-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: keymaster@town.hall.org Originator-Key-Asymmetric: MFkwCgYEVQgBAQICAgADSwAwSAJBALeWW4xDV4i7+b6+UyPn5RtObb1cJ7VkACDq pKb9/DClgTKIm08lCfoilvi9Wl4SODbR1+1waHhiGmeZO8OdgLUCAwEAAQ== MIC-Info: RSA-MD5,RSA, JRJT0iGNkKQd7j+O71iAG6DzVLQRaYTZwVM9S3zazix0HT//MWOyNfQwV/aauuvI i/zVlvaKE75bw/Fuds1bcg== 0000793548-94-000010.txt : 19940330 0000793548-94-000010.hdr.sgml : 19940330 ACCESSION NUMBER: 0000793548-94-000010 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 8 CONFORMED PERIOD OF REPORT: 19931231 FILED AS OF DATE: 19940329 FILER: COMPANY DATA: COMPANY CONFORMED NAME: MIDLANTIC CORP CENTRAL INDEX KEY: 0000793548 STANDARD INDUSTRIAL CLASSIFICATION: 6021 IRS NUMBER: 222699903 STATE OF INCORPORATION: NJ FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: 34 SEC FILE NUMBER: 000-15870 FILM NUMBER: 94518559 BUSINESS ADDRESS: STREET 1: METRO PARK PLZ STREET 2: P O BOX 600 CITY: EDISON STATE: NJ ZIP: 08818 BUSINESS PHONE: 9083212000 10-K 1 10-K WITH EXHIBITS FOR 12-31-93 1 1of2 FORM 10-K SECURITIES AND EXCHANGE COMMISSION WASHINGTON, D.C. 20549 (Mark One) [ X ] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 1993 OR [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES AND EXCHANGE ACT OF 1934 For the transition period from................ to ................ COMMISSION FILE NUMBER 0-15870 MIDLANTIC CORPORATION (Exact name of registrant as specified in its charter) New Jersey 22-2699903 (State or other jurisdiction (I.R.S. Employer of incorporation or organization) Identification Number) Metro Park Plaza, P.O. Box 600, Edison, New Jersey 08818 (Address of principal executive offices) (Zip Code) Registrant's telephone number, including area code: (908) 321-8000 Securities registered pursuant to Section 12(b) of the Act: None Securities registered pursuant to Section 12(g) of the Act: Title of each class - ------------------- Common Stock, par value $3.00 per share; 8 1/4% Convertible Subordinated Debentures Due 2010; 9.875% Subordinated Capital Notes Due 1999; 9.20% Subordinated Capital Notes Due 2001 Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 12 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes [X] No [ ] Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ ] Aggregate market value of voting shares of Midlantic Corporation as of February 25, 1994 (net of voting shares held by the trust departments of subsidiary banks and by the officers and directors of Midlantic Corporation*): $1,400,027,000. 1 2of2 Shares outstanding on February 25, 1994 - --------------------------------------- Common Stock, par value $3.00 per share - 52,227,123 shares Documents incorporated by reference - ----------------------------------- Definitive proxy statement for the 1994 Annual Shareholders' Meeting filed with the Commission pursuant to Regulation 14A - incorporated by reference in Part III. Annual Report to Shareholders for fiscal year ended December 31, 1993 - incorporated by reference in Part I, Item 1; Part II, Items 5, 6, 7 and 8 and Part IV, Item 14(a) 1 *Midlantic Corporation does not admit by virtue of the foregoing that its officers and directors are "affiliates" as defined in Item 405 of Regulation S-K and does not admit that it controls the shares of its voting stock held by the trust departments of its bank subsidiaries. 2 MIDLANTIC CORPORATION FORM 10-K INDEX PART I PAGE _______________________________________________________________________________ ITEM 1 - BUSINESS a) Description of Business 3-10 b) Statistical Information and Analysis 11-15 ITEM 2 - PROPERTIES 16 ITEM 3 - LEGAL PROCEEDINGS 17 ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS 17 EXECUTIVE OFFICERS OF THE REGISTRANT 18-19 PART II _______________________________________________________________________________ ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS 20 ITEM 6 - SELECTED FINANCIAL DATA 20 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS 21 ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA 21 ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE 21 PART III _______________________________________________________________________________ ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT 22 ITEM 11 - EXECUTIVE COMPENSATION 22 ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT 22 ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS 22 PART IV _______________________________________________________________________________ ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K 23-26 SIGNATURES 27-29 3 Part I ITEM 1 - BUSINESS a) Description of Business Introduction Midlantic Corporation ("MC") is a regional bank holding company headquartered in Edison, New Jersey. MC's principal activity consists of managing, controlling and providing services and capital funds to its direct and indirect subsidiaries. MC directly or indirectly owns Midlantic National Bank ("MNB"), headquartered in Newark, New Jersey and Continental Bank ("CB"), headquartered in Norristown, Pennsylvania. The activities of MC and certain of its subsidiaries are significantly restricted by law (see "Supervision and Regulation"). Divestitures and Internal Mergers In 1991, MC announced a major restructuring program (the "Restructuring Program"), which encompassed a strategy of selling assets and subsidiaries located outside of New Jersey and southeastern Pennsylvania in order to strengthen its capital position and focus upon its core market. The following actions have been taken pursuant to the Restructuring Program: - MC's New Jersey bank subsidiaries, MNB and Midlantic National Bank/North were merged on September 30, 1991. - On November 15, 1991, the trust assets, branch facilities and $20.9 million of private banking and home equity loans of Midlantic National Bank and Trust Co./Florida ("MNB/Florida") were sold for $24.2 million. In late 1993, MNB/Florida was dissolved. - On December 31, 1991, MC sold The York Bank and Trust Company of York, Pennsylvania, for $129.0 million and United Penn Bank and UniPenn Realty Co., of Wilkes-Barre, Pennsylvania, for $90.2 million, respectively. - On March 24, 1992, Midlantic Home Mortgage Corporation ("MHMC") a mortgage banking subsidiary, was sold for $44.6 million. - On July 1, 1992, MC sold Central Trust Company and Endicott Trust Company for an aggregate sales price of $114.8 million of cash and other consideration and on December 31, 1992, MC sold the Merchants National Bank & Trust Company of Syracuse and Union National Bank of Albany for an aggregate sales price of $93.3 million of cash and other consideration. Prior to the announcement of the Restructuring Program, MC caused its wholly- owned subsidiary, Continental Bancorp, Inc., to be merged with and into MC. Midlantic National Bank and Continental Bank As of December 31, 1993, MNB operated 262 bank offices in twenty counties of New Jersey and one bank office in Philadelphia, Pennsylvania. MNB has an offshore branch in Grand Cayman, British West Indies. Its main office is in 4 Newark, New Jersey and its principal executive offices are in Edison, New Jersey. CB operated 62 bank offices in Bucks, Chester, Delaware, Montgomery and Philadelphia counties in Pennsylvania at December 31, 1993. Its headquarters is located in Norristown, Pennsylvania and its executive offices are located in Philadelphia, Pennsylvania. MNB and CB operate six regional trust offices (five in New Jersey and one in Pennsylvania). According to "The American Banker," based upon total deposits, at December 31, 1993, MNB was the second largest commercial bank in New Jersey and CB was the seventh largest commercial bank in Pennsylvania. The following table provides information about MNB and CB as of December 31, 1993:
Midlantic Continental (In thousands) National Bank Bank _________________________________________________________________________ Total assets $10,080,911 $3,755,145 Loans, net 5,328,542 2,576,508 Total deposits 8,571,141 3,115,091 ___________ __________
MNB and CB are engaged in commercial and retail banking activities. Banking services are extended to individual, business, governmental and institutional customers, and to correspondent banks. Such services include all the usual deposit functions of commercial banks with demand and time account services; the making of commercial, industrial, real estate and consumer loans; the furnishing of collection and foreign exchange services; and rental of safe deposit boxes. In addition, MNB and CB furnish financial and data processing services to customers and other banks and provide cash management facilities to commercial customers. Offshore deposit acceptances and placements are conducted by MNB at facilities in Grand Cayman. MNB and CB provide complete personal and corporate trust services, including administration of estates and trusts, pension and other employee benefit plans, investment advisory and agency accounts, and a full range of other fiduciary, corporate fiduciary, and agency services. Nonbank Activities MC's major nonbank activities are conducted through the following direct or indirect subsidiaries: Midlantic Securities Corp., a discount broker/dealer located in Philadelphia, Pennsylvania; Lenders Life Insurance Co., an Arizona- based affiliate, which acts as a reinsurer in connection with credit-related insurance; and Lease and Go, Inc., which engages in the leasing of motor vehicles. At December 31, 1993, less than five percent of the consolidated assets of MC were employed in nonbank activities. Employees As of December 31, 1993, 5,863 persons were employed full-time or part-time by MC and its subsidiaries. Management of MC considers relations with its employees to be satisfactory. 5 Competition The banking business is highly competitive and the bank subsidiaries ("Subsidiary Banks") of MC compete not only with New Jersey, New York and Pennsylvania commercial banks, but also with savings banks, savings and loan associations, money market and mutual funds, insurance companies, consumer finance companies, credit unions and other lending and deposit-gathering institutions. Effect of Government Monetary Policies The earnings of MC and the Subsidiary Banks are affected by domestic and foreign economic conditions and by the monetary and fiscal policies of the United States government and its agencies. The monetary policies of the Board of Governors of the Federal Reserve System (the "FRB") have had, and will probably continue to have, an important impact on the operating results of commercial banks through the FRB's power to implement national monetary policy in order to, among other things, curb inflation or combat a recession. The policies of the FRB have a major effect upon the levels of bank loans, investments and deposits through the FRB's open market operations in United States government securities, through its regulation of, among other things, the discount rate on borrowings of depository institutions, and the reserve requirements against depository institution deposits. Recently, lower interest rates resulting from the FRB's monetary policies have generally benefited depository institutions. It is not possible to predict the nature and impact of future changes in monetary and fiscal policies and their impact on MC and the Subsidiary Banks. Supervision and Regulation General - As a bank holding company registered under the Bank Holding Act of 1956, as amended (the "Act"), MC is subject to substantial regulation and supervision by the FRB. The Subsidiary Banks are subject to regulation and supervision by federal and state bank regulatory agencies, including the Office of the Comptroller of the Currency ("OCC") and the Federal Deposit Insurance Corporation ("FDIC"). Federal banking and other laws impose a number of requirements and restrictions on the operations and activities of depository institutions. In addition, the federal banking agencies periodically take regulatory actions to implement legislation and regulatory initiatives that might result in additional substantial restrictions on operations and activities and increase operating costs. Holding Company Activities - Under the Act, bank holding companies may engage directly, or indirectly through subsidiaries, in activities which the FRB determines to be so closely related to banking or managing or controlling banks as to be a proper incident thereto. Acquisitions of existing companies and engaging in activities which the FRB has not theretofore determined to be permissible for bank holding companies normally require specific FRB approval. MC, as well as its subsidiaries, is prohibited from engaging in certain tie-in arrangements in connection with any extension of credit, lease or provision of any property or services. 6 Generally, the Act prohibits a bank holding company from acquiring more than five percent of the voting shares or substantially all of the assets of any bank without prior approval of the FRB. Subject to limited exceptions, the FRB is prohibited from approving an application by a bank holding company to acquire voting shares of any commercial bank in another state unless such acquisition of a bank is specifically authorized by the laws of such other state. Subject to certain restrictions, New Jersey law permits bank holding companies which are located in New Jersey, such as MC, to acquire commercial banks located outside of New Jersey. Pennsylvania law permits New Jersey bank holding companies, like MC, to acquire commercial banks in Pennsylvania, subject to the prior approval of the acquisition by the Pennsylvania Department of Banking and certain other limitations. In accordance with the restrictions in the New Jersey and Pennsylvania laws and subject to certain limitations, MC may acquire banks or bank holding companies in any state permitting such an acquisition. MC may, subject to approval by the FRB, also acquire savings associations. Dividends - The principal sources of income for MC are dividends and management fees from the Subsidiary Banks. The limitations on the Subsidiary Banks' ability to pay dividends to MC are described under the consolidated financial note caption "30. Lending and dividend limitations" and the consolidated financial note caption "31. Regulatory matters" on pages 68 and 69, respectively, of MC's Annual Report to Shareholders for the fiscal year ended December 31, 1993, which consolidated financial notes are incorporated herein by reference. Regulatory agreements with the FRB and OCC that restricted MC's and MNB's ability to declare and pay dividends were terminated in March 1994. Capital Requirements - Federal law currently requires MC and the Subsidiary Banks to meet certain minimum leverage and risk-based capital ratios, and empowers the bank regulatory agencies to take a number of enforcement actions against MC or the Subsidiary Banks if they fail to achieve the mandated ratios. MC and the Subsidiary Banks currently meet or exceed the minimum regulatory capital standards. The federal bank regulatory agencies have proposed incorporating an interest rate risk component and concentrations of credit and nontraditional activities risk components into existing risk-based capital standards. Under the proposals, banks and bank holding companies with greater than "normal" levels of such risks would be required to hold additional capital. Such proposals, if adopted, are not expected to have a material impact on MC or the Subsidiary Banks. Holding Company Liability - FRB policy requires bank holding companies to serve as a source of strength to their subsidiary banks by standing ready to use available resources to provide adequate capital funds to subsidiary banks during periods of financial stress or adversity. A bank holding company also could be liable under certain provisions of the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA") for the capital deficiencies of an undercapitalized bank subsidiary. In the event of a bank holding company's bankruptcy under Chapter 11 of the U.S. Bankruptcy Code, the trustee will be deemed to have assumed and is required to cure immediately any deficit under any commitment by the debtor to any of the federal banking agencies to maintain the capital of an insured depository institution, and any claim for a 7 breach of such obligation will generally have priority over most other unsecured claims. Transactions with Subsidiary Banks - The Subsidiary Banks are subject to certain restrictions imposed by law on extensions of credit to, and certain other transactions with, MC and certain other subsidiaries, as described under the consolidated financial note caption "30. Lending and dividend limitations" on pages 68 and 69 of MC's Annual Report to Shareholders for the fiscal year ended December 31, 1993, which consolidated financial note is incorporated herein by reference. A regulatory agreement with the OCC that restricted MNB's ability to declare and pay dividends was terminated in March 1994. The Subsidiary Banks are also subject to certain restrictions on investments in MC securities and on the taking of such securities as collateral for loans to any borrower. Unsafe or Unsound Practices - The appropriate federal bank regulatory authorities also have authority to prohibit a bank or bank holding company from engaging in any activity or transaction deemed by the federal bank regulatory authority to be an unsafe or unsound practice. The payment of dividends could, depending upon the financial condition of the bank or bank holding company, be such an unsafe or unsound practice. The amount of other payments by Subsidiary Banks to MC (including management fees) is subject to review by bank regulatory authorities. Federal law also grants to federal banking agencies the power to issue cease and desist orders when a depository institution or a bank holding company or an officer or director thereof is engaged in or is about to engage in unsafe and unsound practices. The FRB may require a bank holding company to discontinue certain of its activities or activities of its nonbank subsidiaries or divest itself of such nonbank subsidiaries if such activities cause serious risk to a bank subsidiary and are inconsistent with the Act or other applicable federal banking laws. Under certain circumstances, engaging in an unsafe or unsound practice could be grounds for the appointment of a receiver or conservator for an insured bank. Other Regulatory Matters - The Subsidiary Banks are also subject to other laws and regulations relating to required reserves, investments, loans, the opening and closing of branches and other aspects of their operations. Certain other regulatory matters that had affected MC and the Subsidiary Banks in recent years are described under the heading "Regulatory Agreements" in Management's Discussion and Analysis and the consolidated financial note caption "31. Regulatory matters" on pages 42 and 69, respectively of MC's Annual Report to Shareholders for the fiscal year ended December 31, 1993, each of which is incorporated herein by reference. In March 1994, the FRB and OCC terminated the regulatory agreements under which MC and MNB had been operating in recent years. New Banking Regulations - Pursuant to the provisions of FDICIA, which was enacted in late 1991 and which provides for significant changes in the bank regulatory system, the bank regulatory agencies have adopted or proposed for adoption regulations that impose significant restrictions on the activities of insured financial institutions and their holding companies. Among other things, such regulations impose uniform standards for real estate lending, adopt truth-in-savings disclosure requirements and prohibit or limit the acceptance of brokered deposits by insured financial institutions that do not meet the banking agencies' definition of "well-capitalized." The bank 8 regulatory agencies are also actively considering proposals that affect a wide range of operational and managerial matters, including asset quality, earnings, stock valuation and employee compensation, limitations on activities of state- chartered banks, and new reporting and audit requirements. Deposit Insurance - The deposits of the Subsidiary Banks are insured by the FDIC through the Bank Insurance Fund ("BIF") to the extent provided by law. Effective January 1, 1993, the FDIC implemented a risk-based insurance system that assesses premiums of between 23 and 31 basis points per $100 of deposits depending upon the capital and supervisory group within which the institution falls. The Subsidiary Banks initially paid premiums at the higher end of this range. However, premiums were reduced somewhat during 1993 and are expected to decline again in 1994. The FDIC is considering other modifications to the assessment system which could result in a further increase in deposit insurance premium rates. Community Reinvestment and Fair Lending - Pursuant to federal law, federal regulatory authorities review the performance of MC and its Subsidiary Banks in meeting the credit needs of the communities served by the Subsidiary Banks. The applicable federal regulatory authority considers compliance with this law in connection with applications for, among other things, approval of branches, branch relocations and acquisitions of banks and bank holding companies. Federal regulatory authorities also review the performance of MC and its Subsidiary Banks with respect to compliance with laws prohibiting discriminatory practices in lending including the Equal Credit Opportunity Act and the Fair Housing Act. Under current law, federal regulators that have reason to believe that a bank has engaged in a pattern or practice of violating the Equal Credit Opportunity Act are required to refer the matter to the United States Department of Justice. Prompt Corrective Action - FDICIA prescribes the supervisory and regulatory actions that will be taken against undercapitalized insured depository institutions for the purposes of promptly resolving problems at such institutions at the least possible long-term loss to the FDIC. Five categories of depository institutions have been established by FDICIA in accordance with their capital levels: "well-capitalized," "adequately capitalized," "undercapitalized," "significantly undercapitalized" and "critically undercapitalized." The federal banking agencies have adopted uniform regulations to implement the prompt regulatory action provision of FDICIA. Under the uniform regulations, a well-capitalized institution has a minimum tier 1 capital-to-total risk-based assets ratio of 6 percent, a minimum total capital-to-total risk-based assets ratio of 10 percent and a minimum leverage ratio of 5 percent and is not subject to any written capital order or directive. An adequately capitalized institution meets all of its minimum capital requirements under the existing capital adequacy guidelines. An undercapitalized institution is one that fails to meet any one of the three minimum capital requirements. A significantly undercapitalized institution has a tier 1 capital-to-total risk-based assets ratio of less than 3 percent, a tier 1 leverage ratio of less than 3 percent or a total capital-to-total risk- based assets ratio of less than 6 percent. A critically undercapitalized institution has a tier 1 leverage ratio of 2 percent or less. An institution whose capital ratios meet the criteria for a well-capitalized institution may 9 be classified as an adequately capitalized institution due to qualitative and/or quantitative factors other than capital adequacy. An adequately capitalized institution or undercapitalized institution, may under certain circumstances, be required to comply with supervisory actions as if it were in the next lower category. Based upon MC's understanding of the uniform regulations and of publicly available interpretations thereof by the bank regulatory agencies, MC believes that each of the Subsidiary Banks currently qualifies as a "well-capitalized" institution. The categorization of depository institutions under the uniform regulations is solely for the purpose of applying the prompt corrective action provision of FDICIA and is not intended to be, and should not be interpreted as, a representation of the depository institution's overall financial condition or prospects. An undercapitalized institution is required to submit a capital restoration plan for acceptance by the appropriate federal banking agency and will be subject to close monitoring of both its condition and compliance with, and progress made pursuant to, its capital restoration plan. The capital restoration plan will be accepted only if (i) it specifies the steps that will be taken to become adequately capitalized and the activities in which the institution will engage, (ii) it is based upon realistic assumptions and is likely to succeed in restoring the institution's capital, (iii) it does not appreciably increase the institution's risk exposure and (iv) each holding company that controls the institution provides appropriate assurances of performance and guarantees that the institution will comply with the plan until the institution is adequately capitalized on an average basis for each of four consecutive quarters. Liability under the guaranty is the lesser of (i) five percent of the institution's total assets at the time it became undercapitalized and (ii) the amount necessary to bring the institution into compliance with all applicable capital standards as of the time the institution fails to comply with the plan. An institution that fails to submit an acceptable plan may be placed into conservatorship or receivership unless its capital restoration plan is accepted. An undercapitalized institution will also be subject to restrictions on asset growth, acquisitions, branching, new activities, capital distributions and the payment of management fees. FDICIA requires the appropriate regulatory agencies to take one or more specific actions against significantly undercapitalized institutions and undercapitalized institutions that fail to submit capital restoration plans or fail to implement in a material respect their capital restoration plans, which actions include but are not limited to (i) requiring the institution to sell shares or other obligations to raise capital, (ii) limiting deposit interest rates, (iii) requiring the election of a new board of directors and/or dismissing senior executive officers and directors who held such positions for more than 180 days before the institution became undercapitalized, (iv) prohibiting receipt of deposits from correspondent banks, (v) requiring divestiture or liquidation of one or more subsidiaries and (vi) requiring the parent company to divest the institution if such divestiture will improve the institution's financial condition and future prospects. In addition, an insured institution that receives a less-than-satisfactory rating for asset quality, management, earnings or liquidity may be deemed by its appropriate federal banking regulator to be engaging in an unsafe or unsound practice for 10 purposes of issuing an order to cease and desist or to take certain affirmative actions. If the unsafe or unsound practice is likely to weaken the institution, cause insolvency or substantial dissipation of assets or earnings or otherwise seriously prejudice the interest of depositors or the FDIC, a receiver or conservator could be appointed. Finally, subject to certain exceptions, FDICIA requires critically undercapitalized institutions to be placed into receivership or conservatorship within 90 days after becoming critically undercapitalized. The FRB has indicated that it will consult with each federal banking agency regulating the bank subsidiaries of a holding company to monitor required supervisory actions and, based on an assessment of these developments, will take appropriate action at the holding company level. Conservatorship and Receivership Powers of Federal Banking Agencies - FDICIA significantly expanded the authority of the federal banking regulators to place depository institutions into conservatorship or receivership to include, among other things, appointment of the FDIC as conservator or receiver of an undercapitalized institution under certain circumstances. In the event a bank is placed into conservatorship or receivership, the FDIC is required, subject to certain exceptions, to choose the method for resolving the institution that is least costly to the BIF, such as liquidation. In any event, if either of the Subsidiary Banks were placed into conservatorship or receivership, because of the cross-guarantee provisions of the Federal Deposit Insurance Act, as amended, MC as the sole stockholder of the Subsidiary Banks would likely lose its investment in the Subsidiary Banks. The FDIC may provide federal assistance to a "troubled institution" without placing the institution into conservatorship or receivership. In such case, pre-existing debtholders and stockholders may be required to make substantial concessions and, insofar as practical, the FDIC will succeed to their interests in proportion to the amount of federal assistance provided. Enforcement Actions and Administrative Sanctions - Failure to comply with applicable laws, regulations and supervisory agreements could subject MC, the Subsidiary Banks and officers, directors and institution-affiliated parties to administrative sanctions and potentially substantial civil money penalties. Proposed Legislation From time to time various proposals are made in the United States Congress as well as state legislatures which would alter the powers of, and place restrictions on, different types of bank organizations as well as bank and nonbank activities. Such legislative proposals include interstate branching, expansion of bank powers, amendment of the Community Reinvestment Act, and regulation of bank sales of mutual funds. It is impossible to predict whether any of the proposals will be adopted, therefore, it is not practical to predict the impact of such adoption on the business of MC or its subsidiaries. 11 b) Statistical Information and Analysis The following tables set forth on a consolidated basis certain statistical data concerning MC and its wholly-owned subsidiaries ("Midlantic"). I. Distribution of Assets, Liabilities and Shareholders' Equity; Interest Rates and Interest Differential A. Average Balances MC responds to this segment by incorporating by reference the material for the years 1991 through 1993 under the heading "Comparative Consolidated Average Balance Sheet with Resultant Interest and Average Rates" on pages 72 and 73 of MC's Annual Report to Shareholders for the fiscal year ended December 31, 1993. B. Average Rates Earned and Paid MC responds to this segment by incorporating by reference the material for the years 1991 through 1993 under the caption "Comparative Consolidated Average Balance Sheet with Resultant Interest and Average Rates" on pages 72 and 73 of MC's Annual Report to Shareholders for the fiscal year ended December 31, 1993. C. Analysis of Year-to-Year Changes in Net Interest Earnings MC responds to this segment by incorporating by reference the material in "Table VI - Analysis of Changes in Net Interest Income" on page 20 of MC's Annual Report to Shareholders for the fiscal year ended December 31, 1993. II. Investment Portfolio A. Book Values MC responds to this item by incorporating by reference the amounts for 1993 and 1992 appearing in the columns labeled "Book Value" under the consolidated financial note caption "4. Investment securities" on pages 52 and 53 of MC's Annual Report to Shareholders for the fiscal year ended December 31, 1993. At December 31, 1991, Midlantic's investment securities portfolio, which totalled $2.656 billion, was stratified as follows: United States Treasury securities $1.926 billion; obligations of United States government agencies $383.665 million; obligations of states and political subdivisions $204.835 million; and Other securities $141.220 million. 12 B. Maturities and Weighted Average Interest Yields MC responds to this item by incorporating by reference the material contained in the maturity distribution table under the consolidated financial note caption "4. Investment securities" on page 53 of MC's Annual Report to Shareholders for the fiscal year ended December 31, 1993. C. Securities of a Single Issuer Exceeding Ten Percent of Shareholders' Equity At December 31, 1993, Midlantic had aggregate investments with the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, which comprised 61 percent and 34 percent of shareholders' equity, respectively. III. Loan Portfolio A. Types of Loans The following table shows the amount of each type of loan of Midlantic at the end of each of the past five years:
LOAN PORTFOLIO (In thousands) December 31 1993 1992 1991 1990 1989 ______________________________________________________________________________________________________ Commercial and financial $2,897,656 $3,467,033 $ 4,844,756 $ 6,892,730 $ 7,552,813 Real estate Construction and development 834,013 1,497,447 1,993,229 2,597,501 2,935,882 Mortgage 2,301,389 2,369,792 3,342,243 3,876,335 4,044,070 Loans to individuals 2,415,391 1,635,493 2,422,728 3,714,989 4,342,334 Foreign 3,492 80,274 92,838 107,821 117,491 __________ __________ ___________ ___________ ___________ Total loans 8,451,941 9,050,039 12,695,794 17,189,376 18,992,590 Less: unearned income 137,110 95,882 209,898 374,328 443,926 __________ __________ ___________ ___________ ___________ Total loans, net of unearned income $8,314,831 $8,954,157 $12,485,896 $16,815,048 $18,548,664 ========== ========== =========== =========== ===========
B. Maturities and Sensitivities of Loans to Changes in Interest Rates MC responds to this segment by incorporating by reference the material in "Table XXIX Loan Portfolio - Maturities and Sensitivity to Changes in Interest Rates" on page 39 of MC's Annual Report to Shareholders for the fiscal year ended December 31, 1993. C. Risk Elements 1. Nonaccrual, Past Due and Restructured Loans MC responds to this item by incorporating by reference the material under the subcaptions "Nonaccrual Loans," "Renegotiated Loans" and "Accruing Past Due Loans" including the material for 13 1of2 the years 1989 through 1993 in "Table XVII - Nonaccrual Loans, Other Real Estate Owned, Net and Past Due Loans" on pages 31 through 33 of MC's Annual Report to Shareholders for the fiscal year ended December 31, 1993. 2. Potential Problem Loans MC responds to this item by incorporating by reference the material under the subcaption "Potential Problem Loans" on page 34 of MC's Annual Report to Shareholders for the fiscal year ended December 31, 1993. 3. Foreign Outstandings At December 31, 1993, Midlantic's foreign outstandings (dollar denominated credits owed or guaranteed by foreign countries, foreign banks and other foreign persons) amounted to $637.9 million or 4.6 percent of total consolidated assets as compared with $753.1 million or 5.2 percent of total assets at year-end 1992 and $315.4 million or 1.7 percent of total assets at year- end 1991. The rise in foreign outstandings since year-end 1991 primarily reflects an increase in short-term money market investments with domestic subsidiaries of foreign banks. The following table relates individual country exposures as a percent of total assets for those individual country exposures that exceeded .75 percent of total assets during any period-end covering the three years ended December 31, 1993.
December 31 1993 1992 1991 _______________________________________________________ France 1.08% 1.20% N/A Japan .86 1.40 N/A Switzerland .86 N/A N/A ____ ____ ___ N/A - Indicates outstandings were less than .75 percent of total assets at year-end.
13 2of2 The following is an analysis of the changes in the aggregate outstandings to Japan and France:
JAPAN FRANCE _____________________________________________________________________________ Aggregate outstandings at December 31, 1992 $204,087 $165,136 Net change in short-term outstandings during 1993 (83,971) (14,095) ________ ________ Aggregate outstandings at December 31, 1993 $120,116 $151,041 ======== ========
4. Loan Concentrations At December 31, 1993, there were no additional significant loan concentrations other than those disclosed pursuant to section III.A. of this report. 14 D. Other Interest-bearing Assets MC responds to this item by incorporating by reference the material under the subcaption "Other Real Estate Owned" on pages 34 and 35 and the material relating to other real estate owned for the years 1989 through 1993 reported in "Table XVII - Nonaccrual Loans, Other Real Estate Owned, Net and Past Due Loans on page 31 of MC's Annual Report to Shareholders for the fiscal year ended December 31, 1993. IV. Summary of Loan Loss Experience A. Analysis of Loan Loss Experience MC responds to this item by incorporating by reference the material under the subcaption "Allowance for Loan Losses" including the material for the years 1989 through 1993 in "Table XVI - Summary of Loan Loss Experience" on pages 29 through 31 of MC's Annual Report to Shareholders for the fiscal year ended December 31, 1993. B. Allocation of Allowance for Loan Losses and the Percentage of Loans to Total Loans The following table provides the allocation of the allowance for loan losses at the end of each of the past five years as required by Securities and Exchange Commission Industry Guide # 3.
ALLOCATION OF ALLOWANCE FOR LOAN LOSSES (In thousands) December 31 1993 1992 1991 1990 1989 ______________________________________________________________________________ Commercial and financial $ 74,993 $144,509 $336,242 $352,587 $152,501 Real estate Construction and development 106,391 302,716 188,685 211,939 78,772 Mortgage 97,619 45,797 47,747 76,195 45,685 Loans to individuals 22,688 15,396 25,338 42,986 45,683 Foreign 2,176 3,274 3,236 22,236 38,209 Unallocated 90,583 152,209 240,444 31,179 27,599 ________ ________ ________ ________ ________ $394,450 $663,901 $841,692 $737,122 $388,449 ======== ======== ======== ======== ========
The methodology used to allocate reserves is heavily weighted by loan charge-off history. The level of Midlantic's charge-offs in recent years may not be indicative of future losses and, therefore, may result in higher allocations to certain loan categories. Midlantic considers the entire allowance as available for the entire loan portfolio. 15 The following table provides the percentage of loans to total loans of Midlantic at the end of each of the past five years:
PERCENTAGE OF LOANS TO TOTAL LOANS December 31 1993 1992 1991 1990 1989 _____________________________________________________________________________ Commercial and financial 34.3% 38.3% 38.2% 40.1% 39.8% Real estate Construction and development 9.9 16.5 15.7 15.1 15.4 Mortgage 27.2 26.2 26.3 22.6 21.3 Loans to individuals 28.6 18.1 19.1 21.6 22.9 Foreign -- .9 .7 .6 .6 _____ _____ _____ _____ _____ 100.0% 100.0% 100.0% 100.0% 100.0% ===== ===== ===== ===== =====
V. Deposits MC responds to this item by incorporating by reference the material for the years 1991 through 1993 in "Table XXV - Average Funding Sources - Balances and Rates Paid" and under the consolidated financial note caption "13. Deposits" on pages 36 and 56, respectively, of MC's Annual Report to Shareholders for the fiscal year ended December 31, 1993. VI. Return on Equity and Assets MC responds to this item by incorporating by reference the return on assets, return on equity, and equity to assets ratio as well as other key information presented for the years 1991 through 1993 under the caption "Consolidated Statistical Information" on page 75 of MC's Annual Report to Shareholders for the fiscal year ended December 31, 1993. During 1993, 1992 and 1991 MC did not pay dividends to its common shareholders and consequently had no dividend payout ratio on its common stock. VII. Short-term Borrowings MC responds to this item by incorporating by reference the material under the consolidated financial note caption "14. Short-term borrowings" on page 56 of MC's Annual Report to Shareholders for the fiscal year ended December 31, 1993. 16 ITEM 2 - PROPERTIES The corporate headquarters of MC are located in the Metro Park commercial complex in Edison, New Jersey. MNB's principal executive offices are also located in the Metro Park complex while CB's principal executive offices are located at Centre Square in Philadelphia, Pennsylvania. MC, through its subsidiary, Parkway Management Inc., in a joint venture with an unaffiliated party, has a 50 percent interest in the ownership and operation of a 12-story 264,000 square foot building on land leased from an unaffiliated third party under a long-term lease at the Metro Park commercial complex in Edison, New Jersey. Approximately 213,000 square feet of the building have been rented by MNB for its use and the use of MC, at a minimum annual rental of $3.129 million. The building is encumbered by a mortgage securing a nonrecourse 32-year loan made by an unrelated third party (which loan may be called in 1996). CB leases approximately 101,000 square feet of the Centre Square building, of which approximately 10,000 square feet are utilized as a branch facility, with the remainder housing its executive offices and certain operations. The Centre Square lease is in the 20th year of an initial 30-year lease, of which the minimum annual rental amounts to $994 thousand. Such lease contains five ten- year renewal options which commence at the initial expiration date of March 31, 2004. At December 31, 1993, the Subsidiary Banks occupied 326 bank offices (198 were owned in fee and 128 were leased) in 20 counties of New Jersey, 5 counties of Pennsylvania, and in Grand Cayman. The Subsidiary Banks also lease additional office space from various unrelated firms. MNB owns a computer and operations center comprising approximately 110,000 square feet in West Orange, New Jersey and, through its wholly-owned subsidiary, Iron Investments Corp., in a joint venture with an unaffiliated party, owns and operates a 70,500 square foot building in Morris County, New Jersey, of which approximately 36,000 square feet are utilized by MNB primarily for certain data processing operations. MNB also owns a 10-story office building in West Paterson, New Jersey with approximately 200,000 square feet of space and a four-story office building in Edison, New Jersey (located in the Metro Park commercial complex) with approximately 40,000 square feet of space, portions of which are utilized for operational functions. CB utilizes two buildings in Norristown, Pennsylvania, which are owned in fee and encompass approximately 87,000 square feet, for certain operations and administrative functions. A substantial portion of CB's accounting and data processing operations is conducted in four buildings, owned in fee, comprising approximately 141,000 square feet in Fort Washington, Pennsylvania. At December 31, 1993, the nonbank subsidiaries of MC had four offices, all of which were leased. Total consolidated occupancy rental expense of Midlantic, net of rental income and intercompany leasing arrangements, was $17.723 million in 1993. 17 ITEM 3 - LEGAL PROCEEDINGS As MC reported in "Item 1 - Legal Proceedings" of its quarterly reports on Form 10-Q for the quarters ended March 31, 1993, June 30, 1993 and September 30, 1993, MC and various directors and former officers of MC are defendants in a consolidated action, initially commenced in March 1990, pending in Federal District Court in New Jersey (the "Action"). The Action has been instituted by shareholders of MC, either on behalf of MC against various directors and former officers of MC, or directly against MC and various directors and former officers of MC. In general, the Action seeks damages payable either to MC or to the shareholders and holders of certain debt securities because of alleged discrepancies between certain public statements made by MC and later results of MC's operations. In their pleadings, plaintiffs do not seek damages in a stated dollar amount. The Action includes claims that certain actions of MC are void. The claims are based upon alleged violations of the United States securities laws and New Jersey common law. In June 1990, the plaintiffs filed a motion for class certification. The defendants moved to dismiss the complaint on July 31, 1990. On October 11, 1990, the Court filed an opinion denying the defendants' motion to dismiss the complaint. On December 3, 1990, an answer to the complaint was served on behalf of those defendants who had been served with the complaint. The parties have stipulated to the certification of a plaintiff class, which stipulation was reflected in an order entered by the Court on March 6, 1991. On May 6, 1991, the Court entered a consent order setting forth a discovery schedule. At present, documents are being produced and depositions are proceeding. ITEM 4 - SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS There were no matters submitted to a vote of security holders during the fourth quarter of 1993. 18 EXECUTIVE OFFICERS OF THE REGISTRANT The following is a list of all the executive officers of MC who serve as such at the pleasure of the Board of Directors of MC as of March 23, 1994: Age at 1/1/94 Position ______ ________ GARRY J. SCHEURING 54 Chairman of the Chairman of the Board, President and Chief Board, President Executive Officer of MC since 1991; and Chief Chairman of the Board, President and Chief Executive Executive Officer of Midlantic National Officer Bank since 1992; Chairman of the Board and Chief Executive Officer of Continental Bank since 1992; Vice Chairman of Continental Bank Corporation (1988-1991) HOWARD I. ATKINS 42 Executive Vice Executive Vice President and Chief Financial President and Officer of MC since 1991; Corporate Treasurer Chief Financial and Treasury Executive of Chase Manhattan Bank, Officer N.A. (1988-1991) DONALD W. EBBERT, JR. 48 Senior Vice Senior Vice President and Treasurer President and (since 1992) and Senior Vice President Treasurer and Director of Investor Relations (1990-1992) of MC; Senior Vice President and Treasurer of Southeast Banking Corporation (1988-1989) MARY ELLEN GRAY 45 Executive Vice Executive Vice President and Director of Real President and Estate Lending of MC since 1992; Executive Vice Director of President for Real Estate (1989-1992) of Chemical Real Estate Bank, N.A. of New Jersey Lending JEFFREY S. GRIFFIE 49 Executive Vice Executive Vice President and Director of Corporate President and Operations of MC since 1992; Executive Vice Director of President of Midlantic National Bank since 1985 Corporate Operations JAMES E. KELLY 49 Controller Controller of MC since 1992; Executive Vice President of Continental Bank since 1988 JOSEPH H. KOTT 45 Executive Vice Executive Vice President and General Counsel (since President and 1993) and Senior Vice President and General Counsel General Counsel (1991-1993) of MC; Partner, Pitney, Hardin, Kipp & Szuch (1982-1991) 19 Age at 1/1/94 Position ______ ________ R. RAY LOCKHART 54 Senior Vice Senior Vice President and Auditor of MC President and since 1987 Auditor JAMES J. LYNCH 43 Executive Vice Executive Vice President and Director of President and Commercial Banking-Pennsylvania of MC since 1992; Director of President (since 1992) and Vice Chairman (1986-1992) Commercial Banking- of Continental Bank Pennsylvania EUGENE J. MCNAMARA 61 Senior Vice Senior Vice President and Director of Human President and Resources of MC since 1992; Senior Vice Director of President and Northern Region Senior Operations Human Resources Officer of Midlantic National Bank (1991-1992); Executive Vice President and Senior Operations Officer of Midlantic National Bank/North (1984-1991) BARBARA Z. PARKER 44 Executive Vice Executive Vice President and Director of Trust and President and Investment Management (since 1993) and Senior Vice Director of Trust President and Director of Trust and Investment and Investment Management (1992-1993) of MC; Senior Vice President, Management Corporate Banking (1991-1992) and Vice President, Corporate Banking (1985-1991) of Midlantic National Bank ALFRED J. SCHIAVETTI, JR. 54 Executive Vice Executive Vice President and Chief Credit Officer President and of MC since 1991; Managing Director, Realty Group Chief Credit of Chemical Bank (1987-1991) Officer ALAN M. SILBERSTEIN 46 Executive Vice Executive Vice President and Director of Retail President and Banking of MC since 1992; Executive Vice Director of President, Consumer Banking Group (1990-1991) Retail Banking and Senior Vice President, Consumer Banking (1986-1990) of Chemical Bank FRANK T. VAN GROFSKI 49 Executive Vice Executive Vice President and Director of Corporate President and Banking and Commercial Banking-New Jersey of MC since Director of 1992; Senior Vice President, Corporate Banking of Corporate Banking Midlantic National Bank (1987-1992) and Commercial Banking-New Jersey 20 PART II ITEM 5 - MARKET FOR REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER MATTERS The table below sets forth for the periods indicated the range of highest and lowest actual transactions per share and the closing price of Midlantic Corporation common stock, as reported by NASDAQ. The price quotations set forth herein do not include retail markups, markdowns or commissions.
