,197 346 -- -- 8,855
________ ________ _______ _______ _______ __________
Total $ 35,000 $ 26,839 $ 5,987 $ -- $ 590 $ 68,416
======== ======== ======= ======= ======= ==========
PERCENT OF NONACCRUAL
TO PORTFOLIO 3.70% 4.55% 15.18% --% 1.07% 4.16%
======== ======== ======= ======= ======= ==========
</TABLE>
<PAGE> 40
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE XI - SUMMARY OF LOAN LOSS EXPERIENCE/ALLOWANCE FOR LOAN LOSSES
(In thousands)
<CAPTION>
JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30
FOR THE THREE MONTHS ENDED 1995 1995 1994 1994 1994
________ ________ ________ ________ ________
<S> <C> <C> <C> <C> <C>
Allowance at beginning of period $337,170 $349,520 $357,163 $373,345 $387,374
Allowance of acquired bank (BOYR) 6,105 -- -- -- --
Provision charged to operating
expense 1,500 1,500 (433) 4,785 10,827
Loans charged off
Commercial and financial 5,276 12,673* 12,687 11,196 20,096
Real estate
Construction and development 163 107 101 7,856 4,415
Long-term commercial mortgage 7,663 3,589 285 2,120 4,603
Long-term 1-4 family residential 197 155 13 513 180
Loans to individuals 5,474 5,580 5,475 7,059 6,281
________ ________ ________ ________ ________
Total loans charged off 18,773 22,104 18,561 28,744 35,575
________ ________ ________ ________ ________
Recoveries on loans
Commercial and financial 9,910 3,923 4,580 4,141 6,433
Real estate
Construction and development 320 989 3,931 932 1,255
Long-term commercial mortgage 330 864 629 834 285
Long-term 1-4 family residential 55 2 1 1 2
Loans to individuals 2,087 2,476 2,210 1,869 2,744
________ ________ ________ ________ ________
Total recoveries on loans 12,702 8,254 11,351 7,777 10,719
________ ________ ________ ________ ________
Net loans charged off 6,071 13,850 7,210 20,967 24,856
________ ________ ________ ________ ________
Allowance at end of period $338,704 $337,170 $349,520 $357,163 $373,345
======== ======== ======== ======== ========
<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>
JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30
1995 1995 1994 1994 1994
________ ________ ________ ________ ________
<S> <C> <C> <C> <C> <C>
NONACCRUAL LOANS
Commercial and financial $ 42,067 $ 68,431 $ 81,304 $ 90,716 $114,980
Real estate
Construction and development 8,300 9,484 28,765 41,686 41,036
Long-term mortgage 68,416 64,093 58,876 62,819 69,536
Loans to individuals 10,068 12,495 14,473 17,274 21,083
________ ________ ________ ________ ________
TOTAL NONACCRUAL LOANS $128,851 $154,503 $183,418 $212,495 $246,635
======== ======== ======== ======== ========
ALLOWANCE FOR LOAN LOSSES
AS A % OF NONACCRUAL LOANS 262.9% 218.2% 190.6% 168.1% 151.4%
======== ======== ======== ======== ========
OTHER REAL ESTATE OWNED, NET $ 58,369 $ 60,050 $ 64,388 $ 80,612 $ 86,647
________ ________ ________ ________ ________
TOTAL NONACCRUAL LOANS AND
OTHER REAL ESTATE OWNED, NET $187,220 $214,553 $247,806 $293,107 $333,282
======== ======== ======== ======== ========
TOTAL RENEGOTIATED LOANS $ 37,842 $ 38,000 $ 59,821 $ 45,937 $108,064
======== ======== ======== ======== ========
ACCRUING LOANS PAST DUE 90
DAYS OR MORE AS TO
INTEREST OR PRINCIPAL
PAYMENTS $ 32,158 $ 31,051 $ 30,369 $ 27,903 $ 40,032
======== ======== ======== ======== ========
</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 SIX MONTHS ENDED JUNE 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 $6,262 $10,911
Interest income actually recorded
on nonaccrual loans 1,308 971
______ _______
Net decrease in interest income
on nonaccrual loans $4,954 $ 9,940
====== =======
RENEGOTIATED LOANS
Interest income that would have been
recorded on renegotiated loans
outstanding at period-end in
accordance with original terms $2,458 $ 4,901
Interest income actually recorded
on renegotiated loans 1,751 4,867
______ _______
Net decrease in interest
income on renegotiated loans $ 707 $ 34
====== =======
</TABLE>
<TABLE>
TABLE XIV - NONACCRUAL LOANS ACTIVITY
(In thousands)
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30 1995 1994
________ ________
<S> <C> <C>
Balance at beginning of year $183,418 $300,731
Nonaccrual loans of acquired bank (BOYR) 10,456 --
