ML20206D275

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Meridian Bancorp,Inc 1987 Annual Rept
ML20206D275
Person / Time
Site: Grand Gulf Entergy icon.png
Issue date: 12/31/1987
From: Mccullough S
MERIDIAN BANCORP, INC.
To:
Shared Package
ML20206D247 List:
References
NUDOCS 8811170032
Download: ML20206D275 (58)


Text

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BEST COPYA VAILABLE cor: w nau. mon w a-weas T 'IEE CONSOLTIETED GIOUP OF CDPANIES IHTH W!HCH MERIDIN4 TP!JST COMPANY IS AFFILIATTD BEST COPYA.VAILABLE 8811170032 891111 PJR ADOCK 05000416 F PDC j k:.--...-.--,---.-...--,,,,.---..-,_,..--....,----- . - - ~ , - . .

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ROV 11 '89 10: 35 r15U-FIrft<E rag p,4 i

,' SMeridi:n l FINANOIAL HIGHLIGHTS j Percent Change l RESULTS OF OPERATIONS 1987 1988 1985 5987/85 1936/85 l FOR THE YEAR (Do!!ars in Thousands, Except Per Share Data)

I Net income 879,537 $77,396 $65.832 3% 18%

l l Return cs Average Assets 1,00 % 1.05 % 1.00 %

,' Retum on Avemgo Common Stockhokf6's' Equity 13.61 % 15.19 % 15.66 %

j Eaminge Per Share:

Primary 82.07 $2.06 $1.86 - 11 %

( Fully Diluted 82.00 $1.99 $1.81 1% 10%

{ DMdence DeclarsJ Per l

{ Common Share 5i/)0 $.95 $.88 5% 8% _

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) Common DMdend Payout Ratio 36.03 % 33 66 % 33.32 %

l PINANCIAL CONDITION AT YEAR END Assets $8,388,649 $7,931,909 $7,275,707 6% 9%

i Deposh 80,609,890 56A04.331 $5,763.400 3% 11 %

Loans $5,505,251 $4,956,901 $4,266,578 11 % 16%

l Total Stonkholders' Equdy 8 621,695 $ 564,203 $ 486,352 10% 16% {

l i i Total Stockholders' Equity to Assets 7.41 % 7.11 % 8.68 % i j Dook Value Per Common Shars $15.88 $14.85 $13.18 7% 13%

Market Value Per Common Share 817.13 $21.13 $19.13 -19% 10%

Common Shares Outstanding 36,533,206 35,150,888 33.687,318 4% 4%

j Common Stockholders . 20,913 19,086 15,317 10% 25%

Financ al informaton for a:t periods presented in mts Annual Report has been restated to incluce the resuu of Defaware Trust l Comp:ny. Separate Neiotical financial information for Mordan Bancorp, Inc. and De! aware Trust Company is inchaded in the i

Annual Report on Form 10 K f. led w th the Secunfos and Exchange Commiss' e n. See "SEC Repons* on the ins 4e of the back cover 'y l 1r'structions on obtaining a Form 10 K. i

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NQY 11 '89 10135 MSU-FIN E C Meta P.5 "TOEur StDokhcidcro:

1987 was an important yeu in the development Delaware, with assets of $1,134 066,000 and de.

of u.cridlan Bancorp. De Company completed its posits of $976,626,000 at December 31,1987. In 30th consecuthe year of increased eamings - addition, total assets of the Trust Department the longest current record among the nation's 100 were $4.7 billion at December 31,1987, of which largest bank holding companies eith record $2.3 billion were assets under management.

net income of $79.5 million. Meridian's net income for 1987 was favorably

. Meridian also made significant progress in impacted by the continuing strong camings per-achieving its long. range objectives. The acquis!- formance of its banking subsidiaries. Net interest tion of Delaware Trust Company, which was income improved over last year primarily because completed on January 1,1988, is an impct: ant of growth in the consumer and commercial loan clement of Meridian's growth strategy. Delaware ponfolios. In addition, non interest income also Trust provides Merfdlan with an established pres- increased in 1987 compared to 1986, despite the ence in one of the nation's lead'.ng banking significantly lower level of securities gains during markets. Meridian is at work building on a solid the year. Non. interest expenses, including the base of bustriess in Delaware. provision for possible loan losses, also increased ne Delaware Trust acquisition is one example during 1987.ne results for 1987 were also im-of Meridian's p'rogress in 1987. It was a year for pacted by expenses related to the acquisition of refining the corporate straagles that will guide Delaware Trug wttich aggregated $4,099,000 on Meridian into the next decade. ne strategies an after. tax baals, have given rise to an attitude of confidence at Delaware "Irust also reported record eamings of Merldlan, the type of confidence that is fot.nd in 89,530,000 for 1987, compared to $8,2%,000 in an organization that has chtrted an ambitious 1986, an increase c f 15% Eamings for Delawuc path. Trust were rcduced by merger related expenses Our confidence is based on Meridian's... that agg egated $2,549,000 on an after. tax basis.

o clearly defined growth ob}ecthes. The retums on average assets for Delaware Trust e Measurable service and sales ob}eedves. for 1987 were .87% after merger expenses and o Focused maketplace strategies 1.11% before such expenses. ne retum on aver-e Record of successful xquisitions. age assets in 1986 was .82%

  • Strong management and staff. This strong financial performance exceeded the

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Meridian's business strategies are built on the in!ttal expectations of Meridian's management. As foundation of the Company's statement of pur, a result of this performance, the dilution to Merld-pose and corporate goals. Our long. terra focus is lan's camings resulting from the acquisition is on continuing as a leading independent bank comparable to management's initial projections, holding company that produces consistently despite the sharp decline in the price of Merid-superior retums for its stockholders. For a isn's common stock since the acquisition was detailed look at Merfd!an's goals and stra'egies, announced in May of 1987, Meridian's camings in please read the repon beginning on page 6 1987 were diluted by 13% after merger related expenses and 11% before such expenses.

1987 Earnings Set a Merldlan Reconi First National Bank cf Pike County continued Meridian's eunings of $7.6 537,000 for the yeu its strong performance with 1987 eamings of $2.5 ended December 31,1987, represent an increase million, a 26% increase from 1986 eamings. First of 3% from 1986 camings of $77,396,000. Fully National is the dominant bank in Pike County, the diluted eamings pe share were $2.00 in 1987 fastest growing county in Pennsyh'ania.

compared to $1.99 in 1986. ne success of Meridian's banks reflects the Financial information for all periods has been abilities of our employees and the strength of the restated to include the results of Delawne Trust economy in eastem Pennsyhania and Delaware.

Company. The acquisition of Delawne Tmst was he economy is diversified, and its overall quality accounted for as a pooling of interests. The is not dependent upon the performance of any merger was nlued at approximately $160,000,000 one industry. Regional economic forecasts for and resulted in the issuance of 9.370,000 shares 1988 ue less sanguine than they have been; of Meridian common stock. Delaware Trust is the however, the outlook is for continued growth, third largest commercial banking institution in albeit at a slower pace than in 1987 and 1986.

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f3 snwG A. McCunov@, Chaman aM CW EmutM omcu.

The pre tax earnings contributions from .sierid- first banking acquisition in another state.

ian's mongage and title insurance companies The strategic nature of the acquisition is wo declined in 1987 from their peak levels of 1986. fold: Delaware Trust is an opponunity to increa>e The housing market in 1987 was not as strong as eamings and to build value fo stcx khoiders c d it was in 1986, due primarily to a fall off of de- Delaware is a natural extension of Meridiu s mand for mortgage refinancing and increa.ses in Pennsyhunia banking market. Delawure is ar.

interest rates during the second half of the year. excellent banking temtocv, driven by an ecocomy As a result, the level of mongage loan originations that is outpacing national and eastem Pennspva-decreased in 1987. nia averages. With ntne consecutive years of Total arts at December 31,1987, were increased eamings, Delaware Trust is growing

$8,388,649,000, an increase of 6% from a vear ago, along with its market.

and total deposits were up 3% to $6.609.890,000 With the suppon of Mendian, Delaware Trus is Meridian's loan quality remains good, and its loan aggressively pui3uing new business. especiall . r.

ratios continue to compare favorably to its corporate lending Meridtan bangs to Delaware national peer group The percentage of non- Trust the backing that enables it to offer increased pe' fuming assets to total loans outstanding and lending '.mits and to egand as effons in wi!

other real estate owed at the end of 198' business and agneultural lending represents the lowest level of non performing In our uew. the opponunity of entenng tne assets at any year end dunng the past Ove years Delawwe market uith tu long. term caming, poter'.al supersedes the shon term impae ut u!an E sp.no mto qeta are JNtion Already. the strong eamings at Delature Merf an's acquisition of Delaware Trust Trust and the prudent mlnag-ment of the integra Company marks two important firsts it is the rirst tion of Delaware Trust c.to Mendian are acceleo-acquisition completed under Delaware's new ting the time needed to een out the dilution interstate banking legislation. and it is Mendian's Deasions related to coneidating funmons in 1 ~

~ tov fi les [2i57 it*U-kUmCE tict.A P.28 Pennsylvania and Delawsre will contribute to as a banker, his knowledge of the industry and his redaced operating costs, further hastening the business leadership were instrumental in Merid-lan's evolution as a major regional bank holding esm out.

Our Company was welcomed to Delaware by company.

the state's business and political leaders with Harold Still represents the best of the banking warmth and sincerity.ne state's leaders have business. He is a leader, a humanitarian, a man created a positive environment for business and dedicated to community service. We have bene-econom!c growth. Meridian"s commitment is to flted immeasurably from Harold's association with continue the tradition establPhed by Delaware Meridian, and will continue to do so as Harold Trust Company as an active panicipant among the remains in his role as a director.

state's businesses and communities. Paths of Progress

!.egislation Targets Banking Our goals into the next decade are ambitious.

Of great interest to Meridian is legislation pen- Wrough acquisitions of new companies and ding in the U.S. Congrew that would improve the through intemally generated growth. Meridian has compedtive structure of the f!nancial services the opportunity to grow to a $20 billion organizd indusuy, For example, a bill proposed by Senator tion ly the mid 1990s.

William Proxmtre (D Wisconsin), Chairman of Meridian's emphasis for 1988 and beyond is the Senate Banking Committee, would repeal the to focus on our present businesses, with the Glass Steagall Act,which prohibits bank affilia. specific objective of building a strong banking tions with providers of certain securities products franchise in the Middh Atlantic region. As we move into the next dectde, non bank income will and services.

Other legislathe proposals would provide addi- become an increasingly important element of net income. A major uust and asset management tional opportunities for banks and bank holding companies in the areas of insurance and real business should represent a significant portion estate. Wese bills have provisions that would of non bank income.

maintain the safety and soundness of the banking ne true measure of Meridian's strength is the franchise. Also, each an. bank subsidiary of the long term invenments made in people, in stra, bank holding company would be supervised by tegic planning and in technology. Oppottunity abounds in our market and in our industry. Our the govemmental agency responsible for regu.

lating the product or service :>eing offered. challenge is to manage the business effectively and to use our resources efficiently in order to ne passage of such legislation should have a positive impact for consumers and bank holding capitalize on the opportunity, The financia! sen' ices industry is being companies. For consumers, increased competi.

tion will bring more competithe pricing and pro- reshaped through legislation and through me duct innovation. For bank holding companies, it efforts of visionary managers. The path that Merfd-tan will travel is clearly designed to place the represents the oppoctunity to dh ersify into new markets, tn increase the value of the Company, Company among the leaders of our rapidly chang-and to improve the retum to investors. Ing indusuy. ne fulfillment of that objective Merldlan supports the efforts ofindustry associa. promises to be an exciting joumey.

tions that have lobbled for passage of progressh e 8 *0*"'

Still Retires as Chairman

"$ wp Q.xdf Samuel A. McCullough In January, Harold F. Still, Jr. retired as chairman Chairman and Chief Executive OtTicer of Meridian Bancorp. Harold has had a distin, guished career in banking, beginning in 1946 February 26* 1988 when he joined the Federal Reserve Bank in Philadelphia. Ile Joined Central Penn National -

Bank, one of Meridian's predecessor companies, in 1948. Harold wss elected chairman of Meridian Since tht publication of Meridian's 1986 Annual when the company was formed in June of 1983 Report, four new directors have been elected.

Harold's experience and wise counsel proved Wey are Julius W. Erving, William C. Uckle, imaluable in Meridian's formative years. His skills Charles H. Norris,Jr., and George Strawbe.Jge,Jr.

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' ' Reticctium an balance sheet, with insutlicient attention paid to the j fort).Tno Years of Banking quality of assets being acquired to achieve growth.

Although the goal of safety and soundness was not

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abandoned, the policies required to achieve this goal

{ often were at variance with the exciting and j' challenging drive for growth.

. During the last two decades, growth oriented

. bankers have been innovative and imaginative.

, The liabiluy side of banks' balance sheets, for l .

. example, bears little resemblance today to those i

dominated yers ago by demand and sasings deposits.

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Innovathe changes, chracterized by the revhal in vigorous f2shion of a long dormant federal funds g  : market and by the introduction of negotiable certificates of deposit, caused a s2st influx of funds to most large banks. As this occurred cost, sulatility ,

j andrisk increased.

l F availability of funds spurred bankers to become I f 2 Ive and imentive in the search for loans. The }

) dri or solume caused margins to shrink and quality, l 3

at times, to be questioned. It was in this environment j f ( . that the ill fated, ill considered extension of credit to sovereign foreign nations began to mushroom, an aethity sharply and unwisely accelerated during the l days of the Arab oil embargo.

. Whatever the rnerits of these underlytng changes, ,

they brought to the industry a sense of vitahry,

{

r Harvid F. Stig Jr. retired as Charrman of Meridian I excitement and risk taking, all elements u hich made commercial banking much more attractive to a new l

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\ generation of banken.

j Bancorp inJanuary,1988. Mr. Stiu util remain uith In this challenging emitonment, it continues to be Neridian as a consultant and member of the board of essential that banking leaders reflect on the satal role directora In thu enag Mr. Still reflects on bar 42 par played by the commercial banking industry in our cerrerin bankinf democracy. Despite the changes of the past two decades, despite the arrn al of competitors in the ,

in the post.World war 11 era, from 1945 until the financial services arena, this industry remains the he.ut mid 1960's, the basic thrust of commercial bank policy of the free enterprise system. It is, or should be, the revohrd around a concern for the safety and discriminating dispenser of the credit so essential to soundness of the banks. Policles of the regulatory all elements of our remarkably sibrant market bodies paralleled those of bankers. Both, of course, economy. In so doing, this indusuy alone, among reflected the rnindset of those who had experienced prh2tely owned industries, remains the conduit for the disastrous days of the Depression. much of the money supply so central to the health During this twenty year period, confidence in the and vitality of the nation.

banking system was restored Bank failures were Bank managers of tomorrow must acknowlege the almost unknown. Wah few exceptions, bank balance awesome responsibilities w hich accompany these sheets became sound and solid. Profits were good powers. ney must foctm too, on their heasy Growth tracked the expansion of the nation's responsibilities to share olders, depositors and economy. increasingly, to their employees ney must recognize The industry underwent a marked and lasting that a large element of public tmst continues to be i change during the mid to. late 1960's. A new breed of associated with commeretal banking, a trust which j bort's manager amved on the scene, undaunted by calls for the highest level of moral and c:hical e rnemones of the Depression. To the goal of safety and sundards. We fulfillment of these responsibthries in soundness was added a new and ringing cry for an emaronment which balances growth and dynamism growth. Bank regulators acquiesced. against those basic tenents of safety and soundness,  ;

The werd gromh was ill defined. Too often it will insure that this great industry continues to play its I related solely to the numbers at the bottom of the vital role in the n2 don's economy l

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Paths of Progresa l

! ce year of tne Consttutional Bicentonnial '957 -is an l ,

sopropr ate ro'erence point for Meridian Bancorp Just as out rat!on has grown and prescerod under the gu cance cf ihe Ccnsti-I tut cn. Mond an's ovelution has proceedea under the gu:aance cf r a staterrent of purposo and tne ccrporate goa's denved from it.

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Like the Const tut!cn, Merid'an's gicing crinc oles previce the i

foundation uoon wnich the Company is built These pr;ncipics are assessed. eva'uated and revised wer time to kestp currect w tn t~e j l' env.ronment in wn:ch Mer:d an dces business M Meridian's statemort of purocse and corocrate geals are built en l the concept of tne stakono'cer, Managerrent sets goals basea en its v;ews of how tre CcTpany should fu: fill ;ts respersibilit es to fcur cerc  !

{ l groups.

  • Forits stockhc/cers, Motiotan seeks to precuco acc t ave' age, long term carrirgs trat wal prov de a cons stentiy suceror icvel of return. l I
  • Forits customars, Mon 0an provdes cou tacly p"ceo f.nancial prodacts w>tn prompt, cou' tens and accurate service.

eso ta a f coe'stm Orricer

  • Forits employees, Meridia t prov'ocs meanirgfut employment aro l

the copertun ty fer career grr.wtn ,ased on incivicual et' ort arc merit Mr. Ketchum is responsible for Meridlan Bank's four geographic e for the communites it serve.' Yorician is comm tied to cent nued dMstons and for Meridian Bancorp's inv1vemert in e.rd responsrveness to treir social, economic and ,

I Consumer Market Management. envdonmental reeds, Corporste Market Management and For Verid;an to ach eve its stakeholcer ecjectxes it must meet  !

N '** ' its finare al gea;s. Tre firanc:al gca s irc'ude acn eving a retu'n oa i CnAtonsers foddy are l'ery 4noul- assets in tne Looer cuartile aTo*g its trously pcers 8%d maintainirg  !

l 0 ##0* O ' 9 to i sa sce ass t- densand a return en CcEmon stCCkhoiders' OQu ty in tro tco quart?e aro pro-

.tophisticated bankingproducts send sen ices. The cornpetition for Yd65$0andChcA5lUSSO l these custorners is keen, for The firancial gcal a so recognizes the :mocetarce of ma'ntaAng i jfendian to continus to grou'. H e grow",h in expenses at a rate s:Cwer than asset growin.

hat e to gin'tpeople a good reason for dealing with our cennpantes. Planning Paths

't'e are doing this by prot iding

, Ccrporate goals set the catns ,

.pushty ten (ce and by offerfng along wh en tne Comoany w:ll j Y

products that retuns e alue to the travol To progress n'cng these p t ruxtorner- ,

- 4 patns, Mer o.an's sen.or man.

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ageTont devecCs bustress )

l st'ategies St'ategics dehr0 how

, the business will be m3ragto, I they sct tre o' rect on fo' the

  • Company's subs d ar'es and trey i f help Oirect what market seg-l merts wili be c"DraS'2eo I

conamer sanune Strateg es represcr.t the con-Merc an ts-As ha.* s cWet tra 1 ret Sorsus Cf Vcrc a'i s Oxecuts0 l s*re a Bo as S Ny W aN ieteca d #tn th0 cartcipat en of tro ces,.e w r ,t. w . w n n e I Cevr/ se ce awa VeWa+s ; cati kro aad sta'1rraaagement Yan- ,

sta't; es 4*e %sec on sco:Jeces.W er agers use tre strateQ es as the l se e 's . 0@f easte 9 Peses/,aia  !

.- , 1

! rov 11 'es 10:39 risu-rIrmct roA p.e i

l Inhe' rent in strategic p!anning is an understanding of the environ.

l ment in which Merid an operates Customers today demand conven. .

1 ience, personal and accurate service and t me'y information. These s seMce derrands are in add (ton to product needs Customers are g more wdiing tnan ever to shop for the best rates and terms on depos t ,

, and credit products.

Compet' tion is keen. It wmas from trad,t!cnal sources - commer. I' ,

C:al banks, thrfts, savings banks, credit unions - and from non.cank f f.nancial service companies - brokerage nouses, insurance compa-  ! ,

nies, national re a:!ers, consumer credit compan'ss. Each is aggres. I sNe!y pursuing pref: tab'e market share. As a result, consumers have  !'

choices in today's market that were not avai!able only a few years ago,

'brka: lace Aules

. t The impact for commercial banks is a new set of marketplace rules. I Trad:tional sources of business are being cha:lenged tr/ new competi. (

l ters. For banks to meet tre chat'enge of competst:en, tney must of'er a g  !

comb.nat:en of seMce and products designed to meet the reeds of l

specific customer greeps. -

g-i Meridian 4 build;ng on its abihty to delNer qua',ty sen/ce. Cuality l reg two l l service means treating customers with respect and courtesy, it means v<e crannsa se crer Manc alo'*eer having errployees with a hign !avel of product know! edge, it means l l i error. free process'ng so customers get t:mely, accurate statements. Mr. Troupe is responsible for Merid.

It means devotooing systems tnat provide manages w;th the infer, tan Bancorp's Audit, Controllers, I

mat on they need to make decis'ons.

Copme Mepment. Opme i Planning. Economics, Funds Man-Service quatty is one of the character;stics tnat can give Meridian agement, Imtstor Relations and a Compet tive 80ge. Having good Merger /Consolldadon functions.

service Capabikties is important fron 4: future ennatng,per<per-l fCr retaining ex'st ng bus' ness its e, the acepsisit <ne of Iklan are and for a*tracting new business.

rnut company a ni conertin<te to Sonnce quality ensures that cus. our corporate goalof achter Ing tomers receNe Va'ue frcm the;r superior long.tenn attun:< for re!ationships W1th Meriolan, nur stockholifers. Our chuuenxe A~aining high seMee teve's '" 'o " ** d""M d'"

  • h* '#""'

rcquires a s'Zable rescurCe '" " " " " 8 'I" "'N""

  • Comm4 ment. It is a CCmmitmant lh e results in tentu of e.\penw sn tecnno'ogy and, most irrpor* management cunt res enue ten!!y, a Comm;ttrent in people- j gnm (b. The eMensia e pInnnJnx Merid an's management has  ; effort that occurrot prior to *be made the Comm tment to itWest in seMee ang 3edee coruumation of the mer'ger hat systems and in ski!!s t'a'n ng pro- The ace / to sef accucts ao to cew place <I us uhead of our onxima grams for emp!oyees. Merid(an's C*'3;oe' VC4*onel sorce an t:me'y timetablefor earning out the e: cost wo?mecon os re meu ct e l dHuHan amtiam sunpdent u e soMee strategy empnas.20s qual
  • s seces50t fm0;alsevess company. I VeWATs sa'es at seMee t sW i

can nuuntain #m deduk ity pe'formance in dea'.ing wdh '

customers and .in v,orking w tn VCQVs te4:n t*No stes to it:CQ rtre s4;os eccomnaes av fo ro ee fe! low emp'oyees sucenor ca:romer sevee.

MostAtattve $elling ,

An extens'en cf Merid'an qualty servce is the int'oduction of ovahiy somng Meric an's sa'es strategy recognizes a new reahy f canc al procucts and serv'ces must be so!d. Basers nave trac t,ona!!y j spurned selling, p3eferring tne comfor*ab 0 pcsture of besg retail l ba%ers. Todsy's rrarket demandt banking reta 'ers 7 .

l tov 11 *Es ims tsu-rnm c rah a j -

Mend an is imp:ementing th.s s!'ategy by cuerg tr's sa'es sEs c'

! its emo'oyees Sa'es or:ertaren prcgrams teacn emo'cyees t*at son r; I at Mer.d an s cors/tativo. Trey team how to recognize cus:crrer

! neecs and how to recomrrend Yerician precucts ard scNices that fu:fd mcse reecs.

A sa!es ceveicprrent program begun in Mer.c.aq Bank's S.,sc .e-d '

ranca Val;ey Dvis on in 1987 Fe' ped errc'cyces s gn:f car tly ircrease l l j tre r sa!es performanco. The orog'am is ce;rg exparaca in 1968 te l

1 include tno other Bank div:s: ens. Tre imoortance cf tne prog'am is that ,

) b .t gives emo:oyces a structured acproacn to sa:es Mer d an is also l ret;ning a branch autcmation orogram trat acones systems techro'cgy 1 w as a sales p'eser. tat on tool l

, A strorg servce and sa'es .-

7 l f ,y

  • of Ontat on GNes Mer;d an tre y j

, foundat on to to aggress:ve in / \ . , ,

tre muketo: ace Merid'an's , e ) f,,

marketyace strateQ Os provde b;' ,,.'

focys for tro baak s efforts in g

the Ccrsumer 89d Corrr*erC al IfI ,l \

PussenJ Kuoet V,ce Cha mn markets.

N.

Tne consumer ma'ket st'ategy -

Mr. Kunkelis responsible for Mertd. addresses the n000 to C rect , /d -

f' tan Bancorp Data Procening, Opera, resources to se ected trarket .

tions and loan Adtninistration and segments that offe' Coportun< ties y, .

Y for Meridian Bank Consumer Lending. for g!cwth and prof tab Hty 1.1 Corporeto senWo

.\leridian's philosophy is to int est acc: tion, the strategy recognizes Mecc an s ccipwe tog evas s l In prot en technologs. We hat e in place the.nstems arut thepeople the irrpor*arce of bui\d ng on 's m D

, g sy;C*5k~f ,

te at 01sh'ps With ex st ng resses A.me co*v on ers ; e4-that erushle.\leridian to protide cust n ers. 17 pv:eet m sni c v;te: to ?MC efficient, cost.cffecti te sertice.

Ilyfocatsing on service yt4al/ty as

" Serv ng a Strong Economy str tit r a t el c( at Mer d an's corsumer mar <et strategy ref'ects a stapat norro prco-gli es it on important competit/s , sophy. Tre areas of Pe9rsy'vania and Ce saare ser,ee ey Mar a an l rdge, barks have strong, grow ng CCCncmies Pn!!acelpr a, in pa't'Cular,  ;

was tae ration's sccend ranked metroco tan a'ea for g'cMn :n 1987. l The cetnt es acjacent to tre metrepchtan area are tenefm ng frem j trat grogn in terms o' emp!cyrrent, hcLsirg, tranufactor:rg cutout  ;

aac constmer spero ng As a result. corsbrrer 'enciag has ceci st'crg, w (n a 16 Cercent increase for Ve'c'an >n 1987. Co sumer crecit Lnceraritirg stan-caros rav6 rer# aired conse' vat.ve, wh ch s ref'ectec in the quakty of l tae loan portfolio. DepCS t groMn was rrccest :n 1987, as :t has toen (

'or comme'c al barks CLt.99 tre pas! $0ve's! years. A ccrrb nat on c' dec:in rg rates, ;rtens fy.ng comcetit.cn t'cm bass, anc nen.cank r

alternat;ves fc' ccasumo's has cortr bytea to s ow depos t groMr j Mc' o 39 s aggressvc in g04rg a'1er ccocs.ts un now prod,, cts sucn j as an adjustab'o rate cert.f cate cf ccocsit Ye'ician was t*e f'st )'

comme'c al baa< to successfu"y c"c' t e ac,ustacio rate CD n :s l' mar <et ,

Verician s extorsNe o'anch and autCTated tser re!Acr<s prcvco j l

the co!isery system trat has enabled tac Ccmpany to capture a s gnif- l I leant sra'e of the gromr0 cemand for f narc's! se* vices The Cem- l 8 l

i  :

NoV 11 '68 10:40 MSU-FIrft4CE rCLA p,9 I .. -

t i pany is a!so honing ris direct trarketing e orts. Sa'es campaigns using i mail solicitat cns and te!ephone marketing wu! be confined primarily to ,

~

~

! Mendian's banking territory, j Marketing to exisdng customers in orcer to expand their re'ation-  ! k

ships witn Mordan is an important growth strategy; Merid'an has pro.  ! i ,

l' duct re'ationships w;th more than 500,000 househo!ds in Pennsylva.

l n;a and Do: aware. Ef'erts are d;tected to cross setting add t:enal bank products and to directing customers to other Meridian compan'es for

' [-

l products such as asset rnanagerrent, discount brokerage and )

mortgages in order to satis *y customer needs. i l i

'w e.n Market Imphasis  ; '

l I

Menc'an's corporate market strategy emphas'zes sma!! and m!da!e i niatkut uuninwamus lo ttin yvvy!sphis e va evned by Moem ce verAa.

