EXHIBIT (99)(b)
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
First Fidelity Bancorporation
We have audited the accompanying consolidated statements of
condition of First Fidelity Bancorporation and subsidiaries as of
December 31, 1994 and 1993, and the related consolidated statements
of income, changes in stockholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1994. These
consolidated financial statements are the responsibility of First
Fidelity Bancorporation's management. Our responsibility is to
express an opinion on the consolidated financial statements based on
our audits.
We conducted our audits in accordance with generally accepted
auditing standards. These standards require that we plan and perform
the audit to obtain reasonable assurance about whether the
consolidated financial statements are free of material misstatement.
An audit includes examining, on a test basis, evidence supporting the
amounts and disclosures in the consolidated financial statements. An
audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the
overall financial statement presentation. We believe that our audits
provide a reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred
to above present fairly, in all material respects, the consolidated
financial position of First Fidelity Bancorporation and subsidiaries
as of December 31, 1994 and 1993 and the results of their operations
and their cash flows for each of the years in the three-year period
ended December 31, 1994, in conformity with generally accepted
accounting principles.
As discussed in Note 2 to the consolidated financial statements,
First Fidelity Bancorporation changed its methods of accounting for
income taxes, postretirement benefits other than pensions,
postemployment benefits, and certain investments in debt and equity
securities in 1993.
January 18, 1995,
New York, New York
56
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Consolidated Statements of Income
Year Ended December 31
1994 1993 1992
(thousands, except per share amounts)
Interest Income
Interest and fees on loans . . . . . . . . . . . . . . . . . . . . . .
$1,650,879 $1,531,900 $1,513,445
Interest on federal funds sold and securities purchased under
agreements to resell . . . . . . . . . . . . . . . . . . . . . . . . 1,158 16,176 33,578
Interest and dividends on securities:
Taxable interest income . . . . . . . . . . . . . . . . . . . . . . . 407,516 370,731 409,104
Tax-exempt interest income . . . . . . . . . . . . . . . . . . . . . 39,310 49,017 57,675
Dividends . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,333 4,559 4,037
Interest on bank deposits . . . . . . . . . . . . . . . . . . . . . . . 25,494 66,308 104,524
Interest on trading account securities . . . . . . . . . . . . . . . . 6,462 6,505 6,918
Total Interest Income . . . . . . . . . . . . . . . . . . . . . . 2,136,152 2,045,196 2,129,281
Interest Expense
Interest on:
Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 604,796 620,730 824,453
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . 75,014 32,199 43,469
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . 52,226 38,584 52,790
Total Interest Expense . . . . . . . . . . . . . . . . . . . . . . 732,036 691,513 920,712
Net Interest Income . . . . . . . . . . . . . . . . . . . . . . . . 1,404,116 1,353,683 1,208,569
Provision for possible credit losses . . . . . . . . . . . . . . . . . . 79,000 148,000 228,000
Net Interest Income after Provision for Possible Credit Losses . . 1,325,116 1,205,683 980,569
Non-Interest Income
Trust income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 105,891 104,517 86,396
Service charges on deposit accounts . . . . . . . . . . . . . . . . . . 145,059 152,340 139,310
Other service charges, commissions and fees . . . . . . . . . . . . . . 105,673 85,741 76,374
Trading revenue . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,089 16,932 16,685
Net securities transactions . . . . . . . . . . . . . . . . . . . . . . 17,720 7,017 4,825
Other income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32,512 16,953 8,786
Total Non-Interest Income . . . . . . . . . . . . . . . . . . . . . 416,944 383,500 332,376
Non-Interest Expense
Salaries and benefits expense . . . . . . . . . . . . . . . . . . . . . 485,476 468,050 408,841
Occupancy expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 114,593 112,729 107,269
Equipment expense . . . . . . . . . . . . . . . . . . . . . . . . . . . 41,785 43,983 41,418
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . 427,775 389,937 359,318
Total Non-Interest Expense . . . . . . . . . . . . . . . . . . . . 1,069,629 1,014,699 916,846
Income before income taxes and cumulative effect of changes in
accounting principles . . . . . . . . . . . . . . . . . . . . . . . . . 672,431 574,484 396,099
Income taxes . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 221,368 178,025 82,362
Income before cumulative effect of changes in accounting principles . . . 451,063 396,459 313,737
Cumulative effect of changes in accounting principles, net of tax . . . . -- 2,373 --
Net Income . . . . . . . . . . . . . . . . . . . . . . . . . . . . 451,063 398,832 313,737
Dividends on Preferred Stock . . . . . . . . . . . . . . . . . . . . . . 20,667 20,653 21,061
Net Income Applicable to Common Stock . . . . . . . . . . . . . . . $430,396 $378,179 $292,676
Per Common Share:
Primary:
Income before cumulative effect of changes in accounting principles . $5.21 $4.63 $3.89
Cumulative effect of changes in accounting principles, net of tax . . -- .03 --
Net income primary . . . . . . . . . . . . . . . . . . . . . . . . 5.21 4.66 3.89
Fully diluted:
Income before cumulative effect of changes in accounting principles . 5.11 4.55 3.77
Cumulative effect of changes in accounting principles, net of tax . . -- .03 --
Net income fully diluted . . . . . . . . . . . . . . . . . . . . . 5.11 4.58 3.77
See accompanying notes to consolidated financial statements.
57
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Consolidated Statements of Condition
December 31
1994 1993
(thousands)
Assets
Cash and due from banks . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,082,002 $1,831,270
Interest-bearing time deposits . . . . . . . . . . . . . . . . . . . . . . . . 35,567 979,769
Securities held to maturity (market value of $4,049,457 in 1994
and $5,321,239 in 1993) . . . . . . . . . . . . . . . . . . . . . . . . . . . 4,186,860 5,241,987
Securities available for sale, at market value . . . . . . . . . . . . . . . . 3,781,163 2,656,721
Trading account securities, at market value . . . . . . . . . . . . . . . . . . 110,494 149,887
Federal funds sold and securities purchased under agreements to resell . . . . 50,675 15,000
Loans, net of unearned income . . . . . . . . . . . . . . . . . . . . . . . . . 23,801,241 21,386,911
Less: Reserve for possible credit losses . . . . . . . . . . . . . . . . . . (599,333) (602,183)
Net Loans . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23,201,908 20,784,728
Premises and equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . 437,677 404,208
Customers' acceptance liability . . . . . . . . . . . . . . . . . . . . . . . . 215,556 187,903
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,113,794 1,511,112
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $36,215,696 $33,762,585
Liabilities
Deposits in domestic offices:
Demand deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5,393,749 $5,347,007
Savings/NOW deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9,271,335 9,650,774
Money market deposit accounts . . . . . . . . . . . . . . . . . . . . . . . . 4,257,135 3,893,130
Other consumer time deposits . . . . . . . . . . . . . . . . . . . . . . . . 8,858,443 8,637,296
Corporate certificates of deposit . . . . . . . . . . . . . . . . . . . . . . 393,058 398,435
Deposits in overseas offices . . . . . . . . . . . . . . . . . . . . . . . . . 733,132 216,380
Total Deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28,906,852 28,143,022
Short-term borrowings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,716,922 1,620,125
Acceptances outstanding . . . . . . . . . . . . . . . . . . . . . . . . . . . . 218,625 196,117
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 682,699 451,835
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 813,623 613,058
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 33,338,721 31,024,157
Commitments and contingencies (see Notes 16 and 18)
Stockholders' Equity
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229,707 230,422
Common stock ($1.00 par)
Authorized: 150,000,000 shares
Issued: 82,003,121 shares in 1994 and 79,937,719 shares in 1993 . . . . . . . 82,003 79,938
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,256,020 1,202,373
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,430,149 1,200,073
Net unrealized gains (losses) securities available for sale . . . . . . . . . (75,232) 27,295
Less treasury stock, at cost: 1,020,282 shares in 1994
and 36,714 shares in 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . (45,672) (1,673)
Total Common Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . 2,647,268 2,508,006
Total Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . 2,876,975 2,738,428
Total Liabilities and Stockholders' Equity . . . . . . . . . . . . . . . . $36,215,696 $33,762,585
See accompanying notes to consolidated financial statements.
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Consolidated Statements of Changes in Stockholders' Equity
Total
Preferred Common Retained Treasury Stockholders'
Stock Stock Surplus Earnings Stock Equity
(thousands)
Balance, December 31, 1991 . . . . . .
$232,236 $70,339 $918,396 $723,811 -- $1,944,782
Net income . . . . . . . . . . . . . -- -- -- 313,737 -- 313,737
Shares Issued:
Preferred stock conversions . . . . (64) 2 62 -- -- --
Dividend reinvestment plan . . . . -- 531 17,060 -- -- 17,591
Stock options . . . . . . . . . . . -- 860 21,169 -- -- 22,029
Private placement . . . . . . . . . -- 2,376 58,218 -- -- 60,594
Dividends on Common stock . . . . . . -- -- -- (88,036) -- (88,036)
Dividends on Preferred stock . . . . -- -- -- (21,061) -- (21,061)
Equity portfolio valuation . . . . . -- -- -- 8,014 -- 8,014
Balance, December 31, 1992 . . . . . . 232,172 74,108 1,014,905 936,465 -- 2,257,650
Net income . . . . . . . . . . . . . -- -- -- 398,832 -- 398,832
Shares Issued:
Preferred stock conversions . . . . (1,750) 55 1,695 -- -- --
Dividend reinvestment plan . . . . -- 98 4,305 (230) $3,598 7,771
Stock options . . . . . . . . . . . -- 276 6,982 (4,366) 11,047 13,939
Private placement . . . . . . . . . -- 2,376 58,218 -- -- 60,594
Acquisitions . . . . . . . . . . . -- 3,025 116,268 -- 100,636 219,929
58
Purchases of treasury stock . . . . . -- -- -- -- (116,954) (116,954)
Dividends on Common stock . . . . . . -- -- -- (110,336) -- (110,336)
Dividends on Preferred stock . . . . -- -- -- (20,653) -- (20,653)
Net unrealized gains securities
available for sale . . . . . . . . -- -- -- 27,295 -- 27,295
Other . . . . . . . . . . . . . . . . -- -- -- 361 -- 361
Balance, December 31, 1993 . . . . . . 230,422 79,938 1,202,373 1,227,368 (1,673) 2,738,428
Net income . . . . . . . . . . . . . -- -- -- 451,063 -- 451,063
Shares Issued:
Preferred stock conversions . . . . (715) 22 693 -- -- --
Dividend reinvestment plan . . . . -- 7 157 (231) 15,824 15,757
Stock options . . . . . . . . . . . -- 18 (300) (4,760) 14,064 9,022
Private placement . . . . . . . . . -- 1,984 48,603 (53,165) 123,767 121,189
Other . . . . . . . . . . . . . . . -- 34 1,533 -- -- 1,567
Purchases of treasury stock . . . . . -- -- -- -- (197,654) (197,654)
Dividends on Common stock . . . . . . -- -- -- (142,403) -- (142,403)
Dividends on Preferred stock . . . . -- -- -- (20,667) -- (20,667)
Net unrealized (losses) securities
available for sale . . . . . . . . -- -- -- (102,527) -- (102,527)
Other . . . . . . . . . . . . . . . . -- -- 2,961 239 -- 3,200
Balance, December 31, 1994 . . . . . . $229,707 $82,003 $1,256,020 $1,354,917 $(45,672) $2,876,975
See accompanying notes to consolidated financial statements.
