SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
(Mark One)
[X] Quarterly Report Pursuant to Section 13 or 15(d) of the
Securities Exchange Act of 1934
For the quarterly period ended September 30, 1994
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or
[ ] Transition Report Pursuant to Section 13 or 15(d) of
the Securities Exchange Act of 1934
For the transition period from to
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Commission File Number: 1-9839
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FIRST FIDELITY BANCORPORATION
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(Exact name of registrant as specified in its charter)
New Jersey 22-2826775
- ----------------------------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
2673 Main Street
P.O. Box 6980
Lawrenceville, NJ 08648
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(Address of principal (Zip
executive offices) Code)
(201)-565-3200
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(Registrant's telephone number, including area code)
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(Former name, former address and former fiscal year, if changed since
last report)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15 (d) of the Securities
Exchange Act of 1934 during the preceding 12 months (or for such
shorter period that the registrant was required to file such reports),
and (2) has been subject to such filing requirements for the past 90
days.
[X] Yes [ ] No
Indicate the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at October 31, 1994
- ----------------------------- -------------------------------
Common Stock, $1.00 Par Value 81,664,021 Shares
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Part I - Financial Information
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Item 1 - Financial Statements
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FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(thousands, except per share amounts) Three Months Ended
September 30
--------------------
1994 1993
-------- --------
INTEREST INCOME
Interest and fees on loans......................... $414,999 $389,528
Interest on federal funds sold and securities
purchased under agreements to resell............. 269 4,307
Interest and dividends on securities:
Taxable interest income.......................... 104,543 91,209
Tax-exempt interest income....................... 9,552 11,707
Dividends........................................ 1,293 1,069
Interest on bank deposits.......................... 4,713 15,865
Interest on trading account securities............. 1,713 1,485
-------- --------
Total Interest Income.......................... 537,082 515,170
-------- --------
INTEREST EXPENSE
Interest on:
Deposits......................................... 150,213 153,332
Short-term borrowings............................ 20,511 8,086
Long-term debt................................... 13,296 9,432
-------- --------
Total Interest Expense......................... 184,020 170,850
-------- --------
Net Interest Income.......................... 353,062 344,320
Provision for possible credit losses................. 20,000 33,000
-------- --------
Net Interest Income after Provision
for Possible Credit Losses....................... 333,062 311,320
-------- --------
NON-INTEREST INCOME
Trust Income....................................... 25,890 27,578
Service charges on deposit accounts................ 34,473 38,208
Other service charges, commissions and fees........ 26,643 23,104
Trading revenue.................................... 2,826 4,184
Net securities transactions........................ 4,903 50
Other income....................................... 7,504 4,378
-------- --------
Total Non-Interest Income........................ 102,239 97,502
-------- --------
NON-INTEREST EXPENSE
Salaries and benefits expense...................... 119,489 123,458
Occupancy expense.................................. 27,215 28,456
Equipment expense.................................. 10,097 11,339
Other expenses..................................... 106,830 96,956
-------- --------
Total Non-Interest Expense....................... 263,631 260,209
-------- --------
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Income before income taxes........................... 171,670 148,613
Income taxes......................................... 56,652 47,071
-------- --------
Net Income........................................... 115,018 101,542
Dividends on Preferred Stock......................... 5,182 5,135
-------- --------
Net Income Applicable to Common Stock................ $109,836 $96,407
======== ========
Per common share:
Net income:
Primary.......................................... $1.33 $1.17
Fully diluted.................................... 1.30 1.15
See accompanying notes to consolidated financial statements.
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES) 4 of 36
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(thousands, except per share amounts) Nine Months Ended
September 30
---------------------
1994 1993
--------- ----------
INTEREST INCOME
Interest and fees on loans........................$1,212,654 $1,144,429
Interest on federal funds sold and securities
purchased under agreements to resell............ 759 15,244
Interest and dividends on securities:
Taxable interest income......................... 298,739 278,651
Tax-exempt interest income...................... 29,959 37,527
Dividends....................................... 3,910 3,324
Interest on bank deposits......................... 22,394 55,298
Interest on trading account securities............ 5,134 4,565
--------- ---------
Total Interest Income......................... 1,573,549 1,539,038
--------- ---------
INTEREST EXPENSE
Interest on:
Deposits........................................ 437,474 477,210
Short-term borrowings........................... 44,568 22,863
Long-term debt.................................. 36,811 29,034
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Total Interest Expense........................ 518,853 529,107
--------- ---------
Net Interest Income......................... 1,054,696 1,009,931
Provision for possible credit losses................ 64,000 119,000
--------- ---------
Net Interest Income after Provision
for Possible Credit Losses...................... 990,696 890,931
--------- ---------
NON-INTEREST INCOME
Trust Income...................................... 80,781 77,300
Service charges on deposit accounts............... 108,378 113,881
Other service charges, commissions and fees....... 75,675 63,181
Trading revenue................................... 7,461 13,127
Net securities transactions....................... 13,711 3,921
Other income...................................... 20,544 9,939
--------- ---------
Total Non-Interest Income....................... 306,550 281,349
--------- ---------
NON-INTEREST EXPENSE
Salaries and benefits expense..................... 360,511 348,409
Occupancy expense................................. 87,592 83,798
Equipment expense................................. 31,320 32,157
Other expenses.................................... 317,595 288,015
--------- ---------
Total Non-Interest Expense...................... 797,018 752,379
--------- ---------
Income before income taxes and cumulative effect of
changes in accounting principles.................. 500,228 419,901
Income taxes........................................ 164,751 127,818
--------- ---------
Income before cumulative effect of changes in
accounting principles............................. 335,477 292,083
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Cumulative effect of changes in accounting
principles, net of tax............................ - 2,373
--------- ---------
Net Income.......................................... 335,477 294,456
Dividends on Preferred Stock........................ 15,459 15,523
--------- ---------
Net Income Applicable to Common Stock............... $320,018 $278,933
========= =========
Per common share:
Primary
Income before cumulative effect of changes in
accounting principles............................. $3.87 $3.43
Cumulative effect of changes in accounting
principles, net of tax............................ - .03
Net income - primary................................ 3.87 3.46
Fully diluted
Income before cumulative effect of changes in
accounting principles............................. $3.80 $3.37
Cumulative effect of changes in accounting
principles, net of tax............................ - .03
Net income - fully diluted.......................... 3.80 3.40
See accompanying notes to consolidated financial statements.
