1
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended September 30, 1994
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
For the transition period from to
Commission File Number 0-6198
FIRST AMERICAN CORPORATION
(Exact name of Registrant as specified in its charter)
TENNESSEE 62-0799975
(State or other jurisdiction (I.R.S. Employer
of incorporation or organization) Identification No.)
FIRST AMERICAN CENTER, NASHVILLE, TENNESSEE 37237
(address of principal executive offices) (Zip Code)
Registrant's telephone number, including area code: 615/748-2000
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. Yes X No .
--- ---
Indicate the number of shares outstanding of each of the issuer's classes
of common stock, as of the latest practicable date.
Common shares outstanding: 26,139,708 as of October 28, 1994.
2
PART I. FINANCIAL INFORMATION
ITEM 1
FINANCIAL STATEMENTS
FOR QUARTER ENDED SEPTEMBER 30, 1994
3
FIRST AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED INCOME STATEMENTS
QUARTER ENDED NINE MONTHS ENDED
SEPTEMBER 30 SEPTEMBER 30
---------------------- --------------------
1994 1993 1994 1993
----------- --------- ---------- ---------
(IN THOUSANDS)
INTEREST INCOME
Interest and fees on loans $ 89,169 $ 73,563 $252,144 $214,026
Interest and dividends on securities 28,849 33,179 89,136 104,154
Interest on Federal funds sold and securities
purchased under agreements to resell 848 1,289 2,691 2,790
Interest on time deposits with other banks and other interest 299 170 840 1,382
- - ---------------------------------------------------------------------------------------------------------------------
Total interest income 119,165 108,201 344,811 322,352
- - ---------------------------------------------------------------------------------------------------------------------
INTEREST EXPENSE
Interest on deposits:
NOW accounts 3,913 3,577 11,735 10,703
Money market accounts 14,500 11,930 41,003 34,053
Regular savings 2,436 2,535 7,374 7,469
Certificates of deposit under $100,000 11,126 10,915 31,484 34,121
Certificates of deposit $100,000 and over 4,703 3,188 11,044 10,178
Other time and foreign 4,158 4,301 11,619 13,437
- - ---------------------------------------------------------------------------------------------------------------------
Total interest on deposits 40,836 36,446 114,259 109,961
- - ---------------------------------------------------------------------------------------------------------------------
Interest on short-term borrowings 7,066 4,159 18,802 12,015
Interest on long-term debt 1,885 1,187 3,783 2,489
- - ---------------------------------------------------------------------------------------------------------------------
Total interest expense 49,787 41,792 136,844 124,465
- - ---------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME 69,378 66,409 207,967 197,887
PROVISION FOR LOAN LOSSES (NOTE 4) - (10,000) - (18,000)
- - ---------------------------------------------------------------------------------------------------------------------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 69,378 76,409 207,967 215,887
- - ---------------------------------------------------------------------------------------------------------------------
NON-INTEREST INCOME
Service charges on deposit accounts 10,646 9,487 30,507 28,135
Commissions and fees on fiduciary activities 3,849 3,839 12,378 11,338
Investment services income 1,161 2,359 5,336 5,908
Merchant discount fees 2,203 1,887 5,439 4,738
Trading account revenue 679 577 1,682 1,939
Net gain (loss) on sale of securities available for sale 2 - (284) (2,344)
Other income 6,414 6,160 19,667 16,648
- - ---------------------------------------------------------------------------------------------------------------------
Total non-interest income 24,954 24,309 74,725 66,362
- - ---------------------------------------------------------------------------------------------------------------------
NON-INTEREST EXPENSE
Salaries and employee benefits 33,018 29,449 96,990 87,803
Net occupancy expense 5,226 5,182 15,717 16,343
Equipment expense 3,885 3,936 11,065 10,999
Systems and processing expense 2,062 3,291 7,880 10,486
FDIC insurance expense 3,184 3,003 9,409 9,835
Communication expense 2,135 1,737 6,178 5,326
Supplies expense 1,384 771 4,018 3,167
Foreclosed properties expense (income), net (2,456) 1,476 (3,454) (655)
Other expenses 10,190 9,356 27,768 27,488
- - ---------------------------------------------------------------------------------------------------------------------
Total non-interest expense 58,628 58,201 175,571 170,792
- - ---------------------------------------------------------------------------------------------------------------------
Income before income tax expense and cumulative effect of changes
in accounting principles 35,704 42,517 107,121 111,457
Income tax expense (note 7) 13,016 14,793 40,433 40,283
- - ---------------------------------------------------------------------------------------------------------------------
Income before cumulative effect of changes in accounting principles 22,688 27,724 66,688 71,174
Cumulative effect of changes in accounting principles, net of tax
(notes 6 and 7) - - - 1,216
- - ---------------------------------------------------------------------------------------------------------------------
NET INCOME $ 22,688 $ 27,724 $ 66,688 $ 72,390
=====================================================================================================================
PER COMMON SHARE:
Income before cumulative effect of changes in accounting
principles $ .87 $ 1.07 $ 2.56 $ 2.75
Cumulative effect of changes in accounting principles, net of tax - - - .05
- - ---------------------------------------------------------------------------------------------------------------------
Net income $ .87 $ 1.07 $ 2.56 $ 2.80
=====================================================================================================================
Cash dividends $ .21 $ .15 $ .63 $ .40
=====================================================================================================================
Weighted average common shares outstanding 26,117 25,941 26,077 25,890
=====================================================================================================================
See notes to consolidated financial statements.