59
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Consolidated Statements of Cash Flows
Year Ended December 31
1994 1993 1992
(thousands)
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . $451,063 $398,832 $313,737
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for possible credit losses . . . . . . . . . . . . 79,000 148,000 228,000
Depreciation, amortization and accretion . . . . . . . . . . 90,283 53,354 39,201
Deferred income tax provision . . . . . . . . . . . . . . . . 131,305 86,453 1,034
Gain on sale of assets . . . . . . . . . . . . . . . . . . . (8,587) (12,288) (13,491)
Net securities transactions (gains) . . . . . . . . . . . . . (17,720) (7,017) (4,825)
Proceeds from sales of trading account securities . . . . . . 9,983,786 8,951,741 10,324,738
Purchases of trading account securities . . . . . . . . . . . (9,937,083) (8,860,508) (10,388,715)
Decrease (increase) in accrued interest receivable . . . . . (60,579) 39,674 (19,671)
Increase (decrease) in accrued interest payable . . . . . . . 72,897 (32,067) (78,764)
Change in current taxes payable . . . . . . . . . . . . . . . 51,196 24,332 (7,334)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . (61,453) 175,572 (202,118)
Cumulative effect of changes in accounting principles,
net of tax . . . . . . . . . . . . . . . . . . . . . . . . -- (2,373) --
Net cash provided by operating activities . . . . . . . . . 774,108 963,705 191,792
Cash flows from investing activities:
Proceeds from maturities of securities held to maturity . . . 2,478,876 5,267,960 2,894,934
Purchases of securities held to maturity . . . . . . . . . . (715,907) (5,822,987) (2,923,516)
Proceeds from maturities of securities available for sale . . 928,702 -- --
Proceeds from sales of securities available for sale . . . . 969,775 461,596 175,820
Purchases of securities available for sale . . . . . . . . . (3,170,853) -- --
Net (disbursements) receipts from lending activities . . . . (677,987) (574,609) 538,862
Purchases of premises and equipment . . . . . . . . . . . . . (54,850) (55,248) (93,479)
Proceeds from sales of premises and equipment . . . . . . . . 10,436 10,843 14,668
Net change in acceptances . . . . . . . . . . . . . . . . . . (5,145) 758 4,308
Net cash (paid) received on acquisitions . . . . . . . . . . (307,154) 641,386 723,111
Net cash provided by (used in) investing activities . . . . (544,107) (70,301) 1,334,708
Cash flows from financing activities:
Change in demand, savings/NOW, and money market deposits . . (1,451,430) (1,428,337) 1,171,050
Change in corporate certificates of deposit and deposits in
overseas offices . . . . . . . . . . . . . . . . . . . . . 511,375 (90,971) (73,097)
Change in other consumer time deposits . . . . . . . . . . . (816,917) (1,988,007) (2,321,038)
Change in short-term borrowings . . . . . . . . . . . . . . . 884,158 228,579 (208,692)
Issuances of long-term debt . . . . . . . . . . . . . . . . . 200,000 150,000 1,069
Payments on long-term debt . . . . . . . . . . . . . . . . . (303) (118,450) (338,826)
Purchases of treasury stock . . . . . . . . . . . . . . . . . (197,654) (116,954) --
Issuance of Common and Preferred stock . . . . . . . . . . . 145,968 140,740 100,214
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . (162,993) (131,080) (109,174)
Net cash (used in) financing activities . . . . . . . . . . (887,796) (3,354,480) (1,778,494)
Net change in cash and cash equivalents . . . . . . . . . . (657,795) (2,461,076) (251,994)
Cash and cash equivalents at beginning of period(A) . . . . 2,826,039 5,287,115 5,539,109
Cash and cash equivalents at end of period(A) . . . . . . . $2,168,244 $2,826,039 $5,287,115
Supplemental disclosures:
Total amount of interest paid for the period . . . . . . . . $ 659,139 $ 723,580 $ 999,476
Total amount of income taxes paid for the period . . . . . . $ 100,942 $ 108,274 $ 89,888
Total amount of loans transferred to OREO . . . . . . . . . . $ 46,490 $ 115,190 $ 100,553
Total amount of loans transferred to assets held for sale . . $ -- $ 51,457 $ --
(A) Reconciliation:
December 31
1994 1993 1992 1991
(thousands)
Cash and due from banks . . . . . . . . . . . . . . . . . $2,082,002 $1,831,270 $1,913,177 $2,115,508
Interest-bearing time deposits . . . . . . . . . . . . . 35,567 979,769 2,635,938 2,645,601
Federal funds sold and securities purchased under
agreements to resell . . . . . . . . . . . . . . . . . 50,675 15,000 738,000 778,000
Total cash and cash equivalents . . . . . . . . . . . . . $2,168,244 $2,826,039 $5,287,115 $5,539,109
See accompanying notes to consolidated financial statements.
60
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements
Note 1. Accounting Policies
The Consolidated Financial Statements of First Fidelity
Bancorporation and Subsidiaries (collectively, the "Company" or
"First Fidelity") have been prepared in conformity with generally
accepted accounting principles and reporting practices applied in the
banking industry. The consolidated financial statements include
the accounts of First Fidelity Bancorporation and its subsidiaries,
all of which are directly or indirectly wholly-owned. Significant
intercompany balances and transactions have been eliminated in
consolidation. The Company also presents herein condensed parent
company only financial information regarding First Fidelity
Bancorporation (the "Parent Company"). Prior period amounts are
reclassified when necessary to conform with the current year's
presentation. The following is a summary of significant accounting
policies:
Securities Held to Maturity: Securities are classified as
securities held to maturity based on management's intent and the
Company's ability to hold them to maturity. Such securities are
stated at cost, adjusted for unamortized purchase premiums and
discounts. Purchase premiums and discounts are amortized over
the life of the related security using a method which
approximates the effective interest method.
Trading Account Securities: Securities that are bought and
held principally for the purpose of selling them in the near
term are classified as trading account securities, which are
carried at market value. Realized gains and losses and gains and
losses from marking the portfolio to market value are included
in trading revenue.
Securities Available for Sale: Securities not classified as
securities held to maturity or trading account securities are
classified as securities available for sale, and are stated at
fair value. Unrealized gains and losses are excluded from
earnings, and are reported as a separate component of
stockholders' equity, net of taxes. Such securities include
those that may be sold in response to changes in interest rates,
changes in prepayment risk or other factors.
Net securities transactions included in non-interest income
consist of realized gains and losses on the sale of securities.
Gains or losses on sale are recorded on the completed
transaction basis and are computed under the identified
certificate method.
Loans: Loans are stated net of unearned income. Unearned
income is recognized over the lives of the respective loans,
principally on the effective interest method.
Income from direct financing leases is recorded over the
life of the lease under the financing method of accounting,
except for leveraged lease transactions. Income from leveraged
lease transactions is recognized using a method which yields a
level rate of return in relation to the Company's net investment
in the lease. The investment includes the sum of
61
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
aggregate rentals receivable and the estimated residual value of
leased equipment, less deferred income and third party debt on
leveraged leases.
Interest income is not accrued on loans where interest or
principal is 90 days or more past due, unless the loans are
adequately secured and in the process of collection, or on loans
where management has determined that the borrowers may be unable
to meet contractual principal and/or interest obligations. When
a loan is placed on non-accrual, interest accruals cease and
uncollected accrued interest is reversed and charged against
current income. Non-accrual loans are generally not returned to
accruing status until principal and interest payments have been
brought current and full collectibility is reasonably assured.
Interest on loans that have been restructured is recognized
according to the revised terms.
Loan origination and commitment fees and certain related
costs are deferred and amortized as an adjustment of loan yield
in a manner which approximates the effective interest method.
Reserve for Possible Credit Losses: The level of the
reserve for possible credit losses is based on management's
ongoing assessment of the Company's credit exposure, in
consideration of a number of relevant variables. These
variables include prevailing and anticipated domestic and
international economic conditions, assigned risk ratings, 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, various 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.
Mortgage Banking Activities: Mortgage loans held for sale
are valued at the lower of aggregate cost or market, as
determined by outstanding commitments from investors or current
investor yield requirements. Gains or losses resulting from
sales are recognized on a settlement date basis. Purchased
mortgage servicing rights ("PMSRs") are capitalized at their
initial purchase price, not to exceed net future servicing
income at the time of acquisition. Excess mortgage servicing
rights ("EMSRs") occur when mortgage loans are sold with
servicing retained and the net servicing fee rate exceeds the
normal servicing fee. Servicing fee income is recognized as
received. The costs of acquiring rights to service loans is
capitalized and amortized in relation to the estimated period of
net servicing revenues. The carrying value of PMSRs and EMSRs
is periodically evaluated on a disaggregated basis. Write-downs
are recorded when and to the extent that the carrying amount
exceeds estimated future net servicing income. Mortgage loans
held for sale, PMSRs and EMSRs are included in other assets.
Financial Instruments: A financial instrument is defined as
cash, evidence of ownership in an entity, or a contract that
imposes an obligation on one entity and conveys a right to
another for the exchange of cash or other financial instruments.
In addition to the financial instruments
62
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
shown in the Consolidated Statement of Condition, the Company
enters into interest rate swaps, futures, caps and floors,
primarily to manage interest rate exposure, and also enters into
firm commitments to extend credit.
Hedges: In order to qualify for hedge accounting
treatment, the item being hedged must expose the Company to
interest rate risk. Interest rate swaps, futures, caps and
floors which reduce the Company's exposure to interest rate
risk associated with identifiable assets, liabilities, firm
commitments or anticipated transactions are designated as
hedges. Gains or losses on contracts designated as hedges
are deferred and amortized to interest income or expense
over the interest rate risk period of the related hedged
asset, liability, firm commitment or anticipated
transaction. The net settlement amount to be received or
paid on contracts designated as hedges is accrued over the
life of the contract and recognized as interest income or
expense, respectively.
Trading positions: Financial instruments not
qualifying for hedge accounting treatment and those used
for trading purposes are carried at market value, and
realized and unrealized gains and losses are included in
trading revenue.
Foreign Currency Translation and Exchange Contracts: Assets
and liabilities of overseas offices are translated at current
rates of exchange. Related income and expenses are translated
at average rates of exchange in effect during the year. All
foreign exchange positions are valued daily at prevailing market
rates. Exchange adjustments, including unrealized gains or
losses on unsettled forward contracts, are included in trading
revenue.
Other Real Estate Owned: Real estate acquired in partial or
full satisfaction of loans and loans meeting the criteria of
"in-substance foreclosures" are classified as Other Real Estate
Owned ("OREO"). Prior to transferring a real estate loan to
OREO (due to actual or in-substance foreclosure) it is written
down to the lower of cost or fair value. This write down is
charged to the reserve for possible credit losses. Subse-
quently, OREO is carried at the lower of fair value less
estimated costs to sell or carrying value.
Premises and Equipment: Premises and equipment are stated
at cost, less accumulated depreciation and amortization.
Depreciation and amortization are computed using the
straight-line method. Buildings and equipment are depreciated
over their estimated useful lives. Leasehold improvements are
amortized over the lesser of the term of the respective lease or
the estimated useful life of the improvement.
Income Taxes: The Company adopted Statement of Financial
Accounting Standards ("SFAS") 109, "Accounting for Income
Taxes", in 1993. Deferred tax assets and liabilities are
recognized for the future consequences attributable to
differences between the financial statement carrying amounts of
existing assets and liabilities and their respective tax bases,
63
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
as well as operating loss and tax credit carryforwards.
Deferred tax assets are recognized for future deductible
temporary differences and tax loss and credit carryforwards if
their realization is "more likely than not". 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.
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.
Under Accounting Principles Board Opinion No. 11, which
was applied by the Company in 1992 and prior years, deferred
income taxes were recognized for income and expense items that
were reported in different years for financial reporting
purposes and income tax purposes, using the tax rate applicable
in the year of the calculation. Under that method, deferred
taxes were not adjusted for subsequent changes in tax rates.
The Parent Company's income taxes, as reflected in the
Parent Company's Statement of Income, represent the taxes
allocated to the Parent Company on the basis of its contribution
to consolidated income.
Retirement Benefits: The Company maintains
self-administered, noncontributory defined benefit pension
plans covering all employees who qualify as to age and length of
service. Plan expense is based on actuarial computations of
current and future benefits for employees and is included in
salaries and benefits expense. In addition, the Company
provides health care and life insurance benefits for qualifying
employees. The related expense is based upon actuarial
calculations and is recognized during the period over which such
benefits are earned. Prior to 1993, the Company recognized
health care and life insurance expenses on an "as paid" basis.
Earnings per Share: 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.
Statement of Cash Flows: For purposes of reporting cash
flows, cash and cash equivalents include cash and due from
banks, interest-bearing time deposits, federal funds sold and
securities purchased under agreements to resell, none having
an original maturity of more than three months.
64
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
Excess of Cost Over Net Assets Acquired: The excess of cost
over the fair value of acquired net assets is included in other
assets and is being amortized using the straight-line method
over the estimated period of benefit.
Note 2. Changes in Accounting Principles
During 1993, First Fidelity changed its method of accounting
for: (a) postretirement benefits other than pensions, as required
by SFAS 106, "Employers' Accounting for Postretirement Benefits Other
Than Pensions", (b) income taxes, as required by SFAS 109,
"Accounting for Income Taxes", (c) postemployment benefits, as
prescribed in SFAS 112, "Employers' Accounting for Postemployment
Benefits" and (d) securities, as prescribed in SFAS 115, "Accounting
for Certain Investments in Debt and Equity Securities".
The cumulative effect of changes in accounting principles, net
of tax effect, in the Company's 1993 Consolidated Statement of Income
consists of the following:
Increase
(Decrease)
(millions)
Income taxes net deferred tax assets . . . . . . . . . . . . . . . . . . . . . $63.1
Postretirement benefits other than pensions . . . . . . . . . . . . . . . . . . (53.3)
Postemployment benefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7.4)
Investments in debt and equity securities . . . . . . . . . . . . . . . . . . . --
Total cumulative effect of changes in accounting principles . . . . . . . . . $ 2.4
The major components of the deferred tax asset that
resulted from the adoption of SFAS 109 related to temporary
differences created by the reserve for possible credit losses,
alternative minimum tax credit carryforwards, and accrued
postretirement benefits.
