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, 1995
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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.)
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
----------------------------------------------------
(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, 1995
- ----------------------------- -------------------------------
Common Stock, $1.00 Par Value 81,772,268 Shares
2 of 36
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
--------------------
1995 1994
-------- --------
INTEREST INCOME
Interest and fees on loans......................... $476,042 $414,999
Interest on federal funds sold and securities
purchased under agreements to resell............. 3,255 269
Interest and dividends on securities:
Taxable interest income.......................... 87,657 104,543
Tax-exempt interest income....................... 7,645 9,552
Dividends........................................ 949 1,293
Interest on bank deposits.......................... 1,543 4,713
Interest on trading account securities............. 1,387 1,713
-------- --------
Total Interest Income.......................... 578,478 537,082
-------- --------
INTEREST EXPENSE
Interest on:
Deposits......................................... 198,923 150,213
Short-term borrowings............................ 23,973 20,511
Long-term debt................................... 12,631 13,296
-------- --------
Total Interest Expense......................... 235,527 184,020
-------- --------
Net Interest Income.......................... 342,951 353,062
Provision for possible credit losses................. 10,000 20,000
-------- --------
Net Interest Income after Provision
for Possible Credit Losses....................... 332,951 333,062
-------- --------
NON-INTEREST INCOME
Trust income....................................... 26,047 25,890
Service charges on deposit accounts................ 35,984 34,473
Other service charges, commissions and fees........ 27,348 21,657
Trading revenue.................................... 1,605 2,826
Net securities transactions........................ 5,005 4,903
Other income....................................... 12,928 7,504
-------- --------
Total Non-Interest Income........................ 108,917 97,253
-------- --------
NON-INTEREST EXPENSE
Salaries and benefits expense...................... 121,565 119,489
Occupancy expense.................................. 27,455 27,215
Equipment expense.................................. 12,163 10,097
Other expenses..................................... 86,509 101,844
-------- --------
Total Non-Interest Expense....................... 247,692 258,645
-------- --------
3 of 36
Income before income taxes........................... 194,176 171,670
Income taxes......................................... 68,611 56,652
-------- --------
Net Income........................................... 125,565 115,018
Dividends on Preferred Stock......................... 4,956 5,182
-------- --------
Net Income Applicable to Common Stock................ $120,609 $109,836
======== ========
Per common share:
Net income:
Primary.......................................... $1.48 $1.33
Fully diluted.................................... 1.45 1.30
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
----------------------
1995 1994
---------- ----------
INTEREST INCOME
Interest and fees on loans....................... $1,408,356 $1,212,654
Interest on federal funds sold and securities
purchased under agreements to resell........... 4,317 759
Interest and dividends on securities:
Taxable interest income........................ 286,291 298,739
Tax-exempt interest income..................... 24,906 29,959
Dividends...................................... 3,120 3,910
Interest on bank deposits........................ 2,638 22,394
Interest on trading account securities........... 3,961 5,134
--------- ---------
Total Interest Income........................ 1,733,589 1,573,549
--------- ---------
INTEREST EXPENSE
Interest on:
Deposits....................................... 578,833 437,474
Short-term borrowings.......................... 79,813 44,568
Long-term debt................................. 42,211 36,811
--------- ---------
Total Interest Expense....................... 700,857 518,853
--------- ---------
Net Interest Income........................ 1,032,732 1,054,696
Provision for possible credit losses............... 30,000 64,000
--------- ---------
Net Interest Income after Provision
for Possible Credit Losses..................... 1,002,732 990,696
--------- ---------
NON-INTEREST INCOME
Trust income..................................... 79,929 80,781
Service charges on deposit accounts.............. 108,206 108,378
Other service charges, commissions and fees...... 79,489 62,343
Trading revenue.................................. 6,670 7,461
Net securities transactions...................... 19,048 13,711
Other income..................................... 36,829 20,544
--------- ---------
Total Non-Interest Income...................... 330,171 293,218
--------- ---------
NON-INTEREST EXPENSE
Salaries and benefits expense.................... 371,445 360,511
Occupancy expense................................ 86,091 87,592
Equipment expense................................ 34,632 31,320
Other expenses................................... 292,617 304,263
--------- ---------
Total Non-Interest Expense..................... 784,785 783,686
--------- ---------
5 of 36
Income before income taxes......................... 548,118 500,228
Income taxes....................................... 194,360 164,751
--------- ---------
Net Income......................................... 353,758 335,477
Dividends on Preferred Stock....................... 15,277 15,459
--------- ---------
Net Income Applicable to Common Stock.............. $338,481 $320,018
========= =========
Per common share:
Net income:
Primary........................................ $4.17 $3.87
Fully diluted.................................. 4.06 3.80
See accompanying notes to consolidated financial statements.