4
FIRST AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED BALANCE SHEETS
SEPTEMBER 30 DECEMBER 31
--------------------------- ------------
1994 1993 1993
----------- ----------- ------------
(IN THOUSANDS)
ASSETS
Cash and due from banks $ 395,640 $ 348,821 $ 500,119
Time deposits with other banks 4,166 5,646 2,195
Securities (note 2):
Held to maturity (market value $1,470,300, $1,119,156 and
$670,764, respectively) 1,514,079 1,078,346 657,835
Available for sale (amortized cost $495,660, market value
$997,048, and amortized cost $1,356,896, respectively) 471,359 963,411 1,392,984
- - --------------------------------------------------------------------------------------------------------------------
Total securities 1,985,438 2,041,757 2,050,819
- - --------------------------------------------------------------------------------------------------------------------
Federal funds sold and securities purchased under
agreements to resell 80,282 287,676 144,785
Trading account securities 18,640 11,820 12,263
Loans:
Commercial 2,131,273 1,757,941 1,953,983
Consumer--amortizing mortgages 1,105,521 798,882 1,015,852
Consumer--other 1,036,302 953,553 969,929
Real estate--construction 114,358 100,278 106,624
Real estate--commercial mortgages and other 318,505 306,252 302,772
- - --------------------------------------------------------------------------------------------------------------------
Total loans 4,705,959 3,916,906 4,349,160
Unearned discount and net deferred loan fees 6,830 10,393 9,072
- - --------------------------------------------------------------------------------------------------------------------
Loans, net of unearned discount and net deferred
loan fees 4,699,129 3,906,513 4,340,088
Allowance for possible loan losses (note 4) 137,587 157,711 134,124
- - --------------------------------------------------------------------------------------------------------------------
Total net loans 4,561,542 3,748,802 4,205,964
- - --------------------------------------------------------------------------------------------------------------------
Premises and equipment, net 106,476 111,666 102,596
Foreclosed properties 13,553 25,541 18,881
Other assets 201,610 173,550 150,700
- - --------------------------------------------------------------------------------------------------------------------
Total assets $7,367,347 $6,755,279 $7,188,322
====================================================================================================================
LIABILITIES
Deposits:
Demand (non-interest-bearing) $1,157,758 $1,118,333 $1,232,951
NOW accounts 771,045 713,252 797,343
Money market accounts 1,490,776 1,375,971 1,442,316
Regular savings 413,978 401,407 424,492
Certificates of deposit under $100,000 1,139,852 1,102,301 1,137,965
Certificates of deposit $100,000 and over 426,351 334,614 296,285
Other time 314,551 326,864 327,231
Foreign 56,887 22,978 31,975
- - --------------------------------------------------------------------------------------------------------------------
Total deposits 5,771,198 5,395,720 5,690,558
- - --------------------------------------------------------------------------------------------------------------------
Short-term borrowings 692,855 626,347 756,763
Long-term debt 152,052 66,280 65,945
Other liabilities 154,382 133,083 93,347
- - --------------------------------------------------------------------------------------------------------------------
Total liabilities 6,770,487 6,221,430 6,606,613
- - --------------------------------------------------------------------------------------------------------------------
SHAREHOLDERS' EQUITY
Common stock, $5 par value; authorized 50,000,000
shares; issued: 26,134,713 shares at September 30, 1994;
25,970,993 shares at September 30, 1993 and 25,988,201
shares at December 31, 1993 130,674 129,855 129,941
Capital surplus 119,436 116,904 117,015
Retained earnings 363,900 288,137 313,644
Deferred compensation on restricted stock (1,808) (1,047) (940)
- - --------------------------------------------------------------------------------------------------------------------
Realized shareholders' equity 612,202 533,849 559,660
Net unrealized gains (losses) on securities available
for sale, net of tax (note 2) (15,342) - 22,049
- - --------------------------------------------------------------------------------------------------------------------
Total shareholders' equity 596,860 533,849 581,709
- - --------------------------------------------------------------------------------------------------------------------
Total liabilities and shareholders' equity $7,367,347 $6,755,279 $7,188,322
====================================================================================================================
See notes to consolidated financial statements.
5
FIRST AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CHANGES IN SHAREHOLDERS' EQUITY
NET
UNREALIZED
DEFERRED GAINS
COMPENSATION (LOSSES)
ON ON SECURITIES
NINE MONTHS ENDED SEPTEMBER 30, 1993, AND COMMON CAPITAL RETAINED RESTRICTED AVAILABLE
SEPTEMBER 30, 1994 STOCK SURPLUS EARNINGS STOCK FOR SALE TOTAL
--------- --------- -------- ----------- --------- ----------
(IN THOUSANDS)
Balance, January 1, 1993 $128,931 $114,350 $226,113 $ (1,073) $ - $468,321
Issuance of 174,188 common shares in
connection with Employee Benefit Plan, net
of discount on Dividend Reinvestment Plan 871 2,313 - - - 3,184
Issuance of 10,600 shares of restricted common
stock 53 241 - (294) - -
Amortization of deferred compensation on
restricted stock - - - 320 - 320
Net income - - 72,390 - - 72,390
Cash dividends declared ($.40 per common
share) - - (10,366) - - (10,366)
- - --------------------------------------------------------------------------------------------------------------------
Balance September 30, 1993 $129,855 $116,904 $288,137 $ (1,047) $ - $533,849
====================================================================================================================
Balance, January 1, 1994 $129,941 $117,015 $313,644 $ (940) $ 22,049 $581,709
Issuance of 101,312 common shares in
connection with Employee Benefit Plan, net
of discount on Dividend Reinvestment Plan 507 1,222 - - - 1,729
Issuance of 45,200 shares of restricted common
stock 226 1,199 - (1,425) - -
Amortization of deferred compensation on
restricted stock - - - 557 - 557
Net income - - 66,688 - - 66,688
Cash dividends declared ($.63 per common
share) - - (16,432) - - (16,432)
Change in net unrealized gains and losses on
securities available for sale, net of taxes - - - - (37,391) (37,391)
- - --------------------------------------------------------------------------------------------------------------------
Balance, September 30, 1994 $130,674 $119,436 $363,900 $ (1,808) $ (15,342) $596,860
====================================================================================================================
See notes to consolidated financial statements.