SFAS 106 requires accrual, during an employee's active years of
service, of the expected costs of providing postretirement benefits
(principally health care) to employees and their beneficiaries and
dependents. Through 1992, First Fidelity, like most other companies,
recognized this expense on an "as paid" basis.
SFAS 112 requires employers to recognize any obligation to
provide postemployment (as differentiated from postretirement)
benefits (salary continuation, outplacement services, etc.) by
accruing the estimated liability through a charge to expense.
The adoption of SFAS 115 had no effect on the Company's net
income. The unrealized gain or loss on securities available for sale
is reported as a separate component of stockholders' equity, net of
tax effect.
Note 3. Principal Acquisitions
On November 29, 1994, First Fidelity acquired Baltimore Bancorp
("Baltimore") and its affiliates for $348 million in cash.
Baltimore had $2.1 billion in assets and $1.7 billion in deposits at
closing. This acquisition generated $225.8 million of goodwill,
which is being amortized over the period of expected benefit.
65
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
On August 20, 1994, the Company acquired $504 million in assets
and assumed $450 million in deposits of First Inter-Bancorp, Inc.
("Mid-Hudson") and its subsidiary for $56 million in cash. On May
12, 1994, First Fidelity acquired $184 million in assets and assumed
$174 million in deposits of The Savings Bank of Rockland County
("Rockland") for $5.9 million in cash.
On March 25, 1994, the Company acquired BankVest, Inc.
("BankVest") and its subsidiary for $19.7 million in cash. BankVest
had $99 million in assets and $84 million in deposits at closing. On
January 31, 1994, First Fidelity acquired $410 million in assets and
assumed $251 million in deposits of Greenwich Financial Corporation
("Greenwich") and its subsidiary for $41.9 million in cash.
On December 30, 1993, the Company acquired Peoples Westchester
Savings Bank ("Peoples"), for a combination of cash and Common Stock
with an aggregate value of $234.9 million. At closing, Peoples had
approximately $1.7 billion in assets and $1.5 billion in deposits.
Substantially all of the 2,442,083 shares of Common Stock issued to
Peoples stockholders in the acquisition came from Treasury Stock, all
of which was acquired by First Fidelity late in 1993 through open
market purchases.
On August 11, 1993, First Fidelity acquired Village Financial
Services, Ltd. ("Village") and its subsidiary, Village Bank, for
$40.0 million in cash and $26.8 million of First Fidelity Common
Stock. Village had $736 million in assets and $489 million in
deposits at closing. In connection with the acquisition, the Company
issued 893,956 shares of First Fidelity Common Stock to Banco
Santander, S.A. ("Santander") representing the exercise by Santander
of gross up rights ("the Acquisition Gross Up Rights") pursuant to
the Investment Agreement, dated as of March 18, 1991 (the
"Investment Agreement") between the Company and Santander.
In May 1993, the Company acquired Northeast Bancorp. Inc.
("Northeast") and its subsidiaries, which had $2.5 billion in assets
and $2.5 billion in liabilities, for $27.2 million in an exchange of
common stock. In connection with the acquisition, the Company also
issued 3,284,207 shares of its Common Stock to Santander,
representing the exercise by Santander of warrants ("Warrants") to
purchase 2,376,250 shares and Acquisition Gross Up Rights to purchase
an additional 907,957 shares, under the Investment Agreement.
All 1994 and 1993 acquisitions were accounted for as purchases
and, accordingly, the results of operations of such acquisitions have
been included in the Company's consolidated financial statements from
their respective closing dates.
The following required unaudited pro forma financial information
presents the combined historical results of operations of First
Fidelity, Northeast, Village, Peoples, Greenwich, BankVest, Rockland,
Mid-Hudson and Baltimore (the "companies") as if the acquisitions had
all occurred as of January 1, 1993. The results reflect purchase
accounting adjustments, but do not include certain non-recurring
charges and credits directly attributable to such acquisitions. The
pro forma financial information does not necessarily reflect the
results of
66
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
operations that would have been achieved had the companies actually
combined at such dates.
COMBINED CONDENSED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
(unaudited)
Year Ended
December 31,
1994 1993
(millions, except
per share amounts)
Interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $2,316 $2,491
Interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 803 888
Net interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,513 1,603
Provision for possible credit losses . . . . . . . . . . . . . . . . . . . . . . . . . 89 206
Non-interest income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 446 470
Non-interest expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,182 1,301
Income taxes and effect of accounting changes . . . . . . . . . . . . . . . . . . . . . 225 164
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $ 463 $ 402
Earnings per share:
Primary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $5.36 $4.57
Fully diluted . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5.24 4.49
Note 4. Cash and Due from Banks
The Company's banking subsidiaries are required to maintain
reserve balances with Federal Reserve Banks. These balances totaled
$458 million at December 31, 1994 and averaged $348 million for the
year then ended.
Note 5. Securities Held to Maturity and Securities Available for
Sale
The Company's investment securities are classified as either
"held to maturity" or "available for sale". Securities are
classified as securities held to maturity based on management's
intent and the Company's ability to hold them to maturity.
Securities not classified as securities held to maturity or trading
account securities are classified as securities available for sale.
Investment securities aggregating approximately $2.5 billion at
December 31, 1994 and $2.6 billion at December 31, 1993 were
pledged, either under repurchase agreements or to secure public
deposits.
67
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
Securities Held to Maturity
Securities held to maturity, stated at amortized cost, the
related fair value, and the unrealized gains and losses for the
portfolio were as follows at December 31, 1994 and 1993:
Gross Net Unreal-
Amortized Unrealized Gross Unreal- ized Gains
Cost Fair Value Gains ized Losses (Losses)
(thousands)
1994:
U.S. Treasury . . . . . . . . . . $ 319,158 $304,464 $94 $(14,788) $(14,694)
Federal agencies . . . . . . . . . 2,343,594 2,252,322 5,148 (96,420) (91,272)
State and municipal . . . . . . . . 521,015 533,638 16,815 (4,192) 12,623
Other securities . . . . . . . . . 1,003,093 959,033 4,754 (48,814) (44,060)
$4,186,860 $4,049,457 $26,811 $(164,214) $(137,403)
1993:
U.S. Treasury . . . . . . . . . . $394,791 $395,213 $460 $(38) $422
Federal agencies . . . . . . . . . 3,200,001 3,233,567 37,686 (4,120) 33,566
State and municipal . . . . . . . . 564,156 607,673 43,948 (431) 43,517
Other securities . . . . . . . . . 1,083,039 1,084,786 2,976 (1,229) 1,747
$5,241,987 $5,321,239 $85,070 $(5,818) $79,252
Federal agency securities consisted almost entirely of
mortgage-backed securities (which included collateralized mortgage
obligations and pass-through certificates) at December 31, 1994 and
1993. Other securities also included mortgage-backed securities,
with book values of $577.9 million and $442.8 million and market
values of $541.6 million and $443.1 million at December 31, 1994 and
1993, respectively.
Proceeds from sales of debt securities held as investments in
1992 were $134.5 million. Gains of $7.7 million and losses of $67
thousand were realized on such sales in 1992.
68
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
Securities Available for Sale
Securities available for sale, stated at fair value, and the
unrealized gains and losses for the portfolio were as follows at
December 31, 1994 and 1993:
Gross Net Unreal-
Amortized Gross Unreal- Unrealized ized Gains
Cost Fair Value ized Gains Losses (Losses)
(thousands)
1994:
U.S. Treasury . . . . . . . . . . . . . $2,050,041 $1,978,005 $9 $(72,045) $(72,036)
Federal agencies . . . . . . . . . . . . 1,605,207 1,586,990 9,400 (27,617) (18,217)
State and municipal . . . . . . . . . . . 13,613 13,220 24 (417) (393)
Equity securities . . . . . . . . . . . . 55,127 59,562 5,190 (755) 4,435
Other securities . . . . . . . . . . . . 151,111 143,386 208 (7,933) (7,725)
$3,875,099 $3,781,163 $14,831 $(108,767) $(93,936)
1993:
U.S. Treasury . . . . . . . . . . . . . $1,234,593 $1,276,612 $42,019 -- $42,019
Federal agencies . . . . . . . . . . . . 1,115,504 1,121,039 6,133 $(598) 5,535
State and municipal . . . . . . . . . . . 14,644 14,203 -- (441) (441)
Equity securities . . . . . . . . . . . . 58,991 63,052 6,475 (2,414) 4,061
Other securities . . . . . . . . . . . . 183,834 181,815 350 (2,369) (2,019)
$2,607,566 $2,656,721 $54,977 $(5,822) $49,155
Proceeds from the sale of securities available for sale
during 1994 were $969.8 million. Gains of $19.5 million and losses
of $1.8 million were realized on these sales. In 1993, proceeds from
such sales were $458.3 million, resulting in realized gains of $7.5
million and realized losses of $642 thousand.
Maturities
Expected maturities of debt securities were as follows at
December 31, 1994 (maturities of mortgage-backed securities and
collateralized mortgage obligations are based upon estimated cash
flows, assuming no change in the current interest rate environment):
69
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
Securities held to maturity:
Amortized
Cost Fair Value
(thousands)
Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . $1,335,973 $1,290,552
Due after one year through five years . . . . . . . . . . . . . . . . . 2,286,664 2,203,890
Due after five years through ten years . . . . . . . . . . . . . . . . . 354,674 345,912
Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . 141,060 140,439
$4,118,371 $3,980,793
Securities available for sale:
Amortized
Cost Fair Value
(thousands)
Due in one year or less . . . . . . . . . . . . . . . . . . . . . . . . $301,943 $291,940
Due after one year through five years . . . . . . . . . . . . . . . . . 2,822,500 2,732,447
Due after five years through ten years . . . . . . . . . . . . . . . . . 544,754 538,939
Due after ten years . . . . . . . . . . . . . . . . . . . . . . . . . . 150,775 158,275
$3,819,972 $3,721,601
Note 6. Loans
Loans at December 31, 1994 and 1993 consisted of the following:
1994 1993
(thousands)
Commercial and financial . . . . . . . . . . . . . . . . . . . . . . . . $6,145,741 $6,457,343
Real Estate construction . . . . . . . . . . . . . . . . . . . . . . . 317,959 473,434
Mortgage commercial . . . . . . . . . . . . . . . . . . . . . . . . . 4,035,199 3,447,554
Mortgage residential (1 to 4 family) . . . . . . . . . . . . . . . . . 6,046,674 4,888,542
Installment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,405,148 4,825,416
Leasing . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2,050,486 1,419,526
Foreign . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 110,468 112,397
Unearned income . . . . . . . . . . . . . . . . . . . . . . . . . . . . (310,434) (237,301)
$23,801,241 $21,386,911
Included in loans at December 31, 1994 and 1993 were
$274.4 million and $351.3 million, respectively, of shared-loss loans
acquired from The Howard Savings Bank ("Howard") in a 1992 Federal
Deposit Insurance Corporation ("FDIC") -assisted transaction. Under
the terms of the agreement with the FDIC, such loans are subject to
FDIC reimbursement for certain losses if they become non-performing
before October 2, 1997. When such assets become non-performing,
they are reclassified as "segregated assets" (see Note 9).
Non-accruing loans at December 31, 1994 and 1993 totaled $219.6
million and $365.0 million, respectively. Restructured loans totaled
$17.2 million and $13.9 million at December 31, 1994 and 1993,
respectively. Interest recognized as income on loans that were
classified as non-accruing and restructured as of year-end totaled
$3.3 million in 1994, $3.1 million in 1993 and $2.4 million in 1992.
Had payments on year-end non-accruing and restructured loans been
made at the original contracted amounts and due dates, the Company
would have recorded additional interest income of approximately $19.2
million in 1994, $30.1 million in 1993 and $47.8 million in 1992.
During 1993, $78.5 million of non-accruing loans were
transferred to the "Assets Held for Sale" portfolio (see Note 9).
70
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
During 1994, 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", were issued. Under SFAS
114 and SFAS 118, "impaired" loans must be measured based on the
present value of expected future cash flows, discounted at the loan's
effective interest rate, or, as a practical expedient, at the
loan's observable market price or the fair value of the collateral if
the loan is collateral-dependent. Management is continuing to
develop First Fidelity's approach to implementing SFAS 114 and SFAS
118, and does not expect that the adoption of these standards, which
is required beginning in 1995, will have a material effect on the
Company's financial statements.