Rate competitlen has been intensifying with some lenders mering -

j cred:t stancards to attract rew business. This is nct acceptab's to -

l Merid:an. Croc.t quality for Meridian's commere:al lean portfo!io  ;

remains high and is well above peer group averages. Meriden is -

{

meeting rate compet. tion by applying asset rransgement strateses to i min:m2e the impact on interest rate spreads without sacrif,ctng asset AccenC Weams  ;

Pros: cent sw Ch er becutive C'rcor l Quahty.

Mercan Asset Management. Inc. I Meridian serves tre commerci&l market in two ways Sma:I business customers are served by a sta'f of spec'aC$ts within the branch sys. .Verydtan's emphasis la on hntht.

tem. In ado. tion Merician's Small Business Administration tenders l"# relattosubsps 4r/th cl/ents. ,

were PennsyNania's leading producers for the tn'rd consecut!ve year. M'en the stoch nuerkerfen annn. 2 ancanyin mi ber. onmople The midole market is served by the Corporate lending sta'f. Key to l Meridian's success in the commerc'ai ma'ket are tre skill and knowl- I h,',g# f[,)j, ,#"#u ((,'"$,',',"[y  ;

edQO of its Corporate lariders and of its peop's in loan administrat:On- markrt conditions and to help l Merid'an is steadly increasing its share of the commercial market in them through a difficult pe,.tod.

eastern Pennsytvan:a and in De' aware. Loaigrowth has been feeding ,

se(ng n,anable toyour cu3tomers Cff of the healthy req'onal economy Meridian is be00 ming mCre l in good times Is cosy. Heing there inncvatfve in struC!uring ICan transact'ons and in proV; ding non Credit In fough times is the essence of sorvices. the client relatforuhip andI think An ad unct to the commere'al ' " * *e hl'" # #'" " D " V "

rrarket s'trategy is the s'tategy

[,', ",[" " "#"#

re'ated to national and intoma- ,, ,

e t!onal markets. Merid.an tjoes

~

, 4. i ousiness wth national compan:es that have a ma}or presence in the

'g

{

area served by its member

~

banks Merid an partc cates in prevd.cg cred t and non credit serv:ces to na!. oral compan es . .

wre'e credit quah'y anc ma ;'ns rreet Merio:an stancards. Neuened anmemew  :

uma, Saws Wev4walcesavert Meridian's bank nG market in- certuec an t's'e:ea PC thTELECT' '

c:cdes the pcrts at Pni'ade'ph'a s,swn to s.r.an ce row me caf-and Wilm'ngton and is in prcxim- **8 o'r* saws essws Th s Metcal enc,s.v gves ci.svers ity to tre ports of New York and re eo carf otu,3 re.,e., coe.g r ,

nortnern New Jersey and the syses & ms-eW ** c/ crest '

poet of Bamore. Import and seems an crer ete-was une e nu;n io ne saw resang e we 4 export companies a o a growing ,a.we av smenrg

.+.& _a..-=-.~._ 4 wi A - e

(

  • U '55 de u triu-rrrwcc t, u P.H J

j i segment of the reg'enal economy. Yeho'an succorts its customers by l ,

provid:ng trem wth interrat:ona! trado soreces The Company cces l

net oursue interrat cnal croc<ts.

j Real Estate Focus f Verid'an also servos nat>cnal ma'kets tntcugn its feat estate certpa-l nies. Mer:d.an s real estate or:entat'on 's intcugh itt, mortgage ario l t: tie insurance compan es.

1 Mertgage and tt<e ccmpan es in geaoral excerienced lewer earn-l ings in 1987 tran in i986, wn;cn was an unusua4y activo real estate year. At tre end of tre trst ouarter et 1987, interest rates edged up, and tna domara fer recr* gage ref.nancarg feu cons,cerao!y. Heusing starts dectned medestiy, a trend trat *s excected to cost,nLe in 1988 a;tnough hous ng activ;ty in tre Miao's At' ant:c region served by Merld an Mortgage Ccrporat!on !s expected to cutperform rat coal

trends.
  • Tne real estate strategy is to excano tro mortgage canWag busr l

ness i.ito g'cwirg econcm'c areas w,tn stab!e hous:ng markets incre are pocxets cf growth in commere'at reat estato tnat Meric an is con-j i s'cereg for exparsien in tne t t e insurance comcan es, Mer o an is 0 0 0 90 fc eNweveePres' cent eff!c;ercy.

Decutve tatorenam spe-s l Growtn is an ;mocrtant eieTent of Merd an's statement of purpose.

i me bankrng In<lustry has gone Tnreugn growtn, Mer:c'an ga:ns the resources reeded to cent nuo as

{

reusanablyfar in using technol- , gn ,gc ont, com ctit;ve orov;cer of fearciat scev.ces. GroMn is l

generatec ey strategicaFy appyng rescurces to ;ncrease market a h t. r h pr ss ng. stare in sx:stiro rrarkets and it comes from expanding !nto reu irhat is important for han A,s l trarkets. Mer,diafis sendCe and Sales st'ategy and ts marketp'aC0

! t

! going for n arst Is to dvs/gts sys. $tratog es address interra4y generated groWD. Its acqLston stra!Cgy l /emt that H ill tambine the infor- f aOoresses growin in row TParkets rnatiots base that u e hate ctrated

{

j u sth infor'muttors from the mar. l ' Growth Through Acquisillon l

leerpIm e. We han e to use our Itatet. l Mert0'an's strategy is to expard into se'octcc rew marKcts W In j

igern e to apply sprems techno(. i emphas:s en areas aojo'n'ng Me6d;an's eastern PernsyNan'a tanorgl <

l I re that u ill allon its to srlect ff afket. Meffdian !$ 8ggresslVe in Dursuirc aCQu's'.t'Cns and has a

.netosing/h/ It f tsmtation out of I gyng 7ggngg in ;ptcg7gt,pg gnm.

\

'he stata tian In help nur man. l l

gg . to thec CC PCr8tton.

.';cntent enuke haulness  !

Aqisit;ons reed to meet cor,a,n m tilun3. l critera regaf 0.rg pr Co, rratket I

environment, mar agemort on lo- /

l l sophy anc potent al 'on0-term ccrtr butions to eam'ngs.

l Pnct to 1987. Venc an's  ;

l acqWs.t ons have net been ddu- l l t'.0 to earrirgs, a^d tne acQWrec j I  !

I CCiT pan e5 rave ad ImC'Cved ca'n ngs aher oecom'ng cart of I Acquleltlone Veno an Treso Ends cf accu.sa

' A:cvstcas a g c*m erv' t.OrG af 0 o Reuit to ecce by in I

C0 anh*e e?A*Ce hterc 'e CuIIdII OIV'ro^ ment CCmOe-i gm gg a pcte9f 4' hf4*,c 'n for acqds t ens is interso f pcs c:we cer.e** . .

s'aiC4.*At W rWOvV'

'i

.M d M% d s'@A9 OcO-g seg r* Watt 0:tse*.Ge A% ' cIdgC'. sis 3Ia CIO h im i relle!!s:M88O*;4;fL

_z _y __]

t1ov 11 '8a 10:41 tt5u-rtrn<c roA p.10 l

2 .. .

Meridet.n's acquis t:en of Co' aware Trust Company ref:ected that

! enwonment De aware Trust, r evertne'ess representea an impcrtant '

i_

j strateg!c move for Mer;d'an. Enhanced by the integration of De! aware  : ,

Trust into Meridian, the long term earnings pctent al of the acouis;t:on i is significant

, gj l wgiy 's ,

.9 l

1 Merid:an's expense rransgement strategy focuses en cons stoncf , l l and d:scipline. Management is wuling to spend if the result of the

) expand.ture is justif>ed by its !ong term contribut on to pref,tabihty.

The concept of long term contribution recognaes the commitment  ;

, I to bui: ding stockno' der value.

{ ,  !

l Th.s htrategy has deve'oped the att.tude among managers trat each l l coltar should be sper.t wisely to reNrn the max: mum benefit to Merid-l ian. Expense management has he: ped control the growtn of non-j interest expenses at a reasonab'e fevel. .

Among the expenses that Meridian incum are those re'ated to teen- '

nology. investments in computer hardware have provided the frame-(

t I

work for Verdan to become a cost e"ic ent processet and a prevder  !

of qua'ity sery!ce.

Merid.an has embarked on its most important commitment to tech-l Pere:r9.Hoverter com taecurra vice pres cent i ne'ogy - the construction of a new data processing and operat.cns I center in Spring Townsh'p, Berks County, When comp'eted late nov Mr. H verter is responsible for Merid-l year, the Mer:0 an Center at Spring R:dge w ll increase productVt/ I ^^ 'P C and off.c'ency and will p' ovide arrp's cacac ty to banc'e tre Com-

[e mn ca tions, Gowrnment Affairs, Human pany's ant.cipated groMh Resources and legal functions.

.\ledelian's corporategreats have a special, posittt e rnvaninstfor ernpinyves.11eridian has derunn. l

,, strated that its grun th and inde. i pendence brings opportunistes \

forpersonalandpmfessional \

achles ensent. .ts a restdt, .\tedst.  !

^

tan has a highly ntotit aled. l

'N '

pronfucttr egrunp of enspinyev< l

. and enjoys the rnognition of \

, ,y a -f being a guentplace In n nrk. Ibe.se  ?

charastedstics are Ionportant  :

TM% l factors in .\leridian's ahdl(v to 1 As Mercan eva:rs tiea b, Mess tic er dvs e.'o now mate:a t*e eersts o, '

I

"""".."""'* "'"""X"'"'

its CTe D'ocess#C SRC CCe'8:onS C&CeMies w4 6nCreese Iho Mex en center st '

I SDnn0 R@t wuf e*400 Men s1 to pro +0e the ope'svg s d e&metion systests talent anst In maintain a ,stante l

re :t3 to Wes;e gronttt Tnt Comrais row cw:0 otocesseg ena ccersws u ork forre.  :

comst. to te twt e Sonng Toans% Be+s Cowly, os schedded for como elon e *

\

43'o 768a l }

(

l j

1 3ulic:rg t.:ng Tarm Value t l

The key to uncorstancing Verlo!an's goats and strateg'es is to orde'. I s',and their icrg. term naNre. Vanagement wi'l not sacr f.ce its ebjec-tve of lor'g tem grov.tn and prof. tab!!i*y for tre it!us on of sno t term l prosperity. Imphe.t in Meric'an's corporate c'enntro is tne cenvicticn j l

trat, owr time, the Company will be a cons stently strong perferrrer 1 that wi'l rewa*d its s*.akencicers with mlue and abow average tcNtrs. i

- ~ ; -.- s s a.w l

rCV is '60 82:53 tGU-F8PFECC rCOLA P.24

'S m _

Financial Review for the Year Ended December 31,1987 l

Glossary of FinancialTerms 13 Management's Statement of Meeporisibility for FinancialInforrnellon 14 Menegement's Discussion and Analysts of Earnings and Financlel Poettion Financial Highlights 15 Net interest income and Related Assets and Labiltties 18 Assets andIJaMty Management 23 Loans SC Investment Securttles 26 Short term Investments is Deposits 24 Short term Borrowirys 28 Long term Borrostrys 2n Provisen for Possb'n Loan Lesses 28 l Omer income 30 Other Expenses 31 Prov'elon tot income Taxes .33 l Other F.ca'.ciallnformation 34 CaptalResources 34 Anays:s of 1945 Compared to 1985 37 Consolidated Financial Statements Balance Sheets 40 Statements ofincome 41 Statements of Changes in Stocknolders' Equ,ty 42 Statements of Changes in Financ'al Poston 43 Notes to F nanc!al Statements 44 ,'

Optruon ofIndepencent Accountants 52

~

- - . . - ._ .. a

PCV 11 'E3 10t.22 t?50-FIfW CE t4CG P,11 eu.mn l Elossary of Financial Terms Average talence . Tre swm of the cawy by the corporaten (ret ircome 'est e vi. Meeerve for Poselble Loan Losses .

ta'4nces at the sad of each day ev.cM by ceEcs) try the ave' age ta ance of stoc<. A vaLaDon alowce ofset agarst tota' tre r%mber of cays 5 tne poned (Pa;e 21) Potee's' ecu ty for a Gwn percd. (Pege 34) w appea'eg on tne ccrwaten s bau ,

Beale Pelet . A unt of rasasu's for me'est investment Porttello Deproeletion/Appre, arce sneet Th a rMerve reprMe"fs t"e l y4tes and rates eowNacat to ore oae. elation . Tre amocet by wh cm tna boo < or amogrt cons cered by raamagemert to et twcretn of cne co' cent. One huro'ed carry.rg vah.e of tne imesttert port'olo aceccate to cc $r esterated icsset iere'e at tas e corts ec e one percent (4pe 21) excesos or is 'ess tnan F.s market veno in t*e ice comoio (%Qe 28)

Beeit Value Por Common Shnre . Tre (Nge 26) Mestructu red Loene A lcan :s cons cered veno of s snare cf common stoca coer. Llquidity . The ab cy of re cowaSon to reseccteres when a tc< for econcm c or meed by cmc.ng tot stececce's' easy freet e. cann ficru toov*reterts. suen as %gs! reasor restec 'o the cector's f nan.

d tre end of the po' ec, enc'uc ng re boo < ceDosto's weat,ag to wthc'au twa cs anc c a; cafse.2es grants a concess.cn to the selve O pre' erred sharM. by t*e teta evrrter boerowers wantag to ce as3/ed trat tne'r cetto' taat I woVd not otne wise corsrcer.

of co? mon snares ov'stanc ng at !be end of c'oc:t reeas wil be rret (hge 23) (See Tao e 30) tae same perce. (hge 18) Money Mechet interoet Males interest Metum on Average Assete. A measste c' Commen Dividend Payout Retje . The rates weich are cetermnoc by tne comanc orof tao /itytrat nc. cates noweNettwetythe pe'centage of ret ecorae acpocacio to and supp'y of funca in tre troney marnet Co'poraton vtt tzec its assets. it s ca cv sted co? mon stoexho cers ret *as c4 c to them These rates incluce tre 'eceral funcs rate, by cvcro ret irectre by teta! a.t ege se evcence (%ge 34) trosswer td rate. commercelipnme rate, assets (Page 16)

Pully Diluted Berninge Por Shore . Tne (Pep 22) and LrBCA (Lcroon tr.te' Ba9 metum on Average Common Stockholders' amount of net APCorre c,Vced by the weignt. O*ew mate) Equity. A measure of prof tab 6 tv trat cas ed e erege common snves eststaaceg. Not Interoet ineeme . Tre c erence a cates wrat tr,e corporation sa nec en :ts S*.arn owtstancing tretsce common steen beraten total ete'est neome and to'ai Stoc20lGe's'irwestment 't s cateu ated by eaae orts such as stock oot on stan shares icterut exeense (Pege 18) c'ved0 net ocorre st:* butace to common in aceton, trates ette'ancing inc>uce re Not interset Sprood . Tae di*erence sham by m'ai a. wage cmon roco maximen nurrber of tra'es tnat could De between me y etc omrternt ea'neg assets noevs' eavy Page 16)

, 4:eec if al corhe'tibe shares, sVCh te (taxao e equr#ent Das 1) and 19e ratt p. c Secondary Capital . As cef rec by the Corvertbfe p'e' erred stock, we's in fe:t en inte'est beerg l abi ltes. (Pege 21) Feceral Resew ik)ard, secencWy CaDial convertec to comraco stock. Fwly alu*ed incivces. among otmer trurgs co' tac s;o-ee'n rge per snare ref ec's carrhgs on u N.ot

. ggw9 interset Yleld . AIrnessurevert m ee,poramt zu ta 6&n rgof hew ordnated r*ctee and ceDertures (%ge 35) man mum ettton tes a (Page 16) Stendby Lettere of Credit . An f4truten!

asu's m re%Coan>0 to tne interest ccst of Cap . Tr4 atoet by wNen ime oe rate tvNec them. It is corroLied by eMc rg ret 'sswed by a back eich ropreseats an eth eers tw assete exceed Werest ra's sere. gat'on to gt.arantee caymeats on coaan irterest income (taxade couve ont taa a)

tw Iab Wee for a cesgnatec t me cooc s by a,orage c! Greet earneg assetts (P6Qe 21) traesact of a ;t may 04 used to baC4 Wo a re'e' red to as a Doa%e gap An ex0ees of Comme'c'ai Deper isste or to se%e as a Lac atos wow +c represent a regatie cap- Non.AeerWel I.eene . Leone on Mch in+erut accrust haw been c;scort.nued g;,a'artee oHeccg for a rui ntate pg Wge 22) ect N a eccomer co'avec on im pay-cut to t e corrower a f.nanc a: c.Teutes Interest.5eering L!al>llitlee . L'abir%e inte'est lecome on these loans 's reported memshaswof M raWmr we c uoon wnich rte'est :s ce4 for re Lee et on me esin bas s as tt is corec ec (Pege 30) ce caioc cocn to raake 19e payme"s tsnds, ssen as saege and tin coposts- "NUY "' d C# '# * *' **

Non Performing Loens . Tme tc'ai of non.

sno't term borro* cgs, anc iorg tem coet- ceat Isohtes and t*ere' ore trey are not accrLa' leara, lear 4 past cue 90 or more (P6p 21) hona barAste ance sneet(Ngo 35)

Interest Eaming Aesote. Asseteratgen.

" Teset6e Equivalentincome.Tu enerent erate eterest ecome and y sd re stec 4e tured e i 1s aye e$ N '"**CC"' "'Cd 0'CO*C8** P""

,a as a pccertage of totahoans (Fege 30) ccome, Dc4es. has teen rcreasec by en a%ct

~,.a.a auch esm as leers, short nisesr term cwat.

% Pagean * = m ' = a= 'c= " * = a-w oe.m n * - = ~ ~ s e en

inte,eet.nese .ene o Aeeet.uew. Meaa'n',cga;;"2 r- ten - e=~ ~

ties Assets anc liabit tes cose re ce or t =xem=phsmsaccamwmiare e

Table 30) at m staNtory rate . t%ge 19) rates can charge wrtrin a cu gerec time ce nce tcr maryCapM.as cetrec cyW Facral Total Capital . The s m of p4ma*y capia'

,- _.e _emato e. r, s_sa menes or one o-,, _ yw, -e e- c-u. as semea-o x l or to the co-tracial aDAr/ of a Osen to (, $ $ [n y,7[ 7,[n Total Stockholders' Equity . Tre stoce change tre ye c#ato carng th.s c4'o1 nemoe's'c.estmert n tne corpc<at oTs cc -

Woe 22) suborc#rM eaM.al nem and N rm mon 4M prefe' rec stcck p.Ls tne carregs I 93, peg, g4 iep ie,,,, (p,;, g,)

j intoroet hete Swep . A tool used to maa. Primary BarnIn ta Per Snare . The avocet

        1. d"" " # '*

sge an estrNton a exposure to ate' sat rate

r 64 by rrec*ytr'g me rate seasWty of of not rcome sur otrab o to cora?or trates e

Vetume . The artcunt of a,orsgo ete'est-se ected sowts arc l4DLt es Tre ca'tes to e m g,y n ypm gag.epg gn. gog g ,4., %,, earneg assets aN t*e stourt of e.erage a s*sc ap seTert exarge peroc c rierest gemmen ,,oeg , ,r., , e n g3 p cternst teareg :40: ties (Nge 21)

DefronJ Ces cer*/ agrees to c4y a f sec YleidMate . A cer:seta;e .rccat on of tae ept en pan s'a'es (Page 15)

.treres< rate n ret /s *or tecewg a f categ return on an rte'est earnog asset er tre I c eres re's on an agreed voon atocet- ProvWon ter Poulth Loan Loun . ces:cf anirae'est tearco iataty Uscaev-I 9' I ated tvcecog m nt.aeome enimse Intemel Capital Generetton Rate . Tne cc co atentecome statemev.D4 cwoo ey tee a orage ba'4nce c'me re ated asset ine u3n n 7,wo,% gegn egin

!ste a wn ch ecser .s ;eae stec ete'na ry It pg p ig) or iacMy (Page 2t) s corrouteo by cyc.rg samings reta'aec de c4go or teo e tweer 'one.co esea ee'non co cres **.e'e tre ar%st a:::ea s e t e to cweg u G casa , tems a o et g tem hve'swe a N *e o l

L . A3

ROV 11 '60 12 72 tG ' rItF4 C E r4X A P.23 em .

Management's Statement of Rmonsibility for FinancialInformation To Our Stockholdere:

Th. m .agem.nt of M.ridi.e. sancorp,ine. ie r.e,an.;b'. for tne isirness, integnty and objectMty of the financlal statements beginning on page 40 of thle Annual Report and for their prCperebon in coMormity with generally accooted account:ng principles. The Manclal information appearing throughout the die-cussion anc andyals of osmings and Manc!al poaMon, wNeh begins on page .

t 5, is consistent with me information contained in these f!nancial statements.

In secharging lte respone46t!!y br financlel information, management has designed systems of Internal secounting controle that provide reasonable assur ance that aseets are eateguarded, transactent are property executed and recorded in accordance wtth mana0ement's authortastions, and account!ng recorde are reliable br preparing financial statemente. Management uses tie judgment in esteesing and Lelancing me cost of these systems of intomal accountng ooitrois e.d *w;W benef!1e to be derived from them.

The effecevenees of Maridian's systems of Intemal accountng contro!s le mon-llored throughout the year by an estatsched program of intomal au$t The pro.

fossonal staff of in4 mal au$ tore eeWee es an integral part of these systems of controla. The Internal nuet etsfl reporte $rectty to the Aust ComrWties of the Board c! 0;rooMrs.

The Auet Committee of the Board of D! rectors, wNch is composed entirey of  :

outelde directors, meste perio$cah with management, our Intemal sudriors, and i' our independent accountante, Post Marwick Main i Co., to discuse me work of each and to ensure that each le property decharg!ng he responsibiites. The ccmmittee docussee, among other thin 08. the scope of the independ6nt annual su$t, the intomal audt program, intomal acc0unbog controle, financial reporting manors and regulatory reports Both the inlemal audflors and the indeoendent accountants have dl rect access to he AJ@t Committee.

The financial statements are sud ted each year by Peat Marwick Me!n & Co.,

who render their profess 6onal opinion on the faimeos of presentetkm of the statefrente and their con 8orm# with generah accepted account!ng princioles.

Their op!nion on the 1967 financlai statemente le included on page 52 of thle Annual Report In addWm, Meridan and Its sWl(arles are examined penod!cally by varioue regula*ory aeoncles. Mona0ement conalders carefuh any reports that arlee from euch examinellone and takes appropriate act!on.

M :st Q, b M 4 d Samuel A.McCu!nough d Crwmen and CNel taceuwe Omoor Morean Benoorp,lmc.

4 i

/f._ T T Troupe V4e Chakman and CNet Feawal0%:er

! Mercan tencorp,Inc.

i Devid D. HoPman Exoewie Vice Prescort I and Controler l Morte en Bancorp,Inc.

, , , -- , - -- - ~ . - , , _ _

~ ~~ ~ ~ ~ ~

em u a me mu-mth ru e.t:

SMerWien Management's Discussion and Analysis of Earnings and Financial Position FINANCIAL HIGHLIGHTS 1987 19M 1985 1944 1983 1 t

RESULTS OP OPSRATIONS (Do!!are in Thousands, Except Per Share Deta)

POR THE YEAR interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 479.812 8 653,138 8 651,620 $ 554,647 $ 445,006 Interoet Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 378.298 347,252 405.587_ 365,090 285,960 Not interest income . . . . . . . . . . . . . . . . . . . . . . . . . 3o4,447 Ret.coe 440,o33 1os,757 150,oc0 Proviolon for Potelble loan Lotete . . . . . . . . . . . ,, 31.817 18,127 17,000 12,948 __9 573 Not interest income After Prov!alon for Pose 46e Loan Loosee . . . . . . . . . . . . . . . . . . . . 248,410 247,759 229,045 178,800 149,449 l Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 303,824 194,263 119,365 50.001 43,434 ,

Other Expenose . . . . . . . . . . . . . . . . . . . . . . . . . . . . 307.644 300,186 274,859 189.049 155,553 Income Before income Tamos . . . . . . . . . . . . . . . . 88.401 81,868 71,851 47.521 37,330 Previolon (Credt for income Taxee . . . . . . . . . . . 8.964 4,400 8,019 (484) _

(903)

Not income . . . . . .* . . . . . . . . . . . . . . . . . . . . . . . . . 79,537 77,398 65,832 48,007 38,233 Lees Pts'orred Divklende . . . . . . . . . . . . . . . . . . . 4.187 4,241 4 264 1

1,71_5 -

Not income Applicable to Common Stock ..... (_ 78,340 $ _ 73,186 $ 81.568 5 46 292 1 38,233 Not interest Yeld . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,80% 4.91 % 4 80 % 4.70 % 4.76 %

Metum on Avera9e Aseste . . . . . . . . . . . . . . . . . . . 1.00 % 1.06 % 1.00 % .92% .87%

i Metum on Average Common  ;

~

Stockholdere' Equity . . . . . . . . . . . . . . . . . . , . . . 13.81 % 15,19% 15.66 % 14.38 % 13 01 %

Eaminge Por Share: .

Prim ary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42.07 82.06 $1.46 51.50 $1.24 l

Puty Diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43.00 31,99 $1.81 St.49 $1.24 DMdonde Declared Por Co nmon Share ...... 81,00 $ .96 8 .88 8 .76 S ,70 Common DMeend Peyout Ratio . . . . . . . . . . . . . . 34.03 % 33.66 % 33.32 % 34.36 % 38.49 %

i PINANCIAL CON 0fTl0N Average Delances for the Year  !

investment Securft'eo . . . . . . . , . . . . . . . . . . . . . . . .. $1,6M 119 S1,730,539 81.600,675 $1.296,113 $1.158,963 Loant . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,154,9H 4,505,413 3,943.821 3.117,303 2.527.092 ,

j interset. Earning Aseste . . . . . . . . . . . . . . . . . . . . . 7.284,228 4,668,700 5,989.624 4.777,560 4,030,832 Ateets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7.999.847 7,372.552 6,598.364 5,213,943 4,408,448 Depoe'te . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,318,004 5,944.784 5,419,100 4,340.634 3,670,978 l LoryTorm Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 115.8M 117,850 122,717 86,718 57,298 i

Tota Stockho6dere' Equy . . . . . . . . . . . . . . . . . . . 808.811 524,006 435,747 358,350 293.920 1

Primary Sharee Outstareng . . . . . . . . . . . . . . . . . 34.441,708 35.495,004 33,012.705 30,820,923 30.712,021 l l Puh Dduled Sharse 01stardog . . . . . . . . . . . . . 30,784,270 38,886,394 36,444,687 32,214,705 30,712,021 i Total Stockholders' Equey to Assete . . . . . . . . . . 7.48 % 7.11 % 0.60 % 6.45 % 6.67 %

Primary Capini to Assete. . . . . . . . . . . . . . . . . . . . 9.14% 4 90 % 8 50 % 7,31 % 7.41 % i At Year.End l Inveettent S*Curittee . . . . . . . . . . . . . . . . . . . . . . . 81.433.872 81.751,904 $1.772,687 $1,559.514 31.194,160 '

Loan t . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.808.381 4,954,901 4,266,578 3,747,034 2,722,650 Interest. Earning Assete . . . . . . . . . . . . . . . . . . . . . 7,540.182 7,058.510 6,500,662 5,789,296 4.157.793 Asaste . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.388.448 7,931.909 7,275,707 6,442,772 4,578.756  :

1 Deposis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8.809,800 6,404.331 5,763,406 5,387.045 3,824,440  ;

Long. Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,773 116,691 116.494 127.260 56,942 Total Stockhoncors' Equ'ty . . . . . . . . . . . . . . . . . . . 421.898 564,203 486.362 384,977 308.111 .