6
FIRST AMERICAN CORPORATION
AND SUBSIDIARIES
CONSOLIDATED STATEMENTS OF CASH FLOWS
NINE MONTHS ENDED
SEPTEMBER 30
-------------------------
1994 1993
--------- ---------
(IN THOUSANDS)
OPERATING ACTIVITIES
Net income $ 66,688 $ 72,390
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for loan losses - (18,000)
Depreciation of premises and equipment 10,320 10,673
Cumulative effect of changes in accounting principles, net of tax - (1,216)
Amortization of intangible assets 2,530 1,751
Other amortization (accretion), net (51) 4,277
Deferred income tax expense 1,400 3,741
Net loss on sale of securities available for sale 284 2,344
Net gain on sale of premises and equipment (170) -
Write-down on foreclosed properties - 1,251
Change in assets and liabilities, net of effects from purchase of
bank subsidiary:
(Increase) decrease in accrued interest receivable (3,020) 175
Increase (decrease) in accrued interest payable 9,548 (331)
(Increase) in trading account securities (6,377) (3,939)
(Increase) decrease in other assets (19,161) 28,303
Increase in other liabilities 50,880 15,229
- - ---------------------------------------------------------------------------------------------------------------------
Net cash provided by operating activities 112,871 116,648
- - ---------------------------------------------------------------------------------------------------------------------
INVESTING ACTIVITIES
Net (increase) decrease in time deposits with other banks (1,971) 111,539
Proceeds from sale of securities available for sale 1,313,729 657,795
Proceeds from maturities of securities available for sale 137,041 33,630
Purchases of securities available for sale (784,726) (1,066,701)
Proceeds from maturities of securities held to maturity 121,085 745,283
Purchases of securities held to maturity (774,532) (430,106)
Net (increase) decrease in Federal funds sold and
securities purchased under agreements to resell 64,503 (192,226)
Net increase in loans (320,914) (212,609)
Purchase of bank subsidiary, net of cash acquired (1,784) -
Proceeds from sale of premises and equipment 882 100
Purchases of premises and equipment (13,920) (21,115)
- - ---------------------------------------------------------------------------------------------------------------------
Net cash used in investing activities (260,607) (374,410)
- - ---------------------------------------------------------------------------------------------------------------------
FINANCING ACTIVITIES
Net increase (decrease) in deposits 35,627 (126,119)
Net increase (decrease) in short-term borrowings (63,908) 17,768
Proceeds from issuance of long-term debt 100,000 49,680
Redemption of 7 5/8% debentures at 101.22% (13,759) -
Net repayment of remaining long-term debt - (311)
Net proceeds from issuance of common stock 1,729 3,184
Cash dividends paid (16,432) (10,366)
- - ---------------------------------------------------------------------------------------------------------------------
Net cash provided by (used in) financing activities 43,257 (66,164)
- - ---------------------------------------------------------------------------------------------------------------------
Decrease in cash and due from banks (104,479) (323,926)
Cash and due from banks, January 1 500,119 672,747
- - ---------------------------------------------------------------------------------------------------------------------
Cash and due from banks, September 30 $395,640 $348,821
=====================================================================================================================
Cash paid during the period for:
Interest expense $127,132 $119,253
Income taxes 44,027 35,764
Noncash investing activities:
Foreclosures 1,366 15,596
Securities transferred to held to maturity
from available for sale 203,764 -
- - ---------------------------------------------------------------------------------------------------------------------
See notes to consolidated financial statements.
7
FIRST AMERICAN CORPORATION
AND SUBSIDIARIES
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) BASIS OF PRESENTATION
The consolidated financial statements have been prepared in conformity with
generally accepted accounting principles and general practices within the
banking industry.
The interim consolidated financial statements should be read in conjunction
with the consolidated financial statements and notes thereto presented in the
Corporation's 1993 Annual Report to Shareholders. The quarterly consolidated
financial statements reflect all adjustments which are, in the opinion of
management, necessary for a fair presentation of the results for interim
periods. Certain prior year amounts have been reclassified to conform with
current year presentation. The results for interim periods are not necessarily
indicative of results to be expected for the complete fiscal year.
(2) SECURITIES
Securities carried in the consolidated balance sheets at approximately
$1.46 billion, $1.05 billion, and $1.31 billion at September 30, 1994 and 1993
and December 31, 1993, respectively, were pledged to secure public and trust
deposits and for other purposes as required or permitted by law.
At September 30, 1994, gross unrealized gains and losses on securities
held to maturity were $1.8 million and $45.6 million, respectively, and gross
unrealized gains and losses on securities available for sale were $.1 million
and $24.4 million, respectively.
Effective December 31, 1993, the Corporation adopted Statement of Financial
Accounting Standards (SFAS) No. 115, "Accounting for Certain Investments in
Debt and Equity Securities." SFAS No. 115 requires investments in equity
securities that have a readily determinable fair value and investments in debt
securities to be classified into three categories, as follows: held to
maturity debt securities, which are reported at amortized cost; trading
securities, which are reported at fair value with unrealized gains and losses
included in earnings; and securities available for sale, which are reported at
fair value, with unrealized gains and losses excluded from earnings and
reported, net of tax, as a separate component of shareholders' equity. There
was no impact on the Corporation's 1993 consolidated net income as a result of
adoption of SFAS No. 115.
(3) NONPERFORMING ASSETS
Nonperforming assets were as follows:
SEPTEMBER 30 December 31
- - -------------------------------------------------------------------------------------------------------------
(in thousands) 1994 1993 1993
- - -------------------------------------------------------------------------------------------------------------
Non-accrual loans $ 14,075 $ 32,140 $ 21,666
Foreclosed properties 13,553 25,541 18,881
- - -------------------------------------------------------------------------------------------------------------
Total nonperforming assets $ 27,628 $ 57,681 $ 40,547
=============================================================================================================
90 days or more past due
on accrual $ 3,822 $ 4,567 $ 4,764
=============================================================================================================
Nonperforming assets as a percent of
loans and foreclosed properties .59% 1.47% .93%
=============================================================================================================
8
(4) ALLOWANCE FOR POSSIBLE LOAN LOSSES
Transactions in the allowance for possible loan losses were as follows:
NINE MONTHS ENDED
SEPTEMBER 30
- - -------------------------------------------------------------------------------------------------------------
(in thousands) 1994 1993
- - -------------------------------------------------------------------------------------------------------------
Balance, January 1 $134,124 $181,108
Provision (credited) charged to operating expenses - (18,000)
Allowance of subsidiary purchased (note 9) 323 -
- - -------------------------------------------------------------------------------------------------------------
134,447 163,108
- - -------------------------------------------------------------------------------------------------------------
Loans charged off 10,549 20,874
Recoveries of loans previously charged off (13,689) (15,477)
- - -------------------------------------------------------------------------------------------------------------
Net charge-offs (recoveries) (3,140) 5,397
- - -------------------------------------------------------------------------------------------------------------
Balance, September 30 $137,587 $157,711
=============================================================================================================
Allowance ratios were as follows:
NINE MONTHS ENDED
SEPTEMBER 30
- - -------------------------------------------------------------------------------------------------------------
1994 1993
- - -------------------------------------------------------------------------------------------------------------
Allowance end of period to net loans outstanding 2.93% 4.04%
Net charge-offs (recoveries) to average loans (annualized) (.09) .19
=============================================================================================================
Net charge-offs (recoveries) by major categories were as follows:
NINE MONTHS ENDED
SEPTEMBER 30
- - -------------------------------------------------------------------------------------------------------------
(in thousands) 1994 1993
- - -------------------------------------------------------------------------------------------------------------
Commercial $ (3,853) $ 1,320
Consumer--amortizing mortgages (285) (337)
Consumer--other 1,251 3,395
Real estate--construction (102) 478
Real estate--commercial mortgages and other (151) 541
- - -------------------------------------------------------------------------------------------------------------
Total net charge-offs (recoveries) $ (3,140) $ 5,397
=============================================================================================================
(5) LONG-TERM DEBT
On January 31, 1994, the Corporation redeemed the remaining balance of
approximately $13.6 million of its 7 5/8% debentures due in 2002, at a price of
101.22%.