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES) 6 of 36
CONSOLIDATED STATEMENTS OF CONDITION
September 30 December 31
1995 1994
(thousands) (unaudited)
------------ -----------
ASSETS
Cash and due from banks............................ $1,649,476 $2,082,002
Interest-bearing time deposits..................... 462,649 35,567
Securities held to maturity........................ 4,039,740 4,186,860
(market value of $4,040,342 at September 30,
1995 and $4,049,457 at December 31, 1994)
Securities available for sale, at market value..... 2,128,992 3,781,163
Trading account securities, at market value........ 152,832 110,494
Federal funds sold and securities purchased under
agreements to resell............................. 425,000 50,675
Loans, net of unearned income...................... 24,387,524 23,801,241
Less: Reserve for possible credit losses......... (554,690) (599,333)
----------- -----------
Net loans...................................... 23,832,834 23,201,908
Premises and equipment............................. 419,869 437,677
Customers' acceptance liability.................... 178,425 215,556
Other assets....................................... 1,988,233 2,113,794
----------- -----------
Total Assets................................. $35,278,050 $36,215,696
=========== ===========
LIABILITIES
Deposits in domestic offices:
Demand deposits.................................. $4,868,663 $5,393,749
Savings/NOW deposits............................. 8,464,655 9,271,335
Money market deposit accounts.................... 3,843,202 4,257,135
Other consumer time deposits..................... 9,264,800 8,858,443
Corporate certificates of deposit................ 380,356 393,058
Deposits in overseas offices....................... 757,298 733,132
----------- -----------
Total Deposits................................. 27,578,974 28,906,852
Short-term borrowings.............................. 3,031,961 2,716,922
Acceptances outstanding............................ 178,748 218,625
Other liabilities.................................. 740,938 682,699
Long-term debt..................................... 676,735 813,623
----------- -----------
Total Liabilities............................ 32,207,356 33,338,721
7 of 36
STOCKHOLDERS' EQUITY
Preferred stock.................................... 202,647 229,707
Common stock ($1.00 par)
Authorized: 150,000,000 shares
Issued: 81,934,078 shares at September 30, 1995
and 82,003,121 shares at December 31, 1994..... 81,934 82,003
Surplus............................................ 1,251,173 1,256,020
Retained earnings.................................. 1,606,042 1,430,149
Net unrealized losses--securities
available for sale............................... (3,877) (75,232)
Less treasury stock, at cost: 1,293,756 shares at
September 30, 1995 and 1,020,282 shares
at December 31, 1994........................... (67,225) (45,672)
----------- -----------
Total Common Stockholders' Equity............ 2,868,047 2,647,268
----------- -----------
Total Stockholders' Equity................... 3,070,694 2,876,975
----------- -----------
Total Liabilities and Stockholders' Equity... $35,278,050 $36,215,696
=========== ===========
See accompanying notes to consolidated financial statements.
8 of 36
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
(thousands)
Nine Months Ended
September 30
----------------------
1995 1994
---------- ----------
Balance, January 1.................................. $2,876,975 $2,738,428
Net income........................................ 353,758 335,477
Common Stock issued:
Private placement--Santander exercise
of warrants................................... - 121,189
Stock options and dividend reinvestment plan.... 59,960 19,935
Other........................................... - 1,566
Purchases of treasury stock....................... (155,699) (152,994)
Dividends on Common Stock......................... (120,378) (101,527)
Dividends on Preferred Stock...................... (15,277) (15,459)
Net unrealized gains (losses)--securities
available for sale.............................. 71,355 (65,295)
Other............................................. - 3,200
---------- ----------
Balance, September 30............................... $3,070,694 $2,884,520
========== ==========
See accompanying notes to consolidated financial statements.
9 of 36
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Nine Months Ended
September 30
-------------------------
(thousands) 1995 1994
----------- -----------
Cash flows from operating activities:
Net income......................................... $353,758 $335,477
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible credit losses............... 30,000 64,000
Depreciation, amortization and accretion........... 58,502 57,600
Deferred income tax provision...................... 28,885 30,966
Gain on sale of assets............................. (16,860) (9,420)
Net securities transactions (gains)................ (19,048) (13,711)
Proceeds from sales of trading account
securities....................................... 7,575,325 7,556,907
Purchases of trading account securities............ (7,612,549) (7,512,409)
Decrease (increase) in accrued interest receivable. 2,318 (57,420)
Increase in accrued interest payable............... 42,458 58,082
Change in current taxes payable.................... 59,548 91,462
Other, net......................................... 85,273 (27,914)
---------- ----------
Net cash provided by operating activities...... 587,610 573,620
Cash flows from investing activities:
Proceeds from maturities of securities
held to maturity................................. 1,270,486 2,026,010
Purchases of securities held to maturity........... (1,196,535) (1,138,599)
Proceeds from sales of securities available
for sale......................................... 1,939,788 695,680
Proceeds from maturities of securities
available for sale............................... 376,661 685,714
Purchases of securities available for sale......... (442,332) (2,429,937)
Net (disbursements) from lending activities........ (627,359) (606,085)
Purchases of premises and equipment................ (36,930) (43,946)
Proceeds from sales of premises and equipment...... 5,128 10,038
Net change in acceptances.......................... (2,746) (5,430)
Net cash on acquisitions........................... 943,182 4,153