Range of Common Stock Prices (Per NASDAQ) ______________________________ High Low Close 1992 __________________________________________________________________________ First Quarter $ 9.13 $ 4.50 $ 7.75 Second Quarter 15.00 5.88 14.63 Third Quarter 18.00 12.88 14.63 Fourth Quarter 21.88 13.25 19.88 ______ ______ ______ 1993 FIRST QUARTER $22.38 $18.13 $21.88 SECOND QUARTER 25.13 17.50 21.13 THIRD QUARTER 27.75 21.13 27.50 FOURTH QUARTER 28.63 22.25 25.50 ====== ====== ======
The number of common shareholders of record at January 28, 1994 was 30,722. Midlantic Corporation did not declare any dividends on its common stock during 1992 or 1993. MC also responds to this item by incorporating by reference the information under the consolidated financial note caption "16. Capital stock - preferred stock," the consolidated financial note caption "30. Lending and dividend limitations" and the consolidated financial note caption "31. Regulatory matters" on pages 57, 68 and 69, respectively, of MC's Annual Report to Shareholders for the fiscal year ended December 31, 1993. (See also "Supervision and Regulation"). A regulatory agreement with the FRB that restricted MC's ability to declare and pay cash dividends was terminated in March 1994. ITEM 6 - SELECTED FINANCIAL DATA MC responds to this item by incorporating by reference the material appearing in the columns 1989 through 1993 under the caption "Selected Supplemental Financial Data" and accompanying footnote on page 43 of MC's Annual Report to Shareholders for the fiscal year ended December 31, 1993. 21 ITEM 7 - MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS MC responds to this item by incorporating by reference the material under the section heading "Management's Analysis of the Results of Operations and Financial Condition" and the consolidated supplementary financial and statistical information on pages 16 through 43 and pages 71 through 75, respectively, of MC's Annual Report to Shareholders for the fiscal year ended December 31, 1993. The FRB Agreement and the OCC Agreement referred to in "Regulatory Agreements" on page 42 of MC's Annual Report to Shareholders for the year ended December 31, 1993, were terminated in March 1994. ITEM 8 - FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA MC responds to this item by incorporating by reference the material on pages 44 through 70 of MC's Annual Report to Shareholders for the fiscal year ended December 31, 1993. ITEM 9 - CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND FINANCIAL DISCLOSURE During the past two fiscal years, there was neither a change in independent accountants nor any disagreements with independent accountants on any matter of accounting principles or practices, financial statement disclosure, or auditing scope or procedure. 22 PART III ITEM 10 - DIRECTORS AND EXECUTIVE OFFICERS OF THE REGISTRANT MC responds to this item by incorporating by reference the material on pages 2 through 4 under the caption "Information About Nominees For Directors of the Company" in MC's definitive proxy statement respecting its 1994 Annual Shareholders' Meeting. Information regarding executive officers is included in this report under the caption "Executive Officers of the Registrant." ITEM 11 - EXECUTIVE COMPENSATION MC responds to this item by incorporating by reference the material under the caption "Executive Compensation and Other Information" on pages 6 through 15 in MC's definitive proxy statement respecting its 1994 Annual Shareholders' Meeting. Such incorporation by reference shall not be deemed to specifically incorporate by reference the information referred to in Item 402(a)(8) of Regulation S-K. ITEM 12 - SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT MC responds to this item by incorporating by reference the material under the captions "Principal Shareholders" on page 17 and "Securities Ownership of Management" on pages 4 through 6 in MC's definitive proxy statement respecting its 1994 Annual Shareholders' Meeting, except that the percentage owned by all directors and executive officers as a group is hereby amended to be 3.43%. ITEM 13 - CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS MC responds to this item by incorporating by reference the material under the captions "Compensation Committee Interlocks and Insider Participation" on page 11 and "Interest of Management in Certain Transactions" on page 15 in MC's definitive proxy statement respecting its 1994 Annual Shareholders' Meeting. 23 PART IV ITEM 14 - EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K a) FINANCIAL STATEMENTS, SCHEDULES AND EXHIBITS 1. FINANCIAL STATEMENTS Midlantic Corporation and Subsidiaries Consolidated Financial Statements* Consolidated Statement of Income for each of the Three Years in the Period Ended December 31, 1993 Consolidated Balance Sheet at December 31, 1993 and 1992 Consolidated Statement of Changes in Shareholders' Equity for each of the Three Years in the Period Ended December 31, 1993 Consolidated Statement of Cash Flows for each of the Three Years in the Period Ended December 31, 1993 Notes to Consolidated Financial Statements Independent Auditor's Report *Incorporated by reference to pages 44 through 70 of Midlantic Corporation's Annual Report to Shareholders for the fiscal year ended December 31, 1993. 2. SCHEDULES Schedules are omitted because they are not required or are not applicable. 3. EXHIBITS (3) (a) Certificate of Incorporation of Midlantic Corporation, as amended through March 12, 1990 incorporated by reference to Exhibit 3(a) to Form 10-K of Midlantic Corporation for the fiscal year ended December 31, 1989 (b) By-Laws of Midlantic Corporation as amended and restated through September 16, 1992 incorporated by reference to Exhibit 3(b) to Form 10-K of Midlantic Corporation for the fiscal year ended December 31, 1992 (4) (a) Agreement to file instruments regarding long-term debt (b) Rights Agreement dated as of February 23, 1990 between Midlantic Corporation and Midlantic National Bank (including as Exhibit A thereto Midlantic Corporation's Certificate of Amendment of Certificate of Incorporation covering its Series B Junior Participating Preferred Stock and including as Exhibit B thereto the form of Rights Certificate) incorporated by reference to Exhibit 2 to the Registration Statement on Form 8-A of Midlantic Corporation dated February 26, 1990 24 (10) (a) Purchase Agreement dated as of June 5, 1990 among Midlantic National Bank, Midlantic Corporation, Midlantic National Bank/Delaware and Manufacturers Hanover Trust Company incorporated by reference to Exhibit 28(b) to Form 8-K of Midlantic Corporation dated June 30, 1990 (b) Agreement by and between Midlantic National Bank, Newark, New Jersey and the Office of the Comptroller of the Currency dated December 20, 1990 incorporated by reference to Exhibit 28(a) to Form 8-K of Midlantic Corporation dated December 21, 1990 (c) Letter dated January 17, 1991 from Midlantic National Bank to the Office of the Comptroller of the Currency amending an Agreement dated December 20, 1990 between Midlantic National Bank and the Office of the Comptroller of the Currency incorporated by reference to Exhibit 19(a) to Form 10-Q of Midlantic Corporation for the quarter ended June 30, 1991 (d) Amendment dated July 23, 1991 to an Agreement dated December 20, 1990 between Midlantic National Bank and the Office of the Comptroller of the Currency incorporated by reference to Exhibit 19(b) to Form 10-Q of Midlantic Corporation for the quarter ended June 30, 1991 (e) Acquisition Agreement dated as of September 25, 1991 among Midlantic Corporation, United Penn Bank and Mellon Bank, N.A. incorporated by reference to Exhibit 28 to Form 8-K of Midlantic Corporation dated October 1, 1991 (f) Amendment and Supplement dated December 18, 1991 to Acquisition Agreement dated as of September 25, 1991 among Midlantic Corporation, United Penn Bank and Mellon Bank, N.A. incorporated by reference to Exhibit 28(d) to Form 8-K of Midlantic Corporation dated December 31, 1991 (g) Stock Purchase Agreement dated as of February 21, 1992 between Midlantic Corporation and ONBANCORP, Inc. incorporated by reference to Exhibit 28(b) to Form 8-K of Midlantic Corporation dated February 21, 1992 (h) Written Agreement dated as of May 16, 1991 between Midlantic Corporation and the Federal Reserve Bank of New York incorporated by reference to Exhibit 28 to Form 8-K of Midlantic Corporation dated May 16, 1991 (i) Stock Purchase Agreement dated as of March 23, 1992 by and among CHMC Mortgage Company Acquisition, Inc., Midlantic Banks Inc. and Midlantic Corporation incorporated by reference to Exhibit 10 to Form 10-K of Midlantic Corporation for the year ended December 31, 1991 (j) Agreement dated as of July 21, 1992 between Midlantic Corporation and The Bank of New York Company, Inc. incorporated by reference to Exhibit 28 to Form 8-K of Midlantic Corporation dated July 22, 1992 25 Executive Compensation Plans and Arrangements _____________________________________________ (k) Midlantic Incentive Stock and Stock Option Plan (1986), as amended, incorporated by reference to Exhibit 4 to Midlantic Corporation's Registration Statement on Form S-8, No. 33-50952 (l) Midlantic Incentive Plan, as amended, incorporated by reference to Exhibit 4(c) to Midlantic Corporation's Post- Effective Amendment No. 1 to Registration Statement on Form S-8, No. 33-16256 (m) Continental Bancorp, Inc. 1982 Stock Option Plan, as amended, incorporated by reference to Exhibit 4(f) to Midlantic Corporation's Post-Effective Amendment No. 1 to Registration Statement on Form S-8, No. 33-16256 (n) Rules and Regulations Relating to the Payment in Shares of Common Stock for the Exercise Price of Stock Options incorporated by reference to Exhibit 10(o) to Form 10-K of Midlantic Corporation for the fiscal year ended December 31, 1992 (o) Rules and Regulations - Stock Awards incorporated by reference to Exhibit 10(p) to Form 10-K of Midlantic Corporation for the fiscal year ended December 31, 1992 (p) Rules and Regulations Relating to the Exercise of Stock Appreciation Rights incorporated by reference to Exhibit 10(q) to Form 10-K of Midlantic Corporation for the fiscal year ended December 31, 1992 (q) Rules and Regulations Relating to the Payment in Shares of Common Stock of Taxes in Connection with the Vesting of an Award incorporated by reference to Exhibit 10(r) to Form 10-K of Midlantic Corporation for the fiscal year ended December 31, 1992 (r) Rules and Regulations Relating to the Payment in Shares of Common Stock of Taxes in Connection with the Exercise of a Non-Qualified Stock Option incorporated by reference to Exhibit 10(s) to Form 10-K of Midlantic Corporation for the fiscal year ended December 31, 1992 (s) Continental Bancorp, Inc. Survivor Benefit Plan incorporated by reference to Exhibit 10(t) to Form 10-K of Midlantic Corporation for the fiscal year ended December 31, 1992 (t) Midlantic Corporation Executive Supplemental Retirement Plan incorporated by reference to Exhibit 19(a) to Form 10-Q of Midlantic Corporation for the quarter ended June 30, 1989 (u) Midlantic Corporation Excess Benefit Plan and Amendment No. 1 dated March 20, 1991 thereto incorporated by reference to Exhibit 19(a) to Form 10-Q of Midlantic Corporation for the quarter ended March 31, 1991 (v) Midlantic Corporation Severance Pay Policy incorporated by reference to Exhibit 19(c) to Form 10-Q of Midlantic Corporation for the quarter ended September 30, 1991 (w) Form of Change of Control Agreement of Midlantic Corporation incorporated by reference to Exhibit 10(y) to Form 10-K of Midlantic Corporation for the fiscal year ended December 31, 1992 26 (x) Employment Agreement dated and effective as of April 23, 1991 between Midlantic Corporation and Garry J. Scheuring incorporated by reference to Exhibit 28 to Form 8-K of Midlantic Corporation dated April 11, 1991 (y) Employment Agreement dated as of July 1, 1991 between Midlantic Corporation and Alfred J. Schiavetti, Jr. incorporated by reference to Exhibit 19(g) to Form 10-Q of Midlantic Corporation for the quarter ended June 30, 1991 (z) Employment Agreement dated as of September 12, 1991 between Midlantic Corporation and Howard I. Atkins incorporated by reference to Exhibit 19(a) to Form 10-Q of Midlantic Corporation for the quarter ended September 30, 1991 (aa) Employment Agreement dated as of January 27, 1992 between Midlantic Corporation and Alan M. Silberstein incorporated by reference to Exhibit 10 to Form 10-K of Midlantic Corporation for the year ended December 31, 1991 (bb) Change of Control Agreement dated as of January 1, 1993 between Midlantic Corporation and James J. Lynch incorporated by reference to Exhibit 10(dd) to Form 10-K of Midlantic Corporation for the fiscal year ended December 31, 1992 (cc) Description of tax consultation plan of Midlantic Banks Inc. incorporated by reference to Exhibit 10(ee) to Form 10-K of Midlantic Corporation for the fiscal year ended December 31, 1992 (dd) Midlantic Annual Incentive and Bonus Plan (11) Statement regarding computation of income (loss) per common share (13) Annual Report to Shareholders for the fiscal year ended December 31, 1993 (21) Subsidiaries of Midlantic Corporation (23) Consent of Independent Accountants (24) Powers of Attorney Copies of the foregoing Exhibits will be furnished upon request and payment. b) REPORTS ON FORM 8-K No reports on Form 8-K were filed during the last quarter of the period covered by this report. 27 SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. MIDLANTIC CORPORATION (Registrant) Signature Title Date _________________________________________________________________________ By GARRY J. SCHEURING ___________________________ Chairman of the Board, March 23, 1994 Garry J. Scheuring President and Chief Executive Officer By HOWARD I. ATKINS ___________________________ Executive Vice President March 23, 1994 Howard I. Atkins and Chief Financial Officer By JAMES E. KELLY ___________________________ Controller March 23, 1994 James E. Kelly Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated. Signature Title Date _________________________________________________________________________ .............................. Chairman of the Board, March 23, 1994 (Garry J. Scheuring) President and Chief Executive Officer * .............................. Director March 23, 1994 (Charles E. Ehinger) * .............................. Director March 23, 1994 (David F. Girard-diCarlo) * .............................. Director March 23, 1994 (Frederick C. Haab) * .............................. Director March 23, 1994 (Kevork S. Hovnanian) 28 Signature Title Date _________________________________________________________________________ * .............................. Director March 23, 1994 (Arthur J. Kania) * .............................. Director March 23, 1994 (Aubrey C. Lewis) * .............................. Director March 23, 1994 (David F. McBride) * .............................. Director March 23, 1994 (Desmond P. McDonald) * .............................. Director March 23, 1994 (William E. McKenna) * .............................. Director March 23, 1994 (Marcy Syms Merns) * .............................. Director March 23, 1994 (Ralph H. O'Brien) * .............................. Director March 23, 1994 (Roy T. Peraino) * .............................. Director March 23, 1994 (Ernest L. Ransome, III) * .............................. Director March 23, 1994 (Ronald Rubin) * .............................. Director March 23, 1994 (B. P. Russell) * .............................. Director March 23, 1994 (Fred R. Sullivan) * .............................. Director March 23, 1994 (Harold L. Yoh, Jr.) 29 *Joseph H. Kott, by signing his name hereto, does sign this document on behalf of each of the persons named above pursuant to powers of attorney duly executed by such persons which are filed with the Securities and Exchange Commission. By JOSEPH H. KOTT _____________________________ Joseph H. Kott Attorney-in-fact EX-11 2 COMPUTATION OF EARNINGS PER SHARE
ITEM 14(a)3 - EXHIBIT 11 Midlantic Corporation and Subsidiaries Computation of Income (Loss) Per Common Share (In thousands, except share and per share data) 1993 1992 1991 1990 1989 _________________________________________________________________________________________________________________ Earnings applicable to primary common shares Income (loss) before cumulative effect of the change in accounting for income taxes $131,396 $ 7,028 $(543,303) $(195,005) $206,261 Preferred stock dividends (3,626) (3,672) (3,812) (3,812) (1,282) __________ __________ __________ __________ __________ Income (loss) before cumulative effect of the change in accounting for income taxes applicable to primary common shares 127,770 3,356 (547,115) (198,817) 204,979 Cumulative effect of the change in accounting for income taxes 38,962 -- -- -- -- __________ __________ __________ __________ __________ Net income (loss) applicable to primary common shares $166,732 $ 3,356 $(547,115) $(198,817) $204,979 ========== ========== ========== ========== ========== Earnings applicable to fully diluted common shares Income (loss) before cumulative effect of the change in accounting for income taxes applicable to primary common shares $127,770 $ 3,356 $(547,115) $(198,817) $204,979 Interest expense on convertible subordinated debentures, net of federal income taxes 4,084 N/A N/A N/A 4,084 __________ __________ __________ __________ __________ Income (loss) before cumulative effect of the change in accounting for income taxes applicable to fully diluted common shares 131,854 3,356 (547,115) (198,817) 209,063 Cumulative effect of the change in accounting for income taxes 38,962 -- -- -- -- __________ __________ __________ __________ __________ Net income (loss) applicable to fully diluted common shares $170,816 $ 3,356 $(547,115) $(198,817) $209,063 ========== ========== ========== ========== ========== Number of average shares Primary Average common shares outstanding 50,098,667 41,176,415 38,094,934 38,097,294 38,058,450 Average common share equivalents 844,657 392,671 N/A N/A 94,299 __________ __________ __________ __________ __________ Average primary common shares 50,943,324 41,569,086 38,094,934 38,097,294 38,152,749 ========== ========== ========== ========== ==========
Continued on next page Continued from prior page
ITEM 14(a)3 - EXHIBIT 11 Midlantic Corporation and Subsidiaries Computation of Income (Loss) Per Common Share (In thousands, except share and per share data) (continued) 1993 1992 1991 1990 1989 ____________________________________________________________________________________________________________ Fully diluted Average common shares outstanding 50,098,667 41,176,415 38,094,934 38,097,294 38,058,450 Average common share equivalents 907,372 777,390 N/A N/A 84,457 Average convertible subordinated debentures converted to common shares 1,562,500 N/A N/A N/A 1,562,500 __________ __________ __________ __________ __________ Average fully diluted common shares 52,568,539 41,953,805 38,094,934 38,097,294 39,705,407 ========== ========== ========== ========== ========== Income (loss) per common share Income (loss) before cumulative effect of the change in accounting for income taxes Primary $2.51 $.08 $(14.36) $(5.22) $5.37 Fully diluted 2.51 .08 (14.36) (5.22) 5.27 Cumulative effect of the change for income taxes Primary 76 -- -- -- -- Fully diluted .74 -- -- -- -- Net income (loss) Primary 3.27 .08 (14.36) (5.22) 5.37 Fully diluted 3.25 .08 (14.36) (5.22) 5.27 ========== ========== ========== ========== ========== N/A - Not applicable For 1991 and 1990, average common share equivalents were anti-dilutive and have been excluded from the per share computations. Convertible subordinated debentures were anti-dilutive in 1992, 1991 and 1990 and have been excluded from the per share computations for those periods.
EX-13 3 16 1OF2 MANAGEMENT'S ANALYSIS OF THE RESULTS OF OPERATIONS AND FINANCIAL CONDITION Midlantic Corporation and Subsidiaries INTRODUCTION Midlantic Corporation ("MC"), headquartered in Edison, New Jersey, is a $13.9 billion bank holding company which provides financial services to its customers, located primarily in New Jersey and southeastern Pennsylvania. During 1993, MC and its subsidiaries ("Midlantic" or the "Corporation") made significant progress in several respects. The Corporation substantially reduced its level of nonaccrual assets (nonaccrual loans and other real estate owned), significantly increased its capital ratios and steadily improved its operating efficiencies (and consequently its core earnings base). As a result of these and other factors described in Table II, which provides a summary of Midlantic's results of operations for the past three years, the Corporation reported net income of $170.4 million in 1993. This favorable performance followed a year of modest earnings (1992) and, as the Corporation's level of nonaccrual assets rose in tandem with a weakening economy, two consecutive years (1990 and 1991) of significant losses, principally as a result of high credit loss provisions. The deterioration in asset quality during 1990 and 1991 necessitated strong corrective actions in order to improve the Corporation's declining capital base, to augment liquidity, to resolve problem assets and ultimately to return Midlantic to profitability. These corrective actions, which resulted in significant changes to Midlantic since 1990, are more fully discussed in "Critical Events In Midlantic's Recent History." The Corporation's financial performance is more fully discussed in the following analysis by management of the results of operations for each of the past three years and financial condition for each of the past two years. This analysis should be read in conjunction with the consolidated financial statements on pages 44 through 70 and the consolidated supplementary financial and statistical information on pages 71 through 75. In order to assist the reader in better understanding differences between current year data and data of prior periods, the discussion of the results of operations and financial condition in many instances refers to Midlantic's "Continuing Entities" which treats the effect of several subsidiaries that were sold during 1991 and 1992 as if those subsidiaries had all been sold on January 1, 1991. In those tables for which five year historical data have been shown, all data is presented for the Continuing Entities as if subsidiaries divested during 1990 through 1992 had been sold on January 1, 1989. Gains or losses recognized on the sales of subsidiaries have been shown, where applicable, as nonrecurring gains or losses of the Continuing Entities for the periods in which the gains or losses actually occurred. Midlantic's Continuing Entities include Midlantic National Bank ("MNB"), Continental Bank ("CB"), several smaller subsidiaries and the parent companies (Midlantic Corporation and Midlantic Banks Inc.). The results of operations of the Continuing Entities are not necessarily indicative of the results of operations that would have been attained if divested subsidiaries had actually been sold on January 1, 1991 (or in the case of five year tables, January 1, 1989). 16 2OF2 CRITICAL EVENTS IN MIDLANTIC'S RECENT HISTORY I. Background The downturn in national economic conditions that began in late 1989 negatively affected most industries to varying degrees. As economic conditions weakened, it became apparent that the real estate industry, which had been particularly vibrant during the preceding several years of economic expansion, was facing severe market value erosion. Since Midlantic had historically serviced the financing needs of the real estate industry, the downturn in that industry, as well as related industries, impaired the Corporation's asset quality. Nonaccrual assets, which amounted to $509.7 million or 2.1 percent of total assets at December 31, 1989, steadily increased during the next seven quarters, reaching a peak level of $1.9 billion or 9.1 percent of total assets at September 30, 1991. As a result of the growing level of problem loans, higher provisions for loan losses became necessary in order to maintain an allowance for loan losses adequate to absorb estimated losses in the credit portfolio. The high credit loss provisions, accompanied by a substantial decline in the Corporation's earning asset base, contributed to significant operating losses. Largely as a result of operating losses and the consequent reduction in equity capital, Midlantic began in 1990 to reposition its balance sheet for the purposes of improving liquidity and capital. In 1990 Midlantic sold $257 million of credit card accounts and receivables and $173 million of lease financing receivables and securitized and sold an aggregate $504 million of automobile and home equity loans. During the months that followed these asset sales, it became increasingly evident to the Corporation's management that the national economic slowdown and downturn in local real estate markets had persisted longer than had previously been expected. Consequently, the Corporation's earnings, liquidity and capital continued to be negatively affected and it was determined that further steps were necessary to improve Midlantic's position. 17 1OF2 Midlantic Corporation and Subsidiaries II. Restructuring Program In July 1991, the Corporation announced that it was proceeding with the implementation of a multi-phase restructuring program (the "Restructuring Program"), the overall purpose of which was to strengthen and reposition the Corporation. The first phase of the Restructuring Program was designed to focus Midlantic's businesses in its core markets of New Jersey and southeastern Pennsylvania and to strengthen the Corporation's capital position by selling nonstrategic subsidiaries and businesses located primarily in northeastern and southcentral Pennsylvania and New York state. The sales of these subsidiaries and assets reduced Midlantic's total assets by approximately $5.5 billion and provided proceeds of approximately $500 million, substantially all of which were contributed to MNB and CB in order to strengthen capital. In 1991, Midlantic also merged its two New Jersey bank subsidiaries, MNB and Midlantic National Bank/North ("MNB/North") in order to consolidate its New Jersey operations. The second and final phase of the Restructuring Program involved a functional realignment of the Corporation's internal organization and a concurrent effort to significantly reduce operating expenses. The new functional organization structure provided for a single, unified company-wide management along principal lines of business and key staff support areas. Midlantic also launched a broad-based, corporate assessment of the ways in which it does business ("FOCUS '92"). As a result of FOCUS '92, which was completed by mid- 1993, Midlantic identified opportunities to eliminate redundant activities, streamline processes and consolidate operations. FOCUS '92 resulted in the identification of approximately $100 million of annualized savings by mid-1993 in core operating expenses from the comparable annualized operating expense levels of the fourth quarter of 1991. III. Reduction In Problem Loans During the past two years the Corporation's expanded loan workout/resolution efforts have successfully contributed toward reducing nonaccrual assets to manageable levels. Since year-end 1991, nonaccrual assets have declined by $1.4 billion or 78.0 percent, from a level of $1.8 billion to $398.0 million at year-end 1993. The decline in nonaccrual assets during this period primarily reflected $1.2 billion of payments/payoffs and assets returned to accrual or renegotiated status, $776.2 million of charge-offs and writedowns and $265.0 million of assets sold or designated to be sold in bulk sales transactions. During this period additions to nonaccrual assets totalled $913.2 million. The Corporation's first bulk sales program, which was announced in April 1993 and completed in September 1993, involved several transactions with an aggregate book value of nearly $300 million representing commercial real estate loans and other real estate owned ("OREO") located primarily in New Jersey, Pennsylvania and Florida. 17 2OF2 In December 1993, the Corporation determined to proceed with a second major bulk sales program involving loans and OREO with an aggregate book value totalling approximately $290 million. The assets for sale, which have been reclassified in the Corporation's year-end 1993 balance sheet to other assets as "assets held for accelerated disposition," predominantly represent real estate development loans and holdings of land in New Jersey and Pennsylvania. The sales of these assets, which are expected to be completed in 1994, are subject to successful negotiation of terms including price, execution of definitive agreements and satisfaction of closing conditions. No assurance can be given that the bulk sale of these assets will be consummated or that, if consummated, all of the assets presently anticipated to be included in such bulk sales will be sold. In anticipation of the bulk sales, the Corporation recorded additional loss provisions totalling $44 million to cover charge-offs against those loans and OREO properties that were transferred to assets held for accelerated disposition. At December 31, 1993, such assets, which are carried at fair value less the estimated cost of disposing of the properties ("net realizable value"), amounted to $158.2 million (see Table I). TABLE I - 1993 BULK SALES AND ASSETS HELD FOR ACCELERATED DISPOSITION
Assets Held for Bulk Sales Accelerated Finalized Disposition (In thousands) During 1993 at Year-end 1993 _______________________________________________________________________________ Book value of assets sold in bulk sales or transferred to assets held for accelerated disposition (1) Loans $219,482 $218,197 OREO 74,115 74,039 ________ ________ Total 293,597 292,236 ________ ________ Charge-offs on assets sold in bulk sales or held for accelerated disposition 84,456 134,079(3) ________ ________ Net realizable value $209,141(2) $158,157 ======== ======== Loss provisions recognized during 1993 in order to carry assets held for accelerated disposition at net realizable value $ 34,000 $ 44,000 ======== ======== (1) Amounts are net of prior charge-offs (if any) on these assets. (2) Cash proceeds from the sale of these assets were not substantially different. (3) Includes additional writedowns on OREO properties of $36.672 million.
18 1OF2 MANAGEMENT'S ANALYSIS (continued) IV. Common Stock Issuances In August 1992, the Corporation raised a total of $109.5 million of capital through the sale of an aggregate 7.65 million shares of its common stock, in separate transactions, to overseas investors and to five United States investors. In May 1993, Midlantic issued, in a public offering, 5.75 million common shares for $107.1 million. The issuance of common stock has significantly bolstered the Corporation's capital ratios and the liquidity of the parent companies. V. Development of Core Business Lines A strategic focus of the Corporation is the expansion of its share of the consumer and small to medium-size business markets. It is Midlantic's intention not only to direct available funds to support loan demand in such markets, but also to develop full-service customer relationships. In this regard, Midlantic has introduced, among other things, Individual Choice Banking sm and one-stop telephone service to enhance efficiencies in providing banking services to its customers. Since the end of the third quarter of 1992, loans to individuals (also referred to as consumer loans) increased by a net $809.4 million (excluding divested subsidiaries and the sale of over $400 million of automobile loans during late 1992) and during the third quarter of 1993 the Corporation announced its Business Value Banking Program sm for the purpose of providing banking services to small businesses in Midlantic's market area. In conjunction with this program, the Corporation also announced a $1 billion lending initiative to small and medium-sized commercial businesses. SUMMARY OF RESULTS OF OPERATIONS Net income in 1993 amounted to $170.4 million or $3.25 per fully diluted common share as compared with $7.0 million or $.08 per fully diluted common share in 1992. In 1991, the Corporation recorded a net loss of $543.3 million or $14.36 per fully diluted common share. During the past three years, the Corporation recorded various nonrecurring income and expense items which impacted results of operations to varying degrees. Such nonrecurring items are summarized in Table III. Income before credit loss provisions, nonrecurring income and expenses and income taxes ("core earnings") amounted to $226.7 million in 1993. This compares with the similarly computed income amount for the Continuing Entities of $129.7 million in 1992 and $95.0 million in 1991. The significant improvement in the Corporation's core earnings during 1993 largely reflected an increase in net interest income (primarily due to lower funding costs and a decline in nonaccrual loans), as well as a reduction in noninterest expenses reflecting the benefits achieved through FOCUS '92. 18 2OF2 TABLE II - MAJOR COMPONENTS OF THE RESULTS OF OPERATIONS FOR 1993, 1992 AND 1991
1992 1991 1993 1992 Continuing 1991 Continuing (In thousands) Actual Actual Entities Actual Entities ____________________________________________________________________________________________________________ INCOME BEFORE CREDIT LOSS PROVISIONS, INCOME TAXES AND NONRECURRING INCOME AND EXPENSES: Net interest income $ 506,050 $509,664 $439,268 $ 624,583 $ 450,036 Noninterest income 188,088 212,935 190,575 253,473 182,960 Noninterest expenses Salaries and benefits 219,332 257,221 224,785 345,679 254,165 OREO expense (excluding provision for OREO valuations) 3,792 22,612 21,683 20,961 20,063 Other 244,265 283,284 253,655 345,165 263,758 _________ ________ ________ _________ _________ Total 226,749 159,482 129,720 166,251 95,010 _________ ________ ________ _________ _________ ADDITIONS: Gains on the sale of subsidiaries and loans and other nonrecurring income -- 35,208 35,208 6,796 6,796 Investment securities gains (losses) 7,005 52,753 52,753 (2,890) (2,217) DEDUCTIONS: Provision for loan losses 79,000 137,939 116,227 640,402 579,087 Provision for OREO valuations 130,545 77,132 74,624 102,038 99,138 Restructuring charges and other nonrecurring expenses 3,856 22,500 22,500 14,496 14,496 _________ ________ ________ _________ _________ Income (loss) before income taxes and cumulative effect of the change in accounting for income taxes 20,353 9,872 4,330 (586,779) (593,132) Income tax (benefit) expense (111,043) 2,844 2,844 (43,476) (43,476) _________ ________ ________ _________ _________ Income (loss) before cumulative effect of the change in accounting for income taxes 131,396 7,028 1,486 (543,303) (549,656) Cumulative effect of the change in accounting for income taxes 38,962 -- -- -- -- _________ ________ ________ _________ _________ Net income (loss) $ 170,358 $ 7,028 $ 1,486 $(543,303) $(549,656) ========= ======== ======== ========= =========
19 1OF2 Midlantic Corporation and Subsidiaries TABLE III - CERTAIN NONRECURRING ITEMS INCLUDED IN THE RESULTS OF OPERATIONS
(In thousands) 1993 1992 1991 _______________________________________________________________________________________________________________________ Cumulative effect of adoption of Statement of Financial Accounting Standards No. 109 $ 38,962 $ -- $ -- Special provisions for assets identified for accelerated disposition (78,000) -- -- Restructuring charges -- (22,500) (3,066) Net gains on the sales of subsidiaries and other assets -- 35,208 6,796 Net gains (losses) on investment securities transactions 7,005 52,753 (2,890) Professional fees incurred for the implementation of a security lending program (3,856) -- -- Fraud loss involving equipment lease collateral securing a commercial loan -- -- (11,430) ________ ________ ________ Aggregate (decrease) increase in income resulting from the above-listed nonrecurring items $(35,889) $ 65,461 $(10,590)
The following are certain balance sheet, asset quality, capital ratio and noninterest expense trends for the past five quarters: TABLE IV- CERTAIN QUARTERLY TRENDS
FOR THE QUARTERS ENDED _______________________________________________________________________ December 31 September 30 June 30 March 31 December 31 (In thousands) 1993 1993 1993 1993 1992 ______________________________________________________________________________________________________________ Total assets $13,946,582 $13,490,173 $13,842,208 $14,010,413 $14,421,758 Total shareholders' equity 1,122,564 1,062,700 1,015,164 866,963 843,462 ___________ ___________ ___________ ___________ ___________ Asset quality Nonaccrual loans $ 265,299 $ 468,609 $ 528,905 $ 598,586 $ 809,669 Other real estate owned, net 132,670 273,075 326,195 365,945 450,879 ___________ ___________ ___________ ___________ ___________ Total nonaccrual assets $ 397,969 $ 741,684 $ 855,100 $ 964,531 $ 1,260,548 ___________ ___________ ___________ ___________ ___________ Total nonaccrual assets as a % of total assets 2.85% 5.50% 6.18% 6.88% 8.74% ___________ ___________ ___________ ___________ ___________ Allowance for loan losses $ 394,450 $ 499,250 $ 541,243 $ 576,227 $ 663,901 Allowance for loan losses as a % of nonaccrual loans 148.68% 106.54% 102.33% 96.26% 82.00% ___________ ___________ ___________ ___________ ___________ Capital ratios Tier 1 risk-based 9.28% 9.04% 8.45% 7.03% 6.83% Total capital risk-based 13.29 13.13 12.52 11.07 10.76 Leverage 6.81 6.86 6.32 5.24 5.19 ___________ ___________ ___________ ___________ ___________ Noninterest expenses excluding non- recurring charges, OREO-related costs and FDIC assessment premiums* $ 104,315 $ 108,552 $ 103,550 $ 113,339 $ 105,815 =========== =========== =========== =========== =========== *Noninterest expenses for the quarter ended December 31, 1992 are presented on a Continuing Entity basis.
19 2OF2 NET INTEREST INCOME Excluding the effect of subsidiaries sold, net interest income ("NII") improved during 1993, following a modest decrease in 1992 compared to 1991. For the Continuing Entities, NII amounted to $506.1 million in 1993 as compared with $439.3 million and $450.0 million in 1992 and 1991, respectively. Contributing to higher levels of NII in 1993 was an increase in the net interest margin of 63 basis points. In 1993, the improved rate of income on earning assets more than offset a volume decline in average interest- earning assets. In 1992, the net interest margin also improved (by 30 basis points) but this benefit was offset by a lower level of average interest-earning assets. The rise in NII and the related improvement in the net interest margin were primarily attributed to the following factors: - A decline in the level of nonaccrual loans - Nonaccrual loans decreased on average by $513.6 million in 1993 and $228.9 million in 1992. Reductions in nonaccrual loans that reflect returns to accrual or renegotiated status as well as payments and pay-offs on such loans tend to benefit both net interest margin and NII since the earning asset base includes a higher volume of assets for which interest income is currently being recognized. - Growth in consumer loans - During the fourth quarter of 1992 and continuing throughout 1993 the Corporation's consumer loan portfolio, including home equity and automobile loans, increased a net $809.4 million. - Lower funding costs - As market interest rates have generally declined since 1991, the average rates for both interest-earning assets and interest- bearing funding sources have fallen. However, the average cost to the Corporation of interest-bearing funds has fallen at a faster rate than the general market decline, partly due to the maturity of almost $1.4 billion of brokered deposits (most of which matured in mid- 1992) and other high rate retail certificates of deposit ("CDs") issued during 1990 and 1991 and partly due to the favorable effect of the Corporation's liability-sensitive gap position during the period (see "Asset and Liability Management-Interest Sensitivity Management"). - An increase in the proportion and amount of noninterest-bearing funding sources (primarily demand deposits) - Average noninterest-bearing funding sources amounted to nearly 20 percent of average interest-earning assets in 1993 as compared with approximately 15 percent and 12 percent in 1992 and 1991, respectively. 20 1OF2 MANAGEMENT'S ANALYSIS (continued) TABLE V - SUMMARY OF AVERAGE BALANCES WITH RESULTANT INTEREST AND AVERAGE RATES
1993 1992 1991 __________________________ __________________________ _________________________ INTEREST Interest Interest AVERAGE INCOME/ AVERAGE Average Income/ Average Average Income/ Average (In millions) BALANCE EXPENSE RATE Balance Expense Rate Balance Expense Rate _______________________________________________________________________________________________________________________ LOANS Actual $ 8,510 $655 7.69% $11,016 $ 834 7.57% $15,583 $1,421 9.12% Continuing Entities 8,510 655 7.69 9,800 723 7.38 11,787 1,038 8.81 _______ ____ ____ _______ ______ ____ _______ ______ ____ ALL OTHER INTEREST-EARNING Assets Actual 3,880 162 4.18 3,753 218 5.81 4,224 309 7.31 Continuing Entities 3,880 162 4.18 3,496 199 5.69 3,257 236 7.24 _______ ____ ____ _______ ______ ____ _______ ______ ____ TOTAL INTEREST-EARNING ASSETS Actual 12,390 817 6.59 14,769 1,052 7.12 19,807 1,730 8.73 Continuing Entities 12,390 817 6.59 13,296 922 6.94 15,044 1,274 8.47 _______ ____ ____ _______ ______ ____ _______ ______ ____ INTEREST-BEARING DEPOSITS Actual 9,166 263 2.87 11,538 483 4.19 16,026 1,012 6.31 Continuing Entities 9,166 263 2.87 10,218 424 4.15 11,803 744 6.31 _______ ____ ____ _______ ______ ____ _______ ______ ____ ALL OTHER INTEREST-BEARING SOURCES OF FUNDS Actual 791 48 6.07 968 59 6.08 1,369 93 6.79 Continuing Entities 791 48 6.07 953 59 6.15 1,090 80 7.29 _______ ____ ____ _______ ______ ____ _______ ______ ____ INTEREST-FREE SOURCES OF FUNDS Actual 2,433 -- -- 2,263 -- -- 2,412 -- -- Continuing Entities 2,433 -- -- 2,125 -- -- 2,151 -- -- _______ ____ ____ _______ ______ ____ _______ ______ ____ NET INTEREST INCOME/NET INTEREST MARGIN Actual $506 4.08% $ 510 3.45% $ 625 3.15% Continuing Entities 506 4.08 439 3.30 450 2.99 ____ ____ ______ ____ ______ ____
20 2OF2 TABLE VI- ANALYSIS OF CHANGES IN NET INTEREST INCOME(1)
1993 vs. 1992 1992 vs. 1991 ____________________________________ ___________________________________ (In thousands) Volume(4) Rate(4) Total Volume(4) Rate(4) Total ____________________________________________________________________________________________________________________________ INCREASE (DECREASE) IN INTEREST INCOME Interest-bearing deposits $ 13,157 $ (707) $ 12,450 $ (9,515) $ (7,430) $ (16,945) Other short-term investments 20,161 932 21,093 (9,587) (23,174) (32,761) Investment securities (50,630) (38,743) (89,373) (4,458) (36,557) (41,015) Commercial, financial and foreign loans (2)(3) (100,317) 40,949 (59,368) (157,103) (96,235) (253,338) Real estate loans(2)(3) (86,912) 353 (86,559) (134,336) (85,673) (220,009) Loans to individuals(2)(3) (9,595) (23,417) (33,012) (79,861) (33,757) (113,618) _________ _________ _________ _________ _________ _________ Total interest-earning assets (214,136) (20,633) (234,769) (394,860) (282,826) (677,686) _________ _________ _________ _________ _________ _________ 20 2OF2 INTEREST EXPENSE Domestic savings and time deposits (86,890) (133,241) (220,131) (239,648) (288,129) (527,777) Overseas branch deposits (55) (82) (137) (414) (455) (869) Short-term borrowings (3,989) (1,766) (5,755) (16,959) (16,459) (33,418) Long-term debt (4,329) (803) (5,132) (1,721) 1,018 (703) _________ _________ _________ _________ _________ _________ Total interest-bearing sources of funds used to finance interest-earning assets (95,263) (135,892) (231,155) (258,742) (304,025) (562,767) _________ _________ _________ _________ _________ _________ Change in net interest income $(118,873) $ 115,259 $ (3,614) $(136,118) $ 21,199 $(114,919) ========= ========= ========= ========= ========= ========= CONTINUING ENTITIES (5) INCREASE (DECREASE) IN Total interest-earning assets $(112,074) $ 6,823 $(105,251) $(147,438) $(204,067) $(351,505) Total interest-bearing sources of funds used to finance interest-earning assets (47,978) (124,055) (172,033) (97,512) (243,225) (340,737) _________ _________ _________ _________ _________ _________ CHANGE IN NET INTEREST INCOME $ (64,096) $ 130,878 $ 66,782 $ (49,926) $ 39,158 $ (10,768) ========= ========= ========= ========= ========= ========= (1) For average balances and average rates earned and paid see "Comparative Consolidated Average Balance Sheet with Resultant Interest and Average Rates" on pages 72 and 73. (2) Includes income from loan fees which is not significant. (3) Includes nonaccrual loans. (4) The changes which cannot be attributed solely to changes in balances (volume) or to changes in rates are allocated to these categories on the basis of their respective percentage changes. (5) Data for Continuing Entities has been presented consistant with actual data (see footnotes 2 through 4 above).