On August 2, 1994, the Corporation borrowed $100 million from the Federal
Home Loan Bank. The advance has a maturity of three years and interest which
is payable and reprices monthly based on LIBOR. At September 30, 1994, the
interest rate was 4.925%.
(6) EMPLOYEE BENEFITS
Effective January 1, 1993, the Corporation adopted SFAS No. 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions," which
requires the cost of postretirement benefits other than pensions to be
recognized on an accrual basis as employees perform services to earn such
benefits. The Corporation recognized this item during the first quarter of
1993 as a cumulative effect of a change in accounting principle, resulting in a
one-time non-cash charge of $17.5 million before taxes ($11.6 million after
taxes). This charge represents the discounted present value of expected future
retiree medical and death benefits attributable to employees' service rendered
prior to 1993.
Effective December 31, 1993, the Corporation adopted SFAS No. 112,
"Employers' Accounting for Postemployment Benefits," which requires employers
to recognize a liability for postemployment benefits under certain
circumstances. The Corporation's short-term and long-term disability benefits,
survivor income benefits, and certain other benefits are governed by this
statement. The Corporation recognized this item during fourth quarter 1993 as
a cumulative effect of a change in accounting principle, resulting in a
one-time non-cash charge of $2.0 million before taxes ($1.3 million after
taxes).
9
(7) INCOME TAXES
Income tax expense (benefit) attributable to income from continuing
operations consisted of the following:
NINE MONTHS ENDED
SEPTEMBER 30
- - -------------------------------------------------------------------------------------------------------------
(in thousands) 1994 1993
- - -------------------------------------------------------------------------------------------------------------
Current -Federal $ 32,948 $ 30,905
State 6,085 5,637
Deferred -Federal 2,004 4,645
State (604) (904)
- - -------------------------------------------------------------------------------------------------------------
Total $ 40,433 $ 40,283
=============================================================================================================
Effective January 1, 1993, the Corporation adopted SFAS No. 109,
"Accounting for Income Taxes," which requires a change from the deferred method
of accounting for income taxes applying Accounting Principles Bulletin No. 11
to the asset and liability method of accounting for income taxes. Under the
asset and liability method of SFAS No. 109, deferred tax assets and liabilities
are recognized for the future tax consequences attributable to differences
between financial statement carrying amounts of existing assets and liabilities
and their respective tax bases. Deferred tax assets and liabilities are
measured using enacted tax rates expected to apply to taxable income in the
years in which those temporary differences are expected to be recovered or
settled. Under SFAS No. 109, the effect on deferred tax assets and liabilities
of a change in tax rates is recognized in income in the period that includes
the enactment date. The cumulative effect of this change in accounting for
income taxes, net of a $3.9 million valuation allowance, was a $12.8 million
benefit and is included in the cumulative effect of changes in accounting
principles in the 1993 consolidated income statement.
The valuation allowance for deferred tax assets as of December 31, 1993,
was $1.3 million. The net change in the total valuation allowance for the nine
months ended September 30, 1994, was a net decrease of $.9 million as a result
of continuing operations.
At September 30, 1994, deferred tax assets, net of a valuation allowance
of $.4 million, totalled $82.8 million and deferred tax liabilities totalled
$22.4 million, resulting in net deferred tax assets of $60.4 million.
Management believes that more likely than not, the deferred tax assets, net of
a valuation allowance, will be realized. The tax effects of temporary
differences that give rise to the significant portion of deferred tax assets at
September 30, 1994, include the allowance for loan losses ($51.5 million),
valuation of securities available for sale ($9.8 million), and postretirement
benefit obligation ($7.8 million). The tax effects of temporary differences
that give rise to deferred tax liabilities include plant and equipment ($5.6
million), direct lease financing ($8.9 million), and purchase accounting
adjustments ($2.4 million).
(8) LEGAL MATTERS
The Corporation and seven other financial institutions are defendants in a
class action lawsuit brought in the Circuit Court of Shelby County, Tennessee.
The lawsuit alleges anti-trust, unconscionability, usury, and contract claims
arising out of the defendants' returned check charges. The asserted plaintiff
class consists of depositors who have been charged returned check or overdraft
fees. The plaintiffs are requesting compensatory and punitive damages of $25
million against each defendant. The anti-trust, unconscionability, and usury
claims were previously dismissed, and in December 1993 the Circuit Court
granted the defendants' motion for summary judgment and dismissed the remaining
claim. The plaintiffs have appealed. In addition, an antitrust lawsuit
alleging a price fixing conspiracy has been filed against the Corporation and
eight other financial institutions by the plaintiffs in the U.S. District Court
for the Western District of Tennessee. The defendant banks' motion for summary
judgment in the Federal action was also granted and the plaintiffs have
appealed. Management believes these suits are without merit and, based upon
information currently known and on advice of counsel, that they will not have a
material adverse effect on the Corporation's consolidated financial statements.