Book Value Per Common Share . . . . . . . . . . . . . $18.04 514.85 $13.18 $11.46 $10.47  !

Market Value Per Common Share . . . . . . . . . . . . 317.13 521,13 $19.13 513 00 510 59 l Common Shares Outstand;ng . . . . . . . . . . . . . . . . 34.533,200 35.150,688 33,667,318 29,779,119 29,423.030 Total Stockho'ders' Equty to Assete . . . . . . . . . . 7.41 % 7.11 % 6.68 % 5.98 % 6.73 % i Primary Capeal to Assete . . . . . . . . . . . . . . . . . . . . 9.02% 8.81 % 8.44 % 7.84 % 7.44 %

Reserve for Possbie Lean Losses to Loans . . . 1.20 % 1,32 % 1.35 % 1.33 % 1 29 % ,

Non-Porforming Assets to Period.End Leane -

and Other Real Estate Owed . . . . . . . . . . . . . .75% .87% 1.02 % 1 29 % 1.79 % !

_ _ - _ _ _ _ _ _ . _ _ . _ . _ . _ _ _ _ _ _ . _ _ , _ _ _ . . _ _ 1 - - '"18 - % '

j rov 11 'E3 i M 1 r m rP W G t o v.u

) . .O N _.

' 1986. men!an's goalls to attain a strong eamings podormau of tts PINANCIAL.HIGHUGHTS banking subrdiaries. Net interest

' retum on assets and on equity that is in the upper quartde among rts peers income improved over last year on.

For the year ended December 31, 1947, consolidated netincome of in the banking industry.The retum on manty because of grow *.h in tne con-sumer and commere!*lloan portfoues.

Me dian Bancorp,Inc. (Mend:an) and assets reezed in 1967 should con-tnue to rank mom'an favorably Non. interest income also Improved O subeid'.anet was $79,537,000, an among its peer group banks. Merid. In 1987 compared to 1986,despie the j incesase of 3% over 1966's camings of 577,395,000.These eamings lan's retum on equrty cont nues to be s'gn,ficantry lower level of securtt'es l garns during the year. Non interest represent the highest annual earnngs impacted by the growth in equrry ex.

i coett g that exper:enced in sammgs, incorre was increased by the ga)n in Merld!an's h! story. in addGn, Mend.

1 The acqu'ston of Delaware Trust, rea!! zed on the sale of mortgage i lan, through its predecessor compan.

let,has now recorded 30 consecutve which was accoun'.ed for as a pool:ng eeMcing during the fourtn quarter i of 1967. Esmings for 1987 were s:so years of increased sam!ngs. of Ir teresta, reDrosen's the f;rst ac.

Finane!al lnformaton for a!I periods cu'ston of a Delaware bank by a impacted by a decline in the pre tax Pennsyivania based bank hot $ng profrt contr1Dution from Medvan'a l has been restated to include the mortgage bankeg and tit's insurance j resu% of Delaware Trust Cortpany company under now reciprocalinter.  !

state banking leg's'ation. The mergef oporations. This cocine resur.ed (Detaware Trust). primanly from reduced levels of mon-

Fut>f dduend eaminga per share was valed at soprox! matey were w.00161947 corrpared to $160,000,000 and resu'1ed in the gage Ican or6ginations because of the ,

issuance of 9,370.000 6 hares of Merid. Increases in mortgage rates expe- l 81.99 in 1966, Average tulty dNted

{ rienced over a sign.t< ant port.on l shares outstandrig were 39,766.000 lan's common stock. De: aware Trust l for 1H7 compared to 36,666,000 for la the tn!rd largest commerefal bank. of tne year, j Non.Inte rest e xpense s, includ;ng the l 1966. The increase in average shares ing it,sttuton in Delarare, wP.h assets l

outstanding for 1967 compared to ct 51,134,066,000 and deposts of @$r pcesteploertlosses,a!so i J

$976,626,000 at December 31,1967. increased dur!ng 1997. Total expenses 1 1966 resurts primartty from additional related to the acqu'smon of Delaware shares lasued under Mondian's DM. In add, ton, total assets of the Trust l' dond Reinvestment Plan, especla!!y Department were S4.7 bution at Trust aggregated 44,099,000 on an i

' t!O 590,000 sharea tasued during the December 31,1967, of wNeh $2 3 bit- a*ter tax easta.

The provlsion forincome taxes abo j fourth quarter of 1966 that fulty impact l'on were essets under management.

' Th~s acquiston gives Meridan an increased during 1987. The effect've l average shares outstanding for 1967, tax rate was 10% in 1987 compared The retums so wereGe toget and establtshed presence in one of the l on awrage comm0(i stockheider( m!d At' ante reg <n's strongest bank. to 5% in 1968.Th s increase resuned i ing mar'teta. prtinaray from the Tax Aeform Act of  !

l equay in 1967 were 1.00% and 1966 wNcn, among over thmgs s% }

! 13.61%, respectrvety, compared to Merid'an's net income for t 967 was '

1.08% and 15.19%, roepectvey,for favorably impacted by the contau!ng n# canty reduced both the at:ractve.

TASLE 3 Pietum en Avecoge assets TABLE 1:Notincome TABLE 2 l'utry Dttuted tamings 90ses ei wnor4; Per share t

emme saw asere 4r rems l

  • f n m 8 i

f I

l i

1i84 1965 1M4 'Det j

'sof issJ 1954 'iff 1984 'k!7 7783 ils3 iss4 190s 1Me i

I

- . . -a l

9:v n ' 3 wua ri. r:se. .:t r,:te, c,n i -

i , @ Meridian i

TA5LE 4: Retum on Aversgo Common TA%E 5. Year.End Assets TABLE 6 Year.End Deposits Stockholders' (quity too t e n Macas) icea o iri M.I es; m am gemsw am, gg I

t l ,; r gs *

  • ) m 'll' I

un l

, l i

j i

l i

4 I

l 1963 ils4 'l!S '9's 4s? ils3 'el4 '985 190s 19:7 1953 '954 1985 Gas '987 l

l ress and the ava. lab.lity of tax exempt merger related expenses that agg'e- jectors cesple the sharp decfra in obligations, The tax prov s on was gr.ted $2,549,000 on an after. tar j tne pr'ce of Mond an's common stock reduced in 1047 by the imenet of toas.a Tha ratoma on avaraca ansata i

ames tea mensa hnn wne annne need l

'ower taxes at Mer!d:an's tTo insu. for De aware Trust for 1987 we's in May cf 1987 and tne resurtart t rccce company as a resu't of ce14'n 87% after me'gwr expenses and increase in the number of sha'es prov'sions of the Tax Rtform Act of 1,11% be'ere such expenses. Tre issued to effect the me'ger. Merid an's l 1986 relating to tt!e rese'ves Exclu- re*ure on average assets in 1986 eam!rgs in 1987 were c: luted by 13%

sNe of th a non re:urreg adjustment, w as .62%. afte. me*ger related expenses and the c'ectve tax rate W 1987 wou'd ThLs strong f rarc'a! perforrrance 11% be' ore such exceases, (

havo been 16% exceeded the intal expectat.oes of Mendian's total assats at  !

Delaware Trust s'so reported Mer.c'an's tranaworrert As a resurt of December 31,1987 we's I record eam;ngs of $9,530,000 fr.1 this performance, the dilut>on to Mand- $8,358,649,000 corrpared to l 1987 compa'sd to $8,296,000 in ian's eamings tosuteg from the $7,931,909,000 a yeat ago, an ,

1988, an increase of 15%, Eamirgs acqu'artion of Delaware Trust is com- Ircrease of 6%. Leans increased for Delaware Trust were reduced by parable to maragerrent's intal pro. by 11 %, from $4,956.901.000 at year-  !

era 1988 to 55,505,251,000. Total deocata at Decorrter 31,1987 were

~

56,609 890,000, an ircrease of 3'-.

over the tNance of 56.404 331,000 1- ,

,, at tre end Cf last year Tctal stcek.

dQ'k ',qy(o/

.- 4; boders' ocu1y ncressec ey 10'.

,,'~',- , . . ,. ,

l

., - -- to $621,69's 000 at tre eac cf Se7 qamages e@Q, ?. .

su,,, . g: . cerr::a'ed to $M4E3 000 a yes' l

.hswanen ... dy Y, - - -

l i TII*18meenh ..,

', , p, . ago. Tae rat o cf tets'stxkno'ce's t

S ,' ecu.'y to tcta' assets at tre orc :f tr,s

. b, ' -

g{ ,,r *Y

' ~

yes' was 7 4'*e cerrcarea !c 7 '1's r rv g'g-

< {

, ai cecem,3',19ee vre ar s

. gTqmftidae , c ' l

,t ,

~ e, . ,., goalis to na rtin y ecu ty rat o Nt

, s abc.? tre average e'1s ces en 4[, - d-

. W ', 4 '

t"C cd%ng "4JW, Tre rn:,' at tc w  : ,'g'4 *, . [ a' , c,.fg ;. . -y., eno cum s swerv e :ece QMQ j ;'*'.c;.',%' W % ' ~ ~~ ' L f , ,. .. , , [

r e<.

g

? e*

  • ~
q. 3 'k 7; N 6. cap d 'W C an s W ,

UM

.o Ng6 h.s -K'f_ . -

\

mM ..h,w&Z' s. ,.,

we r

1 g,1 .s(T '* :t 6 Ve'4 an s r sta' cal c w ce"cs ,

cec,a cc cer commen s .a's .,1m ,

I P L

17

] tov 11 's 1260 tEU-rzrm;c r u p,;;

.. & Lat1 1

1 j amounted to $1.00 compared to $.95 and ana!ysia. Vend:an's nat:onal pest NETINTEAEST INCOME AND

In 1966. group consists of bank ho!cing com. RELATED A33FTS AND i Book value per commonehere wee panaos with assets of $5 bimon to $10 LIA51LITIES

$15.68 at December 31,1987 com- b;llion. TNs data was obtained from NotInterestincome was pared to 314 65 a year ago, an Keefe, Bruyette and Woods,Inc., a $304.227,000 in 1987 compared to increase of 7%. Market va!ue per secunties firm that spec!a!Izes in the 5265,886,000 last year, an increase commen snare was $17.13 compared banking Industry.The data is based of 14%. Total intere.t income was I to $21.13 at December 31,1966, a upon Keefe's annual survey or the $679,522.000, an increase of 4% frem d: crease of 19% \t the end of 1987, , lattist bank ng organ!zat'ons in the last year's 3653,138,000. Total Inter.

Meridian a comn.P stock was trad ng United States. ,

at 106% of its %ok value compared to '. 62% at December 31,1966. The

! stock was s'so tracing at a pr6ce to-  ;

camings mu.'t p'e of 8.6 tmos at TABLE 4: Net internt locome TABLE 9 Average taming aueta l il December 31,1967 compared to 10 0 ;0c'*1 ***) l00* W W I l times one year ago. Mendian's com.

3 men stock seered a escun. in vou. l 1

as did the stock of many other finan-

! clallnatitutone as a rosy't of the sharp , W I cownturn in the stock rrarket that . M J cecurred in October of 1967, e l i Tab 4 7 presents a fcancial sum. {

l mary of Mordan's pr mary bus' .ness e s I activtes. Mond an ccetinues to 3  !

I emphas!ze comrreccial bankeg as its primary businees activty, as is shown by the reeu'ts presemec le the tab't.

The other special'2ed finard ser-vices provided by sube'd'ary c,,,,rnpa-nics of Merid.an incluce mongage l

banking,ttle insurance, asset man- 'se) 1664 945 'see 1947 l O sv.,n.wrove tvo

aSement and other trust re'ated ter.

vices, creft I.49 and accident and 8 W Sw'**

l hecJtn insurance, real estate broker- * * *<  !

l in3 im ins im im

, age and mariagement d:scount bro- {

l kcrage services. and venture capnal - *

! financing. Not income %r Mer' dan's

tto insurance operasons was favor.

t os a a t e n oa m m M ww Wt TAM W Mwnt h of the Tax ReWm Act of 1966 re! sung ,,

to tte reservet.

The 04cussion and anahela on the fonowing pages Is casigned to rov!de ,

an addtronal understanding of each of tne mahr changes, as outlined above. 4 4

4 in the financial conoton and eamsge  !

portormance of Mordan in 1967. Ref- l crence shou'd be made to tne glos- l say of f,nanc'al terrrs includoc on pcge 13 of th68 Annual Report for a defalt'on of the terms used ln th:s d s-cuss'on and snaps. The terTre that > [

e,e ith,odoon . ne m ine ust . ne war e iney e hm w text t ro, compmse ,orpo.e.. averase .,,, ,,0 ,,s, .,,e ,,,, ,,,, ,, ,m , , , ,m

%j's'i'.i'O'nt"L'e"e'&c'k- n=r.:=,= T:,=ncia ..m.

t:an tab 4s in the loaowing C4cusscn r.mt+s-rg taa 24* **wN 64*e=

r

~ '

rovik'88lbiE6risu-hitarn [ p,1[ '

.~.. 4 a OMeridian i

est expe'ise was $375,295,000, a not Ir..erest income in 1G87 was wing the current ts x rate of 40%

ooc'sase of 3% from 1986's $43,829,000 compared tv Instead of tb rate of 46% previously l S337,252,000. $61,674,000 for 1988, a decrease used. Despite the impact of For purposes cf the foI!owing dis- of 29%. This decrease results from a decreased tax rates, not irsteret,t cussion, interest income and yloid,1 on reduction in both te.x free assets and income on a taxab!s 64 ulva!ent basis tax exemptinvestments end loans are in corporate tax rates because of the incrossed by 6%, from $327,560,000 pree6nted on a taxable equivalent Tax Reform Act of 1986.The taxable. In 1986 to 5348,056,000 in 1967.

basia.The amount of the taxable. equivalent adjustme:1t for 1987 was The increase in net interest income '

equivalen' adju.tment included in reduced by $12.128,000 as a iesult of during 1967 can be attributed to i

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9 Meridian changes in volume. As can be seen in creases are indicative of the lower

.i 1 c ' 1s L. g .. Table 13, average Interest eaming interest rate environmentin 1987

. $~.$ e jg m.M M. Q.Pa assets for 1967 were $7,254,228,000 compared to 1986.

W:>9.~.ey?9D d g;J t compared to $6,668.700,000 in 1966, The notInterest spread was
p. 5 ' 5; .,;.G %y. 'f.. 4 l.! $ an increase of 9%.The increase in reduced by 17 basis points because
3. . c . /. . -L

' f 8 K " c!2)g . average eaming assets can be attrib. of thelowertaxable equivalent 4767. lb/. .Mg ,C".C )W.T.y uted to the commercial and consumer adjustment used in 1987 compared to Efg.,9 4 . ., .; . Q... . y loan growth experienced during the

, , 1986 as a result of the new tax act.

'N.

past twelve months. Loans at the end A shia in the composition of Interest.

.Y' . g> . g. ,M - ,.,. of 1987 were 11% higher than a year eaming assets increased the not c

. ". ago. Average loans for 1987 a!so Interest spread during 1987. The l $ ,,g, p '.I, .

rd exceeded those of 1986 by 14%. Increase in the commerclal and con.

.y M. v ,/ c 35 " 4- 4 Approximately two thirds or,the sumer loan portfolio during the year

"... g . .g..* / Q, %; .T. %.g,g.. h.

g . . % .f-g y . < pf.5.- ,

.,}. ;3 M  :

% increase in average earning asset 6 during 1987 was funded through growth in average deposit balances resulted in the percentage of average Interest eaming assets represented by these loans increasing from 5g% in p; Qv 'y... ..V'p; ~e.m..;, 7j<.". ; v. 4;

. .. . . ,. during ths year. Reference should 1986 to 63% !n 1987. Both Investment

.., . ., .24 be made to the discus 6<on of the securites and short te m Investments M .j,.y,n t...1 .-;. 3.

. changes in the components of the decreased during 1987 as a percent

. 6 ; (
.. ;.. . -

q . . . .; .N; balance sheet during 19e7 that of average samlng assets. The overall

p ., X '
3 . f f ; .' 6 # .

appears later in th!s sect!on, yield on the commercial and consu.

. y t; 4 . .j . .

, 3 y.Y.3 ..Wp beginning with "LoanJ" on page 24. mer loan portfolio exceeded the over.

. - t . ' '. . e i.

q% q g., qf. . 1.g . .. ,.4.. g.l. P d I NotInterestincome was negatively all yield earned on investment securi.

ties and short-term Inysetments during Impacted during 1987 compared to 7 60.%g.f.h ed. Nk 1986 by a decrease in 'he not inteeset- 1987 try 166 basis poirts.

th.5 y ~: 1. . g. $ ;k E. g cq ir '

yleid. The not Interest yield on saming The netinterest yield was also N 43 Jc' assets (notInterest income OMded by average intersst eam!ng assets)was favorably impacted during 1987 by en increate of $130,576,000 in the level 3

I /a. h. W. -

a . .t i .,

4.80% in 1967 compared to 4.91% in of non interest bearing sources of

"' funds ('hr, dtfference between non.

. . 1986, a decrease of 11 besle pointp.;

This decrease results from a reduc. Intere*t sam;ng assets and non.

.', tion of 17 oss!s points caused by Interest bearing funding sources).

lower corporate tax rates under the Interest free funds sepported 15.04%

, Tax Reform Act of G86.The mi Interest yield was also affected by

, changoo In the rfet miersetsprtedas s well as by the level of non. Interest

  • TABLE 14: Fur,$ng Sources ef

, bearing sources of funds- Average Eamlnq Assets The net interest yield for 1987 was o v ars w rc a negatively impacted by a decrease in

=

i the not Ir.terest scrsad (the difference ..

~

between the on Interest.eanJng ,

~. '

, assets and the JaidottIntereeg teeleg The spread for

  1. 4 M E

'1987 was 3.88% .,ompared to 3.94%

for 1986, a decrease of 6 oas!s points. -

-m ,

This decreas6 of 8 bas's points resul. m. "

r .

ted from the decrease In tne yield eamed on assets exceeoing the de.

a {

j .' .

crease in the rate paid on liabillten

~. ~

during 1987 compared to last year.

The yield camed on average interest =

e sa eaming assets was 9.97% in 1987 p:.p. Nkhh* .[:

compared to 10.72% !n 1986, a de. , ,

,9j p, 7y crease of 75 'uasis points. The rate hdh.,/.E c.g .i ' A , +; .J. . ,gr M.s ;y h[

v pald on average interest bearing 116 w , gg , g s pg

.s p;9 q . y y '. g 7.- 4 bWtes, however, decreased by only is sen.v.w .e s w ees

. ..% eJf,g , .A '

. I ' M f@ 69 basis points from 6.78% in 1966 m werest eswo Depees M to 6.09% this year. Both of these co-y@ ,

a.

-] e

$)f.k{@.$'.

J.

I

. . . . _ .... _.. _ 2 L .. ;

ttov 11 '89 12:45 r15U-fir %rE rOLA P.19

. e6 Man l 1

l accounts which were first introduced In December of 1982,the amount of historicalInformation available to per-

/ form such an analysis may not be adequate. For purposes of presenting gap informailon at the end of 1987.

18hN*/ Mendian updated the interest rate Ireyes sensitivity characteristes of eaming treuen as9ets and their funding sources by

.. f ue $ f.l, y , , " ' using more recent historical informa-pg ,,g gg e.g tion than was previously used.

Table 15 tndicates a posrtive one-Inewes eenemeg

"? * - year gap position at December 31,1987

  • of $663,000,000 and $551,300,000 for incre asing and docreasing lnterest rate also focuses on specfc laaues rela. environments, respectively. TNs gap of average enmirig assets during 1987 posit!on reflects the addWon of Dela.

compared to 14.40% in 1966. How. ting to the marketplaces in wNeh ware Trust,wNch had a pos'tfve gap ever,the favorable lmpact of tNs Meridian operates.

of $101,800,000 for an increasing rate Table 15 presents the interest cate Ngherlevelofinterest free funds environment and $132,100,000 for a on the notIn'arestyield in 1967 was sensitMty posttien of Meridian at December 31,1987.TNs gap position decreasing rate environment.

reduced because of the lower Interest The Commmee then uses tNs gap rate environment during the year gfves effect to the diifering degrees of rate sens!tMty of the various asset posrtion to quantfy the effect of compared to 1966. changes in Interest rates on not inter.

Asset and 1.! ability Management. and liabmty categorles. TNs is in con. estIncome. An eam!ngs simulat!on trrit to die trad%onalgap analys!s Die principal components of Merid. modelis used to estimate the Impact WNch assumes an equal degree of lan's asset and llability management of various changes, both upward and rate seneltMty between assets and strategy tra the management of keep.', downward,in marketInterest rates on I!abWtes. Experience has shown that est rate eenshMty and the mainte. tne volumes and rates of Meridian's nance of an adcQuate liquidity pool. the degree of intere^t rate sonstytty is assets and llabilities, and, uftfmately

. tion. Interest rate sensitMty ar.t not equalfor alltypes of assets anc:

liabilities. For example, chani,es in the on not interest income. The Commtt-liquidity must be managed together tee establishes a range of acceptacle because act!ons taken with respect to overall level of market interest rates changes In notinterest Mcome,if the may not resultin an equalchange in simulation modelind. cates a change one can often Mfluence the other.

NetInterseincome is animponant the rate on variable rate commere!al that is not considered acceptable for loans and on money market depes:

determinant of Meridian's total prof'ta- the Interest rate environment that is accounts. Interest rate sensitMty bility for any given year.The overall forecast by the Committee, the Interest management must recognize the d'f. rate sensitMty of the batance sheet is object!ve of Interest rate sensitMty 'sfedng degrees of rate sensitivHy and managementis to reduce Merfd!an adjusted toleasen the effect of pro-their f,ossible effects on k gap position ec*.ed changes In interest rates on net vulnerability to future interest rate fluc-tuations wNie provtdtng for a steady and utdmately on not Interest income, nterest income.

In developing th's interest rate sen. The gapInformation presented M growth in notInterestincome.

The Merid!an Asset and Uabmty sitMty information, a stadstical ans;y.

als wac performed of the relationsNp Table 15 when considered with tho Committee (the Commmee),wNch results obtained from the eamings meets monthly, estabi!shes corporate. between changes in the federal funds simulation model provides the Com.

wide policles on the management of rate and changes in various other mittee with an understanding of the interest rates (such as the nefoney assets and liabilities and Interest rate gap posit!on andits effecton not sensNvity.The Commmee is con. sogipercialrene, treasury bill rates, interest income as a result of changes corned with the rotationship between and mortgage rates).The analysis was performed for both increas!ng in Interest rates.

the Mterest sonstvity characteristics During 1987, Meridian increased its and decreasing Interest rate environ.

of eamlng assets and their funding use of short term borrowings, pdmar.

sources. The Committee compares menta during the last esveralyeata.

The reeutting relationsNpe between ify secunties sold under repurchase the balances ofInterset rettsentlN agreements and,to a lesser extent, llabilities us!ng several tJmeframes; for the federalfunds rete and all other federalfunds purchased,to fund example, montNy, quarterly, somt. rates were then app!!ed to the various foan growth. Average short term bor.

annually, annually, and on a cumuta- asset and liabiltty categorfes asso.

rowings increased by 27% in t987 t!ve bas:s. Bssed upoa such coTpari. cfsted wrth each interest rate, compared to 1988. These terrowings t,ons and its opeuon as to the d:rection The Commmee recognizes that th!s were a source of funds for loan growtri of Interest rates, the Committee estab- rate sensitMty gap is based upon In excess of that supp!Ied by growtn in est! mates using Nstorical in*ormation.

lishes guldettnes as to the magn:tude deposits. Average loans increased by In addition, for er.,me depos!! products of the gap and the investment strategy 14% during 1967 whereas average such as the money market deposit for Meridian's funds. The Committee

' - , - - m_. m

~ ~ ~ ~ " ' - - - - - - - - - - _ __ _

.NOV 11 '88 10:51 MSU-FINANCE Not.A P.16

,' . . a .v . GMerldlan depoeste grew by 6%. these in the elvironment in which and decrease as rates fall, absent any The use of short term liabilities to the Merldlan banks operate. changes in the level of interest earning Nnd 'oan growth was profMable rela. The Committee is alded in its efforts assets. The profitability of Meridian's tive la the cost of attomative funding to manageInterest rate sensitMty by mort 0 age banking and title insurance sources and did serve tolnorease not the existLig structure of Meridian's operations tende to increase, however, Interestincome in 1987 by widening balance sheet. Because a large por- as interoet rates fall because of the the not Interest spread between assets tion of interest. bearing assets and lla- resultantincrease in mort 0ege loan and related liabittles. The expanded bilities are of a shori term nature, the originations. The opposite would be use of short.termliabilities has Committee has the flexibility to modtfy true for Meridian's real estate com-reduced the asset sensitMty of the Meridion's interest rate sensitMty panies in an increasing rate balance sheet and has decreased the positioriwhenever the economic environment.

pooftive one year that would have environment so requires. At Liquidity management must provide otherwise existed at ember 31, December 31,1987, assels of Merldlan with the ability to meet the 1987. As was previously mentioned, 84,726,000,000 or 56% of total assets cash flow requirements of depositors even with thisincrease during the were subject to interest rate changes wanting to withdraw funds and of bor-year in short. term lbbilmes, the one- within the next year.This compares rowers wanting to be assured that year gap position at the end of 1987 le to assets of $4,312,000,000 or 54% of their credtt needs will be met. Merid-still positive. total assets at the end of 1986. Merid- Ian must also fund its own operations.

Historically, Meridan's not interest lan's strong capital base also adde in addition, liquidity must provide income has tended to increase as flexibility to the asset and liability management with the flexibility to Imerest rates rise and decrease as management process, modify Merldlan's Interest rate sensi-rates fall, absent any changes in the in addition, interest rete swege are tivity poeltion whenever the economic level ofIrWorest eaming assets. Tne being used to modify the intereet rate environment so requiroe. Uqwlitty increase in short term liabilities during sens#tivity of selected assets End lla. ultimately depends on Merldlan's 1987 lies r~tuced the favoracle bilities and thereby reduce ?,kridian's reputation, p,wLbiitty, asset quality, impact that would have otherwise exposure to rate noks. At Dec9mber 31, the maturtty of its liabilities, and the 1987, the amount upon whict. the resuPed from an increase lc Intsteet ablitty to borrow in the capital markets.