---------- ----------
Net cash provided by/(used in)
investing activities......................... 2,229,343 (802,402)
Cash flows from financing activities:
Change in demand, savings/NOW, and money market
deposits......................................... (2,201,563) (1,130,075)
Change in corporate certificates of deposit and
deposits in overseas offices..................... 11,464 672,237
Change in other consumer time deposits............. (199,807) (830,690)
Change in short-term borrowings.................... 315,039 620,440
Issuance of long-term debt......................... - 200,000
Payments on long-term debt......................... (136,888) (166)
Purchases of treasury stock........................ (155,699) (152,994)
Issuance of common stock........................... 59,961 141,123
Dividends paid..................................... (140,579) (116,936)
---------- ----------
Net cash (used in) financing activities........ (2,448,072) (597,061)
---------- ----------
10 of 36
Net change in cash and cash equivalents........ 368,881 (825,843)
Cash and cash equivalents at beginning
of period (A)................................ 2,168,244 2,826,039
---------- ----------
Cash and cash equivalents at end
of period (A)................................ $2,537,125 $2,000,196
========== ==========
Supplemental disclosures:
Total amount of interest paid for the period....... $658,399 $460,771
========== ==========
Total amount of income taxes paid for
the period....................................... $107,410 $100,884
========== ==========
Total amount of loans transferred to OREO.......... $22,584 $34,178
========== ==========
(A) Reconciliation: September 30 December 31
---------------------- ----------------------
1995 1994 1994 1993
---------- ---------- ---------- ----------
Cash and due from banks......... $1,649,476 $1,575,930 $2,082,002 $1,831,270
Interest-bearing time deposits.. 462,649 411,772 35,567 979,769
Federal funds sold and
securities purchased under
agreements to resell.......... 425,000 12,494 50,675 15,000
---------- ---------- ---------- ----------
Total cash and cash
equivalents................... $2,537,125 $2,000,196 $2,168,244 $2,826,039
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
11 of 36
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, 1995 and September 30, 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) As previously reported, 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". Under SFAS 114 and SFAS 118,
impaired loans are 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.
(4) In March, 1995, SFAS 121, "Accounting for the Impairment of Long-
Lived Assets and for Long-Lived Assets to Be Disposed Of", was
issued. SFAS 121 requires that long-lived assets and certain
identifiable intangibles and any associated goodwill be reviewed
for impairment whenever events or circumstances indicate that the
carrying amount of an asset may not be recoverable. SFAS 121
also requires long-lived assets and certain identifiable
intangibles to be disposed of to be reported at the lower of
carrying amount or fair value less cost to sell. The adoption of
SFAS 121, which is required beginning in 1996, is not expected to
have a material effect on the Company's financial statements.
12 of 36
(5) During the second quarter of 1995, the Company adopted SFAS 122,
"Accounting for Mortgage Servicing Rights", which was issued in
May, 1995. SFAS 122 amends SFAS 65, "Accounting for Certain
Mortgage Banking Activities". SFAS 122 requires that a mortgage
banking enterprise recognize, as separate assets, rights to
service mortgage loans, however those servicing rights are
acquired. SFAS 122 eliminates the previously existing accounting
distinction between servicing rights acquired through purchase
transactions and those acquired through loan originations. SFAS
122 also requires that a mortgage banking entity assess its
capitalized mortgage servicing rights ("MSRs") periodically for
impairment, based on the fair value of those rights. Through
September 30, 1995, servicing rights capitalized pursuant to SFAS
122 were not material to the Company's financial statements.
(6) The carrying value of capitalized MSRs at September 30, 1995 was
$47.4 million, which approximated fair value. Fair value was
determined by calculating the discounted present value of
estimated expected net future cash flows, considering estimated
prepayments and defaults, projected interest rates and other
factors. For purposes of evaluating and measuring impairment,
capitalized MSRs are aggregated into groups having homogeneous
risk characteristics, based on the attributes of the underlying
loans, and are separately valued, using appropriate assumptions
for each risk group. No valuation allowance was required for
capitalized MSRs at September 30, 1995.
(7) As previously reported, on June 19, 1995, First Fidelity and
First Union Corporation ("First Union") announced the execution
of a definitive Agreement and Plan of Merger (the "Merger
Agreement"), pursuant to which, among other things, First
Fidelity would merge into a wholly-owned subsidiary of First
Union (the "Merger"). The Merger, which has been approved by the
respective shareholders of both companies and by the Federal
Reserve Board, is expected to close by January 1, 1996, subject
to certain conditions of closing. The Merger will be accounted
for as a pooling of interests under generally accepted accounting
principles.
(8) In October, 1995, SFAS 123, "Accounting for Stock-Based
Compensation", was issued. SFAS 123 establishes the concept of a
fair-value-based method of accounting for employee stock
compensation plans. Companies having such plans will have the
option of either: a) recording as compensation cost the fair
value as of grant date of stock options granted to employees,
ratably over the vesting period, or b) continuing to account for
such options as prescribed in Accounting Principles Board Opinion
No. 25, "Accounting for Stock Issued to Employees". If the
latter option is selected, the Company must provide pro-forma
footnote disclosures which illustrate what the impact would have
been on net income and earnings per share, had the fair value-
based method been used. The Company does not anticipate that the
adoption of SFAS 123, which is required beginning in 1996, will
have an impact on its financial statements.