Additions 46,432 95,857
Payments (79,506) (70,572)
Returned to accrual status (8,871) (15,514)
Charge-offs (18,990) (46,513)
Transfers to OREO (4,306) (16,195)
Transfers to "assets held for
accelerated disposition" -- (884)
Other 218 (275)
________ ________
BALANCE AT JUNE 30 $128,851 $246,635
======== ========
</TABLE>
<PAGE> 43
<TABLE>
TABLE XV - ACQUIRED OREO PROPERTIES - PROPERTY TYPE BY STATE
(In thousands)
<CAPTION>
JUNE 30, 1995 NEW JERSEY PENNSYLVANIA NEW YORK OTHER TOTAL
_______ ______ ____ ____ _______
<S> <C> <C> <C> <C> <C>
Hotels/motels $21,713 $ -- $ -- $ -- $21,713
Land 9,587 1,190 447 700 11,924
Industrial/warehouse 4,609 3,633 -- -- 8,242
Residential tract 5,815 1,892 30 -- 7,737
Office buildings 2,578 980 -- -- 3,558
Shopping centers 1,788 -- -- -- 1,788
Other 2,872 535 -- -- 3,407
_______ ______ ____ ____ _______
TOTAL $48,962 $8,230 $477 $700 $58,369
======= ====== ==== ==== =======
</TABLE>
<TABLE>
TABLE XVI - OTHER REAL ESTATE OWNED ACTIVITY
(In thousands)
<CAPTION>
FOR THE SIX MONTHS ENDED JUNE 30 1995 1994
________ ________
<S> <C> <C>
Balance at beginning of year $ 64,388 $ 97,238
Transfers from loans 8,268 20,205
OREO of acquired bank (BOYR) 2,830 --
Advances -- 101
Charges to operating expenses to
absorb declines in net realizable value -- (4,307)
Sales of properties (17,983) (25,729)
Transfers from (to) "assets held for
accelerated disposition" 1,700 (876)
Other (834)* 15
________ ________
BALANCE AT JUNE 30 $ 58,369 $ 86,647
======== ========
<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>
JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30
FOR THE THREE MONTHS ENDED 1995 1995 1994 1994 1994
________ ________ ________ ________ ________
<S> <C> <C> <C> <C> <C>
INTEREST INCOME
Interest and fees on loans $187,203 $174,500 $171,436 $174,284 $168,539
Interest on investment securities 54,292 50,082 36,219 26,882 26,081
Interest on deposits with banks 1,675 3,190 3,604 4,313 4,705
Interest on other short-term
investments 8,834 9,422 14,167 15,583 12,723
________ ________ ________ ________ ________
Total interest income 252,004 237,194 225,426 221,062 212,048
________ ________ ________ ________ ________
INTEREST EXPENSE
Interest on deposits 70,470 65,387 60,693 55,278 53,647
Interest on short-term borrowings 12,457 7,914 5,222 5,084 5,579
Interest on long-term debt 8,583 8,587 8,588 8,586 8,619
________ ________ ________ ________ ________
Total interest expense 91,510 81,888 74,503 68,948 67,845
________ ________ ________ ________ ________
Net interest income 160,494 155,306 150,923 152,114 144,203
Provision for loan losses 1,500 1,500 (433) 4,785 10,827
________ ________ ________ ________ ________
Net interest income after
provision for loan losses 158,994 153,806 151,356 147,329 133,376
NONINTEREST INCOME
Trust income 11,642 11,228 11,336 11,285 10,860
Service charges on deposits 19,530 18,845 19,342 20,029 19,020
Investment securities gains (losses) 184 -- (3,289) -- (4,637)
Net gains on disposition of assets -- 3,100 6,180 1,064 25,056
Other 16,860 15,271 13,713 16,992 19,930
________ ________ ________ ________ ________
Total noninterest income 48,216 48,444 47,282 49,370 70,229
________ ________ ________ ________ ________
207,210 202,250 198,638 196,699 203,605
________ ________ ________ ________ ________
NONINTEREST EXPENSES
Salaries and benefits 61,706 62,423 54,338 58,223 57,901
Net occupancy 10,763 10,957 10,830 10,469 10,820
Equipment rental and expense 5,865 6,927 4,705 5,922 5,990
Other real estate owned, net (1,333) (1,510) 3,363 (472) (3,423)
FDIC assessment charges 5,944 5,944 7,021 7,005 7,187
Legal and professional fees 9,278 7,988 12,527 11,512 11,260
Other 24,918 24,123 23,622 22,395 29,363
________ ________ ________ ________ ________
Total noninterest expenses 117,141 116,852 116,406 115,054 119,098
________ ________ ________ ________ ________
Income before income taxes 90,069 85,398 82,232 81,645 84,507
Income tax expense 33,677 32,074 5,006 5,398 12,228
________ ________ ________ ________ ________
NET INCOME $ 56,392 $ 53,324 $ 77,226 $ 76,247 $ 72,279
======== ======== ======== ======== ========