Also, there are from time to time other legal proceedings pending against
the Corporation and its subsidiaries. In the opinion of management and
counsel, liabilities, if any, arising from such proceedings presently pending
would not have a material adverse effect on the consolidated financial
statements of the Corporation.
10
(9) ACQUISITION
On April 1, 1994, the Corporation consummated its purchase of all of the
outstanding shares of Fidelity Crossville Corp. (FCC), the parent company of
First Fidelity Savings Bank, F.S.B. (First Fidelity) located in Crossville,
Tennessee, for $6.5 million. First Fidelity was a Federal stock savings bank
with offices in Crossville and Fairfield Glade with total assets of $48.7
million at that date. In conjunction with the acquisition, First Fidelity was
merged into First American National Bank and First Fidelity's two offices
became branches of First American National Bank. The transaction was accounted
for as a purchase.
(10) ACCOUNTING MATTERS
During May 1993, the Financial Accounting Standards Board issued SFAS No.
114, "Accounting by Creditors for Impairment of a Loan," which is effective for
fiscal years beginning after December 15, 1994. SFAS No. 114 requires that
impaired loans be measured at the present value of expected future cash flows
discounted at the loan's effective interest rate, at the loan's observable
market price, or the fair value of the collateral if the loan is collateral
dependent. At this time, the Corporation is evaluating when and how it will
adopt SFAS No. 114. Adoption of SFAS No. 114 is not expected to have a
material effect on the Corporation's consolidated financial statements.
(11) EARNINGS PER COMMON SHARE
Earnings per common share amounts are computed by dividing net income by
the weighted average number of common shares outstanding during each respective
period.
11
PART I. FINANCIAL INFORMATION
ITEM 2
MANAGEMENT'S DISCUSSION AND ANALYSIS
OF RESULTS OF OPERATIONS AND FINANCIAL CONDITION
FOR QUARTER ENDED SEPTEMBER 30, 1994
12
MANAGEMENT'S DISCUSSION AND ANALYSIS OF RESULTS
OF OPERATIONS AND FINANCIAL CONDITION
The following discussion should be read in conjunction with the
consolidated financial statements and supplementary data appearing within this
report. Reference should also be made to the Corporation's 1993 Annual Report
for a complete discussion of factors that impact results of operations,
liquidity, and capital.
HIGHLIGHTS
Net income for the third quarter of 1994 was $22.7 million or $.87 per
share compared with $27.7 million or $1.07 per share for the third quarter of
1993. For the nine months ended September 30, 1994, net income was $66.7
million or $2.56 per share compared with $72.4 million or $2.80 per share for
the nine months ended September 30, 1993. Net income for the first nine months
of 1993 included $1.2 million or $.05 per share for the cumulative effect of
changes in accounting principles. Effective January 1, 1993, the Corporation
adopted the provisions of Statement of Financial Accounting Standards (SFAS)
No. 106, "Employers' Accounting for Postretirement Benefits Other Than
Pensions" and SFAS No. 109, "Accounting for Income Taxes." Income before the
cumulative effect of changes in accounting principles for the nine months ended
September 30, 1993, was $71.2 million or $2.75 per share.
The $5.0 million decline in third quarter 1994 earnings compared to the
same time last year was primarily due to the zero provision for loan losses in
the current quarter compared to the negative $10.0 million provision in the
third quarter of 1993. Third quarter 1994 earnings also included a $.4 million
increase in non-interest expense, a $3.0 million increase in net interest
income and a $.6 million increase in non-interest income. Exclusive of the
$10.0 million negative provision for loan losses, net of tax, net income for
the third quarter of 1993 was $21.2 million compared to $22.7 million in the
third quarter of 1994.
The $5.7 million decrease in net income for the nine months ended
September 30, 1994, compared to the same period last year was primarily due to
the zero provision for loan losses for the current period compared to the $18.0
million negative provision for the nine months ended September 30, 1993. Net
income for the nine months ended September 30, 1994, also included a $4.8
million increase in non-interest expense, a $10.1 million improvement in net
interest income and an $8.4 million increase in non-interest income. Exclusive
of the cumulative effect of changes in accounting principles and the $18.0
million negative provision for loan losses, net of tax, net income for the
first nine months of 1993 was $59.6 million compared to $66.7 million in the
first nine months of 1994.
On April 1, 1994, the Corporation consummated its purchase of all of the
outstanding shares of Fidelity Crossville Corp. (FCC), the parent company of
First Fidelity Savings Bank, F.S.B.(First Fidelity) located in Crossville,
Tennessee, for $6.5 million. First Fidelity was a Federal stock savings bank
with offices in Crossville and Fairfield Glade with total assets of $48.7
million at that date. In conjunction with the acquisition, First Fidelity was
merged into First American National Bank and First Fidelity's two offices
became branches of First American National Bank. The transaction was accounted
for as a purchase.
On October 1, 1993, the Corporation completed its acquisition of First
Federal Savings and Loan Association of Bowling Green for $27.5 million. First
Federal was a federally-chartered stock savings association with three branches
in Southern Kentucky with total assets of $214 million. In conjunction with
the acquisition, First Federal was converted to a national bank and was renamed
First American National Bank of Kentucky (FANBKY). The transaction was
accounted for as a purchase.
BALANCE SHEET
Total assets of the Corporation rose $612.1 million or 9% to $7.37 billion
at September 30, 1994, compared to $6.76 billion one year earlier. The growth
in total assets is primarily due to a $792.6 million (20%) increase in loans,
net of unearned discount and net deferred loan fees, to $4.70 billion at
September 30, 1994, from $3.91 billion at September 30, 1993. From September
30, 1993 to September 30, 1994, total consumer loans increased $389.4 million
or 22% and commercial loans increased $373.3 million or 21%. Contributing to
the increase in loans were the acquisitions of FANBKY on October 1, 1993, and
First Fidelity on April 1, 1994, which had loans of $164.1 million and $35.0
million, respectively, on the acquisition dates. Excluding these acquisitions,
loans increased $593.5 million or 15%. Partially offsetting
13
the increase in loans was a decrease in Federal funds sold and securities
purchased under agreements to resell of $207.4 million or 72%.