21 1OF2 Midlantic Corporation and Subsidiaries Average interest-earning assets on a Continuing Entity basis declined $905.2 million in 1993 and $1.7 billion in 1992. Included in these amounts was a decline in average loans amounting to $1.3 billion and $2.0 billion in 1993 and 1992, respectively. The net decline in earning assets reflects lower levels of overall funding which was partially due to the previously-noted maturity of brokered deposits and the Corporation's intention to reduce its dependence upon large CDs (CDs in denominations of over $100,000, both domestic and foreign) and short-term borrowings. In addition, there is some evidence that the decline in the level of interest-bearing deposits may also partially be a result of a movement of depositors' funds to non-deposit instruments. For example, Midlantic has witnessed the proceeds of some of its interest-bearing deposits being invested in the Compass Capital Group, Midlantic's proprietary mutual fund group. The decrease in average loans reflected weakened loan demand, principal paydowns and payoffs, the sale and/or securitization of certain loans, charge- offs and transfers to OREO. While consumer loans have increased during the past several quarters, commercial loan demand has been weak in Midlantic's market area (commercial loan demand having only recently begun to show signs of improvement). Consequently, total new commercial loan generation has been less than the aggregate of principal reductions in nonaccrual loans along with payments and maturities in the remaining commercial loan portfolio. PROVISION FOR LOAN LOSSES The provision for loan losses represents a charge to earnings for the purpose of maintaining an adequate allowance for loan losses. Midlantic's provision for loan losses declined significantly in 1993 to a level of $79.0 million (which included $20.0 million provided in connection with charge-offs on those loans identified for bulk sale in 1994) as compared with $137.9 million in 1992 and $640.4 million in 1991. Lower provisioning levels during the past two years reflect improvement in the Corporation's asset quality and stabilizing economic conditions in Midlantic's market areas during that period. For a further discussion of the allowance for loan loss methodology, see "The Lending Function - Allowance for Loan Losses." NONINTEREST INCOME AND NONINTEREST EXPENSES Tables VII and VIII detail noninterest income and noninterest expenses. The discussion under this heading, unless otherwise stated, addresses the data presented for 1993 and for the Continuing Entities in the prior two year period. Noninterest Income 1993 VS. 1992 - Excluding nonrecurring net gains on the disposition of securities and certain other assets, noninterest income of $188.1million in 1993 decreased by $2.5 million or 1.3 percent. Trust income, which amounted to $41.5 million in 1993, remained level when compared to 1992. Trust fees were unfavorably affected by the termination of a small number of employee benefit accounts, but benefited from higher levels of investment advisory fees from the "Compass Capital Group," Midlantic's proprietary mutual fund group and fees generated from "Enhanced Asset Management," a financial tool that matches asset allocation to the trust or investment client's risk and return objectives. At the end of 1993, Midlantic's trust assets totalled $9.7 billion, of which $5.6 billion were under discretionary management. 21 2OF2 TABLE VII - NONINTEREST INCOME
1992 1991 1993 1992 Continuing 1991 Continuing (In thousands) Actual Actual Entities Actual Entities _________________________________________________________________________________________________________________ Trust income $ 41,459 $ 46,776 $ 41,554 $ 56,156 $ 42,062 Service charges on deposit accounts 78,815 79,478 72,418 78,188 63,466 Mortgage banking fees -- 6,361 -- 32,459 -- Net gains on disposition of assets and other nonrecurring income -- 35,208 35,208 6,796 6,796 Income earned on factoring receivables 15,823 16,705 16,705 20,404 20,404 Miscellaneous International and foreign exchange fees 7,393 9,441 9,175 14,337 12,913 Automated teller fees 6,518 5,601 5,531 4,708 4,461 Safe deposit fees 4,311 4,867 4,437 5,561 4,556 Commitment fees on revolving lines of credit 4,583 5,432 5,287 5,986 5,867 Merchant discount and other credit card-related fees 3,163 5,401 4,861 5,936 4,680 Other (primarily fees and nonbank income) 26,023 32,873 30,607 29,738 24,551 ________ ________ ________ ________ ________ Total miscellaneous 51,991 63,615 59,898 66,266 57,028 ________ ________ ________ ________ ________ Total noninterest income before securities transactions 188,088 248,143 225,783 260,269 189,756 Investment securities gains (losses) 7,005 52,753 52,753 (2,890) (2,217) ________ ________ ________ ________ ________ Total noninterest income $195,093 $300,896 $278,536 $257,379 $187,539 ======== ======== ======== ======== ========
22 1of2 MANAGEMENT'S ANALYSIS (continued) Service charges on deposits advanced $6.4 million or 8.8 percent in 1993 as a result of the repricing of services. Net investment securities gains amounted to $7.0 million in 1993 (gross gains of $7.5 million and gross losses of $464 thousand) and $52.8 million in 1992 (gross gains of $57.0 million and gross losses of $4.2 million). Gains in 1993 were primarily realized from the first quarter 1993 sale of $562 million of U.S. Treasury securities that had been identified for sale in 1992. In 1992, Midlantic sold $2.2 billion of U.S. Treasury securities and $75.6 million of obligations of states and political subdivisions as part of a balance sheet repositioning program (see "Investment Securities"). A decline in mortgage banking fees is largely attributable to the first quarter 1992 sale of Midlantic's former mortgage banking subsidiary, Midlantic Home Mortgage Corporation ("MHMC"). However, as part of Midlantic's efforts to offer its customers a complete line of banking services, the Corporation began originating residential mortgage loans in 1993. Fees earned on the origination of these loans are recorded as interest income. Income earned on factoring receivables decreased $882 thousand or 5.3 percent, reflecting a lower volume of business activity. In 1992, net gains on the sales of subsidiaries and assets amounted to $35.2 million which included an aggregate net gain of $15.5 million on the sales of MHMC and Midlantic's four banking subsidiaries in New York state (the "New York Banks") and $19.7 million of other gains including those realized on the securitization and/or sale of automobile and certain other loans. Other noninterest income, which includes among other things, letters of credit and international fee income, automated teller fees and computer service fees, amounted to $52.0 million and $59.9 million in 1993 and 1992, respectively. The decline in other noninterest income reflected reductions in international fees and certain other fee income sources resulting from a lower level of business activity, partially offset by a rise in automated teller fees. 1992 VS. 1991 - Noninterest income in 1992 rose $91.0 million or 48.5 percent over 1991. However, had nonrecurring net gains or losses on the disposition of assets and securities been excluded, the increase would have amounted to a more modest $7.6 million or 4.2 percent. Recurring noninterest income was favorably affected by increases in deposit service charge income reflecting the repricing of services ($9.0 million or 14.1 percent), which was partially offset by a decline in income earned on factoring receivables resulting from a lower level of business activity ($3.7 million). Trust fees and miscellaneous noninterest income were relatively unchanged when compared with the prior year. Net gains on the disposition of assets in 1992 and 1991 amounted to $35.2 million and $6.8 million, respectively. In 1991, an aggregate gain of $68.9 million was realized on subsidiaries and assets sold during the year offset by a $62.1 million estimated loss recorded on the then planned sales of the New York Banks. This loss was accounted for as a reduction of the remaining intangible value recorded at the time Midlantic acquired the New York Banks. 22 2OF2 Transactions in the investment securities portfolio resulted in net gains of $52.8 million in 1992 compared to net losses of $2.2 million in 1991 (gross losses of $7.1 million and gross gains of $4.9 million). Losses in 1991 resulted primarily from the write-down or sale of certain equity securities partially offset by gains realized on the sale of certain obligations of states and political subdivisions, the U.S. government or its agencies. Noninterest Expenses 1993 VS. 1992 - The Corporation's core operating expenses (total noninterest expenses excluding OREO charges, restructuring charges, FDIC assessment charges and nonrecurring expenses) fell $18.2 million or 4.1 percent in 1993 reflecting the favorable impact of the full-implementation of the FOCUS '92 program. The efficiency ratio (total noninterest expenses excluding OREO and nonrecurring charges as a percent of net interest income plus noninterest income adjusted for nonrecurring gains or losses) also improved, amounting to 66.8 percent for the full year 1993 (improving to 62.9 percent by the fourth quarter of 1993) as compared with 76.0 percent in 1992, reflecting the Corporation's efforts to increase revenue and reduce expenses. Salary and benefit expenses, which comprise a substantial portion of noninterest expenses, declined in 1993 ($5.5 million or 2.4 percent). The FOCUS '92 program identified numerous efficiencies which enabled the Corporation to reduce significantly the size of its staff. At December 31, 1993, Midlantic employed 5,090 employees (on a full-time equivalent basis) compared to 5,748 at December 31, 1992. Overall, since the mid-1992 commencement of the implementation of FOCUS '92 to year-end 1993, the Corporation's full-time equivalent staff count has fallen by 1,557 or 23.4 percent. Expenses in 1993 also included contributions by the Corporation during the latter part of the year into a recently established "401(k)" employee savings plan as well as increases in certain other fringe benefit expenses (including health and life insurance contributions). Expenses for premises and fixed assets (net occupancy and equipment rental expenses) fell $5.2 million or 6.8 percent in 1993. The decline in these expenses resulted from the closing of 15 branches during 1992 (and the resultant decline in depreciation expenses), the renegotiation of equipment rental contracts and a lower overall volume of equipment rentals, partially attributable to the implementation of FOCUS '92. Expenses for OREO include adjustments to the carrying value of certain OREO properties to approximate net realizable value, gains or losses (if any) on the sale of OREO properties and operating expenses, net of rental income, on OREO properties. In total, OREO expenses amounted to $134.3 million in 1993 as compared with $96.3 million in 1992. Included in 1993 OREO expenses were special provisions of $58.0 million against those OREO properties that were sold in bulk sales or transferred to other assets as assets held for accelerated disposition. Such special provisions represented adjustments to carrying values necessary in the Corporation's judgment to reflect the net realizable value of those assets when liquidated in an accelerated manner in bulk sales transactions. Excluding the special provisions, 23 1of2 Midlantic Corporation and Subsidiaries TABLE VIII - NONINTEREST EXPENSES
1992 1991 1993 1992 Continuing 1991 Continuing (In thousands) ACTUAL Actual Entities Actual Entities ____________________________________________________________________________________________________________ Salaries and benefits $219,332 $257,221 $224,785 $345,679 $254,165 Net occupancy 44,622 51,410 45,028 61,566 47,403 Equipment rental and expense 26,881 35,776 31,686 43,529 33,366 OREO, net Provision for OREO 130,545 77,132 74,624 102,038 99,138 Other 3,792 22,612 21,683 20,961 20,063 ________ ________ ________ ________ ________ Total OREO expense 134,337 99,744 96,307 122,999 119,201 ________ ________ ________ ________ ________ FDIC assessment charges 33,841 34,090 30,509 40,433 30,633 Legal and professional fees 51,511* 51,403 49,294 50,803 46,076 Miscellaneous Amortization of goodwill and other intangibles 6,334 7,696 6,581 22,741 19,727 Courier services, moving and postage 13,627 16,748 14,551 19,482 14,571 Business development, including advertising 5,694 9,147 7,118 15,032 9,392 Printing, stationery and supplies 5,988 10,300 9,388 12,957 8,708 Telephone 8,388 10,296 8,893 12,241 8,946 Other (recurring) 51,235 56,418 50,607 66,381 44,936 Other (nonrecurring) -- 22,500 22,500 14,496 14,496 ________ ________ ________ ________ ________ Total miscellaneous 91,266 133,105 119,638 163,330 120,776 ________ ________ ________ ________ ________ Total noninterest expenses $601,790 $662,749 $597,247 $828,339 $651,620 ======== ======== ======== ======== ======== *Includes $3.856 million of nonrecurring fees incurred for the implementation of a security lending program.
adjustments to the carrying value of the Corporation's foreclosed properties and in-substance foreclosures amounted to $72.5 million in 1993 ($49.9 million of which occurred during the first half of the year) as compared with $74.6 million in 1992. While the Corporation has witnessed an apparent stabilization of values in certain of its real estate markets, such as residential properties (as evidenced by statistical data, recent appraisals and increased market activity), the relatively high level of adjustments of the carrying value of OREO properties in 1993 was predominantly due to the continued deterioration in values and market stagnation in certain other real estate markets including office buildings, land and industrial/warehouse, although such deterioration in values is modest when compared to the deterioration in values experienced during the preceding four years. The Corporation anticipates that in the absence of deteriorating market conditions, adjustments to carrying values in 1994 should decline from the amounts expensed during 1993. Operating expenses, which represent those costs incurred in holding OREO properties, net of rental income, fell to $3.8 million in 1993 from $21.7 million in 1992, primarily reflecting a higher level of rental income and an overall decline in the cost of holding OREO resulting from improved efficiencies in managing OREO properties and a faster turnover of the OREO portfolio. 23 2of2 FDIC assessment charges increased $3.3 million or 10.9 percent in 1993 as a result of an increase in the premium paid by Midlantic's bank subsidiaries. Effective January 1, 1993, the FDIC initiated a risk-based assessment system. Under this system, the assessment for the strongest financial institutions remained at the 1992 base rate of $.23 per $100 of deposits, while a premium of $.03 to $.08 was imposed for weaker institutions. Midlantic's bank subsidiaries initially paid premiums at the higher end of this range. However, such premiums were reduced somewhat during 1993 and are expected to decline again in 1994. Legal and professional fees of $51.5 million increased by $2.2 million or 4.5 percent compared to the $49.3 million incurred in 1992. The level of legal and professional fees during the past three years has been significantly affected by loan workout expenses and a high volume of appraisals on OREO properties and the underlying collateral supporting certain loans. In 1993, expenses incurred for loan workouts and appraisals declined modestly. This decline was offset by an increase in certain commissions relating to consumer loan originations and administrative expenses related to the implementation of Midlantic's 401(k) employee savings plan. The Corporation also incurred $3.9 million of one-time expenses for the implementation of a security lending program (see "The Lending Function-Loan Portfolio"). Midlantic expects that as the level of problem assets declines over time, legal and professional fees should also decline. In 1992, the Corporation incurred restructuring charges of $22.5 million with respect to the implementation of FOCUS '92. All other noninterest expenses fell $5.9 million or 6.0 percent in 1993. Lower expense levels were reflected in many categories but these were offset, in part, by a $4.2 million expense incurred in 1993 representing an adjustment related to subsidiaries sold. 1992 VS. 1991 - Noninterest expenses declined $54.4 million or 8.3 percent in 1992. Excluding OREO expenses, FDIC assessment charges, restructuring charges and other nonrecurring expenses, noninterest expenses would have declined $39.4 million or 8.1 percent. Salary and benefit expenses decreased $29.4 million or 11.6 percent. Most of this decline was attributable to reductions in staff levels during the latter part of 1992 as a result of FOCUS '92. OREO expenses amounted to $96.3 million in 1992 compared to $119.2 million in 1991. Adjustments to the carrying value of OREO properties to net realizable value (fair value in 1991) amounted to $74.6 million and $99.1 million in 1992 and 1991, respectively. The remaining expenses ($21.7 million in 1992 and $20.1 million in 1991) primarily reflected operating costs, net of rental income, on OREO properties. 24 1of2 MANAGEMENT'S ANALYSIS (continued) Legal and professional fees increased $3.2 million or 7.0 percent to a level of $49.3 million in 1992. Expense levels in both years reflected expanded loan workout costs and appraisal fees. FDIC assessment charges remained relatively flat in 1992 amounting to $30.5 million as compared with $30.6 million in 1991. The assessment rate over the period amounted to $.195 per $100 of deposits for the first six months of 1991, increasing to $.23 for the remaining six months of 1991 and for the year 1992. Partially offsetting the overall increase in the assessment rate in 1992 vs. 1991 was a decline in Midlantic's total deposits during the same period. Restructuring expenses amounted to $22.5 million in 1992 and $3.1 million in 1991. Expenses in 1992 were incurred for the implementation of FOCUS '92, while in 1991 expenditures were incurred for severance payments for the termination of certain employees resulting from efficiencies realized in the merger of MNB and MNB/North. Also affecting the decrease in noninterest expenses in 1992 was a decline of $13.1 million on amortization expenses on goodwill and other intangibles which resulted from the 1991 write-off of a substantial portion of the intangibles associated with the New York Banks. Additionally, a fraud loss involving equipment lease collateral securing a commercial loan of $11.4 million was incurred in 1991. The $4.0 million increase in all other noninterest expenses primarily reflected higher computer servicing, insurance and examination expenses, partially offset by a reduction in business development expenses. POSTRETIREMENT AND POSTEMPLOYMENT BENEFIT EXPENSES In the first quarter of 1993, the Corporation adopted Financial Accounting Standards ("FAS") No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions," which requires that the projected future cost of providing postretirement health care and other benefits be recognized on an accrual basis during the periods employees provide services to earn those benefits. The transition obligation, which is the unfunded and unrecognized accumulated postretirement benefit obligation for all plan participants at the time of adoption, is amortized by the Corporation (at its election) on a straight-line basis over a period of 20 years, beginning in 1993 and is included as a component of net periodic postretirement benefit cost. The net periodic postretirement benefit cost for 1993, including such amortization expense, amounted to $10.3 million. For the year 1992, actual postretirement expenses, which were expensed as incurred, were $6.3 million. In November 1992, the Financial Accounting Standards Board ("FASB") issued FAS No. 112 "Employers' Accounting for Postemployment Benefits," which is effective for fiscal years beginning after December 31, 1993. FAS No. 112 requires accrual accounting for postemployment benefits (benefits such as severance and disability payments to former or inactive employees after employment but before retirement), under the following circumstances: if the employees' rights to postemployment benefits are attributable to services already rendered and the rights to those benefits accumulate or vest, and if payment of the benefits is probable and the amount of the benefits can be reasonably estimated. If the four criteria mentioned cannot be met, the employer should accrue an obligation for these benefits when payment is both probable and estimable. Based upon current estimates, the Corporation will recognize, in the first quarter of 1994, a charge to earnings ranging from $7 million to $8 million, net of income taxes, resulting from the cumulative effect of this change in accounting principle. The Corporation presently accounts for postemployment benefits on a "pay-as-you-go" basis. 24 2of2 INCOME TAXES Adoption Of FAS No. 109 In the first quarter of 1993, Midlantic adopted FAS No. 109 "Accounting for Income Taxes," which required a shift from the "deferred tax method," formerly utilized, to the "liability method" of accounting for income taxes and the establishment, when required, of a valuation allowance for deferred tax assets. Midlantic adopted FAS No. 109 by recognizing the effect of adoption as a cumulative change in accounting principle. The adoption of FAS No. 109 provided the Corporation with an income credit, recognized in the first quarter of 1993, of $39.0 million or $.74 per fully diluted common share reflecting the cumulative effect of the change in accounting principle. General In 1993, the Corporation recorded an income tax benefit of $111.0 million as compared with an income tax expense of $2.8 million in 1992 and an income tax benefit of $43.5 million in 1991. The income tax benefit recorded in 1993, which is exclusive of the cumulative effect of Midlantic's adoption of FAS No. 109, was primarily comprised of a tax benefit related to a reduction in the valuation reserve associated with deferred tax assets, as required by FAS No. 109. As of December 31, 1993, Midlantic's net deferred tax asset balance included a $106.8 million valuation allowance which represents, for reporting purposes, unrecognized future federal and state income tax benefits. Midlantic intends to reduce this valuation allowance during 1994, based on management's estimation at this time of continuing profitability and projected future taxable income, such that by year-end 1994, Midlantic's remaining valuation allowance will relate entirely to specific tax attributes (such as net operating loss carryforwards, tax credit carryforwards, etc.) on which Midlantic has determined that it is uncertain as to their ultimate realization in whole or in part. 25 1of2 Midlantic Corporation and Subsidiaries Based upon the accounting principles that existed prior to the effective date of FAS No. 109, for the early portion of 1991, Midlantic recognized federal income tax benefits generated by its pretax losses. However, for the remaining portion of 1991 and for the year 1992, the Corporation was not able to recognize federal income tax benefits as it had fully exhausted its ability to carryback its reported net operating losses against prior eligible years' reported earnings. Income tax expenses in 1992 reflected state and local income taxes as no federal income tax expense or benefit was recognized. MONEY MARKET INVESTMENTS Money market investments include federal funds sold, term federal funds sold, repurchase agreements, commercial paper and interest-bearing deposits in other banks (certificates of deposit and eurodollars). Presently, Midlantic invests a sizable portion of its available funds in money market investments, the majority of which have a remaining maturity of three months or less. On average, such investments amounted to $1.9 billion or 15.7 percent of interest earning assets, as compared with $1.0 billion or 6.8 percent of interest-earning assets in 1992 and $1.4 billion or 6.9 percent of interest-earning assets in 1991. The Corporation anticipates that over time a portion of these liquid assets will be utilized to fund loan demand. TABLE IX - AVERAGE INVESTMENT SECURITIES AND MONEY MARKET INVESTMENTS
INCREASE (DECREASE) __________________ (In millions) 1993 1992 1991 1993 1992 ___________________________________________________________________________________ AVERAGE INVESTMENT SECURITIES Actual $1,935 $2,744 $2,858 $(809) $(114) Continuing Entities 1,935 2,423 1,886 (488) 537 ______ ______ ______ _____ _____ AVERAGE MONEY MARKET INVESTMENTS Actual 1,945 1,009 1,366 936 (357) Continuing Entities 1,945 1,073 1,371 872 (298) ______ ______ ______ _____ _____
INVESTMENT SECURITIES Investment securities averaged $1.9 billion in 1993, $2.7 billion in 1992 and $2.9 billion in 1991. The net unrealized appreciation of the investment securities portfolio amounted to $12.4 million at December 31, 1993 ($13.9 million of gross unrealized gains and $1.5 million of gross unrealized losses), $10.9 million at December 31, 1992 ($19.6 million of gross unrealized gains and $8.7 million of gross unrealized losses) and $80.5 million at December 31, 1991 ($88.6 million of gross unrealized gains and $8.1 million of gross unrealized losses). The Corporation's investment securities portfolio is primarily comprised of short-term U.S. Treasury obligations and longer-term mortgage- backed securities issued by agencies sponsored by the U.S. government. 25 2of2 During 1992, following an extensive analysis of Midlantic's investment portfolio, the Corporation identified $1.9 billion of U.S. Treasury securities that might be sold prior to their contractual maturities for purposes of interest-sensitivity and balance sheet positioning. During the fourth quarter of 1992, $1.3 billion of U.S. Treasury securities were actually sold and $562.4 million of U.S. Treasury securities that remained identified for possible sale were sold during the first quarter of 1993. Prior to the fourth quarter of 1992, the Corporation also sold $868.9 million of U.S. Treasury securities and most of its remaining outstanding obligations of states and political subdivisions. The tax-free nature of interest income on such securities had diminished value to Midlantic in light of the Corporation's tax position. The majority of securities remaining in the investment portfolio as of December 31, 1993 are intended to be held to their contractual maturities. A substantial portion of such investments are currently being utilized for present or foreseeable pledging requirements for various public deposit gathering initiatives and as a source of collateral for other ongoing business purposes. Securities held in Midlantic's trading account, which amounted to $19.4 million at December 31, 1993, are carried at market value. The average maturity of Midlantic's investment securities portfolio approximated three years at both December 31, 1993 and 1992. At year-end 1993, Midlantic held aggregate investments with the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association, which comprised 61.3 percent and 33.5 percent of shareholders' equity, respectively. These mortgage-backed securities are sponsored by the United States government and have little or no inherent credit risk. Obligations of states and municipalities (excluding those in the trading account) and other securities amounted to $5.3 million and $68.4 million, respectively, at December 31, 1993. Other securities included Federal Reserve Bank stock of $24.0 million, Mexican Bonds collateralized by zero coupon U.S. Treasury securities with a book value of $33.3 million, other debt securities of $8.3 million and equity securities of $2.8 million. In May 1993, the FASB issued FAS No. 115 "Accounting for Certain Investments in Debt and Equity Securities," which is effective for fiscal years beginning after December 15, 1993. FAS No. 115 establishes the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. In accordance with FAS No. 115, those investments will be classified into three categories: (1) held to maturity securities, which Midlantic has both the positive intent and ability to hold until maturity, will be reported at amortized/accreted cost; (2) trading securities, which are purchased and held principally for the purpose of selling in 26 1of2 MANAGEMENT'S ANALYSIS (continued) the near term, will be reported at fair value with unrealized gains and losses included in earnings; and (3) available-for-sale securities, which do not meet the criteria of the first two categories, will be reported at fair value with unrealized gains and losses, net of applicable income taxes, reported as a separate component of shareholders' equity and excluded from earnings. Midlantic estimates that FAS No. 115, which it will adopt in the first quarter of 1994, will have no material impact on its financial condition or results of operations at the time of adoption. THE LENDING FUNCTION A principal business activity of the Corporation is to finance the borrowing needs of its diverse customer base. The following is a discussion of Midlantic's lending function including its loan portfolio, credit administration, allowance for loan losses and asset quality. Loan Portfolio Average loans amounted to $8.5 billion in 1993 as compared with $9.8 billion and $11.8 billion in 1992 and 1991, respectively, for the Continuing Entities. The decline in 1993 from the 1992 level reflects a number of factors including loans sold or held for sale ($437.7 million), loans charged off ($199.4 million) and loan payments and maturities during a period when new loan growth in many of the Corporation's markets was relatively minimal. The composition of Midlantic's loan portfolio, for each of the past three years, is indicated in Table X. Historically, Midlantic has channeled a substantial amount of financing to real estate development in its core market area and to medium-sized businesses. Compared to periods prior to 1990, recent real estate development has been generally slow. The Corporation's current lending focus has shifted to increasing its market share of retail (consumer) lending while continuing to serve the financial requirements of small and medium-sized industrial and service businesses and certain well-capitalized and established real estate borrowing relationships. Throughout the past three years the Corporation's loan portfolio has contracted for the following reasons: - The downturn in economic conditions during the period from 1989 to 1992, followed by a shallower than normal recovery, particularly in Midlantic's market areas, have unfavorably affected loan demand in virtually all sectors including real estate, commercial industries and consumer. - Contributing to the decline in loan receivables were loan payments and payoffs, including normal loan amortization and payments and pay-offs resulting from the determination of many companies to replace their existing debt by either capital formation or securing more favorable terms on their debt in an extremely low interest rate environment. - In 1993, Midlantic sold through bulk sales or identified for possible bulk sale $437.7 million of commercial real estate loans. In 1992, the Corporation securitized and sold over $400 million of automobile loans. In 1991, approximately $55 million of commercial loans were sold. - Loan charge-offs aggregated $1.0 billion during the past three years. - Loan foreclosures and transfers of loans to in-substance foreclosures ("ISFs") aggregated $703.9 million since year-end 1990. 26 2of2 To a very large extent, future loan growth depends upon improvements in national and, particularly, regional economic conditions. While the volume of consumer lending increased in 1993, commercial and financial loan outstandings continued to decline. Management believes that meaningful growth in the commercial loan portfolio may tend to occur when business conditions improve. TABLE X - AVERAGE LOAN PORTFOLIO
PERCENT Percent Percent (In millions) 1993 OF TOTAL 1992 of Total 1991 of Total _________________________________________________________________________________________ COMMERCIAL, FINANCIAL AND FOREIGN Actual $3,097 36.4% $ 4,273 38.8% $ 6,281 40.3% Continuing Entities 3,097 36.4 3,890 39.7 5,071 43.0 ______ _____ _______ _____ ________ _____ CONSTRUCTION AND DEVELOPMENT Actual 1,154 13.6 1,772 16.1 2,383 15.3 Continuing Entities 1,154 13.6 1,746 17.8 2,264 19.2 ______ _____ _______ _____ ________ _____ LONG-TERM COMMERCIAL MORTGAGE Actual 1,838 21.6 2,219 20.1 2,944 18.9 Continuing Entities 1,838 21.6 1,914 19.5 1,949 16.5 ______ _____ _______ _____ ________ _____ 1-4 FAMILY RESIDENTIAL Actual 471 5.5 697 6.3 1,112 7.1 Continuing Entities 471 5.5 494 5.1 554 4.7 ______ _____ _______ _____ ________ _____ LOANS TO INDIVIDUALS Actual 1,950 22.9 2,055 18.7 2,863 18.4 Continuing Entities 1,950 22.9 1,756 17.9 1,949 16.6 ______ _____ _______ _____ ________ _____ TOTAL LOANS Actual $8,510 100.0% $11,016 100.0% $15,583 100.0% Continuing Entities 8,510 100.0 9,800 100.0 11,787 100.0 ====== ===== ======= ===== ======= =====
27 1of3 Midlantic Corporation and Subsidiaries COMMERCIAL AND FINANCIAL LOANS - Commercial and financial loans largely represent working capital and term financing for small and medium-size businesses. Weakened economic conditions in Midlantic's market areas over the past several years have unfavorably impacted most commercial borrowers. Partly as a result of this, average commercial and financial loans on a Continuing Entity basis have declined in each of the past two years ($793.5 million in 1993 and $1.2 billion in 1992). Midlantic's commercial loan portfolio is diverse and reflects the industrial composition of its core markets (see Table XI). The Corporation has begun to avail itself of opportunities in expanding its commercial loan portfolio. However, such expansion is highly dependent upon the strength of the recovery in the regional economy. TABLE XI - COMMERCIAL, FINANCIAL AND FOREIGN LOANS BY INDUSTRY CLASSIFICATION AT DECEMBER 31, 1993
Percent Amount of (In thousands) Outstanding Total ___________________________________________________________________________ Agriculture, forestry and fishing $ 6,345 .2% Mining 32,123 1.1 Manufacturing Lumber/wood products 43,752 1.5 Paper/allied products 68,715 2.4 Printing and publishing 55,289 1.9 Chemicals/allied products 61,234 2.1 Rubber and miscellaneous plastics 44,308 1.5 Fabricated metal 76,712 2.7 Machinery and equipment 102,858 3.6 Other manufacturing 168,476 5.8 Transportation 88,955 3.1 Communications 81,502 2.8 Wholesale trade Durable 209,547 7.2 Nondurable 179,446 6.2 Retail trade Food and general merchandise stores 73,533 2.5 Auto dealers/service 125,076 4.3 Restaurants 31,128 1.1 Other retail trade 90,328 3.1 Finance, insurance and real estate Depository and nondepository institutions 62,574 2.2 Real estate 262,922 9.1 Holding and investment companies 56,705 2.0 Other finance, insurance and real estate 26,168 .9 27 2of3 Services Hotels and lodging places 63,604 2.2 Business services 147,081 5.1 Auto repair and services 57,895 2.0 Amusement and recreation 115,133 4.0 Health services 95,656 3.3 Legal services 40,106 1.4 Memberships and organizations 41,887 1.4 Engineering and management 75,796 2.6 Other services 49,505 1.7 Foreign loans 3,492 .1 Other New loans in process at December 31 56,480 1.9 All other (primarily commercial installment loans) 203,325 7.0 __________ _____ Total $2,897,656 100.0% ========== =====
Commercial loans also include highly leveraged transactions ("HLTs"), which represent loans for the buyout, acquisition or recapitalization of an existing business resulting in a significant increase in the leverage of the borrower. Pursuant to the bank regulators' February 1992 revised supervisory definition of HLTs, at December 31, 1993, Midlantic had 22 reportable HLTs outstanding in the amount of $198.9 million and had committed to lend an additional $107.6 million principally to these HLT borrowers. At December 31, 1992, Midlantic had 43 reportable HLTs outstanding that amounted to $354.7 million and unfunded commitments principally to these HLT borrowers of $200.0 million. Relative to Midlantic's total loan portfolio, HLTs comprised 2.4 percent of total loans at December 31, 1993 and their contribution to total revenue was modest. REAL ESTATE LOANS - Commercial real estate loans totalled $2.5 billion or 29.6 percent of total loans at December 31, 1993. This compares with levels of $3.4 billion or 37.7 percent of total loans at year-end 1992 and $4.4 billion or 35.0 percent of total loans at the end of 1991. At December 31, 1993, construction and development loans amounted to $834.0 million and long-term commercial real estate loans were $1.7 billion. The downturn in real estate market conditions in the Corporation's markets over the past five years has been severe. Corporate downsizing has reduced the demand for office and other commercial space and the resultant high levels of unemployment have severely weakened consumer demand resulting in what had been, until recently, a rather soft residential real estate market and unfavorably affecting other industries such as retail trade and the services industry. Since 1990, Midlantic has originated a moderate amount of new commercial real estate lending. Declines in the portfolio have primarily resulted from payments, charge-offs, transfers to OREO, bulk sales and loans transferred to assets held for accelerated disposition. At December 31, 1993, Midlantic's commercial real estate portfolio was comprised of 26.5 percent industrial/warehouse, 22.9 percent office buildings, 16.2 percent shopping centers and other retail, 10.0 percent residential and 24.4 percent all other. At year-end 1993, financing on owner-occupied properties comprised approximately 56.1 percent of the Corporation's long-term commercial real estate portfolio. 27 3OF3 Management's intention is to reduce commercial real estate exposure through scheduled principal reductions. However, the Corporation is strategically committed to continuing to extend credit on owner-occupied properties and to well-capitalized, established real estate developers. Real estate financing on 1-4 family residential properties (which includes mortgage warehousing loans secured by 1-4 family properties) averaged $471.1 million in 1993 as compared with $697.3 million and $1.1 billion in 1992 and 1991, respectively. In 1992, the Corporation sold its mortgage banking subsidiary and, as a result, suspended direct financing of residential properties. During 1993, Midlantic again began to offer residential mortgage loans. 1-4 family residential mortgage loans originated in 1993 amounted to $163.3 million and at December 31, 1993, the Corporation had outstanding commitments to fund an additional $37.3 million. 28 1OF2 MANAGEMENT'S ANALYSIS (continued) TABLE XII - GEOGRAPHIC DISTRIBUTION OF REAL ESTATE LOANS AT DECEMBER 31, 1993
Long-term Long-term Construction and Commercial 1-4 Family (In thousands) Development Loans Mortgages Residential Total ________________________________________________________________________ PORTFOLIO New Jersey $520,776 $ 943,989 $507,875 $1,972,640 Pennsylvania 162,847 612,422 118,545 893,814 New York 45,509 57,672 2,527 105,708 Florida 28,280 9,968 2,934 41,182 Other 76,601 40,706 4,751 122,058 ________ __________ ________ __________ Total $834,013 $1,664,757 $636,632 $3,135,402 ======== ========== ======== ========== NONACCRUAL SEGMENT New Jersey $ 42,864 $ 42,575 $ 125 $ 85,564 Pennsylvania 3,542 19,250 4,351 27,143 New York 784 992 -- 1,776 Florida -- -- -- -- Other 2,953 614 13 3,580 ________ __________ ________ __________ Total $ 50,143 $ 63,431 $ 4,489 $ 118,063 ======== ========== ======== ========== PERCENT OF NONACCRUAL TO PORTFOLIO 6.01% 3.81% .71% 3.77% ======== ========== ======== ==========
TABLE XIII - CONSTRUCTION AND DEVELOPMENT LOANS - PROPERTY TYPE BY STATE AT DECEMBER 31, 1993
(In thousands) New Jersey Pennsylvania New York Florida Other Total ________________________________________________________________________________________ PORTFOLIO Office buildings $138,967 $ 57,170 $14,800 $ -- $11,649 $222,586 Shopping centers 135,760 33,384 2,908 4,000 20,479 196,531 Residential 90,194 31,683 1,759 7,860 7,186 138,682 Land 42,030 24,997 3,859 1,744 5,720 78,350 Hotels/motels 19,723 1,950 382 14,300 15,792 52,147 Industrial/warehouse 24,764 6,795 13,646 -- -- 45,205 All other 69,338 6,868 8,155 376 15,775 100,512 ________ ________ _______ _______ _______ ________ Total $520,776 $162,847 $45,509 $28,280 $76,601 $834,013 ======== ======== ======= ======= ======= ======== 28 2OF2 NONACCRUAL SEGMENT Office buildings $ 4,416 $ 291 $ -- $ -- $ -- $ 4,707 Shopping centers -- -- -- -- -- -- Residential 9,856 1,024 610 -- -- 11,490 Land 18,480 2,227 -- -- 803 21,510 Hotels/motels 4,906 -- -- -- -- 4,906 Industrial/warehouse -- -- -- -- -- -- All other 5,206 -- 174 -- 2,150 7,530 ________ ________ _______ _______ _______ ________ Total $ 42,864 $ 3,542 $ 784 $ -- $ 2,953 $ 50,143 ======== ======== ======= ======= ======= ======== PERCENT OF NONACCRUAL TO PORTFOLIO 8.23% 2.18% 1.72% --% 3.86% 6.01% ======== ======== ======= ======= ======= ========
TABLE XIV - LONG-TERM COMMERCIAL MORTGAGE LOANS - PROPERTY TYPE BY STATE AT DECEMBER 31, 1993
(In thousands) New Jersey Pennsylvania New York Florida Other Total __________________________________________________________________________________________________ PORTFOLIO Industrial/warehouse $366,467 $188,712 $50,216 $1,026 $11,583 $ 618,004 Office buildings 178,636 162,427 3,246 -- 6,282 350,591 Retail businesses 86,875 55,350 429 -- 460 143,114 Apartment houses and other rental properties 39,029 64,481 1,001 1,488 4,840 110,839 Hospitals, medical centers and nursing homes 73,370 20,101 -- -- -- 93,471 Shopping centers 10,749 49,376 -- -- 5,880 66,005 Automobile and truck sales 43,438 17,682 105 -- -- 61,225 Hotels/motels 46,142 13,067 482 -- 297 59,988 All other 99,283 41,226 2,193 7,454 11,364 161,520 ________ ________ _______ ______ _______ __________ Total $943,989 $612,422 $57,672 $9,968 $40,706 $1,664,757 ======== ======== ======= ====== ======= ========== NONACCRUAL SEGMENT Industrial/warehouse $ 18,214 $ 6,489 $ 348 $ -- $ -- $ 25,051 Office buildings 3,518 1,441 -- -- -- 4,959 Retail businesses 3,452 1,099 87 -- 62 4,700 Apartment houses and other rental properties 2,729 1,573 -- -- -- 4,302 Hospitals, medical centers and nursing homes 261 -- -- -- -- 261 Shopping centers -- 1,723 -- -- -- 1,723 Automobile and truck sales 1,362 584 -- -- -- 1,946 Hotels/motels 1,732 5,000 -- -- -- 6,732 All other 11,307 1,341 557 -- 552 13,757 ________ ________ _______ ______ _______ __________ Total $ 42,575 $ 19,250 $ 992 $ -- $ 614 $ 63,431 ======== ======== ======= ====== ======= ========== PERCENT OF NONACCRUAL TO PORTFOLIO 4.51% 3.14% 1.72% --% 1.51% 3.81% ======== ======== ======= ====== ======= ==========
29 1of2 Midlantic Corporation and Subsidiaries CONSUMER LOANS - Loans to individuals, which include such consumer borrowing vehicles as home equity loans (which generally represent junior liens on owner- occupied residential property), automobile loans, student loans, personal loans and overdraft checking, amounted to $2.4 billion at December 31, 1993 as compared with $1.6 billion and $2.0 billion for the Continuing Entities at year-end 1992 and 1991, respectively. The rise in consumer lending in 1993 reflected the Corporation's efforts to promote certain of its lending lines, particularly home equity loans and automobile loans. While loans to individuals declined in 1992, a major factor contributing to the decrease was the sale of over $400 million of automobile loans. Midlantic will continue to pursue consumer lending opportunities and anticipates further increases in this portfolio as consumer confidence levels grow. TABLE XV - LOANS TO INDIVIDUALS AT DECEMBER 31, 1993
Amount Percent (In thousands) Outstanding of Total _______________________________________________________________ Home equity and secondary mortgages $1,230,604 50.9% Automobile 806,612 33.4 Personal loans 182,775 7.6 Student loans 57,959 2.4 Marine 53,681 2.2 Recreational vehicles 40,367 1.7 Overdraft checking 21,389 .9 New loans in process at December 31 18,048 .7 All other 3,956 .2 __________ _____ Total $2,415,391 100.0% ========== =====
FOREIGN LOANS - Foreign loans, which totalled $3.5 million at December 31, 1993, declined $76.8 million in 1993 following a $12.6 million decline in 1992. As part of the Corporation's objectives to concentrate its business in its core market area, in 1993, Midlantic exited the Hong Kong market by selling its Hong Kong-based affilate. At year-end 1992, the loan portfolio of the Hong Kong affiliate amounted to $73.5 million. RECENT DEVELOPMENTS - In the fourth quarter of 1993, the Corporation placed $244.1 million of tax-exempt loans in a security lending program. The program will result in tax-exempt income from such loans (which is not currently advantageous to the Corporation given its present tax position) being made available to an unaffiliated third party. The Corporation invested the proceeds of the security lending program in higher-yielding taxable securities. The program is structured to allow Midlantic the opportunity to reaquire the loans at a future date. Under generally accepted accounting principles, the transaction is reported as a borrowing with the tax-exempt loans remaining on Midlantic's balance sheet and the proceeds from the program reported in short- term borrowings. 29 2of2 In May 1993, the FASB issued FAS No. 114 "Accounting by Creditors for Impairment of a Loan," effective for fiscal years beginning after December 15, 1994. Under FAS No. 114 an impaired loan is defined as a loan for which it is probable, based on current information, that the lender will not collect all amounts due under the contractual terms of the loan agreement. FAS No. 114 requires that impaired loans be measured based upon either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. Midlantic has not determined the effect of adoption and, at this time, does not plan to elect early adoption. Credit Administration Midlantic controls credit risk through the review and updating, where warranted, of its credit standards and lending policies. In mid-1991, Midlantic began to centralize its credit function by making revisions to organizational, administrative and reporting requirements. During 1991, Midlantic reorganized its asset recovery activities into two separate corporate-wide divisions, one to supervise the resolution of problem real estate assets and the other to expedite commercial loan workouts. A separate OREO resolution function was established in early 1992. During 1991 and 1992, the Corporation also devoted additional employee resources to its loan resolution efforts and to acquire and dispose of its OREO properties and reorganized and centralized its loan review function to enable more active oversight by senior credit management. In order to minimize credit risks, Midlantic incorporates a strategy of loan diversification, accompanied by underwriting policies that require adherence to a standardized approval process and monitor outstandings to individual and related borrowers. In addition, loan to value guidelines have been established for each loan type that is collaterlized by real estate. Midlantic's loan administration function monitors, on an on-going basis, weakening credits through the use of a system that assigns a numerical rating to each loan based upon an assessment of the degree of risk inherent in the loan. Detailed reports of loans with higher risk ratings are prepared on a quarterly basis. The originating loan officer and department head have the primary responsibilities for early recognition and proper risk rating of a deteriorating loan. Risk ratings are also independently reviewed by credit management and loan review personnel. Allowance for Loan Losses Through its allowance for loan loss methodology, Midlantic maintains an allowance for loan losses at a level which the Corporation considers adequate to absorb estimated loan charge-offs. At December 31, 1993, the allowance for loan losses amounted to $394.5 million compared to $663.9 million and $841.7 million at December 31, 1992 and 1991, respectively. 30 1of2 MANAGEMENT'S ANALYSIS (continued) Since late 1989, Midlantic's allowance for loan losses has been maintained at historically high levels relative to loans outstanding as weakened economic conditions resulted in deteriorating loan quality and a high volume of charge- offs. The allowance was reduced in 1993 reflecting a lower provisioning level as a result of improving loan quality and the Corporation's sale or designation for sale of almost $450 million of nonaccruing and other problem loans that had associated charge-offs totalling $181.9 million. Despite the reduction in the level of the allowance for loan losses, the ratio of the allowance to nonaccrual loans increased from 82 percent at year-end 1992 to 149 percent at the end of 1993. TABLE XVI - SUMMARY OF LOAN LOSS EXPERIENCE
YEAR ENDED DECEMBER 31 (In thousands) 1993 1992 1991 1990 1989 ___________________________________________________________________________________________________________________ AVERAGE LOANS, NET OF UNEARNED INCOME $8,510,148 $11,015,804 $15,582,526 $17,844,680 $16,674,595 __________ ___________ ___________ ___________ ___________ TOTAL LOANS, NET OF UNEARNED INCOME $8,314,831 $ 8,954,157 $12,485,896 $16,815,048 $18,548,664 ========== =========== =========== =========== =========== ALLOWANCE AT BEGINNING OF YEAR $ 663,901 $ 841,692 $ 737,122 $ 388,449 $ 266,482 __________ ___________ ___________ ___________ ___________ ALLOWANCES RELATED TO SUBSIDIARIES SOLD AND TO ACQUIRED SUBSIDIARIES (712) (41,413) (57,237) (7,500) 26,695 __________ ___________ ___________ ___________ ___________ CHARGE-OFFS ON LOANS SOLD IN BULK SALES OR TRANSFERRED TO "ASSETS HELD FOR ACCELERATED DISPOSITION" (181,863) -- -- -- -- __________ ___________ ___________ ___________ ___________ PROVISION CHARGED TO OPERATING EXPENSE 79,000 137,939 640,402 694,221 190,477 __________ ___________ ___________ ___________ ___________ LOANS CHARGED OFF Commercial and financial 71,951 111,317 264,519 207,941 70,701 Real estate-construction and development 77,219 155,396 156,023 87,096 11,153 Real estate-long-term commercial mortgage 25,285 20,271 47,602 { { Real estate-long-term 1-4 family residential 954 2,276 3,454 {19,758 {3,023 Loans to individuals 24,009 28,956 39,608 35,133 27,017 Foreign loans -- 809 2,043 13,315 1,296 __________ ___________ ___________ ___________ ___________ Total 199,418 319,025 513,249 363,243 113,190 __________ ___________ ___________ ___________ ___________ RECOVERIES ON LOANS Commercial and financial 17,684 27,163 22,133 16,867 11,744 Real estate-construction and development 6,075 6,512 1,196 174 134 Real estate-long-term commercial mortgage 2,402 1,085 848 { { Real estate-long-term 1-4 family residential 26 101 86 { 564 { 445 Loans to individuals 7,348 9,429 10,391 7,590 5,607 Foreign loans 7 418 -- -- 55 __________ ___________ ___________ ___________ ___________ Total 33,542 44,708 34,654 25,195 17,985 __________ ___________ ___________ ___________ ___________ NET LOANS CHARGED OFF 165,876 274,317 478,595 338,048 95,205 __________ ___________ ___________ ___________ ___________ ALLOWANCE FOR LOAN LOSSES AT END OF YEAR $ 394,450 $ 663,901 $ 841,692 $ 737,122 $ 388,449 ========== =========== =========== =========== =========== 30 2of2 NET CHARGE-OFFS AS A % OF AVERAGE RELATED LOAN PORTFOLIO* Commercial and financial 1.77% 2.01% 3.92% 2.60% .87% Real estate-construction and development 6.16 8.40 6.50 3.04 .40 Real estate-long-term commercial mortgage 1.24 .86 1.59 { { Real estate-long-term 1-4 family residential .20 .31 .30 { .46 { .07 Loans to individuals .85 .95 1.02 .82 .62 Foreign loans (.02) .43 1.97 11.97 1.16 __________ ___________ ___________ ___________ ___________ TOTAL NET CHARGE-OFFS AS A % OF AVERAGE LOANS, NET OF UNEARNED INCOME 1.95% 2.49% 3.07% 1.89% .57% __________ ___________ ___________ ___________ ___________ ALLOWANCE FOR LOAN LOSSES AS A % OF TOTAL LOANS, NET OF UNEARNED INCOME 4.74% 7.41% 6.74% 4.38% 2.09% ========== =========== =========== =========== =========== CONTINUING ENTITIES Allowance at beginning of year $ 663,901 $ 809,338 $ 674,517 $ 334,942 $ 245,096 Allowance related to assets/subsidiaries sold or held for sale (182,575) -- -- -- -- Provision charged to operating expense 79,000 116,227 579,087 659,109 172,912 Loans charged off 199,418 304,469 475,342 339,903 98,999 Recoveries on loans 33,542 42,805 31,076 20,369 15,933 __________ ___________ ___________ ___________ ___________ Allowance for loan losses at end of year $ 394,450 $ 663,901 $ 809,338 $ 674,517 $ 334,942 ========== =========== =========== =========== =========== * Charge-off ratios for 1993 do not include charge-offs on loans sold in bulk sales or loans identified for accelerated disposition.