Note 7. Reserve for Possible Credit Losses
Changes in the reserve for possible credit losses for 1994, 1993
and 1992 are shown below:
1994 1993 1992
(thousands)
Balance, January 1 . . . . . . . . . . . . . . . . . . . . . . . . . . . $602,183 $610,353 $609,599
Provision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,000 148,000 228,000
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 681,183 758,353 837,599
Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159,765 283,616 295,296
Recoveries . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,829 45,730 47,330
Net Charge-offs . . . . . . . . . . . . . . . . . . . . . . . . . . . 118,936 237,886 247,966
Acquired reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,086 81,716 20,720
Balance, December 31 . . . . . . . . . . . . . . . . . . . . . . . . . . $599,333 $602,183 $610,353
Note 8. Premises and Equipment
Premises and equipment at December 31, 1994 and 1993 consisted
of the following:
71
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
1994 1993
(thousands)
Land . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $82,599 $75,666
Buildings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 395,496 361,182
Leasehold improvements . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122,358 107,734
Equipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 287,655 242,925
Total . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 888,108 787,507
Accumulated depreciation and amortization . . . . . . . . . . . . . . . . . . . . . (450,431) (383,299)
Net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $437,677 $404,208
Depreciation and amortization expenses for 1994, 1993 and
1992 were $44.6 million, $46.6 million and $47.9 million,
respectively.
Note 9. Other Assets
Segregated Assets
Segregated assets consist of Howard shared-loss loans acquired
October 2, 1992 ("Bank Closing") that were or have since become
classified as restructured, non-accrual or OREO. Such assets at
December 31, 1994 were $68.3 million, net of a $4.3 million reserve.
The Company's share of charge-offs on such assets was $2.5 million in
1994, while recoveries were $1.3 million. Segregated assets at
December 31, 1993 were $247.9 million, net of a $6.5 million reserve.
The Company's share of charge-offs was $10.6 million in 1993, and
recoveries were $855 thousand.
The FDIC pays the Company 80 percent of all net charge-offs on
acquired shared-loss loans, during the five-year period that
commenced with Bank Closing. Charge-offs eligible for FDIC
reimbursement include accrued interest as of October 2, 1992 and up
to 90 days of additional accrued interest. Subsequent to the
charge-off of a shared-loss loan, the FDIC also reimburses First
Fidelity for 80 percent of the aggregate amount of certain actual
direct expenses incurred on such loans, on a prospective basis.
At the end of the seven year period after Bank Closing, the FDIC
is obligated to provide additional reimbursement to First Fidelity
for losses so that, subject to certain conditions, First Fidelity
bears only 5% of total losses over $130 million with respect to such
segregated assets.
Intangible Assets
Unamortized goodwill and identified intangibles were $787.5
million and $458.3 million at December 31, 1994 and 1993,
respectively. These amounts relate primarily to intangible assets
having original terms of up to 20 years, and are being amortized over
the remaining term of expected benefit, which approximates 17 years
on a weighted-average basis. The amortization expense related to
goodwill and identified intangibles was $43.2 million, $31.7 million
and $23.0 million for 1994, 1993 and 1992, respectively.
72
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
Other Real Estate Owned
OREO consisted of foreclosed property of $94.9 million and
"in-substance foreclosures" of $3.9 million, less a $6.8 million
reserve, as of December 31, 1994. At December 31, 1993, OREO
consisted of foreclosed property of $103.3 million and "in-substance
foreclosures" of $19.2 million, less a $6.6 million reserve. During
1993, $46.9 million of OREO (net of market value adjustments of $6.6
million taken against the OREO reserve) was transferred to the
"Assets Held for Sale" portfolio (see below).
Changes in the OREO reserve for 1994, 1993 and 1992 are shown
below:
1994 1993 1992
(thousands)
Balance, January 1 . . . . . . . . . . . . . . . . . . $6,622 $5,765 $7,306
Provision . . . . . . . . . . . . . . . . . . . . . . 9,250 22,800 21,155
Acquired reserves . . . . . . . . . . . . . . . . . . 456 6,649 --
Charge-offs and writedowns . . . . . . . . . . . . . . (9,576) (28,592) (22,696)
Balance, December 31 . . . . . . . . . . . . . . . . . $6,752 $6,622 $5,765
Mortgage Banking Activities
At December 31, 1994, mortgage loans held for sale and
outstanding commitments to sell mortgage loans were $39.9 million and
$26.7 million, respectively. Aggregate net gains on the sale of
mortgage loans held for sale were $264 thousand for 1994. The
Company did not capitalize any purchased mortgage servicing rights
("PMSRs") during 1994. The Company capitalized excess mortgage
servicing rights ("EMSRs") of $174 thousand during 1994. Total PMSRs
and EMSRs as of December 31, 1994, virtually all of which were
acquired in the Baltimore transaction, were $49.5 million and $2.0
million, respectively. Amortization of PMSRs and EMSRs was $1.2
million and $42 thousand, respectively, for 1994. Mortgage loans
serviced for others totaled $4.7 billion at December 31, 1994.
Assets Held for Sale
Assets held for sale, excluding those related to mortgage
banking activities, totaled $69.3 million and $88.4 million at
December 31, 1994 and 1993, respectively. Such assets consisted of
$29.2 million and $64.6 million, respectively, of non-performing
loans and $40.1 million and $23.8 million, respectively, of OREO. At
December 31, 1994, assets held for sale consisted primarily of loans
and OREO related to recent acquisitions. Such assets are carried at
the lower of adjusted cost or fair value.
Note 10. Short-Term Borrowings
Short-term borrowings at December 31, 1994 and 1993 consisted of
the following:
1994 1993
(thousands)
Federal funds purchased . . . . . . . . . . . . . . . . . . . . . . . $1,042,160 $611,634
Securities sold under repurchase agreements . . . . . . . . . . . . . 1,428,634 794,132
Commercial paper and master notes . . . . . . . . . . . . . . . . . . 229,781 211,785
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16,347 2,574
$2,716,922 $1,620,125
73
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
Note 11. Long-Term Debt
Long-term debt at December 31, 1994 and 1993 consisted of the
following:
1994 1993
(thousands)
Floating rate senior notes due 1996 . . . . . . . . . . . . . . . . . . $200,000 --
6.80% subordinated notes due 2003 . . . . . . . . . . . . . . . . . . . 150,000 $150,000
9 % subordinated notes due 1999 . . . . . . . . . . . . . . . . . . . . 150,000 150,000
9 % subordinated notes due 1995 . . . . . . . . . . . . . . . . . . . . 136,750 136,750
8-1/2% subordinated capital notes due 1998 . . . . . . . . . . . . . . . 149,150 149,150
Floating rate subordinated note due 1997 . . . . . . . . . . . . . . . 25,000 25,000
Other long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . 2,723 2,158
$813,623 $613,058
The floating rate senior notes bear interest at .10% per
annum above the London Interbank Offered Rate ("LIBOR") for
three-month eurodollar deposits (5.74% at December 31, 1994). Such
notes are direct, unsecured, senior obligations of First Fidelity
Bancorporation and may not be redeemed prior to maturity.
The 6.80% and 9-5/8% subordinated notes, the 8-1/2% subordinated
capital notes and the floating rate subordinated notes due 1997
qualify as Tier II capital for regulatory purposes, subject to
certain limitations.
The 6.80%, 9-5/8% and 9-3/4% subordinated notes are not redeemable
prior to maturity and are subordinated in right of payment to all
senior indebtedness of the Parent Company. Interest on the notes is
payable semi-annually on various dates each year.
The 8-1/2% subordinated capital notes are not redeemable prior to
maturity and are subordinated to all indebtedness for borrowed money.
At maturity, these notes are payable either in whole or in part in
cash from the proceeds of the sale of Common Stock, perpetual
preferred stock or other securities qualifying as primary capital
securities designated for such purpose, or in whole or in part by the
exchange of such securities having a market value equal to the
principal amount of the notes to be so exchanged. If the Company
determines that the notes do not constitute "primary capital" or if
the notes cease being treated as "primary capital" by the Federal
Reserve Board, the Company will not exchange the notes for securities
at maturity but instead will pay cash at 100% of the principal
amount, plus accrued interest.
The floating rate subordinated note is a capital note bearing
interest at 1/4 of 1% per annum above LIBOR for three-month eurodollar
deposits. It is repayable using any combination of cash and certain
nonvoting securities. Under certain circumstances, the Company may be
obligated to repurchase the note prior to maturity using proceeds of
a secondary offering of certain nonvoting securities. The note is
redeemable prior to maturity at 100% of principal plus accrued
interest if the Federal Reserve Board determines that the note will
not be treated as "primary capital" and in certain other limited
circumstances.
The aggregate amounts of maturities for long-term debt as of
December 31, 1994 are as follows:
(thousands)
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $136,979
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 200,249
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26,377
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149,150
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,868
Later years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150,000
$813,623
Note 12. Stockholders' Equity
Preferred Stock at December 31, 1994 and 1993 consisted of the
following:
1994 1993
(thousands)
Authorized: 10,000,000 shares, par value $1.00 per share
Issued and outstanding at stated values:
Series B $2.15 cumulative convertible voting preferred stock: 4,788,272 shares
and 4,816,887 shares at December 31, 1994 and 1993, respectively . . . . . . . . $119,707 $120,422
Series D adjustable rate cumulative preferred stock:
350,000 shares at December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . 35,000 35,000
Series F 10.64% cumulative preferred stock:
75,000 shares at December 31, 1994 and 1993 . . . . . . . . . . . . . . . . . . . 75,000 75,000
$229,707 $230,422
The Series B Convertible Preferred Stock bears a
cumulative annual dividend of $2.15 per share, votes as a single
class with the Common Stock (each share of Series B Convertible
Preferred Stock being entitled to .39 votes, subject to adjustment in
certain events), has a liquidation preference of $25 per share, is
redeemable in whole or in part at the Company's option at $25 per
share plus accrued but unpaid dividends to the redemption date, and
is convertible at any time at the option of the holder into .7801 of
a share of Common Stock, subject to adjustment in the event of a
merger, stock split, etc. Holders of Series B Convertible Preferred
Stock are also entitled to vote as a class in certain limited
circumstances.
The Series D Adjustable Rate Cumulative Preferred Stock is
non-voting, subject to certain limited exceptions, has a liquidation
preference of $100 per share, is redeemable in whole or in part at
the option of the Company at a redemption price of $100 per share
plus accrued but unpaid dividends to the redemption date, and cannot
be converted into any other class of capital stock. It bears
cumulative dividends at a rate (the "applicable rate") equal to .75%
less than the highest of the three month U.S. Treasury Bill rate,
the U.S. Treasury ten year constant maturity rate or the U.S.
Treasury twenty year constant maturity rate (as defined), adjusted
quarterly; however, in no event will the applicable rate be less than
6-1/4% or more than 12 % per annum. For the quarter beginning January
1, 1995, the rate is 7.40%.
The Series F 10.64% Cumulative Preferred Stock (the "Series F
Preferred Stock") is non-voting, subject to certain limitations, and
is not convertible into any other class of capital stock. The 75,000
outstanding shares of Series F Preferred Stock were issued in the
form of 3,000,000 depositary
74
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
shares, each of which represents a one-fortieth interest in a share
of Series F Preferred Stock. Each depositary share bears a
cumulative annual dividend of $2.66, has a liquidation preference of
$25.00 and is redeemable in whole or part at the Company's option on
or after July 1, 1996 at $25.00.
Changes in Number of Shares Outstanding
Changes in the number of shares of Common Stock outstanding
during 1993 and 1994 were comprised of the following:
Shares
Balance, December 31, 1992 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 74,107,949
Common Stock issued:
Private placement Santander exercise of warrants . . . . . . . . . . . . . . . . . 2,376,250
Acquisition gross up rights . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,801,913
Issued to former shareholders of Northeast, Village and Peoples . . . . . . . . . . 3,605,606
Stock options and dividend reinvestment plan . . . . . . . . . . . . . . . . . . . . 708,548
Series B Preferred Stock conversions . . . . . . . . . . . . . . . . . . . . . . . . 54,584
Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2,753,845)
Balance, December 31, 1993 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79,901,005
Common Stock issued:
Private placement Santander exercise of warrants . . . . . . . . . . . . . . . . . 4,752,500
Stock options and dividend reinvestment plan . . . . . . . . . . . . . . . . . . . . 689,430
Series B Preferred Stock conversions . . . . . . . . . . . . . . . . . . . . . . . . 22,319
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 34,149
Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (4,416,564)
Balance, December 31, 1994 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80,982,839
Pursuant to its Investment Agreement with the Company,
Santander applied for and received, early in 1995, regulatory
approval to acquire up to 30% of First Fidelity's voting stock.