(continued on next page)
<PAGE> 45
<CAPTION>
Midlantic Corporation and Subsidiaries
TABLE XVII - CONSOLIDATED SUMMARY OF INCOME
(In thousands, except per share data)
(continued)
JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30
FOR THE THREE MONTHS ENDED 1995 1995 1994 1994 1994
________ ________ ________ ________ ________
<S> <C> <C> <C> <C> <C>
NET INCOME APPLICABLE TO PRIMARY
COMMON SHARES $ 55,485 $ 52,418 $ 75,414 $ 75,341 $ 71,372
NET INCOME APPLICABLE TO FULLY
DILUTED COMMON SHARES 56,460 53,397 76,393 76,319 72,371
======== ======== ======== ======== ========
NET INCOME PER COMMON SHARE
Primary $ 1.06 $ .98 $ 1.42 $ 1.42 $ 1.35
Fully diluted 1.05 .97 1.40 1.40 1.33
======== ======== ======== ======== ========
AVERAGE COMMON SHARES AND
COMMON SHARE EQUIVALENTS
Primary 52,332 53,244 53,079 53,097 52,915
Fully diluted 53,912 54,900 54,600 54,618 54,467
======== ======== ======== ======== ========
</TABLE>
<PAGE> 46 1of2
<TABLE>
Midlantic Corporation and Subsidiaries
TABLE XVIII - CONSOLIDATED SHARE AND PER SHARE INFORMATION AND PERFORMANCE RATIOS
<CAPTION>
JUNE 30 MARCH 31 DEC. 31 SEPT. 30 JUNE 30
FOR THE THREE MONTHS ENDED 1995 1995 1994 1994 1994
______ ______ ______ ______ ______
<S> <C> <C> <C> <C> <C>
BOOK VALUE AT QUARTER-END $26.80 $25.93 $25.19 $23.96 $22.66
______ ______ ______ ______ ______
MARKET PRICES OF COMMON STOCK
High $40.25 $34.88 $28.63 $30.63 $31.88
Low 33.88 26.25 24.00 27.63 27.50
Close 40.00 34.25 26.50 27.63 29.25
______ ______ ______ ______ ______
OPERATING RATIOS
Net interest margin (actual) 5.24% 5.23% 5.00% 4.97% 4.71%
Net interest margin (tax-equiv-
alent basis) 5.36 5.36 5.08 4.99 4.73
Return on average assets 1.69 1.65 2.33 2.28 2.14
Return on average common
equity 16.51 15.82 23.43 24.50 25.05
Return on average total equity 16.18 15.51 22.83 23.82 24.31
______ ______ ______ ______ ______
LIQUIDITY AND FUNDING RATIOS
Liquidity ratio (1) 28.7% 31.8% 30.7% 30.7% 29.5%
Funding ratio (2) .5 (2.5) (7.8) (6.0) (11.8)
______ ______ ______ ______ ______
CAPITAL RATIOS
Risk-adjusted ratios
Tier 1 capital ratio 12.57% 13.58% 13.07% 12.01% 10.85%
Total capital ratio 16.63 17.77 17.22 16.10 14.87
Leverage ratio 9.08 9.43 9.43 8.87 8.17
Average equity as a % of
average assets 10.43 10.62 10.22 9.57 8.82
______ ______ ______ ______ ______
LOAN QUALITY RATIOS
As a % of total period-end
loans, net of unearned income
Allowance for loan losses
at period-end 3.91% 4.10% 4.23% 4.34% 4.43%
Nonaccrual loans at
period-end 1.49 1.88 2.22 2.58 2.93
As a % of average loans, net
of unearned income
Net charge-offs .29 .69 .35 1.00 1.20
Provision for loan losses .07 .08 (.02) .23 .52
______ ______ ______ ______ ______
AVERAGE TOTAL LOANS, NET OF
UNEARNED INCOME, AS A % OF
AVERAGE TOTAL DEPOSITS 78.81% 76.31% 75.59% 75.94% 74.82%
______ ______ ______ ______ ______
<PAGE 46 2of2
NONFINANCIAL DATA
Total number of employees 6,434 6,289 6,174 5,997 5,984
Total number of full-time
equivalent employees 5,565 5,416 5,327 5,213 5,194
Total number of domestic and
foreign banking offices 339 328 325 325 326
====== ====== ====== ====== ======
<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
_________________
As MC reported in "Item 3 - Legal Proceedings" of its Annual Report
on Form 10-K for the year ended December 31, 1994 and in "Item 1 -
Legal Proceedings" of its Quarterly Report on Form 10-Q for the
quarter ended March 31, 1995, MC and various directors and former
officers of MC were defendants in a consolidated action, initially
commenced in March 1990, pending in Federal District Court in New
Jersey (the "Action"). The Action had been instituted by
shareholders of MC, either on behalf of MC against various directors
and former officers of MC, or directly against MC and various
directors and former officers of MC. In general, the Action sought
damages payable either to MC or to the shareholders and holders of
certain debt securities because of alleged discrepancies between
certain public statements made by MC and later results of MC's
operations. The claims were based upon alleged violations of the
United States securities laws and New Jersey common law.
