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 March 31, 1995
---------------------------------------
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
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
550 Broad Street 123 South Broad Street
Newark, New Jersey 07102 Philadelphia, Pennsylvania 19109
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(Address of principal executive offices)
(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 April 30, 1995
- ----------------------------- -------------------------------
Common Stock, $1.00 Par Value 78,857,540 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
March 31
--------------------
1995 1994
-------- --------
INTEREST INCOME
Interest and fees on loans......................... $458,032 $394,146
Interest on federal funds sold and securities
purchased under agreements to resell............. 351 118
Interest and dividends on securities:
Taxable interest income.......................... 105,005 96,715
Tax-exempt interest income....................... 8,778 10,509
Dividends........................................ 1,186 1,195
Interest on bank deposits.......................... 530 10,359
Interest on trading account securities............. 1,224 1,575
-------- --------
Total Interest Income.......................... 575,106 514,617
-------- --------
INTEREST EXPENSE
Interest on:
Deposits......................................... 184,280 143,107
Short-term borrowings............................ 27,591 10,480
Long-term debt................................... 15,469 10,833
-------- --------
Total Interest Expense......................... 227,340 164,420
-------- --------
Net Interest Income.......................... 347,766 350,197
Provision for possible credit losses................. 10,000 24,000
-------- --------
Net Interest Income after Provision
for Possible Credit Losses....................... 337,766 326,197
-------- --------
NON-INTEREST INCOME
Trust Income....................................... 26,369 27,263
Service charges on deposit accounts................ 35,719 37,284
Other service charges, commissions and fees........ 25,320 19,870
Trading revenue.................................... 2,907 3,651
Net securities transactions........................ 7,073 4,082
Other income....................................... 11,957 7,234
-------- --------
Total Non-Interest Income........................ 109,345 99,384
-------- --------
NON-INTEREST EXPENSE
Salaries and benefits expense...................... 126,216 122,139
Occupancy expense.................................. 29,745 31,934
Equipment expense.................................. 11,201 10,928
Other expenses..................................... 104,678 98,578
-------- --------
Total Non-Interest Expense....................... 271,840 263,579
-------- --------
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Income before income taxes........................... 175,271 162,002
Income taxes......................................... 62,336 53,136
-------- --------
Net Income........................................... 112,935 108,866
Dividends on Preferred Stock......................... 5,208 5,131
-------- --------
Net Income Applicable to Common Stock................ $107,727 $103,735
======== ========
Per common share:
Net income:
Primary.......................................... $1.32 $1.26
Fully diluted.................................... 1.29 1.23
See accompanying notes to consolidated financial statements.
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES) 4 of 28
CONSOLIDATED STATEMENTS OF CONDITION
(thousands)
March 31 December 31
1995 1994
(unaudited)
----------- -----------
ASSETS
Cash and due from banks............................ $1,796,869 $2,082,002
Interest-bearing time deposits..................... 131,886 35,567
Securities held to maturity........................ 3,796,809 4,186,860
(market value of $3,737,170 at March 31, 1995
and $4,049,457 at December 31, 1994
Securities available for sale, at market value..... 3,402,687 3,781,163
Trading account securities, at market value........ 70,275 110,494
Federal funds sold and securities purchased under
agreements to resell............................. 10,000 50,675
Loans, net of unearned income...................... 24,092,530 23,801,241
Less: Reserve for possible credit losses......... (581,395) (599,333)
----------- -----------
Net loans...................................... 23,511,135 23,201,908
Premises and equipment............................. 432,005 437,677
Customers' acceptance liability.................... 181,305 215,556
Other assets....................................... 2,066,765 2,113,794
----------- -----------
Total Assets................................. $35,399,736 $36,215,696
=========== ===========
LIABILITIES
Deposits in domestic offices:
Demand deposits.................................. $5,110,710 $5,393,749
Savings/NOW deposits............................. 8,880,796 9,271,335
Money market deposit accounts.................... 3,909,974 4,257,135
Other consumer time deposits..................... 8,972,412 8,858,443
Corporate certificates of deposit................ 347,265 393,058
Deposits in overseas offices....................... 723,082 733,132
----------- -----------
Total Deposits................................. 27,944,239 28,906,852
Short-term borrowings.............................. 2,799,335 2,716,922
Acceptances outstanding............................ 182,096 218,625
Other liabilities.................................. 776,649 682,699
Long-term debt..................................... 813,614 813,623
----------- -----------
Total Liabilities............................ 32,515,933 33,338,721
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STOCKHOLDERS' EQUITY
Preferred stock.................................... 228,474 229,707
Common stock ($1.00 par)
Authorized: 150,000,000 shares
Issued: 82,013,160 shares at March 31, 1995
and 82,003,121 shares at December 31, 1994..... 82,013 82,003
Surplus............................................ 1,255,866 1,256,020
Retained earnings.................................. 1,493,009 1,430,149
Net unrealized gains (losses)-securities available
for sale......................................... (47,036) (75,232)
Less treasury stock, at cost: 2,697,159 shares at
March 31, 1995 and 1,020,282 shares
at December 31, 1994........................... (128,523) (45,672)
----------- -----------
Total Common Stockholders' Equity............ 2,655,329 2,647,268
----------- -----------
Total Stockholders' Equity................... 2,883,803 2,876,975
----------- -----------
Total Liabilities and Stockholders' Equity... $35,399,736 $36,215,696
=========== ===========
See accompanying notes to consolidated financial statements.