Item 2 13 of 36
- ------
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 and nine month
periods ended September 30, 1995 are not necessarily indicative of
results to be attained for any other period.
Summary
- -------
First Fidelity recorded net income of $125.6 million, or $1.48
per common share on a primary basis and $1.45 per common share on a
fully-diluted basis, for the third quarter of 1995. These results
compare to 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.
The earnings increase for the current quarter, compared to the
third quarter of 1994, resulted from an increase in non-interest
income, a decline in non-interest expense and a decrease in the
provision for possible credit losses, partially offset by an increased
provision for income taxes and a decline in net interest income.
Total non-performing assets decreased 32%, to $255.9 million at
September 30, 1995, from $376.6 million at September 30, 1994.
Return on average stockholders' equity for the current quarter
was 16.77% compared to 16.06% for the third quarter of last year.
Return on average assets was 1.47% in the current quarter compared to
1.36% for the same period of 1994.
First Fidelity is continually evaluating acquisition
opportunities and frequently conducts due diligence activities in
connection with possible acquisitions. As a result, acquisition
discussions and, in some cases, negotiations frequently take place and
future acquisitions can be expected. Pursuant to the terms of the
Merger Agreement (see Item 1, "Summarized Notes to Consolidated
Financial Statements--Note 7"), pending consummation of the Merger,
First Fidelity is permitted, without First Union's written consent, to
make acquisitions in which the purchase price is cash and does not
exceed $150 million in any one case. Any acquisitions may involve the
payment of a premium over book and market values, and therefore some
dilution of First Fidelity's book value and net income per common
share may occur in connection with any future transactions.
In June, 1995, the Company completed its acquisition of the 24
Maryland branches and $1 billion in deposits of Household Bank, FSB,
("Household") for $76 million in cash. The Household acquisition
resulted in an increase in liquidity and is expected to have an
additive effect on First Fidelity's earnings per share in 1995,
assuming the absence of significant adverse economic conditions.
14 of 36
On August 8, 1995, the Federal Deposit Insurance Corporation
("FDIC") amended its regulations on insurance assessments to establish
a new assessment rate schedule of 4 to 31 basis points in replacement
of the existing schedule of 23 to 31 basis points for institutions
whose deposits are subject to assessment by the Bank Insurance Fund
("BIF"). The FDIC has maintained the current assessment rate schedule
of 23 to 31 basis points for institutions whose deposits are subject
to assessment by the Savings Association Insurance Fund ("SAIF"). The
new BIF schedule became effective on June 1, 1995. Assessments which
had been collected at the previous assessment schedule, in excess of
the amount due under the new schedule, were refunded with interest,
and reduced non-interest expense by $15.4 million for the quarter
ended September 30, 1995. As of June 30, 1995, the Company had a BIF
deposit assessment base of approximately $23.6 billion and a SAIF
deposit assessment base of approximately $3.5 billion. Various
legislative proposals regarding the future of the BIF and the SAIF
have been reported recently. Several of these proposals include a
one-time special assessment for SAIF deposits and a subsequent
comparable and reduced level of annual premiums for SAIF and BIF
deposits. The Company does not know when or if any such proposal, or
any other related proposal, may be adopted. Consequently, the impact
of any such legislation on the Company's financial statements cannot
be determined at this time.
Capital Markets:
Pursuant to the Company's previously authorized open market
repurchase program, entering 1995, the Company had authority to
repurchase approximately 2.7 million shares (exclusive of shares
to be acquired to fund certain benefit plans) of its Common Stock
during 1995. Through June 30, 1995 and pursuant to such
repurchase program, First Fidelity purchased 2.6 million shares
of its Common Stock (at an average exercise price of $50.73 per
share). No such shares were repurchased during the third quarter
of 1995. On July 20, 1995, the Board authorized the purchase of
an additional 2.0 million shares of the Company's Common Stock.
In connection with the Merger, First Union and/or First Fidelity
may purchase up to 7.4 million shares of First Union Common
Stock, and, to the extent that less than 7.4 million of such
shares are purchased, First Union and/or First Fidelity may
purchase a proportionate number of shares of First Fidelity
Common Stock (i.e., up to 5.5 million shares). As of November
10, 1995, First Union reported that it had purchased 2,894,500
shares of First Fidelity Common Stock and 250,000 shares of First
Fidelity Series B Convertible Preferred Stock.
RESULTS OF OPERATIONS
Net Interest Income
- -------------------
The following table reflects the significant components of net
interest income for the three and nine month periods ended September
30, 1995 and 1994.