The parties to the Action entered into a Stipulation of Settlement
of the Action providing for the payment by the defendants of an
aggregate sum of $6.2 million, 60 percent of which is payable by
insurance carriers. On June 6, 1995, the Federal District Court
entered an order approving the settlement and dismissing the Action
with prejudice. The period for the filing of a Notice of Appeal has
expired.
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"). The 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.
The time for MC to answer or otherwise respond to the Complaint
currently expires on September 14, 1995. Management of MC believes
the allegations in the Complaint are entirely without merit and
intends to contest the Lawsuit vigorously.
<PAGE> 48
ITEM 4 SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
___________________________________________________
MC's 1995 Annual Meeting of Shareholders was held on May 4, 1995.
At the meeting, shareholders voted for the election of directors,
the ratification of independent accountants, a proposal to approve
amendments to the Midlantic Annual Incentive and Bonus Plan, a
proposal to adopt the Midlantic Incentive Stock and Stock Option
Plan (1995), and upon shareholder proposals relating to management
compensation, lawyers serving as directors and term limits for
directors. The results of the votes are as follows:
ELECTION OF DIRECTORS
_____________________
Nominee Votes For Votes Withheld
_______ _________ ______________
Eugene R. Croisant 41,638,545 401,391
Charles E. Ehinger 41,632,755 407,181
David F. Girard-diCarlo 41,427,273 612,663
Frederick C. Haab 41,650,484 389,452
Kevork S. Hovnanian 41,422,136 617,800
Arthur J. Kania 41,525,292 514,644
Aubrey C. Lewis 41,576,418 463,518
Bruce C. Lindsay 41,606,787 433,149
David F. McBride 41,497,841 542,095
Desmond P. McDonald 41,479,855 560,081
Roy T. Peraino 41,496,171 543,765
Ernest L. Ransome, III 41,618,293 421,643
B. P. Russell 41,563,574 476,362
Garry J. Scheuring 41,545,469 494,467
Marcy Syms 41,452,116 587,820
Ratification of Independent Accountants
_______________________________________
Votes for: 41,696,754
Votes against: 199,385
Abstentions: 143,797
Broker nonvotes: 0
Proposal to approve amendments to the Midlantic Annual Incentive and Bonus
__________________________________________________________________________
Plan
____
Votes for: 32,918,380
Votes against: 3,344,638
Abstentions: 746,069
Broker nonvotes: 5,015,646
Proposal to approve the Midlantic Incentive Stock and Stock Option Plan (1995)
______________________________________________________________________________
Votes for: 31,511,743
Votes against: 7,503,799
Abstentions: 837,740
Broker nonvotes: 2,156,656
Shareholder proposal relating to management compensation
________________________________________________________
Votes for: 2,963,764
Votes against: 28,935,877
Abstentions: 1,166,927
Broker nonvotes: 8,947,165
(continued)
<PAGE> 49
Shareholder proposal relating to lawyers serving as directors
_____________________________________________________________
Votes for: 3,353,852
Votes against: 28,555,445
Abstentions: 1,158,270
Broker nonvotes: 8,947,165
Shareholder proposal relating to term limits for directors
__________________________________________________________
Votes for: 2,656,794
Votes against: 29,229,406
Abstentions: 1,181,367
Broker nonvotes: 8,947,165
<PAGE> 50
ITEM 6A. EXHIBITS
________
10 Midlantic Corporation Severance Pay Policy as amended May 22, 1995
27 Financial Data Schedule
ITEM 6B. REPORTS ON FORM 8-K
___________________
Dated May 31, 1995, respecting Item 5, to report the issuance of a
press release concerning the redemption of MC's Term Adjustable
Rate Cumulative Preferred Stock - Series A.