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FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
(thousands)
Three Months Ended
March 31
----------------------
1995 1994
---------- ----------
Balance, January 1.................................. $2,876,975 $2,738,428
Net income........................................ 112,935 108,866
Common Stock issued:
Private placement--Santander exercise
of warrants................................... - 60,594
Stock options and dividend reinvestment plan.... 8,946 5,803
Other........................................... - 1,566
Purchases of treasury stock....................... (97,585) (82,695)
Dividends on Common Stock......................... (40,456) (33,573)
Dividends on Preferred Stock...................... (5,208) (5,131)
Net unrealized gains (losses)--securities
available for sale.............................. 28,196 (33,018)
Other............................................. - 3,200
---------- ----------
Balance, March 31................................... $2,883,803 $2,764,040
========== ==========
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FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Three Months Ended
March 31
-------------------------
(thousands) 1995 1994
----------- -----------
Cash flows from operating activities:
Net income......................................... $112,935 $108,866
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible credit losses............... 10,000 24,000
Depreciation, amortization and accretion........... 30,325 6,164
Deferred income tax provision...................... 18,114 5,047
Gain on sale of assets............................. (5,370) (1,072)
Net securities transactions (gains)................ (7,073) (4,082)
Proceeds from sales of trading account
securities....................................... 2,833,795 2,435,352
Purchases of trading account securities............ (2,791,512) (2,466,551)
Decrease (increase) in accrued interest receivable. 6,016 (3,501)
Increase in accrued interest payable............... 19,118 12,163
Change in current taxes payable.................... 36,316 53,732
Other, net......................................... 60,472 79,752
---------- ----------
Net cash provided by operating activities...... 323,136 249,870
Cash flows from investing activities:
Proceeds from maturities of securities
held to maturity................................. 348,723 901,570
Purchases of securities held to maturity........... (32,015) (668,577)
Proceeds from sales of securities available
for sale......................................... 421,612 162,720
Proceeds from maturities of securities
available for sale............................... 78,578 175,537
Purchases of securities available for sale......... (603) (474,477)
Net (disbursements) from lending activities........ (307,791) (45,398)
Purchases of premises and equipment................ (15,438) (12,889)
Proceeds from sales of premises and equipment...... 1,033 2,759
Net change in acceptances.......................... (2,278) (5,161)
Net cash paid on acquisitions...................... (4,430) (14,392)
---------- ----------
Net cash provided by
investing activities......................... 487,391 21,692
Cash flows from financing activities:
Change in demand, savings/NOW, and money market
deposits......................................... (1,028,294) 253,649
Change in corporate certificates of deposit and
deposits in overseas offices..................... (55,843) 177
Change in other consumer time deposits............. 96,020 (232,454)
Change in short-term borrowings.................... 82,413 (391,750)
Issuance of long-term debt......................... - 200,000
Payments on long-term debt......................... (9) (67)
Purchases of treasury stock........................ (97,585) (82,695)
Issuance of common stock........................... 8,946 66,396
Dividends paid..................................... (45,664) (38,704)
---------- ----------
Net cash (used in) financing activities........ (1,040,016) (225,448)
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Net change in cash and cash equivalents........ (229,489) 46,114
Cash and cash equivalents at beginning
of period (A)................................ 2,168,244 2,826,039
---------- ----------
Cash and cash equivalents at end
of period (A)................................ $1,938,755 $2,872,153
========== ==========
Supplemental disclosures:
Total amount of interest paid for the period....... $208,222 $152,257
========== ==========
Total amount of income taxes paid for
the period....................................... $12,074 $4,000
========== ==========
Total amount of loans transferred to OREO.......... $10,483 $13,934
========== ==========
(A) Reconciliation: March 31 December 31
---------------------- ----------------------
1995 1994 1994 1993
---------- ---------- ---------- ----------
Cash and due from banks......... $1,796,869 $2,069,777 $2,082,002 $1,831,270
Interest-bearing time deposits.. 131,886 611,196 35,567 979,769
Federal funds sold and
securities purchased under
agreements to resell.......... 10,000 191,180 50,675 15,000
---------- ---------- ---------- ----------
Total cash and cash
equivalents................... $1,938,755 $2,872,153 $2,168,244 $2,826,039
========== ========== ========== ==========
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 month periods ended
March 31, 1995 and March 31, 1994 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) 1994
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
reflects 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 reflects provisions for dividend requirements on
non-convertible preferred stock.