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES) 6 of 36
CONSOLIDATED STATEMENTS OF CONDITION
September 30 December 31
1994 1993
(thousands) (unaudited)
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ASSETS
Cash and due from banks............................ $1,575,930 $1,831,270
Interest-bearing time deposits..................... 411,772 979,769
Securities held to maturity........................ 4,527,233 5,241,987
(market value of $4,450,607 at September 30, 1994
and $5,321,239 at December 31, 1993)
Securities available for sale...................... 3,616,562 2,656,721
Trading account securities at market value......... 111,334 149,887
Federal funds sold and securities purchased under
agreements to resell............................. 12,494 15,000
Loans, net of unearned income...................... 22,376,533 21,386,911
Less: Reserve for possible credit losses......... (585,797) (602,183)
----------- -----------
Net loans...................................... 21,790,736 20,784,728
Premises and equipment............................. 409,851 404,208
Customers' acceptance liability.................... 202,382 187,903
Other assets....................................... 1,744,628 1,511,112
----------- -----------
Total Assets................................. $34,402,922 $33,762,585
=========== ===========
LIABILITIES
Deposits in domestic offices:
Demand deposits.................................. $5,134,616 $5,347,007
Savings/NOW deposits............................. 8,909,726 9,650,774
Money market deposit accounts.................... 4,200,380 3,893,130
Other consumer time deposits..................... 8,103,783 8,637,296
Corporate certificates of deposit................ 364,958 398,435
Deposits in overseas offices....................... 922,094 216,380
----------- -----------
Total Deposits................................. 27,635,557 28,143,022
Short-term borrowings.............................. 2,245,668 1,620,125
Acceptances outstanding............................ 205,166 196,117
Other liabilities.................................. 619,119 451,835
Long-term debt..................................... 812,892 613,058
----------- -----------
Total Liabilities............................ 31,518,402 31,024,157
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STOCKHOLDERS' EQUITY
Preferred stock.................................... 230,116 230,422
Common stock ($1.00 par)
Authorized: 150,000,000 shares
Issued: 82,000,181 shares at September 30, 1994
and 79,937,719 shares at December 31, 1993..... 82,000 79,938
Surplus............................................ 1,256,056 1,202,373
Retained earnings.................................. 1,323,774 1,227,368
Less treasury stock, at cost: 161,138 shares at
September 30, 1994 and 36,714 shares
at December 31, 1993........................... (7,426) (1,673)
----------- -----------
Total Common Stockholders' Equity............ 2,654,404 2,508,006
----------- -----------
Total Stockholders' Equity................... 2,884,520 2,738,428
----------- -----------
Total Liabilities and Stockholders' Equity... $34,402,922 $33,762,585
=========== ===========
See accompanying notes to consolidated financial statements.
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES) 8 of 36
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Nine Months Ended
September 30
-------------------------
(thousands) 1994 1993
----------- -----------
Cash flows from operating activities:
Net income......................................... $335,477 $294,456
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible credit losses............... 64,000 119,000
Depreciation, amortization and accretion........... 57,600 39,794
Deferred income tax provision...................... 30,966 24,275
Gain on sale of assets............................. (9,420) (9,735)
Net securities transactions (gains)................ (13,711) (3,921)
Proceeds from sales of trading account
securities....................................... 7,556,907 6,329,728
Purchases of trading account securities............ (7,512,409) (6,295,510)
(Increase) decrease in accrued interest receivable. (57,420) 36,491
Increase (decrease) in accrued interest payable.... 58,082 (38,496)
Change in current taxes payable.................... 91,462 60,621
Other, net......................................... (27,914) 110,935
Cumulative effect of changes in accounting
principles, net of tax........................... - (2,373)
---------- ----------
Net cash provided by operating activities...... 573,620 665,265
Cash flows from investing activities:
Proceeds from maturities of securities
held to maturity................................. 2,026,010 3,724,963
Purchases of securities held to maturity........... (1,138,599) (3,927,241)
Proceeds from sales of securities available
for sale......................................... 695,680 103,379
Proceeds from maturities of securities
available for sale............................... 685,714 -
Purchases of securities available for sale......... (2,429,937) -
Net (disbursements) from lending activities........ (606,085) (317,662)
Purchases of premises and equipment................ (43,946) (44,577)
Proceeds from sales of premises and equipment...... 10,038 7,111
Net change in acceptances.......................... (5,430) (17,329)
Net cash on acquisitions........................... 4,153 615,703
---------- ----------
Net cash (used in)/provided by
investing activities......................... (802,402) 144,347
Cash flows from financing activities:
Change in demand, savings/NOW, and money market
deposits......................................... (1,130,075) (1,324,947)
Change in corporate certificates of deposit and
deposits in overseas offices..................... 672,237 (31,256)
Change in other consumer time deposits............. (830,690) (1,456,201)
Change in short-term borrowings.................... 620,440 (99,256)
Issuance of long-term debt......................... 200,000 150,000
Payments on long-term debt......................... (166) (118,324)
Purchases of treasury stock........................ (152,994) (11,378)
Issuance of common stock........................... 141,123 129,269
Dividends paid..................................... (116,936) (96,608)
---------- ----------
Net cash (used in) financing activities........ (597,061) (2,858,701)
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9 of 36
Net change in cash and cash equivalents........ (825,843) (2,049,089)
Cash and cash equivalents at beginning
of period (A)................................ 2,826,039 5,287,115
---------- ----------
Cash and cash equivalents at end
of period (A)................................ $2,000,196 $3,238,026
========== ==========
Supplemental disclosures:
Total amount of interest paid for the period....... $460,771 $567,603
========== ==========
Total amount of income taxes paid for
the period....................................... $100,884 $85,532
========== ==========
Total amount of loans transferred to OREO.......... $34,178 $91,158
========== ==========
(A) Reconciliation: September 30 December 31
---------------------- ----------------------
1994 1993 1993 1992
---------- ---------- ---------- ----------
Cash and due from banks......... $1,575,930 $1,614,930 $1,831,270 $1,913,177
Interest-bearing time deposits.. 411,772 1,135,786 979,769 2,635,938
Federal funds sold and
securities purchased under
agreements to resell.......... 12,494 487,310 15,000 738,000
---------- ---------- ---------- ----------
Total cash and cash
equivalents................... $2,000,196 $3,238,026 $2,826,039 $5,287,115
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
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SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) In Management's opinion, the financial information, which is
unaudited, reflects all adjustments (consisting solely of normal
recurring adjustments) necessary for a fair presentation of the
financial information as of and for the three and nine month
periods ended September 30, 1994 and September 30, 1993 in
conformity with generally accepted accounting principles. These
financial statements should be read in conjunction with First
Fidelity Bancorporation's ("First Fidelity" or "the Company"
herein) 1993 Annual Report on Form 10-K.
(2) Primary earnings per share is based on the weighted average
number of common shares outstanding during each period, including
the assumed exercise of dilutive stock options and warrants,
using the treasury stock method. Primary earnings per share also
reflect provisions for dividend requirements on all outstanding
shares of the Company's preferred stock.
Fully diluted earnings per share is based on the weighted average
number of common shares outstanding during each period, including
the assumed conversion of convertible preferred stock into common
stock and the assumed exercise of dilutive stock options and
warrants using the treasury stock method. Fully diluted earnings
per share also reflect provisions for dividend requirements on
non-convertible preferred stock.