<PAGE> 51
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 August 11, 1995 Howard I. Atkins
Executive Vice President and
Chief Financial Officer
By James E. Kelly
_____________________________
Date August 11, 1995 James E. Kelly
Controller
<PAGE> 52
INDEX OF EXHIBITS
_________________
EXHIBIT NUMBER
PER ITEM 601 OF
REGULATION S-K
______________
10 Midlantic Corporation Severance Pay Policy as
amended May 22,1995
27 Financial Data Schedule
MIDLANTIC CORPORATION
SEVERANCE PAY POLICY
Adopted February 25, 1992;
Amended September 21, 1994
MIDLANTIC CORPORATION
SEVERANCE PAY POLICY
TABLE OF CONTENTS
Page
PURPOSE OF THE POLICY 3
DEFINITIONS 3-5
SEVERANCE PAY - ELIGIBILITY; JOB ELIMINATION;
AND DISCHARGE
Eligibility 5
Conditions of Non-Eligibility 6
Non-Eligibility Following Sale 6
Denial of Severance Pay 6
AMOUNT OF SEVERANCE PAY
Basic Severance Pay 7
Supplemental Severance Pay 7
Calculation of Severance Pay
for Part-Time Employees 7
Supplemental Severance Minimums 8
Maximum Severance Pay 8
Timing of Severance Pay 8
Discontinuance of Severance Pay 8
Repayment of Severance Pay 9
Conditions of Re-employment 9
Employee Benefit Plan Coverage 9
Funding 9
Administration 9
No Right to Employment 10
Alienation of Benefits 10
Termination or Amendment 11
Exclusivity and Enforceability 11
Taxes 11
MIDLANTIC CORPORATION SEVERANCE PAY POLICY
1. Purpose of the Policy
As of the Effective Date, the Company hereby establishes a severance
policy known as the Midlantic Corporation Severance Pay Policy as set
forth in this document. The Policy has been adopted by the Company
to provide Severance Pay to Employees whose employment with the
Company terminates under the conditions provided for by this Policy.
There shall be no duplication of Severance Pay under the Policy.
This Policy supersedes all oral and written severance policies or
plans of the Company except Exception Agreements. An Employee who
receives severance benefits under an Exception Agreement shall not be
entitled to Severance Pay hereunder unless the Committee determines
otherwise with respect to such Employee.
2. Definitions
The following terms when used herein shall have the following
meanings unless a different meaning is plainly required by the
context:
a. "Base Salary" shall mean the amount an Employee is entitled to
receive as wages or salary on an annualized basis, excluding all
bonus, overtime, shift differential, or incentive compensation,
payable by the Company as consideration for the Employee's services,
as determined on the date immediately preceding Termination.
b. "Board of Directors" shall mean the Board of Directors of Midlantic
Corporation.
c. "Committee" shall mean the Midlantic Benefit Plans Committee.
d. "Company" shall mean Midlantic Corporation or any member of the
controlled group of corporations of which it is a part which, with
the approval of the Board of Directors, adopts the Policy.
e. "Effective Date" shall mean February 25, 1992.
f. "Employee" for purposes of the Policy shall mean any person who is
employed by the Company on a full-time basis or a part-time basis.
Employee does not include any person on Long Term Disability. If
any individual is employed by more than one entity which is a
Company, the Company is the employer which issues the individual's
paychecks.
g. "Exception Agreement" for purposes of the Policy shall mean a
written severance arrangement or agreement executed by the Company
with a specific Employee and/or a written post-employment agreement
between the Company and a specific Employee which are identified by
the Committee.
h. "Misconduct" shall mean:
(i) fraud, misappropriation, embezzlement or criminal conduct;
(ii) neglect of duties or responsibilities as an Employee;
(iii) insubordination; or
(iv) violation of the Company's policies and procedures.
i. "Plan Year" shall mean the calendar year.
j. "Policy" shall mean this Midlantic Corporation Severance Policy as
amended from time to time.
k. "Reasonable Commuting Distance" for purposes of the Policy shall
mean:
Officers - the greater of 45 miles each way or the equivalent
of the employee's current commute.