(3) Effective January 1, 1995, the Company adopted Statement of
Financial Accounting Standards ("SFAS") 114, "Accounting by
Creditors for Impairment of a Loan" and SFAS 118, "Accounting by
Creditors for Impairment of a Loan--Income Recognition and
Disclosures". A loan is considered impaired when, based on
current information and events, it is probable that a creditor
will be unable to collect all amounts due. Under SFAS 114 and
SFAS 118, "impaired" loans must 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 114 and
SFAS 118 do not apply to large groups of smaller-balance
homogeneous loans that are collectively evaluated for impairment,
loans that are measured at fair value or at the lower of cost or
fair value, leases, or debt securities. Prior to January 1,
1995, the Company's "impaired" loans were described as, and
included in, "non-accrual" loans. The adoption of the Statements
had no effect on First Fidelity's non-performing assets or
financial statements.
SFAS 114 and SFAS 118 also require additional disclosures. As a
result, the Company has expanded its accounting policy regarding
the recognition of interest income on loans to read as follows:
"Interest income is not accrued on loans where management has
determined that the borrowers may be unable to meet contractual
principal and/or interest obligations, or where interest or
principal is 90 days or more past due, unless the loans are
adequately secured and in the process of collection. When a loan
is placed on non-accrual (which includes "impaired" loans),
10 of 28
interest accruals cease and uncollected accrued interest is
reversed and charged against current income. Non-accrual loans
are generally not returned to accruing status until principal and
interest payments have been brought current and full
collectibility is reasonably assured. Cash receipts on non-
accrual loans are generally applied to the principal balance
until the remaining balance is considered fully collectible, at
which time interest income may be recognized when received.
Interest on loans that have been restructured is recognized
according to the revised terms."
(4) As of March 31, 1995, under SFAS 114 and SFAS 118, First
Fidelity's impaired loans totaled $186.0 million. The Company
calculated a total "impairment" of $48.0 million related to
$138.9 million of such loans at March 31, 1995. The remaining
$47.1 million of impaired loans have been reduced (through write-
downs or cash collections) to the point where, at March 31, 1995,
no specific impairment was associated with such loans. The
Company's impaired loans averaged $202.3 million for the first
quarter of 1995. Interest income of approximately $.4 million
was recognized, all on a cash basis, on impaired loans for the
three months ended March 31, 1995. Activity in the reserve for
possible credit losses for the three months ended March 31, 1995
is shown in "Item 2--FINANCIAL CONDITION--ASSET QUALITY--
Provision and Reserve for Possible Credit Losses".
Item 2
- ------
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 1994 Annual Report
on Form 10-K. Results of operations for the three month period ended
March 31, 1995 are not necessarily indicative of results to be
attained for any other period.
Summary
- -------
First Fidelity recorded net income of $112.9 million, or $1.32
per common share on a primary basis and $1.29 per common share on a
fully-diluted basis, for the first quarter of 1995. These results
compare to net income of $108.9 million or $1.26 per common share on a
primary basis and $1.23 per common share on a fully-diluted basis for
the first quarter of 1994.
The earnings increase for the current quarter, compared to the
first quarter of 1994, resulted from a lower provision for possible
credit losses and higher non-interest income, partially offset by an
increased provision for income taxes, higher non-interest expenses and
a decline in net interest income. Total non-performing assets
decreased 36% to $294.6 million at March 31, 1995, from $457.1 million
at March 31, 1994.
11 of 28
Return on average stockholders' equity for the current quarter
was 16.01% compared to 16.11% for the first quarter of last year.