The Corporation's allowance for loan loss methodology takes into consideration various factors in determining the appropriate level of the allowance. These include an assessment of the financial condition of individual borrowers, a determination of the value or adequacy of underlying collateral (including appraisals as required), the composition and balance of the credit portfolio and trends of delinquencies, charge-offs and the risk ratings of the various loan categories. Such factors as the condition of the national and regional economies and the level and trend of interest rates are also considered. A detailed analysis of the allowance for loan losses is made on a quarterly basis and is reviewed by the board of directors ("Board") and executive management of MC. The previously referred to risk rating system is also utilized to monitor the trends in the Corporation's loan portfolio, thereby assisting in establishing an adequate 31 1of2 Midlantic Corporation and Subsidiaries allowance for loan losses. Regular audits and reviews have been instituted to test the risk ratings, the integrity of the loan management information system and the adherence to credit polices and procedures. Reviews are also conducted to test portfolio, industry and borrower risk trends. Net charge-offs amounted to $165.9 million in 1993 (excluding charge-offs of $181.9 million on loans that were sold or have been identified to be sold in bulk sales transactions), $274.3 million in 1992 and $478.6 million in 1991. Charge-offs are generally made when any loans or portions of loans are determined to be uncollectible, primarily due to the financial deterioration of the borrower and/or declines in the value of net realizable collateral. Certain exceptions are made for installment loans. Unsecured personal installment loans are generally charged off after 120 days of default. Secured installment loans are generally liquidated or charged off within six months to one year from their date of default. Midlantic considers its allowance for loan losses to be adequate based upon the size and risk characteristics of the credit portfolio outstanding at December 31, 1993. If economic conditions deteriorate significantly, future provisions for loan losses could increase above the level taken in 1993 in order to maintain an adequate allowance for loan losses. Asset Quality The following discusses the risk elements of the Corporation's credit portfolio: nonaccrual loans; renegotiated loans; OREO (including loans classified as ISFs); accruing loans past due 90 days; and foreign outstandings. NONACCRUAL LOANS - It is the Corporation's policy to generally discontinue interest accruals once a loan is past due as to interest and/or principal payments for a period of 90 days. Midlantic may also place certain loans on nonaccrual status even though they are less than 90 days past due if, in management's judgment, there is little likelihood that the borrower will be able to comply with the repayment terms of the loan or if management concludes that there exists other imminent signs of significant deterioration. Also, the Corporation may place an entire lending relationship on nonaccrual status if one of the borrower's loans meets the nonaccrual criteria. The determination to place the entire relationship on nonaccrual status is made on a case-by-case basis. In some instances, Midlantic may continue to accrue interest on certain loans that are adequately secured and in the process of collection even though these loans are past due for 90 days or more ("accruing past due loans"). 31 2of2 TABLE XVII - NONACCRUAL LOANS, OTHER REAL ESTATE OWNED, NET AND PAST DUE LOANS
December 31 _____________________________________________________________ (In thousands) 1993 1992 1991 1990 1989 ____________________________________________________________________________________________________________________ NONACCRUAL LOANS Commercial and financial $114,632 $ 208,442 $ 429,272 $ 480,213 $175,937 Real estate Construction and development 50,143 373,344 569,117 407,628 176,684 Long-term commercial mortgage 63,431 173,572 172,489 { { Long-term 1-4 family residential 4,489 4,798 18,605 {186,366 { 90,788 Loans to individuals 32,604 47,500 60,683 54,135 22,828 Foreign -- 2,013 2,874 3,845 4,217 ________ __________ __________ __________ ________ Total nonaccrual loans $265,299 $ 809,669 $1,253,040 $1,132,187 $470,454 ======== ========== ========== ========== ======== ALLOWANCE FOR LOAN LOSSES AS A % OF NONACCRUAL LOANS 148.7% 82.0% 67.2% 65.1% 82.6% ======== ========== ========== ========== ======== OTHER REAL ESTATE OWNED ("OREO"), NET Acquired OREO properties $ 97,238 $ 169,862 $ 120,342 $ 35,817 $ 39,208 In-substance foreclosures 35,432 281,017 438,301 314,075 -- ________ __________ __________ __________ ________ OREO, net $132,670 $ 450,879 $ 558,643 $ 349,892 $ 39,208 ======== ========== ========== ========== ======== TOTAL NONACCRUAL LOANS AND OREO, NET $397,969 $1,260,548 $1,811,683 $1,482,079 $509,662 ======== ========== ========== ========== ======== ACCRUING LOANS PAST DUE 90 DAYS OR MORE AS TO INTEREST OR PRINCIPAL PAYMENTS $ 36,161 $ 44,697 $ 132,544 $ 185,821 $125,803 ======== ========== ========== ========== ======== CONTINUING ENTITITES Total nonaccrual loans $265,299 $ 809,669 $1,220,285 $1,065,551 $423,181 OREO, net 132,670 450,879 551,922 337,525 34,990 ________ __________ __________ __________ ________ Total nonaccrual loans and OREO, net $397,969 $1,260,548 $1,772,207 $1,403,076 $458,171 ________ __________ __________ __________ ________ Accruing loans past due 90 days or more as to interest or principal payments $ 36,161 $ 44,697 $ 125,413 $ 176,884 $113,223 ======== ========== ========== ========== ========
32 1of2 MANAGEMENT'S ANALYSIS (continued) TABLE XVIII - NONACCRUAL LOANS - ACTIVITY DURING 1993 AND 1992
1992 1993 1992 Continuing (In thousands) ACTUAL Actual Entities ____________________________________________________________________________________________ Balance at beginning of year $ 809,669 $1,253,040 $1,220,285 Additions 310,032 575,606 539,741 Payments (207,699) (325,802) (316,473) Returned to accrual status (58,778) (88,371) (83,715) Transfers to renegotiated status (7,295) (131,918) (131,918) Loans sold in bulk sales or transferred to "assets held for accelerated disposition," net of charge-offs (153,551) -- -- Charge-offs (301,172) (267,328) (258,043) Transfers to OREO (122,857) (161,936) (154,761) Sales of subsidiaries -- (38,175) -- Other (primarily transfers to other repossessed assets) (3,050) (5,447) (5,447) _________ __________ __________ Balance at end of year $ 265,299 $ 809,669 $ 809,669 ========= ========== ==========
TABLE XIX - YEAR-TO-DATE LOSS OF INTEREST INCOME ON NONACCRUAL LOANS OUTSTANDING AT END OF PERIOD
(In thousands) 1993 1992 1991 1990 1989 __________________________________________________________________________________________________________ Interest income that would have been recorded on nonaccrual loans in accordance with original terms $27,904 $68,130 $133,030 $105,855 $40,936 Interest income actually recorded on nonaccrual loans 4,933 7,304 19,799 24,629 7,164 _______ _______ ________ ________ _______ Loss of interest income on nonaccrual loans $22,971 $60,826 $113,231 $ 81,226 $33,772 ======= ======= ======== ======== =======
TABLE XX - SUPPLEMENTAL DATA ON NONACCRUAL LOANS AND IN-SUBSTANCE FORECLOSURES (ISFs) (1)
CASH INTEREST PAYMENTS DECEMBER 31, 1993 IN 1993 APPLIED AS (3) ______________________________________ _______________________ Nonaccrual In-substance Performance Interest Reduction (In thousands) Loans Foreclosures Ratio (2) Income of Principal _________________________________________________________________________________________________________________ CONTRACTUALLY CURRENT Payment in full of principal or interest expected $18,988 $ -- 15.5% $347 $1,433 Payment in full of principal or interest in doubt 3,236 -- 2.6 -- 149 _______ _______ _____ ____ ______ 32 2of2 CONTRACTUALLY PAST DUE Substantial performance (4) $11,135 $ -- 9.1% $ 21 $1,072 Limited performance (5) 19,425 10,516 15.9 488 2,423 No performance 69,609 24,916 56.9 -- 1,838 ======= ======= ===== ==== ====== (1) Disclosure has been limited to nonaccrual loans whose principal balance at December 31, 1993 was $500 thousand or above. Nonaccrual loans of $500 thousand or more comprised 46.1 percent of total consolidated nonaccrual loans. All ISFs outstanding at year-end 1993 have been disclosed. (2) Nonaccrual loans as a percent of total nonaccrual loans of over $500 thousand. (3) Represents the cash interest payments received since loans or assets outstanding as of December 31, 1993 were categorized as nonaccrual or ISFs. (4) Periodic (at least quarterly) payments received represent at least 75% of the contractual principal and/or interest due. (5) Periodic (at least quarterly) payments received represent between 1% and 75% of the contractual principal and/or interest due.
Nonaccrual loans declined $544.4 million or 67.2 percent in 1993 to a level of $265.3 million at December 31, 1993 following a decrease of $443.4 million or 35.4 percent in 1992. Since reaching their peak level of $1.4 billion at June 30, 1991, nonaccrual loans have successively fallen by $1.1 billion or 81.0 percent. The decline in nonaccrual loans during this period was primarily due to the following factors: - Payments and returns to accrual or renegotiated status of $1.0 billion; - Charge-offs of $790.9 million; - Transfers of loans to OREO of $429.0 million; - Loans sold or anticipated to be sold in bulk sales transactions (net of charge-offs) of $153.4 million; and - Nonaccrual loans of subsidiaries sold of $128.4 million. These factors were partially offset by additions to nonaccrual loans of $1.4 billion. The decline in nonaccrual loans resulting from loan payments and transfers to accruing or renegotiated status, which occurred while economic conditions in Midlantic's market areas remained less than optimal, is attributable to the Corporation's commitment of substantial management and professional resources to problem asset recognition and resolution. Nonaccrual loans at the end of 1993 were primarily comprised of commercial and financial (43.2 percent); long-term commercial mortgage (23.9 percent); and construction and development (18.9 percent). The relationship of each of these categories of nonaccrual loans to its respective total loan portfolio was: 4.0 percent commercial and financial; 3.8 percent long-term commercial mortgage; and 6.0 percent construction and development. At December 31, 1993, a majority of the credits comprising nonaccrual loans had principal balances of less than $2 million. At the end of 1993, Midlantic had a total of five nonaccrual loans or lending relationships that exceeded $5 million, which aggregated $32.2 million or 12.1 percent of total nonaccrual loans. The downturn in real estate conditions in Midlantic's market area and its adverse impact on real estate-related industries was the primary reason for the rise in nonaccrual loans during 1990 and 1991. In the latter half of the 1980's, Midlantic originated a substantial volume of commercial mortgage and real estate-related loans. As conditions in Midlantic's markets deteriorated, real estate borrowers were severely impacted by the sluggish economy, slow absorption of vacant space, falling real estate values, tightened lending 33 1of2 Midlantic Corporation and Subsidiaries and appraisal standards and a lack of liquidity. The rise in nonaccrual commercial and financial loans was also directly influenced by the effect of the national and regional economic downturn on Midlantic's commercial borrowing customers. While the national economic recession officially ended in late 1991, the recovery period has been uneven and slow. Further, the modest expansion in economic activities in Midlantic's core market area continues to lag behind the improvement in national economic conditions. Particularly noteworthy is the extended duration of high unemployment rates (especially in New Jersey) that have occurred partly as a result of corporate downsizing, consolidations and bankruptcies. Management believes that the key to significant and sustainable economic growth in the Corporation's market area will be the accelerated assimilation of displaced workers and the resultant improvement in consumer confidence levels. However, as yet, management has not perceived any sustainable economic stimuli that will result in significant job creation in the Corporation's markets at least in the near-term. As a result, it is possible that the current business cycle will eventually peak at a much lower level than has occurred in past cycles. As part of its process for assessing asset quality, Midlantic also refers to third party sources for data concerning economic trends. The statistics and trends from such sources as summarized in the following paragraph are used in conjunction with internal information sources to evaluate the impact that regional and local economic activity might have on Midlantic's real estate assets. The demand for office and manufacturing space has suffered particularly since the beginning of the recession and vacancy rates, while showing stabilizing trends during the past two years, continue to remain high. In Midlantic's core market areas, vacancies for office space remain around or in excess of 20 percent, accompanied by low or in some cases, negative absorption. The demand for both office and industrial space has contracted in tandem with declines in business activities and the resultant efforts of companies to reduce overhead and consolidate operations. However, the housing industry has shown signs of growth in response to an extremely low interest rate environment, particularly since mid-1992. Residential building permits increased in 1992 over 1991 and increased again in 1993. Retail sales in 1992 and 1993 also increased modestly. However, retail leasing remains rather mixed as regional shopping malls continue to weather the general economic uncertainty while vacancy rates on strip shopping malls, especially those that are not anchored, continue to evidence slower lease-up. Land development remains at a virtual standstill and is highly dependent not only upon the absorption of existing construction projects but also upon demand for new development. The value of most types of real estate has fallen by as much as 50 percent since peaking in the late 1980's. Recent appraisals, however, generally indicate that values in many real estate markets have stabilized or may stabilize in the near future. Although a substantial portion of Midlantic's nonaccrual loans at the end of 1993 were partially or fully secured, it is not possible to accurately predict the extent of losses which may ultimately be incurred from this group of problem assets. At year-end 1993, the Corporation's loan loss reserves amounted to nearly 1.5 times the level of nonaccrual loans. 33 2of2 Prospectively, the level of nonaccrual loans will ultimately depend upon the economic climate in the Corporation's core market area. While Midlantic has been able to significantly reduce its volume of nonaccrual loans during a relatively weak economic recovery, further significant progress in reducing the level of nonaccrual loans may be at a somewhat slower pace unless it occurs in tandem with a more rapid upswing in economic activity. If economic conditions begin to deteriorate, such a downturn could adversely impact loan quality. RENEGOTIATED LOANS - Midlantic has restructured certain loans in accordance with the requirements of FAS No. 15 "Accounting by Debtors and Creditors for Troubled Debt Restructurings" in instances where a determination was made that greater economic value would be realized under new terms than through foreclosure, liquidation or other disposition. When restructured loans can demonstrate performance (as generally evidenced by six months of pre- or post- restructuring payment performance in accordance with the restructured terms, or by the presence of other significant factors) such loans are classified by the Corporation as "renegotiated loans" and accrual of interest resumes. Prior to demonstrating performance, Midlantic classifies restructured loans as nonaccrual. Renegotiated loans amounted to $172.1 million at December 31, 1993 as compared with $159.7 million at year-end 1992 (see Table XXI). The average current yield recognized as interest on accruing renegotiated loans is 8.33 percent. The effective interest rate as calculated under FAS No. 15 on these renegotiated loans is 8.90 percent. In those cases where average current yield differs from the effective yield, Midlantic's management has elected to recognize income prospectively on the more conservative average current yield basis until certain contingencies are met. TABLE XXI - RENEGOTIATED LOANS AND YEAR-TO-DATE LOSS OF INTEREST INCOME ON RENEGOTIATED LOANS OUTSTANDING AT END OF PERIOD
(In thousands) 1993 1992 ______________________________________________________________________________ Renegotiated loans $172,058 $159,685 ======== ======== Interest income that would have been recorded on renegotiated loans in accordance with original terms $ 9,970 $ 8,258 Interest income actually recorded on renegotiated loans 8,092 5,506 ________ ________ Loss of interest income on renegotiated loans $ 1,878 $ 2,752 ======== ======== The loans presented in the above table are performing in accordance with their new terms. Troubled debt restructurings prior to 1992 have been reclassified to nonaccrual loans in accordance with Midlantic's renegotiated loans policy adopted in 1992.
ACCRUING PAST DUE LOANS - The Corporation held accruing past due loans of $36.2 million, $44.7 million and $132.5 million at the end of each of the past three years, respectively. 34 1of2 MANAGEMENT'S ANALYSIS (continued) POTENTIAL PROBLEM LOANS - As of year-end 1993, Midlantic identified an additional $64.2 million of currently performing loans outstanding for which there is serious doubt as to whether the borrowers will be able to fully comply with the present repayment terms of the loans. OTHER REAL ESTATE OWNED - OREO includes real property for which the Corporation has obtained legal title ("acquired OREO") and ISFs, which are loans secured by real estate that meet certain criteria (pursuant to generally accepted accounting principles) for classification as ISF. In the normal course of business, the collateral supporting a substantial portion of ISFs is eventually acquired by the Corporation through foreclosure. Midlantic acquires real estate as a last resort in those cases where a determination has been made by management that the resolution of a problem credit through other workout arrangements is not likely to be attainable. Occasionally, the borrower will surrender to Midlantic the title to the real estate securing a loan. However, in most cases, the Corporation must initiate and proceed with the foreclosure process which, in the Corporation's market areas, is generally lengthy and in many cases held up through bankruptcy delays. Once title is acquired, Midlantic will usually offer the property for sale. However, in some instances, as in the case of partially completed construction projects, the Corporation may contract to complete the project prior to sale. While holding title to OREO properties, Midlantic is required to maintain the property and must pay the customary costs associated with holding real property such as property taxes, management fees and insurance. OREO properties that are rented or leased provide cash flows that partially offset the costs of holding such properties. It is Midlantic's policy to reappraise its acquired OREO on at least an annual basis. Acquired OREO amounted to $97.3 million at year-end 1993 as compared with $169.9 million at December 31, 1992 and $120.3 million at December 31, 1991. Since year-end 1991, the level of acquired OREO has been influenced primarily by acquisitions of real property totalling $363.7 million, sales and payments aggregating $271.7 million, (including $39.2 million sold in bulk sales transactions or identified for possible bulk sale in 1993) and writedowns amounting to $113.0 million. ISFs amounted to $35.4 million, $281.0 million and $438.3 million at December 31, 1993, 1992 and 1991, respectively. A loan is classified as an ISF when the borrower has little or no equity in the collateral considering its current fair value; the repayment can only be expected to come from the operation or sale of the collateral; and the debtor has either formally or effectively abandoned control of the collateral or it is doubtful that the borrower will be able to rebuild equity in the collateral. The collateral supporting a total of $160.9 million of ISFs was acquired since year-end 1991. Acquired OREO properties are carried at net realizable value, while ISFs are carried at the lower of the recorded investment in the loan or net realizable value. Upon transfer to acquired OREO or ISF, the asset is written down, where appropriate, to net realizable value. At that time the excess book value is charged directly against the allowance for loan losses. Any subsequent depreciation in value is charged against operating earnings. 34 2of2 Although real estate market conditions remain mixed, the Corporation has had success in disposing of substantial portions of its inventory of OREO properties. In 1993, the ratio of OREO properties sold (excluding those sold in bulk sales or transferred to assets held for accelerated disposition) as a percentage of OREO outstanding at the beginning of the year amounted to 82.0 percent and in 1992 this ratio amounted to 75.7 percent. While the Corporation has acquired or foreclosed upon over $360 million of real estate supporting nonaccrual loans and ISFs during the past two years, it is anticipated that future levels of foreclosures should decline, reflecting the Corporation's lower volume of nonaccrual and other problem assets. TABLE XXII - IN-SUBSTANCE FORECLOSURES - PROPERTY TYPE BY STATE AT DECEMBER 31, 1993
(In thousands) New Jersey Pennsylvania New York Florida Total ________________________________________________________________________________ Land $14,070 $ -- $ 628 $979 $15,677 Office buildings 10,830 -- -- -- 10,830 Industrial/warehouse 1,178 1,858 96 -- 3,132 Residential tracts 1,292 -- -- -- 1,292 All other 4,031 -- 470 -- 4,501 _______ ______ ______ ____ _______ Total $31,401 $1,858 $1,194 $979 $35,432 ======= ====== ====== ==== =======
TABLE XXIII - ACQUIRED OREO PROPERTIES - PROPERTY TYPE BY STATE AT DECEMBER 31, 1993
(In thousands) New Jersey Pennsylvania New York Florida Other Total _______________________________________________________________________________________ Land $32,862 $ 3,659 $ 601 $-- $ 49 $37,171 Residential tracts 13,130 2,535 795 33 4,717 21,210 Industrial/warehouse 7,825 3,384 -- -- -- 11,209 Office buildings 5,223 2,165 1,309 -- 2,127 10,824 Shopping centers 2,682 149 -- -- -- 2,831 Hotels/motels 1,306 -- -- -- -- 1,306 All other 9,405 2,111 1,171 -- -- 12,687 _______ _______ ______ ___ ______ _______ Total $72,433 $14,003 $3,876 $33 $6,893 $97,238 ======= ======= ====== === ====== =======
35 1of2 Midlantic Corporation and Subsidiaries TABLE XXIV - OTHER REAL ESTATE OWNED (OREO) - ACTIVITY DURING 1993 AND 1992
1993 1992 ________________________________________ _________________________________________ IN-SUBSTANCE ACQUIRED OREO In-substance Acquired OREO (In thousands) FORECLOSURES PROPERTIES TOTAL OREO Foreclosures Properties Total OREO ____________________________________________________________________________________________________________________ Balance at beginning of year $281,017 $ 169,862 $ 450,879 $438,301 $120,342 $558,643 Transfers from loans 26,425 99,928 126,353 66,772 99,876 166,648 Advances 11,707 378 12,085 4,564 2,665 7,229 Transfers from in-substance foreclosures to acquired OREO properties (71,559) 71,559 -- (89,332) 89,332 -- Provision (64,962) (65,583) (130,545) (29,719) (47,413) (77,132) Sales of properties (5,446) (139,226) (144,672) (29,556) (91,143) (120,699) Payments (46,283) (934) (47,217) (44,344) (1,210) (45,554) OREO sold in bulk sales or transferred to "assets held for accelerated disposition" (72,299) (39,183) (111,482) -- -- -- Transfer to renegotiated loans or accruing loans (24,222) -- (24,222) (30,169) -- (30,169) Sales of subsidiaries -- -- -- (5,500) (4,713) (10,213) Other 1,054 437 1,491 -- 2,126 2,126 ________ _________ _________ ________ ________ _________ Balance at end of year $ 35,432 $ 97,238 $ 132,670 $281,017 $169,862 $ 450,879 ======== ========= ========= ======== ======== =========
FOREIGN OUTSTANDINGS - Foreign outstandings, all of which are dollar denominated, are largely money market investments placed with foreign banks or financial institutions. Investments with foreign banks located in the United States are also classified as foreign outstandings by the Corporation regardless of whether the bank is a branch or a subsidiary of its foreign domiciled parent. At December 31, 1993, foreign outstandings totalled $637.9 million or 4.6 percent of total assets compared to $753.1 million or 5.2 percent of total assets in 1992 and $315.4 million or 1.7 percent of total assets in 1991. The level of foreign outstandings primarily reflects Midlantic's investment of a portion of its available funds in short-term money market instruments with domestic subsidiaries or branches of foreign banks. PREMISES AND EQUIPMENT The Corporation owns a substantial amount of its banking premises, computers and other equipment. Premises and equipment, net of accumulated depreciation, amounted to $155.1 million, $168.6 million and $245.4 million at the end of 1993, 1992 and 1991, respectively. Premises and equipment of those subsidiaries sold pursuant to Midlantic's Restructuring Program comprised $31.4 million of total premises and equipment at year-end 1991. 35 2of2 Capital expenditures made primarily to maintain and upgrade, where necessary, data processing equipment and to purchase automated teller machines amounted to $16.1 million in 1993, $12.7 million in 1992 and $32.1 million in 1991. Actual expenditures in 1992 did not include certain purchases that had been approved but not actually made until 1993, as part of Midlantic's FOCUS '92 initiative. In the near-term, the Corporation has no plans to significantly increase its capital expenditures over historical levels. DEPOSITS Midlantic has been successful in maintaining a strong core deposit base (local depositors that maintain ongoing relations with Midlantic's banking subsidiaries). Total deposits averaged $11.8 billion in 1993 as compared with levels of $12.7 billion and $14.3 billion for the Continuing Entities in 1992 and 1991, respectively. The decline in deposits since 1991 is partially due to Midlantic's efforts to eliminate its reliance on non-core deposits such as brokered deposit sources and to reduce its outstandings of large CDs. Core deposits, which now comprise all deposits except large CDs, totalled $11.4 billion at December 31, 1993 and amounted to over 98 percent of total deposits. Most of Midlantic's core deposits are derived from retail sources. Presently, the Corporation's customers generally hold such deposits in more liquid savings and money market accounts and shorter-term CDs due to the low interest rate environment which has also increased the appeal of non-deposit instruments. In this regard, Midlantic has offered the several funds of the Compass Capital Group, the Corporation's proprietary mutual fund group, as an alternative. On a Continuing Entities basis, average savings deposits, interest- bearing demand deposits, retail time deposits and retail money market accounts in the aggregate declined $855.5 million or 8.9 percent in 1993 and $996.5 million or 9.4 percent in 1992. These deposit vehicles, which comprised nearly 75 percent of the Corporation's total deposits at year-end 1993, are primarily retail in nature. The decline in these deposit sources, as mentioned previously, was partially due to the maturity of brokered CDs ($288.2 million in 1992 and $85.8 million in 1993) that were originated in 1990. 36 1 of 2 MANAGEMENT'S ANALYSIS (continued) Noninterest-bearing demand deposits, which include correspondent bank balances, compensating and deficiency balances and corporate and retail checking accounts averaged $2.6 billion in 1993 and $2.5 billion for the Continuing Entities in both 1992 and 1991. The percentage of noninterest-bearing demand deposits to total deposits has risen to a level of 24.5 percent at December 31, 1993 as compared with 22.4 percent and 18.5 percent at year-end 1992 and 1991, respectively. Large CDs totalled $215.7 million, $441.6 million and $888.8 million at the end of each of the past three years, respectively. Large CDs comprised only 1.9 percent of total deposits at December 31, 1993. Substantially all of these deposits were directly sold to existing customers in Midlantic's core market area. TABLE XXV - AVERAGE FUNDING SOURCES - BALANCES AND RATES PAID
(In thousands) 1993 1992 1991 1990 1989 ___________________________________________________________________________________________________________________________ AVERAGE BALANCES DEPOSITS Noninterest-bearing demand $ 2,616,243 $ 2,759,284 $ 3,047,091 $ 3,414,732 $ 3,314,240 Interest-bearing demand 1,383,764 1,479,906 1,537,567 1,453,798 1,270,074 Savings 1,504,561 1,453,083 1,781,976 1,838,717 1,880,793 Retail money market accounts 2,324,327 3,190,586 3,833,633 4,132,198 3,197,984 CDs over $100,000 353,304 608,227 1,640,215 2,540,510 2,831,508 Other time 3,589,161 4,793,015 7,212,558 6,230,469 4,022,412 Overseas branch deposits 11,243 12,739 20,371 97,518 95,684 ___________ ___________ ___________ ___________ ___________ Total average deposits $11,782,603 $14,296,840 $19,073,411 $19,707,942 $16,612,695 =========== =========== =========== =========== =========== SHORT-TERM BORROWINGS Commercial paper $ -- $ -- $ 2,274 $ 153,734 $ 211,609 Federal funds purchased 46,726 65,584 138,245 637,153 1,124,185 Repurchase agreements 318,985 408,755 583,957 830,674 793,393 Other short-term borrowings 28,680 50,861 183,689 304,621 262,518 ___________ ___________ ___________ ___________ ___________ Total average short-term borrowings $ 394,391 $ 525,200 $ 908,165 $ 1,926,182 $ 2,391,705 =========== =========== =========== =========== =========== LONG-TERM DEBT $ 396,217 $ 443,213 $ 461,013 $ 448,946 $ 325,057 =========== =========== =========== =========== =========== AVERAGE RATES DEPOSITS Interest-bearing demand 1.70% 2.84% 4.68% 4.78% 4.90% Savings 2.28 3.43 4.87 5.13 5.02 Retail money market accounts 2.55 3.56 5.52 6.80 7.15 CDs over $100,000 3.66 4.38 6.65 8.19 8.98 Other time 3.69 5.23 7.36 8.26 8.33 Overseas branch deposits 3.28 3.97 6.75 8.60 9.77 ___________ ___________ ___________ ___________ ___________ Total average rate paid on deposits 2.87% 4.19% 6.31% 7.22% 7.41% =========== =========== =========== =========== =========== 36 2of2 SHORT-TERM BORROWINGS Commercial paper --% --% 7.30% 8.57% 9.32% Federal funds purchased 2.99 3.52 6.65 8.46 9.34 Repurchase agreements 2.91 3.22 5.55 7.74 8.63 Other short-term borrowings 3.12 3.72 4.91 7.08 7.94 ___________ ___________ ___________ ___________ ___________ Total average rate paid on short-term borrowings 2.94% 3.30% 5.59% 7.94% 9.01% =========== =========== =========== =========== =========== LONG-TERM DEBT 9.18% 9.37% 9.16% 9.39% 9.46% =========== =========== =========== =========== =========== CONTINUING ENTITIES AVERAGE BALANCES Total average deposits $11,782,603 $12,692,146 $14,310,883 $15,274,694 $14,122,544 ___________ ___________ ___________ ___________ ___________ Total average short-term borrowings 394,391 512,403 645,801 1,551,575 2,002,557 ___________ ___________ ___________ ___________ ___________ Long-term debt 396,217 439,880 443,450 443,480 318,514 =========== =========== =========== =========== =========== AVERAGE RATES Total average rate paid on deposits 2.87% 4.15% 6.31% 7.26% 7.48% ___________ ___________ ___________ ___________ ___________ Total average rate paid on short-term borrowings 2.94 3.35 5.85 8.35 9.19 ___________ ___________ ___________ ___________ ___________ Long-term debt 9.18 9.41 9.38 9.40 9.47 =========== =========== =========== =========== ===========
37 1of2 Midlantic Corporation and Subsidiaries SHORT-TERM BORROWINGS In the aggregate, short-term borrowings amounted to $674.5 million or 6.9 percent of total interest-bearing sources of funds at December 31, 1993. This compares with $370.7 million or 3.5 percent and $588.1 million or 4.2 percent of interest-bearing sources at year-end 1992 and 1991, respectively. Included in year-end 1993 short-term borrowings was $244.1 million of repurchase agreements representing the proceeds from a recently established security lending program (see "The Lending Function - Loan Portfolio"). Excluding the repurchase agreements relating to the security lending program, the low levels of short-term borrowings reflect Midlantic's objective of minimizing its reliance upon purchased funds (large dollar, usually non-local, funding sources) to fund longer-term earning assets. Also, the sale of MHMC in 1992 eliminated short-term funding from nonaffiliated financial institutions which MHMC utilized to fund a significant portion of its mortgage banking operations. Presently, a significant source of short-term funding is in the form of repurchase agreements which Midlantic enters into principally as an investment vehicle for local customers, including those who utilize the Corporation's cash management services. The proceeds from this activity are placed in short-term money market assets. Midlantic also purchases federal funds primarily from local banks with which the Corporation has a correspondent relationship. MC ceased issuing commercial paper in January 1991 and all commercial paper outstandings matured by the end of the second quarter of that year. LONG-TERM DEBT Largely due to scheduled repayments and sales of subsidiaries, long-term debt has fallen in each of the past two years. Long-term debt amounted to $386.8 million at December 31, 1993, $437.1 million at December 31, 1992 and $464.0 million at December 31, 1991. The contraction in long-term debt in 1993 reflected the payment at maturity of $50 million of MBI's 11.35% Notes, while in 1992, $22.0 million of long-term obligations were eliminated through the sale of MHMC. In 1992, MBI also redeemed its remaining outstanding 9% Senior Notes due in 1998 for $3.8 million (reflecting a premium of approximately $90 thousand). In January 1994, Midlantic also redeemed its remaining outstanding 7 3/4% Debentures due March 1, 1998, which amounted to $11.8 million at year- end 1993. Since year-end 1991, Midlantic's debt to equity ratio (ratio of long-term debt to shareholders' equity plus long-term debt) has improved significantly from a level of 38.9 percent to 25.6 percent at December 31, 1993. In recent months, the Corporation has received credit rating upgrades by several national rating agencies. As a result, the credit rating on Midlantic's long-term securities have been designated at or near "investment grade" by such rating agencies. ASSET AND LIABILITY MANAGEMENT Midlantic maintains a comprehensive asset-liability management process to help achieve its financial objectives under alternative operating plans and under inherently uncertain economic and market conditions. This process is overseen by Midlantic's Asset-Liability Committee ("ALCO") which monitors and controls, among other variables, the liquidity, balance sheet structure and interest rate risk of the consolidated Corporation and its two subsidiary banks within policy parameters, established by and reviewed at least annually with the Boards of Directors. 37 2of2 Interest Sensitivity Management Interest rate risk refers to the periodic and cumulative exposure to earnings and capital from changes in interest rates. While Midlantic, like any financial intermediary, will typically incur some amount of interest rate risk in the normal course of providing services to its borrowing customers and depositors, the Corporation's policy is to protect its earnings and capital from undue exposure to volatile interest rates. ALCO assesses the degree of this risk by simulating the Corporation's earnings under alternative balance sheet structures and under a variety of interest rate scenarios, with the actual amount of such risk typically maintained at a manageable percent of core net interest income and capital. Earnings exposure to interest rates arises from a variety of factors, a primary source being any mismatches in the maturity and repricing distribution of the Corporation's assets and liabilities. For example, at any point in time, if more of the Corporation's outstanding assets are scheduled to mature or to reprice earlier than its liabilities, the Corporation's earnings may be vulnerable to a decline in the general level of interest rates because in this circumstance the Corporation's asset yields would decline sooner than its funding costs. Conversely, if more of the Corporation's liabilities reprice or mature earlier than its assets, earnings may be exposed to an increase in the general level of interest rates since funding costs would tend to rise before asset yields. This type of risk is approximately illustrated in the "static gap" calculation (Table XXVI) which expresses the assets and liabilities due to mature, to be repriced, or assumed to be repriced in various time intervals. Within one year of December 31, 1993, the Corporation had $550.8 million more liabilities maturing or repricing than assets. While this gap at December 31, 1993 indicated a possible decline in NII if interest rates increase immediately, the calculated amount of NII at risk to interest rate changes within one year is generally estimated to be insignificant, in 38 1of2 MANAGEMENT'S ANALYSIS (continued) TABLE XXVI - INTEREST-SENSITIVITY ANALYSIS
DECEMBER 31, 1993 _______________________________________________________________________ Daily Due After Due After Due After Floating and Three Months Six Months One Year or Due Within but Within but Within Noninterest- (In thousands) Three Months Six Months One Year sensitive Total ________________________________________________________________________________________________________________________ INTEREST-EARNING ASSETS Money market investments $ 1,292,606 $ 251,007 $ 235,208 $ -- $ 1,778,821 Investment securities 375,842 67,699 460,412 1,551,457 2,455,410 Loans 5,202,150 184,580 297,903 2,630,198 8,314,831 ___________ ___________ __________ ___________ ___________ Total interest-earning assets $ 6,870,598 $ 503,286 $ 993,523 $ 4,181,655 $12,549,062 ___________ ___________ __________ ___________ ___________ SOURCES OF FUNDS SUPPORTING INTEREST-EARNING ASSETS Savings and time deposits $ 4,471,502 $ 924,790 $ 884,190 $ 2,467,434 $ 8,747,916 Short-term borrowings 430,297 -- 244,200 -- 674,497 Long-term debt 11,752 -- -- 375,000 386,752 Noninterest-bearing sources of funds -- -- -- 2,739,897 2,739,897 ___________ ___________ __________ ___________ ___________ Total sources of funds supporting interest-earning assets 4,913,551 924,790 1,128,390 5,582,331 12,549,062 ___________ ___________ __________ ___________ ___________ NET ASSETS (LIABILITIES) BEFORE NET INTEREST RATE SWAPS $ 1,957,047 $ (421,504) $ (134,867) $(1,400,676) $ -- ___________ ___________ __________ ___________ ___________ NET INTEREST RATE SWAPS $(2,526,500) $ 50,000 $ 525,000 $ 1,951,500 $ -- ___________ ___________ __________ ___________ ___________ INTEREST-SENSITIVITY GAP $ (569,453) $ (371,504) $ 390,133 $ 550,824 $ -- ___________ ___________ __________ ___________ ___________ CUMULATIVE INTEREST-SENSITIVITY GAP $ (569,453) $ (940,957) $ (550,824) $ -- $ -- ___________ ___________ __________ ___________ ___________ INTEREST-SENSITIVE ASSETS TO INTEREST-SENSITIVE LIABILITIES .92:1 .60:1 1.35:1 1.10:1 1:1 ___________ ___________ __________ ___________ ___________ CUMULATIVE RATIO OF INTEREST-SENSITIVE ASSETS TO INTEREST-SENSITIVE LIABILITIES .92:1 .89:1 .94:1 1:1 1:1 ___________ ___________ __________ ___________ ___________ CUMULATIVE RATIO OF INTEREST-SENSITIVE ASSETS TO INTEREST-SENSITIVE LIABILITIES (EXCLUDING NET INTEREST RATE SWAPS) 1.40:1 1.26:1 1.20:1 1:1 1:1 =========== =========== ========== =========== ===========
38 2of2 line with the Corporation's policy of avoiding undue swings in NII. Midlantic manages its interest sensitivity position with an objective of avoiding material mismatching of the amounts of assets and liabilities subject to rate changes within each time interval. In order to maintain earnings and capital exposure to interest rate changes within prudent bounds, Midlantic utilizes interest rate swaps to hedge existing balance sheet items that have a high degree of inverse rate correlation to the swap. Interest rate swaps outstanding as of December 31, 1993 entitled Midlantic to receive or pay a fixed rate of interest to the final maturity of each swap in exchange for a variable rate of interest, generally the three month LIBOR (an internationally recognized interest rate index), which is reset quarterly. TABLE XXVII - INTEREST RATE SWAPS
DECEMBER 31, 1993 _____________________________________________ Notional Fixed Variable Net Exchange (In millions) Amounts Rate Rate Rate ______________________________________________________________________________ Midlantic receives fixed rate $3,369 5.36% 3.44% 1.92% Midlantic pays fixed rate $ 899 5.15% 3.40% 1.75% ______________________________________________________________________________
The notional amounts listed in Table XXVII represent the base on which interest due each counterparty is calculated. The notional amounts do not represent amounts actually exchanged by the counterparties and are therefore not recorded on the balance sheet. At December 31, 1993, Midlantic did not have any interest rate swaps or forward interest rate swap agreements tied other than to a fixed rate or LIBOR, nor did the Corporation maintain or utilize, at that time, any exchange traded futures contracts, options or other off-balance sheet derivative transactions. At that date, Midlantic did not engage in any swap transactions as an intermediary, although the Corporation may decide to do so in the future if customer demand warrants. To illustrate the effectiveness of interest rate swaps, approximately $1.3 billion of notional principal amount of swap contracts is hedging a similar amount of loans whose yields are indexed to the prime rate. In the event of a general decline in interest rates that leads to a reduction in the prime rate, the reduction in interest income from these loans would be largely offset by an increase in the net exchange rate earned on the swap contracts by Midlantic, although not precisely, inasmuch as the changes in the prime rate and the changes in LIBOR may not be identical. This occurs as the variable LIBOR rates on these swaps are repriced at lower levels. In the event of an increase in the prime rate and LIBOR, loan interest income would increase but the net exchange rate on the swaps would decline. Most of the other swaps on which Midlantic receives interest at a fixed rate are hedging fixed cost deposits and funding. 39 1of2 Midlantic Corporation and Subsidiaries In the case of interest rate swap contracts under which Midlantic has agreed to pay a fixed rate and receive a variable rate, the hedged items are generally investment securities bearing fixed rates of interest and stated original maturities of five to seven years. The purpose of these hedges is to reduce the risk that over the term of the investment the yield on similar securities increases and consequently the value of Midlantic's investment declines. The static gap Table XXVI shows the amount of gross assets or gross liabilities hedged with swaps as of December 31, 1993. During 1993, Midlantic entered into $944.1 million (notional amount) of new swap contracts where it receives a fixed rate of interest, it entered into $898.5 million (notional amount) of new swap contracts on which is pays a fixed rate of interest and $100.0 million (notional amount) of swap contracts matured. As of December 31, 1993, there were no terminated swap contracts and accordingly, no deferred gains or losses. The use of interest rate swaps and their effectiveness as hedging tools is monitored in detail by ALCO. Credit risk associated with interest rate swap contracts arises from the potential for a counterparty to default on its obligations. Midlantic attempts to limit credit risk by transacting only with the most creditworthy counterparties. All counterparties to contracts in place as of December 31, 1993 were associated with organizations having securities rated as investment grade by independent rating agengies. The list of eligible counterparties, setting of counterparty limits and monitoring of credit exposure for swaps is overseen by the Credit Policy Committee. Utilizing standard methodologies, the credit risk portion of all swaps is included in risk assets for the purpose of calculating risk-based capital ratios. As of December 31, 1993, the estimated credit exposure associated with interest rate swap contracts was $87.9 million (which excludes $4.9 million on forward swap agreements). Table XXVIII summarizes the maturities of the notional amounts of all swap contracts in place as of December 31, 1993. Net interest income recorded by the Corporation in 1993 for all interest rate swap contracts amounted to $65.8 million. Management believes that the swap contracts it has in place as of December 31, 1993 have been effective tools in the control of interest rate risk. TABLE XXVIII - MATURITY OF DISTRIBUTION OF SWAP CONTRACTS IN PLACE AS OF DECEMBER 31, 1993 Notional Amounts ______________________________ (In millions) Receive Fixed Pay Fixed ___________________________________________________________ 1994 - First quarter $ -- $ -- - Second quarter 50 -- - Third quarter 50 -- - Fourth quarter 719 -- 39 2of2 1995 - First quarter 400 -- - Second quarter -- -- - Third quarter -- -- - Fourth quarter 1,000 -- 1996 900 -- 1997 250 599 1998 and after* -- 300 ______ ____ Total interest rate swaps $3,369 $899 ====== ==== Fair value of interest rate swaps $ 86 $ 2 ====== ==== *Excludes $300 million of forward interest rate swap agreements for which Midlantic has a firm commitment for delivery on April 1, 1994. Liquidity GENERAL - Liquidity represents the Corporation's ability to efficiently fulfill its funding obligations at reasonable cost. Through its ALCO, Midlantic addresses the liquidity requirements of its holding companies and its major bank and nonbank subsidiaries on both a short-term and long-term basis using a variety of operating scenarios that take into account the effect of both quantitative and qualitative influences. These influences include national and regional economic conditions, the interest rate environment, loan quality, unfunded commitments, projections of deposit and loan growth and key ratio analyses. On a longer-term basis, liquidity is projected using investment and funding alternatives that take into consideration the Corporation's strategic objectives. TABLE XXIX - LOAN PORTFOLIO - MATURITIES AND SENSITIVITY TO CHANGES IN INTEREST RATES(1)(2)
DECEMBER 31, 1993 __________________________________________ Due in Due After One Year One Year Due or Less or Through After Five (In thousands) on Demand Five Years Years ____________________________________________________________________________________________________________________ Commercial and financial $1,750,914 $ 946,868 $ 199,874 Real estate - construction and development 387,634 382,834 63,545 Real estate - mortgage 659,881 564,260 1,077,248 Loans to individuals 111,812 959,749 1,343,830 Foreign 3,492 -- -- __________ __________ __________ Total loans $2,913,733 $2,853,711 $2,684,497 ========== ========== ========== Loans due after one year which have predetermined interest rates $1,637,460 $1,378,098 Loans due after one year which have floating or adjustable interest rates 1,216,251 1,306,399 __________ __________ Total loans due after one year $2,853,711 $2,684,497 ========== ========== (1) Loans are stated gross of unearned income. (2) The actual maturities of Midlantic's loan portfolio are subject to market developments and the unpredictable aging of demand loans.