Santander held 24.8% of the Company's voting stock at December 31,
1994. During 1994, Santander exercised the final two tranches of its
Warrants, pursuant to the Investment Agreement.
As of December 31, 1994, Santander retained Acquisition Gross Up
Rights to acquire $45.9 million (remaining from the original $100
million amount under the Investment Agreement) in value of Common
Stock (or other equity securities of First Fidelity). By its terms,
the Investment Agreement and Santander's rights to exercise its
Acquisition Gross Up Rights terminate on December 27, 1995.
Treasury Stock
Under various programs, the Company's Board of Directors
authorized the purchase of up to 4.9 million and 2.4 million shares
of First Fidelity's outstanding Common Stock in 1994 and 1993,
respectively, to be used for general corporate purposes, including
acquisitions. The Company acquired 3.8 million and 2.4 million
shares of such stock in 1994 and 1993, respectively.
At December 31, 1994, the Company held 1,020,282 shares of
Treasury Stock to be used for general corporate purposes, including
acquisitions, and to fund certain benefit plans. At December 31,
1993, the Company held 36,714 shares of Treasury Stock to be issued
under the dividend reinvestment and stock option plans.
Share Purchase Rights Plan
75
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
The Company has in effect a preferred share purchase rights
plan. The rights plan provides that each share of Common Stock has
attached to it a right (each, a "Right", together, the "Rights") to
purchase one one-hundredth of a share of Series E Junior
Participating Preferred Stock, par value $1.00 per share (the "Series
E Preferred Stock") at a price of $185 per one one-hundredth of a
share of Series E Preferred Stock, subject to adjustment. In
general, if a person or group (other than the Company, its
subsidiaries, certain affiliates or any of the Company's employee
benefit plans) acquires 10% or more of the Company's Common Stock (a
"10% Holder"), stockholders (other than such 10% Holder) may exercise
their Rights to purchase Common Stock having a market value equal to
twice the exercise price of the Rights. If the Company is acquired
in a merger, the Rights may be exercised to purchase common shares of
the acquiring company at a similar discount. At any time after a
person or group becomes a 10% Holder but prior to the acquisition by
such 10% Holder of 50% or more of the outstanding Common Stock, First
Fidelity's Board may elect to exchange the Rights (other than Rights
owned by such 10% Holder which become void) for Common Stock or
Series E Preferred Stock, at an exchange ratio of one share of Common
Stock or one one-hundredth of a share of Series E Preferred Stock,
per Right, subject to adjustment. The rights plan is designed to
protect stockholders in the event of unsolicited offers or attempts
to acquire the Company.
Capital
The Parent Company and the Subsidiary Banks are required by
various regulatory agencies to maintain minimum levels of capital.
At December 31, 1994, the Company and its Subsidiary Banks exceeded
all such minimum capital requirements.
Dividends Declared
During 1994, dividends declared with respect to the Company's
Common Stock, Series B Convertible Preferred Stock, Series D
Adjustable Rate Cumulative Preferred Stock and per depositary share
with respect to the Series F Preferred Stock were $1.76, $2.15,
$6.70, and $2.66, respectively.
Dividend Reinvestment Plan
At December 31, 1994, the Company had reserved 461,693 shares of
its Common Stock for issuance under the Company's dividend
reinvestment plan.
Dividend Restrictions
Dividends payable by the Company, its bank holding company
subsidiaries and its banking subsidiaries are subject to various
limitations imposed by statutes, regulations and policies adopted by
bank regulatory agencies. Under current regulations regarding
dividend availability, the Company's bank subsidiaries, without prior
approval of bank regulators, may declare dividends to the respective
holding companies totaling approximately $131 million plus additional
amounts equal to the net profits earned by the Company's bank
subsidiaries for the period from January 1, 1995 through the date of
declaration, less dividends declared during that period.
76
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
Note 13. Benefit Plans
Pension Plans
The Company maintains self-administered, non-contributory
defined benefit pension plans covering all employees who qualify as
to age and length of service. Benefits are based on years of
credited service and highest average compensation (as defined).
Qualified plans are funded in accordance with statutory and
regulatory guidelines. Pension expense (benefit) for the years ended
December 31, 1994, 1993 and 1992, for all qualified and unqualified
plans, aggregated $3,414,000, $(130,000) and $(937,000),
respectively.
The following table sets forth the plans' funded status and
amounts recognized in the Company's consolidated financial statements
at December 31, 1994 and 1993:
77
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
Funded Plans Unfunded Plans
1994 1993 1994 1993
(thousands)
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested benefits
of $156,955, $139,363, $27,004 and $25,960,
respectively . . . . . . . . . . . . . . . . . . . . . . . $169,859 $152,817 $27,776 $26,613
Projected benefit obligation for service rendered to date . . $(201,876) $(203,334) $(31,241) $(28,340)
Plan assets at fair value, primarily listed stocks and
bonds, and commingled funds . . . . . . . . . . . . . . . . 283,739 289,357 -- --
Plan assets in excess of (less than) projected benefit
obligation . . . . . . . . . . . . . . . . . . . . . . . . 81,863 86,023 (31,241) (28,340)
Unrecognized prior service cost . . . . . . . . . . . . . . . 8,034 11,150 4,221 1,775
Unrecognized net loss . . . . . . . . . . . . . . . . . . . . 32,825 26,343 414 3,338
Additional minimum liability . . . . . . . . . . . . . . . . -- -- (5,216) (8,226)
Unrecognized net (asset) obligation . . . . . . . . . . . . . (4,359) (5,264) 4,046 4,840
Prepaid pension (liability) . . . . . . . . . . . . . . . . . $118,363 $118,252 $(27,776) $(26,613)
Net pension expense (benefit) for 1994, 1993 and 1992
included the following components:
Funded Plans
1994 1993 1992
(thousands)
Service cost of benefits earned during the period . . . . . . . . . . . . $10,356 $6,808 $6,542
Interest cost on projected benefit obligation . . . . . . . . . . . . . . 14,913 9,370 8,511
Actual return on plan assets . . . . . . . . . . . . . . . . . . . . . . 1,414 (18,134) (10,673)
Net amortization and deferral . . . . . . . . . . . . . . . . . . . . . . (27,773) (1,570) (8,335)
Net periodic pension (benefit) . . . . . . . . . . . . . . . . . . . . . $(1,090) $(3,526) $(3,955)
Unfunded Plans
1994 1993 1992
(thousands)
Service cost of benefits earned during the period . . . . . . . . . . . . $442 $124 $173
Interest cost on projected benefit obligation . . . . . . . . . . . . . . 2,413 1,636 1,597
Net amortization and deferral . . . . . . . . . . . . . . . . . . . . . . 1,649 1,636 1,248
Net periodic pension expense . . . . . . . . . . . . . . . . . . . . . . $4,504 $3,396 $3,018
The weighted average discount rate assumed in determining
the actuarial present value of the projected benefit obligation was
8.75% at December 31, 1994 and 7.5% at December 31, 1993. The
assumed rate of increase in future compensation levels was 4.0% at
December 31, 1994 and 1993. The long-term expected rate of return on
assets was 9.75% in 1994 and 1993. The change in the weighted
average discount rate to 8.75% resulted in a decrease in the
actuarial present value of the projected benefit obligation of
approximately $40.4 million.
Postretirement Benefits
The Company sponsors postretirement benefit plans which provide
medical and life insurance coverage to employees, depending upon the
employee's status (currently retired or still employed), length of
service, age at retirement and other factors.
The plans have no assets. The following table sets forth the
plans' accumulated postretirement benefit obligation as of December
31, 1994 and 1993, which represents the liability for accrued
postretirement benefit cost:
1994 1993
(thousands)
78
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
Accumulated postretirement benefit obligation:
Retirees and beneficiaries eligible for benefits . . . . . . . . . . . . $94,865 $93,953
Active employees fully eligible for benefits . . . . . . . . . . . . . . 5,938 9,978
Active employees not fully eligible for benefits . . . . . . . . . . . . 9,665 11,723
Accumulated postretirement benefit obligation . . . . . . . . . . . . 110,468 115,654
Unrecognized net loss from differences between expected and actual
experience and effects of changes in assumptions . . . . . . . . . . . . (14,749) (20,533)
Accrued postretirement benefit cost . . . . . . . . . . . . . . . . . . $95,719 $95,121
The net periodic postretirement benefit cost for 1994 and
1993 includes the following:
1994 1993
(thousands)
Service cost-benefits attributed to service during the period . . . . . . $1,111 $869
Interest cost on accumulated postretirement benefit obligation . . . . . . 8,632 7,392
Net amortization . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 962 --
Other adjustments . . . . . . . . . . . . . . . . . . . . . . . . . . . . (831) --
Net periodic postretirement benefit cost . . . . . . . . . . . . . . . $9,874 $8,261
For 1994, the future health care cost trend rate is
projected to be 12.5% for participants under 65 and 10% for
participants over 65. These rates are assumed to trend downward to
5.5% for participants under 65 and 5% for participants over 65 by
the year 2008, and remain at that level thereafter. The health care
cost trend rate assumption has a significant effect on the amounts
reported. To illustrate, increasing the assumed health care cost
trend rates by 1% in each year would increase the accumulated
postretirement benefit obligation as of January 1, 1994 by $8.5
million (8%) and the aggregate of the service and interest cost
components of net periodic retirement benefit cost for the year 1994
by $.7 million (9%). The weighted average discount rate used in
determining the accumulated postretirement benefit obligation was
8.75% for 1994 and 7.5% for 1993. The change in the weighted average
discount rate from 7.5% resulted in a decrease in the actuarial
present value of the postretirement benefit obligation of
approximately $11.6 million.
The Company's accumulated postretirement benefit obligation
under SFAS 106 of approximately $81 million was recognized in the
first quarter of 1993 by a one-time cumulative effect adjustment of
$53.3 million, net of tax effect. In 1992, the cost of providing
postretirement benefits was recognized as such benefits were paid,
and totaled $5.8 million.
Postemployment Benefits
The Company's accumulated postemployment benefit obligation
under SFAS 112 of $11.3 million was recognized in the first quarter
of 1993 by a one-time cumulative effect adjustment of $7.4 million,
net of tax effect. Annual postemployment benefit expense on an
accrual basis was approximately $2.6 million for 1994 and $900
thousand for 1993, exclusive of the one-time adjustment, as
compared to approximately $2 million in 1992 under the previous
method.
Savings Plans
The Company maintains a savings plan under Section 401(k) of the
Internal Revenue Code, which covers substantially all full-time
employees after one year of continuous employment. Under the plan,
employee contributions are partially matched by the Company. Such
matching becomes vested when the employee reaches
79
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
three years of credited service. Total savings plan expense was
$13.2 million, $12.0 million and $10.7 million for 1994, 1993 and
1992, respectively.
Stock Option Plans
The Company maintains stock option plans, pursuant to which an
aggregate of 9,775,454 shares of Common Stock have been authorized
for issuance to certain key employees of the Company and its
subsidiaries. The options granted under these plans are, in general,
exercisable not earlier than one year after the date of grant, at a
price equal to the fair market value of the Common Stock on the date
of grant, and expire not more than ten years after the date of grant.
There are also options outstanding under other plans, pursuant to
which no further options may be granted. Vesting with respect to
certain options granted to certain senior executive officers may be
accelerated. In addition, the Company assumed certain stock options
related to acquisitions during 1993.
The Company also maintains an employee stock purchase plan,
under the terms of which 1,760,000 shares of Common Stock have been
authorized for issuance. The plan's purchase period begins on July 1
and ends June 30 of the following year, during which options to
purchase stock are offered to employees once a year. No individual
employee may exercise options under the employee stock purchase plan
to acquire stock in any one year in excess of 10% of base
compensation, or $20,000, whichever is less. The option price equals
90% of the market price of the Common Stock on the last day of the
purchase period. The aggregate number of shares to be purchased in
any given offering, which cannot be greater than 250,000, is
determined by the amount contributed by the employees and the market
price as of the last day of the purchase period.