Non-Officers - the greater of 25 miles each way or the
equivalent of the employee's current commute.
A Reasonable Commuting Distance must include the continued
availability of public transportation if an employee is currently
dependent upon public transportation to get to their job.
l. "Reassignment" for purposes of the Policy shall mean placement
in another job at the same or greater salary at the request of
the Company. It does not include placement in another job at
the request of the Employee.
m. "Severance Pay" shall mean any lump sum payment or periodic
payments made to an Employee solely on account of eligibility to
receive such payment under this Policy. Severance Pay may, where
applicable, include both Basic Severance Pay and Supplemental
Severance Pay, as defined in paragraph 4(a) and (b).
n. "Termination" for the purposes of the Policy shall mean the
discontinuance of employment by an Employee with the Company for
the reasons listed in paragraph 3(a). For Employees on an approved
unpaid leave of absence including a military or family leave,
Termination for purposes of the Policy occurs only if and when the
Employee seeks to return to active status upon expiration of the
leave and is not reinstated for the reasons listed in paragraph
3(a). Termination does not include voluntary resignation, death or
retirement of an Employee; provided, however, that retirement, upon
the occurrence of, and not prior to, an event described in
paragraph 3(a) shall be deemed a Termination. For purposes of this
Policy, the date of Termination shall mean the day prior to date
that the Employee discontinues reporting for work or the date that
the Employee is notified that he or she will not be reinstated from
an approved unpaid leave.
o. "Years of Completed Service" shall mean the period of service with
the Company commencing on the Employee's most recent employment
date and ending on the Employee's date of Termination, rounded to
the nearest year. Past service which has been bridged for
retirement purposes under the Midlantic Retirement Plan will not be
bridged for severance purposes.
p. "Management Committee Member" shall mean the Chief Executive
Officer of the Company and such other officers designated from time
to time by the Board of Directors to have overall responsibility at
the Company for a line of business or support staff area. [Added
September 21, 1994]
3. Severance Pay - Eligibility; Job Elimination; and Discharge
a. Eligibility
Except as provided in paragraph 1, an Employee shall become
eligible to receive the amount of Severance Pay set forth in
paragraph 4(a) if the Employee meets any one of the following three
conditions:
(i) Termination occurred because the Employee's job was eliminated
for business reasons or because the business at which the
Employee was working at the time of Termination or prior to an
approved unpaid leave was shut down or moved to a new location
by the Company and, in any such case, the Employee was not
offered a Reassignment with the Company which is within a
Reasonable Commuting Distance.
(ii) Termination occurred because the business at which the Employee
was working at the time of Termination or prior to an approved
unpaid leave was sold by the Company to another entity (the
"Buyer") and the Employee was not offered employment by the
Buyer.
(iii) Termination occurred for any reason other than the reasons set
forth in paragraph 3(b).
b. Conditions of Non-Eligibility
An Employee is not eligible to receive Severance Pay, if the reason
for Termination was:
(i) The Employee declined a Reassignment with the Company which is
within a Reasonable Commuting Distance or declined employment
with a Buyer; or
(ii) The Employee resigns from employment with the Company,
including resignation either prior to or subsequent to the
announcement of a business reorganization, closing or sale; or
(iii) The Employee dies prior to termination; or
(iv) The Employee was terminated for cause including, but not
limited to, conduct constituting Misconduct and/or
unsatisfactory job performance.
c. Non-Eligibility Following Sale
No Employee shall be eligible to receive Severance Pay under this
Policy following the sale to any Buyer of the business at which the
Employee was working. Following such a sale, the Employee's
entitlement to severance payments upon termination of employment
with the Buyer shall be governed solely by the severance plan or
policy, if any, of the Buyer.
d. Denial of Severance Pay
Notwithstanding any other provision of the Policy to the contrary,
an Employee may be denied Severance Pay, in whole or in part, for
any reason which, in the sole discretion of the Company, warrants
the denial of Severance Pay.