Return on average assets for the first quarter of 1995 was 1.32%,
unchanged from the first quarter of 1994.
First Fidelity is continually evaluating acquisition
opportunities, and frequently conducts due diligence activities in
connection with possible acquisitions both on an assisted and
unassisted basis. Acquisition candidates that may be under
consideration at any time include, without limitation, depository
institutions, financial service companies, thrift or savings type
associations and related companies. Companies which First Fidelity
may be considering in connection with its acquisition strategy would
generally be based in markets in which the Company presently operates
or in markets in proximity to one of First Fidelity's then existing
markets. On March 23, 1995, the Company completed its acquisition of
First State Bank in Wilmington, Delaware, which was renamed First
Fidelity Bank, Delaware on April 15, 1995. The pending acquisition of
the 24 Maryland branches of Household Bank, FSB (representing
approximately $1.1 billion in deposits) for $76 million in cash is
expected to be completed by the end of the second quarter of 1995.
The recent and pending acquisitions are expected to have an
additive effect on earnings per share within 18 months of
consummation, assuming the absence of significant adverse economic
conditions. These acquisitions are not expected to have a material
adverse impact on liquidity.
Capital Markets:
Pursuant to open market repurchase programs authorized by the
Board of Directors, entering 1995, the Company had authority to
repurchase approximately 2.7 million shares of its Common Stock
during the year. During the first quarter of 1995, the Company
acquired 1.7 million of such shares (exclusive of shares acquired
to fund certain benefit plans), at an average price of $48.97 per
share. First Fidelity plans to enter the market from time to
time to repurchase these shares.
Banco Santander, S.A. (together with its wholly-owned subsidiary,
FFB Participacoes e Servieos, S.A., Funchal, Portugal, the
current owner of the shares, "Santander"), increased its
percentage ownership of First Fidelity's outstanding voting stock
from 24.8% at December 31, 1994 to 28.9% at April 21, 1995.
Santander has regulatory approval to increase such ownership to
30%, and is expected to continue to purchase First Fidelity stock
in the open market.
RESULTS OF OPERATIONS
Net Interest Income
- -------------------
The following table reflects the significant components of net
interest income for the three month periods ended March 31, 1995 and
1994.
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES) 12 of 28
NET INTEREST INCOME SUMMARY
(dollars in thousands - taxable equivalent basis) (1)
Three months ended March 31, 1995
Interest Average
Average Income/ Interest
ASSETS Balance Expense Rate
Earning Assets (2) ----------- -------- -------
Loans in domestic offices
Commercial.................................. $5,978,106 $115,531 7.73%
Installment................................. 6,826,655 143,526 8.53
Mortgage.................................... 10,198,326 199,029 7.81
Loans in overseas offices..................... 119,897 2,220 7.51
----------- --------
Total Loans............................... 23,122,984 460,306 8.00
Taxable mortgage-backed securities (3)........ 4,283,502 64,711 6.04
Other taxable securities...................... 2,828,191 41,575 5.88
Tax-exempt securities......................... 511,983 12,846 10.04
Time deposits with banks...................... 35,972 530 5.89
Federal funds sold and securities
purchased under agreements to resell........ 23,251 351 6.03
Trading account............................... 81,799 1,378 6.73
----------- --------
Total Earning Assets.................... 30,887,682 581,697 7.56
Reserve for possible credit losses.............. (603,565)
Cash and due from banks......................... 1,732,630
Other assets.................................... 2,631,885
-----------
Total Assets.......................... $34,648,632
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits................................. $5,118,484
-----------
Interest-bearing Liabilities
Savings/NOW deposits.......................... 8,949,288 45,941 2.08
Money market deposit accounts................. 4,098,367 30,806 3.05
Other consumer time deposits.................. 8,904,274 94,079 4.28
Corporate certificates of deposit............. 388,383 5,532 5.78
Deposits in overseas offices.................. 569,513 7,922 5.56
Short-term borrowings......................... 2,045,098 27,591 5.40
Long-term debt................................ 813,619 15,469 7.61
----------- --------
Total Interest-bearing Liabilities.......... 25,768,542 227,340 3.57
Other liabilities............................... 900,510
Preferred stockholders' equity.................. 229,259
Common stockholders' equity..................... 2,631,837
----------- --------
Total Liabilities and
Stockholders' Equity.................... $34,648,632 227,340
=========== --------
Net interest income/spread...................... $354,357 3.99
========
Net interest margin............................. 4.58
Tax equivalent adjustment....................... $6,591
========