Changes in total options outstanding during 1994, 1993 and 1992
are as follows:
1994
Shares Option Price
Under Option Per Share
Outstanding at beginning of year . . . . . . . . . . . . . . . . . . . 4,397,340 $12.31 to $50.00
Granted during year . . . . . . . . . . . . . . . . . . . . . . . . . . 919,854 $42.81 to $47.88
Exercised during year . . . . . . . . . . . . . . . . . . . . . . . . . (343,407) $12.31 to $45.38
Forfeited during year . . . . . . . . . . . . . . . . . . . . . . . . . (133,422) $16.65 to $46.31
Outstanding at end of year . . . . . . . . . . . . . . . . . . . . . . 4,840,365 $12.31 to $50.00
Options exercisable at end of year under stock option plans . . . . . . 2,317,279 $12.31 to $50.00
1993
Shares Option Price
Under Option Per Share
Outstanding at beginning of year . . . . . . . . . . . . . . . . . . . 3,094,929 $12.31 to $41.38
Granted during year . . . . . . . . . . . . . . . . . . . . . . . . . . 1,654,395 $40.81 to $50.00
Assumed during year . . . . . . . . . . . . . . . . . . . . . . . . . . 312,385 $16.65 to $25.86
Exercised during year . . . . . . . . . . . . . . . . . . . . . . . . . (568,869) $12.31 to $47.13
Forfeited during year . . . . . . . . . . . . . . . . . . . . . . . . . (95,500) $16.65 to $47.31
Outstanding at end of year . . . . . . . . . . . . . . . . . . . . . . 4,397,340 $12.31 to $50.00
Options exercisable at end of year under stock option plans . . . . . . 1,993,001 $12.31 to $47.13
1992
Shares Option Price
Under Option Per Share
Outstanding at beginning of year . . . . . . . . . . . . . . . . . . . 3,381,137 $12.31 to $36.25
Granted during year . . . . . . . . . . . . . . . . . . . . . . . . . . 667,483 $31.25 to $41.38
Exercised during year . . . . . . . . . . . . . . . . . . . . . . . . . (890,348) $13.62 to $36.69
Forfeited during year . . . . . . . . . . . . . . . . . . . . . . . . . (63,343) $21.38 to $36.25
Outstanding at end of year . . . . . . . . . . . . . . . . . . . . . . 3,094,929 $12.31 to $41.38
80
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
Options exercisable at end of year under stock option plans . . . . . . 1,823,592 $12.31 to $36.69
Certain of the options assumed in the course of 1993
acquisitions (55,368 shares at the end of 1994 and 64,831 shares at
December 31, 1993), when translated at the applicable exchange rate
for First Fidelity Common Stock, resulted in an option price as high
as $797. In order to provide more meaningful disclosure, such
prices and shares have been omitted from the tabular presentation
above.
Note 14. Other Expense
The components of other expense were as follows:
1994 1993 1992
(thousands)
FDIC premium expense . . . . . . . . . . . . . . . . . . . . . . . . . . $63,872 $63,164 $56,231
External data processing expense . . . . . . . . . . . . . . . . . . . . 47,639 48,200 46,959
External check-processing expense . . . . . . . . . . . . . . . . . . . . 60,934 -- --
Communication expense . . . . . . . . . . . . . . . . . . . . . . . . . . 24,741 33,450 33,139
Amortization of intangibles . . . . . . . . . . . . . . . . . . . . . . . 41,526 30,824 22,828
Other real estate owned expenses . . . . . . . . . . . . . . . . . . . . 12,250 28,417 29,854
Other operating expenses . . . . . . . . . . . . . . . . . . . . . . . . 176,813 185,882 170,307
$427,775 $389,937 $359,318
Note 15. Income Taxes
Income tax expense was comprised of the following:
1994 1993 1992
(thousands)
Current:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . $74,899 $90,314 $81,099
State and local . . . . . . . . . . . . . . . . . . . . . . . 15,164 1,258 229
Total current tax expense . . . . . . . . . . . . . . . 90,063 91,572 81,328
Deferred:
Federal . . . . . . . . . . . . . . . . . . . . . . . . . . . 140,327 86,453 1,034
State and local . . . . . . . . . . . . . . . . . . . . . . . (9,022) -- --
Total deferred tax expense . . . . . . . . . . . . . . 131,305 86,453 1,034
Total tax expense . . . . . . . . . . . . . . . . . . . . . . $221,368 $178,025 $82,362
The components of deferred income tax expense attributable
to income from continuing operations for the years ended December 31,
1994 and 1993 were as follows:
1994 1993
(thousands)
Deferred income tax (exclusive of the effects of component listed below) . $131,305 $89,166
Adjustments to deferred tax assets and liabilities for enacted changes
in tax laws and rates . . . . . . . . . . . . . . . . . . . . . . . . . -- (2,713)
$131,305 $86,453
The components of deferred income tax for the year ended
December 31, 1992, under accounting rules then in effect, were as
follows:
1992
(thousands)
Credit loss deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $(2,206)
Lease financing deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11,669
Book over tax depreciation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (1,149)
Pension settlement/expense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 799
Difference between book and tax accruals . . . . . . . . . . . . . . . . . . . . . . . . . . . (818)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (7,261)
81
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
$1,034
The tax effects of temporary differences that give rise to
significant portions of the deferred tax assets and liabilities at
December 31, 1994 and 1993 were as follows:
1994 1993
(thousands)
Deferred tax assets:
Loss Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $220,173 $185,563
Difference between book and tax accruals . . . . . . . . . . . . . . . . . . . . -- 24,268
Basis differences of business combinations accounted for
under the purchase method . . . . . . . . . . . . . . . . . . . . . . . . . . . 54,941 33,765
Accrued postretirement and postemployment benefits . . . . . . . . . . . . . . . 37,808 32,200
Alternative minimum tax credit carryforwards . . . . . . . . . . . . . . . . . . 12,507 9,175
Unrealized loss on accounting for certain investments in debt and
equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40,510 --
Other deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . 199 12,065
Total deferred tax assets . . . . . . . . . . . . . . . . . . . . . . . . . 366,138 297,036
Deferred tax liabilities:
Lease financing deduction . . . . . . . . . . . . . . . . . . . . . . . . . . . . (206,187) (120,533)
Pension settlement/expense . . . . . . . . . . . . . . . . . . . . . . . . . . . (27,446) (27,875)
Unrealized gain on accounting for certain investments in debt and
equity securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- (14,698)
Difference between book and tax accruals . . . . . . . . . . . . . . . . . . . . (5,264) --
Amortization of intangible assets . . . . . . . . . . . . . . . . . . . . . . . . (11,137) (11,343)
Other deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . . . . (9,521) (17,418)
Total deferred tax liabilities . . . . . . . . . . . . . . . . . . . . . . (259,555) (191,867)
Net deferred tax asset . . . . . . . . . . . . . . . . . . . . . . . . . . $106,583 $105,169
Management has determined that, based upon its assessment
of recoverable taxes and projected levels of pretax income,
realization of the deferred tax asset is more likely than not.
Included in the table above is the effect of certain temporary
differences for which no deferred tax expense or benefit was
recognized. Such items consisted primarily of unrealized gains and
losses on certain investments in debt and equity securities accounted
for under SFAS 115, as well as book and tax basis differences
relating to business combinations accounted for under the purchase
method of accounting.
The total tax expense for 1994, 1993 and 1992 resulted in
effective tax rates which differed from the applicable U.S. federal
income tax rate. A reconciliation follows:
1994 1993 1992
U.S. Federal income tax rate . . . . . . . . . . . . . . . . . . . . . 35.0% 35.0% 34.0%
Increase (reduction) in tax rate resulting from:
Tax-exempt interest income . . . . . . . . . . . . . . . . . . . . . . (2.9) (4.0) (6.5)
Alternative minimum tax (benefit) . . . . . . . . . . . . . . . . . . -- -- (8.8)
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .8 -- 2.1
32.9% 31.0% 20.8%
At December 31, 1994, for income tax purposes, the Company had
alternative minimum tax credit carryforwards of approximately $12.5
million available to offset future income tax to the extent that it
exceeds alternative minimum tax. These credits have an unlimited
life. The Company had capital loss carryforwards at December 31,
1994 of $2.9 million, which are available to offset future capital
gains. Such carryforwards expire on December 31, 1997, if not
utilized by that date.
Note 16. Financial Instruments
Financial Instruments with Off Balance-Sheet Risk
82
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
The Company is a party to various financial instruments acquired
in the normal course of business to manage its exposure to changes in
interest and foreign exchange rates and to meet the financing needs
of its customers. Except for foreign exchange contracts, the contract
or notional amounts of such instruments are not included in the
Consolidated Statements of Condition at December 31, 1994 and 1993.
The Company's involvement in such financial instruments at December
31, 1994 and 1993 is summarized as follows:
1994 1993
(thousands)
Amounts representing credit risk:
Commitments to extend credit . . . . . . . . . . . . . . . . . . . . . $6,468,931 $6,047,959
Standby letters of credit and financial guarantees . . . . . . . . . . 698,447 626,410
Other letters of credit . . . . . . . . . . . . . . . . . . . . . . . 264,216 207,894
Notional or contract amounts of off balance-sheet financial instruments
not constituting credit risk:
Interest rate swap agreements (Receive fixed) . . . . . . . . . . . . 4,956,100 4,272,100
Forward delivery contracts . . . . . . . . . . . . . . . . . . . . . . 99,651 149,235
Futures contracts . . . . . . . . . . . . . . . . . . . . . . . . . . 976,225 750,000
Foreign exchange contracts . . . . . . . . . . . . . . . . . . . . . . 375,400 299,573
Customer contracts:
Interest rate swap agreements . . . . . . . . . . . . . . . . . . . 167,036 30,000
Interest rate caps . . . . . . . . . . . . . . . . . . . . . . . . . 84,000 60,800
The amounts above indicate gross positions and have not
been reduced by offsetting positions, but are reflected net of
participations to other financial institutions.
The Company uses the same credit policies in extending
commitments, letters of credit and financial guarantees as it does
for financial instruments recorded on the Consolidated Statements of
Condition. First Fidelity seeks to control its exposure to loss from
these agreements through credit approval processes and monitoring
procedures. Letters of credit and commitments to extend credit are
generally issued for one year or less and may involve a commitment
fee. The total commitment amounts do not necessarily represent
future cash disbursements, as many commitments expire without being
drawn upon. In connection with extending such commitments, the
Company may require collateral, which may include cash, accounts
receivable, securities, real or personal property, or other assets,
in circumstances where it would not generally make an unsecured loan.
For those commitments which require collateral, the value of the
collateral generally equals or exceeds the amount of the commitment.
Total standby letters of credit are shown net of $39.8 million and
$22.4 million participated to other financial institutions at
December 31, 1994 and 1993, respectively.
The Company enters into derivative instruments primarily to
hedge the interest rate risk associated with its various assets and
liabilities and to meet the needs of its customers. Such hedge
instruments generally take the form of interest rate swaps and
futures contracts. In part through the use of these instruments, the
Company strives to be essentially insensitive to changes in interest
rates within reasonable ranges (i.e., plus or minus 200 basis
points). Such instruments are subject to the same type of credit and
market risk as other financial instruments, and are monitored and
controlled in accordance with the Company's credit and risk
management policies. To a much lesser extent, First Fidelity
utilizes foreign exchange and futures contracts for trading purposes;
such contracts are carried at market value in the trading account.
83
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
As of December 31, 1994, the Company had $5.0 billion (notional
amount) of interest rate swap contracts, which were structured such
that the Company receives a fixed rate and pays a floating interest
rate. Of the $5.0 billion swap agreements (which includes $2.3
billion of indexed amortizing swaps), $3.3 billion were used to hedge
variable rate loans and $1.7 billion were used to transform
equivalent maturity fixed rate certificates of deposit and long-term
debt into floating rate instruments. At December 31, 1994, the
Company's interest rate swaps had an average remaining time to
maturity of approximately 2 years. Such swaps do not extend beyond 5
years (except for those swaps associated with the Company's long-term
debt). The Company's indexed amortizing swaps are "receive fixed"
swaps, which have extended from their original maturity of one year
to their maximum maturity of three years, such that they mature in
early 1997. The risk of loss associated with interest rate swaps is
primarily attributable to counterparty default and movements in
interest rates. Credit risk is limited to any amounts receivable, and
generally does not constitute more than a small fraction of the
notional amounts presented above.
The Company had $976.2 million (notional amount) of interest
rate futures contracts as of December 31, 1994. Of this total, $800
million are used to hedge variable rate securities, and are
structured sequentially over the first nine months of 1995. The
remaining $176.2 million of futures contracts are held for trading
purposes, and consist of $175.0 million of eurodollar futures and
$1.2 million of treasury and municipal futures contracts. The
eurodollar futures are marked to market and settled daily, and have a
maximum duration of 90 days. During 1994, such eurodollar futures
contracts averaged $58 million, with the Company's outstandings
fluctuating between zero and $250 million. Realized gains associated
with futures contracts held for trading purposes totalled $275
thousand for 1994. The risk associated with such futures positions
arises primarily from movements in interest rates.
The Company accounts for its derivative contracts qualifying for
"hedge" accounting treatment in a manner consistent with the related
on-balance sheet asset or liability. Cash flows associated with such
instruments are included in net interest income over the lives of the
associated assets or liabilities (on an accrual basis). In the event
of termination of a contract qualifying for "hedge" accounting
treatment, the resulting gain or loss is deferred and amortized over
the interest rate risk period of the associated financial instrument.