Total deposits were $5.77 billion at September 30, 1994, an increase of
$375.5 million or 7% from $5.40 billion a year earlier. The increase in
deposits is primarily due to the acquisitions of FANBKY and First Fidelity,
which had deposits of $185.5 million and $45.0 million, respectively, on the
acquisition dates. Excluding these acquisitions, deposits increased $145.0
million or 3%. Core deposits, which are defined as total deposits excluding
certificates of deposit $100,000 and over and foreign deposits, totalled $5.29
billion at September 30, 1994, an increase of $249.8 million or 5% from a year
earlier.
Total shareholders' equity was $596.9 million or 8.10% of total assets at
September 30, 1994, as compared with $533.8 million or 7.90% of total assets at
September 30, 1993. Book value per share was $22.84, $20.56, and $22.38 for
September 30, 1994 and 1993 and December 31, 1993, respectively.
NET INTEREST INCOME
The Corporation's primary source of earnings is net interest income, which
is the difference between interest earned on earning assets and interest
expense incurred on interest-bearing liabilities. Net interest income is
affected by the volume and mix of earning assets and interest-bearing
liabilities and the respective yields earned and rates paid. The Corporation's
1993 Annual Report includes additional discussion of factors which impact net
interest income.
Net interest income on a taxable equivalent basis amounted to $70.2
million for the third quarter of 1994, compared to $67.2 million for the third
quarter of 1993, an increase of $3.0 million or 4%. The increase was primarily
due to an increase in the volume of earning assets partially offset by a lower
net interest spread, which is the difference between the yield on earning
assets and the rate paid on interest-bearing liabilities. Average earning
assets increased 8% to $6.62 billion in the third quarter of 1994 from $6.11
billion in the third quarter of 1993. Average loans increased $741.3 million
(19%) while average securities decreased $151.2 million (7%). For the third
quarter of 1994, the Corporation's net interest spread declined 22 basis points
to 3.54% from 3.76% for the third quarter of 1993. This decline was due
primarily to a 33 basis point increase in the rates paid on interest-bearing
liabilities which exceeded the 11 basis point increase in yields on earning
assets. As the net interest spread declined, the net interest margin, which is
net interest income expressed as a percentage of average earning assets,
decreased to 4.21% for the third quarter of 1994 as compared with 4.37% for the
same quarter a year earlier.
Net interest income on a taxable equivalent basis amounted to $210.6
million for the nine months ended September 30, 1994, compared to $200.7
million from the nine months ended September 30, 1993, an increase of $9.9
million or 5%. The increase was primarily due to an increase in the volume of
earning assets partially offset by a lower net interest spread. Average
earning assets increased 8% to $6.56 billion in the first nine months of 1994
from $6.07 billion in the first nine months of 1993. Average loans increased
$687.7 million (18%) while average securities decreased $154.5 million (7%).
For the first nine months of 1994, the Corporation's net interest spread
declined 18 basis points to 3.66% from 3.84% for the first nine months of 1993.
This decrease resulted from a combination of an eight basis point decrease in
rates earned on earning assets and a ten basis point increase in the rates paid
on interest-bearing liabilities. The net interest margin decreased to 4.29%
for the first nine months of 1994 as compared with 4.42% for the same period a
year earlier.
PROVISION FOR LOAN LOSSES AND ALLOWANCE
The provision for loan losses represents a charge (credit) to earnings
necessary, after loan charge-offs and recoveries, to maintain the allowance for
possible loan losses at an appropriate level to absorb estimated losses
inherent in the loan portfolio. Determining the appropriate level of the
allowance and the amount of the provision for loan losses involves
uncertainties and matters of judgment and therefore cannot be determined with
precision. The Corporation's 1993 Annual Report includes additional discussion
of factors which impact the allowance for possible loan losses.
During the third quarter of 1994 there was a zero provision made for loan
losses, compared to a $10.0 million negative (credit) provision recorded in the
third quarter of 1993. Non-accrual loans totalled $14.1 million at September
30, 1994, a 56% decrease from the $32.1 million balance a year earlier. In the
third quarters of 1994 and 1993, charge-offs were $3.4 million and $6.6 million
while recoveries totalled $4.2 million and $6.7 million, respectively. Net
recoveries were $.8 million in the third quarter of 1994 as compared to $.1
million in the third quarter of 1993.
14
During the first nine months of 1994 there was a zero provision made for
loan losses, compared to an $18.0 million negative (credit) provision recorded
in the first nine months of 1993. In the first nine months of 1994 and 1993,
charge-offs were $10.6 million and $20.9 million, respectively, while
recoveries amounted to $13.7 million and $15.5 million, respectively. Net
recoveries were $3.1 million in the first nine months of 1994 as compared to
$5.4 million of net charge-offs in the first nine months of 1993.
The allowance for possible loan losses was $137.6 million at September 30,
1994, compared with $157.7 million at September 30, 1993. The allowance for
possible loan losses represented 2.93% and 4.04% of net loans at September 30,
1994 and 1993, respectively.
NON-INTEREST INCOME
Total non-interest income was $25.0 million for the third quarter of 1994
compared with $24.3 million for the third quarter of 1993, an increase of $.7
million or 3%. The increase from the third quarter of 1993 is principally from
growth in service charges on deposit accounts ($1.2 million, a 12% increase)
and merchant discount fees ($.3 million, a 17% increase). These increases in
non-interest income were partially offset by a decline in investment services
income ($1.2 million, a 51% decrease) primarily attributable to a decrease in
the sale of annuities.
Total non-interest income was $74.7 million for the first nine months of
1994 compared with $66.4 million for the first nine months of 1993, an increase
of $8.3 million or 13%. Excluding gains and losses on sales of securities
available for sale, non-interest income increased $6.3 million or 9%. This
increase from the first nine months of 1993 is primarily attributable to growth
in service charges on deposit accounts ($2.4 million, an 8% increase);
commissions and fees on fiduciary activities ($1.0 million, a 9% increase); and
"other income" ($3.0 million, an 18% increase). The increase in "other income"
consists primarily of $2.1 million of income in excess of prior year amounts
from a gain from a leveraged lease buy-out, vendor incentives and insurance
commissions.
NON-INTEREST EXPENSE
Total non-interest expense was $58.6 million for the third quarter of 1994
compared with $58.2 million for the same period in 1993, a 1% increase.