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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) 14 of 28
NET INTEREST INCOME SUMMARY
(dollars in thousands - taxable equivalent basis) (1)
Three months ended March 31, 1994
Interest Average
Average Income/ Interest
ASSETS Balance Expense Rate
Earning Assets (2) ----------- -------- -------
Loans in domestic offices
Commercial.................................. $6,761,761 $115,314 6.82%
Installment................................. 5,784,851 117,991 8.27
Mortgage.................................... 8,509,999 161,761 7.60
Loans in overseas offices..................... 116,415 1,455 5.07
----------- --------
Total Loans............................... 21,173,026 396,521 7.52
Taxable mortgage-backed securities (3)........ 4,768,320 63,324 5.31
Other taxable securities...................... 2,546,850 34,715 5.45
Tax-exempt securities......................... 563,042 15,285 10.86
Time deposits with banks...................... 870,978 10,359 4.76
Federal funds sold and securities
purchased under agreements to resell........ 18,247 118 2.59
Trading account............................... 151,564 1,652 4.36
----------- --------
Total Earning Assets.................... 30,092,027 521,974 6.96
Reserve for possible credit losses.............. (613,158)
Cash and due from banks......................... 1,827,972
Other assets.................................... 2,070,804
-----------
Total Assets.......................... $33,377,645
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits................................. $5,399,835
-----------
Interest-bearing Liabilities
Savings/NOW deposits.......................... 9,787,188 44,473 1.84
Money market deposit accounts................. 3,719,806 20,943 2.28
Other consumer time deposits.................. 8,269,072 73,121 3.59
Corporate certificates of deposit............. 373,700 2,932 3.18
Deposits in overseas offices.................. 214,469 1,638 3.05
Short-term borrowings......................... 1,428,578 10,480 2.93
Long-term debt................................ 742,046 10,833 5.84
----------- --------
Total Interest-bearing Liabilities.......... 24,534,859 164,420 2.71
Other liabilities............................... 701,502
Preferred stockholders' equity.................. 230,422
Common stockholders' equity..................... 2,511,027
----------- --------
Total Liabilities and
Stockholders' Equity.................... $33,377,645 164,420
=========== --------
Net interest income/spread...................... $357,554 4.25
========
Net interest margin............................. 4.75
Tax equivalent adjustment....................... $7,357
========
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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.
16 of 28
Taxable-equivalent net interest income for the first quarter of
1995 was $354.4 million, compared to $357.6 million for the first
quarter of 1994. The decrease was primarily due to a decline in the
net interest margin from 4.75% to 4.58%, partially offset by a higher
level of average earning assets. The net interest margin decline of
17 basis points was attributable to a reduced spread on fixed-rate
assets as interest rates rose, as well as changes in the deposit mix
and the composition of the loan portfolio. Other factors contributing
to lower net interest income were cash payments for company-owned life
insurance and the Common Stock repurchase program, the outsourcing of
official checks and cash payments for acquisitions, most of which
occurred in the second half of 1994 and/or early in 1995. The
increase in average earning assets was largely due to acquisitions and
growth in the mortgage and auto lease portfolios. Average total loans
increased $1.9 billion, average securities remained relatively flat
and average time deposits with banks declined $835.0 million. Average
core deposits (demand deposits, savings and NOW accounts, money market
deposits and other consumer time deposits) were relatively unchanged,
while average short-term borrowings increased $616.5 million in the
first quarter of 1995, compared to the same period of 1994.
Non-Interest Income
- -------------------
Non-interest income increased $10.0 million, or 10%, for the
first quarter of 1995, compared to the same quarter of 1994. Trust
income decreased $.9 million, or 3%, primarily as a result of declines
in personal and corporate trust income. Service charges on deposit
accounts declined $1.6 million, or 4%. An increase in customers'
average deposit balances, largely resulting from the introduction of a
new relationship banking product in April, 1994, and an increase in
commercial customers' compensating balances had the effect of reducing
service charges. Other service charges, commissions and fees were up
$5.5 million, or 27%, primarily as a result of increased revenues from
credit card services, mortgage servicing fees from the Company's
mortgage banking activities, which increased as a result of recent
acquisitions, the outsourcing of official checks and higher commission
income earned on branch-based annuity and mutual fund sales. Other
income increased $4.7 million, primarily due to net gains on the sale
of various assets.