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES) 15 of 36
NET INTEREST INCOME SUMMARY
(dollars in thousands - taxable equivalent basis) (1)
Three months ended September 30, 1995
Interest Average
Average Income/ Interest
ASSETS Balance Expense Rate
Earning Assets (2) ----------- -------- -------
Loans in domestic offices
Commercial.................................. $6,341,619 $118,045 7.28%
Installment................................. 6,763,965 146,328 8.58
Mortgage.................................... 10,468,333 211,244 8.07
Loans in overseas offices..................... 127,073 2,465 7.69
----------- --------
Total Loans............................... 23,700,990 478,082 8.00
Taxable mortgage-backed securities (3)........ 4,348,381 68,810 6.33
Other taxable securities...................... 1,358,645 19,804 5.83
Tax-exempt securities......................... 440,274 11,147 10.13
Time deposits with banks...................... 97,202 1,543 6.21
Federal funds sold and securities
purchased under agreements to resell........ 190,889 3,255 6.67
Trading account............................... 100,230 1,563 6.24
----------- --------
Total Earning Assets.................... 30,236,611 584,204 7.67
Reserve for possible credit losses.............. (567,962)
Cash and due from banks......................... 1,718,125
Other assets.................................... 2,567,322
-----------
Total Assets.......................... $33,954,096
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits................................. $4,993,442
-----------
Interest-bearing Liabilities
Savings/NOW deposits.......................... 8,660,219 43,901 2.01
Money market deposit accounts................. 3,910,400 31,881 3.23
Other consumer time deposits.................. 9,325,158 112,069 4.77
Corporate certificates of deposit............. 434,171 6,142 5.61
Deposits in overseas offices.................. 351,291 4,930 5.49
Short-term borrowings......................... 1,755,581 23,973 5.34
Long-term debt................................ 676,741 12,631 7.47
----------- --------
Total Interest-bearing Liabilities.......... 25,113,561 235,527 3.72
Other liabilities............................... 876,717
Preferred stockholders' equity.................. 209,289
Common stockholders' equity..................... 2,761,087
----------- --------
Total Liabilities and
Stockholders' Equity.................... $33,954,096 348,677
=========== --------
Net interest income/spread...................... $348,677 3.95
========
Net interest margin............................. 4.58
Tax equivalent adjustment....................... $5,726
========
16 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) 17 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
========
18 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) 19 of 36
NET INTEREST INCOME SUMMARY
(dollars in thousands - taxable equivalent basis) (1)
Nine months ended September 30, 1995
Interest Average
Average Income/ Interest
ASSETS Balance Expense Rate
Earning Assets (2) ----------- -------- -------
Loans in domestic offices
Commercial................................ $6,250,851 $353,885 7.47%
Installment............................... 6,802,666 437,073 8.59
Mortgage.................................. 10,294,693 616,873 7.99
Loans in overseas offices................... 125,120 7,121 7.61
----------- ----------
Total Loans............................. 23,473,330 1,414,952 8.02
Taxable mortgage-backed securities (3)...... 4,249,178 197,410 6.19
Other taxable securities.................... 2,079,614 92,114 5.91
Tax-exempt securities....................... 478,251 36,348 10.13
Time deposits with banks.................... 56,319 2,638 6.17
Federal funds sold and securities
purchased under agreements to resell...... 86,844 4,317 6.55
Trading account............................. 90,650 4,416 6.49
----------- ----------
Total Earning Assets.................. 30,514,186 1,752,195 7.64
Reserve for possible credit losses............ (585,588)
Cash and due from banks....................... 1,712,644
Other assets.................................. 2,592,929
-----------
Total Assets........................ $34,234,171
===========
LIABILITIES AND STOCKHOLDERS' EQUITY
Demand deposits............................... $5,026,711
-----------
Interest-bearing Liabilities
Savings/NOW deposits........................ 8,782,265 134,546 2.05
Money market deposit accounts............... 3,947,735 93,476 3.17
Other consumer time deposits................ 9,073,058 310,446 4.57
Corporate certificates of deposit........... 406,413 17,407 5.73
Deposits in overseas offices................ 536,490 22,958 5.64
Short-term borrowings....................... 1,926,875 79,813 5.46
Long-term debt.............................. 748,947 42,211 7.51
----------- ----------
Total Interest-bearing Liabilities........ 25,421,783 700,857 3.68
Other liabilities............................. 888,469
Preferred stockholders' equity................ 221,543
Common stockholders' equity................... 2,675,665
----------- ----------
Total Liabilities and
Stockholders' Equity.................. $34,234,171 700,857
=========== ----------
Net interest income/spread.................... $1,051,338 3.96
==========
Net interest margin........................... 4.57
Tax equivalent adjustment..................... $18,606
==========
20 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) 21 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
==========
22 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.
23 of 36
Taxable-equivalent net interest income for the third quarter of
1995 was $348.7 million, compared to $360.0 million for the third
quarter of 1994. The decrease was primarily attributable to a decline
in the net interest margin from 4.74% to 4.58%. This decline was
primarily due to changes in the deposit mix and the composition of the
loan portfolio, and a reduced spread on fixed-rate assets as interest
rates remained higher, on average, than the same quarter of 1994.