Item 2
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Management's Discussion and Analysis of Financial Condition and
Results of Operations
The following discussion and analysis should be read in
conjunction with the consolidated financial statements and related
notes and with the statistical information and financial data
appearing in this report as well as the Company's 1993 Annual Report
on Form 10-K. Results of operations for the three and nine month
periods ended September 30, 1994 are not necessarily indicative of
results to be attained for any other period.
Summary
- -------
First Fidelity recorded net income of $115.0 million, or $1.33
per common share on a primary basis and $1.30 per common share on a
fully-diluted basis, for the third quarter of 1994. These results
compare to net income of $101.5 million or $1.17 per common share on a
primary basis and $1.15 per common share on a fully-diluted basis for
the third quarter of 1993.
The earnings improvement for the current quarter, compared to the
third quarter of 1993, resulted from a lower provision for possible
credit losses, stronger net interest income, and higher non-interest
income, partly offset by an increased provision for income taxes and
slightly higher non-interest expenses. The provision for possible
credit losses was $20.0 million in the third quarter of 1994, down
from $33.0 million in the third quarter of 1993, reflecting
management's evaluation of the adequacy of the level of the reserve
for possible credit losses in light of improving asset quality trends,
11 of 36
current economic conditions, the continued decline in non-performing
loans and lower charge-offs. Non-performing assets totaled $376.6
million at September 30, 1994, compared to $511.5 million at September
30, 1993. Net interest income increased $8.7 million to $353.1
million due to increased earning assets, resulting primarily from bank
acquisitions during the last half of 1993. This increase in earning
assets was partially offset by a slight reduction in the net interest
margin.
Return on average stockholders' equity for the current quarter
was 16.06% compared to 15.80% for the third quarter of last year.
Return on average common stockholders' equity was 16.68% in the
current quarter as compared to 16.50% for the same period of 1993.
Return on average assets for the third quarter of 1994 improved to
1.36%, compared to 1.24% a year earlier.
Net income for the nine months ended September 30, 1994 was
$335.5 million, or $3.87 per common share on a primary basis and $3.80
on a fully-diluted basis, compared to net income before the cumulative
effect of changes in accounting principles of $292.1 million, or $3.43
per common share on a primary basis and $3.37 on a fully-diluted
basis, for the first nine months of 1993.
On October 17, 1994, the Company announced a 19% increase in its
quarterly dividend on its common stock, or $.08 per share, to $.50 per
share. The dividend was payable to holders of record as of October
31, 1994.
The Company continues to pursue its strategy of acquiring banks,
bank branches and other financial institutions located in its market
area or in contiguous markets. On August 20, 1994, the Company
completed its acquisition of First Inter-Bancorp Inc. Subject to
receipt of regulatory and shareholder approvals, the pending cash
acquisitions of The Bank of Baltimore ($2.2 billion in assets) for
$348 million and First State Bank in Wilmington, Delaware ($33 million
in assets) for $7 million are expected to close at or near the end of
the fourth quarter of 1994 and the first quarter of 1995,
respectively. It is anticipated that The Bank of Baltimore
acquisition will generate approximately $225 million of goodwill, and
the Company's Tier I and Total capital ratios are expected to be
impacted by approximately 125 basis points as of December 31, 1994.
The Company anticipates that all First Fidelity entities will continue
to exceed the "well capitalized" criteria.
Each of the recent and pending acquisitions described above is
expected to have an additive effect on earnings per share within 18
months of its consummation, assuming the absence of significant
adverse economic conditions. These acquisitions are not expected to
have a material adverse impact on liquidity.
Capital Markets:
During 1993, the Board of Directors authorized the Company to
acquire up to 2% of its outstanding Common Stock in each calendar
year (approximately 1.6 million shares in 1994). On March 7,
1994, the Board authorized the Company to acquire up to an
additional 1.3 million shares of its Common Stock during 1994.
As of September 30, 1994, the Company had acquired 2.9 million
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shares in 1994 pursuant to the open market repurchase program
(exclusive of shares acquired to fund certain benefit plans), at
an average price of $44.80 per share.
On October 20, 1994, the Board of Directors authorized the
purchase by First Fidelity of an additional 2 million shares of
its Common Stock. The purchases may be made from time to time in
the open market or through privately-negotiated transactions, and
acquired shares will be used for general corporate purposes,
including acquisitions.
Also, on September 30, 1994, pursuant to its Investment Agreement
with the Company, Banco Santander, S.A. ("Santander") applied for
regulatory approval to acquire up to 30% of First Fidelity's
voting stock. Santander presently holds 24.9% of the Company's
voting stock. If approved, the additional 5.1% of First Fidelity
voting stock would be purchased by Santander on the open market.
Statement of Financial Accounting Standards ("SFAS") No. 114,
"Accounting by Creditors for Impairment of a Loan" was issued in May,
1993. SFAS 114 requires that "impaired" loans be measured based on
the present value of expected future cash flows, discounted at the
loan's effective interest rate or, as a practical expedient, at the
loan's observable market price or the fair value of the collateral if
the loan is collateral-dependent.
SFAS No. 118, "Accounting by Creditors for Impairment of a Loan--
Income Recognition and Disclosures", was issued in October, 1994.
SFAS 118 eliminates the income recognition provisions of SFAS 114 and
permits creditors to use existing methods of recognizing interest
income on impaired loans. SFAS 118 amends the disclosure requirements
of SFAS 114 to include additional information concerning the recorded
investment in certain impaired loans and the entity's policy for
recognizing interest income related to impaired loans.
Although management is continuing to review SFAS 114 and SFAS
118, it does not currently expect that the adoption of these
standards, which is required beginning in 1995, will have a material
effect on the Company's financial statements.
In October, 1994, the Financial Accounting Standards Board issued
SFAS No. 119, "Disclosure about Derivative Financial Instruments and
Fair Value of Financial Instruments", which specifies disclosures
applicable to derivatives and similar financial instruments that were
excluded from the scope of previously issued accounting
pronouncements. The Company will adopt SFAS 119 on a prospective
basis as of December 31, 1994.
On September 29, 1994, President Clinton signed into law the
Riegle-Neal Interstate Banking and Branching Efficiency Act of 1994
(the "Interstate Act"), which authorizes (i) bank holding companies to
engage in interstate acquisitions of banks beginning one year after
the date of its enactment, (ii) interstate branching through
interstate bank mergers beginning June 1, 1997 (subject to the ability
of states to permit such mergers earlier or to prohibit them) and
(iii) other interstate branching if authorized by state law. As a
result, the Company anticipates that further consolidation in the
banking industry is likely.
13 of 36
On October 21, 1994, following approval of the Comptroller of the
Currency, the Company merged its New York subsidiary bank, First
Fidelity Bank, N.A., New York ("FFB-NY") with and into its largest
subsidiary bank, First Fidelity Bank, N.A. ("FFB-NA"). This merger,
which is part of the Company's ongoing program of consolidation, was
effected following the relocation of the Bronx (Riverdale), New York
head office of FFB-NY to Newark, New Jersey. On November 8, 1994,
FFB-NA, following the approval of the Office of the Comptroller of the
Currency, relocated its head office from Salem, New Jersey to Elkton,
Maryland. FFB-NA now operates more than 600 branches in New Jersey,
Pennsylvania, New York and Maryland.