)'

rates. However, this change has also exchange ofinterset payments is Management considers Meridian's lessened Meridian's exoosure to de- based aggregated $148,500,000, present liquidity position to be suffl.

cllning Interset rates and will serve unchanged from the end of 1986, cient to meetits foreseeable needs, t to m5 gate any adverse effect on not Each of the indiv6 dual swaps included Uquidity is provided through a vanety Interest income that may result from a In this totalla maiched with ific of sources. One of the mostimportant decrease in Interest rates. Thle change aseets, such as commercial , or elements in the overa!lliquidity of la consistent with the Committee's specific liabilities, such as the money Meridian is the stable core r,leposit objective of reducing Merid!an's vul. market deposit accounts, in an Inter. base of its local marketplacss. This notabuity to future interest rate fluc. est rate swap agreement,no actual base has exhibited a steady growth tuations while providing for steady princ'spaI la exchanged in the transac. trend and consists of deposits from growth In not laterest income, t!on. Cash interest payments, equal to customers with longstanding islation-The trend in recent years towards the product of an agreed upon amount ships with Meridan. Uquidity can also

! higher volatility of Interest rates and . (the"noticnal amount") mutt! piled by a be obtained by converti reedity L certain regu! story changes, which specified Intecost rate, are exchanged marketable assets to c .Such have allowed benks to compete under the swap agreement. An expo. assets include investment securities

actively for funds In the rearketplace sure to Meridian under such an with maturities of less than one year on the ba41s of rates, have general!y agreement la the cos , at current and other short term investments reduced the availability of longer term, market rates,to replace an existing such as interest bearing deposits with

! fixed cost sources of funds, favorable swap should the other party banks and federal funds sold.These For example, the money market to the agreement default in addition, short. term investments aggregated deposit accounts which were 11rst there may be an opportunity cost to $864,787,000 or 10% of total assets at introduced in December of 1982, and Meridian if Interest rates change in a December 31,1987. In addition, the which averaged $1,581,283.000 in manner that was not anticipated at the abil!ty to liqu!date the long term 1C07, resulted In a significant increase tirne the twaps were ortgtnated.The investment portfolio is not significantly in the amount of interest rate sonstve amount of exposure under Merldlan's impaired by the relattvety small liabilities available for repricing wr' thin swap agreements is calculated on a amount of unrealized depreciation the 30 day t'ategory,in addition, dur. monthly basis and reviewed by the (4% of stockholders' equity)in the Ing 1966 the Interest rate ceilings on Committee, pc.dollo et the end of 198t.

savings accouate were removed.This Interest rates ateo have a counter. Other sources ofliquidity include regulatory chanre could further cyc!! cal effect on certain cettvlties funds received from the repayment of Increase the compotrbon for funds in of Merldlan. As was previously men- loans as well as the ability of Meridian the marketplace based upon rates, tioned, not interest income of Merid- to package and sell residential mort.

The Comm.1 tee continually attempts lan's banking subeldlarios has histori- gage loans in the secondary matxet to compensate for changes such as cally tended to increase as rates rise through its mortgage substdlary, Merld-

-. -- ..-m w i

tKh 11 '8812E44 thU FItArCE I4oLA p,ig ancillary services to complement the tradltional lending relationsh!ps. In

. -  ; / add' tion, the size of Meridian err.n'es s.

- .Q ., I ' . .l .!. ;

.' .V

. . .. .... . .. it to better mee' the credit needs of larger companies. it should be noted

,- 4 v4+,- . %f / .i .

that Meridian's bus:t ess dove'operent

.; . . W -

. - ., f g ' p , k, ' ' f p ' [Mg program continues to recognizo the D ,. '7rI ..;

?  :.,

'^

s .4.z t, impo:tance of mainta:ning a high Qual-V'..

dean M

W9A,@M.E.;$.p.g.

~ ,.

, t; c.

,,Nj

?

M1Pl -'

g..,.

2

. . 2^ . .V' ..

ity loan portfolio, ano tne cuality of potential loan growtn is carefuily eval-i W 4.N . p. ,. g. . .,m i . f.'. "f 3 .T

'.~.' usted. The cuality of Mend:an's Ican portfolio is discussed in detait in "Provision for Possible Loan Losses" on page 28.

Ian Mortgage Corporation. Merld!an est eaming assets in 1967 compared Commercialloana amounted to may also secure temporary funding to 68% in 1966. The average yield $3,306,627,000 at December 31,1987 '

through the federal funds market, samed on allloans decreased from compared to $3,000.547,000 at the wh!ch is a vehicle used by banks to 11.11% in 1986 to 10.42% in 1987, end of 1986, an increase of 7%. i trade surplus funda. Meridian enjoys Meridian'". average commercial rate Commercialloans avtragid high ratings in both the commercial was 8.21% In 1987 and 8.53% in $3,247,821,000 in 1967 compared to paper and long term debt markets, 1986. $2,776,517,000 !ast year, an increase 1 ensuring compettive access to these During 1987,the economies of the of 17%. Commerciallending to sma'l  ;

funding sources. Meridlan's commer. markets served by Meridian contn- businesses and midd!e market com-cid paper and long term debt are cur. ued to show strength.The increased panlos was especially strong during l rently rated P1 and A3, respectively, borrowing needs of both Industry 1987. The average yield on the portfo- ,

by Moodfs and A1 and A., respec. and the consumer are reflected in llo decreased during 1987 by 51 basis ,

tively, by Stancard and Poor's, the overallloan growth experienced points to 9.95%. This decrease reflects i Merldlan measures its liquidity in by M:rldlan during 1987.This loan the fact that Meridian's average com.  !

s?veral different ways. Table 16 pre- demand was fed by a reduction In mercial rate for the year decreased
sents a summary of some of thect, Meridian's commercial rate during 32 basis points from 1986.The lower  ;

ratbs. In this table, liquid assets are the year. In additon, several other taxable-equivalent adjustment because defined as e, ash and due from banks, factors contributed to this loan growth, of the reduction in corporate tax rates  ;

the market value of unpledged United Merldlan's active participation in a under the Tax Reform Act of 1988 l States govemment securities,me marketplace characterized by Intense reduced the yleid on the total com- l maAet value of other unpledged compet! ton for credit services con- mercialloan portfoWo by 17 basis ,

f 3Curtt'ee with a maturlty cf two years Tues to result In maintalning eXlst'ng polrits, I or less, and federal funds sold. Not re'ationships and in eatsbilshing new Management continues to empha- I unsubordinated short term liabilities ones. The combinaton of the size and size commercialloans with variable i

represent total deposits and liab; lites expertise of Meridian has afforded the Interest rates or rates *.vhich are less those depoa!ts and liabilites opportunity to provide a wide range of subject to periodic review, Com- ,

i secured by investments and long-term debt.

Loene. The loan portfelio repres. -

ents the largeet use of funds for Merid. .

lan. Loans were $5,505,251,000 at i December 31,1967 compared to -

j

$4,956,901,000 at the end d 1966, -

an increase of 11%. Average loans , <

outstanding during the year were ~~  ;,

$5,154,959,000 compared to O  :- i'

$4,505,413,000 during 1966, an Increase of 14% Period.end loans and average loans, both exclusive of , >

mortgages,increassd by 10% and '

i 17%, respectively, during 1987, The .

l Increase in loan balances reflects a .

contnuaton of the commercial and -

l consumer loan growth being expo. ,  ;

rienced by the Meridian banks Aver- . .

l age loans were 71% of average Inter.

i l

"~ ee-w _ _ - - - _ - _ , , , . _ , , . _ _ _ ._

NOY 11 '88 10 62 MSU-FItWICE r40LA P.17 SMeridiati adjusted monthly, based upon a cer-

,J f..((',, '.$.

tain index. The same rate is also now MW {M - J.g applied to bafances aris:ng from both

'[\$Q.

A. . .

merchandise purchases and cash y . i m T g . . .. . s . md. s p m. advances.

  • 'N, 4 - '

M M k! @ h,l,.. M "., 4rL . m

.' .,.,h1

~

-. Charge cardoutstandings arrounted to $332.218.000 or.t2% of consumer

, e .3 ' '

  • C

~ s .' .;K C {.1 Z,C loans at Decembert i,1987 compared

. Ash.a U<.?.G.*N[G ' L 'c

,WaW hN' * - g3 w: to $241,131,000 or 19% of consumer

' *;Q  ;

La m 'esa 3 jgN+ ' loans one year ago. rhe increase in f5 . ;.*~ ~ . .. J".i^5 .- ,.(

y MK h,,,Am.-

. - p' ' ^y"+

credit card outstandirigs resutted from

. & W c.$. 5 ..

" ~

cn increase in both the number of accounts and volume at Meridlan Sank and Delaware Trust The growth macialloans with a variable rate of originatng, selling, and servicing re- at Delaware Trust ref!ects its con-interest amounted to $2,222,222,000 sidential mortgage loans. Meridian tlnutng successful regional automob!!e at December 31,1987, an increase of Mortgage is increasing its market club affin}ty program. During March 12% over the end of 1088. Although penetrat!on in those areas serviced by 1988, Mondlan Bank's credit card variable rate loans are emphaslaed, Merldlan Bank by offering new and outstandings will be transferred to a Meridian continues to recognize that existing residential and commercial dMaion of Delaware Trust and will its customers may need a source of customers many financing options, become subject to the laws of the fixed rate lending. In addit:on, Merkflan Mortgage is State of Delawars. This decision will Mortgage loans increased by increasing its vo!ume of business as provide Merfdlan with greater flexibsty 20% from fast year and amounted to a result of loan production offices in with its credit cards than 11 now has as

$727,783,000 at December 31,1987 a Pennsylvania issuer. Interest rates, New Jerse/ and Delaware and com-compared to $608,484,000 at the end mercle! mortgage offcos in Florida fees, and certain card features will be  :

of 1988.The average yield decreased and Washington. The mortgage port. determined by market forces, enabling 58 basis points from 10.91% in 1968 follo being serviced for the benef:t of Meridian to offer a more competrtive to 10.38% in 1987, product others (exclusive of the loans being Management remains committed to serviced for the Meridian banks) by in December 1988, the Financial serAcIng the retail mortgage market Meridian Mortgage Corporation de- Accounting Standards Board issued Mer!dlan Mortgage Corporation is a creased by 22% during the year, Statement No. 91,"Accounting for full service mortgage banking subsi- from approximately $1,000,000,000 diary established for the purpose of Nonrefundable Fees and Costs Asso-at year end 1988 to approximately clated with Originating or Acquiring

$784,000,000 at the end of this year, Loans and initial D! rect Costs of This decline resulted primarity from Leases(SFAS No. 91). This s'ats-the sale of serviclng related to almost ment requires that almost all loan fees

$374,000,000 of mortgage loans dur- be deferred and recognized over the t TABLt'19 Average 1.oene ing the fourth quarter of 1987. fife of the loan as an adjustment of lovars in Mnlors) Consumer loans,which conalst loan yloid. Certain direct originaton primarily ofloans made to IndMduals cos*s also must be deferred and

on an installment or revoMng credit

' amortized over the I!fe of the loan as a basis, amounted to $1,487,852,000 reduction of yield. Previously, cortain i,

at December 31,1987 compared to originaton fees were able to be to-i' g st,oes, sos,oco-.m. .M et 1000, .. seed.. n erraenavne i

an increase of 16%. Consumer loans costs at the time the loan was made.  !

averaged $1,323,101,000 in 1987 E compared to $1,125,355,000 last year, SFAS No. 91 becomes effective for Merldlan in 1988. Even prior to the l E

an increase of 18%. Consumer lend. Issuance of SFAS No. 91, Merfdlan '

Ing was especially strong during 1987 Bank deferred and amortized substan-

,W In the areas of direct and Indirect tially all of its commercial loan fees.

automoblie lend;ng, charge cards, the As a result, the adoptan of SFAS No.

open line of cred3 secured by home 91 for atlof the Meridian companies equity, and educational and other per. will result in a deferral of costs that sonalloans. The average yield on the approximates the remalning fees that consumer portfono decreased 118 must now be deferred. The effect of e 1944 1965 1986 19er basis oolnts during 1987 to 11,84%. the adoption of SFAS No. 91 on  ;

O core e w During the third quarter of 1988, Merid- Merid'an's consolidated results of VonG69*

a' cma' lan changed its fixed credit card Inter.

operations Is not expected to be i est rate to a variable rate which is material.

.a . , , , me , a d.#*-n f

Nov 11 'es 12N2 MSU-hIrmCE rictd P.1~

Meridan _

ment portfolio by 39 basis points. Depoalto. Meridian's deposits, the investment Securities.The largest source of funds, amounted to second largest use of funds for Merld- At December 31,1987, invest-monts aggregating $455,406.000 will $6,609,890,000 at December 31,1987 Ian is the investment portfolio, Invest.

monts were $1,632,572,000 at mature within one year compared to compared to $6,404,331,000 at the

$449,610,000 at the end of 1966. The end of 1988, an increase of 3% Aver.

December 31,1987 compared to

$1.751,806,000 at the end of 1986, a average maturity of the entire portfoUo age deposits during the year were was 4,57 years at December 31,1987 $6,316,004,000 compared to decrease of 7% Investments aver- $5,944,766,000 during 1986, an aged 81,688,110,000 during 1987 compared to 4.07 years at the end of compared to 81,730,539,000 in 1986, 19G6. S'elclent Equidity remains in the increase of 8%

, portfolio to assist in fund- Simitar to many other commercial o decrease of 4% Merldlan continued invee' ing the can growth being experienced banks, Meridian experienced mod.

to use the lnvestment portfollo's liquid-erste deposit growth rate in 1987 as Ity as a funding source for the loan by Meridla' Interest rates generally doctIned dur-i grewth experienced during 1967. This The aggregate unrealized deprecia..

tionin the investment portfo8e Ing the year and as addit!onal finan-was t,4pecially evident as average amounted to $21,618.000 or 4% of cialorganizatione continued to loana increased by 14% in 1967 total stockholders' equity at December aggressively compete for tradit!onal whereas average depositsincreased bank funds.Competttion for deposas by 6% Investments were 23% of 31,1987 compared to appreciadortof

$29,028,000 or 5% of equity at the continues to intensify among commer.

average interest samlng assets in cla! banks, savings banks, thnft insti-1987 compared to 20% In 1966. end cf 1986.

tutions, cred4 unions, mutual funds, Approximately 60% of the investment Short term invoetments.This category, which is comprised of inter. brokerage houses, insurance compa.

portfolio at the end of 1987 and 1986 nies, and certain national retailers.

was composedof Unlied States Treas- est bearing depositsin other banks, .

federal funds sold, securities pur. Meddian's abWty to compete ury and other government securit!*s. actively in today's marketplace for The state and municipalbond portfo% ct ased under rosate agreements, bankers acceptances and commercial deposits Is aided by the deregulation decreased by 10% since the end of paper, continuos to be a use of funds ofInterest rates which has occurred 1986 and represented 31% of the port. during thelast severalyears.This folio at year end 1987 compared to for Merld!an.These balances aver. deregulatim has removed interest 33% one year ago.The Tax Reform aged $377,324,000 in 1987 compared to $400,068,000Jn 1966, a decrease rate restrictions on depusit accounts Act of 1986 s!gnificantly reduced both and has given Meridian the floribility the attractiveness and the availabmty of 6% Year end balances were to offer customers new products at of tax.exemptobligations. 5409,381,000 compared to

$325,698,000 last year, an increase of competitlve rates. For example, during The average yte!d samed on Invest. 1987 Merldlan began to offer a hvo-ment securities was 8.93% in 1967 26% As a percent of averageinterest.

earning assets,these Investments year variable rate certf'cate of do.

compared to 10.13% last year, a de- posit, The interest rate on this certift-cPease of 120 basis points,The lower were 5% in 1987 and 6% in 1986.The cate will not fall below the rate, deter-taxable-equivalent adjustment In 1987 average yie!d eamed decreased 39 basis points during the year, from mined by reference to the Treasury because of the reduct!on in corporate bill d!scount rate, set when the certfi.

tax rales under thw Tax Reform Act of 7.27% in 1986 to 6.89% in 1987, cate was offered. The rate w!!I, how-1986 reduced the yield on the invest- ever,lncrease in a rising interest rate environment, thus of'ering customers f .,

the opportunity to benefit from Increas-

., 0 ' .C

.p,

. ', 2

. Ing market rates. This product should 4 ] 7 . ,3,g g,J 7 3a '"

, t help Meridian to ma ntatn the core rv -

. -,; y uW,. deposit base of its local marketplace 4  : *(- as rts pr! mary fund ng soutco.

4[giY

Nonentorest beanng deposrts

.. ,,<,, 4. '.

. c c /

,. l ,, ',.g s t U - - gr t ) ,.,

.,- amounted to $1,218,660.000 at

~

v ,- -

Decembe. 31,1987 compared to

,. i.4 e i 4,4

,. f ,' i s -

t $1,287,453,000 at the end of 1988. a

, .,gew,,%v

,m , ." - e , ,,M decreaso of 5% Averago non.;nterest ses

  • p %h, ; y$r$4 lih @h A

- 4 ,8t),,

V

.g' ., E.%,gv .

,f.

,5 u

jM ,Q . ; y.;,2 bearing deposits were $1,112.968,000 in 1987 compared to $1.017,857,000

, . Q' ' r k,,

ce >- - -

i . -

last year, an increase of 9%. Averago n-- P;4F,919 *  %

E 4 =- - - ' -

coposrt balancos mereasod cesp te i,. .s 5 y qs ( - , ,; v, . , m .* . the cont.nu'ng emphasis by cus.

"a +r gg- .y-- . ,. . , , ' tomere on the investment of their

? y N. , g# + r., k,^ s v. ..; . cxcess funds in mtorest bearing

> - ( y ., s 7 instruments. Dunng 1987, Me'ician

. . v. a.

., n ..A k ' a ~.3 . , . - - . ..

()]

. p .., ]'p g . e-besan to offo' a check'n9 8ccount

a. h 4 % M a g

- - ,_.a

r10V 11 '68 10:54 rGU-FIrWNCE rOLA P.18

..- GMeridian designed for thoseindMduals who Money market deposit accounts are unable to keep s%nincant balan. amounted to $1,578,262,000 at ces on deposit and who need accees TA*LE 21: Average Deposits December 31,1987 compared to porwoons!

to basic bankiry services. For a cmall $1,598,869,000 at the end of 1988, '

monthly fee and no minimum balance a decrease of 1% These deposits

requirement, customers receive a cor- averaged $1,581,283,000 in 1987  ;

i tain numberof free checks each month compared to $1,525,881,000 last year, > '

and access to such other services as an inctorde of 4% The decline in ,

-  ?

overdraft protection and direct deposits interest rates during 1987 slowed the L to their accounts, growth in these depoelts during the -

F. .. .

Average interest bearing its year. As the rate on money market increased from $4,926,911, t - , .

last deposit accounts approached the rate year to $5,203,036,000 in 1987, an being paid on savings accounts, cus-j .

Increase of 6%. The year end balance tomers began to sNft their deposit dol- ',, .

! of these deposits increased by 5%

lars into the savings category. Since c o , ,

from a year ago to $5,301,230,000, their introduction in December 1982, .

The average rate paid on all interest. 'f, the money market accounts have '

bearing depoelta decreased from become increashglyimportant to ,

6.73% in 1986 to 5.97% this year, a Merld!an's core depoelt base. Money 1 l chang of 76 bas!s points, market depos!ts continue to represent 3,,3 3,,, 3,,, 3,3, 3,,7 i

.i NOW accounts (Interest bearing the largest source of depos!ts for

! checking accounts) amounted to Meridian, account! for about 25% of  %%%

M Demand & NCW l $503,984,000 at year end 1987 com. all deposits at both ember 31, a M over TWw and Same

, pared to $454,700,000 one year ago, 1987 and 1986.The average rate pald  ;

i anincrease of11% These depoems on money mark 1 depo *ts decreased ,

i averaged $453,887,000 In 1987 com. 80 basis points during 1987, from l pared to $335,596,000in 1986, an . '

increase of 35%. A product strategy  !

l, was Implemented in prior years linking '

l a NOW account to a money market . ,

depos!t account with the result that , .

balances of NOW accounts increased l

a! cog with the balances of the money market accounts.The average rate paid during the year was 4.67%, a r

d: crease of 37 basis points from the ,

average rate paid in 1986. .

Savings deposits amounted to - ' '

$701,455,000 at December 31,1987

?

compared to 5609,723,000 at the end ,

of 1986, an increase of 5% Average u-bilancea were $706,932,000 in 1987 compared to $429,485,000 in 1956,

. I' i' e

an increase of 12% Savings accounts "

  • represent 11% and 10% of Merld!an's '

deposits at year end 1987 and 1986, respectively. The average rate paid on 3 -

s s:vinge deposits during the year was -

5.06% compared to 549% In 1966, a ..

decrease of 33 bao!s points. Because i,-

s of the sigNficant decrease in the overall level of interest rates during -

ths latter part of 1986 and early 1987, b, ~ ,, ,

Meridian reduced,in February of -

' l 1947, the rate paid on both statement s:vings and passbook savings a accounts from 5.50% and 5.25%, F respectrvely, to 5%. This new Interset . -

rets better renects current market and *%

competitive conditions. "

. _ _ _m

- - . . . _., - . 2 7.w

N 11 '53 12:41 rr,u-rIrnrCE toLA P.16 gumidha _

unchanged from the balance of 5.89% leet year to 5.29% this year. Increase of 10% over 1986. These $110,691,000 at the end of 1986 Cap-Shoft term time deposis (those with certificates rspresented 8% of total Italized lease obilgdttons are defuded terms up to one year, ext'lusive of cor- deposits at both year-end 1987 and in this category, along with subordi-tificates of deposit of $100,0no or 1986.The average rate paid on those nated debt and mortgages, payable.

more) amounted to $856,858,000 at certificates was 8.83%in 1987 com- Average long-term borrowings were December 31,1987 compared to pared to 7.46% in 1986, a decrease of

$115,626,000 in 1987 compared to

$756,158,000 at the end of 1986, an 83 basis points.

$117,859,000 in 1986, a decrease of increase of 13%.Thess deposits Short Term Borrowings, These 2% The average rate paid during avera0ed $818,084,000 during 1987 borrowings are a soured of funds for 1987 on long term borrowings was compared to $783,693,000 last year, loan and other eaming asset growthin l 8.39%, a decrease of 27 basis points an increase of 4%, The average rate excess of that suppUed by growthin deposits. This was especla!!y evident from 1986.

paid on tnese deposits was 5.88% in Referer9e should be made to Note

' 1987 compared to 6.57% in 1986, a in 1967 as average loans increased by 14% whereas average depoelts 7 of the Notes to Consolidated Finan-decrease of 69 beals points, cial Statements on page 48 for a more Long term tims deposits (those with grew by 6% These borrowings comprehensive analysis of long term rtme greater the 1 one year, exclusive amounted to $902,606,000 at December 31,1987 compared to borrowings.

of certficates of toposit of $100,000 or more) amount to to $1,198,799,000 $720,085,000 at the end of 1986, an increase of 25% Average borrowings PROVISION FOR POS$18LE at December 31.1987 compared to were $844,388,000 in 1987 compared LOAN LOSSES

$1,156,279,000 at the end of 1966, an Increase d 'lE These deposits to $663,328,000 in 1966,an increase The provision for possible loan aveenged $1,15ll,745,000 during 1987 of 27% The most significantitems in losses for 1987 was $21,617,000 comparou to $1213,136,000 last year, the short term borrowing category are compared to $18,127,000 for 1986, an a decrease of 44 The average rate federal funds purchased and securftles increase of 19% The reserve for poo<

paid on long term time depoorts was . sold under repurchase agreements. ewe 10enlee6es at December 31, 7.67%in 1987, a decrease of 112 The average rate paid decreased 35 1987 was $85,893,000 or 1.20% of basis points fro 111986. basis points during the year, from totalloans compared to $65,678,000 Certificatos of deposit of $100,000 6.86% in 1986 to 6.50% in 1987- or 1.32% of totalloans one year ago, or more carry a negotiated rate of Meridian also has unusedlines of This reduction in the reserve ratio interest and mhturity. Balances credit totaling $f15,000,000 with resutted from the loan growth expe-amcunted to $351,872,000 at severalbanks at December 31,1987. rienced during the year. Total loans at

. December 31,1967 compared to Long Term Borrowings. This cate- the end of 1987 increased by 11%

$479,149,000 at the eno of 1986, an gory amounted to $114,773,000 at from a yeat ago.The reduction in the increase of 15%. Average balances December 31,1987 and was atmost reserve rado was possible because of were $484,305,000 in 1987, an mm -m TABLE 26:Matlo of Not Charge offs TABLE 27: Ratio of Non Performing TABLE b: Loen Loes Rose #ve Ratiot to Average Loane Loans to Year End Loans tji%

! !)%

s 1943 1964 1964 1948 19s7 Mano of reeew for oceedeloan toeses to yest.eed sosts 1983 1984 1985 1966 1987 19s3 1964 1965 1986 1967 (1) RePec:s resemo for for,.gnioans. _

  • _4

t[OV 11 '88 10:55 t15U-FItArCE rQA P .1 ')

t .

_ SMeridian the continuing overait quality of Merid- loans.The increase in charge offs in given to the Impact of current eco-lan's loan portfo!!o. 1987 compared to last year resulted nomic cor.etions, ti,e diverstffcation of The provision for poor,!ble loan primarily from charge offs taken on the lear, portfolio, histonctl loss expe-losses for 1987 exoseded not charge. severalloans. Reference should be rience, the review of loans by the loan offs by $215,000,Th!s resulted in a made to Table 26 for an analysis of review personnel, the borrowers'  !

alight increase in the reserve for pos. the actMty in the reserve for poss'bfe financial and managerial strengths, alble loanlosses from its year end loan losses during the past five years, and the adequacy of undertying col-1986 level. Charge offs in 1987 were When establishing the appropriate lateral. Consideration is also given to

$29,128,000 and recoveries were levels for the provis!on and the examinat,ans performed by regulatcry

$7,726,000, nett!ng to $21,402,000 or reserve for poss!ble loan losses, authorit!es and Merldlan's indepen-

.42% of average loans. Charge. offs in managemert considers a varlety of dont accou.itants. l 1986 were $18,978,000 and recover. factors, recognidng that an inherent Table 2J presents an aHocatbn of i les were $6,607,000, netting to risk ofloss always exists in the thG a:&e for poss;ble k>an losses l $10,171,000 or.23% of average lending process. Consideratlon is by m&;r loan category for the past ,

i

.. 9,y -.

MW s&

l w

+nseuses  ;

j

. ;.Meelq R ..

n, t s

mt .nsense w somme l z

W N%

%esi.$C1.,

i

. ~'

l W JFM:  :

emwn ce.seaw JMig seseneerwend t

(

l Tet[Mg..N

.Am ..

l

. voor ans 3 i RAMM ' ~ 2 i

NW uens A w egetoens . ., m *  !

i

. 1.cerm W '  :.*ici i Reservt.

l Pe*ca Pos**n Pseerve 4 AWMW4.. . '

m ..

s

,- i t.ooes etYear *M, ~ es 3 T rmano. ' , y I

  • 3"b.2 (o*enwt i qQ.ey.u. .

w ~ $ f f ff f N ' - .. l

' AWW4wrai7,,W.y u

Red Eswe . i $t.6)w  :

4 : , p. i heel q ':.jg opl  !

Conowmr..,,) 324eT l Une80cW3,.,,.. 7, V 'J i Tced%,*7M.f g,' 100 oog1 l

."$l$$%D$l'.  ;

' ' 's .. L dbv3;.?5b i

I

  1. 0' ' '

ROV Il '93 12:39 rEU-FINArC hoLA gg )

Q . _

OTHERINCOME h M g-

[ ~ ~ ~ Other income for 1987 was

- a.# , " $203,524,000 compared to

.IN $194,263,000 in 1986, an increase of

" N F3clusve of secuntfes gains, which

. er ,' declined from $9.262.000 in 1986 to 4Tamilip@eek.[,,- .

$4,365,000 In 1987, r.ther income for 1 - M 1987 Was $199,150.000 compared te f .h .. $185,001,000 in 1986, an increase of Olher,Meel>Isas LTaisiNenhertime ,,44sesfp{ -

8%. The ratio of other income (exclu- j hdi n 3 "('; -

sive of securities gains) to otner As A PeressengesJhadg

~ .

expenses was 50% in 1987 compared Pertos.and tan to 51% in 1986. For 1985, this ratio M etNo H oorue Mna., ' h was 43%. Meridian's long term goalis w g,(ensa t " ~ to cover non-interr,$t expenses with A ASA nonanterest(ncomo.