4. Amount of Severance Pay
a. Basic Severance Pay
Each Employee with six full months of service who is determined to
be eligible for Severance Pay shall receive Severance Pay in an
amount equal to one week Base Salary.
b. Supplemental Severance Pay
Each Employee who is determined to be eligible for Basic Severance
Pay may also receive Supplemental Severance Pay upon signing an
Agreement and Release to be provided by the Company in which among
other things the Employee releases all claims, if any, relating to
the Employee's employment with the Company including but not
limited to all claims, if any, relating to the termination of that
employment. Such Supplemental Severance Pay will be calculated
pursuant to the following schedule:
Years of Completed Number of Weeks
Service of Base Salary
1 1
2 3
3 5
4 7
5 9
6 11
7 13
8 15
9 17
10 19
11 21
12 23
13 or More 25
Employees who have less than 6 months of service, although not
eligible for Basic Severance Pay, may receive 1 week of
Supplemental Severance Pay in exchange for signing an Agreement and
Release.
c. Calculation of Severance Pay for Part-Time Employees
Part-time employees' weekly Base Salary will be based on the
current calendar year-to-date hours employed as a part-time
employee, divided by the number of weeks for which pay was received
to determine the average number of hours worked per week. The
average hours per week is multiplied by the current hourly rate of
pay to determine weekly Base Salary. Prior to March 1 of the
current year, the calculation will be based on the prior calendar
year data.
d. Supplemental Severance Minimums
Officers and exempt non-officer employees with six full months of
service receiving Supplemental Severance will be provided with
minimum Supplemental Severance based on the schedule listed below
unless their years of completed service would provide a greater
benefit.
Minimum Weeks
Status of Base Salary
Exempt Non-Officer 3 weeks
Officer (excluding Management
Committee Member) 11 weeks
Management Committee Member 51 weeks
[Amended September 21, 1994]
e. Maximum Severance Pay
Severance Pay under the Policy is subject to the following maximums
notwithstanding anything in the Policy to the contrary. (1) If an
employee is a "disqualified individual" at the time of Termination,
the "aggregate present value" of Severance Pay under the Policy and
of payments to such Employee or for his/her benefit which are
"parachute payments", shall in no event exceed 295% of his/her
"base amount", within those terms' meanings under Section 280G of
the Internal Revenue Code ("the Code"). No Severance Pay hereunder
will be paid to the extent that such benefits (either alone or when
aggregated with other benefits) paid to such Employee or for
his/her benefit constitute "excess parachute payments" within the
meaning of Section 280G of the Code. (2) No severance pay benefits
hereunder will be paid to the extent such benefits are prohibited
by law, regulation, or order or by any agreement between the
Company and any regulatory agency having jurisdiction over the
Company.
5. Timing of Severance Pay
Severance Pay benefits will be paid either in a lump sum payment or
periodic payments to the Employee as determined by the Committee at
its sole discretion.
6. Discontinuance of Severance Pay
Any Severance Pay being paid on a periodic basis shall cease upon
the death of the Employee receiving such Severance Pay. The
company reserves the right to discontinue any or all remaining
severance payments in the event that the terminated Employee is
subsequently found to have engaged in Misconduct while employed by
the Company.
7. Repayment of Severance Pay
The Company reserves the right to require repayment, in whole or in
part, of Severance Pay in the event that the terminated Employee is
subsequently found to have engaged in Misconduct while employed by
the Company.
8. Condition of Re-employment
In the event the Employee is re-employed by the Company or is hired
by the Buyer of the business at which the employee was working, any
remaining severance payments will be discontinued. For those
employees who received their severance pay in a lump sum payment,
it may be necessary to repay a portion of their severance pay on a
pro-rata basis upon rehire. Such rehires will need written
approval of the Corporate Human Resources Department.
9. Employee Benefit Plan Coverage
Except as provided in paragraph 1, the Severance Pay described in
paragraph 4 above shall be payable in addition to, and not in lieu
of, all other accrued or vested or earned benefits which may be
owed to an Employee following termination including, but not
limited to, accrued vacation pay, amounts or benefits payable under
any bonus or other compensation plan, life insurance plan, health
plan, disability plan or similar or successor plan.
There will be no payment for unused personal days. There will be
no payment for unused sick days. There will be no payment for
unused compensatory time.
10. Funding
There shall be no special fund out of which payments shall be paid,
nor shall Employees be required to make a contribution as a
condition of receiving payments. Payments shall be made from the
general funds of the Company from which the Employee receives
his/her compensation.