RESULTS OF OPERATIONS
Net Interest Income
- -------------------
The following tables reflect the significant components of net
interest income for the three and nine month periods ended September
30, 1994 and 1993.
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES) 14 of 36
NET INTEREST INCOME SUMMARY
(dollars in thousands - taxable equivalent basis) (1)
Three months ended September 30, 1994
Interest Average
Average Income/ Interest
ASSETS Balance Expense Rate
Earning Assets (2) ----------- -------- -------
Loans in domestic offices
Commercial.................................. $6,514,181 $116,371 6.99%
Installment................................. 5,988,211 125,291 8.30
Mortgage.................................... 8,978,296 173,548 7.73
Loans in overseas offices..................... 118,930 1,990 6.64
----------- --------
Total Loans............................... 21,599,618 417,200 7.66
Taxable mortgage-backed securities (3)........ 4,436,076 62,229 5.61
Other taxable securities...................... 3,103,518 43,730 5.64
Tax-exempt securities......................... 545,454 13,964 10.24
Time deposits with banks...................... 388,873 4,713 4.74
Federal funds sold and securities
purchased under agreements to resell........ 20,912 269 5.04
Trading account............................... 131,887 1,908 5.79
----------- --------
Total Earning Assets.................... 30,226,338 544,013 7.15
Reserve for possible credit losses.............. (599,666)
Cash and due from banks......................... 1,750,799
Other assets.................................... 2,151,067
-----------
Total Assets.......................... $33,528,538
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits................................. $5,063,133
-----------
Interest-bearing Liabilities
Savings/NOW deposits.......................... 8,864,460 43,408 1.94
Money market deposit accounts................. 4,421,107 26,396 2.37
Other consumer time deposits.................. 8,190,041 73,530 3.56
Corporate certificates of deposit............. 352,386 3,883 4.37
Deposits in overseas offices.................. 278,263 2,996 4.21
Short-term borrowings......................... 1,924,455 20,511 4.17
Long-term debt................................ 812,927 13,296 6.54
----------- --------
Total Interest-bearing Liabilities.......... 24,843,639 184,020 2.93
Other liabilities............................... 779,655
Preferred stockholders' equity.................. 230,190
Common stockholders' equity..................... 2,611,921
----------- --------
Total Liabilities and
Stockholders' Equity.................... $33,528,538 184,020
=========== --------
Net interest income/spread...................... $359,993 4.22
========
Net interest margin............................. 4.74
Tax equivalent adjustment....................... $6,931
========
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(1) In this table, and in other data presented herein on a taxable equivalent
basis, income that is exempt from federal income taxes or taxed at a
preferential rate, such as interest on state and municipal securities, has
been adjusted to a taxable equivalent basis using a federal income tax
rate of 35%.
(2) Includes non-performing loans. The effect of including such loans is to
reduce the average rate earned on the Company's loans.
(3) Includes Collateralized Mortgage Obligations.
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES) 16 of 36
NET INTEREST INCOME SUMMARY
(dollars in thousands - taxable equivalent basis) (1)
Three months ended September 30, 1993
Interest Average
Average Income/ Interest
ASSETS Balance Expense Rate
Earning Assets (2) ----------- -------- -------
Loans in domestic offices
Commercial.................................. $6,760,240 $121,771 7.05%
Installment................................. 5,618,215 115,929 8.19
Mortgage.................................... 7,373,503 153,424 8.32
Loans in overseas offices..................... 122,457 1,508 4.89
----------- --------
Total Loans............................... 19,874,415 392,632 7.83
Taxable mortgage-backed securities (3)........ 3,803,131 56,922 5.99
Other taxable securities...................... 2,710,964 35,521 5.24
Tax-exempt securities......................... 612,117 17,523 11.45
Time deposits with banks...................... 1,446,322 15,865 4.29
Federal funds sold and securities
purchased under agreements to resell........ 543,153 4,307 3.10
Trading account............................... 151,959 1,538 4.05
----------- --------
Total Earning Assets.................... 29,142,061 524,308 7.14
Reserve for possible credit losses.............. (677,752)
Cash and due from banks......................... 1,806,406
Other assets.................................... 2,087,344
-----------
Total Assets.......................... $32,358,059
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits................................. $4,976,133
-----------
Interest-bearing Liabilities
Savings/NOW deposits.......................... 8,547,301 42,603 1.98
Money market deposit accounts................. 4,111,330 23,828 2.30
Other consumer time deposits.................. 8,979,133 81,855 3.62
Corporate certificates of deposit............. 426,771 3,365 3.13
Deposits in overseas offices.................. 222,476 1,681 2.96
Short-term borrowings......................... 1,183,818 8,086 2.67
Long-term debt................................ 621,347 9,432 6.07
----------- --------
Total Interest-bearing Liabilities.......... 24,092,176 170,850 2.81
Other liabilities............................... 740,746
Preferred stockholders' equity.................. 230,422
Common stockholders' equity..................... 2,318,582
----------- --------
Total Liabilities and
Stockholders' Equity.................... $32,358,059 170,850
=========== --------
Net interest income/spread...................... $353,458 4.33
========
Net interest margin............................. 4.82
Tax equivalent adjustment....................... $9,138
========
17 of 36
(1) In this table, and in other data presented herein on a taxable equivalent
basis, income that is exempt from federal income taxes or taxed at a
preferential rate, such as interest on state and municipal securities, has
been adjusted to a taxable equivalent basis using a federal income tax
rate of 35%.
(2) Includes non-performing loans. The effect of including such loans is to
reduce the average rate earned on the Company's loans.
(3) Includes Collateralized Mortgage Obligations.