"3

" The following is a summary of the

'- " mere significant changes in non-Intefeatlocome during the year.

Truet income.Trustincome wu

$21,388,000, anincrease of i8% over 1986's $18,082,000. Trust fees five years, it should be noted that a!!o- estlevelof non performing loans at increased in allmajor asset manage-cations are estimates and are subject any year end during the past f!ve ment and trust related product lines, G revleions as conditione change. As years.The reserve for possible loan Fees for serving as trustee for indMd.

preeented in the table, $25,783,000 of losses represented 114% of non-uals and organizations, which is Merid-39% of the rese<ve for possible loan performing loans at December 31, lan's largest trust product line, as well losses at December 31,1987 is not 1987 compared to 106% one year as estate fees, both showed increases allocated to specif,o loan categodes, ago,if the non accmin(Lldeos,ilstedin in 1987 compared to 1986. In add, tion, Th!s compares to $20,511,000 or 31% this tabte had been currentin accor- fees for administering employee Othe end of 1966.For commercial, dance with their original terms and benefit plans and corporate trusts financial, and agricultura! loans, allo- had been outstanding throughout the increased during the year. Meridian cations are determined by review (ng period, Interest income would have also made further progressin 1987 in i IndMdual non. performing, delinquent been increased by $4,545,000in 1987 and $4,651,000 In 1986, expanding its corporate trust services and other loans. Allocations for these beyond the eastem Pennsylvania loans are based primarify on the credit- At December 31,1987, Meddlan j mamet, worthiness of each borrower. In addl. had no concentration of loans exceed- Total trust assets (indMdualtrust, t!on, general allocations are also ing 10% of totalloans. Loan concen. estate, agency, custody, and employee l made to the category based upon, trations are considered 10 exist when benefit assets) increased by 17%  ;

! among other things,the impact of there are amounts loaned to a multi- during the year, from $8,554,169,000  ;

current economic conditions on in- ple number of borrowers engaged in

! at year end 1986 to $9,997,799,000 at l dMdual borrowers and the commor- similar actMties which would cause

! them to be similarty impacted by eco. the end of 1967. Assets under man-clal, financial, and agricultural pottfollo agement were $5,904,515,000 at taken as a whofe. Meridian has expe- nornic or other conditions, in addttfon, the portfolio of commer.

December 31,1987 compared to

> Conced minim .llossee on tssidentf al clalloans secured by real estate la 55,777,407,000 a yeat ago, an in-

! mortgage loans. Losses on loane crease of 3%. The growth in trust made to consumers are reasonably we{l divers! fed and represents loans I assets during 1987 reeutts from In- i predictacle based on prior lose expe- made pdmadly In Merldlan's econom.  !

Ically strong market area. Meridian creases in bothIndivIdual and cor-j rience and a revlow of current eco- porate trust assets.This increase nomic and portfolio cond'tions. has no significantloan e>posure in occurred desptte the impact of the Medd!an's loan quality remains tne oil and gas producton and explo-ration Industnes or in office building downtumln the stock market that good and its loan ratios continue to occurred in October of 1987 on the compare f avorably to its nat:onal peer projects. Fore!cn loans, aft of whk:h value of the equrty securities included l vore made to Mexico, aggregated group. Table 30 presents a sumrtary in trust assets.

l of non performing assets. At Decem- >5,243.000 or less than one tenth of one percent of Meridian's loan portfo. Title Insurance Income. Titfe insur.

l bor 31,1987, non-pwikinfiloane[ ance income was $105.484,000 in lio at December 31,1987. Manage-represented 1.05% of totalloans 1937 compared to $98.379,000 in outstanding compared to 1.25% at the ment has allocated $2.200.000 of the 1986, an incret.se of 7%. Although title and of last year.The percentage at reserve for possele loan losses to Insurance income increased in 1987 the end of 1987 represented the low- these Mexican loans.

- - - - - - - ~ '"

rev ;1 's 10:59 r1SU-fir 6rCE riOLA o. D

. <w gW-idlan when compared tolast year,the gege rates during a large portion of among others, revisions in charges increase wasless than management's the year and the resultant reduction for transact!ona sucn as paid checks, expectatons at the beginning of the in loan originations. Mortgage origina- deposits, and returned items.

year, Title insurance fees increased in tion and seMcIng fees in 1987 were Fees for other customer services 1988 and in the first several months of $10,892,000 compared to $12,492,000 increased by 2% during the year, from 1987 as a result of the significant in 1986, a decrease of 13% Not gains $13,780,000 in 1986 to $13.065,000 in number ofloan refinancings that on the sales of mort 0 ages decreased 1987. This Irvrease resulted primarity occurred because of the favorable by 31% during the year,from fom additional astomated tel!er interest rate environment However, $8,309,000 in 1986 to $4,088,000 machine processing income, fees both the level of refinancings and new In 1987, principally as a result of from Meridian's disenun: brokerage mortgage loan originations were sig- Increasing mortgage rates. operations, .etter of credit fees, and nific% tty reduced by the increase in Servloe Charges and Other Fees, safe daposit and other branch servico-mortgage rates that occurred in the Service charpes on deposit accounts second quarter of 1987 and that relat$d inn.no.

were $18,127,000 in 1987 compared Nei Securillee Gaine. Not securi- i' continued throughout most of the to $18,801,000 in 1986, a decrease of ties gains were $4,365,000 in 1987 remainder of the year. A downtum 4% Fee schedules for both consumer (before appucable taxes of $977,000) cas also experienced during 1987 In and corporate deposit products were compared to $9,262,000 in 1986 major constructon projectsin the reviewed during 1987 and revNons (before applicable taxes of markets served by Meridlan's title were modo during the fourth quarter of $2,593,000). Securities galns include insurance operations. In addition, the the year.These revisions were the galns from the eele of equity secunties  ;

decrease in business actMty in the f!rst changes of signif!cance made of $1,651,000 in 1987 and $7,058,000 Southwestem region of the country since 1985. Meriolan decided in the in 1986. The higher level of securities because of probleme being expo. latter part of 1985 to reduce certain galns in 1986 reflects the favorabfe rienced in the oil and gas explora' ion fee schedules in an effort to standard. market cond!tions which cx'sted dur.

Industries as wet as in farming also Ize pricing In the markets it served in ing that year, impacted the level of Meridian a tit!e preparation for the formation of Merid. Other OperatInt, inccmes Other insurancebusiness Management Ian Bank in 1986. Changes to fees on operat;ng income was $26.115,000 in expects this reduced volume ofloan consumer deposit products included, 1987 compared to $18,158,000 in  ;

originations and resultant title Insur- among others, rev!sions to the 1986, an increase of 62% A gain of  !

anco activity to continue into 1988. monthly service charge for accounts $5,400,000 was rea!ized on the sCe Mortgege Banidng income. Merid. In which the balance 1 ell below the of servicing related to almost lan's mortgage banking operations requ! red mlnlmum ba!ance. Changes $374,000,000 of rrortgag= loans were also impacted by higher mort. to corporate products included, during the fourth quarter of 1987. Thls i

category also includes euch items as premiums from cred't *e, accicant l and health Insurance, Visa aan Mastercard proceasing 'ncome, TABLE 31:Otherincome TABLE 32: Total Trust Assetet and bond underwrit:ng and related toolars b Mmors) (oows b Maons) commissions, g,3 OTHER EXPENSES j Otner expenses for 1987 were y $397,643,000 compared to 4>

M $360,166,000 In 1986, an incre2ss of 10% Expenses in 1987 w 3re J.' increased by non recurring expenses g,yg relating to the merger with DC! aware Trust of $5,049,000. Exclusive of

~

y these merger costs,oth" expensas c

i would have Increased b/ 9% from 1986 to 1987. Thls increas9 ropre-

% ..o y sents the smallest ant.Jal lnc' esse in non interest expenses expenere,d by W q y

Meridlan in the last five yeara, .

.i Almost one half of theincreats in I other expenses for 1987 compared to j 99s3 19s4 19s5 i9se 1987 1986 results from the rrortgagw and Icas 1984 .M ins 19s7 Nf$oyygg '

title operat!ons. The significaat l Increase in the volume of business j l

l 01- 6

NOV 11 '88 M: W "9 M I W CE & ;N.

. .M .

y.~

~

My TABLE 33: Other Exponees s, T. # .  : w 4 I toows in WJone) cV ~ ' .: ; i x [f0I N,.,i MtiMN  ? J '

^

"G' 4v .-s f

  • f . - c.Y p- [T^ ..Y% O. %.A -

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-1. .Q
::::  :%: i2*f,l.'  ?. ~. .: ...;l-d}&::

4 :%, .

q > M W%

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y P
. ..y Si. .'. .. ' k J3.' q

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' %; .g }b f_ Y, .' . ~.I .,.

' . - l-  ; . .

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) , _

lQ ]. j;j.;..Q b[lQ.}{

.U. h ,.4 k h . h .$ % )

M

' . .L[ ' 1. ,..

u >

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l f

. ngm ye. '

e n". .

i 1 e :. f:

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. +4 s ,. my N_.n ~

va -

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k

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.@hh N ,;c.l #  % h h N)L.

[:k: 'f i-

's. .\*&g . ;:.,dy. if.X 'W 27

  • Q.

. .q *'. ^

.s [

% b, : N-[l C.M'2 Q ',}l}@k y j.'.f_.s Mh.4;.

?.l.Q$;

.$. L. ;v .y, 7; l 1983 1964 sess 1ssa 19a7  :.

l~. lP.i c.N,j V l generated by the mortgage and title * -

units during the early part of the first -

hen of 1987 resulted in an increase in '

the salaries and other operating

~

l cxpenses necessary b support this ',. .

increase in business. The volume of mortgage loan originations declined h .

significantly in the latter part of 1987 '

. ~' . .

a because of increases in mortgage -

rates, resulting in a reduction In the -

operating expenses of the mortgage and title units during this penod.

ihe following is a summary of the , ,,

more significant changes in tne other

= -

expense category dunrig 1987. Refer-ence should be made to Table 34 for an analys's of the changes in thle category during 1987 compared to Full tme equivabent employment was Pension expense decreased by 1980. 8,124 at December 31,1987 com. $1,837,000 in 1987 compared to

$slettee and Employee Benefits. pared to 6,230 at the end of 1988, a 1988. Delaware Trust adopted State.

Persont el costs represent the largest decrease of 2%. This reduction resuds ment of Financial Accounting Stand-component of other expenses. Salaries primarily from a decrease in staffing arcs No. 87,"Employers' Accountng and employee benefits increased from levels at the mortgage and title units in for Pens;ons"(SFAS No. 87)In t987,

$172,482,000 in 1988 to $185,237,000 the latter part of 1987, as required by the provisions of the in 1987, an increase of 7%. This The benefits component of this statement Almost ad of the decrease increase represents slightly more than category was $31,652,000 in 1987 in pension expense is attnbutable to i

one third of the total change in ot5er compared to $32,014,000 last year, a the adoption of SFAS No. 87. Under l

l cxpenses during 1987. The sa! aries decrease of 1%. The most signrficant these accounting standards, Delaware I component increased from increases In benefd expenses were Trust will use the pro}ected unit credit

$140,468,000 in 1986 to $153,58:.,000 those experienced in health insurance actuanal method compared to the fro-in 1987, an increase of 9%. The effect and payroll taxes. However, this was zen entry age actuarial method used l previously in addtion, certain o*her I of ment increases for employees more than offset by a decrease in accounts for the increase in salaries. pension expense, actuartal changes were made in l

l l . . . -

, ,Nov 11 *es 11:00 Msu-ntc*CE NOLA E 21 ,

4,+...

ggg ,

adopting SFAS No. 87 thatimpacted of15% Approximately one tNrd, or pension expense W accounting pur- cial Statemente for an additional anal- i 87,210,000, of tNo change resuRe yele of the provision Wincome taxse poses. The remaining Meriden com- I from an increasein tWe tneurance for 1987.

panies elected to adopt 8FA8 No.47 e0ency fece during the year,In addi-  !

t in 1988, prior to its required date of TNs ($ $4 first year that financial adophon. tion, expenses relating to the merger Inst'tu6one are operating under the with Delaware Trust amounted to provisions of the Tax Reform Act of NotC: x p iExpense, Net $8,040,000 and are included in pro.

expenses were 1986.The new tax law had a sVrufi- ,

881,141 foselonal fees and services. Increases cant !mpact on the commercia!ounk-  !

in 1887 comoared to were also expe4nced during 1987 in 827,344,000 in 1988, an increase of bg Induceyin me United States in  ;

such categories asloan and deposit geeeralin 1987 and on Merid!an in 14% This categoryincludes such related expenses, taxes father than j items as rent expense, maintJnance, particular and will continue to have a

' income), and educationaldevelop- significant impact in future years. Not real estate taxes, utlities, eeourity ment ooste.

i expenses, and depreciation on build- enly willthe eNective tax rete on the L Inge andleaseholdimprovements, industry as a whole continue b i These itemsincreased during the increase, but currere tax payments l year as a result of the ally Ngher PROVfS60N FOR INCOME TAXES made by banks could be signmcantty  ;

opereeng ocele ter the i highw. The tax act silminates many

' and The provision forincome taxes for  !

other properties useiln tax plannin0 techniques and opportun-an's the year ended December 31,1987 itles that were previously available to operatone,  ;

was 88,964,000 compared to banke and,in certain situations, Deceues ofits rapid growth, Merld- 84,480,000 for 1988, an incrosse of requires banks to recapture beneftte  !

len has been forced to medfy many 101%.The eGeceve tax rates for 1987 dNerent exlegng facilMee in downtown previously claimed. i and 1988 were 10% and 5%, respec. The new tax law does not permit a~  !

Reading forlie operelione and eleft tively.The tax rate for both perhis

! oupport servloes personnel. This has deduction for addelone to a reserve  !

was olenmcently less than the federal for possible loan losses, but rather '

resultedin en incromosin occupancy statutory rate of 40% in 1987 and 46% '

costs, Meridian has acquired landin allows a tax deduction only when in 1988 'fy because of tax. loans are charged-off. in addition, the me suburbs of Moedng, Pennsylvania exempt andloan income. i tax reserve for possible loan losses

! that wit allow it to consolidate many of Theincrease in the tax orovlelon these funogonein a new operatone (wNch differs from the reserve estab- l and the eMective tax rate 6 attribu. lished for financial reporting purposes)

! center facility Construction le sche-

' table to several factore.Meridan's at year end 1987 of $29,873,000 will duled to beg 6nin the spring of 1988 pre tax Income increased by 0% in i and inWal occupancyle anticipated have to be includedin taxable income i i 1987 compared to 1988. The Tax over a remaining riod not greater i forlate in 1988. Rektm Act of 1988 eign}ficantly

! Equipment Expones. Equipment than three years. the attractive- -

reduced both the attractivenese and nose and the availability of tax exempt expones for 1987 was $24,313,000 the availability of tax exempt obliga-compared to 823,817,000 last year, obligations will afoo be significantly

' t!ons.In addWon, Income tax expense reduced under me newlaw. A tax anincroses of 3% This category was slaoincreased by approximately includes such iteme se rent, deprecia- deduction will not be allowed for inter.  !

! 81,000,000 durin01987 se a result set evpense allocable to tax exempt tion, maintenance, and cornputer soft- of Meridian incurring an attemative I care costa. This increaes resulte obilgatione purchased after August 7, i mWrnum tax liabiMy under the provi- 1988. A much stricter minimum tax

! primarily from highof depreciation ano sions of the newtax act.TNs minimum will be imposed on all corporations. '

amortisation chart es resulting from tax liability rney, however, bn carried equipment and sotwere upgrades Those Itnanctal inectutions wnh a sig- ,

forward Indefinteely to offect taxes paid nificant amount of tax exempt invest-

, designed toincrease both workplace in any future yearin excese of the l mont and loanincome, such as Merid-efficiency andprocoesi capabilitJes. minimum tax for that year. Manage- i

) For example, me ex lan, will superience en incrossed like- '

of the ment le optimletic that me minimum

!! hood ofincurring a minimum tax

' sutomated teller macNne network tax liability incurred in 1987 will be liabinty for financial accounting continued into 1987 Meridan's main. recoveredin 1988 as a result of taxes purposes. There are many other pro-

! frame computer system wee also otherwlee paid in that year. The tax visione in the law that impact Meridian i upgraded during me earty pelt of the proviolon for 1987 was reduced by year. Addibonal software amortization customers, such as newlimits on i the impact of lower taxes at Merldlan's Interoet expones deductibility and

and maintenance charges were tWelosurance company as a result of Individual retirement account Incurred during 1987 as a result of certain previolone of the Tax Reform 6

increased sonware purcheese to sup. contributions. i Act of 1988 relating to title reserves. Meridan's low eMoctive tax rate for port Meridian's iE:3 needs. Excluotvo of thle non-recuning adjust- prior yeare resulted from employing

@ther Operating Exponesa, mont, the effective tax rete for 1987 the same tax planning opportun
tas [

i Other operating expenses were  ;

would have been 18% Instood of 10%. available to all banks and corporatione  ;

i 8188,962,000 in 1987 oompared to Reference should be made to Note e:Wer the intomal Revenue Code.

i 4138,819,000 in 1988, en increase 6 of the Notes to Consoudated Finan.

3 i

Because of the provisions of the Tax j L

i ,

k l

L., _ _ ,, _ _ - - - -~

n... .

. - me u

i-tov 11 '88 12* M r15U-FirmQ. tOLA P.13

.@erMen __

Reform Act of 1988, Meridian expects changes to be recognized only when At December 31,1987, total stock.

the related timing differences reverse holders' equity was $621,695,000 that its effectve tax rate for 1988 and futu~e years will continue to increase, in subsequent accounting periods. compared to $564.203,000 at Thb increase will result primarily from SFAS No. 96 becomes effective for December 31,1986, an increase a combination of maturing tax. exempt Meridian in 1989, with eartler adoption of 10% Total stockholders' equty investments and loans,the reducton permitted.Managementis currently increased by $57,492,000 since the analyzing the provisions of SFAS end o' 1986, in both the attractivenosa and the availability of tax exempt obligations No.96, and ahhough the exact dolfar The primary reason for this to replace those that are maturing, amount of any adjustment has not yet increase was the retention of earn-and anticipated increassa in pre-tax been determined,in the opnlon of Ings Not income of $79.537,000 less  ;

J Income. Meridian has already spe", management, the effect of SFAS No. cash d!vidends to common and pre.

and will continue to spend, a alpr..fi- 96 on Merldlan's coneotidated resutts ferred stockholders'in the amounts of cent amount of time and effM plan- of operations shou!d not be materlat. $27,143,000 and $4,197,000, respec-ning and developing strGg!ss to deal tlvely, accounted for eamings of

$48,197.000 being retained in the with the new tax lew so as to min!mize its impact on the Company's future Company during 1987.The intomal eaminge perfortnance.

OTHER FINANCIAL.INFORMATION capital generation rate was 6.09% in in December 1987, the Financial Capital Resources 1987 compared to 9.26% in 1986.

Accounting Standards Boardissued A strong captalpos?tionis vitat to Meridian's general guideUne on dM.

Statementof Financial Accounting the contnued profitability of Meridian dends provides for a distribution of Standards No. 96,"Accountng for because it promotes deposhor and between 35% and 45% of not income.

investor confidence and helps to This guideltne a!)ows forimmediate Income Taxes"(SFAS No. 96). This swoment wm ruutt in many chances ensure continued access to capital cash retums for stockholders as well to exfeting tax accounting rules. Two markets on favorable terms,in sool- .a for a sumoient retention of amminan tion,it prvvides a solid foundation for for the future growth of Meridian. The of the more signincent of thoes the anticipated future growth of Merid- common dMdend payout rede was changes are a tightening of the rulee for recording deferred tax assets and lan. Eamings and the retention of sam- 36% in 1987 and 34% in 1986. .

requiring the liab!!!ty metnod of calcu- ings contnue to be the comerstone of Meridian's historicaldivklende Merldlan's capital growth 6trategy, declared per common share in 1987 latng deferred taxes on temporary dif- amounted to $1.00 compared to S.95 forences. The inability to recognize Captal raised fromIntemal sources deferred tax assets could be pasticu- la supplemented from time to time in 1986, an increase of 5% The by raising capitaHn the extemal increase in common dMdends in larly troublesome for banks, especially in light of the change in the Tax marketplace. 1987 makes this the 25th consecutve Reform Act of 1966 that requtros Meridlan's captal adequacy at year that Merldlan, through its pre-December 31,1967 can be deter. decessor companies, has increased banks to Inctodo their tax reserve for possible loan losses in taxable mined by analyzing three separate its common stock dMdend. Preferred income over a specifIed number of Indicators of capital-total stock. dMdends per share amounted to holders' equity, primary cepflel, and $2.50 in both t 987 and 1986, years.The liabihty method requires in addition,the common stock compantes to adjust de' erred taxes for tolad ospital, The components of each of these ind!cators at the end of 1987 lesued during the year pursuant to the tax rate changes. Current accounting DMdend Reinvestment Plan, Employ.

are presented in Tabie 36.

ru!ee require the effect of rate ees' Stock Purchase Plan, and the l Stock Option Plan added $10,191,000 to total stockholders' equity during

  • 1967.The majority of th!s addWonat

. e. , r stock was issued under the DMdood

  • t Reinvestment Plan,which has oecome

- . ', ) t a major source of adc.t onal capw.

, m enfg,., g. L , Th.s plan providos for a 5% d scount com mon enes ,,,,,,,,

from current market value on snaros aunnue...c, m ..,.... y mances garrings . . . . . .. . me issued as a result of the reinvestmont of dividonds. During the fourth cuarter untenasesgo( .

of 1986, Meridian en minated tho 5'.

Toul M 1. . n, -

  • P'"8 M discount from current market va'un on sharcs issued as a result of voluntary preneryce,% ner,w% cash contributions to the plan.

het CMNaas Reference should be made to the Sweeressoa Statements of Changes 6n Stock-seennsory cesseF.yjf. ' '

hoicers' Equ ty appearing in the Con-DealcepsolatDesppp,r sg g . y. .- . --. ....M. m l

l

^? L._- . _ ? T_T ' ~ ~ Y ~_"

riov 11 '88 11:01 tGU-FIf 0f G I"A P.22 SMerldlan i

TABLE 36: Total Stockholders' TABLE 37:Dhridende Declared Per TABLE 38: Primary Capital to Asseta Equity to Asseta Common Share m (see AemW her read sum res hoooMherGas N/?,'.'A 'fGG.VAQI f 'gj, ,.

9 -

g._ /

h

+3 q.s._ :7Ah-] pg h

ed M @ ['

l

.! 1 3

1 I

i J

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i i 1 f

b i

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1 4

i ' "

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/

1983 '964 1986 1986 19s7 '983 1984 198s 1986 1987 1983 1684 198s 190e 1987 eo3 dated F!nancial Statements on changes in primary capital during one tenth of one percent of Meridian's page 42 for a summary of the changes 1987, total loans at December 31,1987.

In total stockho!ders' equity during Totalcapital, as defined by the Meridian has no sign!ficant loan expo.

1987. Federal Reserve Board, includes sure in the o!! and gas production and The ratio of total stockholders' primary capital and teaQnelarycapaal, exploration industries. The regulators equ% to total assets was 7.41% at At December 31,1987, total cap;tal have a!so express 1d concern over the December 31,1987 compared to was $777,355,000 compared to general quality of loans being made 7.11% at the end of 1988. The $720,113,000 at the end of 1988, an by the banking industry. MerKhan's improvement in this ratio since the Increase of 8%. The ratio of total capi. overall loan quality remains high.

end of 19M results from the increases tal to assets was 9.27% at December The port' olio of commercial loans in equity d4 cussed in the preceding 31,1987 compared to 9.08% at secured by real estate is well diver.

paragraphs. Meridian's capital rat!o December 31,1988. sif'ed and repressnts loans made increased since the end oflast year The primary and totalcapital ratios primedy in MerkAan's ocor.omicaty desp'to growth in its asset base during at the end of 1987 rank well above the strong market area. The rat;o of non.

1987. Total assets at December 31, minimum levels required by the regu- performing loans to tctalloans out.

1987 were 6% h'gher than one year latory agencies for bank ho: ding com. standing at December 31,1987 ago. Total stockholders' equity, how- panlos of Meridian's size. In addit'on, represented the lowest level of non.

ever, increased by 10% since the end these ratios enab!ed Merldlan to ma!n. performing loans at any year end dur-of 1988. This increase in equity is tain its posit'on as one of the most Ing the past five years. Reference Indicatvo of Merid'an's continuing strongly capitalized bank hold:ng shou!d be mace to "Provision for ability to rs'se capial from eamings companies in the nat'on. Possible Loan Losses" on page 28 retent'on. The subject of cap;taladequacy for a more cceprehensive ana!ysis Oth:r important Indicetors of capial contnues to receive the attention of of loan quahty, adequacy for Meridian are the rat'os Investors and regu'ators nat:onw'de, Ancther of the major issues being of primary capial and of total capaal Some of the concern expressed by addressed by the regulators is to total assets. At December 31,1987, regulators over the adequacy of capi. whether there la a need to extend prl mary capital was $762,450,000 talin the banking industry relates to supervisory regu!ation over acteties compared to $704.593.000 at the end the credit exposure of foreign tending not normaity Ir.cluded on a bank's of 1960, an increase or 6%. The trato actvit es and tending to the reel estate balance sheet such as interest rate of primary cap!tal to assets was E.02% and energy Industries. Merldlan's for- swaps, b:nding loan commitments.

at December 31,1987 compared to o!gn lending activ: ties are not s!gntfi- standby letters o(credit, and lease 8.81% at December 31,1986. Table cant. Foreign loans, a1 of wh!ch were ob!Igat:ons. In addit!on, the regulators 40 presents a summary of the made to Mexico, aggregated less than are concemod as to whether a bank's OO

TOV 11 '89 12:35 fEU-FItArCE TOLA P.12 eueridan copital vround be su'ficient to cover announced In the begtnning of 1987. If significant losses that may arise from implemented-wh!cn appears likely, )

TABLE 39 Book Value Per Common such transactions. Interest rate swaps Share s'though tnelt timlng is uncertaln-tne ,

are discussed under"Asset ard Lla- (Year end) proposals would require banks to r measure the risks associated with d:f. )

bility Management" on page 22.

forent classes of on and off balance l Meridian extends binding loan I commitments to prospective borrow- sheet items. Each type of asset would ers. Such commitments assure the be assigned to a risk category and i

l

~

borrower of f!nancing by the bank for weignted based on its relatve risk.

a specified period of time or at a spec- Botn asset qual
ty and liquid!ty would l be cons!deredin determining the ified rate.The risk to Meridian in an amount of risk. In addton, certa!n off-undrawn loan commitment is limited balance sheet items would be trant,-

by the terms of the contract For exam #e, Merkflan may not be obil-lated into on balance sheet equiva-lents and then also assigned to a risk 0 .ted to advance funds if the custo- category. Primary captal, as derned, mer's financialcondton deteriorates or if the customerie!!a to meet specific would then be compared to an inst:tu- ,

j covenants. An uncrawn loan commit- tion's total assets and certain off. l balance sheet items, a'ter adjustment

mont represents ooth a potental credit for these risk considerations. The reg.
risk once the funds are advanced to ,

the customer and a !!qu!drty risk since ulators have not yet decided on a spe-  :

the customer may demand immed' ate cic minimum pdtnary cap!!al ratio , ,

'ess 19s4 19s5 1966 16s7 that would be cons!dered acceptable l cash that muld require a fundsg source. As was discussed previously, under a risk based capitalsystem.