11. Administration
a. The Policy shall be administered by the Committee, as the named
fiduciary of the Policy under Section 3(16)(A) of ERISA. The
provisions of Part 4 of Title I of ERISA are incorporated by
reference as part of the Policy to define and govern the actions of
Midlantic and other fiduciaries hereunder.
b. The Committee will have full power to administer the Policy in all
of its details, subject to applicable requirements of law. For this
purpose, the Committee powers will include, but will not be limited
to, the following authority, in addition to all other powers
provided by this Policy:
(i) To make and enforce such rules and regulations as it deems
necessary or proper for the efficient administration of the
Policy;
(ii) To interpret the Policy, its interpretation thereof in good faith
to be final and conclusive on all persons claiming benefits under
the Policy;
(iii) To decide all questions concerning the Policy and the eligibility
of any person to participate in the Policy;
(iv) To appoint such agents, counsel, accountants, consultants and
other persons as may be required to assist in administering the
Policy; and
(v) To allocate and delegate its responsibilities under the Policy
and to designate other persons to carry out any of its
responsibilities under the Policy.
c. The Committee shall adopt such procedures and rules as it deems
necessary or advisable to administer the Policy and comply with all
ERISA requirements including without limitation providing a claims
procedure to provide adequate notice to any person whose claim is
denied setting forth the specific reasons for denial, written in a
manner calculated to be understood by such person and offering a
reasonable opportunity for full and fair review of such denial by
the Committee. The Company shall bear all costs and expenses
incurred in administering the Policy.
12. No Right to Employment
This Policy does not give any Employee the right to be employed by
the Company. The Company expressly reserves the right to discharge
any Employee for any reason not prohibited by law.
13. Alienation of Benefits
Except as otherwise provided by law and by contract governing any
benefit offered under this Policy, no benefit under the Policy may
be voluntarily or involuntarily assigned or alienated.
14. Termination or Amendment
Although the Company (on the Effective Date) intends to maintain
the Policy for an indefinite period, the Company or any of its
controlled group of corporations, its subsidiaries or divisions, or
its lines of business, reserves the right to amend any of the
Policy terms or terminate the Policy at any time, for any reason.
Any termination or partial termination of the Policy shall not
adversely affect the payment of benefits to which Employees or
their covered dependents were entitled under the terms of the
Policy prior to the date of termination or partial termination.
15. Exclusivity and Enforceability
The Policy is maintained for the exclusive benefit of Employees and
their covered dependents. The rights conferred upon Employees and
their covered dependents under this Policy, including such
materials as may be incorporated herein by reference, shall be
legally enforceable.
16. Taxes
The Company may withhold from any payment due under this Policy any
taxes required to be withheld under applicable federal, state or
local tax laws or regulations.
<TABLE> <S> <C>
<ARTICLE> 9
<LEGEND>
THIS SCHEDULE CONTAINS SUMMARY FINANCIAL INFORMATION EXTRACTED FROM THE
JUNE 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> 6-MOS
<FISCAL-YEAR-END> DEC-31-1995
<PERIOD-END> JUN-30-1995
<CASH> 834,051
<INT-BEARING-DEPOSITS> 565,764
<FED-FUNDS-SOLD> 513,188
<TRADING-ASSETS> 27,300
<INVESTMENTS-HELD-FOR-SALE> 813,598
<INVESTMENTS-CARRYING> 2,478,018
<INVESTMENTS-MARKET> 2,500,914
<LOANS> 8,656,421
<ALLOWANCE> 338,704
<TOTAL-ASSETS> 13,733,847
<DEPOSITS> 10,887,342
<SHORT-TERM> 883,174
<LIABILITIES-OTHER> 193,285
<LONG-TERM> 372,840
<COMMON> 158,286
0
0
<OTHER-SE> 1,238,920
<TOTAL-LIABILITIES-AND-EQUITY> 13,733,847
<INTEREST-LOAN> 361,703
<INTEREST-INVEST> 104,374
<INTEREST-OTHER> 23,121
<INTEREST-TOTAL> 489,198
<INTEREST-DEPOSIT> 135,857
<INTEREST-EXPENSE> 173,398
<INTEREST-INCOME-NET> 315,800
<LOAN-LOSSES> 3,000
<SECURITIES-GAINS> 184
<EXPENSE-OTHER> 233,993
<INCOME-PRETAX> 175,467
<INCOME-PRE-EXTRAORDINARY> 109,716
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 109,716
<EPS-PRIMARY> 2.04
<EPS-DILUTED> 2.02
<YIELD-ACTUAL> 5.24
<LOANS-NON> 128,851
<LOANS-PAST> 32,158
<LOANS-TROUBLED> 37,842
<LOANS-PROBLEM> 13,609
<ALLOWANCE-OPEN> 337,170
<CHARGE-OFFS> 18,773
<RECOVERIES> 12,702
<ALLOWANCE-CLOSE> 338,704
<ALLOWANCE-DOMESTIC> 338,704
<ALLOWANCE-FOREIGN> 0
<ALLOWANCE-UNALLOCATED> 338,704
</TABLE>