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES) 18 of 36
NET INTEREST INCOME SUMMARY
(dollars in thousands - taxable equivalent basis) (1)
Nine months ended September 30, 1994
Interest Average
Average Income/ Interest
ASSETS Balance Expense Rate
Earning Assets (2) ----------- -------- -------
Loans in domestic offices
Commercial................................ $6,610,412 $348,380 6.95%
Installment............................... 5,872,836 363,927 8.29
Mortgage.................................. 8,751,275 502,217 7.65
Loans in overseas offices................... 115,611 5,097 5.89
----------- ----------
Total Loans............................. 21,350,134 1,219,621 7.60
Taxable mortgage-backed securities (3)...... 4,572,652 185,848 5.42
Other taxable securities.................... 2,814,470 117,168 5.55
Tax-exempt securities....................... 555,217 43,741 10.50
Time deposits with banks.................... 607,396 22,394 4.86
Federal funds sold and securities
purchased under agreements to resell...... 23,882 759 4.19
Trading account............................. 146,319 5,646 5.14
----------- ----------
Total Earning Assets.................. 30,070,070 1,595,177 7.06
Reserve for possible credit losses............ (606,587)
Cash and due from banks....................... 1,815,469
Other assets.................................. 2,102,561
-----------
Total Assets........................ $33,381,513
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits............................... $5,189,778
-----------
Interest-bearing Liabilities
Savings/NOW deposits........................ 9,418,351 133,221 1.89
Money market deposit accounts............... 3,968,085 68,558 2.31
Other consumer time deposits................ 8,269,000 218,994 3.54
Corporate certificates of deposit........... 356,200 10,026 3.76
Deposits in overseas offices................ 240,706 6,675 3.66
Short-term borrowings....................... 1,619,470 44,568 3.63
Long-term debt.............................. 789,573 36,811 6.22
----------- ----------
Total Interest-bearing Liabilities........ 24,661,385 518,853 2.81
Other liabilities............................. 749,799
Preferred stockholders' equity................ 230,342
Common stockholders' equity................... 2,550,209
----------- ----------
Total Liabilities and
Stockholders' Equity.................. $33,381,513 518,853
=========== ----------
Net interest income/spread.................... $1,076,324 4.25
==========
Net interest margin........................... 4.76
Tax equivalent adjustment..................... $21,628
==========
19 of 36
(1) In this table, and in other data presented herein on a taxable equivalent
basis, income that is exempt from federal income taxes or taxed at a
preferential rate, such as interest on state and municipal securities, has
been adjusted to a taxable equivalent basis using a federal income tax
rate of 35%.
(2) Includes non-performing loans. The effect of including such loans is to
reduce the average rate earned on the Company's loans.
(3) Includes Collateralized Mortgage Obligations.
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES) 20 of 36
NET INTEREST INCOME SUMMARY
(dollars in thousands - taxable equivalent basis) (1)
Nine months ended September 30, 1993
Interest Average
Average Income/ Interest
ASSETS Balance Expense Rate
Earning Assets (2) ----------- -------- -------
Loans in domestic offices
Commercial................................ $6,563,456 $367,850 7.39%
Installment............................... 5,481,958 345,971 8.44
Mortgage.................................. 6,933,819 435,052 8.37
Loans in overseas offices................... 120,384 4,297 4.77
----------- ----------
Total Loans............................. 19,099,617 1,153,170 8.03
Taxable mortgage-backed securities (3)...... 3,949,838 189,222 6.39
Other taxable securities.................... 2,112,219 93,276 5.89
Tax-exempt securities....................... 658,430 54,484 11.03
Time deposits with banks.................... 1,652,113 55,298 4.41
Federal funds sold and securities
purchased under agreements to resell...... 639,362 15,244 3.14
Trading account............................. 152,661 4,726 4.13
----------- ----------
Total Earning Assets.................. 28,264,240 1,565,420 7.37
Reserve for possible credit losses............ (656,783)
Cash and due from banks....................... 1,684,240
Other assets.................................. 1,961,703
-----------
Total Assets........................ $31,253,400
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits............................... $4,714,749
-----------
Interest-bearing Liabilities
Savings/NOW deposits........................ 8,155,020 134,536 2.21
Money market deposit accounts............... 3,973,504 74,261 2.50
Other consumer time deposits................ 8,964,034 253,357 3.78
Corporate certificates of deposit........... 429,046 9,918 3.09
Deposits in overseas offices................ 219,982 5,138 3.08
Short-term borrowings....................... 1,113,826 22,863 2.71
Long-term debt.............................. 584,235 29,034 6.63
----------- ----------
Total Interest-bearing Liabilities........ 23,439,647 529,107 3.02
Other liabilities............................. 682,596
Preferred stockholders' equity................ 231,115
Common stockholders' equity................... 2,185,293
----------- ----------
Total Liabilities and
Stockholders' Equity.................. $31,253,400 529,107
=========== ----------
Net interest income/spread.................... $1,036,313 4.35
==========
Net interest margin........................... 4.87
Tax equivalent adjustment..................... $26,382
==========
21 of 36
(1) In this table, and in other data presented herein on a taxable equivalent
basis, income that is exempt from federal income taxes or taxed at a
preferential rate, such as interest on state and municipal securities, has
been adjusted to a taxable equivalent basis using a federal income tax
rate of 35%.
(2) Includes non-performing loans. The effect of including such loans is to
reduce the average rate earned on the Company's loans.
(3) Includes Collateralized Mortgage Obligations.
22 of 36
Taxable-equivalent net interest income for the third quarter of
1994 was $360.0 million, compared to $353.5 million for the third
quarter of 1993. The increase was primarily due to higher average
earning assets of $30.2 billion in the 1994 third quarter as compared
to $29.1 billion in the year earlier period, partially offset by a
slight decrease from 4.82% to 4.74% in the net interest margin. The
increase in average earning assets was largely the result of higher
average total loans, taxable mortgage-backed securities and other
taxable securities, partially offset by reductions in time deposits
with banks and federal funds sold and securities repurchased under
agreements to resell. Increases in average mortgage and installment
loans resulted from acquisitions and from growth in adjustable rate
mortgages and automobile leasing. The net interest margin declined
eight basis points from the third quarter of 1993 to the third quarter
of 1994, primarily due to refinancings of higher rate loans at lower
rates, an increase in the average rates paid on interest-bearing
liabilities, maturing higher yielding assets being replaced by lower
yielding assets and the integration of acquired banks (which generally
had operated with lower net interest margins). Core deposits (demand
deposits, savings and NOW accounts, money market deposits and other
consumer time deposits) averaged $26.5 billion in the third quarter of
1994, compared to $26.6 billion for the same quarter of 1993.
For the nine months ended September 30, 1994, taxable-equivalent
net interest income was $1,076.3 million compared to $1,036.3 million
for the first nine months of 1993. The increase was primarily
attributable to the factors noted above for the third quarter. The
net interest margin declined 11 basis points from the first nine
months of 1993 to the same period of 1994, primarily due to
refinancings of higher rate loans at lower rates, maturing higher
yielding assets being replaced by lower yielding assets and the
integration of acquired banks (which generally had been operating with
lower net interest margins), partly offset by a decline in average
rates paid on interest-bearing liabilities.
Core deposits averaged $26.8 billion in the first nine months of
1994, compared to $25.8 billion for the first nine months of 1993.
This increase was attributable to acquisitions, partially offset by
deposit run-off.
During 1994, the Company raised its prime rate from 6.00% at
January 1 to 6.25% in March; to 6.75% in April; to 7.25% in May; and
to 7.75% in August, in response to the rising interest rate
environment. Future net interest income will continue to be a
function of a somewhat lower net interest margin and changes in the
level of earning assets.
Non-Interest Income
- -------------------
Non-interest income was $102.2 million for the third quarter of
1994, compared to $97.5 million for the same quarter of 1993. Service
charges on deposit accounts declined to $34.5 million in the third
quarter of 1994 from $38.2 million for the third quarter of 1993. An
increase in customers' average deposit balances resulting from the
introduction of a new relationship banking product in April, 1994 and
23 of 36
an increase in commercial customers' compensating balances, as well as
larger earnings credits associated with such balances in the higher
interest rate environment, had the effect of reducing service charges.