L Meridian's liquidity on continues Ahhough Ms.ridian supports the overall concept of basing captal l to adequatoiy sad its needs for in detallin Note t1 of the Notes to requirements on the undertyin0 risk i funds. Management does not consider associated with an Insttut'on's assets, thel!quldrty risk associated with Consolidated Financla! Statements i there are several provisions of the Merldlan's loan commitments to be on page 50. .

i l matortal. Meridian's Credit Policy Merdan considers the above o'f- proposalthat give Meridian concem '

/0ommittee rovfews outstanding loan balance sheetitems to be manage- and that are being followed very

commdments on a periodic basis, able given the dolar amount of such closely as the proposal progresses. ,

items relative to the overall alze and For examse, the proposal currently  !

Meridian abo receives fee income the liquidity posdon of the Company. requires the inclusion of loans sold l for issuing these loan commitments. with recourse, such as mortgages, in A stanobyletter of creditla an Efforts are cont!nuing by the Fed. (

oral Reserve Board, Federal Deposit the asset base used to determine capl. 1 instrument Issued by a bank which tal adequacy. Merld!an would not be Insurance Corporation, and the Cernp.

represents an obligaton to guarantee impacted by the risk based capital payments on certa!n transact'ons of troller of the Currency to f?nalize the f risk based captal proposa!s in$ ally proposa!s as much as some banks its customers. It represents a contin. that have more significant amounts gent liabibty of the tasuer. Merid'an announced by each agency early In ,

1986 and mod; fled when a joint of off balance sheet'rterrs such as carefully evaluates the crodrtwodhi. outstanding loan commaments and ness of each of its letter of credt! cus, agreement between these agencies and the Bank of England was standby letters of credit tomers, in add: tion, Morddlan has cetablished a guideline limiting the l amount of total outstanding standby -

j letters of cred4 to 50% of total stock. I ho!ders' equity, Compilance with th;s l guideltne le monitored on a monthly

  • b:s!s. Standby letters were 38% '

e l of total stockholders' equity at Occomber 31, t987,within the establ!shed guldellne.Th!s rat;o b

e also compares favorably to Merid- -

lan's Dee group. '

Cbbgat!ons under non-cancetable '

~

lesse agreements represent another form of an off balance sheet item for Meddtan. The m:nimum lease pay-mcots to be made under these lease ~

9 agreements, some of which extend Into the mid t 990's, are d'ocussed -

. .-. _ ~_ _- b

rCV 11 '8911:03 r15U-F'IrfrCC rCLA P.23 SMeridian The common and preferred stock of -

M, ,s --4 MWdlan Ate tradedin the over the-

~

e. -

M M;,4 4 g %.

oounterintket The monthly average *

~~

<- e ~

number of common shares traded in .me 1987 was 1,562,000 compared to 1,246,000 in 1966, an increase of .- -

- S --

l 25%. Price Quotations are available .h ' t through the National Market System of the National Association of Securttfee .

'q '

Dealers Aummated Quotation System. .' - (, 7 9. ,p . ,

Table 42 sets forth the high and low a - ^ -

t .

n*' . ,

l market price quotations for the peri. yu c.,-) i ode ind!cated. These prices represent u g.> ..

quotations between dealem and do  ;- .

'/ j i

notinclude rstall markups, mark.

.E. L downs or commisalons, and may not reprocent actualtransactions, stockIndex as wel as the DowJones Meridian Title insurance Compan l

Book value per common share was industrial average increased by about acquisition of American Title insu y's  !

$15.88 at December 31,1967 com, 2% from year end 1966 to 1967,the rance Company (American Titfe)was i

! pared to a marketvalue of $17.13 per Standard & Poor's 40 financiallnatitu- completed at the end of tne second '

i share, Book value and market value tions index declined by about 20% quarter of 1985. Since tNs transacton O the end of 1966 were $14.86 and since the end of 1986. The stocks of was accounted for as a purchase, S21.13, respectively. At the end of money center banks declined more samlngs of American Title are

1967, Merld!an's common stock was than those of rQonal banks. The includedin the sam!ngs of Meridian 4

trading at 108% of its book value price of Meridian stock dropped by only from the date of acquishion.

compared to 142% at the end of 1986. 19% since the end of 1966. Manage- Because of this acqu!sition, certain Merldlan's common stock suffered a mont is optimistic that the undertying financial informat!on for 1986 la not decline in value as dd the stock of finkncial strength of Meridian and its drectfy comparable to 1965. Net many other financial!natitutions during future prospects w!!! ult!matety be locome for American TBa was i

1967 primarily as a result of the sharp reffected in the price of its s'ock. 54,114,000 in 1986 and $1,852,000 downtum In the stock market that in 1985.

occurred in October. Although the ANAL.Y818 OF 1986 Merid!an's net income for 1986 was StaMard & Poor's 500 composite COMPAMD TO 1988 favorablyimpacted by a continuing Financial Highlights. For the yeat improvementin notInterestincomo ended December 31,1906, censo1 and otherincome. The increases in dated not income of Meridf an and its these two categories were of' set only subsidiaries was $77,396,000 com, partially by increases durtng the year pared to $65,832,000 for 1985, an in the provtston for poss:ble loan TABLE 41: increase of 18%. Fully diluted eam. losses and other expenses. As a et Value Per Common result, notincome increased

  • Ings per share for 1946 were $1.99 gy,,r.,ng) compared to 51.81 in 1985, an 311,564,000 or 18% from 198 .

lncrease of 10%. Total asseta at December 31,1966 Average fully diluted shares out. wors $7,931,909,000 compared to standng for 1986 were 38,886,000 $7,275,707,000 a yset eartist, an compared to 36,445,000 In 1965. Increese of 9%. Delaware Trust's Average shares for 1966 reflect the assets were 31,130,794,000 at year.

fullImpact of the sa!e of 3,300,000 end 1986 and $962.636,000 at year.

sharea of common etck during June end 1985, t.oans increased by 16%,

of 1985, from $4,260,578,000 at year end 1985 The retumn on aversgo assets to $4,956,901,000, and on common stockholders' equty Total deposits at December 31, in 1986 were 1.05% and 15.19%, 1986 were $6,404,331,000, an respectively, compared to 1.00% Increase of 11% over the ba!ance of and 15.66% in 1965. $5,763,406.000 at the end of 1985.

Financla! Information for all periods rotal stockholders' equ ty increassd has been restated to include the by 16% to $564,203,000 com[. 'ed to resuha of the pooling of interests w'th 5486,362,000 at year end 1965. The Do! aware Trust. Not income for 1966 ratio of totalstockholders equity and 1945 includes $8.296,000 and to total assets was 7.11% at inn ies4 ises tsee iss7 56,729,000, respectivety, for De! aware December 31,1966 eempared Trust, to 6.68% at the end of 1985.

. . . _ _ __ .sy w

. _ _ _. . - -. _ . ~ _ . _ _ - - _ _ _ . _ . .- -

'NOV 11 '88 12:33 rEU-rIrgrec regg P.11

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increase in earrJng sasets was $1,751,800.000 at December 31,1986  !

j Merman's historicaldividende funded through growthin depos:1 compared to $1,772,667,000 at the declared per common ))are in 1966 end of 1965, a decrease of 1% l

! balances.  ;

amounted to $.96 compared to 8.88 in Investments averaged $1,730,539,000 '

1985, anincrease of 8% Sook value The netInterest l assets was 4.91%y!ald in 1986 compared on eaming 1986 compared to during f

per common share was $14.85 at to 4.80% in 1965, anincrease of 11 $1,006,675,000 in 1985, an increase December 31,1966 compared to of 8% The average yield earned was l

$13.18 a year eanier, an increase of bas!s points. The net Interest yield was l

10.13% in 1986 compared to 10.38%

13%.Marketvalue per common share affected by changes in the net interest in 1985, a decrease of 25 basis  !

l cas $21,13 compared to $19,13 at spread as well as by the level of non- i interest tnaring sources of funds. The points.

December 31,1965, anincrease of Deposits,the largest source of  !

yield in 1986 was favorably impacted funds, amounted to $6,404,331,000 at t 10 %

by an irnrease in the eptend from December 31,1986 comparad to  !

4 NotInterestincome and Melated 3.67% in 1985 to 3.94% In 1988. The $5,763,406.000 at the end of 1985, an Aseets and Llobilitlea. Net Interest spreadimproved because the

' income for 1986 was $265,686,000 increase of 11% Average deposts decrease in the rate paid on liabilit;es compared to $246,053.000 In 1965, during 1986 were $5,944,768,000 j was greater than the decrease in the anincrease of 8% Totalinterest compared to $5,419,100,000 dunng 1 income was $653,136,000, an yieM eamed on assets during 1986 1985, an increase of 10% The aver.

increase ofless than 1% from 1985, compared to 1985.The not interest age cost of Interest beating deposits and totalinterest espense was yield was also favorably impacted dur- was 6.73% in 1966 compared to

$367,252,000, a decrease of 5% from Ing 1968 by an increase in the levelof 7.88% in 1985, i

l non interest beating sources of funds i i 1905.

eturing the year, Provtalon for Possible Loan  :

i Notinterestincome on a taxable. Loans,the largest use of funds, Losses. The prov'aion for possible equivafent bas!s amounted to loan losses for 1956 was $18,127,000 [

amounted to $4,956,901,000 at

' $327,560,000 in 1966, an inctease compared to $17,008,000 in 1965, an ,

December 31,1986 compared to (

]

of 14% over 1965's $266,279,000 increase of 7% The reserve for pos-

$4,268,578,000 et the end of 1985, The incresee in tietinteroetincome an increase of 16% Averageloans sible loanlosses atyear.end 1986 l was due primarity to higherlevels of was $85,678,000 or 1.32% of total i Interoet.eam!ng assets. Average estn- outstanding for 1966 were loans compared to $57,722.000 or [

$4,605,413,000 compared to '

Ing assets lncreased by 12% during 1.35% of loans at December 31,1985.

1966, from $5,969,624,000 in 1985 'o $3,983,821,000 during 1965, an j l increase of 13% The average yield Net charge.otts were .23% of average

) $6,668,700,000 in 1986. This increase loans in 1986 and 1985. Non-i In earning assets was due to the earned on alt loans decreased from l

! perform:ngloans represented 12.18% in 1985 to 11.11% in 1966. 1.25% of totalloans outstanding at

commercial and consumer loan investment secuntles,the second r

j erowth experienced during the year, December 31,198d compared to largest use of funds, amounted to j Approximatety three. fourths of the i

(

i

~~a . . .w . n , 2 _

NOV 11 '68 lit 04 r1SU-FItF(CE NOLA P.24 Q%

1.31% at the end of 1996.

Otherincome. Otherlocome for it96 was 8194,263,000 compared to 8:19,386,000 h 1986, an increase of 91)% The inclusion of Amerloan Titie's hme accounts forapproximately Iwo-thirds of the increase in other income during 1998.

Most of the major categorice of other Income incrossed during 1988 cornpared to 1986, increases were '

experionood in trust income, mortgage servicing and originaton fees, gains  ;

realized from the sale of mortgages in the eeoondary market, automated  ;

teller machine PE:::'.,g income,  ;

I and DIle insurance income. Not escurt.

Wes gains were 40,262.000 in 1986 cotepared to $640,000 in 1966, an increase of $8,312,000, Other Expenses. Other expenses Ihr 1900 were 8300,166,000 com-pared to $276,660,000 in 1986, an incroses of 30%, Approximately two-thirds of the change in other expenses during 1986 resulted from the inclu-tion of American Tttle's accounts. The e#ect of additional employoos com.

blned we meritlnoreasse for employoos accounts for theincrease in salaries,which represent the lar est component of other expensee.g-fun time equivalent employment was 6,230 and 6,736 at December 31, 1966 and 1986, respectively. .

locreases were a!so experienced in -  !

+

1986 compared to 1966 In not occu.

pency an_o equipment expenses, adveftlelng and Communicetkma, sta-tionery and suppues, transportation expenses, t,8e insurance agency fees, and loan and deposit related 1 expenses.

Prowle6en forincome Taxes. The proviolon for income taxes for 1900 i wee 44,460,000 competed to C:,019,000 for 1966, a decrease of 26%.The effective tax retoe for 1966 i and 1948 were 5% and 4%, roepec.

l tively. The decrossa h the e#ective rate from 1946 results primartly from additionalpurchases of tax exempt i

Investmente during 1968. -

i l

J i

- ~ ~ ~~- f -

NOV AA '88 12832 MSU-FItOrCE NOLA P.10 hM9MER -

Consolldated Financial Statements Decom.e,3i, CONSOLIDATED BALANCE SHEETS - 1e97 inea (DoetersinThou nde)

ASSETS Cash and Due from Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8 493,194 $ 521.722 Short-Term investmente:

Interest. Bearing Depostte in Other Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 281,683 215.131 Federal Funde Sold and Securities Purchased Under Rosale Agreements . . . . . . . . . . 54,070 94,300 Other Short Term Investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 73.888 16.267 Total Short To m investments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 409.381_ 325,80_6 lnvestment Securities (Market Value $1,610,754 and $1.780,836 at December 31,1987 and 1986. Resoectivel)) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,632.572 1.751.008 Mortgage Loans Held for Sale . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,871 89,781 Total Loans. Not ef Uneamed Discount . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,804,281 4,966,901 Lees Reserve for Possible Loan Loosee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65,s93 _85.878 N ot Loene . . . . . . . . . . . . . . . .~ . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.439.358 __4 891,223 Premlees and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117,896 110.773 Other Assete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 227.577 ___

240,904 Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,344.649 $7,931,909 LIABILITIES Deposits:

Non Interest Bearing Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,218,440 $1.287.453 Interest Bearing Depoelts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,391.230 5,116,878 Total Deposite . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,409,890 8,404,331 Short Terr 3 Borrowings:

Federal Funde Purchased and Securities Sold U nder Agreements to Repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 739,823 502.106 Comme rci al P aper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 102.139 93,791 Other Short Term Sorrowinge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,643_ _ 124.188 Total Short. Term Sorrowinge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _ 902.005 720.08_5  ;

Long Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,773 116,691 Oth er U abHitlee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 139,844_ 126,599 To tal Liabilit ies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7,764,954 7,367.7%

STOCl040LDERS' EQUITY Preferred Stock (Par Value $25.00)

Authorized 25,000,000 Shares I lseued = 1,650,677 and 1,666.955 Sharse at i December 31,1947 and 1966, Reepectivey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,267 42.174 Comrnon Stock (Par Value 86.00)

Authorized 50,000,000 Sharos leeued 36,533,206 and 36.150,884 Shares at December 31,1967 and 1984, Roopect;voy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 182,644 175,754 Surplue...................................................................... 85.087 60,892 i Retained Ee minge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 313,540 265,383 Less Unrealised Loos on Mametable Equity Securitse . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _ _

475 -

Tot al S toekholdete' 5guity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 621.498 564,203 Total Llabilities and Stockholders' Equity. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84,344,649 $7,931,909 See accompanying Notes to Consoll dated Financial Statemente, ,

e

-"*Wh= A=*.+9 4 &# 6 ) men. m 4_e ., NM-- --l -- I

TOY 11 f 9911.C f150-FIriAf4CE TOLA ' P.5

.. - OMeridan .

Yeer Ended December 31 CONSOLIDATED STATEMENTS OF INCOME iser 19e6 1985 (Dollare in Thousands, Except Per Sharo Data)

Interest and Fees on Loane . . . . . . . . . . . . . . . . . . . . . . . . . . . . .- . . . . . . . . . 8817,087 $472.940 $460,730 Interest on invoetment Securities:

Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 90,422 101,843 133.056 Non. Taxable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,017 39,800 18.067 Interest on Mortgage Loane Hold for Sale . . . . . . . . . . . . . . . . . . . . . . . . . 11.074 9,887 3,554 Other interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.942 28,888 38,193 Total Interest l*.We . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 479,522 863.138 661u620 INTEREST EXPENSE Interest on Depootte . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 310,708 353,648 331.605 Interest on Short Term Borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,888 45,442- 40.606 Interest on Long Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9.702 10,205 11,311 Total !nterest Expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 375,295 387,252 405 567 1

NET INTEREST INCOME . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 304,227 265,686 246.053 Previolon for Poselble Loan Lossee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,417 18,127 17,008 NET INTEREST INCOME APTER PROVISION FOR Pots 4SLR LOAN LOSSES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 282,610 247.759 229.045 OTHER INCOME Trust......................................................... 21,388 18.082 15.491 Title insurance . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 108,444 98,379 49.331 Mortgage Origbation and Servicing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,892 12,492 6.865 l Gams on Sales of Mortgages . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,048 8.309 1.015 Service Charges on Depoedt Accounts . . . . . . . . . . . . . . . . . . . . . . . . . . . . t 8.127 18,801 18.672 l

Fees for Other Customer Services . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13,068 12.700 10.613 l Not Securit'es O e'ne - Equity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,651 7.058 566 l N',1 Securttfes Oa'ne - Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,714 2.204 374 Other Operet ng income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26.118 18,158 18,438 Total Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 203,524 194,263 119,385 OTHER EXPENSES Salaries and Employee Bene 0to. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 185.237 172.482 139.007 N 2 Occupancy Expense . . , o . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 31,141 27.348 23,499 Equipment Expones i . . . . . . . . . . . . . . . . . . . - . . . . . . . . . . . . . . . . . . . . . . . 24,313 23,517 17JI76 Other 00ef akry Expensee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154,952 1_36,8_19 98,077 Total Other Ex pen ses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 397,643 360,168 278,559 INC OME S EFORE INCOME TAX ES . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48,491 81,856 71.851 f rovision fct income Taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,954 4,480 8,019 N ET I NC OM E . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,537 77.396 65,832 Lees DMdende on Preferred Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4.197 4.241 4,264 NET INCOME APPLICABLE TO COMMON ST0CK. . . . . . . . . . . . . . . . 1 78 t340 _$ 73,155 _S 81,568 NET INCOME PER COMMON SHARE:

P rim ary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 82.07 $2.06 $1.66 F u 0y W uted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . . . . . 82.00 $1.99 $1.81 DM0 ENDS DECLARED PER COMMON SH ARE . . . . . . . . . . . . . . . . . 81.00 $ .95 3 .68 AVERAGE SHARES OUTSTANDING:

Prim ary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38,431.708 35,495.004 33,012.705 ,

F u ty D Jut 4d . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39,784,270 38.866,398 36.444,687 )

See accompanying Notes to Consondeted Financial Statementa.

\

KoV 11 '88 12831 riSU-FZrFtCCE NOLA P.9

. .h

' CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY Proterred Common Metained 8 stock steok turelet _Esminas valuation Total (Dollers in Thousands)

' BALANCE AT JANUARY 1,1968 S43,067 S100,018 $31,053 $146,869 - $331,007 AS PREVIOUSLY REPORTED . . . . . . . . . . . . .

Adjustment for Merger 53,970 Acccunted for as a Pooling of Intercetu . . . . . . - 40.816 (13,830) 26,924 -

BALANCE AT JANUARY 1,1968 43,067 148,894 17,223 175,793 - 384,977 AS REST ATED . . . . . . . . . . . . . . . . . . . . . . . . . .

- - - 60,832 - 65,832 Not income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -

DMdends Declared:

- - - (20,512) - (20,512)

Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . .

- - - ( 4,264) - ( 4,264) 82.60 Por Preferred Share . . . . . . . : . . . . . . . . .

Sale of Stock Under Etnployees' Stock Purchese Plan, DMdend 2,813 3.i - - 6,606 Reinvestment Plan and Stock Option Pian . . . -

Conversion of Preferred Stock to -

Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . (573) 230 343 - -

Sale of Common Stock through

- 16,500 37.353 - - 53,853 Public Offering . . . . . . . . . . . . . . . . . . . . . . . . . . .

- (130) - - (130]

Cash in Usu of Fractional Shares . . . . . . . . . . . . . _

42,494 168,437 58,582 216,649 - 486,382 BALANCE AT DECEMBER 31,1948 . . . . . . . . .

- - - 77,396 - 77,396 Not income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . '

DMdende Declared:

- -. - (24,621) - (it4,821)

Common Stoch . . . . . . . . . . . . . . . . . . . . . . . . . . .

( 4.241) - ( 4,241) 52.50 Por Preferred Share . . . . . . . . . . . . . . . . .

Sale of Stock Under Employees' Stock Purchase Plan. DMdend - 29,321 Reinvestment Plan and Stock Opdon Pfart. . . . - 7,189 22.132 -

Conversion of Preferred Stock - -

to Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . (320) 128 192 -

- - (14) - (14)

Cash in Ueu of Practional Shares . . . . . . . . . . . . .

42,174 175,754 80,e92 265,343 - 544,203 B ALANCE AT DSCEMstR 31,1948 . . . . . . . . .

- . - 79,537 - 79,537 Not income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

DMdende Doctared;

- - - (27,143) - (27,143)

Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . .

- - - ( 4,197) - ( 4,197)

{ $2.50 Por Pre' erred Shute . . . . . . . . . . . . . . . . .

Sale of Stock Under Employees'

. Stock Purchase Plan, DMdend 4,549 3.642 - - 10,191 I Reinvoetment Plan and Stock Option Plan . . . -

Converskm of Preferred Stock - -

(907) 343 544 -

to Common 9tock . . . . . . . . . . . . . . . . . . . . . . . . .

Cash in Ueu of Fractenal 8harse . . . . . . . . . . . . . - -

(21) - -

(21)

Unreallaed Loes on Marketable

- - (STS) (875)

Equh SecurWee . . . . . . . . . . . . . . . . . . . . . . . . . . _

BALANCE AT DECEMBER 31,1987 . . . . . . . . . 841.247 Sj et, toe $45,057 $313,880 _(8478) 8821.095 See accompanying Notes to Con 4oudetod Financial Statements, i

,tOf 11 '88 11:06 tGJ-FXtWE NOLA P.26 CSN80LIDATED STATEMENTS OF CHANGES IN FINANCIAL POSITION Yeer Ended December 31 1987 1966 1985 (Douars in Thousands)

From Operations:

Not income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ........... 8 79,537 5 77.396 $ 65.832 l ltome Not Uelng(Providing) Funds:

Depreciatiori and Amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,888 15.772 12,552 Provleion (CredN) for Deferred Taxes . . . . . . . . . . . . . . . . . . . . . . . . . (4,288) (605) 4,983 Provision for Possible Loan Loseee . . . . . . . . . . . . . . . . . . . . . . . . . . 21.017_ 18,127 ._

17.006 Funde Provided from Operations . . . . . . . . . . . . . . . . . . . . . . . . . . 118,438 110,090 100,375 increases (Decreases) in Unbilities:

DeposMe . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .. . . 208.889 640.926 376,361 Federal Funde Purchased and Secunties Sold Under Agreements to Repurchase . . . . . . . . . . . . . . . . . . . . . . . . . . . 237,717 (108,001) 251.810 Commercial Paper. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8,348 24,888 42.160 Other Short Term Borrowinge . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (83,848) 18,896 44,643 Other Uebilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17.375 2.461 3.741 Long Term Debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,918) (10,586)

(3)

Sale of Common Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10.181 29,321 60,459 Total Sourses of Funde . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8429,842 _ $718 977_

1

$889,003_

USSSOFPUNOS Increases (Decrosses)In Assets:

Cash and Due from Banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ($ 28.520) 3 47.768 5 73.796 Interoe64 earing Deposite in Other Banks . . . . . . . . . . . . . . . . . . . . . . . 84,522 (16.755) 54.154 Federal Funds Sold and Secuttee Purchased Under Rosale Agreemente . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (40,230) (93,420)

(51.680)

Other Short Term investmente . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57,391 (101,501) 18.733 invoetment Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (119,238) (20,879) 175,812 Loans...................................................... 649,782 700,494 527,987 Mortgage Loans hem for 8a1e . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (20,910) 56,895 13,256 Promises and Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21,831 28,806 12,744 L Other Ascote . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (8,286) 46,953 28,984 Cash Dividends to Preferred and Common Stockhok%rs . . . . . . . . . . . 31,340 28,862 24,776 '

Cash in Ueu of Fractional Shares . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 14 130 Purchase of Assete in AcquioWon . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . - -

32.231 Unreallaed Loos on Marketable Equhy Securftfee . . . . . . . . . . . . . . . . . . 478 - -

To tal Uses of Funde . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4529,582 $718.977 $869.003 See accompanying Notes to Consol! dated Financial Statements.

i l

i I

(

i s es, **S .d%#% --ba.

rov 11 '89 52 30 MSU-l'INANCE tO.A P8 e uennen Notes to Consolidated Financial Statements Interest Rate Swaps

1) Summary of Signifloent Accounting Polleles Interest rate swaps are entered into as hedges agenst fluctus.

The following te a description of the more sigtsficaN accounting t!one M the interest rates of specifically idereed assets or f abui.

pofices and reporteg practices of Meridian Sencorp,Inc. and its ties. Since the contracts represent an exchange of interest pay.

subeldieries (Meridian), They are h accordanco we genera 3y ments weout an effect en the undertying principalbEances,tnere sccepud ecoounteg principles and have been followed on a le no eMect on the total assets or I!abitenet of Merise. The consistent baals. interest paymentis recorded as an actuetmem to hterest e: pense.

principles of Consondetion Mortgega sanning The accompanybg coneondated fbanc!al stammems include Loan sw vicing fees we based on a percentage of the outstand.

l the accounts of Meridan Bancorp,Inc, and its whoily owned sub. ing loan principal balances Doing servked ed are Meluded M sksianos, Detaware Trust Comparr/, The First Nanonal Bank of Income as rotated loan payments are cdlocted from mortgagors.