During 1994, $4.7 million of net deferred gains associated with
terminated contracts qualifying for "hedge" accounting treatment were
recognized in income, of which $4.6 million was attributable to
futures contracts and $.1 million was associated with $680 million
(notional amount) of terminated interest rate swap contracts. The
remaining $1.7 million of net deferred gains associated with the 1994
swap terminations and the $980 thousand of net deferred losses on
futures contracts will be amortized into net interest income early in
1995.
The Company's forward contracts of $99.7 million at December 31,
1994, were comprised of commitments to sell treasury securities at
future dates for specified prices. Such contracts have an average
remaining maturity of approximately 2 years at December 31, 1994.
84
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
The interest rate swap and cap agreements designated in the
table above as "customer contracts" are used solely to accommodate
customer needs. At December 31, 1994, the Company had outstanding
$83.5 million (notional amount) of interest rate swap contracts and
$42.0 million (notional amount) of interest rate caps to its
customers. Offsetting positions with identical maturities and
notional amounts were purchased almost simultaneously, such that
mark-to-market gains offset losses on such contracts.
At December 31, 1994, the Company's foreign exchange portfolio
consisted of $329.1 million of foreign exchange forward contracts, as
well as foreign exchange spot and futures contracts which totaled
$46.3 million. The average balance of such contracts were
approximately $302 million and $250 million, respectively, for 1994.
The Company's foreign exchange forward contracts have an average
maturity of approximately 6 months; however, some contracts extend
for up to two years. Foreign exchange spot contracts require
settlement to occur within two business days of the contract date.
The Company's foreign exchange futures contracts have an average
maturity of approximately 3 months at December 31, 1994. The
Company's foreign exchange portfolio is marked to market on a daily
basis. These contracts are reflected in the table above at their
December 31, 1994 market value. All realized and unrealized gains
and losses were included in trading revenue. Net trading gains on
foreign exchange forward, futures and spot contracts were $3.7
million for 1994.
85
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
Concentrations of Credit Risk of Financial Instruments
The Company extends credit in the normal course of business to
its customers, the majority of whom operate or reside within the New
Jersey, eastern Pennsylvania,Connecticut, Maryland and the southern
New York business areas. The ability of its customers to meet
contractual obligations is, to some extent, dependent upon the
economic conditions existing in this region.
In addition, the Company had credit extensions (on and off
balance-sheet) to certain groups which represented 5% or more of
total credit extensions, at December 31, 1994 and 1993, respectively,
as follows: consumers (including residential mortgages), 40% and 38%;
U.S. government and agencies, 16% in both years; commercial
mortgages and commercial real estate, 11% in both years; and
depository institutions, 5% and 10%.
Note 17. Fair Value of Financial Instruments
The Company is required to disclose certain information about
so-called "fair values" of financial instruments, as defined in SFAS
107.
Limitations: Estimates of "fair value" are made at a
specific point in time, based upon, where available, relevant
market prices and information about the financial instrument.
Such estimates do not include any premium or discount that could
result from offering for sale at one time the Company's entire
holdings of a particular financial instrument. For a
substantial portion of the Company's financial instruments, no
quoted market exists. Therefore, estimates of "fair value" are
necessarily based on a number of significant assumptions (many
of which involve events outside the control of management).
Such assumptions include assessments of current economic
conditions, perceived risks associated with these financial
instruments and their counterparties, future expected loss
experience and other factors. Given the uncertainties
surrounding these assumptions, the reported "fair values"
represent estimates only and, therefore, cannot be compared to
the historical accounting model. Use of different assumptions
or methodologies are likely to result in significantly
different "fair value" estimates.
The estimated "fair values" presented neither include nor
give effect to the values associated with the Company's banking,
trust or other businesses, existing customer relationships,
extensive branch banking network, property, equipment, goodwill
or certain tax implications related to unrealized gains or
losses. Also, the "fair value" of non-interest bearing demand
deposits, savings and NOW accounts and money market deposit
accounts is required to be reported as equal to the carrying
amount because these deposits have no stated maturity.
Obviously, this approach to estimating "fair value" excludes the
significant benefit that results from the low-cost funding
provided by such deposit liabilities, as compared to alternative
sources of funding.
86
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
The following methods and assumptions were used to estimate the
"fair value" of each major classification of financial instruments at
December 31, 1994 and 1993:
Cash, short-term investments, and customers' acceptance
liability: Current carrying amounts approximate estimated
"fair value".
Securities: Current quoted market prices were used to
determine "fair value".
Loans: The "fair value" of residential mortgages was
estimated based upon recent market prices of securitized
receivables, adjusted for differences in loan characteristics.
The "fair value" of certain installment loans (e.g., bankcard
receivables) was estimated based upon recent market prices of
sales of similar receivables. The "fair value" of non-accruing
and restructured loans which are secured by real estate was
estimated considering recent external appraisals of the
underlying collateral and other factors. The "fair value" of
all other loans was estimated using a method which approximates
the effect of discounting the estimated future cash flows over
the expected repayment periods using rates which consider credit
risk, servicing costs and other relevant factors.
Deposits with no stated maturity and short-term time
deposits: Under the terms of SFAS 107, such deposits must be
reported as having a "fair value" equal to their carrying
amount. However, the economic value of a low-cost deposit base
which averaged $18.6 billion in 1994 is significant,
particularly in a high and rising interest rate environment, as
occurred in 1994.
Other consumer time deposits: "Fair value" was estimated by
discounting the contractual cash flows using current market
rates offered in the Company's market area for deposits with
comparable terms and maturities.
Short-term borrowings and acceptances outstanding: Current
carrying amounts approximate estimated "fair value".
Long-term debt: Current quoted market prices were used to
estimate "fair value".
Commitments to extend credit and letters of credit: The
majority of the Company's commitments to extend credit and
letters of credit carry current market interest rates if
converted to loans. Because commitments to extend credit and
letters of credit are generally unassignable by either the
Company or the borrower, they only have value to the Company and
the borrower. The estimated "fair value" approximates the
recorded deferred fee amounts.
The carrying amounts and estimated "fair values" of the
Company's financial instruments were as follows at December 31,
1994 and 1993:
87
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
1994
1993
Carrying
Amount "Fair Carrying "Fair
Value" Amount Value"
(millions)
Financial Assets:
Cash and due from banks . . . . . . . . . . . . . . . . . $2,082 $2,082 $1,831 $1,831
Interest-bearing time deposits . . . . . . . . . . . . . . 36 36 980 980
Securities held to maturity . . . . . . . . . . . . . . . 4,187 4,049 5,242 5,321
Securities available for sale . . . . . . . . . . . . . . 3,781 3,781 2,657 2,657
Trading account securities . . . . . . . . . . . . . . . . 110 110 150 150
Federal funds sold and securities purchased under
agreements to resell . . . . . . . . . . . . . . . . . . 51 51 15 15
Net loans (A) . . . . . . . . . . . . . . . . . . . . . . 21,422 21,468 19,577 20,400
Customers' acceptance liability . . . . . . . . . . . . . 216 216 188 188
Segregated assets . . . . . . . . . . . . . . . . . . . . 68 68 248 248
Loans classified as assets held for sale . . . . . . . . . 29 29 65 65
Amounts receivable on swap contracts . . . . . . . . . . . 73 73 64 64
Financial Liabilities:
Deposits with no stated maturity . . . . . . . . . . . . . 18,922 18,922 18,891 18,891
Deposits with stated maturities . . . . . . . . . . . . . 9,985 9,893 9,252 9,384
Short-term borrowings . . . . . . . . . . . . . . . . . . 2,717 2,717 1,620 1,620
Acceptances outstanding . . . . . . . . . . . . . . . . . 219 219 196 196
Long-term debt . . . . . . . . . . . . . . . . . . . . . . 813 804 613 665
Amounts payable on swap contracts . . . . . . . . . . . . 66 66 21 21
(A) Disclosure of the "fair value" of lease receivables is not
required and has not been included above. The carrying amount
of Net loans excludes $2.1 billion and $1.4 billion of lease
receivables, $249 million and $183 million of related unearned
income and allocated reserves of $22 million and $29 million
at December 31, 1994 and 1993, respectively. The reserve for
lease receivables has been allocated only to present the
information above on a comparable basis. Additionally, the
Company continues to pursue its contractual claims on loans
which have been charged-off. The "fair value" of such
contractual claims was not included in the estimate of "fair
value".
Other Off Balance-Sheet Instruments: The Company uses interest
rate swaps and futures contracts to help manage its interest rate
sensitivity. Such financial instruments are used in conjunction with
on-balance sheet items (loans, deposits and long-term debt) to help
achieve targeted interest rate spreads over specified time periods,
and should be viewed in that context. Under SFAS 107, certain of the
"hedged" on-balance sheet categories (i.e., certain deposits) may not
be presented at their estimated "fair value", but must be shown in
the above table at their liquidation ("book") value. For SFAS 107
purposes, however, the "fair value" of derivative contracts used to
hedge such items must be disclosed without regard to the "fair value"
of the hedged balance sheet item. The estimated amounts that the
Company would receive or pay, based upon current market rates or
prices, to terminate such agreements was used as an approximation of
"fair value". The "fair value" of customer contracts and the related
offsetting contracts equal their carrying value. The "fair value" of
interest rate swaps used for asset/liability management purposes was
a "loss" of $205 million at December 31, 1994 and a "gain" of $115
million at the end of 1993. The "fair value" of First Fidelity's
futures contracts aggregated a $2 million "loss" at the end of 1994
and a $3 million "gain" as of December 31, 1993.
Note 18. Other Commitments and Contingencies
88
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
Legal Proceedings
The Company is a party (as plaintiff or defendant) to a number
of lawsuits. While any litigation carries an element of
uncertainty, management is of the opinion that the liability, if any,
resulting from these actions will not have a material effect on the
liquidity, financial condition or results of operations of the
Company.
Operating Leases
At December 31, 1994, the Company was obligated under
non-cancelable operating leases for certain premises and equipment.
Minimum future rental expenses under these leases are as follows:
Operating Leases
Buildings Equipment
(thousands)
1995 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $29,244 $111
1996 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24,194 23
1997 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18,888 22
1998 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15,446 14
1999 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12,791 --
Later years . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62,571 --
Total minimum lease payments . . . . . . . . . . . . . . . . . . . . . . . . . . $163,134 $170
Total rental expense under cancelable and non-cancelable
operating leases for 1994, 1993 and 1992 was $33.4 million, $36.4
million and $44.3 million, respectively.
Long-term Service Contract
In September, 1990, the Company entered into a service contract,
under which an outside servicer provides certain data processing
services, manages the Company's data center operations and is
integrating various application systems to produce unified
Company-wide operating systems. The cost of the services is
determined by volume considerations and an inflation factor, in
addition to an agreed base rate.
Note 19. Related Party Transactions
At December 31, 1994 and 1993, the Company had balances with
Santander, typical of and consistent with a correspondent banking
relationship in the normal course of business. In addition, First
Fidelity repurchased 250 thousand shares of its Common Stock from
Santander during 1994, at market prices, which averaged $44.43.
The Company also purchased from Santander 3,063,297 shares of
the capital stock of Banco Espanol de Credito, S.A. ("Banesto"),
which represents approximately 0.5% of Banesto's outstanding capital
stock, for approximately $18.1 million.
Loans to directors, executive officers and their associates,
which are made in the ordinary course of business and on
substantially the same terms,
89
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
including interest rates and collateral, as those prevailing at the
time for comparable transactions with others, approximated $423
million at December 31, 1994 and $154 million at December 31, 1993.
During 1994, there were increases of approximately $310 million and
loan repayments of approximately $41 million on such loans.