The decline in service charges on deposit accounts was partially
offset by an increase in other service charges, commissions and fees,
reflecting increased sales of fee-generating products and services.
Other service charges, commissions and fees were $26.6 million, up
$3.5 million, or 15%, compared to the same quarter in 1993, primarily
as a result of commission income earned on branch-based annuity and
mutual fund sales and increased revenues from credit card services.
Net securities transactions (gains) increased by $4.9 million. The
$3.1 million increase in other income resulted primarily from net
gains on the sale of various assets.
For the nine months ended September 30, 1994, non-interest income
was $306.6 million compared to $281.3 million for the nine months
ended September 30, 1993. Trust income increased to $80.8 million
during the nine months ended September 30, 1994 from $77.3 million for
the same period of 1993, primarily as a result of acquisitions and
trust marketing campaigns. Service charges on deposit accounts
declined to $108.4 million from $113.9 million, while other service
charges, commissions and fees increased to $75.7 million in the first
nine months of 1994 from $63.2 million for the same period of 1993;
both changes were largely due to the factors noted above. Net
securities transactions (gains) increased $9.8 million, to $13.7
million. Other income increased $10.6 million, primarily due to net
gains on the sale of various assets.
Non-Interest Expense
- --------------------
In July, 1993, First Fidelity and Bankers Trust Company formed a
bank service corporation, Global Processing Alliance, Inc. ("GPA"),
which provides check-processing and related services, and is 50%-owned
by each company. In January 1994, GPA became operational and as a
result, First Fidelity's check-processing expenses, which were
previously reflected in several expense categories, are now reported
in "other expenses".
Total non-interest expense increased $3.4 million, or 1%, in the
third quarter of 1994 compared to the same quarter in 1993. Salaries
and benefits expense was $119.5 million in the third quarter of 1994,
a decline of $4.0 million, or 3%, from 1993's third quarter, largely
due to the GPA reclassification, partly offset by staff additions
associated with acquisitions. Occupancy and equipment expense each
declined by $1.2 million compared to the third quarter of 1993, due
primarily to the GPA reclassification and operating efficiencies
realized from the integration of the banks acquired in 1993 and early
1994. Other expenses for the third quarter of 1994 increased $9.9
million, or 10%, from the prior year's third quarter, primarily as a
result of the reclassification of check-processing expenses. In
addition, other real estate owned ("OREO") expense declined $3.0
million from the 1993 third quarter. The amortization of intangibles
increased by $2.6 million over the third quarter of 1993, to $10.4
million, due to recent acquisitions. As previously noted, the pending
acquisitions (primarily The Bank of Baltimore) are expected to result
in an increase in goodwill and the related amortization expense.
24 of 36
Total non-interest expense for the nine months ended September
30, 1994 was $797.0 million, compared to $752.4 million for the nine
months ended September 30, 1993. Salaries and benefits expense was
$360.5 million compared to $348.4 million for the same period of 1993.
The $12.1 million, or 3%, increase largely reflects additional
staffing costs associated with recent acquisitions, partially offset
by the GPA reclassification noted above. Occupancy expense increased
$3.8 million, or 5%, due primarily to acquisitions. Equipment expense
declined $.8 million, or 3%. Other expenses increased $29.6 million,
or 10%, from $288.0 million for the first nine months of 1993 to
$317.6 million for the first nine months of 1994. The changes in
other expenses were attributable primarily to the factors mentioned in
the previous paragraph.
Productivity continues to benefit from the ongoing integration of
banks acquired in 1993 and 1994. First Fidelity has undertaken a
Company-wide effort to reduce expenses. The Company is also reviewing
its branch and ATM network with the aim of optimizing customer
convenience while maximizing the network's cost-effectiveness.
Income Taxes
- ------------
Income taxes increased to $56.7 million in the third quarter of
1994 from $47.1 million in the third quarter of 1993. Income taxes
for the nine months ended September 30, 1994 increased to $164.8
million from $127.8 million for the nine months ended September 30,
1993. The effective tax rates for the nine months ended September 30,
1994 and 1993 were 32.9% and 30.4%, respectively. For the three and
nine month periods ended September 30, 1994, the increase over the
corresponding periods of 1993 resulted primarily from the higher level
of pre-tax income, combined with a lower level of tax-exempt income.
FINANCIAL CONDITION
Liquidity and Funding
- ---------------------
Through the nine months ended September 30, 1994, the Company
continued its program of investing in higher yielding less liquid
assets and repurchasing its Common shares in the open market. Total
assets increased by $640.3 million, from $33,763 million at December
31, 1993 to $34,403 million at September 30, 1994. Total loans
increased $989.6 million, securities increased $206.5 million,
interest-bearing time deposits decreased by $568.0 million, cash and
due from banks decreased $255.3 million and all other assets increased
by $253.6 million.
Core deposits were $26.3 billion at September 30, 1994, a
decrease of $1.2 billion from December 31, 1993. The decrease was
primarily attributable to the run-off of savings/now accounts and
certificates of deposit, and the fluctuation of demand deposits,
partially offset by deposits obtained through acquisitions. In July
of 1994, the Company streamlined its deposit products and enhanced its
ability to provide services to customers by converting a portion of
its savings/now accounts to money market accounts. The overall
decrease in core deposits, combined with a higher level of total
loans, resulted in a decrease in the Company's ratio of core deposits
to total loans from 129% at December 31, 1993 to 118% at September 30,
1994.
25 of 36
During the nine months ended September 30, 1994, short-term
borrowings increased $625.5 million, all other liabilities increased
$176.3 million and long-term debt increased $199.8 million. Although
short-term and long-term borrowings have increased in order to fund
loan growth, in the face of declining deposit levels, First Fidelity's
borrowings remain at relatively low levels.
In addition to core deposits and long-term debt, the Company has
other potential sources of liquidity, including its ability to enter
into repurchase agreements, primarily using investment securities as
collateral. Management believes that First Fidelity's liquidity
position continues to be more than adequate, based on its levels of
cash, cash equivalents and core deposits, the stability of its other
funding sources and the support provided by its capital base.
Cash and cash equivalents (cash and due from banks, interest-
bearing time deposits, federal funds sold and securities purchased
under agreements to resell) are the Company's most liquid assets. At
September 30, 1994, cash and cash equivalents were $2.0 billion, a
decrease of $825.8 million (29%) from December 31, 1993. Financing
activities absorbed $597.1 million in cash and cash equivalents. This
was primarily the result of a decline in core deposits since December
31, 1993, partly offset by an increase in corporate certificates of
deposit and deposits in overseas offices, and short-term borrowings.
In addition, long-term debt increased by $199.8 million. Operating
activities provided $573.6 million of cash and cash equivalents for
the nine months ended September 30, 1994. Cash and cash equivalents
of $802.4 million were used in investing activities.