Salaries and employee benefits increased $3.6 million or 12% from the same
period in 1993 due to merit increases, incentive compensation, higher employee
benefit costs, and additional employees resulting from the transfer of certain
computer programming functions to the Corporation and acquisitions of FANBKY
and First Fidelity. Non-personnel related expense decreased $3.1 million or
11% from the third quarter of 1993 principally from a $3.9 million decrease in
foreclosed properties expense, which resulted from gains on sales of foreclosed
properties in the third quarter of 1994 compared to losses in the prior
comparable period. Systems and processing expense declined $1.2 million from
the third quarter of 1993 due to amendments in March 1994 to the Corporation's
agreement with an outside vendor that provides data processing and
telecommunication services. The agreement was amended to transfer certain
software programming functions to the Corporation which has resulted in
increased control over programming functions, cost savings in systems and
processing expense, and increases in other non-interest expense categories,
such as salaries and benefits. The Corporation's operating efficiency ratio
(non-interest expense as a percentage of the sum of net interest income, on a
fully taxable basis, and non-interest income) improved to 61.60% in the third
quarter of 1994 from 63.57% in the third quarter of 1993.
Total non-interest expense was $175.6 million for the first nine months of
1994 compared with $170.8 million for the same period in 1993, a 3% increase.
Salaries and employee benefits increased $9.2 million or 10% from the same
period in 1993, which is reflective of merit increases, incentive compensation,
higher employee benefit costs, and additional employees from the transfer of
certain computer programming functions to the Corporation and acquisitions of
FANBKY and First Fidelity. Non-personnel related expense decreased $4.4
million or 5% from the first nine months of 1993 principally as a result of a
$2.6 million decrease in systems and processing expense and a $2.8 million
decrease in foreclosed properties expense. The Corporation's operating
efficiency ratio improved to 61.55% in the first nine months of 1994 from
63.95% in the first nine months of 1993.
Excluding third quarter 1994 non-interest expenses of $1.4 million
attributable to FANBKY and First Fidelity, total non-interest expense decreased
$1.0 million or 2% compared to the third quarter of 1993. Excluding
non-interest expenses for the first nine months of 1994 of $4.0 million
attributable to FANBKY and First Fidelity, total non-interest expense increased
$.8 million or just under 1% compared to the first nine months of 1993.
15
INCOME TAXES
During the third quarters of 1994 and 1993, the Corporation's income tax
expense was $13.0 million and $14.8 million, respectively. During the first
nine months of 1994 and 1993, income tax expense totalled $40.4 million and
$40.3 million, respectively. Income tax expense for 1993 included a $1.7
million benefit resulting from the Omnibus Budget Reconciliation Act of 1993
signed into law in the third quarter of 1993.
ASSET QUALITY
Nonperforming assets of the Corporation were $27.6 million at September
30, 1994, compared with $57.7 million at September 30, 1993, a decrease of 52%.
Nonperforming assets at September 30, 1994, represented .59% of total loans and
foreclosed properties, compared to 1.47% at September 30, 1993. At September
30, 1994, nonperforming assets were comprised of $14.1 million of non-accrual
loans and $13.5 million of foreclosed properties.
Other potential problem loans consist of loans that are not considered
nonperforming currently but where information about possible credit problems
has caused the Corporation to have doubts as to the ability of the borrowers to
comply fully with present repayment terms. At September 30, 1994, loans
totalling approximately $78 million, while not considered nonperforming loans,
were classified in the Corporation's internal loan grading system as
substandard or worse, compared with approximately $91 million of such loans at
September 30, 1993. Depending on the economy and other future events, these
loans and others which may not be presently identified could become future
nonperforming assets.
CAPITAL ADEQUACY AND LIQUIDITY
In the third quarter of 1994, the Corporation declared cash dividends on
its common stock of $.21 per share compared to $.15 per share in the third
quarter of 1993, a 40% increase. Cash dividends for the first nine months of
1994 were $.63 versus $.40 in the first nine months of 1993, a 58% increase.
The Federal Reserve Board and Office of the Comptroller of the Currency
(OCC) regulations require that, in order to be considered adequately
capitalized, bank holding companies and national banks maintain a minimum total
risk-based capital ratio (total capital to risk-adjusted assets) of 8.0%, a
Tier I risk-based capital ratio (Tier I capital to risk-adjusted assets) of
4.0%, and a Tier I leverage capital ratio (Tier I capital to total assets less
excluded intangibles) of 4.0%. In order to be considered well capitalized the
total risk-based capital ratio must be a minimum of 10%, the Tier I risk-based
capital ratio must equal or exceed 6%, and the Tier I leverage capital ratio
must be 5% or greater. At September 30, 1994, the Corporation had a total
risk-based capital ratio of 12.41%, a Tier I risk-based capital ratio of
10.26%, and a Tier I leverage capital ratio of 7.96%. At September 30, 1994,
these ratios for First American National Bank, the Corporation's principal
subsidiary, were 11.06%, 9.80%, and 7.66%, respectively.
Liquidity management consists of maintaining sufficient cash levels to
fund operations and to meet the requirements of borrowers, depositors, and
creditors. Liquid assets, which include cash and cash equivalents, money
market instruments, and securities that will mature within one year, amounted
to $.7 billion and $1.15 billion at September 30, 1994 and 1993, respectively.
The estimated average maturity of securities was 5.0 years and 3.4 years at
September 30, 1994 and 1993, respectively. The overall liquidity position of
the Corporation is further enhanced by a high proportion of core deposits,
which provide a stable funding base. Core deposits comprised 92% of total
deposits at September 30, 1994 versus 93% at September 30, 1993.
On December 31, 1993, the Corporation adopted SFAS No. 115. Included
within total securities classified as available for sale at that time were
$203.8 million of securities classified as such due to regulatory restrictions
even though the Corporation had the intent and ability to hold such securities
to maturity. Upon a regulatory revision in the second quarter of 1994 which
allowed those securities to be classified as held to maturity, the Corporation
transferred such securities from available for sale to held to maturity. At
the time of transfer, the securities had an unrealized loss of $1.0 million
($.6 million net of taxes). In accordance with SFAS No. 115, such unrealized
loss was retained as a component of shareholders' equity and is being amortized
over the remaining lives of the securities.