Other factors contributing to lower net interest income were cash
payments for acquisitions, the Company's Common Stock repurchase
program, and company-owned life insurance, combined with the
outsourcing of official checks. Average installment and home mortgage
loans were up $2.3 billion from the third quarter of 1994. A decrease
in the "securities available for sale" portfolio resulted from sales
and maturities of certain U.S. government securities. Average total
loans increased $2.1 billion, average total securities decreased $1.9
billion, average time deposits with banks declined $291.7 million and
average federal funds sold and securities purchased under agreements
to resell increased $170.0 million. Average core deposits (demand
deposits, savings and NOW accounts, money market deposits and other
consumer time deposits) increased $350.5 million, while average short-
term borrowings and average long-term debt declined $168.9 million and
$136.2 million, respectively, in the third quarter of 1995, compared
to the same period of 1994.
For the nine months ended September 30, 1995, taxable equivalent
net interest income was $1,051.3 million, compared to $1,076.3 million
for the same period in 1994. The decrease was attributable to the
same factors as noted above. The net interest margin declined 19
basis points, from 4.76% in the first nine months of 1994 to 4.57% in
the first nine months of 1995, also due to the factors noted above.
Non-Interest Income
- -------------------
Non-interest income increased $11.7 million, or 12%, for the
third quarter of 1995, compared to the same quarter of 1994. Trust
income remained relatively flat. Service charges on deposit accounts
increased $1.5 million, or 4%. Other service charges, commissions and
fees were up $5.7 million, or 26%, primarily as a result of increased
revenues from credit card services, mortgage servicing fees from the
Company's mortgage banking activities and income from credit life
insurance and mutual fund sales. Other income increased $5.4 million,
largely due to income from corporate owned life insurance, gains on
sales of assets and income from venture capital investments.
For the nine months ended September 30, 1995, non-interest income
was $330.2 million compared to $293.2 million for the nine months
ended September 30, 1994. Trust income and service charges on deposit
accounts remained relatively flat in the first nine months of 1995
compared to the same period in 1994. Other service charges,
commissions and fees increased to $79.5 million in the first nine
months of 1995 from $62.3 million for the same period in 1994, due to
the factors noted for the three months ended September 30, 1995, and
due to the outsourcing of official checks and higher commission income
earned on branch-based annuity and mutual fund sales. Other income
increased $16.3 million, primarily due to income associated with
corporate owned life insurance and net gains on the sale of various
assets.
Non-Interest Expense 24 of 36
- --------------------
Total non-interest expense decreased $11.0 million, or 4%, in the
third quarter of 1995 compared to the same quarter in 1994. Salaries
and benefits expense increased $2.1 million, or 2%, due to staff
additions associated with acquisitions. Equipment expense increased
$2.1 million, primarily as a result of recent acquisitions. Total
other expenses decreased $15.3 million, or 15%, from the prior year's
third quarter, reflecting the net effect of the following factors:
deposit insurance premium charges decreased by $15.1 million;
amortization of intangibles increased by $4.4 million, due primarily
to the Baltimore Bancorp acquisition; expenses related to other real
estate owned ("OREO") declined $2.9 million from the 1994 third
quarter, as the level of OREO declined; and advertising decreased $1.1
million.
Total non-interest expense for the nine months ended September
30, 1995 was $784.8 million, compared to $783.7 million for the nine
months ended September 30, 1994. Salaries and benefits expense for
the first nine months of 1995 was $371.4 million, compared to $360.5
million. The $10.9 million, or 3%, increase was primarily due to
acquisitions. Occupancy expense decreased $1.5 million, or 2%,
compared to the first nine months of 1994, due primarily to expenses
related to severe weather conditions which occurred during the first
quarter of 1994, partially offset by the effect of recent
acquisitions. Equipment expense increased $3.3 million, or 11%,
primarily as a result of recent acquisitions. Other expenses
decreased by $11.6 million, or 4%, generally due to the same factors
as for the three months ended September 30, 1995, partially offset by
the impact of $2.2 million of non-recurring expenses related to the
Company's productivity program, which occurred during the first nine
months of 1995.
At the beginning of the year, First Fidelity launched a Company-
wide productivity program, to reduce expenses and increase efficiency,
including rationalization of work flow and paperwork, and reductions
in staff. At September 30, 1995, full-time equivalent staff
approximated 11,700, excluding staff added through 1995 acquisitions,
compared to approximately 13,100 at year-end 1994.
Income Taxes
- ------------
Income taxes increased to $68.6 million in the third quarter of
1995, from $56.7 million in the third quarter of 1994. Income taxes
for the nine months ended September 30, 1995 increased to $194.4
million from $164.8 million for the nine months ended September 30,
1994. The effective tax rates for the three months ended September
30, 1995 and 1994 were 35.3% and 33.0%, respectively. The effective
tax rates for the nine months ended September 30, 1995 and September
30, 1994 were 35.5% and 32.9%, respectively. For the three and nine
month periods ended September 30, 1995, the increase in income taxes
over the corresponding periods of 1994 was attributable to a higher
level of pre-tax income, an increase in state income taxes and a lower
level of tax-exempt income.