40 1of2 MANAGEMENT'S ANALYSIS (continued) TABLE XXX - LIQUIDITY AND FUNDING RATIOS
DECEMBER 31 1993 1992 1991 1990 1989 _______________________________________________________________________________________ Liquidity ratio (1) 31.6% 29.8% 20.9% 17.3% 11.2% _____ _____ _____ _____ ____ Funding ratio (2) (25.0) (19.2) (3.2) 3.9 20.5 _____ _____ _____ _____ ____ Total loans, net of unearned income, as a % of total deposits 71.8 71.3 77.6 83.4 99.3 _____ _____ _____ _____ ____ Core deposits as a % of total loans, net of unearned income 136.8 135.3 121.7 108.7 85.5 _____ _____ _____ _____ ____ Unfunded loan commitments as a % of loans outstanding 32.4 30.8 31.5 30.2 34.2 ===== ===== ===== ===== ==== (1) Ratio of net short-term assets to net funding liabilities. (2) Total purchased funds and money market investments less investment securities due in one year as a percent of investment securities due in more than one year and total loans, net of unearned income.
Major sources of liquidity include short-term money market investments, maturing investments in U.S. government and other investment securities and proceeds from loan maturities or paydowns, as well as core deposits and the ability to access large liability funding sources (primarily large CDs, federal funds purchased and repurchase agreements). Such sources of liquidity may be used to fund loan originations, depositor withdrawals and other demands on the Corporation's liquid resources. During the past three years the Corporation has accumulated a highly liquid position which has resulted from the sale of subsidiaries, the sale and/or securitization of certain assets, the substantial decline in loan volume and the proceeds of recent common stock offerings. These factors have also facilitated Midlantic's ability to eliminate its reliance upon purchased funding sources and brokered deposits (those involving the mediation of a broker or those bearing interest rates significantly higher than rates prevailing in Midlantic's market area). To fund future loan growth, Midlantic expects to first utilize a major portion of its money market investments and proceeds from scheduled loan payments. Liquidity may also continue to be generated by the possible sale or securitization of existing assets as well as through increases in core deposits to the extent available under market conditions. 40 2of2 PARENT HOLDING COMPANIES - Liquidity requirements at the parent company level (MC and its lower-tier holding company, MBI) primarily include interest and amortization on long-term debt and normal parent company operating expenses. Parent company liquidity, which is managed in conjunction with the short-term resources of the Corporation's nonbank subsidiaries, primarily consists of cash on hand, short-term money market investments and short-term investment securities. Such liquid assets totalled $234.6 million at December 31, 1993 as compared with $118.6 million at year-end 1992. Debt servicing and normal operating expense payments are primarily funded by management fees from MNB and CB and dividend payments from CB. CB has paid uninterrupted quarterly dividends to MC since the third quarter of 1992. During 1993, major cash inflows included proceeds totalling $107.1 million from the issuance of 5.75 million common shares and a tax refund amounting to approximately $40 million. This was partially offset by the $50 million payment at maturity of MBI's 11.35% Notes. The Office of the Comptroller of the Currency ("OCC") has regulations that determine the dividend paying capacity of national banks. Under these regulations, net profits available for the payment of dividends is generally consistent with net profits determined in accordance with generally accepted accounting principles. Capital requirements (see next paragraph) imposed by federal and state regulators further limit dividends available to MC from its banks. Under a capital program submitted to the regulators, MNB, the largest Midlantic subsidiary, was not projected to pay any dividends to its parent until at least 1995. In view of MNB's financial progress since the submission of its capital program, management at MNB currently expects to consider the restoration in 1994 of MNB's dividend. Payment of a dividend by MNB must be approved by the Board of MNB and, pursuant to a formal agreement with the OCC, approval must also be obtained from the OCC (see "Regulatory Agreements"). No assurance can be given that MNB will pay dividends in 1994. CB may pay dividends to MC, although in certain circumstances, prior regulatory approval is required. Management expects that the parent companies will have sufficient cash to meet their presently anticipated cash obligations in the foreseeable future. The parent companies do not have any long-term debt maturing before 1999. However, the Corporation, in the normal course of business, may from time-to-time, consider retiring or refinancing certain debt issues, or portions thereof, prior to the actual maturity of such issues. 41 1of2 Midlantic Corporation and Subsidiaries Capital Adequacy The Corporation places a high priority on maintaining capital ratios that exceed minimum regulatory requirements. Midlantic's capital ratios presently exceed all regulatory minimums. Bank regulators utilize risk-based capital and leverage ratio guidelines to assess capital adequacy. The risk-based capital guidelines take into account both balance sheet and off-balance sheet credit risk by assigning specific risk weights to balance sheet and off-balance sheet assets and contingencies. Capital is divided into core capital (tier 1 capital) which consists primarily of shareholders' equity less goodwill, certain other intangibles and a portion of deferred taxes, and tier 2 capital which generally consists of a qualifying portion of the allowance for loan losses and certain long-term debt. At December 31, 1993, Midlantic's tier 1 capital ratio amounted to 9.28 percent of risk-weighted assets and the total capital ratio (tier 1 capital plus tier 2 capital) amounted to 13.29 percent of risk-weighted assets. The leverage ratio, which is defined as tier 1 capital as a percent of total assets less goodwill, certain other intangibles and a portion of deferred taxes, amounted to 6.81 percent at December 31, 1993. These ratios compare with required minimum ratios of 4.00 percent for tier 1 capital, 8.00 percent for total capital and 3.00 percent for leverage (see Table XXXI). MNB and CB also exceeded all minimum regulatory capital ratios at December 31, 1993 (see Table XXXII). The federal banking regulators established in late 1992 several uniform capital ratio categories which are designed to implement the prompt resolution of under-capitalized institutions. As required by the Federal Deposit Insurance Corporation Improvement Act of 1991 ("FDICIA"), under the regulations issued by the federal banking regulators, an insured depository institution whose tier 1 and total risk-based capital ratios exceeded 6.00 percent and 10.00 percent, respectively, and whose leverage ratio exceeded 5.00 percent, would generally be categorized as "well-capitalized." Based upon MC's understanding of such regulations and of publicly available interpretations thereof by the bank regulatory agencies, MC believes that MNB and CB each currently qualify as a "well-capitalized" institution. The categorization of depository institutions under such regulations is solely for the purpose of applying the prompt corrective action provision of FDICIA and is not intended to be, and should not be interpreted as, a representation of the depository institution's overall financial condition or prospects. 41 2of2 TABLE XXXI - CAPITAL
December 31 ___________________________________________ (In thousands) 1993(1) 1992 1991(2) _____________________________________________________________________________________________ RISK-BASED CAPITAL Tier 1 capital Total shareholders' equity $ 1,122,564 $ 843,462 $ 727,299 Less: Goodwill and disallowed intangibles 103,601 99,891 107,300 Disallowed portion of deferred tax asset 81,568 -- -- ___________ ___________ ___________ Total tier 1 capital $ 937,395 $ 743,571 $ 619,999 =========== =========== =========== Tier 2 capital Qualifying allowance for loan losses $ 129,559 $ 142,623 $ 188,709 Qualifying long-term debt 275,000 285,862 301,989 ___________ ___________ ___________ Total tier 2 capital $ 404,559 $ 428,485 $ 490,698 ___________ ___________ ___________ Total capital (tier 1 + tier 2) $ 1,341,954 $ 1,172,056 $ 1,110,697 =========== =========== =========== Risk-adjusted assets $10,099,816 $10,888,565 $14,443,750 =========== =========== =========== RATIO OF TIER 1 CAPITAL TO RISK-ADJUSTED ASSETS 9.28% 6.83% 4.29% =========== =========== =========== RATIO OF TOTAL CAPITAL TO RISK-ADJUSTED ASSETS 13.29% 10.76% 7.69% =========== =========== =========== LEVERAGE RATIO 6.81% 5.19% 3.43% =========== =========== =========== CONTINUING ENTITIES Total tier 1 capital $ 937,395 $ 743,571 $ 621,819 ___________ ___________ ___________ Total capital (tier 1 + tier 2) $ 1,341,954 $ 1,172,056 $ 1,088,563 ___________ ___________ ___________ Risk-adjusted assets $10,099,816 $10,888,565 $12,425,243 ___________ ___________ ___________ RATIO OF TIER 1 CAPITAL TO RISK-ADJUSTED ASSETS 9.28% 6.83% 5.00% =========== =========== =========== RATIO OF TOTAL CAPITAL TO RISK-ADJUSTED ASSETS 13.29% 10.76% 8.76% =========== =========== =========== LEVERAGE RATIOS 6.81% 5.19% 3.98% =========== =========== =========== (1) Capital ratios for 1993 take into account regulatory changes that became effective during 1993 including (i) a limitation in the amount of deferred tax assets includable in tier 1 capital and (ii) a revision to the capital guidelines which specifies those intangibles that are includable in tier 1 capital. (2) Risk-based capital ratios for year-end 1991 have been calculated based upon full implementation requirements which became effective on December 31, 1992.
42 1of2 MANAGEMENT'S ANALYSIS (continued) TABLE XXXII - CAPITAL RATIOS OF MIDLANTIC'S BANK SUBSIDIARIES
DECEMBER 31, 1993 __________________________________________ Tier 1 Total Capital Capital Leverage Ratio Ratio Ratio ___________________________________________________________________ Midlantic National Bank 11.03% 12.32% 7.89% Continental Bank 9.88 11.15 7.79 ===== ===== ====
As part of ongoing compliance with agreements with the Federal Reserve Bank of New York ("FRB") and OCC (see "Regulatory Agreements"), Midlantic submits updated operating plans and capital plans for both the consolidated organization and for its bank subsidiaries. MC, pursuant to its written agreement with the FRB, and MNB, pursuant to its written agreement with the OCC, as amended, have submitted a capital program ("Capital Program") to the FRB and the OCC. Neither the agreement with the FRB nor the agreement with the OCC requires Midlantic and MNB, respectively, to maintain any specific leverage or other capital ratio, nor have the FRB or the OCC indicated to Midlantic that it expects Midlantic or MNB to maintain any specific leverage or other capital ratio. Under MNB's written agreement with the OCC, as amended, the OCC reserves the right to impose specific ratio requirements upon MNB at its discretion. Under its agreement with the FRB, MC is restricted from paying cash dividends without the prior written approval of the FRB. Pursuant to its agreement with the OCC, MNB may not declare dividends without the approval of the OCC. Under certain circumstances, CB may not pay dividends without the advance approval of the FDIC and the Pennsylvania Department of Banking. As mentioned in "Asset and Liability Management - Liquidity - Parent Companies," MNB may consider restoration of its dividend in 1994. On July 22, 1992, Midlantic entered into an agreement with the holder of its Term Adjustable Rate Cumulative Preferred Stock - Series A (the "Preferred Stock") pursuant to which Midlantic paid the full cumulative dividends in arrears and the dividend for the second quarter of 1992 by issuing shares of Midlantic's common stock in lieu of a cash payment. Pursuant to the agreement, Midlantic may, at its discretion, pay future dividends in cash or shares of common stock or any combination thereof, so long as any such issuance would not result in the holder of the Preferred Stock being the beneficial owner of more than 4.99 percent of the outstanding shares of Midlantic's common stock. In view of MC's financial progress over the past few quarterly periods, management of MC currently expects to consider the restoration in 1994 of MC's common dividend and the payment of cash dividends on the Preferred Stock. Payment of such dividends by MC must be approved by the Board of MC and, under the written agreement, by the FRB. No assurance can be given that MC will pay common dividends or cash dividends on the Preferred Stock in 1994. 42 2of2 REGULATORY AGREEMENTS The Board of MC entered into a written agreement (the "FRB Agreement") with the FRB in May 1991. In connection with the FRB Agreement, MC reviewed various aspects of its operations including credit risk management, the assessment of loan loss reserve adequacy, management succession, compensation and severance policies, monitoring of intercompany transactions and its capital, liquidity and operating plans. The Board of MC also agreed, among other things, that MC will not pay cash dividends on its common or preferred stock without the prior written approval of the FRB and will not incur certain indebtedness. Pursuant to a written agreement (the "OCC Agreement") with the OCC, which became effective December 31, 1990, the Board of MNB committed MNB to certain restrictions and objectives related to such areas as management structure and practices, loan administration, monitoring of asset quality, liquidity, intercompany transactions, its capital adequacy and development of capital and profit plans. In July 1991, a written amendment to the OCC Agreement was executed, which removed specified capital ratios and required MNB to submit a Capital Program. The Capital Program was approved by the OCC in October 1991 and a revised Capital Program was approved by the OCC in September 1992. MC and MNB maintain ongoing programs to monitor and maintain compliance with all applicable regulatory agreements. MC believes that, in all material respects, it is in compliance with the FRB Agreement and that MNB is in compliance with the OCC Agreement. 43 Midlantic Corporation and Subsidiaries EFFECTS OF INFLATION Inflation, as measured by the Consumer Price Index, has been relatively steady during the past three years advancing 2.7 percent in 1993, 2.9 percent in 1992 and 3.1 percent in 1991. Since Midlantic's assets and liabilities are predominantly monetary, the effects of inflation on Midlantic's performance are primarily measured by the level and volatility of interest rates earned and paid. During the past three years, the prime rate changed seven times ranging from 10.0 percent to 6.0 percent (the 6.0 percent rate remaining steady during the past 18 months). During this period, Midlantic was able to control interest rate risk, as a result of its continuing policy of managing its interest-sensitive assets and liabilities. SELECTED SUPPLEMENTAL FINANCIAL DATA
YEAR ENDED DECEMBER 31 ________________________________________________________________ (In thousands, except per share data and total assets) 1993 1992 1991 1990 1989 __________________________________________________________________________________________________________________________ Interest income $816,907 $1,051,676 $1,729,362 $2,193,611 $2,103,549 Interest expense 310,857 542,012 1,104,779 1,370,822 1,232,022 Net interest income 506,050 509,664 624,583 822,789 871,527 Income (loss) from continuing operations 131,396 7,028 (543,303) (195,005) 206,261 Cumulative effect of the change in accounting for income taxes 38,962 -- -- -- -- Net income (loss) 170,358 7,028 (543,303) (195,005) 206,261 Income (loss) per common share - fully diluted Continuing operations 2.51 .08 (14.36) (5.22) 5.27 Cumulative effect of the change in accounting for income taxes .74 -- -- -- -- Net income 3.25 .08 (14.36) (5.22) 5.27 Cash dividends declared per common share -- -- -- 1.19 1.76 Obligations under capital leases 8,861 9,386 9,627 9,814 10,142 Long-term debt 386,752 437,112 463,989 448,178 450,884 Total assets (in millions) 13,947 14,422 18,170 23,586 23,723 ======== ========== ========== ========== ========== On August 31, 1989, Midlantic acquired four banks located in New York state. These banks, which had total assets of $2.2 billion at year-end 1989, were sold by the Corporation in 1992. For the effect of the divestiture of these banks, as well as certain other divestitures during 1991 and 1992 (which, in total, reduced total assets by approximately $5.5 billion), this table should be reviewed in conjunction with the financial analysis (see "Introduction" and "Critical Events in Midlantic's Recent History").
44 1of2 Midlantic Corporation and Subsidiaries CONSOLIDATED STATEMENT OF INCOME (In thousands, except per share data)
YEAR ENDED DECEMBER 31 1993 1992 1991 ____________________________________________________________________________ INTEREST INCOME Interest and fees on loans $654,770 $ 833,709 $1,420,674 Interest on investment securities Taxable interest income 91,036 171,188 200,144 Tax-exempt interest income 1,012 10,233 22,292 Interest on deposits in other banks 18,319 5,869 22,814 Interest on other short-term investments 51,770 30,677 63,438 ________ __________ __________ Total interest income 816,907 1,051,676 1,729,362 ________ __________ __________ INTEREST EXPENSE Interest on deposits 262,886 483,154 1,011,800 Interest on short-term borrowings 11,586 17,341 50,759 Interest on long-term debt 36,385 41,517 42,220 ________ __________ __________ Total interest expense 310,857 542,012 1,104,779 ________ __________ __________ Net interest income 506,050 509,664 624,583 Provision for loan losses 79,000 137,939 640,402 ________ __________ __________ Net interest income (loss) after provision for loan losses 427,050 371,725 (15,819) NONINTEREST INCOME Trust income 41,459 46,776 56,156 Service charges on deposits 78,815 79,478 78,188 Investment securities gains (losses) 7,005 52,753 (2,890) Mortgage banking fees -- 6,361 32,459 Income on factoring receivables 15,823 16,705 20,404 Net gains on disposition of assets -- 35,208 6,796 Other 51,991 63,615 66,266 ________ __________ __________ Total noninterest income 195,093 300,896 257,379 ________ __________ __________ 622,143 672,621 241,560 ________ __________ __________ NONINTEREST EXPENSES Salaries and benefits 219,332 257,221 345,679 Net occupancy 44,622 51,410 61,566 Equipment rental and expense 26,881 35,776 43,529 Other real estate owned, net 134,337 99,744 122,999 FDIC assessment charges 33,841 34,090 40,433 Legal and professional fees 51,511 51,403 50,803 Restructuring charges -- 22,500 3,066 Other 91,266 110,605 160,264 ________ __________ __________ Total noninterest expenses 601,790 662,749 828,339 ________ __________ __________ 44 2of2 Income (loss) before income taxes and cumulative effect of the change in accounting for income taxes 20,353 9,872 (586,779) Income tax (benefit) expense (111,043) 2,844 (43,476) ________ __________ __________ Income (loss) before cumulative effect of the change in accounting for income taxes 131,396 7,028 (543,303) Cumulative effect of the change in accounting for income taxes 38,962 -- -- ________ __________ __________ NET INCOME (LOSS) $170,358 $ 7,028 $ (543,303) ======== ========== ========== INCOME (LOSS) PER COMMON SHARE Income (loss) before cumulative effect of the change in accounting for income taxes Primary $ 2.51 $ .08 $ (14.36) Fully diluted 2.51 .08 (14.36) Cumulative effect of the change in accounting for income taxes Primary .76 -- -- Fully diluted .74 -- -- Net income (loss) Primary 3.27 .08 (14.36) Fully diluted 3.25 .08 (14.36) ======== ========== ========== See Notes to Consolidated Financial Statements.
45 1of2 Midlantic Corporation and Subsidiaries CONSOLIDATED BALANCE SHEET (Dollars in thousands)
DECEMBER 31 1993 1992 ____________________________________________________________________________ ASSETS Cash and due from banks $ 712,960 $ 799,194 Interest-bearing deposits in other banks 488,821 407,515 Other short-term investments 1,290,000 1,588,166 Investment securities (market value 1993, $2,467,793; 1992, $1,562,037) 2,455,410 1,552,425 Investment securities identified for sale (market value 1992, $563,721) -- 562,387 Loans (net of unearned income of $137,110 in 1993 and $95,882 in 1992) 8,314,831 8,954,157 Less: allowance for loan losses 394,450 663,901 ___________ ___________ Net loans 7,920,381 8,290,256 ___________ ___________ Premises and equipment, net 155,129 168,630 Due from customers on acceptances 11,084 22,166 Other real estate owned, net 132,670 450,879 Taxes receivable and net deferred tax assets 202,823 139,247 Other assets 577,304 440,893 ___________ ___________ Total assets $13,946,582 $14,421,758 =========== =========== LIABILITIES AND SHAREHOLDERS' EQUITY Domestic deposits Noninterest-bearing demand $ 2,839,885 $ 2,811,931 Interest-bearing demand 1,433,690 1,411,541 Savings 1,582,614 1,384,826 Retail money market accounts 2,193,582 2,529,743 CDs over $100,000 206,422 427,929 Other time 3,322,335 3,980,344 Overseas branch deposits 9,273 13,715 ___________ ___________ Total deposits 11,587,801 12,560,029 ___________ ___________ Short-term borrowings 674,497 370,718 Bank acceptances outstanding 11,084 22,166 Other liabilities 163,884 188,271 Long-term debt 386,752 437,112 ___________ ___________ Total liabilities 12,824,018 13,578,296 ___________ ___________ 45 2of2 Commitments and contingent liabilities Shareholders' equity Capital stock Preferred stock: no par value Authorized 40,000,000 shares Issued 500,000 shares in 1993 and 1992 50,000 50,000 Common stock: par value $3 per share Authorized 150,000,000 shares Issued 52,173,999 shares in 1993 and 46,147,818 shares in 1992 156,522 138,443 Surplus 603,732 509,464 Retained earnings 312,310 145,578 ___________ ___________ 1,122,564 843,485 Less treasury stock at cost: 900 common shares in 1992 -- 23 ___________ ___________ Total shareholders' equity 1,122,564 843,462 ___________ ___________ Total liabilities and shareholders' equity $13,946,582 $14,421,758 =========== =========== See Notes to Consolidated Financial Statements.
46 1of2 Midlantic Corporation and Subsidiaries CONSOLIDATED STATEMENT OF CASH FLOWS (In thousands)
YEAR ENDED DECEMBER 31 1993 1992 1991 _____________________________________________________________________________________________ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 170,358 $ 7,028 $ (543,303) Adjustments to reconcile net income (loss) to net cash provided by operating activities Provisions for loan and OREO losses 209,545 215,071 742,440 Depreciation of premises and equipment 23,909 30,323 37,735 Amortization of goodwill and other intangibles 6,334 7,696 22,741 Deferred income tax (benefit) expense (74,023) 97,390 122,818 Cumulative effect of the change in accounting for income taxes (38,962) -- -- Net (accretion) amortization of investment securities (26,460) 34,535 5,527 Accretion of net deferred loan fees (9,324) (9,093) (13,791) Restructuring charges (net of cash payments of $11,708 in 1992 and $3,066 in 1991) -- 10,792 -- Net gains on the sales of assets (11,107) (74,965) (3,399) Net (increase) decrease in trading account assets (12,720) 17,382 (8,343) Net increase in residential mortgage loans that are originated/purchased for resale -- (4,942) (30,157) Net decrease in OREO, net 33,697 56,534 46,296 Net decrease in accrued interest receivable 3,191 43,447 54,980 Net decrease in accrued interest payable (16,876) (76,592) (49,132) Net decrease (increase) in taxes receivable and net deferred tax assets 49,409 71,153 (154,233) Net decrease in other assets 14,252 350 49,947 Net (decrease) increase in other liabilities (10,865) 15,713 (30,568) Other (4,415) (9,810) (2,168) ___________ ___________ ___________ Net cash provided by operating activities 305,943 432,012 247,390 ___________ ___________ ___________ 46 2of2 CASH FLOWS FROM INVESTING ACTIVITIES Sales of subsidiaries (exclusive of cash and due from banks of $682 in 1993, $139,425 in 1992 and $98,757 in 1991 and net of disposition costs paid of $2,860 in 1992 and $123 in 1991) 15,322 46,283 142,518 Cash received in the purchase of two branches -- -- 30,523 Bulk sales of loans and OREO 220,802 -- -- Sales/securitizations of loans -- 383,745 57,318 Sales of OREO 145,340 99,668 29,562 Net decrease (increase) in money market investments with an original maturity of 3 months or less 155,225 (314,566) (164,224) Proceeds from money market investments with an original maturity greater than 3 months 2,272,097 226,000 234,000 Purchases of money market investments with an original maturity greater than 3 months (2,165,040) (869,097) (180,000) Proceeds from sales of investment securities 580,255 2,328,315 587,679 Proceeds from matured investment securities 1,493,930 774,128 1,239,166 Purchases of investment securities (2,369,924) (3,011,470) (2,282,234) Net (increase) decrease in loans (119,156) 957,577 1,478,338 Purchases of premises and equipment (16,087) (12,723) (32,056) Sales of premises and equipment 1,533 2,944 1,564 ___________ ___________ ___________ Net cash provided by investing activities 214,297 610,804 1,142,154 ___________ ___________ ___________ CASH FLOWS FROM FINANCING ACTIVITIES Net decrease in deposits (968,732) (1,317,632) (1,552,082) Net increase (decrease) in short-term borrowings 303,779 (125,903) (610,804) Payments on long-term debt (50,360) (4,877) (4,011) Proceeds from issuance of long-term debt -- -- 22,000 Proceeds from issuance of common stock 108,839 109,990 -- Dividends paid -- -- (2,859) ___________ ___________ ___________ Net cash used by financing activities (606,474) (1,338,422) (2,147,756) ___________ ___________ ___________ NET DECREASE IN CASH AND CASH EQUIVALENTS $ (86,234) $ (295,606) $ (758,212) CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 799,194 1,094,800 1,853,012 =========== =========== =========== CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 712,960 $ 799,194 $ 1,094,800 =========== =========== =========== See Notes to Consolidated Financial Statements.
47 Midlantic Corporation and Subsidiaries CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY (In thousands, except share and per share data)
FOR THE THREE YEARS ENDED Preferred Common Retained Treasury DECEMBER 31, 1993 Stock Stock Surplus Earnings Stock _____________________________________________________________________________________________ Balance at January 1, 1991 $50,000 $114,308 $420,348 $ 688,436 $ (317) _______ ________ ________ _________ _______ Net loss -- -- -- (543,303) -- Cash dividends declared on preferred stock, $3.81 per share -- -- -- (1,906) -- Addition of 10,786 common shares to the treasury -- -- -- -- (318) Issuance of 8,480 common treasury shares for stock options and stock awards -- -- (223) -- 274 _______ ________ ________ _________ _______ Balance at December 31, 1991 50,000 114,308 420,125 143,227 (361) _______ ________ ________ _________ _______ Net income -- -- -- 7,028 -- Issuance of 288,941 common shares for preferred stock dividends -- 867 3,810 (4,677) -- Issuance of 7,650,000 common shares -- 22,950 86,534 -- -- Addition of 38,612 common shares to the treasury -- -- -- -- (1,037) Issuance of 106,312 common shares and 48,188 common treasury shares for stock options and stock awards -- 318 (1,005) -- 1,375 _______ ________ ________ _________ _______ Balance at December 31, 1992 50,000 138,443 509,464 145,578 (23) _______ ________ ________ _________ _______ Net income -- -- -- 170,358 -- Issuance of 163,556 common shares for preferred stock dividend -- 491 3,135 (3,626) -- Issuance of 5,750,000 common shares -- 17,250 89,890 -- -- Addition of 4,081 common shares to the treasury -- -- -- -- (95) Issuance of 97,498 common shares and 4,981 common treasury shares for stock options and stock awards -- 293 918 -- 118 Issuance of 15,127 common shares purchased by Midlantic 401(k) plan -- 45 325 -- -- _______ ________ ________ _________ _______ BALANCE AT DECEMBER 31, 1993 $50,000 $156,522 $603,732 $ 312,310 $ -- ======= ======== ======== ========= ======= See Notes to Consolidated Financial Statements.