As part of its management objective of maintaining essentially
neutral interest rate sensitivity, the Company employed for hedging
purposes $5.5 billion (notional value) of swaps at September 30, 1994,
compared to $4.3 billion (notional value) at December 31, 1993. First
Fidelity also increased its eurodollar futures contracts to $1.8
billion (notional value) at September 30, 1994 from $750 million
(notional value) at December 31, 1993. Such short-term contracts are
used to "lock in" future interest rates as a means of hedging the
rollover of a portion of the Company's short-term money market assets.
Due to the natural maturity gap structure of First Fidelity's
core balance sheet items, the Company structures its interest rate
swaps and futures contracts such that it receives fixed rates and pays
floating rates. Through this mechanism, the Company's net interest
income is essentially insensitive to changes in interest rates within
reasonable ranges (i.e., plus or minus 200 basis points).
Consequently, as the earnings contributed by certain "on balance
sheet" items increases, the contribution to net interest income of the
interest rate swaps and futures positions decreases (and vice-versa).
By itself, net interest income from hedging activities (interest rate
swaps and futures positions) in the third quarter of 1994 was $14.3
million, down from $34.4 million for the same period of 1993. For the
nine months ended September 30, 1994 such income was $75.9 million,
down from $109.6 million for the same period of 1993. Should interest
rates continue to increase, net interest income from interest rate
swaps and futures positions alone will continue to decline.
Capital 26 of 36
- -------
The Federal Reserve Board (the "FRB") measures capital adequacy
for bank holding companies on the basis of a risk-based capital
framework and a leverage ratio. The Federal Deposit Insurance
Corporation Improvement Act ("FDICIA") established a capital-based
supervisory system of prompt corrective action for all depository
institutions. The bank regulatory agencies' "implementing rule" under
FDICIA defines "well capitalized" institutions (the highest possible
rating) as those whose capital ratios equal or exceed all of the
following: Tier I Risk-Based Ratio, 6.0%, Total Risk-Based Ratio,
10.0% and Tier I Leverage Ratio, 5.0%. At December 31, 1993 and
September 30, 1994, the Company and all of its subsidiary banks
reported capital ratios in excess of these minimum percentages. As
previously reported, although the pending acquisitions will affect
capital levels, all First Fidelity companies are expected to retain
their "well capitalized" status.
The following table provides detailed information pertaining to
the Company's risk-based capital position at September 30, 1994 and
December 31, 1993, calculated using the FRB guidelines.
September 30 December 31
(thousands) 1994 1993
----------- ------------ -----------
Tier I:
Common stockholders' equity............ $ 2,654,404 $ 2,508,006
Impact of fair value adjustment--
securities available for sale........ 38,000 (27,295)
Qualifying perpetual
preferred stock...................... 230,116 230,422
Less: goodwill and other intangibles... (479,337) (412,534)
----------- -----------
Total Tier I capital............... 2,443,183 2,298,599
Tier II: ----------- -----------
Allowable portion of the reserve for
possible credit losses............... 304,292 291,878
Includable subordinated debt........... 270,000 327,350
Mandatory convertible debt securities.. 174,150 174,150
----------- -----------
Total Tier II capital.............. 748,442 793,378
----------- -----------
Total risk-based capital........... $ 3,191,625 $ 3,091,977
=========== ===========
Risk-adjusted assets..................... $24,138,760 $23,033,788
=========== ===========
Regulatory September 30 December 31
Minimums 1994 1993
---------- ------------ -----------
Tier I Capital/Risk-
Adjusted Assets................ 4.00% 10.12% 9.98%
Total Risk-based Capital/
Risk-Adjusted Assets........... 8.00% 13.22% 13.42%
Tier I Capital/Quarterly Average
Total Assets less Goodwill
(Leverage Ratio)............... 3.00% 7.39% 7.22%
to 5.00%
27 of 36
Stockholders' equity at September 30, 1994 was $2,884.5 million
compared to $2,738.4 million at December 31, 1993. Changes during the
nine months ended September 30, 1994 were comprised of the following:
(millions)
----------
Balance, December 31, 1993.............................. $2,738.4
Net income............................................ 335.5
Common Stock issued:
Private placement--Santander exercise of warrants... 121.2
Stock options and dividend reinvestment plan........ 19.9
Other............................................... 1.6
Purchases of treasury stock........................... (153.0)
Dividends on Common and Preferred Stock............... (117.0)
Fair value adjustment--securities available for sale.. (65.3)
Other................................................. 3.2
--------
Balance, September 30, 1994............................. $2,884.5
========
The change in unrealized gains and losses on securities
classified as available for sale was reported as a separate component
of stockholders' equity, net of taxes, as noted above.
The increase in the Tier I capital ratio at September 30, 1994,
compared to December 31, 1993, was primarily attributable to the
retention of earnings, partially offset by a higher level of risk-
adjusted assets. The higher level of risk-adjusted assets, combined
with a decline in includable subordinated debt, resulted in a decrease
in the Company's Tier II capital, causing a decline in the Total
capital ratio at September 30, 1994, compared to December 31, 1993.
The increase in risk-adjusted assets was attributable to acquisitions
during the nine months ended September 30, 1994, and increased
securities lending transactions. The increase in the Company's Tier I
leverage ratio from 7.22% at December 31, 1993 to 7.39% at September
30, 1994 was primarily due to the increase in stockholders' equity,
partially offset by a higher level of quarterly average total assets.
ASSET QUALITY 28 of 36
Non-Performing Assets
- ---------------------
Non-performing assets, which include non-accruing loans,
restructured loans, and OREO, net of the OREO reserve, were $376.6
million at September 30, 1994, compared to $494.7 million at December
31, 1993. The following table presents non-performing asset and
contractually past due loan information at September 30, 1994 and
December 31, 1993 (contractually past due loan amounts are not
included in non-performing loan or non-performing asset totals).
(thousands)
----------- September 30 December 31
1994 1993
Non-performing assets (a): ------------ -----------
Non-accruing loans:
Domestic:
Real estate..................... $118,380 $184,610
Other........................... 139,653 168,487
Foreign........................... 15,467 11,913
-------- --------
Total......................... 273,500 365,010
Restructured loans.................. 9,414 13,871
-------- --------
Total Non-Performing Loans........ 282,914 378,881
Other real estate owned:
Foreclosed property............... 95,277 103,344
In-substance foreclosures......... 5,831 19,145
-------- --------
Total........................... 101,108 122,489
Less reserve...................... (7,456) (6,622)
-------- --------
Net............................. 93,652 115,867
-------- --------
Total Non-Performing Assets... $376,566 $494,748
======== ========
Contractually past due but still
accruing loans (b):
Consumer........................ $131,651 $133,112
Other........................... 1,576 8,373
Total Contractually Past Due -------- --------
But Still Accruing Loans.... $133,227 $141,485
======== ========
Non-performing loans/loans (a)........ 1.26% 1.77%
Non-performing assets/loans
and other real estate owned (a)..... 1.68% 2.30%
Reserve for possible credit losses/
non-performing loans (a)............ 207% 159%
Reserve for possible credit losses/
non-performing assets (a)........... 156% 122%
- -----------------
(a) Non-performing assets and non-performing loans exclude loans
classified as contractually past due 90 days or more and still
accruing, assets subject to FDIC loss-sharing provisions and
assets classified as held for sale, which are included in other
assets.