Ptka Cour ty, Meridan Asset Management, Meridian Bank, Merld- Coote associated we the acqu!snion of loan semesg nghts are Ian Capital Corp., Meridle n Funding Corp., Meride Ufo insurance cohrred and arnorned ever the estimated lives of the loans beng Company, and Mondan MortG40e Corpor atiort imercornpeny be!. serviced in proportion to the eenmated notloan servicing income.

ances and transactions have been ellmhated. Mo'9949*e held for sEe are stated atthe icwor of coot Securftwa as deermeed on an a0gm9am bult The martM catu! anon investment securilles are stated at cost adiveted for amortiza, includm con 66wason of an oom poestions, cuttedng commrt-tion of premiume and d4couds; both are computed usMg a mems from Inywtors, ed rWated kee pad method which approximates a constant yield beeia. MarketeWe Gace and losaae on the sale of mortgages are recognized on equity securities are carried at the lower of a00regate cost or e martet value. Unresized losses on markeraWe equmy secuttees d'na*p'y u

UY date and are determmed by the o#f we rocorded as a segeren componem of stockheder equiey. for excme seMoe fwalacen sonice fees are comped as m Trading secount escurities are cartfod at merket value. Gains and present value of the efference between the estimated future not losses on tales of Investment securtues are recognized on a imam and normal seMchg mveuse gewaDy as wtab-completed transaction baWe by the iderMed cerifficals method fished by N boerary sponsored secondary maket makes.

and are stated sepwawy in m Consondated stamments of Premiume resulting from such adjustments are amorezed using

, income. the inwrnt method ove the esimated livw of the mongage. The I hm and @pmpf amount W such premluma deferred durbg 1M7 and 1980 was Promises and equtpment are stated at coet,less accumulated HM000 and H,399400, rupectivWy, deprocla5cn and amortizaton. Deprec46on is computed princf* Loans serviced for the benefit of others (exclusive of the loa pelty on a straight 4ne bas's ovw the centnoted usefullNes of the bEng twv2W be m Mwid:e banks) aggmg&Wd accroxhaWy to4ted propertoo. Leasehold Imptovements ore amortized over $784,000,000 at December 31,1 M7. Approximaro#y 5655,000.000 the terms of the roepectNe leases. Maintenance and mhor mpan v these loana was sold with recourse. Management has estad.

l ate charged to epwations as locurred. Oshe or lossee on d:apoel. I!ahed a reserve for estimated losses on those loana so!d win l

tion are re%ctedin operstbet. ruouru' Capaallesses are recorded at the lower of the present value of Tlh Mswence l mlnlmumlease paymenis etthe begfanl rig of the lease term of the Tit's inturance premluths are recognized as revenue on the fair vaNo of the WaMd assets. Caprtallones are amortized on a e*fective date of me pouc'es or when reported by authertzed ,

l constant yle'd baals over the usefullife of the leased asset or the egente,as a@cah lous term,If shorter. Amort'zat6on expense on capital kwes sad The rnene br poncy losses !s compond of me utmated rent exponee of operet:ng teases are included in occupancy am-M. reqau e s

  • we ionee w wun neue ha ean  ;

e amouM c M m m d w oe ,eq

  • ed o e re
e. ,en.e .,o w ,m en a,,ense. fx*ed a

== d awatt is'O'n our oe. we ome, ,esi e.te owned and Mr-eime-e e m goe.umeece. ame,urch e.,xeove,Niu,v.ean.

interett income and **Denae are accrued vehg various ,

assets for cornparwe acquired through businees combhations rnethods wWh approm: mate a constanty!s'd or cost when related ,

accounted for as purchases). Other real ootste owned cone:ets of to the poncipel amouMe outstandJr$ However Mondan's general '

real estate acqu/ed through foreclosure or in tetromeM N deM pol:cy has been to cease accruing interest on commerefalloans and is stated at me lower of cost or ft!r market vate. Gahs and when it is determined that a reasonsbie doutA eafsts as to th foosee rMufting from the d'epot tk:in of omer red estate owned are  ;

l MbW of addenalbtemet l meluded in otner operstng incoree. The amouM of goodwiti

' incNded in emer asetta was $31,489,000 at December 31,1H7. Mesne Tares ProvtWon for deferred beorne tsnee ls made for items of income Goodd la being emorttaea on a straight une bes;e ovw various and expense reported in N fmanelal statere eMe rn dJforent ye ars periode not onceedeg 20 years. than for tax purpone Reserve br Pcsside Lcen Loene in December 1H7,the Fina1.'4.1 Accoveting Standuds Board The provWon for poestie loan loseet charged to oSwet;ng lasved Statement of Financia4 Accountry Standardo No. M.

l empense ref ects the amount deemed appropriate by management "Accountog for lncome Taxes"($FA$ No. 96). This statement wil t2 produce en adequate reserve to meet the preted and fores,e. reeut in many cepges to existng tax accountng ru4s.

ab'e risk character 1stice of the ex;steg loan port'o60. Manage. SFAS No M becomee effectue for Merid'en in 1989, wfth  ;

ment s judgmeMis bued on the eyatanon of Individuelloane and eah adopcon peMod. M pageme0a cunenth anaYtog N their caerall r!ak chatacter:staes, peet esportencea wth respect 2 prov's.ons of SPAS No. M, and annough the exact dow amount

) et been determbed,mme op n on of the re'atoneNp of He loan lotees cloans,the asteesment of cuf.

I rent economic conadona, and other re' event tocer s. Lee losseg of any aciustments me*9*meM,N ehet has d S not5AS N4 M on McW e a conseW.d i ne chwgod d'acey aga, net m emece, and receven on pre. reeu'ts of operacone should oct be motor:at I vioutY charged off loans we added to the reserve, l

_ ..____ __ .i_ 1[ "- - " "

NOV 11 '8911:06 f15U-FD$(E NOLA P.C OMIaft ,

1 Trust Aseets andIncome Preferred Stock l Assets held for customere in a flduc!ary or agency cape. city are The holders of MeMan's vot!ng preferred stock are ent'ted to l

not included in the Conoclidated Balance Sheets since such rece!ve, when and as declared by the Board of Directors, cumula.  ;

Items are not aseets of MoMan and its subsidiaries. Trust income tive dMdende et the rate of $2.50 per share. The preferred stock is L3 reported on a cash basis. Reporting such income on a cash convertble, at the op6cn of the holdws thereof,into Mly paid and basse doce not maioriety effect the accompanying financial nonauessable sharea of Meridian common stock at any time eastoments, since each trust account is charged wlm the applicable prior to redempt'on at the conversion p' ice b ofect at the time of commission atleast annualy, conversion. Each share of preferred stock is current'y convertible Empdoyee Seno#f Plans bio two abates of common stock. The prekrmd stock is redeemab'4 Mefidlan has two nor. oontributory pension plane covenne sub. at par oNy at the opdon of Mc6an, begmNng in the later part of stentally all employees who quellfy as to age and length of service. 1989.

Beginning in 1990 for me Merklien Bancorp. Inc. Employees fam/ngs Per Share Recrement Plan ano in 1947 for the Do! aware Trust Company Primary earninge pw share is computed by divWng not income Metroment Plan.the projected unit credt method le be6ng ut!!aed after deduct on of preferred stock dMdende by the average num-for measunng not periodio pension costs over the employees' bor of shares of common stock and common stock equivalents service Hvos Prior to mete periods. ponelon costs were determined outstanding during the year. Stock options are cons 4ered com-uetng the entry a0e actJartM cost method for both plane. Such mon stock equivaiente and are included in the computshon of the coste are charged to current operating expones. Bath Meridian's number of shares using the treasury stock mothed. Fully d; luted and Delswere Trust's fundeg po6cy fa to ocetribute annua lly an eamiega per share gNos ef'ect to the assumed conversion of the amount calculated under the entry age actuarial ocet method convertible preferred elock as well as to the exercise of the stock Meridian ateo CHere a tevings plan wNoh oowre substantially options. On or after December 1.1988. Merld'an may, at its option, all employees who quellfy as to age and lenath of service. A part exchange certain float!ng rate subordinated notes as desenbod in s,.a. ... . .a. i. de.a m.,. w. n. rr., , w ...., ..... w ..... e .i,. ....... .

amaximumof1 ..,.w,0% of Ne or her componestion. Meridian will match prior 60 the December 1.1996 maturfty date of the notes. The effect up O the first 8% that each employee contributes. Contnbutions of the cap.tal securities wNch may be 4eved in connecton with are charged to current expensee. these notes has not been included in thJ computaten of eamdge Under Meridian't stock opsion plan, adopted in 1964. op6one to per share, acquire a maximum of 1.500,000 shares of common stock may be Prfor PeriodInbemetion granted t hey c#icers.The p!an provideo for the grMthg of optbne Certain amounts in the finene!al statements of prior penode d the fair market value of Mrid!an's common stock as me time the have been reclassified to conform with the prwentat on used in options are granted Each option gramed under the plan may be the 1967 Ananc'al statements. Such rectandcations have no enweised witNn a period of ten trem 1He date of grant; ef4ct on not income. in addton, we Note 2 for busineas comb na-however. no op6on may be exerc m:tNn one year from th* tone accounted for as poottg cf interests.

date of grant

2) suelnese Combinetiene Ori January 1,1966. Meridian acquired De' aware Trust Com. Trust had aasets of 51.134,066.000 and depes:ts of $376.626.000 pany (Delaware Trust) The acquieten of De' aware Trust was at December 31.1967. F:nancial informat:on for all periods has accounted for as a poo5ng of Interests and resuHed in the lasu. been restated to bc!ude the resuha of De' aware Trust as follows ance of 9370.000 shares of Meridian's common stock. Deuware (dollariin md!cne, except per share data):

Wer Orided December 31 ite? 1s44 1966 Men:$tn Morgan as Merid en se Veri &&n Delewere Previove- Delaware as Prov % try Delswere as

Idoridten Truet Combined Po Tn.et _ mee's ed _ lue poed 7tust _ _Pestated Nei treemt income . . . . . . . 8248.8 $48.3 8304.3 $222.3 843.8 82e5 8 52cc.e 139 2 5245.1 Frov'ocn lor

! Ioestle Loaa Loosee . .. to.6 1.8 21.8 18.8 2.3 18.1 142 28 17.0 Otrer income . . . . . . . . . . . . 184.1 18.4 204.8 181.8 its 194 3 104.7 10.7 1t84 Cirer E.spe6eee . . . . . . . . . . 34e.4 44.3 3e7.6 237 3 39 3 278 0 318 8 _ a3 4 340 2_

income Bedore incorre Tasee . . . . . . . . . . 74.8 13.8 64.8 11.2 10.7 81.9 84 1 7.8 71.9 Proveenlor lecome Tasee . . . . . . . . . . 4. 8_ 4. 4_ 8.0_ 2.1 te_ 45 50, 1.1 e.1 Not tncorre . . . . . . . . . . . . . . 8 7s.o _ 89.8 8 7s.s _ S es i 3 a3 _3 774 __ $ 531 g gg

Neonceme p., ser.:

P rimary . . . . . . . . . . . . . . . . . I S.48 8 307 8 2.46 8 2.08 8 232 l 1.64 FWPy Dauled . . . . . . . . . . . . . I 3.34 8 2.00 8 2.34 5 1.98 $ 118 8 181 On November 30.1986. Meridian acqu' red The fir 1Natoral American Tte Inneance Company (Arnerican Trre), headquar.

Bank of P:ke County (P:ke Countyt Tre transactiort wee e'focted tered in M:ami, Fbr4a. for its book vsive. aporoximately $32 In an eachange of 810,000 sharee of Meridian's common alock for mvlion. The t'ensacton wae accounted for as a purchase. Under s'J of the !seved and outstandtg shares of Pike County common the purchase trothod of accounting.the eamings of the acqv red siock. The buelness combir etion w se accounted for as a pool.ng. company are lncluded in tne consoi4ated statement of incorre of of>icierests. the acqu nng company only from the date of acqu arteort Accord.

At the end of the second queJ1er of 1945. Merid!an Trt's ing'y. Verd an's resu>to of operatens include the resitts ed insurance Company, an ledirect subsid try of Merd an, acquired American TTe cubsequent to June 30,1965.

.. A ~

ROV il 'ti8 12:29 f15U-FIfRE fCLA P.7 Oh  ;

3)trwestment toeurttleeA summary of me carryeg value and approximate market value of Investmer:t s b as foGowe Deeember 31. _

19e0 1986 _ _ , , ,

1987 __

Aporonsmete Approximate Apprealmste Carrying Merset Carryeg Merket i

Cervytng ifertet velve Wue Wius value me  ;

Vetuo _

U.S. Troseunes and emot 8 9NA38 81.00p.M $1 o21.837 U.S. 0cvernmort Securees . . . . . . . . . . . . . . . . . .

8 887,717 $ 04448 8 890.172 572.5a3 64 W $1s,019 ,

811,M1 des.ste 570.204 231,82e Slote and Municipal Secur1tes . . . . . . . . . . . . . . . . . .

293.4e4 3M449 291,344 _281,8e1 J'ffA, '

i Omer Securees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . N li.,770.u5 li.,.700. 83e. a b Yrt447 Total lstreelrnert $4ourmee . . . . . . . . . . . . . . . . .

$1.884,878

- - 81/.784

  • 0, 81.751. sos_ ~ .

I invesemort secunties carried at approximadey $1,267.233,000 at December 31.1M7 were pledged as coWortMor :

repurchase agroomones, and consin other depoons es provided by law. No securtes in the perWolio aggreg holders' EquRf for an bdMdualleeuer et December 31,1987.

included wthin he toen pordollo are loans on which Meridien 1.sene ,

has ceased the escruai of interest. Such toene amourited to 4)A summof loans included in the Consolidated Balance $32.775,0C0, 829,093,000 and $32,115.000 et Decemt* 31, Sheetsle se 1M7.1990 and 1964, roepectNely. If these non accruing loane December St. hsJ been currett h eccordance with their ortehal terme end had beenE _W throughoutmeperb1 interestincorne for

__ 1881 1888-and 1986 would have theyears onded 31 iM7.1 (Dodersin Thouseneel Conwnercial. Finenoiel and Agricv8turch increased ingweetincomeonme $4,546.000.,84,061,000

. wn accruingloanshatwee and ncludedin $3,723,00 Com"* eel secured Income for the years 6aded December 31.1M7.1946, and by Reel Sele 4e...................... 8 87W.790 8 406.577 Agr'oulbral . . . . . . . . . . . . . . . . . . . . . . . . . . .

73,3e0 77.322 1968 amou:ved to $2.062.000. $1.965,000, and $1,421,000.

Cmer................................ 2.880.947 2.400.448 1N.807 101.847 The aggregate amount ciloons bv Meriaisti to its 6tectors and Reel Estate e Constructon . . . . . . . . . . . . . . . 004,464 Roel Estaba . Residenfel . . . . . . . . . . . . . . . . . . 727.788 eXeCut!Ye C4ceft. Eclud'. rig 1C454 to related persono and en*Jties.

Con sumer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,447,442 1JM531 was $40,446.000 at December 31,1967 and $25.726.000 at 5.303 I Foregn.................................

8,243 ~4,874.592 December 31,1966. These loans were made M tr1e ordinary Total leer's. Groes . . . . . . . . . . . . . . . . . . . . . g 548.442 courte of busineta et subetontia.'ly the lame terms and cotidttene t 7,411 17.M1- as 1 hose with other borrowers. A*) anetys's of the 1967 actrvity of Lees Untemed Diecourt . . . . . . . . . . . . . . . -

Tom! 8.oene. Not of tr1M4 loane Wws:

Untemed O'ecouet . . . . . . . . . . . . . . . . . 88,508,N 1 S4 944 901_ $38.9H.Mo Bat.uce. Janvery 1.1M7. . . . . . . . . . . . . . . . . . . . . . . . .

81.317.000 New Loene . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1S,7Eoce)

Repeymerie . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

800.44s.000-Baece.DecomtW 31.194 7 . . . . . . . . . . . . . . . . . . . . . . - _ .

8) fleeerve for Poseaple Leon Leesee A summary of actMiy rithe Flooerve for Poeoe'e Loan Loosee fonows:

Year Beded December $1, 1987 1944 19e4 (DoAert in Thousande)

Se:ence et togw.Ing of Period ..... 8 M.878 8 57,722 8 48.704 A40eces (Doductorek Loene Charpee 04 . . . . . . . . . . . . . . (M.1M) (18.978) (14,534) ,

Reeownee on Crwged off Loene . . . . . . . . . . . . . . . . . . . . . . . . 7.7M 4toZ y .

Not Loene Caerged Cet . . . . . . . . . . . . . ,(tide,.st ,110171) g7 3 Fromon csesensoooewne 17.004 Espomoe . . . . . . . . . . . . . . . . . . . . . . . . _ 31,42 _ 18.127 1 Science et End of Pe<iod . . . .. . . . . . 8_SS.MS S _e4 878 $ 67.722 - -

f

~ #**

  • Ob<*_ ;_ _E

,g u w a a . w t .w * * * ** * ' " " " ..w ,

i

8) Ineeme Tames The current and deferred b ecome tax provisions included in the prov!alon for income tsxes in the Consolidated Statements of Irvome are as 1 foNows: '

Year Ended December g 31 _

1907 _ 1988 1965 (Dontre H Thousande)

Currert Expense . Fe Jerel. . . . . . . . . . . . . . . . . . . . . . . . . . . 413,274 54.001 4 508 Currect Espense . Siete . . . . . . . . . . . . . . . . . . . . . . . . . . . . . NG 964 528 Deferred Expense (Benef!t) . Federal . . . . . . . . . . . . . . . . . . (4.368) (605) 4.943 Total..................................... ..... g g g The indicated tax rate le less than the current feieral statutory corporate tax rate as a reeut of the to,' lowing items:

Year Ended December 31 1e07 1028 1945 (Dosars M Thousanos)

% of  % CW  % of Pro.Tas .*e. Tax Pro. Tax Amount income Amount income Amourt income Federe; Tax Esponse et 8m4Aarf Rate . . . . . . . . . . . . 8 34.394 10.0 % 8 37.864 44.0 % 8 33.061 46 0 %

incrosse (Decrease) at Temas Meeuene from:

Tex Enempt hvoetwd Securfges income . . . .. . . 14,474 Tes Esempt interset on Loans . . . . . . .. . .. . . . . . . . l13,048 (18.y (17.273) (21.1) (8388) i11a)

(13.0, (14.547) (17.8) 12.637) 17.9)

Merger valueton 't'_ w . . . . . . . . . . . . . . . . . . 1,23e 1.4 112 .1 4.106) 5.7)

Allemebe Meimum Tes LatWilty . . . . . . . . . . . . . . . 1.791 2.0 - - - -

Herest DiseaowerrA on Tax Esem:!! .*asete . . . . . 1.007 1.9 1.843 22 364 5 Moducson in TMe > sa anos Recorvos . . . . . . . . . . . ( 8.184) (s.3) - - - -

Omer. Not . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . _ _ _ 3,SM 2.9 ( 3.300) ( 4 0) I 2.347) ( 3.3)

Total...................................... 8 5,994 10.1 %

m 5 4feo --------

54 % $ 6.o19 84 % i D64 fred tax enpenee (bene!!t) recu% *.,m temporary d'f'erences in the .'ocogn.'tlon of revenue and expense for tax and financial 80coun6ng purposes. The sources of these dilbronces and the tax e#ect of each are as fonows Year Ended December $1 1947 1986 1965 (Ocaers in Thousaws)

Meduction h Tise lnourance Aseerves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8(4.189) .. - ,

Acc rocon of Sond Direcurt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . ( 300) $ 1.2La 8 103 L Pr9eten ter PeteWe Leen Loesee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1.1e3) (3.870) (4.483)

Preesson for insurance Losses. Prormum Reserves and Oeer Leeees . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2.844 1.794 8.018

. Deptwiaton Es pense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1.341 940 700 interest hee me............................................................................ 313 ( 178) (1.000)

E meioyee Benspis Espones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . tas (2.442) 2.065 Amoresocon of Otner Aseen . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 89 301 310 F ote on L oene . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

Geh on ':. alejlment Sa)ee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

( 27) 1.533  ! 269) 302 - -

rmert w .aa., . . . . ( ans) t one o*

Total................................................................................... 4(4.384) St 606) $ 4 983 a

W ce4rred tax assets were $1.022,000 tt December 31.1987 compared to not deforred tax cred ta of $3266.000 at December 31.1986.

At year eW)67. Mr'"an had an aiemative mhlmum tax crecit carryover for f.nancial secounteg purposes of $1.761,000. In accrton, an a% emptive mWmum tm : stryover of $4,755.000 enieted for federalincome tax purposes. Such amounts can be canied over indeWey to o' feet taxes p44 h any;ittre in excete ci the memum tax I;&bMy for that year.

As a result of certsh provie of the Tax Reform Act of 1986 retadng to t$e reser<es, Meridian's 1967 tax provisbn was reduced ty

$4,188,000.

4

- . . . . . 4La

. _ . _. _. _ _ _ . -. _ _ _ _ _ _ - - =. . -- . - _

IW 11 '88 128 28 ftSU-fIrerCE tm P.6 ,

l S u=*ma thert. form Borrowinge end Leng rerm Deb 4 Long term debt at December 31,1947 and 19er -eru,ieted of 7)therl term borrowings et December 3*.1967 enc 1906 con- the following'

-i woes of the tenowing:

Deew o w 31.

Onomter $1'- 19e7 19e6 1987 1900 F Ree M eied W (Donerein M) f (Deserein thouserge) 3 74,343 $ 74.712 '

$106,286 81M,110 OW' #8""""""""*"*""'"

Federei Puede Purthesed . . . . . . . . . . . . . .  !

Securece Seed Unser A0reemema NDue*t00 7 130 7.120 l

O Mepirchase ............u........

Treasury Tas and Loan Notes ... ... ... ..

Mt.800 30,888 338.008 90.634 gpy,iggg,,,,,,,

g g ', Q 'j,',",,",,",,",,

3,47s 3.47s con rneroW Peper . . . . . . . . . . . . . . . . . . . . . 108.1M 93.791 gm.3usweemed Ness, I ONr,incipeng Unos el Cmet Due mrou 4,310 4.928 Antwel gh19eein

-- M ..................  ;

(8116.000 end DN 000 W%eed et Deudern Loen Marneeng Ncess

DecemMr 31.1987 and 1908. 7,000 7 rJ00  !

roepeethely) . . . . . . . . . . . . . . . . . . . . . . . . 1.400 3d.364_ (Due 1991 ) . . . . . . . . . . . . . . . . . . . . . . . . . .

i een Due 1M12006 1

7etel............................. gg ,, ,, ,,,,,,, g,9,, ,,ooo i

7.So% g ,

4,000 Atcuelinensem o m , w ,.re ,n D8................. . ome.............

4.000 0a .. ,

rwe teme bei.w ,,mmes out.en. enose en. ,e.e.

escurWee poid under 7esi.............................

8114.773 M14.001*

Inlorme60rt for lederal funde ,

l repurchese agreemente and commerotel paper es of Decorreer i

! 21,1967,1986, and 1904. Averste Interset resse let the year are .  !

! computed by dMeng the respecWye interset expense by the

roepeceve everage deny balenoes.

The floating reis subordinated notes bear irm test et e rete of 1/8 ,

g,,,,p ,,, m ,,, y of 1% above the artthmetc mean of Londt.' interber* o8 erin 0 Under Agreenients to Repurchese quoteeoneforit ~n .TW.Eurodolierdeposite. determined quer.

teg7 1ees toes torty. The notes are subor@nete and junior in right to paymert to t

(Donere m Thousense) senbr indebedness of Monsen At mM. N notes und be telence et Deconeer 31......... 8736,43e esos,1ng se10,107

  • e* Changed for Cepnel tecurttlee having a rnerket value equal 10 Average Irnerest Mese the princ6pel amount of the notes. On of eAer December 1,1908.

4.73 % 10.40 % 8.4t%

C Decemeer 31 . . . . . . . . . . . . . . . Meriden may, et 13 option, enchenge N notes for capitel securi.

. Madmum AmourtOdetonant ties or, under Certain Circumetences. cash, prict to the December O Any Worm End Dunng .

N Year . . . . . . . . . . . . . . . . . . . . . 8044.879 9000.079 3010.107 1,1900 maturity dele of N notes.The assot of N capnel securl.

l Awage AmoumOutseenang Bee which may be leeued in connection with these notee has nct Dunrg me Year . . . . . . . . . . . . . . . $N7,444 $441.704 $404.444 W W H N computshon of eamhge per M. l a *= iae ow rhe ,em.nin, w = dem oonomme d.m of M.n.en. i

. ^*yter N . . . . ". . . . . . .......... . .'as 8.90 % ,.70% 7,00 % and4 N MN @of p2 j

N 644eeltert of tuch subeseries. Subetentiepy ed of N notes j are r,eeemews prior e meurer et eenen amours beeed on alr*ing iund provielone and/or approval of M appropriate requia-l Commeretel paper tore. Tne Student Loan Markeeng Notes bear interos: of le rete of i 1907 1M8 te86 B8le-l 1% ebeve N quederiy evere0e yleId of 13-Week  !

I (Donere in Thoutenes) Other long. norm dem conWele W of monge0M pay and ,

31. . . . . . . . . . . 8108.t M $ 08,791 808.50 capnellaed neew obegadone (see Note 11).

i Delance et Dec6 nasm,a enter [

18.10% 8 58 % e.18%

' DeAmber 31. . . . . . . . . . . . . . . . . . . .

unmum Aneunt ouemenerg m Apr adene.End During .

2 N Year . . . . . . . . . . . . . . . . . . . . . . . 914e,247 8137,444 $$4.003 i Averste AmourtOuteloperg Dunne N Year . . . . . . . . . . . . . . . . . . $107.977 8 M,363 gao 4ae ,

Averega interend mete Dureg  ;

8.93 % 7.Ce% 3.37 %

N Y ear . . . . . . . . . . . . . . . . . . o . . . . f r

i j

i 4 ,

I a

. - _ --- - ._ ~-.-.

. - - . u,

~.;. . w w .,, A _ _y

, tioV 11 '8811:00 t4SU-Mrrtict to.A o. 2[

euemn  !

e) Ernplayas menef!t Plane the plans le determined using assump6one as of the end of ttw l pongon p;en, year. The following le a summary of these assumptions:

Total penelon expones for 1 M7. which includes several infor.

mai penelor; arrangements in addition to both the Meridian and Delaware Trust plans that are discueced below, was $872,000. Meridian plan Total penelon orpones for 1904 and 1996 wee 82,700,000 and Deeember St.

$4N.t.000, roepecevehr.

Dui 1944 M 1ter tese 1965 iance,6. end.ian adopted Statement ngof

  • Pensw 4.85 ig. ,.r ng 8 = m =
7. =peyere-ce Menon anco,,. a.Aco Dgi.,:,

s o vees.un. Financial we,,

R

,e,rg ""Account.

e o,

" m 7.5%

,% ,8,0%

s moorement Pien. TNe Plan covere subeautiaev a? smployees of neunon As,eie ....... s.0% g.0% s.0%

, Mendian who quapy as to age and lenge of estvice. wim me em eptiort of , of Detaware Tivet who are covered oy a separate penson Oelswere Taust Plan Delewer6 Trust adooted SPAS No. 47 in 1907. Under these December 31 eccountng standards, Delaware Trust wel use the projected unit cred!t actuarial feelhed compared to me frozen eury a0e actuaral m? ma Femod used previously. In add' Won. Certain other actua tal Die xunt mees . . . . . . . . . . . . . . . . . . . . . . . . . s.5% a5%

cheges were required in adoptog SPAS No. 47 that impacted *' N'" "#*

  • pe.nson i 710, empenes

. De for accouneng purposes Pe,nsion M*

D,g, we, expense for n f"'g*d '"""""""""

on " . " - - " . 10.5% to 5% i

.e T,ue, co,npany no ement P reduced by 81,822,000 as a result of applying SPAS No. 87.

in accordance with the provesons of .FAS No. 87, penelon espcoce for periode pr6cr to its adopton hos not been restened. '

The assets of both p!ans conalet priman.y of common stocic.

Net periodic penelon Ocet es determined under the provisions of f!Xed Income e#Curttles such as ob!)getions of the Unned States SPAS No. 87 (1987 and 1944 for the Meridian Plan and 1987 for omment and ccqGe00s, and unNe af cena)n common truet the Delaware Trust Plan) includes the fonowing cornponentt . The plane are adminlehred by Merid%n Aseet Mariage.

(dollere la thousandel: ment, Inc. and me invesement Muagement DMelon of Delaware Truet. as applicable.

M' '*** SOnge Pian SerWe cost. Bem Eamed The total expeces rotating to McMien's savings plan in 1967 >

Dunne e e Yeer ..................... S 4.883 5 3,200 jgg6. and 1965 wee 83.996.000. 83,519,000. and $3,443.000, interestboat on Projected Genest Ogrigas.sn.......................... 7.043 4.908 Acted Meun on Plan Aseere . . . . . . . . . . . (4,448) (9213) Stocar Option Plan i

. Amontasson of Unrecogneed Not Aseste Under Meti&n's 64xA 04' v i l'4an, tr.s opson pr:ces for granu .

, and Other Dec orred Amounte . Nel . .... (4,183) 3212 made in 1987.1946.1966, and 1964 were $22.63, $23.00. $ 18.00.  !

Not Portocic Peneen Cost . . . . . . . . . . . . . . e esa y and $10.17 por share, respecevely. An anatyss of the actvtry in INe plan for the last tree years fo00we' I

The followin table sets forth the funded etstus'and amounte rec);rnaedIri 't Conooildeted belence sheet at December Nurftat of Cbmmon SMaree Sie 1947 and 1906 with respect to both piene.