48 1of2 Midlantic Corporation and Subsidiaries NOTES TO CONSOLIDATED FINANCIAL STATEMENTS 1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting and reporting policies of Midlantic Corporation and Subsidiaries follow generally accepted accounting principles and general practices applicable to both the banking and bank-related industries. The policies which materially affect the determination of results of operations, financial position and cash flows are summarized below. Principles of Consolidation - --------------------------- The consolidated financial statements of Midlantic Corporation ("MC") and its wholly-owned subsidiaries ("Midlantic" or the "Corporation") include the accounts of Midlantic National Bank ("MNB"); Continental Bank ("CB"); several smaller subsidiaries; and Midlantic Banks Inc. ("MBI"), the lower-tier holding company. All significant intercompany accounts and transactions have been eliminated. Reclassifications - ----------------- Certain amounts in the financial statements presented for prior periods have been reclassified to conform with the 1993 presentation. Statement Of Cash Flows - ----------------------- The statement of cash flows is presented using the indirect method. Cash equivalents, for the purpose of this statement, are defined as cash and due from banks. The changes in accrued interest payable on interest rate swap contracts are netted against the changes in accrued interest receivable. The changes in assets and liabilities presented in the cash flow statement are net of the effects of divestitures and acquisitions which are disclosed as the net proceeds received or paid in such transactions. Money Market Investments - ------------------------ Money market investments are defined as interest-bearing deposits in other banks and other short-term investments. Other short-term investments include federal funds sold, term federal funds sold, commercial paper and securities purchased under resale agreements. Investment Securities - --------------------- Investments in debt securities that Midlantic has both the intent and ability to hold until maturity are stated at cost, adjusted for amortization of premiums and discounts. Premiums/discounts are amortized/accreted over the contractual lives of debt securities. Debt securities identified for sale prior to their contractual maturities in order to meet asset and liability management objectives and marketable equity securities are carried at the lower of aggregate cost or market value. Trading account securities are carried at market value. Securities gains or losses are determined using the specific identification method. 48 2of2 In May 1993, the Financial Acounting Standards Board ("FASB") issued Statement of Financial Accounting Standards ("FAS") No. 115 "Accounting for Certain Investments in Debt and Equity Securities," which is effective for fiscal years beginning after December 15, 1993. FAS No. 115 establishes the accounting and reporting for investments in equity securities that have readily determinable fair values and for all investments in debt securities. Under the provisions of FAS No. 115, those investments will be classified into three categories: (1) held to maturity securities, which Midlantic has both the positive intent and ability to hold until maturity, will be reported at amortized/accreted cost; (2) trading securities, which are purchased and held principally for the purpose of selling in the near term, will be reported at fair value with unrealized gains and losses included in earnings; and (3) available-for-sale securities, which do not meet the criteria of the other two categories, will be reported at fair value with unrealized gains and losses, net of applicable income taxes, reported as a separate component of shareholders' equity and excluded from earnings. Midlantic estimates that this statement, which will be adopted in the first quarter of 1994, will have no material impact on its financial condition or results of operations at the time of adoption. Loans - ----- Loan origination fees and certain direct loan origination costs are deferred and the net amounts are amortized as adjustments of the loans' yields. Midlantic generally amortizes net loan fees over the contractual lives of the related loans. Unearned interest income on all loan categories is taken into earnings over the terms of the related loans. Nonaccrual Loans And Other Real Estate Owned - -------------------------------------------- Loans are generally reported as nonaccrual if they are past due as to maturity or payment of principal or interest for a period of more than 90 days, unless such loans are well-secured and in the process of collection. If a loan or a portion of a loan is classified as doubtful or is partially charged off, the loan is classified as nonaccrual. Loans that are on a current payment status or past due less than 90 days may also be classified as nonaccrual if repayment in full of principal and/or interest is determined to be in jeopardy. Loans, with the exception of partially charged off loans or loans with any portion classified as doubtful, may be placed back on accrual status when all principal and interest amounts contractually due (including arrearages) are reasonably assured of repayment within an acceptable period of time and there is a sustained period of repayment performance (generally a minimum of six months) by the borrower, in accordance with the contractual terms, involving payments of cash or cash equivalents. The remaining recorded balance of a partially charged off loan, however, may be returned to accrual status if the entire contractual loan balance, together with all unpaid contractual interest, is determined to be fully collectible. While a loan is classified as nonaccrual and the future collectibility of the recorded loan balance is doubtful, collections of interest and principal are generally applied as a 49 1of2 Midlantic Corporation and Subsidiaries reduction to principal outstanding. When the future collectibility of the recorded loan balance is expected, interest income may be recognized on a cash basis. In the case where a nonaccrual loan had been partially charged off, recognition of interest on a cash basis is limited to that which would have been recognized on the recorded loan balance at the contractual interest rate. Cash interest receipts in excess of that amount are recorded as recoveries to the allowance for loan losses until prior charge-offs have been fully recovered. Other real estate owned ("OREO") consists principally of real estate collateral whereby Midlantic has foreclosed and/or has obtained title to the properties and "in-substance" foreclosures ("ISF(s)"). A loan is classified as an ISF when conditions exist where the debtor has little or no equity in the supporting collateral, considering the current fair value of such collateral; the proceeds for repayment of the loan can be expected only from the operation or sale of such collateral; and the debtor has either formally or effectively abandoned control of the collateral to the lender or retained control, but his ability to rebuild equity in the collateral or otherwise repay the loan in the foreseeable future is doubtful. A loan does not have to be in default to be classified as an ISF. OREO is carried at the lower of the recorded investment in the loan or the fair value less estimated costs of disposal of the property ("net realizable value"). Upon transfer of a loan to OREO status, an appraisal is made of the foreclosed property (or the underlying collateral in the case of an ISF) and any excess of the loan balance over net realizable value is charged against the allowance for loan losses. Subsequent adjustments to net realizable value, primarily determined through appraisals of the properties and the overall condition of the real estate market, are recognized through a provision charged to OREO expense. Costs incurred for the holding of OREO properties, net of rental income (if any), are also charged directly to OREO expense. When a loan is transferred to nonaccrual status or directly to OREO, it is Midlantic's general policy to reverse interest income accrued but not received for the current period and charge interest accrued but not yet received for prior periods against the allowance for loan losses. Renegotiated Loans - ------------------ Loans are considered troubled debt restructurings under FAS No. 15 "Accounting by Debtors and Creditors for Troubled Debt Restructurings" if, for economic or legal reasons, a concession has been granted to the borrower related to the borrower's financial difficulties that the creditor would not otherwise consider. Midlantic has restructured certain loans in instances where a determination was made that greater economic value will be realized under new terms than through foreclosure, liquidation or other disposition. Midlantic classifies restructured loans as "renegotiated loans" and accrual of interest resumes when such loans can demonstrate performance (as generally evidenced by six months of pre- or post-restructuring payment performance in accordance with the restructured terms, or by the presence of other significant factors). Prior to demonstrating performance, Midlantic classifies restructured loans as nonaccrual. In those cases where the average current yield differs from the effective yield, interest income on renegotiated loans is recognized on the more conservative average current yield basis until certain contingencies are 49 2of2 met. A renegotiated loan that has demonstrated performance and has an effective yield greater than or equal to a market interest rate at the date of closing is classified as an accruing loan in the reporting period immediately following the year it was disclosed as renegotiated and was so disclosed in the annual report for that year. Allowance For Loan Losses - ------------------------- The allowance for loan losses is established through charges to earnings in the form of a provision for loan losses. Loans, or portions of loans, which are determined to be uncollectible are charged against the allowance account and subsequent recoveries, if any, are credited to the account. In establishing an appropriate allowance, factors that are considered include an assessment of the financial condition of individual borrowers, a determination of the value and adequacy of underlying collateral, including appraisals as required, the composition and balance of the credit portfolio, a review of historical loss experience, and an analysis of the levels and trends of delinquencies, charge- offs and the risk ratings of the various loan categories. Such factors as the level and trend of interest rates and the condition of the national and local economies are also considered. Accounting For Loan Impairment - ------------------------------ In May 1993, the FASB issued FAS No. 114 "Accounting by Creditors for Impairment of a Loan," which is effective for fiscal years beginning after December 15, 1994. Under FAS No. 114 an impaired loan is defined as a loan for which it is probable, based on current information, that the lender will not collect all amounts due under the contractual terms of the loan agreement. FAS No. 114 requires that impaired loans be measured based upon either the present value of expected future cash flows discounted at the loan's effective interest rate, the loan's observable market price or the fair value of the collateral if the loan is collateral dependent. Midlantic has not determined the effect of adoption and, at this time, does not plan to elect early adoption. Premises And Equipment, Net - --------------------------- Premises and equipment are stated at cost less accumulated depreciation and amortization. Depreciation is computed principally on the straight-line method over the estimated useful lives of the assets. Leasehold improvements are amortized on a straight-line basis over the shorter of the terms of the leases or the estimated useful lives of the improvements. Expenditures for maintenance and repairs are charged to expense; major replacements, renewals and betterments are capitalized. Gains and losses on dispositions are reflected in current operations. Assets Held For Accelerated Disposition - --------------------------------------- Assets held for accelerated disposition, included in other assets, consist of accruing and nonaccrual loans and OREO properties. These assets are carried at net realizable value. 50 1of2 CONSOLIDATED NOTES (continued) Intangible Assets - ----------------- Goodwill (excess cost over net assets acquired) resulting from various acquisitions is amortized generally on a straight-line basis over the estimated period to be benefited. The remaining amortization period averages 16.4 years. Other intangibles, primarily consisting of the present value of excess servicing of loans that were securitized and sold, are being amortized over the estimated periods of benefit. The remaining amortization period averages 1.8 years. Offsetting Of Certain Assets And Liabilities - -------------------------------------------- In March 1992, the FASB issued FASB Interpretation ("FIN") No. 39 "Offsetting of Amounts Related to Certain Contracts," which is effective for fiscal years beginning after December 31, 1993. Under FIN No. 39, assets and liabilities may not be netted unless a right of setoff exists. However, the fair value of interest rate swap, forward, currency swap or other exchange contracts with the same counterparty under master netting arrangements may be offset as well as their accrual components. FIN No. 39, which will be adopted by Midlantic in the first quarter of 1994, will have no material impact on the Corporation's financial statements. Trust Income - ------------ Trust income is recognized generally on a cash basis. The results of trust operations would not be materially different if reported on an accrual method. Pension Plans - -------------- Midlantic has a noncontributory defined benefit pension plan which covers substantially all employees. Benefits are based upon years of service and generally upon the employee's average compensation during the four consecutive years prior to normal retirement which produces the highest average. Annual contributions to the plans are at least equal to the minimum amount, if any, required by the Employee Retirement Income Security Act of 1974 but no greater than the maximum amount that can be deducted for federal income tax purposes. Postretirement Benefits - ----------------------- In the first quarter of 1993, the Corporation adopted FAS No. 106 "Employers' Accounting for Postretirement Benefits Other Than Pensions." FAS No. 106 requires that the projected future cost of providing postretirement health care and other benefits be recognized on an accrual basis during the periods employees provide services to earn those benefits. Midlantic has elected to amortize the transition obligation on a straight-line basis over a period of 20 years, beginning in 1993, and such transition obligation is included as a component of net periodic postretirement benefit cost. The transition obligation is the unrecognized amount of the accumulated postretirement benefit obligation ("APBO") in excess of the fair value of plan assets plus any recognized accrued postretirement benefit cost or less any recognized prepaid postretirement benefit cost for all plan participants at the point of adoption. Prior to 1993, Midlantic accounted for postretirement costs on a "pay-as-you-go" basis. 50 2of2 Postemployment Benefits - ----------------------- In November 1992, the FASB issued FAS No. 112 "Employers' Accounting for Postemployment Benefits" which is effective for fiscal years beginning after December 15, 1993. FAS No. 112 requires accrual accounting for postemployment benefits (benefits such as severance and disability payments to former or inactive employees after employment but before retirement), under the following circumstances: if the employees' rights to postemployment benefits are attributable to services already rendered and the rights to those benefits accumulate or vest, and if payment of the benefits is probable and the amount of the benefits can be reasonably estimated. If the four criteria mentioned cannot be met, the employer should accrue an obligation for these benefits when payment is both probable and estimable. Based upon current estimates, the Corporation will recognize, in the first quarter of 1994, a charge to earnings ranging from $7 million to $8 million, net of income taxes, resulting from the cumulative effect of this change in accounting principle. The Corporation presently accounts for postemployment benefits on a "pay-as-you- go" basis. Off-balance Sheet Financial Instruments - --------------------------------------- In the ordinary course of business the Corporation has entered into off- balance sheet financial instruments including commitments to extend credit, standby and commercial letters of credit and interest rate swap contracts. Amounts due or payable on such instruments are recorded on the balance sheet. Midlantic enters into interest rate swap contracts to manage interest rate risk (the risk that changes in Midlantic's net interest income will occur from fluctuations in market interest rates, unscheduled payments and other events). Such instruments are used as interest rate hedges for certain groups of interest-earning assets and interest-bearing liabilities. The net periodic payments or receipts arising from these swaps are recognized on a settlement basis as adjustments to interest income/interest expense depending upon the underlying asset or liability that is hedged. Income Taxes - ------------ Midlantic adopted FAS No. 109 "Accounting for Income Taxes" in the first quarter of 1993 as a cumulative effect of a change in accounting principle. The cumulative effect of this change in accounting principle increased net income by $38.962 million or $.74 per fully diluted common share. FAS No. 109 requires a change from the "deferred tax method," utilized prior to 1993, to a comprehensive tax allocation using the "liability method" of accounting for income taxes. Under the liability method, deferred income taxes are provided for temporary differences based upon the expected tax rates in the years that payment or receipt of such taxes is expected, and adjustment of the deferred tax asset or liability is required to reflect subsequent changes in income tax rates. The establishment of a valuation allowance is required for that portion of a deferred tax asset for which a tax benefit is not expected to be realized. Prior to 1993, the Corporation accounted for income taxes in conformity with Accounting Principles Board Opinion No. 11 "Accounting for Income Taxes." A detail of the components of deferred federal income expense for 1992 and 1991 is presented in Note 24. 51 1of2 Midlantic Corporation and Subsidiaries Income (Loss) Per Common Share - ------------------------------ Primary income per common share ("primary EPS") is computed by dividing net income (less preferred stock dividends, declared or in arrears) by the weighted average number of common shares and common share equivalents outstanding during each year. Fully diluted income per common share ("fully diluted EPS") is determined by dividing net income (plus interest expense, net of federal income taxes on convertible subordinated debentures; less preferred stock dividends, declared or in arrears) by the weighted average number of common shares and common share equivalents outstanding during each year plus the number of shares issuable on conversion of debentures only if the effect of the interest expense and number of shares relating to the debentures are dilutive. Where applicable, primary and fully diluted loss per common share are computed by dividing net loss (less preferred stock dividends, declared or in arrears) by the weighted average number of common shares outstanding during the period. Primary and fully diluted income per common share before the cumulative effect of the change in accounting principle are computed by dividing income before the cumulative effect of the change in accounting principle by the same factors as those used to compute primary and fully diluted EPS. 2. DIVESTITURES AND INTERNAL MERGERS As part of Midlantic's objective to concentrate its business in its core market area, in 1993, Midlantic exited the Hong Kong market by selling its Hong Kong- based affiliate for a price of $16.004 million (which was substantially equal to book value). At December 31, 1992, the Hong Kong-based affiliate had total assets of $107.640 million. During 1991 and 1992, MC completed the following transactions pursuant to a restructuring program initiated during 1991 which encompassed a strategy to sell assets and subsidiaries located outside of New Jersey and southeastern Pennsylvania and consolidate operations in New Jersey in order to strengthen MC's capital position and focus on its core market: . On December 31, 1992, The Merchants National Bank & Trust Company of Syracuse ("Merchants") and Union National Bank ("Union") were sold to ONBANCorp, Inc. for a price of $93.290 million in cash and other consideration. At December 31, 1992, Merchants and Union had combined assets and shareholder's equity totalling $994.002 million and $77.681 million, respectively, and had combined net income for 1992 of $2.685 million. . On July 1, 1992, Central Trust Company ("Central") and Endicott Trust Company ("Endicott") were sold to Manufacturers & Traders Trust Company, a subsidiary of First Empire State Corporation, for a price of $114.801 million in cash and other consideration. At June 30, 1992, Central and Endicott had combined assets and shareholder's equity totalling $1.384 billion and $70.947 million, respectively, and had combined net income for 1992 through date of sale of $3.382 million. . On March 24, 1992, MC sold Midlantic Home Mortgage Corporation ("MHMC"), a mortgage banking subsidiary, for a total consideration of $44.618 million. 51 2of2 . On December 31, 1991, MC sold The York Bank and Trust Company ("York") to First Maryland Bancorp for a price of $129.000 million. At December 31, 1991, York had total assets of $1.374 billion and had a net loss for 1991 of $2.547 million. . On December 31, 1991, MC sold United Penn Bank and UniPenn Realty Co. (collectively "United") to Mellon Bank, N.A. for a price of $90.200 million. At December 31, 1991, United had total assets of $1.458 billion and had a net loss for 1991 of $14.103 million. . On November 15, 1991, Midlantic National Bank and Trust Co./Florida ("MNB/Florida") sold its trust assets, branch facilities and $20.928 million in private banking and home equity loans to Comerica Trust Company of Florida, N.A. and Comerica Bank-Florida, F.S.B. for a price of $24.198 million. . On September 30, 1991, Midlantic National Bank/North was merged with and into MNB in order to consolidate MC's New Jersey operations. Midlantic recognized pretax gains in 1992 aggregating $15.499 million relating to the divestitures of Merchants and Union, Central and Endicott, and MHMC, which included net pension curtailment and settlement gains totalling $4.805 million (see Note 20). In 1991, Midlantic recognized pretax gains totalling $63.841 million relating to the divestitures of York, United and the asset sales of MNB/Florida, which included pension curtailment and settlement gains of $4.285 million related to York and United (see Note 20). In 1991, Midlantic also recorded an estimated loss of $62.063 million for the then prospective sales of Merchants and Union, and Central and Endicott. Restructuring charges of $22.500 million and $3.066 million were recorded in 1992 and 1991, respectively. The restructuring charges in 1992 were recognized as a part of Midlantic's "FOCUS '92" program designed to reduce operating expenses and improve Midlantic's effectiveness in serving its customers and was comprised of $12.500 million for severance pay and outplacement services and $10.000 million for the write-off of leases and leasehold improvements, primarily for operational support buildings. Restructuring charges in 1991 were principally comprised of provisions for employee severance payments. On May 15, 1991, Continental Bancorp, Inc. ("CBI"), a subsidiary bank holding company of MC, was merged with and into MC. CBI's subsidiaries at date of merger became direct subsidiaries of MC. Unaudited pro forma consolidated results of operations for 1992 as if the divestitures of MHMC, Central, Endicott, Merchants and Union had occurred on January 1, 1992 and for 1991 as if the divestitures of York, United, MHMC, Central, Endicott, Merchants and Union had occurred on January 1, 1991 are: 52 1of2 CONSOLIDATED NOTES (continued)
(In thousands, except per share data) 1992 1991 __________________________________________________________________ (Unaudited) INTEREST INCOME Interest and fees on loans $720,345 $1,033,077 Interest on investment securities Taxable interest income 152,829 132,516 Tax-exempt interest income 6,563 14,857 Interest on deposits with banks 5,790 17,152 Interest on other short-term investments 29,348 47,707 ________ __________ Total interest income 914,875 1,245,309 ________ __________ INTEREST EXPENSE Interest on deposits 424,343 744,255 Interest on short-term borrowings 17,165 37,791 Interest on long-term debt 41,382 41,581 ________ __________ Total interest expense 482,890 823,627 ________ __________ Net interest income 431,985 421,682 Provision for loan losses 116,227 579,087 ________ __________ Net interest income (loss) after provision for loan losses 315,758 (157,405) ________ __________ Noninterest income 278,536 204,491 ________ __________ Noninterest expenses 597,247 651,620 ________ __________ Loss before income taxes (2,953) (604,534) Income tax expense (benefit) 2,844 (43,476) ________ __________ NET LOSS (5,797) (561,058) Preferred stock dividends (3,672) (3,812) ________ __________ NET LOSS APPLICABLE TO PRIMARY AND Fully Diluted Common Shares $ (9,469) $ (564,870) ======== ========== LOSS PER COMMON SHARE Primary $ (.23) $ (14.83) Fully diluted (.23) (14.83) ======== ==========
The pro forma consolidated results are not necessarily indicative of the results of operations that would have been obtained if the divestitures of MHMC, Central, Endicott, Merchants and Union had actually occurred on January 1, 1992 or if the divestitures of York, United, MHMC, Central, Endicott, Merchants and Union had actually occurred on January 1, 1991. The pro forma consolidated results do not provide for interest income earned upon the 52 2of2 assumed investment of the sales proceeds. Under the assumption of investing the sales proceeds in short-term investments and other interest-earning assets, the pro forma consolidated results would reflect total interest income of $922.158 million and $1.274 billion, net income of $1.486 million and a net loss of $532.704 million, and a loss per common share of $.05 and $14.08 for 1992 and 1991, respectively. 3. CASH AND DUE FROM BANKS Average cash balances reserved to meet regulatory requirements of the Federal Reserve Board and cash balances maintained at other banks for compensating balance requirements amounted to $380.761 million and $347.333 million at December 31, 1993 and 1992, respectively. 4. INVESTMENT SECURITIES At December 31, 1993 and 1992, the book and quoted market values and gross unrealized gains and losses of the securities portfolio are as follows:
DECEMBER 31, 1993 __________________________________________________ Gross Gross Book Unrealized Unrealized Market (In thousands) Value Gains Losses Value __________ __________ __________ __________ United States Treasury securities $1,278,711 $ 458 $ (144) $1,279,025 Obligations of United States government agencies 1,083,674 9,753 (689) 1,092,738 Obligations of states and political subdivisions 24,665 4 (562) 24,107 Other securities 68,360 3,732 (169) 71,923 __________ __________ __________ __________ $2,455,410 $13,947 $(1,564) $2,467,793 ========== ========== ========== ==========
53 1of2 Midlantic Corporation and Subsidiaries
December 31, 1992 __________________________________________________ Gross Gross Book Unrealized Unrealized Market (In thousands) Value Gains Losses Value __________ __________ __________ __________ United States Treasury securities Permanent portfolio $ 779,144 $ 7,189 $(2,653) $ 783,680 Identified for sale 562,387 1,334 -- 563,721 Obligations of United States government agencies 679,316 10,006 (266) 689,056 Obligations of states and political subdivisions 15,002 589 (737) 14,854 Other securities 78,963 561 (5,077) 74,447 __________ __________ __________ __________ $2,114,812 $19,679 $(8,733) $2,125,758 ========== ========== ========== ==========
The components of realized investment securities gains and losses for 1993, 1992 and 1991 are as follows:
(In thousands) 1993 1992 1991 ___________________________________________________________________________ Gross realized investment securities gains $7,469 $56,977 $ 4,977 Gross realized investment securities losses (464) (4,224) (7,867) ______ _______ _______ Investment securities gains (losses) $7,005 $52,753 $(2,890) ====== ======= =======
53 2of2 At December 31, 1993, a maturity distribution of the book and quoted market values and weighted average interest rates of the securities portfolio are as follows:
December 31, 1993 _______________________________________________________ Obligations Obligations of U.S. of States U.S.Treasury Government and Political Other (In thousands) Securities Agencies Subdivisions Securities ____________ __________ _____________ __________ 0-1 Year Book value $ 703,313 $ 48,278 $18,612 $ 1,750 Market value 703,283 48,341 18,616 1,750 Average yield(1) 3.26% 5.93% 3.15% 6.07% 1-5 Years Book value $ 575,197 $ 741,304 $ 844 $ 2,103 Market value 575,541 743,442 844 2,106 Average yield(1) 4.26% 6.01% 5.89% 5.89% 5-10 Years Book value $ 201 $ 242,626 $ 552 $ 1,344 Market value 201 246,746 552 1,349 Average yield(1) 4.00% 6.90% 5.53% 5.97% 10+ Years Book value $ -- $ 51,466 $ 4,657 $36,405 Market value -- 54,209 4,095 36,286 Average yield(1) --% 8.46% 5.50% 4.92% No maturity(2) Book value $ -- $ -- $ -- $26,758 Market value -- -- -- 30,432 ____________ __________ _____________ __________ Total Book value $1,278,711 $1,083,674 $24,665 $68,360 Market value 1,279,025 1,092,738 24,107 71,923 Average yield(1) 3.71% 6.32% 3.74% 5.05% ============ ========== ============= ========== (1) Average yields are computed on a yield-to-maturity basis and the total average yield excludes securities with no maturity. (2) Investment securities with no stated maturity include Federal Reserve Bank stock and other equity securities.
Investment securities carried at $849.562 million at December 31, 1993 and $837.598 million at December 31, 1992 were pledged for fiduciary powers, securities sold under repurchase agreements, and other purposes required by law. Trading account securities included in obligations of states and political subdivisions aggregated $19.384 million and $6.664 million at December 31, 1993 and 1992, respectively. At December 31, 1993, Midlantic had aggregate investments with the Federal Home Loan Mortgage Corporation and the Federal National Mortgage Association ("FNMA"), which comprised 61 percent and 34 percent of shareholders' equity, respectively. 54 1of2 CONSOLIDATED NOTES (continued) 5. LOANS Loans at December 31, 1993 and 1992 consist of the following:
(In thousands) 1993 1992 _______________________________________________________________ Commercial and financial $2,897,656 $3,467,033 Real estate Construction and development 834,013 1,497,447 Long-term commercial mortgage 1,664,757 1,915,445 Long-term 1-4 family residential 636,632 454,347 Loans to individuals 2,415,391 1,635,493 Foreign 3,492 80,274 __________ __________ Total loans 8,451,941 9,050,039 Less: unearned income* 137,110 95,882 __________ __________ Total loans, net of unearned income 8,314,831 8,954,157 Less: allowance for loan losses 394,450 663,901 __________ __________ Net loans $7,920,381 $8,290,256 ========== ========== *Includes net deferred loan fees of $9.642 million in 1993 and $11.234 million in 1992.
6. ALLOWANCE FOR LOAN LOSSES An analysis of the allowance for loan losses for 1993, 1992 and 1991 is as follows:
(In thousands) 1993 1992 1991 ___________________________________________________________________ Balance at beginning of period $ 663,901 $ 841,692 $ 737,122 Allowances related to subsidiaries sold (712) (41,413) (57,237) Charge-offs on loans sold in bulk sales or transferred to assets held for accelerated disposition (181,863) -- -- Provision charged to operating expense 79,000 137,939 640,402 Recoveries on loans 33,542 44,708 34,654 Loans charged off (199,418) (319,025) (513,249) _________ _________ _________ Balance at end of period $ 394,450 $ 663,901 $ 841,692 ========= ========= =========
54 2of2 7. LOANS TO RELATED PARTIES Loans to related parties include loans made to directors and executive officers (and to any associates of such persons) of MC, MBI, MNB and CB. Associates of a director or executive officer include his immediate family and any corporation, venture or organization of which such director or executive officer is a general partner or is, directly or indirectly, the beneficial owner of ten percent or more of any class of equity securities. The following analysis shows the activity of related party loans for 1993:
(In thousands) _______________________________________________________________ Balance at December 31, 1992 $ 148,342 Additions 244,180 Repayments (249,919) Other reductions* (179) _________ Balance at December 31, 1993 $ 142,424 ========= *Represents removal of one loan to a former executive officer of Midlantic.
At December 31, 1993, there were no related party loans classified as nonaccrual. 8. NONACCRUAL LOANS Nonaccrual loans at December 31, 1993 and 1992 are as follows:
(In thousands) 1993 1992 _________________________________________________________________________ Nonaccrual loans Commercial and financial $114,632 $208,442 Real estate Construction and development 50,143 373,344 Long-term commercial mortgage 63,431 173,572 Long-term 1-4 family residential 4,489 4,798 Loans to individuals 32,604 47,500 Foreign -- 2,013 ________ ________ Total nonaccrual loans $265,299 $809,669 ======== ======== Impact on income Interest income that would have been recorded during the year on nonaccrual loans outstanding at period-end in accordance with original terms $ 27,904 $ 68,130 Less: interest income actually recorded on such nonaccrual loans during the year 4,933 7,304 ________ ________ Loss of interest income on nonaccrual loans outstanding at period-end $ 22,971 $ 60,826 ======== ========
55 1of2 Midlantic Corporation and Subsidiaries 9. RENEGOTIATED LOANS Renegotiated loans at December 31, 1993 and 1992 are as follows:
(In thousands) 1993 1992 __________________________________________________________________________ Renegotiated loans $172,058 $159,685 ======== ======== Impact on income Interest income that would have been recorded during the year on renegotiated loans outstanding at period-end in accordance with original terms $ 9,970 $ 8,258 Less: interest income actually recorded on such renegotiated loans during the year 8,092 5,506 ________ ________ Loss of interest income on renegotiated loans outstanding at period-end $ 1,878 $ 2,752 ======== ========
The loans presented in the above table are performing in accordance with their new terms. At December 31, 1993, unused commitments to extend credit on renegotiated loans amounted to $27.000 million. 10. PREMISES AND EQUIPMENT, NET At December 31, 1993 and 1992, premises and equipment, net, consist of the following:
(In thousands) 1993 1992 ___________________________________________________________________________ Land $ 24,946 $ 25,681 Buildings 133,501 133,633 Vaults, equipment and fixtures 196,132 190,864 Leasehold improvements 45,400 43,855 Capitalized leases 12,067 12,067 ________ ________ 412,046 406,100 Less: allowance for depreciation and amortization 256,917 237,470 ________ ________ $155,129 $168,630 ======== ========
55 2of2 11. OTHER ASSETS At December 31, 1993 and 1992, other assets consist of the following:
(In thousands) 1993 1992 _______________________________________________________________ Assets held for accelerated disposition $158,157 $ -- Receivables purchased under factoring arrangements, net 118,254 102,009 Goodwill 93,799 99,891 Accrued interest receivable 77,281 80,442 Other intangibles 10,464 31,136 Other 119,349 127,415 ________ ________ $577,304 $440,893 ======== ========
At December 31, 1993, the Corporation identified loans and OREO with an aggregate book value of $292.236 million which it placed for possible bulk sale. The assets for sale were reclassified to other assets at net realizable value of $158.157 million. The sales of these assets (which primarily represent real estate development loans and holdings of land in New Jersey and Pennsylvania) are expected to be finalized in 1994 and are subject to successful negotiation of terms including price, execution of definitive agreements and satisfaction of closing conditions. No assurance can be given that the bulk sale of these assets will be consummated or that, if consummated, all of the assets presently anticipated to be included in such bulk sales will be sold. 12. ALLOWANCE FOR OREO An analysis of the allowance for OREO for 1993, 1992 and 1991 is as follows:
(In thousands) 1993 1992 1991 ________________________________________________________________________ Balance at beginning of period $ 46,101 $ 48,609 $ 42,035 Allowances related to subsidiaries sold -- (1,250) (1,128) Charge-offs on OREO sold in bulk sales or transfered to assets held for accelerated disposition (77,027) -- -- Provision charged to operating expense 130,545 77,132 102,038 Write-downs to net realizable value (fair value in 1991) (62,587) (78,390) (94,336) ________ ________ ________ Balance at end of period $ 37,032 $ 46,101 $ 48,609 ======== ======== ========
56 1of2 CONSOLIDATED NOTES (continued) 13. DEPOSITS The following shows the time remaining to maturity of domestic time certificates of deposit of $100,000 or more at December 31, 1993:
(In thousands) _______________________________________________________________ Three months or less $148,328 Over three through six months 33,973 Over six through twelve months 4,092 Over twelve months 20,029 ________ $206,422 ========
The majority of overseas branch deposits is in denominations of $100,000 or more. 14. SHORT-TERM BORROWINGS At December 31, 1993, 1992 and 1991, short-term borrowings consist of the following:
(In thousands) 1993 1992 1991 _______________________________________________________________________________________________ Federal funds purchased At December 31 - Balance $ 34,754 $ 50,605 $ 86,480 - Weighted average interest rate 3.03% 2.87% 4.13% During the year- Maximum outstanding at any month-end $ 80,880 $101,220 $172,585 - Daily average 46,726 65,584 138,245 - Weighted average interest rate paid 2.99% 3.52% 6.65% Securities sold under repurchase agreements At December 31 - Balance $609,743 $286,492 $356,964 - Weighted average interest rate 3.13% 2.83% 3.74% During the year- Maximum outstanding at any month-end $609,743 $459,616 $725,307 - Daily average 318,985 408,755 583,957 - Weighted average interest rate paid 2.91% 3.22% 5.55% Other borrowings At December 31 - Balance $ 30,000 $ 33,621 $144,688 - Weighted average interest rate 2.71% 2.41% 2.41% During the year- Maximum outstanding at any month-end $ 34,920 $150,789 $255,608 - Daily average 28,680 50,861 185,963 - Weighted average interest rate paid 3.12% 3.72% 4.91% ======== ======== ========
56 2of2 Included in securities sold under repurchase agreements at December 31, 1993 was $244.177 million of borrowings (with a maturity of 364 days) which Midlantic assumed under a security lending program. Under the security lending program, the Corporation made available to an unaffiliated third party, tax-exempt income on certain loans and invested the proceeds in higher- yielding taxable securities. The program is structured to allow Midlantic the opportunity to reacquire the loans at a future date. The transaction is reported as a borrowing with the tax-exempt loans remaining on Midlantic's consolidated balance sheet and the proceeds reported in short-term borrowings. Most federal funds purchased mature in one day and, with the exception of the previously mentioned borrowings related to the security lending program, the majority of securities sold under repurchase agreements mature within 30 days. Other borrowings consist principally of demand notes to the U.S. Treasury and short-term borrowings with other banks. At December 31, 1991, other borrowings included $79.315 million of borrowings of MHMC which was divested during 1992 (see Note 2). 15. LONG-TERM DEBT At December 31, 1993 and 1992, long-term debt consists of:
(In thousands) 1993 1992 ______________________________________________________________________________________ 9.20% Subordinated Capital Notes Due August 1, 2001 $100,000 $100,000 9.875% Subordinated Capital Notes Due December 1, 1999 100,000 100,000 9 1/4% Notes Due September 1, 1999 100,000 100,000 8 1/4% Convertible Subordinated Debentures Due July 1, 2010 75,000 75,000 11.35% Notes due March 1, 1993 -- 50,000 7 3/4% Debentures due March 1, 1998 (redeemed in January, 1994) 11,752 12,112 ________ ________ $386,752 $437,112 ======== ========
57 1of2 Midlantic Corporation and Subsidiaries In January 1994, the Corporation redeemed the remaining outstanding 7 3/4% debentures at par value totalling $11.752 million. During the next five years (1994-1998) there are no scheduled principal payments or maturities on any long-term obligations. The 9 1/4% notes are unsecured, rank on a parity with all other unsecured and unsubordinated indebtedness of MC and are not redeemable prior to maturity. The 9.20% and 9.875% subordinated capital notes are to be exchanged at maturity for common stock or perpetual preferred stock of MC having a market value equal to the principal amount of the notes or, upon satisfaction of certain conditions, MC may elect to repay the notes in cash. As defined in the indenture covering the notes, MC may exercise this election to the extent it has issued capital securities and designated proceeds. The notes may not be exchanged or redeemed prior to maturity, except upon the occurrence of certain events relating to the federal income tax treatment of the notes. The 8 1/4% debentures are convertible into MC common stock at any time on or before maturity unless previously redeemed, at a conversion price of $48 per share, subject to adjustments in certain events. The debentures are redeemable by MBI at a price equal to 102.25% of principal amount and at prices declining to 100% of principal amount on and after July 1, 1996. The 8 1/4% debentures are subordinated to all current and future indebtedness of MBI and the 9.20% and 9.875% notes are subordinated to all current and future indebtedness of MC only for borrowed money and certain other indebtedness unless such future indebtedness is specified as not superior in right of payment to the 8 1/4% debentures or the 9.20% or 9.875% notes. The 8 1/4% debentures are senior in right of payment to MC's 9.20% and 9.875% notes. MC is jointly and severally liable with MBI for the 8 1/4% debentures and had guaranteed performance of all obligations of MBI pursuant to the indenture for MBI's 7 3/4% debentures. The indentures under which MC's 9.20% and 9.875% subordinated notes and 9 1/4% notes were issued limit the sale or other disposition of the voting stock or assets of MNB and CB or the merger or consolidation of MNB or CB with an unaffiliated corporation. The indentures under which MBI's 8 1/4% debentures were issued impose similar restrictions with respect to its subsidiary, MNB. The indenture under which the 7 3/4% debentures were issued placed restrictions on the incurrence of liens, the sale of shares of, and the issuance of preferred stock by, bank and certain nonbank subsidiaries and the payment of dividends and other distributions. 57 2of2 16. CAPITAL STOCK Preferred stock - --------------- MC's Term Adjustable Rate Cumulative Preferred Stock - Series A ("Preferred Stock-A"), no par value, had an annual dividend rate of 7.625% in 1991 and the first quarter of 1992 and was 7.25% for the remainder of 1992 and 1993, based upon a $100 stated value per share. On July 22, 1992, pursuant to an agreement with the sole holder of Preferred Stock-A, MC issued 169,621 shares of its common stock in full satisfaction of $2.859 million of preferred dividends in arrears in lieu of cash dividends. Future quarterly dividends on Preferred Stock-A may be paid, at MC's option, in cash or common stock, subject to certain limitations. When paid through the issuance of common stock, the number of shares is determined based upon the average market price of MC common stock for the five business days immediately preceding the date the dividend is declared. The dividend rate of 7.25% will remain in effect for dividend periods commencing prior to April 1, 1997. The dividend rate thereafter is adjusted in relationship to rates derived from certain U.S. Treasury obligations, but in no event shall the annual dividend rate be less than 6% or more than 12%. The Preferred Stock-A can be redeemed solely at the option of MC at a redemption price of $100 per share plus accrued and unpaid dividends to the date of redemption provided, however, that prior approval for redemption must be obtained from the Federal Reserve Bank of New York ("FRB"). Preferred Stock-A has a liquidation value of $100 per share plus accrued and unpaid dividends to the date of final distribution prior to any distribution to holders of the common stock of MC. No dividends may be paid on the common stock of MC unless full cumulative dividends on all outstanding shares of Preferred Stock-A have been paid or declared and set aside for payment for all dividend periods. On December 22, 1993, the Board of Directors (the "Board") of MC declared a dividend on Preferred Stock-A of $906 thousand, representing full payment of the fourth quarter 1993 dividend requirement, payable in the first quarter of 1994 through the issuance of 35,776 common shares of MC. The fourth quarter dividend, which solely affects equity accounts, will be reflected in MC's financial statements in the first quarter of 1994. Pursuant to the agreement with the sole holder of Preferred Stock-A, MC was not in arrears on dividends on Preferred Stock-A at both December 31, 1993 and 1992. Common stock - ------------ On May 4, 1993, MC issued, through a public offering, 5.750 million shares of common stock for a net cash price of $107.140 million. On August 13, 1992, pursuant to an agreement entered into with Fox-Pitt, Kelton N.V. ("FPK"), an international investment banking firm, FPK purchased 6.6 million shares of MC common stock for a net cash price of $94.128 million. On August 24, 1992, five United States investors purchased, through a private placement, a total of 1.050 million shares of MC common stock for an aggregate cash price of $15.356 million. 58 1of2 CONSOLIDATED NOTES (continued) 17. STOCK PURCHASE RIGHTS The stock purchase rights ("Rights") are equivalent to one Right for each outstanding common share of MC and will be exercisable if a person or group acquires beneficial ownership of 15 percent or more of MC's outstanding common stock or voting securities, or commences a tender or exchange offer that would result in such person or group acquiring beneficial ownership of 15 percent or more of MC's outstanding common stock or voting securities. Each Right will initially entitle its holder to buy one one-hundredth of a share of a new series of participating preferred stock of MC at an exercise price of $125. In the event a person or group acquires 15 percent or more of the common stock or voting securities of MC (except in transactions approved by the Board) or thereafter MC is acquired in a merger or other business combination or more than 50 percent of its assets, earning power or cash flow is sold, each Right will then entitle its holder to acquire shares of MC or the acquiring person, as the case may be, having a value of twice the Right's exercise price. MC may redeem the Rights at $.01 per Right any time until the tenth business day following public announcement that a 15 percent position has been acquired. The Rights will expire on March 12, 2000. 18. FINANCIAL INSTRUMENTS FAIR VALUE FAS No. 107 "Disclosures about Fair Value of Financial Instruments" requires the disclosure of the fair value of financial instruments, both recognized and unrecognized on the consolidated balance sheet, for which it is practicable to estimate fair value. A financial instrument is defined as cash, evidence of an ownership interest in an entity, or a contract that both: (i) imposes on one entity a contractual obligation to deliver cash or another financial instrument to a second entity or to exchange other financial instruments on potentially unfavorable terms with the second entity; and (ii) conveys to that second entity a contractual right to receive cash or another financial instrument from the first entity or to exchange other financial instruments on potentially favorable terms with the first entity. In determining the fair value of financial instruments, FAS No. 107 requires the use of quoted market prices, if available. In situations where quoted market prices are not available, fair values are based on Midlantic's best estimate of fair value using techniques that include the present value of future cash flows. Those techniques are significantly affected by the assumptions used, including projections of future cash flows and discount rates. Changes in either the assumptions used or the discount rates could have a material impact on the calculated fair values of these financial instruments. Midlantic's estimate of fair value for certain financial instruments cannot be substantiated by comparison to independent markets, nor may the estimated fair value represent the amounts that would actually be realized in the sale or liquidation of the financial instrument. Furthermore, Midlantic's assumptions about the fair value of financial instruments are based on estimates of market conditions at the balance sheet date and do not reflect changes in those conditions subsequent to that date. FAS No. 107 permits the use of simplified assumptions in order to provide a reasonable estimate of fair value at a reasonable cost. FAS No. 107 excludes certain financial instruments from its scope, does not estimate the value of anticipated future operations and excludes all nonfinancial instruments from its disclosure requirements. For these and other reasons, the aggregate fair 58 2of2 value of financial instruments presented do not represent the underlying value of Midlantic taken as a whole and should not be compared to the fair value of other financial institutions, which may differ depending upon the assumptions made and the valuation techniques employed. The inherent volatility of the fair value of financial instruments is, in part, created by changes in market interest rates. Midlantic manages interest rate risk as part of its overall asset and liability management process. It is a result of that process that unrealized gains or losses on the asset side of the balance sheet will, to some degree, offset unrealized gains or losses on the liability side. Certain unrealized gains as measured under FAS No. 107 may not always be actualized by Midlantic due to liquidity needs, contractual restrictions and favorable terms relative to what would be currently negotiated in the market. The following methods and significant assumptions were used to estimate the fair value of Midlantic's financial instruments: Cash And Due From Banks And Money Market Investments - The carrying amounts reported in the consolidated balance sheet represent a reasonable estimate of those assets' fair values. Money market investments primarily mature in six months or less and do not present unanticipated credit concerns. Investment Securities - Fair values are based on quoted market prices, if available. If quoted market prices are not available, fair values are based on quoted market prices of comparable instruments. Loans - The fair value of loans is determined by segmenting the loan portfolio based on loan type, credit quality and interest rate repricing characteristics. Performing variable rate loans, which are primarily indexed to the prime rate, have a fair value equal to the present value of future projected cash flows, discounted at the current spread over prime, reduced for credit risk by estimating future credit losses. The fair value of performing fixed rate loans is based upon the present value of future projected cash flows. Discount rates used in estimating fair value for fixed rate installment loans are based upon the current rates offered by Midlantic for similar loans with the same remaining maturities. Discount rates used in estimating fair value for fixed rate loans other than installment loans are derived from corporate debt yields with comparable remaining maturities and similar credit grades, adjusted for servicing costs. The fair value of nonaccrual loans is based upon either: (i) an individual loan valuation for collateral dependent loans utilizing a discounted cash flow analysis of the underlying collateral using a rate estimated to be commensurate with the risk involved; or (ii) management's estimate of the 59 1of2 Midlantic Corporation and Subsidiaries expected cash flows for noncollateral dependent loans using an interest rate estimated to be commensurate with the risk involved. Midlantic has and may continue to securitize segments of its loan portfolio and has also sold, or identified for sale, certain problem loans in bulk transactions; however, the loan portfolio is generally intended to be held until maturity and unrealized gains and losses are not expected to be realized in the ordinary course of business. Other Assets - Financial instruments included in other assets consist of accrued interest receivable and amounts due from customers on acceptances (both of which have a carrying value that approximates fair value due to their short-term maturities) and excess servicing fee receivables (which have a fair value approximating carrying value as they are periodically adjusted to approximate market). Other assets also include assets held for accelerated disposition. The carrying amounts of the loans included in this classification approximate those assets' fair values net of the estimated costs of sale. Deposits - The fair values of noninterest-bearing demand deposits, interest- bearing demand deposits and savings accounts are, by definition under FAS No. 107, the amount payable on demand at the balance sheet date. The carrying amounts for variable rate deposits represent a reasonable estimate of fair value. The fair value of fixed rate certificates of deposit is based on the discounted value of the future expected cash flows. Discount rates are based on the current rates offered by Midlantic for similar deposits with the same remaining maturities. Short-term Borrowings - The carrying amounts reported in the balance sheet represent a reasonable estimate of fair value as these borrowings primarily mature in six months or less. Other Liabilities - Financial instruments included in other liabilities consist of accrued interest payable and bank acceptances outstanding which have a carrying value that approximates fair value due to their short-term maturities. Long-term Debt - Midlantic's long-term debt instruments are publicly traded and quoted market prices are used to estimate fair value. Off-balance Sheet Financial Instruments - The fair value of unused commitments to extend credit and letter of credit agreements is based upon the fees currently charged to enter into similar agreements which take into account the remaining maturities of the agreements and credit risk. The fair value of such instruments represents a liability to Midlantic since these instruments are an obligation of the issuer even though such instruments generate income through the fees charged. The fair value of interest rate swaps and forward rate agreements are based upon quoted market prices obtained from dealers. The fair value of foreign exchange contracts represents the amount that Midlantic would receive, using quoted market prices, if the contracts were settled and Midlantic had been required to purchase or sell the foreign currencies on its own account. 59 2of2 The estimated fair values of the Corporation's consolidated balance sheet financial instruments are as follows:
(In thousands) 1993 1992 _______________________________________________________________________ Financial assets Cash and due from banks and money market investments $ 2,491,781 $ 2,794,875 Investment securities 2,467,793 2,114,812 Loans* 8,164,308 8,591,500 Other assets 219,221 133,203 Financial liabilities Deposits* 11,635,613 12,622,198 Short-term borrowings 674,497 370,718 Other liabilities 20,106 81,023 Long-term debt 426,627 409,422 =========== =========== * The weighted average discount rate used in the discounted cash flow calculations for loans was equal to 6.72 percent compared to a weighted average contractual yield of 7.45 percent in 1993 and a discount rate of 7.19 percent compared to a contractual yield of 8.37 percent in 1992. The weighted average discount rate used in the discounted cash flow calculations for deposits was equal to 2.60 percent compared to a weighted average contractual yield of 4.08 percent in 1993 and a discount rate of 3.23 percent compared to a contractual yield of 4.85 percent in 1992. The weighted average contractual yields do not include benefits realized (if any) from interest rate swap positions.
The estimated fair values of Midlantic's financial instruments, whose notional amounts are not recorded in the consolidated balance sheet at December 31, 1993 and 1992, are as follows:
(In thousands) 1993 1992 _____________________________________________________________________________________________________ Asset (liability) Unused commitments to extend credit $(18,654) $(17,735) Financial standby letters of credit and similar arrangements (561) (1,461) Performance standby letters of credit and similar arrangements (1,572) (1,123) Commercial letters of credit and other short-term trade-related contingencies (122) (124) Interest rate swaps, net 87,883 9,410 Forward interest rate swap agreements 4,875 -- Foreign exchange contracts --* --* ======== ======== *The fair value of foreign exchange contracts at both December 31, 1993 and 1992 has been determined to be insignificant.
The fair value of Midlantic's loan portfolio is in excess of its carrying value primarily because the unallocated portion of the allowance for loan losses includes consideration of credit losses related to other financial instruments, largely unused commitments to extend credit and letters of credit. Further, the total fair value of loans has been favorably affected by the low interest rate environment, which similarly had a negative impact on the fair value of deposits. 60 1of2 CONSOLIDATED NOTES (continued) 19. INCENTIVE AND PROFIT SHARING PLANS Midlantic has a formal plan that provides for the granting to key employees supplementary compensation in the form of awards of MC common stock, incentive or nonqualified stock options to purchase MC common stock and stock appreciation rights or a combination thereof. MC common stock can be purchased through incentive or nonqualified stock options at not less than the fair market value on the dates the options are granted, but in no event less than the par value of MC common stock. The stock appreciation rights, which relate to specific options granted, permit the qualifying employee, under certain limitations, to exercise a right, in lieu of the related option, to receive in cash or MC common stock an amount equal to the excess of the fair market value of the shares subject to such options over the option price per share. At December 31, 1993, MC had reserved 3,272,319 shares of authorized common stock for issuance in connection with outstanding nonqualified or incentive stock options under its current plan and predecessor plans and those shares which remain available for grant as stock awards or options. Data with respect to outstanding options follows:
Number of Number of Options Options Outstanding at Exercise Outstanding at Exercise Date of Grant December 31,1993 Price Date of Grant December 31, 1993 Price _____________________________________________________________________________________________________ May 16, 1984 15,941 $17.84 July 17, 1991 80,000 $ 5.63 June 20, 1984 8,600 22.50 September 20, 1991 80,000 6.25 May 15, 1985 24,151 24.31 October 16, 1991 40,000 6.00 June 19, 1985 12,200 39.38 November 20, 1991 27,000 5.56 May 21, 1986 21,377 44.67 February 25, 1992 80,000 7.94 June 18, 1986 17,750 49.69 May 20, 1992 50,000 11.63 January 18, 1990 354,604 27.82 June 17, 1992 899,850 12.50 January 18, 1990 58,600* 27.82 July 21, 1992 3,000 15.88 June 20, 1990 2,800 15.50 September 16, 1992 6,000 13.81 January 16, 1991 35,500 3.25 December 16, 1992 7,500 17.25 April 11, 1991 200,000 6.81 *Stock appreciation rights are associated with these options.