(b) Accruing loans past due 90 days or more.
29 of 36
Non-performing loans were $282.9 million at September 30, 1994,
compared to $378.9 million at December 31, 1993. The decline in total
non-performing loans primarily reflected payments and charge-offs
resulting from continuing collection and workout efforts. In
addition, the Company has experienced a decreased volume of loans
migrating to non-accrual status during 1994.
At September 30, 1994, OREO, net of a $7.4 million OREO reserve,
was $93.7 million compared to $115.9 million at December 31, 1993.
The September 30, 1994 balance consisted of foreclosed property of
$95.3 million and in-substance foreclosures of $5.8 million.
Loans that were 90 days or more past due but still accruing
totaled $133.2 million compared to $141.5 million at December 31,
1993. Management's determination regarding the accrual of interest on
these loans is based on the availability and sufficiency of collateral
and the status of collection efforts. In the present environment,
certain of such loans could become non-performing assets or result in
charge-offs in the future.
In connection with the acquisition of assets from The Howard
Savings Bank on October 2, 1992, the Company obtained certain assets
subject to a loss-sharing arrangement with the FDIC. The Company's
total net exposure on such assets was approximately $4.1 million at
September 30, 1994, net of a $5.6 million reserve for possible losses.
The Company pursues an accelerated disposition approach for
certain assets. Such assets (classified as "assets held for sale")
decreased from $88.4 million at December 31, 1993 to $50.8 million at
September 30, 1994. The decrease occurred despite $24.0 million of
gross additions throughout the nine months ended September 30, 1994,
related to the acquisitions of Greenwich Financial Corporation, The
Savings Bank of Rockland County and First Inter-Bancorp Inc. Assets
held for sale are carried at the lower of adjusted cost or fair value.
Neither segregated assets nor assets held for sale are included
in the non-performing asset and contractually past due loan totals
presented above.
While the Company believes it has responded appropriately to the
current economic environment, management remains sensitive to the
evolving economic situation and its potential impact on asset quality
and the reserve for possible credit losses.
Provision and Reserve for Possible Credit Losses 30 of 36
- ------------------------------------------------
The following table provides detailed information pertaining to
the Company's provision and reserve for possible credit losses and
charge-off experience.
Three Months Ended Nine Months Ended
September 30 September 30
------------------ -------------------
(thousands) 1994 1993 1994 1993
----------- -------- -------- -------- --------
Balance at beginning
of period............ $590,936 $656,890 $602,183 $610,353
Provision............. 20,000 33,000 64,000 119,000
Charge-offs........... (39,536) (105,059) (120,206) (227,552)
Recoveries............ 9,701 12,280 29,559 34,296
-------- -------- -------- --------
Net charge-offs..... (29,835) (92,779) (90,647) (193,256)
-------- -------- -------- --------
Acquired reserves..... 4,696 8,061 10,261 69,075
-------- -------- -------- --------
Balance at end of
period............... $585,797 $605,172 $585,797 $605,172
======== ======== ======== ========
At September 30, 1994, the reserve for possible credit losses was
$585.8 million, or 2.62% of total loans, compared to $602.2 million,
or 2.82% of total loans, at December 31, 1993. The reserve was 207%
of non-performing loans at September 30, 1994, compared to 159% at
December 31, 1993.
The provision for possible credit losses for the third quarter of
1994 was $20.0 million, compared to a third quarter 1993 provision of
$33.0 million. The provision for possible credit losses for the nine
months ended September 30, 1994 was $64.0 million, compared to $119.0
million for the same period in 1993. The levels of the provision and
reserve for possible credit losses are based on management's ongoing
assessment of the Company's credit exposure and consideration of a
number of relevant variables. These variables include prevailing and
anticipated domestic and international economic conditions, assigned
risk ratings on credit exposures, the diversification and size of the
loan portfolio, the results of the most recent regulatory examinations
available to the Company, the current and projected financial status
and creditworthiness of borrowers, certain off balance-sheet credit
risks, the nature and level of non-performing assets and loans that
have been identified as potential problems, the adequacy of
collateral, past and expected loss experience and other factors deemed
relevant by management. The Company's risk rating system and the
quarterly reporting process for problem and vulnerable credits are
utilized by management in determining the adequacy of the Company's
reserve for possible credit losses.
Net charge-offs were $29.8 million in the third quarter of 1994,
compared to $92.8 million in the same quarter of 1993. In the third
quarter of 1994 and 1993, respectively, net charge-offs included $17.1
million and $27.2 million related to commercial borrowers, $4.1
million and $49.2 million in commercial real estate-related credits
and $8.6 million and $16.4 million of consumer credits.
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Net charge-offs for the nine months ended September 30,1994 were
$90.6 million, compared to $193.3 million for the same period in 1993.
The net charge-offs in both periods represented a broad cross-section
of the loan portfolio. For the nine months ended September 30, 1994
and 1993, respectively, net charge-offs included $47.3 million and
$80.2 million related to commercial borrowers, $12.8 million and $76.8
million in commercial real estate-related credits, and $30.5 million
and $36.3 million in consumer credits.
OREO Reserve
- ------------
The following table presents information regarding the Company's
provision and reserve for OREO:
Three Months Ended Nine Months Ended
September 30 September 30
------------------ ------------------
(thousands) 1994 1993 1994 1993
----------- ------- ------- ------- -------
Balance at beginning
of period............. $ 8,016 $13,092 $ 6,622 $ 5,765
Provision.............. 1,500 5,250 7,750 18,050
Acquired reserves...... - 560 456 6,636
Charge-offs and
write-downs.......... (2,060) (9,271) (7,372) (20,820)
------- ------- ------- -------
Balance at end of
period................ $ 7,456 $ 9,631 $ 7,456 $ 9,631
======= ======= ======= =======
The OREO reserve is maintained at a level sufficient to absorb
unidentified declines in the fair value of OREO properties between
periodic evaluations, and for estimated selling costs.
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Part II - Other Information
---------------------------
Item 6. Exhibits and Reports on Form 8-K
--------------------------------
(a) Exhibits as required by Item 601 of Regulation S-K.
(11) Statement regarding computation of per share earnings.
(27) Financial Data Schedule
(29) Letter from the Company's independent accountants
referred to in Paragraph (d) of Rule 10-01 of
Regulation S-X.
(b) Reports on Form 8-K filed during the third quarter:
None.
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SIGNATURES
----------
Pursuant to the requirements of the Securities Exchange Act of
1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned thereunto duly authorized.
FIRST FIDELITY BANCORPORATION
Wolfgang Schoellkopf
Vice Chairman
Chief Financial Officer
Date: November 10, 1994
Anthony R. Burriesci
Executive Vice President
Corporate Controller
Date: November 10, 1994