25 of 36
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 $937.6 million, from
$36.2 billion at December 31, 1994 to $35.3 billion at September 30,
1995. The decline in total assets was primarily attributable to sales
and maturities of securities (primarily sales of U.S. Government
securities), combined with a decrease in cash and due from banks,
partially offset by increases in certain consumer loans, interest
bearing time deposits and federal funds sold and securities purchased
under agreements to resell. Deposits and short-term borrowings are
the Company's primary funding sources. The Company experienced a net
decline in core deposits during the first nine months of 1995. The
core deposits to total loans ratio was 108% at September 30, 1995,
compared to 117% at December 31, 1994. Short-term borrowing needs
increased at September 30, 1995, compared to December 31, 1994. On
May 25, 1995, the Company redeemed (at maturity) $136.8 million of
long-term debt, consisting of 9 3/4% subordinated notes.
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
September 30, 1995, cash and cash equivalents totaled $2.5 billion, an
increase of $368.9 million from December 31, 1994. Financing
activities absorbed $2.4 billion in cash and cash equivalents. This
was primarily attributable to: a decline in core deposits; First
Fidelity's purchase of its own Common Stock; the payment of dividends;
and repayment of long-term debt, partially offset by an increase in
short-term borrowings. Cash and cash equivalents of $2.2 billion were
provided by investing activities, including cash proceeds of $3.6
billion received from sales and maturities of securities, and net cash
received through acquisitions of $943.2 million, partially offset by
purchases of securities of $1.6 billion and net disbursements of
$627.4 million for lending activities. Operating activities provided
$587.6 million in cash and cash equivalents for the first nine months
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
September 30, 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
26 of 36
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 represents
the amount which First Fidelity would pay or receive in exchange for
the termination of such contracts. At September 30, 1995, the Company
would have had to pay $8.5 million to terminate all of its interest
rate swaps (First Fidelity would have paid $33.4 million associated
with indexed amortizing swaps and would have received $24.9 million
related to all other 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, First Fidelity's interest rate swaps and
futures positions had the effect of reducing net interest income in
the first nine months of 1995 by $10.6 million, compared to $75.9
million of net interest income provided by such instruments during the
first nine months of 1994. Should interest rates remain flat or
increase, the interest rate swaps in place as of September 30, 1995
will continue to have a negative impact on net interest income and net
interest margin for the remainder of 1995.
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 September 30, 1995 and
December 31, 1994, the Company and all of its subsidiary banks
reported capital ratios in excess of these "well capitalized"
standards. Regulatory risk-based capital guidelines were amended with
respect to the treatment of derivatives contracts, effective as of
October 1, 1995. This amendment is not expected to have a significant
impact on First Fidelity's capital ratios.
27 of 36
The following table provides detailed information pertaining to
the Company's risk-based capital position at September 30, 1995 and
December 31, 1994, calculated using the FRB guidelines.
September 30 December 31
(thousands) 1995 1994
------------ -----------
Tier I:
Common stockholders' equity............ $ 2,868,047 $ 2,647,268
Net unrealized losses--
securities available for sale........ 3,877 75,232
Qualifying perpetual
preferred stock...................... 202,647 229,707
Less: goodwill and other intangibles... (785,956) (709,054)
----------- -----------
Total Tier I capital............... 2,288,615 2,243,153
Tier II: ----------- -----------
Allowable portion of the reserve for
possible credit losses............... 330,503 322,604
Includable subordinated debt........... 240,695 270,695
Mandatory convertible debt securities.. 174,150 174,150
----------- -----------
Total Tier II capital.............. 745,348 767,449
----------- -----------
Total risk-based capital........... $ 3,033,963 $ 3,010,602
=========== ===========
Risk-adjusted assets..................... $26,295,233 $25,608,116
=========== ===========
Regulatory September 30 December 31
Minimums 1995 1994
---------- ------------ -----------
Tier I capital/risk-
adjusted assets............... 4.00% 8.70% 8.76%
Total risk-based capital/
risk-adjusted assets.......... 8.00% 11.54% 11.76%
Tier I capital/quarterly average
total assets less deductible
intangibles(leverage ratio)... 3.00% 6.90% 6.58%
to 5.00%
The decline in the Company's Tier I and Total capital ratios at
September 30, 1995, compared to December 31, 1994, was primarily
attributable to the payment of dividends, purchases of its Common
Stock, additional goodwill related to 1995 acquisitions and a higher
level of risk adjusted assets, partially offset by the retention of
earnings. The increase in the Company's Tier I leverage ratio was
primarily due to the increase in stockholders' equity and a lower
level of quarterly average total assets. Regulatory capital, as
defined, is calculated without considering the impact on equity of
unrealized gains and losses associated with securities available for
sale.
ASSET QUALITY
During the first nine months of 1995, asset quality continued to
improve. Non-accruing assets (defined as non-performing assets, plus
28 of 36
assets held for sale, which are assets carried at the lower of
adjusted cost or fair value and subject to an accelerated disposition
approach) were $274.2 million at September 30, 1995, compared with
$398.2 million at December 31, 1994. The $124.0 million decline from
December 31, 1994 included a $51.0 million reduction in the assets
held for sale portfolio, from $69.3 million to $18.3 million, and a
$73.0 million decline in non-performing assets.