Subject to certain exceptions, options generally become exercisable one year after date of grant and expire ten years after date of grant, unless earlier terminated, pursuant to the terms of the relevant plan or option agreement. 60 2of2
Weighted Average Price Nonqualified and Incentive Stock Options Shares per Share __________________________________________________________________________ Outstanding at January 1, 1991 1,025,482 $30.18 _________ ______ Granted in 1991 741,700 5.48 Cancelled in 1991 (157,234) 26.36 Expired in 1991 (4,576) 12.64 _________ ______ Outstanding at December 31, 1991 1,605,372 19.19 _________ ______ Granted in 1992 1,130,000 12.19 Cancelled in 1992 (398,343) 26.02 Exercised in 1992 (144,500) 4.24 _________ ______ Outstanding at December 31, 1992 2,192,529 15.32 _________ ______ Cancelled in 1993 (78,193) 27.30 Exercised in 1993 (86,314) 10.91 Expired in 1993 (3,149) 17.97 _________ ______ Outstanding at December 31, 1993 2,024,873 $15.04 ========= ======
During 1993, the Corporation established a 401(k) employee savings plan to provide for defined contributions and named it the Midlantic Savings and Investment Plan which covers substantially all employees of MC and its subsidiaries. Midlantic's contributions to the plan are a matching percentage of each employee's contribution up to 3.0 percent of the employee's salary. An additional contribution of up to 2.0 percent may be made, subject to certain conditions. Employer contributions to the plan amounted to $1.884 million in 1993. 61 1of3 Midlantic Corporation and Subsidiaries 20. PENSION PLAN The following table sets forth the funded status and amounts recognized in the consolidated balance sheet for Midlantic's pension plan at December 31, 1993 and 1992:
(In thousands) 1993 1992 ____________________________________________________________________________________________________ Actuarial present value of benefit obligations Accumulated benefit obligation, including vested benefits of $201,160 and $185,502 in 1993 and 1992, respectively $ 205,251 $ 188,274 ========== ========= Projected benefit obligation $ (229,918) $(209,220) Plan assets at fair value* 265,596 251,867 __________ _________ Plan assets at fair value in excess of projected benefit plan obligation 35,678 42,647 Unrecognized net gain (12,170) (19,629) Prior service cost not yet recognized in net periodic pension cost 13,394 16,815 Unrecognized net assets at January 1 being recognized over 10 years (21,483) (25,289) __________ _________ Prepaid pension cost recognized in the consolidated balance sheet $ 15,419 $ 14,544 ========== ========= *Primarily comprised of equity and stock funds, fixed income funds, short-term funds, and U.S. government and agency obligations.
Net pension (credit) cost for 1993, 1992, and 1991 for Midlantic included the following components:
(In thousands) 1993 1992 1991 _____________________________________________________________________________________ Service cost of benefits earned during the period $ 5,797 $ 7,548 $ 7,514 Interest cost on projected benefit obligation 16,251 15,931 16,243 Actual return on plan assets (27,656) (23,295) (48,797) Net amortization and deferral 4,725 (811) 27,236 ________ ________ ________ Net pension (credit) cost $ (883) $ (627) $ 2,196 ======== ======== ========
The weighted average discount rate was 7.5 percent in 1993, 8.0 percent in 1992 and 8.5 percent in 1991 and the rate of increase in future compensation levels was 5.0 percent for 1993 and 4.0 percent in both 1992 and 1991 which were used in the calculation of the actuarial present value of the projected benefit obligation of Midlantic. The expected long-term rate of return on assets was 8.5 percent in 1993 and 9.0 percent in both 1992 and 1991. 61 2of3 As a result of the divestiture of Merchants, Union, Central, Endicott and MHMC and the termination of employees through the FOCUS '92 program, Midlantic recognized pension curtailment gains of $6.499 million and pension settlement losses of $1.273 million in 1992. In 1991, Midlantic recognized pension curtailment and settlement gains totalling $2.910 million and $1.375 million, respectively, relating to the divestiture of York and United. 21. POSTRETIREMENT BENEFITS Midlantic offers health care and life insurance benefits (although it has no contractual obligation to do so) to employees who retire from the Corporation at age 55 or later and who meet certain eligibility requirements. The postretirement health care plan costs are shared between the Corporation and its retired employees. The postretirement life insurance plan is noncontributory. The plans are funded through a Voluntary Employee Beneficiary Association trust and postretirement benefit claims are paid as incurred. The following table reconciles the funded status of the postretirement plans to the amounts recognized in the consolidated balance sheet at December 31, 1993:
(In thousands) __________________________________________________________________________________ Accumulated postretirement benefit obligation ("APBO") Retirees $ 49,872 Fully eligible active plan participants 5,391 Other active plan participants 12,975 ________ Total accumulated postretirement benefit obligation $ 68,238 ======== Plan assets at fair value $ -- Accumulated postretirement benefit obligation in excess of plan assets 68,238 Unrecognized net gain 4,845 Unrecognized transition obligation (66,918) ________ Accrued postretirement benefit cost $ 6,165 ========
The components of net periodic postretirement benefit cost accrued for 1993 include the following:
(In thouands) __________________________________________________________________________ Service cost of benefits earned during the period $ 1,423 Interest cost on accumulated postretirement benefit obligation 5,390 Amortization of transition obligation over 20 years 3,522 ________ Net periodic postretirement benefit cost $ 10,335 ========
61 3of3 Postretirement benefits expensed as incurred totalled $6.311 million and $5.737 million in 1992 and 1991, respectively. The weighted-average discount rate used in determining the APBO was 7.0 percent. The health care cost trend rate used to measure the expected cost of benefits covered by the plans for 1994 is 5.0 percent and future increases in such costs are, thereafter, capped at 5.0 percent. The expected trend in health care costs is expected to exceed the 5.0 percent cap indefinitely, therefore, the impact of a 1.0 percent increase in the assumed health care cost trend rates on the Corporation's future cost and the APBO at December 31, 1993 is insignificant. 62 1of2 CONSOLIDATED NOTES (continued) 22. FINANCIAL INSTRUMENTS WITH OFF-BALANCE SHEET RISK OR CONCENTRATIONS OF CREDIT RISK In the normal course of business, there are various financial instruments which are properly not recorded in the consolidated financial statements. Midlantic's risk of accounting loss due to the credit risks and market risks associated with these off-balance sheet instruments varies with the type of financial instrument. Principal or notional amounts may not necessarily indicate the degree of exposure involved. Credit risk represents the possibility of a loss occurring from the failure of another party to perform in accordance with the terms of a contract. Market risk represents the possibility that future changes in market prices may make a financial instrument less valuable or more onerous. The following table summarizes the notional amounts of Midlantic's significant off-balance sheet financial instruments at December 31, 1993 and 1992:
(In thousands) 1993 1992 _________________________________________________________________________________________________________ Unused commitments to extend credit $2,691,026 $2,761,633 Financial standby letters of credit and similar arrangements 128,230 186,557 Performance standby letters of credit and similar arrangements 174,291 133,076 Commercial letters of credit and other short-term trade-related contingencies 48,993 49,470 Interest rate swaps 4,267,617 2,525,000 Forward interest rate swap agreements 300,000 -- Foreign exchange contracts 58,714 89,136 ========== ==========
Credit policies and procedures for commitments to extend credit and standby and commercial letters of credit are the same as those applicable to loans and the credit risk associated with these instruments is considered in management's assessment of the adequacy of the allowance for loan losses. Commitments to extend credit represent legally binding agreements to lend to a customer at a specified rate with fixed expiration dates or other termination clauses and generally have maturities ranging from less than one year to three years. The collateral requirements, if any, vary depending upon the type of commitment and creditworthiness of the customer. The nature of collateral held varies with the type of commitment, but is usually in the form of real estate, machinery and equipment, accounts receivable, securities and inventory. Since many of the commitments normally expire without being drawn upon, the total commitment amounts do not necessarily represent future cash requirements for Midlantic. Commitment clauses are utilized which enable Midlantic to control funding based upon the financial condition of the customer or other contingencies and reduce the credit risk associated with these obligations. Financial standby letters of credit and similar arrangements are irrevocable obligations to fund outstanding loans or debt instruments of customers in the event of default of principal and/or interest payments to third parties. In 1993 and 1992, these instruments principally supported the debt of private corporations. 62 2of2 Performance standby letters of credit and similar arrangements are irrevocable obligations to fund, in the event of default, the contractual nonfinancial performance of a customer to a third party. Standby letters of credit generally have terms of one year, but may contain renewal clauses at the option of Midlantic. Collateral requirements for standby letters of credit are based upon a credit assessment of the customer in conjunction with an evaluation of other credit extensions to that customer and the type of collateral held is usually in the form of compensating balances, securities, real estate, accounts receivable and inventory. Commercial letters of credit and other short-term trade-related contingencies are normally instruments with maturities of up to 180 days that are used to facilitate the shipment of merchandise from exporter to importer (Midlantic's customer) by ensuring payment directly by Midlantic to the exporter after presentation of a draft or other documents in accordance with the instrument's terms. The customer has a nonqualified obligation to reimburse Midlantic. Midlantic may have the right, as security, to title and disposal of all merchandise covered by the letter of credit, which reduces the credit risk associated with these instruments. The Corporation enters into interest rate swap arrangements for hedging purposes. The notional amount listed in the table represents the base on which interest due each counterparty is calculated. The notional amounts do not represent values exchanged by the counterparties and are not recorded on the balance sheet. Under the contracts in which Midlantic receives a fixed rate of interest (on a notional amount of $3.372 billion), as of December 31, 1993, the weighted average rate to be paid was 3.44 percent while the weighted average rate to be received was 5.36 percent. The variable rates are generally based on the 90 day LIBOR index (an internationally recognized interest rate index) and are reset quarterly. Midlantic entered into these contracts in order to hedge certain interest-earning assets and interest-bearing liabilities that have a high degree of inverse rate correlation to the hedge instruments. In the case of interest rate swap contracts under which Midlantic has agreed to pay a fixed rate and receive a variable rate (representing a notional amount of $898.5 million), the hedged items are generally investment securities bearing fixed rates of interest and stated original maturities of five to seven years. The purpose of these hedges is to reduce the risk that over the term of the investment the yield on similar securities increase and consequently the value of Midlantic's investment declines. At December 31, 1993, the weighted average rate to be paid on these contracts was 5.15 percent and the weighted average rate to be received was 3.40 percent. At December 31, 1993, Midlantic held a firm commitment for delivery on April 1, 1994, of $300.000 million of interest rate swap contracts. Credit risk associated with interest rate swap contracts arises from the potential for a counterparty to default on its obligations. Midlantic attempts to limit credit risk by dealing with counterparties that are creditworthy. All counterparties to contracts in place as of December 31, 1993 were associated with organizations rated by independent 63 1of2 Midlantic Corporation and Subsidiaries rating agencies as having investment grade securities outstanding. In addition, Midlantic is presently seeking collateral to support any underlying credit exposure and is now pursuing master netting agreements. These agreements will provide for the net settlement of covered contracts with the same counterparty in the event of default or other cancellation of the agreement. At December 31, 1993, Midlantic's estimated total credit exposure on all contracts (including forward interest rate swap agreements) amounted to approximately $93 million. Foreign exchange contracts and spot contracts are agreements in which a seller agrees to deliver and a buyer agrees to purchase a foreign currency at a future date. The exchange date, amount and rate are specified in the contract. Foreign exchange contracts are generally for periods ranging from one week to one year and usually require the customer to have a supporting line of credit, whereas spot contracts usually have two day terms. Midlantic generally enters into such agreements on behalf of its customers who provide the necessary funding on or before the exchange date. Failure of a customer to fund the contract and failure of a contract counterparty to buy/sell the contracted foreign currency represent the credit risk associated with this instrument. Market risk, resulting from possible fluctuations in currency exchange rates, occurs when a customer or contract counterparty fails to fulfill his obligation under the contract and Midlantic is then obligated to purchase or sell the foreign currency on its own account. Losses on foreign exchange contracts and spot contracts have been historically minimal. Since Midlantic's predominant focus in mortgage lending has been to finance real estate in its immediate market area, individual state concentrations of credit risk exist in commercial mortgage loans (long-term commercial mortgages and construction and development loans) in New Jersey and Pennsylvania. Commercial mortgage lending in these states is similarly affected by economic conditions such as housing and commercial development starts, building occupancy rates and real estate values. At December 31, 1993 and 1992, consolidated commercial mortgage loans, which are primarily secured by the underlying real estate, totalled $2.499 billion and $3.413 billion, respectively. New Jersey and Pennsylvania comprised 58.6 percent, and 31.0 percent, respectively, of the balance outstanding at year-end 1993. Gross charge-offs on commercial mortgage loans in these states comprised the majority of the consolidated mortgage amounts. Included in amounts disclosed in the table, commitments to extend credit and standby letters of credit for commercial mortgage loans in these states aggregated $361.390 million and $32.289 million at December 31, 1993, respectively and $389.177 million and $44.170 million at December 31, 1992, respectively. 23. OTHER COMMITMENTS AND CONTINGENCIES Minimum lease payments at December 31, 1993, under net noncancelable real property operating lease commitments for succeeding years are: $14.705 million in 1994; $13.621 million in 1995; $11.600 million in 1996; $9.071 million in 1997; $6.955 million in 1998; and $21.785 million thereafter. Operating expenses include equipment and occupancy rentals of $18.833 million in 1993, $22.418 million in 1992 and $24.924 million in 1991. MC and various directors and former officers of MC are defendants in a consolidated action, initially commenced in March 1990, pending in Federal District Court in New Jersey (the "Action"). The Action has been instituted by 63 2of2 shareholders of MC, either on behalf of MC against various directors and former officers of MC, or directly against MC and various directors and former officers of MC. In general, the Action seeks damages payable either to MC or to the shareholders and holders of certain debt securities because of alleged discrepancies between certain public statements made by MC and later results of MC's operations. The Action includes claims that certain actions of MC are void. The claims are based upon alleged violations of the United States securities laws and New Jersey common law. In their pleadings, plaintiffs do not seek damages in a stated dollar amount. Midlantic is subject to claims and lawsuits which arise primarily in the ordinary course of business and the Action. Based upon information currently available and advice received from legal counsel representing Midlantic in connection with such claims, lawsuits and the Action, it is the opinion of management that the disposition or ultimate determination of such claims, lawsuits and the Action will not have a material adverse effect on the consolidated financial position of Midlantic. 24. INCOME TAXES Income tax (benefit) expense includes the following components:
(In thousands) 1993* 1992 1991 _______________________________________________________________________________ Current tax (benefit) expense Federal $ (39,444) $ (97,390) $(171,471) State 2,424 2,844 5,177 _________ _________ _________ Total current (37,020) (94,546) (166,294) _________ _________ _________ Deferred tax (benefit) expense Federal (55,524) 97,390 122,818 State (18,499) -- -- _________ _________ _________ Total deferred (74,023) 97,390 122,818 _________ _________ _________ Total income tax (benefit) expense $(111,043) $ 2,844 $ (43,476) ========= ========= ========= *Excludes cumulative effect of the accounting change.
64 1of3 CONSOLIDATED NOTES (continued) A reconciliation of income taxes computed at the statutory federal income tax rate to "income tax (benefit) expense" is as follows:
(In thousands) 1993* 1992 1991 _____________________________________________________________________________ Computed "expected" tax expense (benefit) $ 7,124 $ 3,356 $(199,505) Reduction in federal taxes resulting from tax-exempt income (7,823) (13,124) (23,268) Increase resulting from interest incurred to carry tax-exempt investments 450 947 1,877 Increase resulting from the amortization of goodwill 2,133 2,009 6,053 Decrease resulting from purchase accounting accretion income -- (3,757) (529) State taxes on income, net of federal tax benefit 3,502 1,877 3,417 Increase (decrease) resulting from the sale of subsidiaries 425 (49,409) 47,976 Increase resulting from tax benefits not recognized -- 60,334 121,111 Decrease resulting from reduction of FAS No. 109 valuation allowance (109,998) -- -- Decrease resulting from federal tax legislation and tax rate differentials on loss carryback refunds (3,613) -- -- Other (3,243) 611 (608) _________ ________ _________ Income tax (benefit) expense $(111,043) $ 2,844 $ (43,476) ========= ======== ========= *Excludes cumulative effect of the accounting change.
During 1993, deferred income taxes reflected the impact of differences between the financial statements and income tax bases of assets and liabilities and available tax carryforwards. The temporary differences and tax carryforwards which created deferred tax assets and liabilities at December 31, 1993 are as follows: 64 2of3
(In thousands) _______________________________________________________________ DEFERRED TAX ASSETS Loan loss provision $ 169,601 State net operating loss carryforwards 82,079 Minimum tax 41,471 OREO 25,305 Other 49,784 _________ 368,240 Valuation allowance (106,815) _________ Total deferred tax assets $ 261,425 ========= DEFERRED TAX LIABILITIES Federal benefit of state temporary differences $ 38,509 Leasing 9,215 Depreciation 12,153 Other 24,679 _________ Total deferred tax liabilities $ 84,556 ========= Net deferred tax assets $ 176,869 =========
The components of deferred federal income tax expense for the years ended December 31, 1992 and 1991 are as follows:
(In thousands) 1992 1991 ____________________________________________________________________________________ Excess of tax over book income on lease financing $ (7,671) $ (6,643) Excess of tax over book provision for loan losses net of unrecognized tax benefits 56,955 142,571 Excess of tax over book recognition of income from excess servicing fees (794) (5,499) Excess of book over tax provision for OREO (3,146) (7,499) Minimum tax credit carryforward (12,479) (8,040) Excess of (book over tax) tax over book depreciation expense (2,015) 157 Excess of tax over book (book over tax) pension/welfare benefits expense 13,519 (658) Effect of not fully recognizing tax benefits on pretax book income adjusted for permanent tax differences 49,833 -- Other 3,188 8,429 ________ ________ Deferred federal income tax expense $ 97,390 $122,818 ======== ========
64 3of3 For 1993, Midlantic recognized tax benefits of $111.043 million comprised of a tax benefit related to a reduction in the FAS No. 109 tax valuation reserve of $109.998 million, plus a tax benefit of $6.676 million related to the impact on Midlantic of the 1993 federal tax legislation and the tax rate differential associated with Midlantic's tax loss carryback refunds, less $5.631 million of federal and state income tax expenses on operating earnings. The valuation reserve adjustments are the result of Midlantic's assessment of the realization of its deferred tax asset based upon estimated future profitability. Income tax expenses in 1992 were attributable to state and local income taxes imposed on Midlantic's profitable subsidiaries. From mid-1991 through the fourth quarter of 1992, Midlantic was not able to recognize federal income tax benefits on its reported pretax loss based upon the accounting principles that existed prior to FAS No. 109. As of December 31, 1993, Midlantic had available a minimum tax credit carryforward of $41.471 million which may be carried over indefinitely to offset regular taxes due in any future year in excess of the minimum tax liability for that year, a capital loss carryforward of $5.606 million available to offset future capital gains but limited to a five year utilization period ending December 31, 1997, a regular net 65 1of2 Midlantic Corporation and Subsidiaries operating loss carryforward for federal purposes of $40.319 million expiring December 31, 2008, and an $875.514 million New Jersey state net operating loss carryforward. The New Jersey net operating loss carryforward is attributable to MNB and expires during the period 1997 through 2000. In addition, Midlantic has various other federal credit carryforwards totalling $5.630 million at December 31, 1993 and expiring at various dates from 1994 through 2007. 25. INCOME (LOSS) PER COMMON SHARE The following table summarizes the computation of income (loss) per common share for the years ended December 31, 1993, 1992 and 1991:
(In thousands, except share and per share data) 1993 1992 1991 ________________________________________________________________________________________________ EARNINGS APPLICABLE TO PRIMARY COMMON SHARES Income (loss) before cumulative effect of the change in accounting for income taxes $131,396 $ 7,028 $(543,303) Preferred stock dividends (3,626) (3,672) (3,812) __________ __________ __________ Income (loss) before cumulative effect of the change in accounting for income taxes applicable to primary common shares 127,770 3,356 (547,115) Cumulative effect of the change in accounting for income taxes 38,962 -- -- __________ __________ __________ Net income (loss) applicable to primary common shares $166,732 $ 3,356 $(547,115) ========== ========== ========== EARNINGS APPLICABLE TO FULLY DILUTED COMMON SHARES Income (loss) before cumulative effect of the change in accounting for income taxes applicable to primary common shares $127,770 $ 3,356 $(547,115) Interest expense on convertible subordinated debentures, net of income taxes 4,084 N/A N/A __________ __________ __________ Income (loss) before cumulative effect of the change in accounting for income taxes applicable to fully diluted common shares 131,854 3,356 (547,115) Cumulative effect of the change in accounting for income taxes 38,962 -- -- __________ __________ __________ Net income (loss) applicable to fully diluted common shares $170,816 $ 3,356 $(547,115) ========== ========== ========== NUMBER OF AVERAGE SHARES Primary Average common shares outstanding 50,098,667 41,176,415 38,094,934 Average common share equivalents 844,657 392,671 N/A __________ __________ __________ Average primary common shares 50,943,324 41,569,086 38,094,934 ========== ========== ========== 65 2of2 Fully diluted Average common shares outstanding 50,098,667 41,176,415 38,094,934 Average common share equivalents 907,372 777,390 N/A Average convertible subordinated debentures converted to common shares 1,562,500 N/A N/A __________ __________ __________ Average fully diluted common shares 52,568,539 41,953,805 38,094,934 ========== ========== ========== INCOME (LOSS) PER COMMON SHARE Income (loss) before cumulative effect of the change in accounting for income taxes Primary $2.51 $.08 $(14.36) Fully diluted 2.51 .08 (14.36) Cumulative effect of the change in accounting for income taxes Primary .76 -- -- Fully diluted .74 -- -- Net income (loss) Primary 3.27 .08 (14.36) Fully diluted 3.25 .08 (14.36) ========== ========== ========== N/A - Not applicable
For 1991, average common share equivalents were anti-dilutive and have been excluded from the per share computations. Convertible subordinated debentures were anti-dilutive in 1992 and 1991 and have been excluded from the per common share computations for those periods. 26. CASH FLOW DATA Cash paid during 1993, 1992 and 1991 for interest on deposits, short-term borrowings and long-term debt amounted to $327.733 million, $625.565 million and $1.175 billion, respectively. Net cash received for federal and state income taxes was $81.508 million in 1993 and $165.245 million in 1992, and cash payments for federal and state income taxes were $11.179 million in 1991. In several bulk sale transactions during 1993, Midlantic sold $219.482 million of distressed real estate loans (with charge-offs against the related allowance for loan losses of $84.456 million) and $74.115 million of OREO for cash proceeds of $220.802 million. During 1992, Midlantic sold $410.956 million of automobile loan asset-backed certificates. In late 1993, Midlantic identified for possible bulk sale $218.197 million of distressed real estate loans (with related charge-offs of $97.407 million) and $37.367 million of OREO (net of writedowns of $36.672 million) and transferred the net balance to other assets. During 1993, 1992 and 1991, $126.353 million, $166.648 million and $410.934 million, respectively, of loans, net of charge-offs, were transferred into OREO. Also, during 1991, $61.926 million of 1-4 family residential mortgage loans were exchanged with FNMA for FNMA mortgage-backed securities of substantially equal principal value. These activities constituted non-cash transactions and, accordingly, are not reflected in the statement of cash flows. 66 1of2 CONSOLIDATED NOTES (continued) 27. PARENT COMPANY FINANCIAL STATEMENTS The following condensed financial information for MC should be read in conjunction with the other notes to consolidated financial statements:
BALANCE SHEET AT DECEMBER 31 (In thousands) 1993 1992 _____________________________________________________________________________ ASSETS Cash and due from banks $ 446 $ 234 Other short-term investments 13,400 3,000 Investment securities 93,266 7,003 Loans 9,226 21,995 Advances to subsidiaries 745 9,680 Investments in subsidiaries Bank holding companies 1,001,851 789,875 Banks 292,614 288,447 Nonbanks 11,657 11,229 Other assets 24,473 33,323 __________ __________ Total assets $1,447,678 $1,164,786 ========== ========== LIABILITIES AND SHAREHOLDERS' EQUITY Other liabilities $ 25,114 $ 21,324 Long-term debt 300,000 300,000 __________ __________ Total liabilities 325,114 321,324 __________ __________ Shareholders' equity Preferred stock 50,000 50,000 Common stock 156,522 138,443 Surplus 603,732 509,464 Retained earnings 312,310 145,578 Treasury stock at cost -- (23) __________ __________ Total shareholders' equity 1,122,564 843,462 __________ __________ Total liabilities and shareholders' equity $1,447,678 $1,164,786 ========== ==========
The individual assets and liabilities presented above for the single entity MC are managed in conjunction with the resources of MBI, a lower-tier holding company and nonbank subsidiaries. As of December 31, 1993, MBI held $121.944 million in short-term liquidity, including investment securities due in less than one year. In combination with the $104.196 million of similar assets reflected above for MC, the total of liquid assets for MC, MBI and their nonbank subsidiaries amounted to $234.550 million as of December 31, 1993. MC has assumed joint and several liability for MBI's 8 1/4% Convertible Subordinated Debentures Due July 1, 2010 (see Note 15). 66 2of2
STATEMENT OF INCOME FOR THE YEAR ENDED DECEMBER 31 1993 1992 1991 (In thousands) _______________________________________________________________________________________ INCOME Dividends from subsidiaries Bank holding companies $82,500 $ -- $ 1,396 Banks 18,458 42,043 9,134 Nonbanks -- 8,000 63,550 Interest on deposits with banks 510 1,197 2,199 Interest on advances to subsidiaries 420 906 1,093 Interest on other short-term investments 285 721 514 Interest on investment securities 924 127 65 Interest on loans 2,074 847 8 Net (losses) gains on disposition of assets (48) 5,777 3,172 Management fees from subsidiaries 18,012 9,433 960 Investment securities gains -- 54 52 Other income 237 2,841 -- ________ ________ _________ 123,372 71,946 82,143 ________ ________ _________ EXPENSES Interest 28,325 28,724 28,724 Provision for loan losses -- 1,630 -- Salaries and benefits 13,833 5,024 6,670 Other 12,515 4,352 17,336 ________ ________ _________ 54,673 39,730 52,730 ________ ________ _________ Income before income taxes, the cumulative effect of the change in accounting for income taxes and undistributed earnings (losses) of subsidiaries 68,699 32,216 29,413 Income tax benefit (16,524) (1,664) (4,053) ________ ________ _________ Income before the cumulative effect of the change in accounting for income taxes and undistributed earnings (losses) of subsidiaries 85,223 33,880 33,466 Cumulative effect of the change in accounting for income taxes 10,919 -- -- Equity in undistributed earnings (losses) of subsidiaries 74,216 (26,852) (576,769) ________ ________ _________ NET INCOME (LOSS) $170,358 $ 7,028 $(543,303) ======== ======== =========
67 1of2 Midlantic Corporation and Subsidiaries
STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31 1993 1992 1991 (In thousands) _____________________________________________________________________________________________ CASH FLOWS FROM OPERATING ACTIVITIES Net income (loss) $ 170,358 $ 7,028 $(543,303) Adjustments to reconcile net income (loss) to net cash provided by operating activities Equity in undistributed (earnings) losses of subsidiaries (74,216) 87 576,769 Amortization of goodwill and other intangibles -- -- 11,291 Net loss (gain) on sale of assets 78 (5,811) (3,224) Provision for loan losses -- 1,630 -- Cumulative effect of the change in accounting for income taxes (10,919) -- -- Deferred income tax (benefit) expense (7,339) 54,626 17,122 Net decrease in other assets 19,141 4,280 3,646 Net change in taxes receivable and net deferred tax assets 8,670 (55,993) (34,644) Net increase (decrease) in other liabilities 2,537 (4,704) 3,340 Other (247) (686) 157 _________ _________ _________ Net cash provided by operating activities 108,063 457 31,154 _________ _________ _________ CASH FLOWS FROM INVESTING ACTIVITIES Cash received from the merger of CBI with and into MC -- -- 494 Net cash proceeds from the sale of subsidiaries -- 148,380 217,077 Net decrease (increase) in advances to subsidiaries 8,935 13,210 (12,890) Net (increase) decrease in money market investments with an original maturity of 3 months or less (9,104) (90,901) 52,000 Purchase of money market investments with an original maturity greater than 3 months -- (49,000) -- Maturities of money market investments with an original maturity greater than 3 months -- 49,000 -- Purchases of investment securities (90,933) (1,501) (2,235) Maturities of investment securities 3,702 -- -- Distributions from partnership investments 296 153 172 Decrease (increase) in loans 12,769 (7,148) (9,000) Capital injections to subsidiaries (142,355) (176,000) (270,562) _________ _________ _________ Net cash used by investing activities (216,690) (113,807) (24,944) _________ _________ _________ CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid -- -- (2,859) Proceeds from issuance of common stock 108,839 109,990 -- _________ _________ _________ Net cash provided (used) by financing activities 108,839 109,990 (2,859) _________ _________ _________ NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS $ 212 $ (3,360) $ 3,351 CASH AND CASH EQUIVALENTS AT BEGINNING OF PERIOD 234 3,594 243 _________ _________ _________ CASH AND CASH EQUIVALENTS AT END OF PERIOD $ 446 $ 234 $ 3,594 ========= ========= =========
67 2of2 28. CONSOLIDATED QUARTERLY FINANCIAL DATA (unaudited)
QUARTERS ENDED 1993 ____________________________________________ (In thousands, except per share data) 3/31 6/30 9/30 12/31 _____________________________________________________________________________________ Interest income $208,159 $204,886 $203,186 $200,676 Interest expense 89,976 78,709 73,019 69,153 Net interest income 118,183 126,177 130,167 131,523 Provision for loan losses 20,000 15,000 14,000 30,000 Noninterest income Investment securities gains 4,851 9 3 2,142 Other noninterest income 47,645 47,676 45,471 47,296 Noninterest expenses 179,172 135,114 129,905 157,599 Income (loss) before income taxes and cumulative effect of the change in accounting for income taxes (28,493) 23,748 31,736 (6,638) Cumulative effect of the change in accounting for income taxes 38,962 -- -- -- Net income 23,495 40,916 46,887 59,060 Income (loss) per common share* Income (loss) before cumulative effect of the change in accounting for income taxes Primary (.35) .79 .87 1.10 Fully diluted (.35) .78 .86 1.08 Cumulative effect of the change in accounting for income taxes Primary .83 -- -- -- Fully diluted .83 -- -- -- Net income Primary .48 .79 .87 1.10 Fully diluted .48 .78 .86 1.08 Cash dividends per common share -- -- -- -- Weighted average common shares and common share equivalents* Primary 46,973 50,715 52,969 53,030 Fully diluted 47,042 52,277 54,601 54,610 ======== ======== ======== ======== *For the quarter ended March 31, 1993, convertible subordinated debentures for fully diluted are anti-dilutive and have been excluded from the per share computations.
68 1of2 CONSOLIDATED NOTES (continued)
Quarters Ended 1992 ____________________________________________ (In thousands, except per share data) 3/31 6/30 9/30 12/31 _______________________________________________________________________________________ Interest income $297,480 $285,468 $239,992 $228,736 Interest expense 173,410 144,376 117,596 106,630 Net interest income 124,070 141,092 122,396 122,106 Provision for loan losses 46,480 26,449 17,689 47,321 Noninterest income Investment securities gains 12,462 633 18,051 21,607 Net gains on disposition of assets (see Note 2) 10,200 9,970 975 14,063 Other noninterest income 61,651 54,226 48,719 48,339 Noninterest expenses Restructuring charges (see Note 2) 25,500 -- -- (3,000) Other noninterest expenses 164,821 170,600 154,623 150,205 Income (loss) before income taxes (28,418) 8,872 17,829 11,589 Net income (loss) (29,044) 7,814 17,052 11,206 Income (loss) per primary common share* (.79) .18 .38 .22 Income (loss) per fully diluted common share* (.79) .18 .38 .22 Cash dividends per common share -- -- -- -- Weighted average common shares and common share equivalents* Primary 38,097 38,396 42,837 46,732 Fully diluted 38,097 38,526 42,837 46,889 ======== ======== ======== ======== *For the quarter ended March 31, 1992, common share equivalents for both primary and fully diluted are anti-dilutive and have been excluded from the per share computations. Convertible subordinated debentures for fully diluted EPS are anti-dilutive and have been excluded from the per share computations for all periods presented.
29. SELECT FINANCIAL DATA OF MIDLANTIC BANKS INC. AND SUBSIDIARIES The following is condensed financial information for MBI and Subsidiaries:
INCOME STATEMENT DATA FOR THE YEAR ENDED DECEMBER 31 (In thousands) 1993 1992 1991 _________________________________________________________________________________________________________ Net interest income $ 375,283 $309,617 $ 313,874 Net interest income (loss) after provision for loan losses 313,283 210,517 (140,546) Noninterest income 175,053 260,712 208,710 Noninterest expenses 461,229 494,225 537,818 Income (loss) before income taxes 27,107 (22,996) (469,654) Income tax (benefit) expense (100,444) 1,954 (33,330) Income (loss) before cumulative effect of the change in accounting for income taxes 127,551 (24,950) (436,324) Cumulative effect of the change in accounting for income taxes 24,570 -- -- Net income (loss) 152,121 (24,950) (436,324) ========= ======== =========
68 2of2
BALANCE SHEET DATA AT DECEMBER 31 (In thousands) 1993 1992 _______________________________________________________________________________ ASSETS Money market investments $ 1,353,711 $ 1,539,374 Investment securities 2,010,684 1,753,186 Net loans 5,424,490 5,587,419 Total assets 10,244,549 10,493,403 LIABILITIES AND SHAREHOLDER'S EQUITY Noninterest-bearing demand deposits 2,220,702 2,180,462 Savings and time deposits 6,350,264 7,013,498 Short-term borrowings 467,960 226,727 Long-term debt 86,752 137,112 Total liabilities 9,242,698 9,703,528 Shareholder's equity 1,001,851 789,875 =========== ===========
30. LENDING AND DIVIDEND LIMITATIONS Under federal law, subject to exceptions (including transactions between MC's bank subsidiaries), no bank subsidiary of MC may extend credit to MC or to its affiliates on terms and under circumstances which are not substantially the same or at least as favorable to the bank subsidiary as comparable extensions of credit to nonaffiliates and no extension of credit may be made by a bank subsidiary of MC to MC or its affiliates which is in excess of 10 percent of the capital stock and surplus of such subsidiary or in excess of 20 percent of the capital and surplus of such subsidiary as to extensions of credit to MC and its affiliates in the aggregate. Such extensions of credit, with limited exceptions, must be fully collateralized. The approval of bank regulatory authorities is required if dividends declared in any year by a national bank exceed the bank's net profits for that year combined with the retained profits of that bank for the two immediately preceding years. Pennsylvania state-chartered banks may pay dividends out of accumulated retained earnings, provided that capital remains unimpaired and remaining surplus equals 100 percent of capital stock. National banks are prohibited by law from declaring dividends when the bank has losses equal to or exceeding the bank's undivided profits and no dividends can be paid in an amount greater than the bank's net profits then on hand after deducting losses and bad debts. However, bank regulatory authorities are authorized to prohibit banks and bank holding companies from paying dividends which would constitute an unsafe and 69 1of2 Midlantic Corporation and Subsidiaries unsound banking practice. The Board of Governors of the Federal Reserve and the OCC have indicated that it would generally be an unsafe and unsound banking practice for banks to pay dividends except out of current operating earnings. Capital requirements imposed by federal and state regulators further limit dividends available to MC from its banks. Under its agreement with the OCC, MNB, which had shareholder's equity of $878.829 million at December 31, 1993, may not declare dividends without the approval of the OCC (see Note 31). Under its agreement with the the FRB, MC is restricted from paying dividends without the prior written approval of the FRB (see Note 31). CB, which had shareholder's equity of $292.614 million at year-end 1993, is prohibited in certain circumstances from paying dividends without the advance approval of the Federal Deposit Insurance Corporation and the Pennsylvania Department of Banking. CB has paid uninterrupted quarterly dividends to MC since the third quarter of 1992. MC and MNB have not paid dividends since the third quarter and first quarter of 1990, respectively. 31. REGULATORY MATTERS The Board of MC entered into a written agreement (the "FRB Agreement") with the FRB in May 1991. In connection with the FRB Agreement, MC reviewed various aspects of its operations including credit risk management, the assessment of loan loss reserve adequacy, management succession, compensation and severance policies, monitoring of intercompany transactions and its capital, liquidity and operating plans. MC also agreed that it will not pay dividends on its common or preferred stock without the prior written approval of the FRB and will not incur certain indebtedness. Pursuant to a written agreement (the "OCC Agreement") with the Office of the Comptroller of the Currency ("OCC"), which became effective December 31, 1990, the Board of MNB committed MNB to certain restrictions and objectives related to such areas as management structure and practices, loan administration, monitoring of asset quality, liquidity, monitoring of intercompany transactions, capital adequacy and development of capital and profit plans. In July 1991, MNB negotiated a written amendment to the OCC Agreement which removed specified capital ratios pursuant to which MNB was required to submit a capital program ("Capital Program"). The Capital Program was approved by the OCC on October 10, 1991 and a revised Capital Program was approved by the OCC in September 1992. MC and MNB maintain ongoing programs to monitor and maintain compliance with all applicable regulatory agreements. MC believes that, in all material respects, it is in compliance with the FRB Agreement and that MNB is in compliance with the OCC Agreement. 69 2of2 Bank regulators currently establish several capital ratios as guidelines for banking institutions such as Midlantic and its bank subsidiaries. The tier 1 ratio relates shareholders' equity, net of goodwill, certain intangibles and a portion of deferred tax assets, to total risk-weighted assets (including the credit risk equivalent of certain off-balance sheet items). The total capital ratio relates the sum of tier 1 capital, qualifying long-term debt and a portion of the allowance for loan losses to total risk-weighted assets. The leverage ratio relates tier 1 equity to total assets, reduced by goodwill, certain intangibles and a portion of deferred tax assets. The minimum regulatory guidelines for these capital ratios are 4 percent, 8 percent and 3 percent, respectively. Midlantic and each of its bank subsidiaries currently exceed the aforementioned capital ratio minimums. At December 31, 1993, risk- based and leverage ratios for Midlantic and its two bank subsidiaries are:
Tier 1 Total Leverage Capital Ratio Capital Ratio Ratio _____________________________________________________________________ Midlantic 9.28% 13.29% 6.81% MNB 11.03 12.32 7.89 CB 9.88 11.15 7.79
As part of ongoing compliance with its agreements with the FRB and the OCC, Midlantic submits updated operating plans for both of its bank subsidiaries along with projected effects on the banks' capital plans. 70 INDEPENDENT AUDITOR'S REPORT Coopers & Lybrand Independent Certified Public Accountants Board of Directors and Shareholders One Sylvan Way Midlantic Corporation Parsippany, New Jersey 07054 We have audited the accompanying consolidated balance sheet of Midlantic Corporation and Subsidiaries as of December 31, 1993 and 1992, and the related consolidated statements of income, changes in shareholders' equity and cash flows for each of the three years in the period ended December 31, 1993. These consolidated financial statements are the responsibility of Midlantic Corporation's management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the consolidated financial position of Midlantic Corporation and Subsidiaries as of December 31, 1993 and 1992, and the consolidated results of their operations and their cash flows for each of the three years in the period ended December 31, 1993, in conformity with generally accepted accounting principles. As discussed in Notes 1, 21 and 24 of notes to consolidated financial statements, Midlantic Corporation changed its methods of accounting for postretirement benefits other than pensions and income taxes in 1993. Coopers & Lybrand January 20, 1994 71 1OF2 Midlantic Corporation and Subsidiaries CONSOLIDATED SUMMARY OF INCOME (In thousands, except share and per share data)
YEAR ENDED DECEMBER 31 1993 1992 1991 1990 1989 ____________________________________________________________________________________________________ INTEREST INCOME Interest and fees on loans $ 654,770 $ 833,709 $1,420,674 $1,873,761 $1,896,951 Interest on investment securities Taxable interest income 91,036 171,188 200,144 167,648 124,294 Tax-exempt interest income 1,012 10,233 22,292 34,999 36,024 Interest on deposits with banks 18,319 5,869 22,814 29,020 26,048 Interest on other short-term investments 51,770 30,677 63,438 88,183 20,232 _________ __________ __________ __________ __________ Total interest income 816,907 1,051,676 1,729,362 2,193,611 2,103,549 _________ __________ __________ __________ __________ INTEREST EXPENSE Interest on deposits 262,886 483,154 1,011,800 1,175,719 985,666 Interest on short-term borrowings 11,586 17,341 50,759 152,925 215,607 Interest on long-term debt 36,385 41,517 42,220 42,178 30,749 _________ __________ __________ __________ __________ Total interest expense 310,857 542,012 1,104,779 1,370,822 1,232,022 _________ __________ __________ __________ __________ Net interest income 506,050 509,664 624,583 822,789 871,527 Provision for loan losses 79,000 137,939 640,402 694,221 190,477 _________ __________ __________ __________ __________ Net interest income (loss) after provision for loan losses 427,050 371,725 (15,819) 128,568 681,050 NONINTEREST INCOME Trust income 41,459 46,776 56,156 52,725 47,765 Service charges on deposit accounts 78,815 79,478 78,188 70,848 60,073 Investment securities gains (losses) 7,005 52,753 (2,890) (16,360) 1,552 Mortgage banking fees -- 6,361 32,459 32,616 21,095 Other 67,814 115,528 93,466 159,270 85,543 _________ __________ __________ __________ __________ Total noninterest income 195,093 300,896 257,379 299,099 216,028 _________ __________ __________ __________ __________ 622,143 672,621 241,560 427,667 897,078 _________ __________ __________ __________ __________ NONINTEREST EXPENSES Salaries and benefits 219,332 257,221 345,679 336,958 319,325 Net occupancy 44,622 51,410 61,566 63,690 54,877 Equipment rental and expense 26,881 35,776 43,529 44,768 40,590 Other real estate owned, net 134,337 99,744 122,999 56,700 4,807 FDIC assessment charges 33,841 34,090 40,433 22,154 12,973 Legal and professional fees 51,511 51,403 50,803 39,273 29,382 Other 91,266 133,105 163,330 159,963 142,161 _________ __________ __________ __________ __________ Total noninterest expenses 601,790 662,749 828,339 723,506 604,115 _________ __________ __________ __________ __________ 71 2OF2 Income (loss) before income taxes and cumulative effect of the change in accounting for income taxes 20,353 9,872 (586,779) (295,839) 292,963 Income tax (benefit) expense (111,043) 2,844 (43,476) (100,834) 86,702 _________ __________ __________ __________ __________ Income (loss) before cumulative effect of the change in accounting for income taxes 131,396 7,028 (543,303) (195,005) 206,261 Cumulative effect of the change in accounting for income taxes 38,962 -- -- -- -- _________ __________ __________ __________ __________ NET INCOME (LOSS) $ 170,358 $ 7,028 $ (543,303) $ (195,005) $ 206,261 ========= ========== ========== ========== ========== INCOME (LOSS) APPLICABLE TO PRIMARY COMMON SHARES * Income (loss) before cumulative effect of the change in accounting for income taxes $ 127,770 $ 3,356 $ (547,115) $ (198,817) $ 204,979 Net income (loss) 166,732 3,356 (547,115) (198,817) 204,979 ========= ========== ========== ========== ========== INCOME (LOSS) APPLICABLE TO FULLY DILUTED COMMON SHARES* Income (loss) before cumulative effect of the change in accounting for income taxes $ 131,854 $ 3,356 $ (547,115) $ (198,817) $ 209,063 Net income (loss) 170,816 3,356 (547,115) (198,817) 209,063 ========= ========== ========== ========== ========== INCOME (LOSS) PER COMMON SHARE* Income (loss) before cumulative effect of the change in accounting for income taxes Primary $2.51 $.08 $(14.36) $(5.22) $5.37 Fully diluted 2.51 .08 (14.36) (5.22) 5.27 Cumulative effect of the change in accounting for income taxes Primary .76 -- -- -- -- Fully diluted .74 -- -- -- -- Net income (loss) Primary 3.27 .08 (14.36) (5.22) 5.37 Fully diluted 3.25 .08 (14.36) (5.22) 5.27 ========= ========== ========== ========== ========== AVERAGE COMMON SHARES AND COMMON SHARE EQUIVALENTS* Primary 50,943 41,569 38,095 38,097 38,153 Fully diluted 52,569 41,954 38,095 38,097 39,705 ========= ========== ========== ========== ========== *Common share equivalents for both primary and fully diluted in 1991 and 1990 and convertible subordinated debentures for fully diluted in 1992, 1991 and 1990 are anti-dilutive and have been excluded from the per share computations.