Non-Interest Expense
- --------------------
First Fidelity has undertaken a Company-wide productivity program
to reduce expenses and increase efficiency, including rationalization
of work flow and paperwork. The program is also expected to result in
a reduction of full-time equivalent staff from over 13,000 at year-end
1994 to approximately 12,000 at the end of 1995, through attrition and
terminations. At March 31, 1995, full-time equivalent staff
approximated 12,500. In addition, the Company is reviewing the size
and composition of its branch network, with the goal of optimizing
customer convenience while maximizing the network's cost-
effectiveness. As a result, through April 30, 1995, 20 branches had
been closed and consolidated into other branches.
17 of 28
Total non-interest expense increased $8.3 million, or 3%, in the
first quarter of 1995 compared to the same quarter in 1994. Salaries
and benefits expense increased $4.1 million, or 3%, largely due to
staff additions associated with acquisitions. Occupancy expense
declined by $2.2 million, or 7%, due primarily to severe weather
conditions, which increased expenses in the first quarter of 1994, and
operating efficiencies realized in the first quarter of 1995 from the
integration of banks acquired in 1993 and early 1994. Other expenses
increased $6.1 million, or 6%, from the prior year's first quarter,
reflecting the net effect of the following factors: amortization of
intangibles increased by $4.1 million, to $13.6 million, due primarily
to recent acquisitions; external check-processing charges increased
$3.3 million; non-recurring severance expenses related to the
Company's productivity program were $3.0 million; and expenses related
to other real estate owned ("OREO") declined $3.3 million from the
1994 first quarter.
Income Taxes
- ------------
Income taxes increased to $62.3 million in the first quarter of
1995, from $53.1 million in the first quarter of 1994, reflecting a
higher level of pre-tax income, an increase in state income taxes and
a lower level of tax-exempt income. The effective tax rates for the
three months ended March 31, 1995 and 1994 were 35.6% and 32.8%,
respectively.
FINANCIAL CONDITION
Liquidity and Funding
- ---------------------
First Fidelity manages its liquidity in order to maximize
earnings opportunities and to ensure that the cash flow needs of the
parent and subsidiary companies are met in a cost-efficient manner.
The Company's total assets decreased by $816 million, from $36.2
billion at December 31, 1994 to $35.4 billion at March 31, 1995. The
decline in total assets was primarily attributable to sales and
maturities of securities, combined with a decrease in cash and due
from banks, partially offset by increases in short-term commercial
loans and auto leases. Deposits and short-term borrowings are the
Company's primary funding sources. Although the Company experienced a
$907 million reduction in core deposits, only a small increase in
short-term borrowings was needed to fund its asset base during the
first quarter of 1995. The core deposits to total loans ratio was
112% at March 31, 1995, compared to 117% at December 31, 1994.
Other sources of liquidity include the Company's portfolio of
securities available for sale and its ability to enter into repurchase
agreements, using investment securities as collateral.
Management believes that First Fidelity's liquidity position
continues to be more than adequate, based upon its levels of cash and
cash equivalents, a high level of 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
18 of 28
March 31, 1995, cash and cash equivalents totaled $1.9 billion, a
decrease of $229.5 million from December 31, 1994. Financing
activities absorbed $1,040.0 million in cash and cash equivalents.
This was primarily due to: a decline in core deposits; First
Fidelity's purchase of its own Common Stock; and the payment of
dividends, partially offset by an increase in short-term borrowings.
Cash and cash equivalents of $487.4 million were provided by investing
activities, including cash proceeds of $848.9 million received from
sales and maturities of securities, partially offset by net
disbursements of $307.8 million for lending activities. Operating
activities provided $323.1 million in cash and cash equivalents for
the first quarter of 1995.
As part of management's objective of maintaining essentially
neutral interest rate sensitivity, the Company employed for hedging
purposes $5.7 billion (notional amount) of interest rate swaps at
March 31, 1995, compared to $5.0 billion (notional amount) at December
31, 1994. Due to the natural maturity gap structure of First
Fidelity's core balance sheet items, the Company generally structures
its interest rate swap and futures contracts such that it receives a
fixed interest rate and pays a floating interest rate. Through this
process, management strives to maintain the Company's net interest
income at targeted levels, given reasonable changes in interest rates
(i.e.; plus or minus 200 basis points over a one year period).
The market value of the Company's derivative positions represent
the amount which First Fidelity would pay or receive in exchange for
the termination of such contracts. At March 31, 1995, the Company
would have had to pay $107.8 million to terminate its interest rate
swaps (of which $89.6 million was associated with indexed amortizing
swaps), compared with $205.2 million (of which $146.4 million related
to indexed amortizing swaps) at December 31, 1994.