On January 31, 1994, the Corporation redeemed the remaining balance of
approximately $13.6 million of its 7 5/8% debentures due in 2002, at a price of
101.22%. During the first quarter of 1993, the Corporation filed a shelf
registration statement with the Securities and Exchange Commission to issue
$100 million of subordinated debt securities. During the second quarter of
1993, the Corporation issued $50 million of subordinated notes with an interest
rate of 6 7/8% under the shelf registration statement and used a portion of the
proceeds for the acquisition of FANBKY.
16
The Corporation entered into a three-year revolving credit agreement
effective March 31, 1994, which provides for loans of up to $35 million. On
May 31, 1994, the revolving credit agreement was amended to increase the loans
available to $50 million from $35 million. The Corporation had no revolving
credit borrowings outstanding at September 30, 1994, or during the nine months
then ended.
During the third quarter of 1994 the Corporation borrowed $100 million
from the Federal Home Loan Bank. The advance has a maturity of three years
and interest which is payable and reprices monthly based on LIBOR. At
September 30, 1994, the interest rate was 4.925%.
ASSET/LIABILITY MANAGEMENT
The Corporation utilizes off-balance-sheet ("derivative") products in
managing its interest rate risk exposure. The use of these derivative products
is intended to reduce the Corporation's vulnerability to changes in the
interest rate environment. Balance-sheet hedging vehicles are linked and bear
a correlation to assets or liabilities on the balance sheet. By using
derivative products such as interest rate swaps and futures contracts, the
derivative products offset fluctuations in net interest income from the
otherwise unhedged position. In other words, if net interest income from the
otherwise unhedged position changes (increases or decreases) by a given amount,
the derivative product should result in close to the opposite result, making
the combined amount (otherwise unhedged position impact plus the derivative
product position impact) essentially unchanged. Derivative products enable the
Corporation to improve its balance between interest sensitive assets and
interest sensitive liabilities by managing interest rate exposure, while
continuing to meet the lending and deposit needs of its customers.
Credit risk exposure due to off-balance-sheet hedging is closely
monitored, and counterparts to these contracts are selected on the basis of
their credit worthiness, as well as their market-making ability.
The Corporation enters into interest rate caps, floors, options, and
forward and futures contracts for its asset/liability management program.
Realized and unrealized gains and losses on such instruments which are
designated as effective hedges of interest rate exposure are deferred and
recognized as interest income or interest expense over the covered periods or
lives of the hedged assets or liabilities.
The Corporation also enters into interest rate swap and basis swap
transactions in connection with its asset/liability management program in
managing interest rate exposure. The impact of interest rate swaps and basis
swaps is accrued based on expected settlement payments and is recorded as an
adjustment to interest income and expense over the life of the related
agreements.
In conjunction with managing interest rate exposure, at September 30,
1994, the Corporation had interest rate swaps and basis swaps with notional
values totaling $1.2 billion and futures with notional values aggregating $.3
billion. At September 30, 1994, these derivative products had unrealized net
pre-tax gains of $13.7 million. As of September 30, 1994, swap transactions
were entered into with counterparts with credit ratings of A2 or higher. At
September 30, 1993, the Corporation had interest rate swaps and basis swaps
with notional values totaling $1.0 billion and futures with notional values
aggregating $.4 billion. Such derivative products had a total of $5.4 million
of unrealized net pre-tax losses at September 30, 1993. Net interest income
for the nine months ended September 30, 1994 and 1993, included derivative
products net expense of $5.2 million and $5.6 million, respectively.
17
PART II. OTHER INFORMATION
Item 1. Legal Proceedings
The Corporation and seven other financial institutions are
defendants in a class action lawsuit brought in the Circuit
Court of Shelby County, Tennessee. The lawsuit alleges
anti-trust, unconscionability, usury, and contract claims
arising out of the defendants' returned check charges. The
asserted plaintiff class consists of depositors who have been
charged returned check or overdraft fees. The plaintiffs are
requesting compensatory and punitive damages of $25 million
against each defendant. The anti-trust, unconscionability, and
usury claims were previously dismissed, and in December 1993
the Circuit Court granted the defendants' motion for summary
judgment and dismissed the remaining claim. The plaintiffs
have appealed. In addition, an antitrust lawsuit alleging a
price fixing conspiracy has been filed against the Corporation
and eight other financial institutions by the plaintiffs in the
U.S. District Court for the Western District of Tennessee. The
defendant banks' motion for summary judgment in the Federal
action was also granted and the plaintiffs have appealed.
Management believes these suits are without merit and, based
upon information currently known and on advice of counsel, that
they will not have a material adverse effect on the
Corporation's consolidated financial statements.
Also, there are from time to time other legal proceedings
pending against the Corporation and its subsidiaries. In the
opinion of management and counsel, liabilities, if any, arising
from such proceedings presently pending would not have a
material adverse effect on the consolidated financial
statements of the Corporation.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
--------
Number Description
------ -------------------------------------------------------------------------------
11 Statement regarding computation of per share earnings is included in Note 11 to
the Consolidated Financial Statements for the Quarter Ended September 30, 1994.
See Part 1, Item 1.
15 Letter regarding unaudited interim financial information from
KPMG Peat Marwick LLP, dated October 21, 1994.
27 Financial Data Schedule for interim year-to-date period ended September 30, 1994.
(b) Reports on Form 8-K
-------------------
No reports on Form 8-K were filed during the quarter ended September 30, 1994.
18
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 AMERICAN CORPORATION
(Registrant)
/s/ Dale W. Polley
-------------------------------------
Dale W. Polley
Vice Chairman and Principal Financial
Officer
Date: November 9, 1994
--------------------------------
19
FIRST AMERICAN CORPORATION
QUARTERLY STATEMENT ON FORM
10-Q
FOR QUARTER ENDED SEPTEMBER 30, 1994
EXHIBIT INDEX
Exhibit
Number Description
- - ------ ----------------------------------------------------------------
15 Letter regarding unaudited interim financial information
from KPMG Peat Marwick LLP, dated October 21, 1994.
27 Financial Data Schedule for interim year-to-date period ended
September 30, 1994.