,,,, 3,,, ,,,,

1987 1948 Optone CWWiend%

i January 1. . . . . . . . . . . . . . 34e.033 270.500 120.000 (Deinere in1housandel Adlueenentlor Merger

> P'Cloceed benent Otsgeson- Accourned tot as a J Accumuisted SomeAt Ot% econ

  • Poohng of bearesee...... - - 14.9 2 DetedBeneels.................... 444,000 8 54.578 snerse o,ereed . . . . . . . . . 173.900 10o.300 187.900 kon.Vessed GeneAte . . . . . . . . . . . . . . . 4,414 4.914 Opbone Esercued. I E9ect of Protossed Pwn re trom Grers Year Componeeson me ressee . . . . . . . . . . . 34,ess 2e est 1944 . . . . . . . . . . . . . . . . (6,873) (44 300) (41.9421 Protected Genent Obegemon . . . . . . . . . 04Mt $7,648 1965 m . . . o n . . . . . o (23.541) (11 A47) -

Merest Yelve of Pian Aseste . . . . . . . . . . . . (137,378) (100416) 19ee . . . . . . . . . . . . . . . . - - -

! pi n 4,,,,, g g,,,,, ,, t907................ - - -

I Pacioceed Donent ........... ( 21,340) ( 13.444)

C#ces FN Da t; Not osin i Dve to

T**** 8' Pest 4 OfRoreet from Em W imm -

Aneumpeone Wees . . . n . . . . . . n . . . . . 3.793 ( 1,890) Gr e at 1 964 . . . . . . . . . . . . . . . .

Ned W Tre Asen 1946 . . . . . . . . . . . . . . ,

( 5.4 o 01 Seeg Amermd b Erm ( 1.Ser') ( 1.00c)

( 9.000)

Soroce IAte . . . . . . . . . . . . . . . . . . . . . . . 18,4a3 is e00 ( 3.300)

, #8".."..".."..".."..".."..

1967 I 1,000) - -

Ope in Baece Sheet at Decemeer 31.. . .. 9( 2.o64) g 838,519 December 1 ....... 383 933 27050o Not periodic pension cost is determired us'.ng certa!n assump. At December 31.1987 exere! sable exon ter plan yeers 1947, tWe as of the beginning of the year wt e eas the funded stat of 1966.1965, and 1984 were 171.100.177.000, :59.334 and 18,066, roepecitvey.

. . . .-.w .--._ w Jha

NOV 11 *0012:27 tt9J-FItWE tcA p. e.

. . eMeetesa _

M'er Gyoreiing Espenses 11) Lassee 0)Thelolowing celegenes of our operefng esponses escoeded Meriden and lie subeldieries are commreed under a number of one percent et the egyegels of totalInterest income and omer cap 4elleeses and non cancelebie operstmo leases with Insel or income for me years ended December 31: remaining terme in esoees of one year. The mimmum aanwel rental commitmente under these leasee el December 31,1987 are et,,mmansed me follows ,

tee 7 tese~ sees  !

(Deserein Thoueenes) I presseelenal Poes one Servlees ..... 014.488 g 8Amt 8 0.344 .

OgM Opereung t Asverseas and Cuelems, Lessee _ Leeses 0eveisement . . . . . . . . . . . . . . . . . . . . 9,478 9,e13 7fea 10,716 (Desere in Thousande) <

CMimun60essee . . . . . . . . . . . . . . . . . . . 14.484 14J17 i Olseenery and Susekee . . . . . . . . . . . . 8.748 0.000 e8?e f Teeinsurance Agency Poes ........ 88.400 31,13e 18.80s 1888 " " " " - " "*" "............. $3.002 814.S:9 Lean freleted Suponeet . . . . . . . . . . . . 17.801 15,911 7.014 ' " " " " o 22e8 M  ;

1888".".".

19e0. . . . ...."."."."..o

.... ............. 1.447 10,211 L 1sei................................. SOS 4.127 l 1000................................. 13e 4.938  ;

1000 and 8ubseeuert . . . . . . . . . . . . . . . . . . - 33.900 [

t0 Commitniemeandcontingencies -

Total Minimum Lease Paymente . . . . . . . . . 7,473 374.7ee we aumen$ng comnWWenn and contngeN Wp on u$lich management does not enteipse any meterlei leases. Amounts meerseenene innerset . . . . . . . . . . 1.oes l They include, among aher emos. cenen mongoes isene sold wem p,,eenivuye , w u,gmum  ;

moeurWandbemgWWmebenWRelemers,N Leses Paymems . . . . . . . . . . . . . . . . . . . . 96.431 O estend erest and legere of erest undertelsen in me ruWmel =====

eeuresoftiusiness. egenarylatereaforestrJmunted Total rental esponse ter all lotees for 1907,1000. and 1986. .

O 9037.881.000 et Desamtier ,1867o loans eoid wim amounted to $19.444.000. 818.716.000 and 814,476,000 ,

resourse aggregated approximatW/ 0604, et December respecovWy.

31 1987.

At December 31,1987. Mortsen wee command to purchase ,

espeidmetwy $100,000A00 of housing development bonde et (

per value under me terms of various tender oppon bond agree * '

"*'s in adene, m noses amoum of momst rue ** 13) Reguietary RestrHiens agreements to amish MentBen wee cottwnteed at N and of 1987 vwousiewereenrieimemountWmvmendemeieenb pede  ;

Mende by 4 subsidery banke. Then reWnohone RrfWt me WA-was 8144,800A00 Wim a not vertebte rete pering poolgori of donde Meridien Bardi. Delaware Trust Company and The First I G.800AM. The wWgmed evere0s muunty of meu oweg Nesonal Benit of Pike County may pay e Mortdlen e SY3.737.000. I agreements wee 1.24 years at Decentier 31,1987.  !

At Decembw 31,1997. consin subsiderles of Mwiden wee 80,830.000 and 84,408400 rapacevWV mostristene are eleo piaced on me amount of credit mat may be  !

pony (plaintiff or detendentl to e numtier of !.woults. WMe any estended to Mwiden by as subsidery banke, Based on these  !

! n m enerreview.

Isoseon hee en mese eedone wem elementof h legalcouneW.le uneeneiney, o a f m opinion manceone.

met me ious tem me men banke m Matsen me smho e  !

l si my.vany.rwunn iromm essonswenothaveameetini ,$,27.883,000.  !

esect a u #mee,el oenemon or ruuh W eposses of - , , , , ,Dunn0,1987, , , , ,,,,, m,, % ore were no loans or advanc l

"'d88"' mostriosons on cash and due som benet ecoounts we pieced  !

! upon me benising subsider'.se of Menden by me Pederei neserve

[

sent. Cenein amounts of reewve betences we required M be  ;

l meMasined at me Federal neeerve Bank bened upon depoelt t l ievWe and other sectro. The amoum W mee reewve belanca et  ;

December 31,1967 wee approstlmelety 8107.900,000.

l  ;

l l

. ~- w--+ =d

. rCV 11 '88 11:09 fGU-fit &tCC tOLA p.30 OMerusa

13) Merknen Beneofp. Inc. (Perent Company Only) Condensed Statements of Changes in Financial Poo! con are as Condensed Balance Sheets are se follows. foHows:

DeesmberSt. Year anded Deeember 31, 1987 1000 1M7 1900 1945 (OoNers M Thousence) (DolWe in Thor eendel Ateels Seuroes of Punds invespient in Subehbories: From Opersoone -

BeNon0 . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8478.313 8800.066 Not income . . . . . . . . . . . . . . . . , . . . . 879,637 8 77.344 $48,432 Non Serndng . . . . . . . . . . . . . . . . . . . . . . . . 97.888 0,110 Lese:

Short Term investmente . . . . . . . . . . . . . . . . 6 13.640 UndletntNied Eatwee hveegmnt Securtos . . . . . . . . . . . . . . . . . . 3,5M 50.006 of Sube w eries ................ (48,413) _ (43242) (38.408)

Loene to Bubeksense . . . . . . . . . . . . . . . . . . 7.464 00,031 44,313 Funde Proviese Omer Assets . . . . . . . . . . . . . . . . . . . . . . . . . . as 307 From Operemone . . . . . . . . . . . . . . . 30,934 34,134 27,226 79481 Asecte . . . . . . . . . . . . . . . . . . . . . . . g 8086,000 increases (Decreasse)in UeDilees:

LieblNiles and Steelheiders' Squity , yte 8 Lee 0. Term Dett . . . . . . . . . . . . . . . . . . . . . . . 8 74,483 8 74,712 80

    • Omer Uehmees , ." * ." " " " " " ."

(18.440) 30233 1.400 seee' O T,s s" 5 :::::::::.'::::::::: ei@ GNE '***

  • Ca** *** " " " " ' *
  • 2"' ' " ' "

7,g,gg g ,,g Telal Seurses of Funde . . . . . . . . . 838,400 gioslas 864,734 Steetheeders' Eguity . . . . . . . . . . . . . g $N4Aes Usse of Funde I increases (Decreaseelin Asseek Short Torm invespiente . . . . . n . . . SC13,484) 08293 $(40,577)

Invesenent Secuntee . . . . . . . . . . . . . t ( 7.642) 44.643 Loeneto8deWortes............ f88 44,001 18,000 Orier Assets . . . . . . . . . . . . . . . . . . . . I ,see 41,553 1.502 Con 00nud Statemente d becme are es h. Invesemnl in Subederies . . . . . . . . 110.130 (12.903) 34,100 UnroeAsod Lees on MerketeWe Year Ended Deceenhor 41, Equey Secuntos . . . . . . . . . . . . . . . . . 875 -

1987 1908 1988 Preemed and common J

Ceeh OMoones . . . . . . . . . . . . . . . . . 31,340 28,882 24,776 (Doters h Thousanos! ogi,,,y ,g ,,,,,,,,,,,,,,,,,,,,,,,, gi y4 g3o inseme Interest income trem SutmofeNoe .... 8 1.579 8 3,000 8 2.370 7etalUsesofPunde............ ess,400 3102a3s 304,724 Menegemert Fees from .

~

Subseenes . . . . . . . . . . . . . . . . . . . . . TS.188 70,300 See Short. Term invessmnte incorne . . . . . 1,471 2.879 1.000 invenenent Secunsee income ....... 447 043 1.101 Omer income . . . . . . . . . . . . . n . . . . . . 4,300 3,77 1,347 88,730 0,387 Tabel income . . . . . . . . . . . . . . . . . . . . M es,enen interest on Short.Torm Borrowings . . . . . . . . . . . . . . . . . . . . . - ~ tai 41 Ireereel on Long.Tomi Dogt . . . . . . . . . 6.349 4,2 77 6,742 Omer tapeness . . . . . . . . . . . . . . . . . . . _ 43,137 77,741 1,10e Total Esponess . . . . . . . . . . . . . . . . . . 38,475 to579 7,001 income (Lose) Betore Tense . . . . . . . . . (8,487) 2.104 (1,964)

Creet ler income Temos . . . .. n . . . . . 0,081) (1,300) ( 820) twome (Loes) Before Eamings of Submemenes . . . . . . . . . . . . . . . . . . . . . (3.400) 3,433 ( 70s)

DMdense trem Sut dienes . . . . . . . . . 88.380 30.412 27.90t Untermuted Eem:nge of Suseeenes . . . . . . . . . . . . . . . . . . . . . 44,418 43aea 38 800 Net income . . . . . . . . e . . . . . . . . . . . . 379 337 imemhens a377,300 ammmmme 306 433

. _ __. _.. . _ u . _ 81 ~ :

tov && '60 A2826 t15U-GrnNcc regg eusu.n _

Opinion of Independent Accoun'ents Peat Varwic<

c.,un.o .wni..

P.., u.w.= u.ie a c..

som um.i su...

Pnifed.'pNa, PA 181c3 The Board of Directors Meridart Sancorp,Inc.

We have examined the consoudated batance sheets of Meridan Sancorp,Inc. and its subsid! aries as of December 31,1967 and 19M and the related coneoudsted state.

monts of income, chenges in stockholders' equity and changes in financist posson for each of me years in the three year period ended December 31,1947. Our exam-Instions were made in accordance with generally accepted auditing standards and, accordnCly, included such tests of the accounting records and such omer audting proce.

dures as we considered necostary in the circumstances.

The aforementioned consoWted f.nancial statements ptve effect to the January 1,1988 merger of Meridan L ancorp, Inc, and Delaware Trust Company which has been accounted for as a poonnc of interests as described in Note 2.

In our optnlon, the alorsmentioned coneohted fhancial statements present fairly the financial pos5on of Meridan Sanoorp,Inc., and its subeldaries at December 31,1967 and 1986, and the results of their operations, changes in stockholders' equh and changes in fbandal petton for each of the years in the three year period ended Decem.

bor 31,1987,in conformity with generally accepted accounting princ)ptes apptled on a consistent bas!s.

M dh hd 4 k

. January 19,1968 Pht!sde!phia, PA 19103

- .e. ?_: . . - - : ~ -- a

fm 11 '88 12:25 ttSU-FI$tCC NCL.A

~ -

Staff Directory , .

l Board of Directors l Merwien sanoorp,ino.

Weimer it. Schufts j John K Austin, Jr. Gomuel A.lieCulleuWi Prescort of Waner R Schu'ts. Inc. (general i Mel' red Preedert and D rector of PMacoche Director and Cr9ef Euoi.1No Omoor of Mereen Durcorp e.hos June M 1M3. . . Chairman contractor), Etnmeue. PA . . . Mendian dromor i Electnc Comoery (en eleomo utny) eMecove knee No ember 13, IM4. . crector of erce Je9uery 28,1994. . . drector of e Mond-Mercfi 1.1980 . . . Moriaan oreciar ecos e Mercan precocessor company erce June M 1M3. .. erector of a Morisen pro- an ore company o'nce Jenuary19. i 1978. . 44 years og .. .en omo6e momeer Auwst 8.19T4.. 61 pers od. . memt*

onesesor compery emoe May 13,1971. . . W N Boente Nomheteg Committee O yeare old . . . trerfeer of me Boerte Nomi- of et beare commatoes escept Aunt.. .

e.co e orector of the Woccareem Corp.

neen0 Commates . . eine e erector of Phde- naherts.esadul ,

cathe Suburtien Corporeson. Qier:ren of Amortoon Menulacewirg Corpore-Charles K Nepts, Jr, ten (pr%ese holen0 oortgenyt long of Prusse. l Jr. Chairman of Aneme Noenge. Lat (9nencel Bebight E. PA. . . Meneen ereceor once June M IM3.. . l Premdert ofIset Menuincture0 Co,Inc. boton0 companyt Weyce. PA . . . trussee. Carr9- '

bed Scie Commeny Motor enerencioers' Yoseg erecear of a Morden pronoossect cortsery menulsolunnek Lyon Slabon, PA... eince September it.1974.'. 81 years od . . .

fruer . . , Morteen carecer einee January 1 oremor emes Neember 13.1984.. . Charmen of me Boerte Compenseben Commd. ,

4 Oremor of a Morisen preoneseect compery 1944. . . erector of Delomere Trust Corrgeny

unos March 17, itH, 41 yeare ete'.w st ' einse Apes.1987.. 47 pare ses... ehe om. <-0 les one member of M NominePiG Corrrrcee

(

director of Sereein Meregement,Inc. and . else e carooter of United Nesonal Irmrence member of to BoenteCortgeresson Commilles. Compey j l Aeprey On.umned.

Julius W. HeroidP tun,Jr' l I

PreeWort of The Qrcup and Dr.J. Erser- Nehard M.Psheer Roered Chairmen of Mer6cten Sancorp, e8Iscove Vlos Cherrren of R. M. Palmer Correeny (candy prose. part-oneer.Phledethe Cone Cole Bas- Peeruary 1, ites . . . Menden grecear ecos i ing Comper'y and rede scenen WION. Bullele, manutecturert PA. . . Montsen j Jurw M 1963. . . dreciar end oNet execLAre  !

careosor ecceJune M i .. . erector of New Yeni... Merden erecear anos amoer of e Menden needseseect octroery Septemt er pe.1M7. . 38 yeart cid. e Menden predecessor compery ecos December 10,1000. ~ 08 yeere aid . .. anos January 15,1983. . . SS years old . . .

1 momeer of m toerts Nor'imeerg Commense. eieo e orecear of Ptooey Musai use Irmsence Joseph K Jones Company and 11 eely taking Compery i

J Attomey and perm In the les llrm of Willem-son, Peedberg & Jones, Portei411e, PA . . .

Sendet K pedett , t Cheirrren of1MBed buloh.4MC1 tuck.86teru Jesse R 9esudt . '

i Mensen Orector esce June M 1963... ausamoede dealererspL PNiemelpme PA... Cherfrun of M Emeouthe Commates. Gabert dreetor of a Merden preoscessor corrgeny Assocesses Inc. (engineere and consunensk I Grooter e "'ce D.i n 13.1944, . .

l i einse Peen.ary it, IM7.. 43 pers cas. . . Mecang, PA . . . Mensen creaar ence Jure M erectorof aMendenpredsomoserconvery .

-l Chairman of the Boertf a Trust Commates and 1963... avector of a Menden predecessor momeerof the AwetCommnos, sees Maron 3.1988.. 58) ears ole :.. company einon September 16,1971. ..

l t

tromber of N Boerte Aust Commesse. 83 years o%..trember of tio goerse Com-l OseMai S.ltaishuse penseben Commese.

Promoort ena Chef Omost of Mortak Lassunsen Pupi . .

Oisirman eng Qiief bassiste Outer of W

'en Bencor9 einoe 1908. .. Preek . George C;.J-- ' - . Jr.

Corp tapperet meiude.aert Wyomesing. Pl4. . .

core of Mercen aerei acco as larmenon on Mensen orooler since January 23.1ste . .. Asfunct prosessor oTLaen Arriencen Hatory Afra 21.1984 and Chef Operenne Olhoer unos eso Polecef Science. Widener Un***sev . .

January 24,1984 . . . Moreen eeector ecos M yees als . . . momeer of tie soorte Com- Moneen areoser since January 1,1944. . .

Geoterrdier 11, iM4 . . . Grector erW preek penamen CortvNitse ... ese a erector of beest Oreolar of Delswere Trust Compery eMoe dets of a Meneen preamrvana' compery ence & Deches, he

. c December 1987. 60 Wee ole . . . eleo e i
16. iMt . . 52 years oef .., morreer creceor of Campbes $as Compery the Boerte Trust ConvWtice. ' , ,

PaulR Reedel Oerfron ene Otief Emeovere Cecer of Carpen-Siency 9. BQeno, Ja.

rO ' ter 'pechneiogy Corst tapeasey essel and eAoys Anfea A.INnumere Professor and Oerperson of N Deperiment of

' and pnnotalin M leur ' Wevere mervisoWrer k ReseWg. PA . . . Merleen Grosser ainos June 30,1963. . , drector of a Marieerr PLbec Potcy aid Mwe0errent of the Wien

& Lee, one .', Meriden Scficot. Unhorself of Penrwyesens PMedestie.

drector ecos June 30,i ...Gesser af a precocessor cortseny enos December 30.1979 PA. . . Men 8en O'reonor .m Feeury 27.

I

' Wereen preososesor corrceny einesJanuary 15. .. 40 o'd ... Chen'ren of N Boerse- 1947.. 62 years old.. memoor of m 1;;1.. 55yearsoog...momeerof ripBoerse ... eso eorector of General Putpic Utees Corporeren, Boero e Auct Cor mttee.

{ Aust Nomreeng and Trust CommRtete .. . eloo I e oreonor of Herreen Amencen, ira Judith bL von Seidenesit

' Ossid S. Auster Preeclert et Deweromed Searcti, be. (eaecutw WIpisse C.Dette Preecert of Aderght Conege. Moedeg. PA .

recrueners ans pacemet ermk PNeoe@%

Cnerman vid Crwl Eaecis,is o*en of 0 4 Meeen asecter wree awsery 23.1964. . .

orector of a Meriden cra-a" compey PA... Men #C c' rector ecce Ju o M 1963. ,

were Tn,et Compery sece Jer%ery 1M5. . Cfector of a Mencien precoceaeor comgry s ecos Petruny 17.1943. . 50 yows old . . . seice June 19,1960. . 47 yers old . . .

1 cirocear since 1913 . . . Mercei orector ence '

l January 1, itH. . 54 rows cic. .. aseo e fromDer cf the Soe se AustComfruttee. merrber of the Boerse Componecon Commatee

' areceor of the Bessemet Truel Comcense of New Jeresy, Flones vid New Yorti.

l j

l l

~^' ' ~ ~ ~

-. JD ' ~ ~~ J L - -- _ - r _ ~ 22 L ** "" "

tCV 81 '83 illia ttSU-F8mt(CE tic <,A P.22 o, N Investor information Buelness Decoription Merc an Bane:re,Inc. is a ms t tank he'dfg corroany reac- Merldlan Bancorp,!nc. Sutteldieries cuartered it. Reacrg, Pa Verc an's pnneta! banking rearkets are eastern PennsyNan a Delaware Trt,st Corroany and t*e s: ate cf Ce4*are ir acoton, Marc an se ves rey cral and nat'cral marnets 900 Ma ket S:.

thrcLgn as tu insurance, mortgage tarkeg and asset management core: antes W>tn Wrmegton, CE 19899 a:c'ex mate'y $8 4 tulon in asse:s, Verc'an is Pennsyfvan;a : f,'m largest tans hold rg (302)42 5 7000 company, Mend. n Acceptance Corporaten Stock Llating Verc'an Bancorp stock .s 1.stsd in tee Natonal Market System of NASDAO. 700 East Gate OrW

n reeseacer i stnJs, Verc an sna'es are frecuent y 1:stes as fonows: Yt Laurel.NJ 09054 Common Profe'rsd Mor6an Asset Managoment Inc.

Me'cn Sep Ver,c Sc et PO Box 2000 Mrcn 8 Mren B pf Vaney Forge. PA 19482 (215)251 7960 Market Price Quotations Common Stock Pre' erred Stock OSS Discount Brokerage For Tre Year 1947 1986 1647 1986 gn, H gn 0 20 % $ 27W 8 81 $ 58 3,fy3e,,'

35 N 6m StIPO Bcx 7922 Low 16 19% 32 4086 Resa n PA 19603 Clos;rg Prce 17% 21 % 35 464 (215)3 0 3214 Regletrar and Trenefer Agent Mer4 an Bancorp,Inc.,3$ N 6:n Street PO B0x 7968, Verid:an hvostment Company Peadro Pa 13603. S!cckne'cers wno naa questiors re-s*cag the r c*nerin p of PO B x2000 Mend an s:ock snoVd contact tne Peg stra' at (215) 320d775 Dividend Calender Ovcenes on Verc an Bancorp a common arid prefstred tioca cut-g%P 60 Veridian Trust Company tatanty are payat'e on the 1 st of Janua y, Aoni, Juiy am Oct:be . 35 N 6m St , P O. Box 1'02 Corporate Hvouquartere Pase:no PA 1(v603 Medd'an Bancorp,Inc. (215)320 3111

. 35 N. Em Street P O. Box 1102 Vendian Bank Read rg, PA 19603 35 N 6tn St.PO Box 1102 Tel.(215)320 2000 Pc . PA 19603 Autornatic Olvidend Ronnveetment Pten Common and pre'e red s*ockho!de's of (215)3 4 2000 Ver c an Bancorp rraf rave the,r ov:cencs reves:ed aJtGrab0a"y in Me'4 43 comen Mardan Procortes,Inc.

ana os at a 5% c s: /t of currens erarnet vaNo. S 0 kno'ce's ca' efpating in t~e p'a, 955 Penn SL PO Box 1102

} may a so trano veru ata'y casn contrh,t ons not to ex:eed $4.000 in any ca'eMar quarter; Peas ng. PA 19603

! hweve', t*e 5% o scort of current erarvet value does not a cay to ve'urta y cesn cen. 1215)320-3070 i tr.out ces There a'o no erckerage fees. commiss ons or serv:ce erafges on any stock Mer dian Tit:e lesarance Cormpary

' purceese ra4ce for c'an partc1 parts A trochute des 0r.e rg the c'an is avalas's ey *tt;ng 101 N. 6t"t St , P O Bos 619 W Sturg : Coroe:1, Sea,er vce Prescort . Innstor Pe'at ons, Me c an Bancorp. 'n. e , P O. Reao ry PA 19603 Box 1102. Peac ng. Pa ,9603 (215)340 3000 SEC Reports Coo es of Ver c an Bercorp a Annual Report (Form 10.K) and Quar'e'ly Amencan Tet.4 Insurance Company Poco'ts (Form 10 0) to tne Securt es and Ex:Pange Comm ss en rray_be ec'a nec try 1101 Broeil Ave w'Seg W Sturg a Corte't Sen or Vee Prescent. inwstor Pe'a:v.s. Verc an Bancorp. V **'. FL 33131

'nc, PO Bcx 1102. Reac ng, Fa 19603. 4305)3744300 Mendian Capitaf Corp.

Independent Accountente Rue Ee4 West Su.ta 222 Peat ManMck, Matt & Co- Diue Ee't PA 19422 Cet f ed Pat 4c Accourtants 1215)278 6900 1600 Va**et S: test PWacey a. PA 19103 Meric an Fundog Corp.

  • 35 N 6:n St, F 0 Dcx 1102 trwest eat-brene'aae hcuses make a rrernet in Ver can Read rg 6 19603 Market E s.'ccro Makers Tre tonourg&

e stock. Eake', Wars Co : Bear Steams 5 Co , tec.; Dora'Oson, Lufin & Vend Jemene.

an L.de Instrance Corrcary F.J V 'r.ssey & Co,Ic::Tre F.rst bcs:en Corporatort J J B W ato'W L Lyons. In0 : 35 N 6tn St. P O Box 1102 Kee's. Bnnet e & Wooca. tr.c ; Vabon. Nugent & Co : Ve'em Lyncn P erce Fever & SeNr1 Reac ng. PA 19603 Irc W H Newtod's Son & Co,inc: ParkerMurter. in:erpora:sc. Pri,,oent.s: Biere Secu-Meru an Mortgage Corporation tit e:: Ryan. Been & Co ; Satomon ilko:rers. Snea' son Lenman Cron !nc.; Tnom sen a$ ' ^

Ve'0nnon Secure et tsc , anc We tso m. S:vocer & Co . Inc.

[5 ]pA 1 Additionalinformation Ana'js:s. eves: cts anc otaer: seektg franc.a!in' ' mat or (215)293 9616 acc.,t Marc an Bancorp rray coete::W S!sts s Co*bett. Ser.o' V.ce Pres co-t mes:3' ine F rst Nat.ona: Bank of P ke Ccg6ty Peat. ors. (215) 320 243B ;p t g> aa St M' fore PA 18337 (717)256 6464 M # # Ee6hOm %hO E-%S &

, FCV 11 '68 11:13 MSU-FIrftCE PCLA P 33 o -

Merldlan Marketplace Mond an's marketplace is at the heart of the vbrant M co's Atlante region, whose burgeoning economy is general'y outperforming national averages.

The area cf Pennsylvania served by Meric an features an unemp'oyment rate that is be:ow the statewide and national averages. Delaware, too, surpasses national and Penn.

sytvania statewide averages for these two important economic rreasurements.

Ess:ctn Pennsytvania and Delaware are dynamic finan.

cial and service incuatry centers and are home to major chemsal and pharmaceut' cal producers. Vanufacturing contnues as an important e'ement of the region's cl verse economy. Technology based industr:es have grown sig.

  • American Titleinsurance Co.and Affil!stes n.f. canty in recent yea's to the point wt ere the reg!cn is Corporate Headquartere an important center for the deve!opment and production of a Delaware Trust Company new techno'og'es. A s'2ab'e import and export t'ade f.ows e First National Bank of Pike County through tre tra;r.4 Delaware RNer ports at Phi'ade!phia and s Meridien Asset Management,Inc.

WWrungton. Agrk:uhre is a stab's regionalindustry, and the area's farm economy is hea' thy. Meridian Bank in acdton to serving its regional market Merid an Y Meridian Mortgage Corporation reaches nat'onal markets through its tit's insurance, mortgege bankng and asset management companies Interstate BenWng Region

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