On a stand-alone basis, interest rate swaps and futures positions
would have the effect of reducing net interest income in the first
quarter of 1995 by $3.9 million, compared to $35.0 million of net
interest income provided by such instruments during the first quarter
of 1994. Should interest rates remain flat or increase, interest rate
swaps will have a negative impact on net interest income and net
interest margin for the remainder of 1995. Correspondingly, the net
interest income associated with the on-balance sheet assets and
liabilities hedged by such instruments is increased.
Capital
- -------
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 March 31, 1995 and December
31, 1994, the Company and all of its subsidiary banks reported capital
ratios in excess of these "well capitalized" standards.
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The following table provides detailed information pertaining to
the Company's risk-based capital position at March 31, 1995 and
December 31, 1994, calculated using the FRB guidelines.
March 31 December 31
(thousands) 1995 1994
----------- ----------- -----------
Tier I:
Common stockholders' equity............ $ 2,655,329 $ 2,647,268
Net unrealized (gains) losses--
securities available for sale........ 47,036 75,232
Qualifying perpetual
preferred stock...................... 228,474 229,707
Less: goodwill and other intangibles... (705,671) (709,054)
----------- -----------
Total Tier I capital............... 2,225,168 2,243,153
Tier II: ----------- -----------
Allowable portion of the reserve for
possible credit losses............... 320,704 322,604
Includable subordinated debt........... 270,695 270,695
Mandatory convertible debt securities.. 174,150 174,150
----------- -----------
Total Tier II capital.............. 765,549 767,449
----------- -----------
Total risk-based capital........... $ 2,990,717 $ 3,010,602
=========== ===========
Risk-adjusted assets..................... $25,473,496 $25,608,116
=========== ===========
Regulatory March 31 December 31
Minimums 1995 1994
---------- ------------ -----------
Tier I capital/risk-
adjusted assets................ 4.00% 8.74% 8.76%
Total risk-based capital/
risk-adjusted assets........... 8.00% 11.74% 11.76%
Tier I capital/quarterly average
total assets less deductible
intangibles(leverage ratio).... 3.00% 6.56% 6.58%
to 5.00%
The decline in the Company's capital ratios at March 31, 1995,
compared to December 31, 1994, was primarily attributable to purchases
of First Fidelity Common Stock, the payment of dividends and a higher
level of risk adjusted assets, partially offset by the retention of
earnings. Regulatory capital, as defined, ignores the impact on
equity of unrealized gains and losses associated with securities
available for sale.
20 of 28
ASSET QUALITY
Non-Performing Assets
- ---------------------
Non-performing assets include non-accruing loans, restructured
loans and OREO, net of the OREO reserve. The following table presents
non-performing asset and contractually past due but still accruing
loan information at March 31, 1995, and December 31,1994(contractually
past due but still accruing loan amounts are not included in
non-performing loan or non-performing asset totals).
(thousands)
----------- March 31 December 31
1995 1994
Non-performing assets (a): -------- -----------
Non-accruing loans:
Domestic:
Real estate..................... $ 86,902 $ 94,910
Other........................... 100,201 109,155
Foreign........................... 13,249 15,502
-------- --------
Total......................... 200,352 219,567
Restructured loans.................. 3,925 17,253
-------- --------
Total Non-Performing Loans........ 204,277 236,820
Other real estate owned ............ 94,433 98,786
Less reserve...................... (4,156) (6,752)
-------- --------
Net............................. 90,277 92,034
-------- --------
Total Non-Performing Assets... $294,554 $328,854
======== ========
Contractually past due but still
accruing loans (b):
Consumer........................ $120,340 $128,284
Other........................... 3,075 3,242
Total Contractually Past Due -------- --------
But Still Accruing Loans.... $123,415 $131,526
======== ========
Non-performing loans/loans (a)........ .85% .99%
Non-performing assets/loans
and other real estate owned (a)..... 1.22% 1.38%
Reserve for possible credit losses/
non-performing loans (a)............ 285% 253%
Reserve for possible credit losses/
non-performing assets (a)........... 197% 182%
- -----------------
(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.
21 of 28
The decline in total non-performing loans from December 31, 1994
to March 31, 1995 primarily reflected charge-offs and repayments
resulting from continuing collection and workout efforts. In
addition, the Company continued to experience a decreased volume of
loans migrating to non-accrual status during the first quarter of
1995.