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 September 30, 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).
(dollars in thousands) September 30 December 31
1995 1994
Non-performing assets (See Note): ------------ -----------
Non-accruing loans:
Domestic:
Real estate...................... $ 91,467 $ 94,910
Other............................ 76,298 109,155
Foreign............................ 6,585 15,502
-------- --------
Total.......................... 174,350 219,567
Restructured loans................... 1,260 17,253
-------- --------
Total Non-Performing Loans......... 175,610 236,820
Other real estate owned ............. 82,413 98,786
Less reserve....................... (2,112) (6,752)
-------- --------
Net.............................. 80,301 92,034
-------- --------
Total Non-Performing Assets.... $255,911 $328,854
======== ========
Contractually past due but still
accruing loans (a):
Consumer......................... $120,924 $128,284
Other............................ 2,656 3,242
Total Contractually Past Due -------- --------
But Still Accruing Loans..... $123,580 $131,526
======== ========
Non-performing loans/loans............. .72% .99%
Non-performing assets/loans
and other real estate owned.......... 1.05% 1.38%
Reserve for possible credit losses/
non-performing loans................. 316% 253%
Reserve for possible credit losses/
non-performing assets................ 217% 182%
- -----------------
Note: Non-performing assets and non-performing loans exclude loans
classified as contractually past due 90 days or more but
still accruing, assets subject to FDIC loss-sharing
provisions and assets classified as held for sale, which are
included in other assets.
(a) Accruing loans past due 90 days or more.
29 of 36
The decline in total non-performing loans from December 31, 1994
to September 30, 1995 primarily reflected repayments and charge-offs
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 nine months of
1995, compared to the same period in 1994.
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.
Management continues to focus on asset quality and its potential
impact on the provision and 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 Nine Months Ended
September 30 September 30
------------------ ------------------
(thousands) 1995 1994 1995 1994
-------- -------- -------- --------
Balance at beginning
of period.............. $565,450 $590,936 $599,333 $602,183
Provision............... 10,000 20,000 30,000 64,000
-------- -------- -------- --------
Total................. 575,450 610,936 629,333 666,183
-------- -------- -------- --------
Charge-offs............. (32,026) (39,536) (105,375) (120,206)
Recoveries.............. 11,266 9,701 30,292 29,559
-------- -------- -------- --------
Net charge-offs........ (20,760) (29,835) (75,083) (90,647)
-------- -------- -------- --------
Acquired reserves....... - 4,696 440 10,261
-------- -------- -------- --------
Balance at end of
period................. $554,690 $585,797 $554,690 $585,797
======== ======== ======== ========
At September 30, 1995, the reserve for possible credit losses was
2.27% of total loans, compared to 2.52% of total loans at December 31,
1994.
30 of 36
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 $20.8 million in the third quarter of 1995,
compared to $29.8 million in the third quarter of 1994. In the third
quarter of 1995 and 1994, respectively, net charge-offs included $3.6
million and $17.1 million related to commercial borrowers, $7.6
million and $4.1 million in commercial real estate-related credits and
$9.6 million and $8.6 million of consumer credits.
Net charge-offs were $75.1 million in the first nine months of
1995, compared to $90.6 million in the first nine months of 1994. In
the first nine months of 1995 and 1994, respectively, net charge-offs
included $26.3 million and $47.3 million related to commercial
borrowers, $16.1 million and $12.8 million in commercial real estate-
related credits and $32.7 million and $30.5 million of 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) 1995 1994 1995 1994
------ ------ ------ ------
Balance at beginning
of period................ $2,289 $8,016 $6,752 $6,622
Provision................. - 1,500 1,000 7,750
Acquired reserves......... - - - 456
Charge-offs and
write-downs.............. (177) (2,060) (5,640) (7,372)
------ ------ ------ ------
Balance at end of
period................... $2,112 $7,456 $2,112 $7,456
====== ====== ====== ======
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.
31 of 36
Part II - Other Information
---------------------------
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
On October 3, 1995, First Fidelity held a Special Meeting of
Shareholders to consider and vote upon the proposal to approve the
Merger Agreement between First Fidelity and First Union. Such
proposal was approved by the affirmative vote of approximately 99% of
the votes cast at such Special Meeting by both (i) the holders of
First Fidelity Common Stock, voting as a separate class, and (ii) the
holders of First Fidelity Common Stock and Series B Convertible
Preferred Stock, voting together as a single class. The record of the
vote was as follows:
(i) Common Stock
For: 64,580,305
Against: 295,506
Abstain: 221,443
(ii) Common Stock and Series B Convertible Preferred Stock
For: 65,427,252
Against: 311,531
Abstain: 229,777
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.
(15) Letter from the Company's independent accountants
referred to in Paragraph (d) of Rule 10-01 of
Regulation S-X.
(27) Financial Data Schedule.
(b) Reports on Form 8-K filed during the third quarter:
None.
32 of 36
SIGNATURES
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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 13, 1995
Anthony R. Burriesci
Executive Vice President
Corporate Controller
Date: November 13, 1995