72 1OF2 Midlantic Corporation and Subsidiaries COMPARATIVE CONSOLIDATED AVERAGE BALANCE SHEET WITH RESULTANT INTEREST AND AVERAGE RATES(1) (In thousands)
1993 1992 _____________________________ _______________________________ AVERAGE AVERAGE Average Average BALANCE INTEREST RATE Balance Interest Rate ___________________________________________________________________________________________________________________ ASSETS Interest-earning assets Interest-bearing deposits $ 530,335 $ 18,319 3.45% $ 145,859 $ 5,869 4.02% Other short-term investments 1,414,695 51,770 3.66 863,056 30,677 3.55 U.S. Treasury securities 1,130,657 44,375 3.92 2,058,784 131,355 6.38 Obligations of U.S. government agencies 723,501 42,761 5.91 421,350 33,311 7.91 Obligations of states and political subdivisions 10,773 1,012 9.39 151,655 10,233 6.75 Other securities 70,224 3,900 5.55 112,014 6,522 5.82 ___________ ________ ____ ___________ __________ ____ Total investment securities 1,935,155 92,048 4.76 2,743,803 181,421 6.61 ___________ ________ ____ ___________ __________ ____ Commercial, financial and foreign loans 3,096,820 246,849 7.97 4,273,349 306,217 7.17 Real estate loans (2) 3,463,730 245,896 7.10 4,687,987 332,455 7.09 Loans to individuals 1,949,598 162,025 8.31 2,054,468 195,037 9.49 ___________ ________ ____ ___________ __________ ____ Total loans (3)(4)(5) 8,510,148 654,770 7.69 11,015,804 833,709 7.57 ___________ ________ ____ ___________ __________ ____ Total interest-earning assets 12,390,333 816,907 6.59 14,768,522 1,051,676 7.12 ___________ ________ ____ ___________ __________ ____ Noninterest-earning assets Cash and due from banks 790,118 889,332 Other assets 1,137,139 1,424,341 Allowance for loan losses (571,508) (804,258) ___________ ___________ Total noninterest-earning assets 1,355,749 1,509,415 ___________ ___________ Total assets $13,746,082 $16,277,937 ___________ ___________ LIABILITIES AND SHAREHOLDERS' EQUITY Interest-bearing liabilities Domestic savings and time deposits $ 9,155,117 262,517 2.87 $11,524,817 482,648 4.19 Overseas branch deposits 11,243 369 3.28 12,739 506 3.97 Short-term borrowings 394,391 11,586 2.94 525,200 17,341 3.30 Long-term debt 396,217 36,385 9.18 443,213 41,517 9.37 ___________ ________ ____ ___________ __________ ____ Total interest-bearing liabilities 9,956,968 310,857 3.12 12,505,969 542,012 4.33 ___________ ________ ____ ___________ __________ ____ Noninterest-bearing liabilities and shareholders' equity Demand deposits 2,616,243 2,759,284 Other liabilities 199,393 249,283 ___________ ___________ Total noninterest-bearing liabilities 2,815,636 3,008,567 ___________ ___________ Shareholders' equity 973,478 763,401 ___________ ___________ Total liabilities and shareholders' equity $13,746,082 $16,277,937 ___________ ___________ 72 2OF2 NET INTEREST INCOME $506,050 $ 509,664 ======== ========== INTEREST INCOME AS A PERCENT OF AVERAGE INTEREST-EARNING ASSETS 6.59% 7.12% ==== ==== INTEREST EXPENSE AS A PERCENT OF AVERAGE INTEREST-EARNING ASSETS 2.51% 3.67% ==== ==== NET INTEREST MARGIN (6) 4.08% 3.45% ==== ==== (1) Interest income and average rates are not presented on a tax-equivalent basis. (2) Data for 1993 includes loans that were sold in bulk sales or identified for bulk sale. (3) Includes loan fees. Such income is not significant. (4) Includes nonaccrual loans. (5) Net of unearned income. (6) Net interest margin is net interest income as a percent of average interest-earning assets.
73 1OF2
1991 1990 1989 ________________________________ ________________________________ ________________________________ Average Average Average Average Average Average Balance Interest Rate Balance Interest Rate Balance Interest Rate _________________________________________________________________________________________________________ $ 323,717 $ 22,814 7.05% $ 342,740 $ 29,020 8.47% $ 276,723 $ 26,048 9.41% 1,042,439 63,438 6.09 1,063,757 88,183 8.29 222,577 20,232 9.09 1,962,382 152,922 7.79 1,499,059 132,245 8.82 1,118,018 96,907 8.67 391,723 34,511 8.81 238,728 21,715 9.10 158,641 14,101 8.89 321,718 22,292 6.93 519,780 34,999 6.73 525,795 36,024 6.85 182,560 12,711 6.96 172,516 13,688 7.93 185,014 13,286 7.18 ___________ __________ _____ ___________ __________ _____ ___________ __________ _____ 2,858,383 222,436 7.78 2,430,083 202,647 8.34 1,987,468 160,318 8.07 ___________ __________ _____ ___________ __________ _____ ___________ __________ _____ 6,280,219 559,555 8.91 7,461,958 780,458 10.46 6,917,916 798,692 11.55 6,439,179 552,464 8.58 7,003,784 716,293 10.23 6,284,274 701,216 11.16 2,863,128 308,655 10.78 3,378,938 377,010 11.16 3,472,405 397,043 11.43 ___________ __________ _____ ___________ __________ _____ ___________ __________ _____ 15,582,526 1,420,674 9.12 17,844,680 1,873,761 10.50 16,674,595 1,896,951 11.38 ___________ __________ _____ ___________ __________ _____ ___________ __________ _____ 19,807,065 1,729,362 8.73 21,681,260 2,193,611 10.12 19,161,363 2,103,549 10.98 ___________ __________ _____ ___________ __________ _____ ___________ __________ _____ 1,088,692 1,372,440 1,323,534 1,742,436 1,382,958 1,002,715 (836,123) (528,922) (296,103) ___________ ___________ ___________ 1,995,005 2,226,476 2,030,146 ___________ ___________ ___________ $21,802,070 $23,907,736 $21,191,509 ___________ ___________ ___________ $16,005,949 1,010,425 6.31 $16,195,692 1,167,331 7.21 $13,202,771 976,322 7.39 20,371 1,375 6.75 97,518 8,388 8.60 95,684 9,344 9.77 908,165 50,759 5.59 1,926,182 152,925 7.94 2,391,705 215,607 9.01 461,013 42,220 9.16 448,946 42,178 9.39 325,057 30,749 9.46 ___________ __________ _____ ___________ __________ _____ ___________ __________ _____ 17,395,498 1,104,779 6.35 18,668,338 1,370,822 7.34 16,015,217 1,232,022 7.69 ___________ __________ _____ ___________ __________ _____ ___________ __________ _____ 3,047,091 3,414,732 3,314,240 326,120 373,479 417,482 ___________ ___________ ___________ 3,373,211 3,788,211 3,731,722 ___________ ___________ ___________ 1,033,361 1,451,187 1,444,570 ___________ ___________ ___________ $21,802,070 $23,907,736 $21,191,509 ___________ ___________ ___________ 73 2OF2 $ 624,583 $ 822,789 $ 871,527 ========== ========== ========== 8.73% 10.12% 10.98% ===== ===== ===== 5.58% 6.33% 6.43% ===== ===== ===== 3.15% 3.79% 4.55% ===== ===== =====
74 Midlantic Corporation and Subsidiaries SUMMARY OF CONSOLIDATED QUARTERLY INFORMATION (In thousands)
December 31 September 30 June 30 March 31 December 31 FOR THE THREE MONTHS ENDED 1993 1993 1993 1993 1992 _______________________________________________________________________________________________________ NET INTEREST INCOME $ 131,523 $ 130,167 $ 126,177 $ 118,183 $ 122,106 AVERAGES Interest-earning assets Money market investments $ 1,517,296 $ 1,893,256 $ 2,170,642 $ 2,198,926 $ 1,669,035 Investment securities 2,286,719 1,902,459 1,714,446 1,836,996 2,632,092 Loans 8,481,633 8,455,081 8,391,929 8,711,949 9,709,616 Total interest-earning assets 12,285,648 12,250,796 12,277,017 12,747,871 14,010,743 Interest-bearing liabilities Interest-bearing deposits 8,798,017 8,994,483 9,252,429 9,620,511 10,602,108 Short-term borrowings 421,955 348,547 376,081 430,981 522,020 Long-term debt 386,749 386,805 390,869 420,445 437,339 Total interest-bearing liabilities 9,606,721 9,729,835 10,019,379 10,471,937 11,561,467 Shareholders' equity 1,078,613 1,026,103 935,549 853,647 852,498 ___________ ___________ ___________ ___________ ___________ AVERAGE YIELDS EARNED Interest-earning assets Money market investments 3.32% 3.73% 3.63% 3.67% 3.24% Investment securities 4.18 4.47 4.98 5.57 5.84 Loans 7.66 7.69 7.84 7.59 7.23 Total interest-earning assets 6.48 6.58 6.69 6.62 6.49 ___________ ___________ ___________ ___________ ___________ AVERAGE RATES PAID Interest-bearing liabilities Interest-bearing deposits 2.58% 2.72% 2.90% 3.25% 3.47% Short-term borrowings 2.90 2.94 3.04 2.89 2.87 Long-term debt 9.08 9.08 9.10 9.46 9.36 Total interest-bearing liabilities 2.86 2.98 3.15 3.48 3.67 ___________ ___________ ___________ ___________ ___________ NET INTEREST MARGIN 4.25% 4.22% 4.12% 3.76% 3.47% ___________ ___________ ___________ ___________ ___________ OPERATING RATIOS Return on average assets 1.72% 1.37% 1.20% .68% .29% Return on average common equity 22.43 18.69 18.12 11.40 5.11 Return on average total equity 21.72 18.13 17.54 11.16 5.23 ___________ ___________ ___________ ___________ ___________ LOAN LOSS RATIOS As a % of total period-end loans, net of unearned income Allowance for loan losses at period-end 4.74% 5.96% 6.38% 6.84% 7.41% Nonaccrual loans at period-end 3.19 5.60 6.23 7.10 9.04 As a % of average loans, net of unearned income Net charge-offs* 1.75 1.91 2.82 1.35 4.69 Provision for loan losses 1.40 .66 .72 .93 1.94 =========== =========== =========== =========== =========== *Ratios for all four quarters of 1993 exclude charge-offs on loans that were sold in bulk sales or transferred to assets held for accelerated disposition.
75 Midlantic Corporation and Subsidiaries CONSOLIDATED STATISTICAL INFORMATION
1993 1992 1991 1990 1989 ____________________________________________________________________________________________________ BOOK VALUE PER COMMON SHARE(1) $20.56 $17.19 $17.78 $32.10 $38.88 ______ ______ ______ ______ ______ OPERATING RATIOS Net interest margin 4.08% 3.45% 3.15% 3.79% 4.55% Return on average assets 1.24 .04 (2.49) (.82) .97 Return on average common equity 18.05 .47 (55.64) (14.19) 14.36 Return on average total equity 17.50 .92 (52.58) (13.44) 14.28 ______ ______ ______ ______ ______ LIQUIDITY AND FUNDING RATIOS Liquidity ratio(2) 31.61% 29.81% 20.91% 17.33% 11.21% Funding ratio(3) (25.04) (19.18) (3.22) 3.93 20.49 ______ ______ ______ ______ ______ CAPITAL RATIOS Risk-adjusted ratios(4) Tier 1 capital ratio 9.28% 6.83% 4.29% 5.93% 6.50% Total capital ratio 13.29 10.76 7.69 8.86 9.32 Leverage ratio 6.81 5.19 3.43 4.81 5.88 Average shareholders' equity as a % of average assets 7.08 4.69 4.74 6.07 6.82 ______ ______ ______ ______ ______ LOAN LOSS RATIOS As a % of total year-end loans, net of unearned income Allowance for loan losses at year-end 4.74% 7.41% 6.74% 4.38% 2.09% Nonaccrual loans at year-end 3.19 9.04 10.04 6.73 2.54 As a % of average loans, net of unearned income Net charge-offs(5) 1.95 2.49 3.07 1.89 .57 Provision for loan losses .93 1.25 4.11 3.89 1.14 ______ ______ ______ ______ ______ RATIOS: AS A % OF AVERAGE TOTAL DEPOSITS Average total loans, net of unearned income 72.23% 77.05% 81.70% 90.55% 100.47% Average investment securities 16.42 19.19 14.99 12.33 11.86 Average shareholders' equity 8.26 5.34 5.42 7.36 8.70 Average noninterest-bearing demand deposits 22.20 19.30 15.98 17.33 19.95 Average interest-bearing deposits 77.80 80.70 84.02 82.67 80.05 ______ ______ ______ ______ ______ NONFINANCIAL DATA Common shareholders of record 30,804 29,655 30,847 31,115 28,439 Total number of employees 5,863 6,342 9,561 11,637 12,182 Total number of full-time equivalent employees 5,090 5,748 9,086 10,935 11,384 Total number of banking offices 326 331 426 484 484 ______ ______ ______ ______ ______ (1)Assumes conversion of convertible subordinated debentures for the year 1989. (2)Ratio of net short-term assets to net funding liabilities. (3)Total purchased funds and money market investments less investment securities due in one year as a percentage of investment securities due in more than one year and total loans, net of unearned income. (4)Based upon full-implementation regulatory standards in effect at December 31, 1992. (5)Ratio for 1993 excludes charge-offs on those loans that were sold in bulk sales or transferred to assets held for accelerated disposition.
EX-21 4 SUBSIDIARIES LISTING ITEM 14(a)3 - EXHIBIT 21 Midlantic Corporation and Subsidiaries Subsidiaries Listing December 31, 1993 Jurisdiction Owned by of Name Parent Parent Organization ________________________________________________________________________________ Registrant - ---------- Midlantic Corporation -- -- New Jersey Subsidiaries - ------------ Midlantic Banks Inc. Midlantic Corporation Wholly-owned New Jersey Continental Bank* Midlantic Corporation Wholly-owned Pennsylvania Midlantic Securities Corp. Midlantic Corporation Wholly-owned New Jersey Midlantic Funding Corp. Midlantic Corporation Wholly-owned New Jersey Lenders Life Insurance Co. Midlantic Corporation Wholly-owned Arizona Voploans Acquisition Co. Midlantic Corporation Wholly-owned New Jersey Midlantic National Bank* Midlantic Banks Inc. Wholly-owned United States Midlantic Commercial Leasing Corp. Midlantic Banks Inc. Wholly-owned New York Midlantic International Inc. Midlantic Banks Inc. Wholly-owned New Jersey Greater Jersey Mortgage Co. Midlantic Banks Inc. Wholly-owned New Jersey Parkway Management Inc. Midlantic Banks Inc. Wholly-owned New Jersey Central Investment Corp. Midlantic National Wholly-owned New York Bank Midlantic Overseas Ltd. Midlantic National Bank Wholly-owned United States Metuchen Management, Inc. Midlantic National Bank Wholly-owned New Jersey Midlantic National Leasing Midlantic National Corp. Bank Wholly-owned New Jersey Midlantic Financial Services Midlantic National Corp. Bank Wholly-owned Florida Iron Investments Corp. Midlantic National Bank Wholly-owned New Jersey Midlantic Agency Midlantic National Bank Wholly-owned New Jersey 499 Holding Inc. Midlantic National Bank Wholly-owned New Jersey MNL Corporation Midlantic National Bank Wholly-owned New Jersey Parkway Sussex Inc. Midlantic National Bank Wholly-owned New Jersey NE Investment Inc. Midlantic National Bank Wholly-owned New Jersey MNBN Holding Inc. Midlantic National Bank Wholly-owned New Jersey Tournament of Stars, Philadelphia, Inc. Continental Bank Wholly-owned Pennsylvania Continued on next page Continued from prior page Jurisdiction Owned by of Name Parent Parent Organization ________________________________________________________________________________ Lincoln Community Foundation Continental Bank Wholly-owned Pennsylvania Numidia Realty, Inc. Continental Bank Wholly-owned Pennsylvania Lease and Go, Inc. Continental Bank Wholly-owned New Jersey Continental/Von Louhr Inc. Continental Bank Wholly-owned Pennsylvania Midlantic Commercial Co.,Inc. MNBN Holding Inc. Wholly-owned New Jersey Alfieri-Parkway Associates Parkway Management Inc. 50% owned New Jersey * Constitutes a significant subsidiary as defined in Rule 1-02(v) of Regulation S-X. In addition to the subsidaries listed above, Midlantic National Bank, Continental Bank, and MNBN Holding Inc. have 83 subsidiaries, 2 subsidiaries, and 13 subsidiaries, respectively, for the purpose of holding assets acquired through foreclosure and Midlantic Corporation has subsidiaries in the following jurisdictions for the purpose of name saving in such jurisdictions: Connecticut, Delaware, District of Columbia, Florida, Georgia, Indiana, Kentucky, Maryland, Michigan, Missouri, New York, Ohio, South Carolina, Tennessee, Virginia and Wisconsin. EX-23 5 CONSENT OF INDEPENDENT ACCOUNTANTS ITEM 14(a)3 - EXHIBIT 23 Consent of Independent Accountants We consent to the incorporation by reference in the Prospectus constituting part of the Registration Statement on Form S-3 (No. 33-30504) and in the Prospectuses constituting part of the Registration Statements on Form S-8, (Nos. 33-16256, 33-23396 and 33-63222), of Midlantic Corporation of our report, which contains an explanatory paragraph stating that Midlantic Corporation changed its methods of accounting for postretirement benefits other than pensions and income taxes in 1993, dated January 20, 1994, on our audits of the consolidated financial statements of Midlantic Corporation and Subsidiaries as of December 31, 1993 and 1992, and for each of the three years in the period ended December 31, 1993, which report appears on page 70 of the 1993 Annual Report to Shareholders which is incorporated by reference in this Annual Report on Form 10-K. COOPERS & LYBRAND Coopers & Lybrand March 23, 1994 Parsippany, New Jersey EX-4 6 AGREEMENT TO FILE FOR LONG-TERM DEBT ITEM 14(a)3 - EXHIBIT 4 (a) Agreement to File Instruments Regarding Long-term Debt Midlantic Corporation hereby agrees to supply to the Securities and Exchange Commission upon request instruments defining the rights of holders of long-term indebtedness of Midlantic Corporation and its subsidiaries by which consolidated or unconsolidated financial statements are required to be filed with the Form 10-K to which this agreement is an exhibit. MIDLANTIC CORPORATION Date March 23, 1994 By HOWARD I. ATKINS ______________ __________________________ Howard I. Atkins Executive Vice President & Chief Financial Officer EX-10 7 ANNUAL INCENTIVE AND BONUS PLAN MIDLANTIC CORPORATION Midlantic Annual Incentive and Bonus Plan (Approved July 21, 1993) 1. The purpose of the Midlantic Annual Incentive and Bonus Plan is to promote the success of Midlantic Corporation and its affiliated companies (collectively, the "Company") by providing an incentive, through the allocation and payment of cash bonuses and other incentive compensation on an annual basis ("incentive compensation"), to key employees of the Company, to encourage key employees to remain in the employ of the Company and to increase the personal interest of key employees in the continued success and progress of the Company. 2. This Plan shall be administered by the Executive Compensation Committee of the Board of Directors of Midlantic Corporation (the "Committee"). In administering the Plan, the Committee shall have the duties, responsibilities and powers set forth in this Plan. 3. The Committee shall determine from time to time the key employees for the purposes of this Plan, the amount of incentive compensation, if any, that shall be available for allocation and payment under this Plan to key employees, the performance criteria that should be achieved in order for incentive compensation to be paid, whether such performance criteria have been achieved, the allocation of incentive compensation among key employees, the manner and terms and conditions, if any, of payment of the incentive compensation. and all other matters with respect to the Plan. In so doing, the Committee shall make determinations with respect to the Company as a whole, and it may, to the extent the Committee deems it advisable, make determinations with respect to individual business units or functional areas of the Company, whether or not the business unit or functional area is constituted as a separate legal entity. 4. Notwithstanding anything in this Plan to the contrary, to the extent that the Committee determines that any incentive compensation is to be paid under this Plan in stock, stock options, or stock appreciation rights ("stock based compensation"), such stock based compensation shall be paid under, subject to, and in all respects consistent with, the Midlantic Incentive Stock and Stock Option Plan (1986) or any other similar plan of the Company (a "Company stock plan") and any decision of the Committee with respect to stock based compensation shall be deemed to be made only under a Company stock plan and not pursuant to this Plan. 5. The Committee may delegate to a specified officer or officers of the Company any of its duties, responsibilities and powers under this Plan. However, the Committee may not delegate to any officer any determination with respect to such officer's own incentive compensation under this Plan. 6. All determinations under this Plan by the Committee (or by an officer or officers to whom the determination has been duly delegated) shall be conclusive and binding on all affected employees of the Company. 7. This Plan may be amended, suspended or discontinued at any time by the Board or the Committee. 8. This Plan and any action or determination taken hereunder shall not confer upon any employee the right to be retained in the employ of the Company or to continue to be a key employee for the purposes of this Plan. 9. This Plan shall not be deemed an exclusive method of providing incentive compensation for the officers and employees of the Company, nor shall it preclude the Board of Directors of the Company or a duly authorized committee or officers from authorizing or approving other forms of incentive compensation. In addition, to the extent other Company compensation plans or resolutions of the Board of Directors of Midlantic Corporation or of a board of directors of an affiliated company require additional authorizations and approvals for the payment of compensation, nothing in this Plan is intended to supersede those requirements. EX-24 8 POWERS OF ATTORNEY POWER OF ATTORNEY 1993 FORM 10-K KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make, constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E. Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me and in my name (with full power of substitution) to sign, execute, attest, acknowledge and deliver and to do all other acts and things on my behalf as a Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey corporation, as said agent and attorney-in-fact may deem necessary or advisable to enable Midlantic to comply with the Securities Exchange Act of 1934, as amended, and any rules and regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing of annual reports for the year ended December 31, 1993 on Form 10-K (the "Annual Reports") under the Securities Exchange Act of 1934, as amended, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned in his capacity as Director and/or Officer of Midlantic to said Annual Reports, and to any and all amendments thereto, and to any and all instruments and documents filed as part of or in connection with the said Annual Reports or amendments thereto; HEREBY RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents as of the 22nd day of December, 1993. Charles E. Ehinger ______________________________ Charles E. Ehinger Attest: John M. Sperger __________________________ John M. Sperger Vice President & Secretary POWER OF ATTORNEY 1993 FORM 10-K KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make, constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E. Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me and in my name (with full power of substitution) to sign, execute, attest, acknowledge and deliver and to do all other acts and things on my behalf as a Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey corporation, as said agent and attorney-in-fact may deem necessary or advisable to enable Midlantic to comply with the Securities Exchange Act of 1934, as amended, and any rules and regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing of annual reports for the year ended December 31, 1993 on Form 10-K (the "Annual Reports") under the Securities Exchange Act of 1934, as amended, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned in his capacity as Director and/or Officer of Midlantic to said Annual Reports, and to any and all amendments thereto, and to any and all instruments and documents filed as part of or in connection with the said Annual Reports or amendments thereto; HEREBY RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents as of the 22nd day of December, 1993. David F. Girard-diCarlo ______________________________ David F. Girard-diCarlo Attest: John M. Sperger __________________________ John M. Sperger Vice President & Secretary POWER OF ATTORNEY 1993 FORM 10-K KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make, constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E. Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me and in my name (with full power of substitution) to sign, execute, attest, acknowledge and deliver and to do all other acts and things on my behalf as a Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey corporation, as said agent and attorney-in-fact may deem necessary or advisable to enable Midlantic to comply with the Securities Exchange Act of 1934, as amended, and any rules and regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing of annual reports for the year ended December 31, 1993 on Form 10-K (the "Annual Reports") under the Securities Exchange Act of 1934, as amended, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned in his capacity as Director and/or Officer of Midlantic to said Annual Reports, and to any and all amendments thereto, and to any and all instruments and documents filed as part of or in connection with the said Annual Reports or amendments thereto; HEREBY RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents as of the 22nd day of December, 1993. Frederick C. Haab ______________________________ Frederick C. Haab Attest: John M. Sperger __________________________ John M. Sperger Vice President & Secretary POWER OF ATTORNEY 1993 FORM 10-K KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make, constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E. Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me and in my name (with full power of substitution) to sign, execute, attest, acknowledge and deliver and to do all other acts and things on my behalf as a Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey corporation, as said agent and attorney-in-fact may deem necessary or advisable to enable Midlantic to comply with the Securities Exchange Act of 1934, as amended, and any rules and regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing of annual reports for the year ended December 31, 1993 on Form 10-K (the "Annual Reports") under the Securities Exchange Act of 1934, as amended, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned in his capacity as Director and/or Officer of Midlantic to said Annual Reports, and to any and all amendments thereto, and to any and all instruments and documents filed as part of or in connection with the said Annual Reports or amendments thereto; HEREBY RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents as of the 22nd day of December, 1993. Kevork S. Hovnanian ______________________________ Kevork S. Hovnanian Attest: John M. Sperger __________________________ John M. Sperger Vice President & Secretary POWER OF ATTORNEY 1993 FORM 10-K KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make, constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E. Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me and in my name (with full power of substitution) to sign, execute, attest, acknowledge and deliver and to do all other acts and things on my behalf as a Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey corporation, as said agent and attorney-in-fact may deem necessary or advisable to enable Midlantic to comply with the Securities Exchange Act of 1934, as amended, and any rules and regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing of annual reports for the year ended December 31, 1993 on Form 10-K (the "Annual Reports") under the Securities Exchange Act of 1934, as amended, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned in his capacity as Director and/or Officer of Midlantic to said Annual Reports, and to any and all amendments thereto, and to any and all instruments and documents filed as part of or in connection with the said Annual Reports or amendments thereto; HEREBY RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents as of the 22nd day of December, 1993. Aubrey C. Lewis ______________________________ Aubrey C. Lewis Attest: John M. Sperger __________________________ John M. Sperger Vice President & Secretary POWER OF ATTORNEY 1993 FORM 10-K KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make, constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E. Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me and in my name (with full power of substitution) to sign, execute, attest, acknowledge and deliver and to do all other acts and things on my behalf as a Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey corporation, as said agent and attorney-in-fact may deem necessary or advisable to enable Midlantic to comply with the Securities Exchange Act of 1934, as amended, and any rules and regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing of annual reports for the year ended December 31, 1993 on Form 10-K (the "Annual Reports") under the Securities Exchange Act of 1934, as amended, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned in his capacity as Director and/or Officer of Midlantic to said Annual Reports, and to any and all amendments thereto, and to any and all instruments and documents filed as part of or in connection with the said Annual Reports or amendments thereto; HEREBY RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents as of the 22nd day of December, 1993. Desmond P. McDonald ______________________________ Desmond P. McDonald Attest: John M. Sperger __________________________ John M. Sperger Vice President & Secretary POWER OF ATTORNEY 1993 FORM 10-K KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make, constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E. Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me and in my name (with full power of substitution) to sign, execute, attest, acknowledge and deliver and to do all other acts and things on my behalf as a Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey corporation, as said agent and attorney-in-fact may deem necessary or advisable to enable Midlantic to comply with the Securities Exchange Act of 1934, as amended, and any rules and regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing of annual reports for the year ended December 31, 1993 on Form 10-K (the "Annual Reports") under the Securities Exchange Act of 1934, as amended, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned in his capacity as Director and/or Officer of Midlantic to said Annual Reports, and to any and all amendments thereto, and to any and all instruments and documents filed as part of or in connection with the said Annual Reports or amendments thereto; HEREBY RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents as of the 22nd day of December, 1993. William E. McKenna ______________________________ William E. McKenna Attest: John M. Sperger __________________________ John M. Sperger Vice President & Secretary POWER OF ATTORNEY 1993 FORM 10-K KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make, constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E. Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me and in my name (with full power of substitution) to sign, execute, attest, acknowledge and deliver and to do all other acts and things on my behalf as a Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey corporation, as said agent and attorney-in-fact may deem necessary or advisable to enable Midlantic to comply with the Securities Exchange Act of 1934, as amended, and any rules and regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing of annual reports for the year ended December 31, 1993 on Form 10-K (the "Annual Reports") under the Securities Exchange Act of 1934, as amended, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned in his capacity as Director and/or Officer of Midlantic to said Annual Reports, and to any and all amendments thereto, and to any and all instruments and documents filed as part of or in connection with the said Annual Reports or amendments thereto; HEREBY RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents as of the 22nd day of December, 1993. Ralph H. O'Brien ______________________________ Ralph H. O'Brien Attest: John M. Sperger __________________________ John M. Sperger Vice President & Secretary POWER OF ATTORNEY 1993 FORM 10-K KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make, constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E. Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me and in my name (with full power of substitution) to sign, execute, attest, acknowledge and deliver and to do all other acts and things on my behalf as a Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey corporation, as said agent and attorney-in-fact may deem necessary or advisable to enable Midlantic to comply with the Securities Exchange Act of 1934, as amended, and any rules and regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing of annual reports for the year ended December 31, 1993 on Form 10-K (the "Annual Reports") under the Securities Exchange Act of 1934, as amended, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned in his capacity as Director and/or Officer of Midlantic to said Annual Reports, and to any and all amendments thereto, and to any and all instruments and documents filed as part of or in connection with the said Annual Reports or amendments thereto; HEREBY RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents as of the 22nd day of December, 1993. Roy T. Peraino ______________________________ Roy T. Peraino Attest: John M. Sperger __________________________ John M. Sperger Vice President & Secretary POWER OF ATTORNEY 1993 FORM 10-K KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make, constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E. Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me and in my name (with full power of substitution) to sign, execute, attest, acknowledge and deliver and to do all other acts and things on my behalf as a Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey corporation, as said agent and attorney-in-fact may deem necessary or advisable to enable Midlantic to comply with the Securities Exchange Act of 1934, as amended, and any rules and regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing of annual reports for the year ended December 31, 1993 on Form 10-K (the "Annual Reports") under the Securities Exchange Act of 1934, as amended, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned in his capacity as Director and/or Officer of Midlantic to said Annual Reports, and to any and all amendments thereto, and to any and all instruments and documents filed as part of or in connection with the said Annual Reports or amendments thereto; HEREBY RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents as of the 22nd day of December, 1993. Ernest L. Ransome, III ______________________________ Ernest L. Ransome, III Attest: John M. Sperger __________________________ John M. Sperger Vice President & Secretary POWER OF ATTORNEY 1993 FORM 10-K KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make, constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E. Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me and in my name (with full power of substitution) to sign, execute, attest, acknowledge and deliver and to do all other acts and things on my behalf as a Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey corporation, as said agent and attorney-in-fact may deem necessary or advisable to enable Midlantic to comply with the Securities Exchange Act of 1934, as amended, and any rules and regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing of annual reports for the year ended December 31, 1993 on Form 10-K (the "Annual Reports") under the Securities Exchange Act of 1934, as amended, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned in his capacity as Director and/or Officer of Midlantic to said Annual Reports, and to any and all amendments thereto, and to any and all instruments and documents filed as part of or in connection with the said Annual Reports or amendments thereto; HEREBY RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents as of the 22nd day of December, 1993. Ronald Rubin ______________________________ Ronald Rubin Attest: John M. Sperger __________________________ John M. Sperger Vice President & Secretary POWER OF ATTORNEY 1993 FORM 10-K KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make, constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E. Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me and in my name (with full power of substitution) to sign, execute, attest, acknowledge and deliver and to do all other acts and things on my behalf as a Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey corporation, as said agent and attorney-in-fact may deem necessary or advisable to enable Midlantic to comply with the Securities Exchange Act of 1934, as amended, and any rules and regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing of annual reports for the year ended December 31, 1993 on Form 10-K (the "Annual Reports") under the Securities Exchange Act of 1934, as amended, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned in his capacity as Director and/or Officer of Midlantic to said Annual Reports, and to any and all amendments thereto, and to any and all instruments and documents filed as part of or in connection with the said Annual Reports or amendments thereto; HEREBY RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents as of the 22nd day of December, 1993. B.P. Russell ______________________________ B.P. Russell Attest: John M. Sperger __________________________ John M. Sperger Vice President & Secretary POWER OF ATTORNEY 1993 FORM 10-K KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make, constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E. Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me and in my name (with full power of substitution) to sign, execute, attest, acknowledge and deliver and to do all other acts and things on my behalf as a Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey corporation, as said agent and attorney-in-fact may deem necessary or advisable to enable Midlantic to comply with the Securities Exchange Act of 1934, as amended, and any rules and regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing of annual reports for the year ended December 31, 1993 on Form 10-K (the "Annual Reports") under the Securities Exchange Act of 1934, as amended, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned in his capacity as Director and/or Officer of Midlantic to said Annual Reports, and to any and all amendments thereto, and to any and all instruments and documents filed as part of or in connection with the said Annual Reports or amendments thereto; HEREBY RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents as of the 22nd day of December, 1993. Fred R. Sullivan ______________________________ Fred R. Sullivan Attest: John M. Sperger __________________________ John M. Sperger Vice President & Secretary POWER OF ATTORNEY 1993 FORM 10-K KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make, constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E. Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me and in my name (with full power of substitution) to sign, execute, attest, acknowledge and deliver and to do all other acts and things on my behalf as a Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey corporation, as said agent and attorney-in-fact may deem necessary or advisable to enable Midlantic to comply with the Securities Exchange Act of 1934, as amended, and any rules and regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing of annual reports for the year ended December 31, 1993 on Form 10-K (the "Annual Reports") under the Securities Exchange Act of 1934, as amended, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned in his capacity as Director and/or Officer of Midlantic to said Annual Reports, and to any and all amendments thereto, and to any and all instruments and documents filed as part of or in connection with the said Annual Reports or amendments thereto; HEREBY RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents as of the 22nd day of December, 1993. Harold L. Yoh, Jr. ______________________________ Harold L. Yoh, Jr. Attest: John M. Sperger __________________________ John M. Sperger Vice President & Secretary POWER OF ATTORNEY 1993 FORM 10-K KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make, constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E. Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me and in my name (with full power of substitution) to sign, execute, attest, acknowledge and deliver and to do all other acts and things on my behalf as a Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey corporation, as said agent and attorney-in-fact may deem necessary or advisable to enable Midlantic to comply with the Securities Exchange Act of 1934, as amended, and any rules and regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing of annual reports for the year ended December 31, 1993 on Form 10-K (the "Annual Reports") under the Securities Exchange Act of 1934, as amended, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned in his capacity as Director and/or Officer of Midlantic to said Annual Reports, and to any and all amendments thereto, and to any and all instruments and documents filed as part of or in connection with the said Annual Reports or amendments thereto; HEREBY RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents as of the 22nd day of December, 1993. Arthur J. Kania ______________________________ Arthur J. Kania Attest: John M. Sperger __________________________ John M. Sperger Vice President & Secretary POWER OF ATTORNEY 1993 FORM 10-K KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make, constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E. Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me and in my name (with full power of substitution) to sign, execute, attest, acknowledge and deliver and to do all other acts and things on my behalf as a Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey corporation, as said agent and attorney-in-fact may deem necessary or advisable to enable Midlantic to comply with the Securities Exchange Act of 1934, as amended, and any rules and regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing of annual reports for the year ended December 31, 1993 on Form 10-K (the "Annual Reports") under the Securities Exchange Act of 1934, as amended, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned in his capacity as Director and/or Officer of Midlantic to said Annual Reports, and to any and all amendments thereto, and to any and all instruments and documents filed as part of or in connection with the said Annual Reports or amendments thereto; HEREBY RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents as of the 22nd day of December, 1993. David F. McBride ______________________________ David F. McBride Attest: John M. Sperger __________________________ John M. Sperger Vice President & Secretary POWER OF ATTORNEY 1993 FORM 10-K KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make, constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E. Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me and in my name (with full power of substitution) to sign, execute, attest, acknowledge and deliver and to do all other acts and things on my behalf as a Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey corporation, as said agent and attorney-in-fact may deem necessary or advisable to enable Midlantic to comply with the Securities Exchange Act of 1934, as amended, and any rules and regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing of annual reports for the year ended December 31, 1993 on Form 10-K (the "Annual Reports") under the Securities Exchange Act of 1934, as amended, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned in his capacity as Director and/or Officer of Midlantic to said Annual Reports, and to any and all amendments thereto, and to any and all instruments and documents filed as part of or in connection with the said Annual Reports or amendments thereto; HEREBY RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents as of the 22nd day of December, 1993. Marcy Syms Merns ______________________________ Marcy Syms Merns Attest: John M. Sperger __________________________ John M. Sperger Vice President & Secretary POWER OF ATTORNEY 1993 FORM 10-K KNOW ALL MEN BY THESE PRESENTS, that I, the undersigned, do hereby make, constitute and appoint each of Joseph H. Kott, Howard I. Atkins and James E. Kelly, signing singly, as my true and lawful agent and attorney-in-fact, for me and in my name (with full power of substitution) to sign, execute, attest, acknowledge and deliver and to do all other acts and things on my behalf as a Director and/or Officer of Midlantic Corporation ("Midlantic"), a New Jersey corporation, as said agent and attorney-in-fact may deem necessary or advisable to enable Midlantic to comply with the Securities Exchange Act of 1934, as amended, and any rules and regulations and requirements of the Securities and Exchange Commission in respect thereof, in connection with the filing of annual reports for the year ended December 31, 1993 on Form 10-K (the "Annual Reports") under the Securities Exchange Act of 1934, as amended, including specifically, but without limiting the generality of the foregoing, the power and authority to sign the name of the undersigned in his capacity as Director and/or Officer of Midlantic to said Annual Reports, and to any and all amendments thereto, and to any and all instruments and documents filed as part of or in connection with the said Annual Reports or amendments thereto; HEREBY RATIFYING AND CONFIRMING all that said agent and attorney-in-fact shall do or cause to be done by virtue thereof. IN WITNESS WHEREOF, the undersigned has subscribed these presents as of the 22nd day of December, 1993. Garry J. Scheuring ______________________________ Garry J. Scheuring Attest: John M. Sperger __________________________ John M. Sperger Vice President & Secretary -----END PRIVACY-ENHANCED MESSAGE-----