Management's determination regarding the accrual of interest on
loans that were 90 days or more past due but still accruing 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 and/or result in charge-offs in the
future.
The Company pursues an accelerated disposition approach for
certain assets. Such assets (classified as "assets held for sale")
decreased from $69.3 million at December 31, 1994 to $65.6 million at
March 31, 1995. Assets held for sale are carried at the lower of
adjusted cost or fair value.
Management continues to focus on asset quality and its potential
impact on the provision and the reserve for possible credit losses.
The Company believes that it has responded appropriately to the
current economic environment, and is prepared to forego transactions
which do not meet its quality standards.
Provision and Reserve for Possible Credit Losses
- ------------------------------------------------
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
March 31
-------------------
(thousands) 1995 1994
----------- -------- --------
Balance at beginning of period.............. $599,333 $602,183
Provision................................... 10,000 24,000
-------- --------
Total..................................... 609,333 626,183
-------- --------
Charge-offs................................. ( 36,806) (41,531)
Recoveries.................................. 8,428 9,859
-------- --------
Net charge-offs........................... (28,378) (31,672)
-------- --------
Acquired reserves........................... 440 2,845
-------- --------
Balance at end of period.................... $581,395 $597,356
======== ========
At March 31, 1995, the reserve for possible credit losses was
2.41% of total loans, compared to 2.52% of total loans at December 31,
1994.
22 of 28
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 $28.4 million in the first quarter of 1995,
compared to $31.7 million in the first quarter of 1994. In the first
quarter of 1995 and 1994, respectively, net charge-offs included $12.5
million and $19.4 million related to commercial borrowers, $4.4
million and $2.9 million in commercial real estate-related credits and
$11.5 million and $9.4 million of consumer credits.
OREO Reserve
- ------------
The following table presents information regarding the Company's
provision and reserve for OREO:
Three Months Ended
March 31
------------------
(thousands) 1995 1994
----------- ------- -------
Balance at beginning of period................ $ 6,752 $ 6,622
Provision..................................... - 3,250
Acquired reserves............................. - 456
Charge-offs and write-downs................... (2,596) (3,937)
------- -------
Balance at end of period...................... $ 4,156 $ 6,391
======= =======
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.
23 of 28
Part II - Other Information
- ---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
First Fidelity's Annual Meeting of Shareholders was held on April
18, 1995.
Proxies for the meeting were solicited pursuant to Regulation 14A
under the Securities Exchange Act of 1934, as amended. There was no
solicitation in opposition to management's nominees as listed in the
proxy statement, and all such nominees were elected.
With respect to management's nominees, voting was as follows:
Louis E. Azzato, For - 68,176,619, Against - 340,724; Edward E. Barr,
For - 68,184,928, Against - 332,415; Roland K. Bullard, II, For -
68,183,119, Against - 334,224; Lee A. Butz, For - 68,171,486, Against
- - 345,857; Frank M. Henry, For - 68,172,270, Against - 345,073; Juan
Rodriguez Inciarte, For - 68,161,341, Against - 356,002; Rocco J.
Marano, For - 68,172,742, Against - 344,601; Donald C. Parcells, For -
68,177,668, Against - 339,675; Robert M. Scott, For - 68,182,839,
Against - 334,504; and Sefton Stallard, For - 68,178,450, Against -
338,893. There were no abstentions or broker non-votes in connection
with election of director nominees.
Proxies also were solicited at the annual meeting for
ratification of KPMG Peat Marwick LLP as independent auditors of the
Company. The proposal was adopted, with 68,094,752 shares voting For,
215,182 shares voting Against, and 205,439 shares Abstaining
(including 0 broker non-votes).
In addition, a shareholder proposal, which management opposed,
requesting the Company's Board of Directors to take certain actions
with respect to the nomination of Directors, was defeated, with
3,623,037 shares voting For, 59,031,963 shares voting Against, and
2,169,953 shares Abstaining, (including 3,692,390 broker non-votes).
Also, a shareholder proposal, which management opposed,
requesting the Company's Board of Directors to take certain actions
with respect to limiting and reducing executive officer and Director
compensation, was defeated, with 3,753,267 shares voting For,
59,876,695 shares voting Against, and 1,194,991 shares Abstaining,
(including 3,692,390 broker non-votes).
24 of 28
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 first quarter:
None.
25 of 28
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: May 12, 1995
Anthony R. Burriesci
Executive Vice President
Corporate Controller
Date: May 12, 1995