Note 20. Condensed Financial Information of First Fidelity Bancorporation
(Parent Company Only)
Condensed Balance Sheets (Parent Company Only)
December 31
1994 1993
(thousands)
Assets
Demand deposits with affiliates . . . . . . . . . . . . . . . . . . . . . . . $7,514 $2,391
Repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- 15,000
Interest bearing time deposits . . . . . . . . . . . . . . . . . . . . . . . . 152,000 --
Securities held to maturity . . . . . . . . . . . . . . . . . . . . . . . . . 2,500 2,500
Securities available for sale, at market value . . . . . . . . . . . . . . . . 23,833 469
Subordinated notes receivable from subsidiaries . . . . . . . . . . . . . . . 165,357 160,000
Investment in subsidiaries:
First Fidelity Incorporated . . . . . . . . . . . . . . . . . . . . . . . . . 2,571,446 2,471,863
Baltimore Bancorp. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 347,545 --
Northeast Bancorp, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . 268,712 199,102
First Fidelity Bank, NA, New York . . . . . . . . . . . . . . . . . . . . . . -- 356,624
BankVest, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14,227 --
Other assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 70,052 65,210
Total Assets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $3,623,186 $3,273,159
Liabilities
Long-term debt . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $636,750 $436,750
Dividends payable . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5,208 5,131
Other liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 104,253 92,850
Total Liabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 746,211 534,731
Stockholders' Equity
Preferred stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 229,707 230,422
Common stockholders' equity
Common stock ($1.00 par)
Authorized: 150,000,000 shares
Issued: 82,003,121 shares in 1994 and 79,937,719 shares in 1993 . . . . . . 82,003 79,938
Surplus . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,256,020 1,202,373
Retained earnings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,353,001 1,227,265
Net unrealized gains - securities available for sale . . . . . . . . . . . . 1,916 103
Less treasury stock, at cost: 1,020,282 shares in 1994 and 36,714 shares in 1993 (45,672) (1,673)
Total Common Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . 2,647,268 2,508,006
Total Stockholders' Equity . . . . . . . . . . . . . . . . . . . . . . . . . 2,876,975 2,738,428
Total Liabilities and Stockholders' Equity . . . . . . . . . . . . . . . . . $3,623,186 $3,273,159
Condensed Statements of Income (Parent Company Only)
Year Ended December 31
1994 1993 1992
(thousands)
Income
Dividends from subsidiaries:
First Fidelity Incorporated . . . . . . . . . . . . . . . . . . . . . . $376,767 $316,894 $77,800
Fidelcor, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . -- -- 68,470
BankVest, Inc. . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1,580 -- --
Interest and other income from affiliates . . . . . . . . . . . . . . . 187,982 183,819 144,485
90
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
566,329 500,713 290,755
Expense
Interest . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37,767 21,459 19,493
Other expenses . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 179,923 161,900 134,749
217,690 183,359 154,242
Income before income tax benefit and equity in
undistributed income of subsidiaries . . . . . . . . . . . . . . . . . . 348,639 317,354 136,513
Income tax benefit . . . . . . . . . . . . . . . . . . . . . . . . . . . 10,433 4,754 2,864
Income before equity in subsidiaries and cumulative effect of changes
in accounting principles . . . . . . . . . . . . . . . . . . . . . . 359,072 322,108 139,377
Cumulative effect of changes in accounting principles, net of tax . . . . -- 7,899 --
Equity in undistributed income of subsidiaries . . . . . . . . . . . . . 91,991 68,825 174,360
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 451,063 398,832 313,737
Dividends on Preferred stock . . . . . . . . . . . . . . . . . . . . . . 20,667 20,653 21,061
Net Income Applicable to Common Stock . . . . . . . . . . . . . . . . . $430,396 $378,179 $292,676
91
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
Notes to Consolidated Financial Statements (Continued)
Condensed Statements of Cash Flows (Parent Company Only)
Year Ended December 31
1994 1993 1992
(thousands)
Cash flows from operating activities:
Net income . . . . . . . . . . . . . . . . . . . . . . . . . . . . . $451,063 $398,832 $313,737
Adjustments to reconcile net income to net cash provided by operating activities:
Equity in undistributed (income) of subsidiaries . . . . . . . . . . (91,991) (68,825) (174,360)
Change in other assets . . . . . . . . . . . . . . . . . . . . . . . 3,031 (8,585) (20,872)
Change in taxes payable . . . . . . . . . . . . . . . . . . . . . . . 5,932 (3,148) 7,522
Change in other liabilities . . . . . . . . . . . . . . . . . . . . . 18,371 35,217 27,827
Cumulative effect of changes in accounting principles . . . . . . . . -- (7,899) --
Other, net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (24) 4 (1,305)
Net cash provided by operating activities . . . . . . . . . . . . . 386,382 345,596 152,549
Cash flows from investing activities:
Additional investments in subsidiaries . . . . . . . . . . . . . . . (474,225) (447,667) (120,000)
Other . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (11,355) 2,023 --
Net cash used in investing activities . . . . . . . . . . . . . . . (485,580) (445,644) (120,000)
Cash flows from financing activities:
Capital distributions from subsidiaries . . . . . . . . . . . . . . . 256,000 -- --
Issuance of long-term debt . . . . . . . . . . . . . . . . . . . . . 200,000 150,000 --
Purchases of treasury stock . . . . . . . . . . . . . . . . . . . . . (197,654) (116,954) --
Issuance of Common and Preferred stock . . . . . . . . . . . . . . . 145,968 140,740 100,214
Dividends paid . . . . . . . . . . . . . . . . . . . . . . . . . . . (162,993) (131,080) (109,174)
Net cash provided by (used in) financing activities . . . . . . . . 241,321 42,706 (8,960)
Net change in cash and cash equivalents . . . . . . . . . . . . . . 142,123 (57,342) 23,589
Cash and cash equivalents at beginning of year (A) . . . . . . . . 17,391 74,733 51,144
Cash and cash equivalents at end of year (A) . . . . . . . . . . . $159,514 $17,391 $74,733
Supplemental disclosure:
Total amount of interest paid for the period . . . . . . . . . . . . $29,447 $22,086 $19,720
Total amount of income taxes paid for the period . . . . . . . . . . $87,100 $90,500 $83,560
(A) Reconciliation: December 31
1994 1993 1992
Demand deposits with affiliates . . . . . . . . . . . . . . . . . . . . . $7,514 $2,391 $1,608
Repurchase agreements . . . . . . . . . . . . . . . . . . . . . . . . . . 152,000 15,000 73,125
Total cash and cash equivalents . . . . . . . . . . . . . . . . . . . . $159,514 $17,391 $74,733
Regulatory Restrictions
The Federal Reserve Act limits extensions of credit that can be
made from the Company's bank subsidiaries to any affiliate (with
certain exceptions), including the Parent Company. Loans to any one
affiliate may not exceed 10% of a bank subsidiary's capital and
surplus, and loans to all affiliates may not exceed 20% of such bank
subsidiary's capital and surplus. Additionally, such loans must be
collateralized and must have terms comparable to those with
unaffiliated companies.
92
2 of 28
Part I - Financial Information
------------------------------
Item 1 - Financial Statements
-----------------------------
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF INCOME (unaudited)
(thousands, except per share amounts) Three Months Ended
March 31
--------------------
1995 1994
-------- --------
INTEREST INCOME
Interest and fees on loans......................... $458,032 $394,146
Interest on federal funds sold and securities
purchased under agreements to resell............. 351 118
Interest and dividends on securities:
Taxable interest income.......................... 105,005 96,715
Tax-exempt interest income....................... 8,778 10,509
Dividends........................................ 1,186 1,195
Interest on bank deposits.......................... 530 10,359
Interest on trading account securities............. 1,224 1,575
-------- --------
Total Interest Income.......................... 575,106 514,617
-------- --------
INTEREST EXPENSE
Interest on:
Deposits......................................... 184,280 143,107
Short-term borrowings............................ 27,591 10,480
Long-term debt................................... 15,469 10,833
-------- --------
Total Interest Expense......................... 227,340 164,420
-------- --------
Net Interest Income.......................... 347,766 350,197
Provision for possible credit losses................. 10,000 24,000
-------- --------
Net Interest Income after Provision
for Possible Credit Losses....................... 337,766 326,197
-------- --------
NON-INTEREST INCOME
Trust Income....................................... 26,369 27,263
Service charges on deposit accounts................ 35,719 37,284
Other service charges, commissions and fees........ 25,320 19,870
Trading revenue.................................... 2,907 3,651
Net securities transactions........................ 7,073 4,082
Other income....................................... 11,957 7,234
-------- --------
Total Non-Interest Income........................ 109,345 99,384
-------- --------
NON-INTEREST EXPENSE
Salaries and benefits expense...................... 126,216 122,139
Occupancy expense.................................. 29,745 31,934
Equipment expense.................................. 11,201 10,928
Other expenses..................................... 104,678 98,578
-------- --------
Total Non-Interest Expense....................... 271,840 263,579
-------- --------
3 of 28
Income before income taxes........................... 175,271 162,002
Income taxes......................................... 62,336 53,136
-------- --------
Net Income........................................... 112,935 108,866
Dividends on Preferred Stock......................... 5,208 5,131
-------- --------
Net Income Applicable to Common Stock................ $107,727 $103,735
======== ========
Per common share:
Net income:
Primary.......................................... $1.32 $1.26
Fully diluted.................................... 1.29 1.23
See accompanying notes to consolidated financial statements.
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES) 4 of 28
CONSOLIDATED STATEMENTS OF CONDITION
(thousands)
March 31 December 31
1995 1994
(unaudited)
----------- -----------
ASSETS
Cash and due from banks............................ $1,796,869 $2,082,002
Interest-bearing time deposits..................... 131,886 35,567
Securities held to maturity........................ 3,796,809 4,186,860
(market value of $3,737,170 at March 31, 1995
and $4,049,457 at December 31, 1994
Securities available for sale, at market value..... 3,402,687 3,781,163
Trading account securities, at market value........ 70,275 110,494
Federal funds sold and securities purchased under
agreements to resell............................. 10,000 50,675
Loans, net of unearned income...................... 24,092,530 23,801,241
Less: Reserve for possible credit losses......... (581,395) (599,333)
----------- -----------
Net loans...................................... 23,511,135 23,201,908
Premises and equipment............................. 432,005 437,677
Customers' acceptance liability.................... 181,305 215,556
Other assets....................................... 2,066,765 2,113,794
----------- -----------
Total Assets................................. $35,399,736 $36,215,696
=========== ===========
LIABILITIES
Deposits in domestic offices:
Demand deposits.................................. $5,110,710 $5,393,749
Savings/NOW deposits............................. 8,880,796 9,271,335
Money market deposit accounts.................... 3,909,974 4,257,135
Other consumer time deposits..................... 8,972,412 8,858,443
Corporate certificates of deposit................ 347,265 393,058
Deposits in overseas offices....................... 723,082 733,132
----------- -----------
Total Deposits................................. 27,944,239 28,906,852
Short-term borrowings.............................. 2,799,335 2,716,922
Acceptances outstanding............................ 182,096 218,625
Other liabilities.................................. 776,649 682,699
Long-term debt..................................... 813,614 813,623
----------- -----------
Total Liabilities............................ 32,515,933 33,338,721
5 of 28
STOCKHOLDERS' EQUITY
Preferred stock.................................... 228,474 229,707
Common stock ($1.00 par)
Authorized: 150,000,000 shares
Issued: 82,013,160 shares at March 31, 1995
and 82,003,121 shares at December 31, 1994..... 82,013 82,003
Surplus............................................ 1,255,866 1,256,020
Retained earnings.................................. 1,493,009 1,430,149
Net unrealized gains (losses)-securities available
for sale......................................... (47,036) (75,232)
Less treasury stock, at cost: 2,697,159 shares at
March 31, 1995 and 1,020,282 shares
at December 31, 1994........................... (128,523) (45,672)
----------- -----------
Total Common Stockholders' Equity............ 2,655,329 2,647,268
----------- -----------
Total Stockholders' Equity................... 2,883,803 2,876,975
----------- -----------
Total Liabilities and Stockholders' Equity... $35,399,736 $36,215,696
=========== ===========
See accompanying notes to consolidated financial statements.
6 of 28
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY (unaudited)
(thousands)
Three Months Ended
March 31
----------------------
1995 1994
---------- ----------
Balance, January 1.................................. $2,876,975 $2,738,428
Net income........................................ 112,935 108,866
Common Stock issued:
Private placement--Santander exercise
of warrants................................... - 60,594
Stock options and dividend reinvestment plan.... 8,946 5,803
Other........................................... - 1,566
Purchases of treasury stock....................... (97,585) (82,695)
Dividends on Common Stock......................... (40,456) (33,573)
Dividends on Preferred Stock...................... (5,208) (5,131)
Net unrealized gains (losses)--securities
available for sale.............................. 28,196 (33,018)
Other............................................. - 3,200
---------- ----------
Balance, March 31................................... $2,883,803 $2,764,040
========== ==========
7 of 28
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS (unaudited) Three Months Ended
March 31
-------------------------
(thousands) 1995 1994
----------- -----------
Cash flows from operating activities:
Net income......................................... $112,935 $108,866
Adjustments to reconcile net income to net cash
provided by operating activities:
Provision for possible credit losses............... 10,000 24,000
Depreciation, amortization and accretion........... 30,325 6,164
Deferred income tax provision...................... 18,114 5,047
Gain on sale of assets............................. (5,370) (1,072)
Net securities transactions (gains)................ (7,073) (4,082)
Proceeds from sales of trading account
securities....................................... 2,833,795 2,435,352
Purchases of trading account securities............ (2,791,512) (2,466,551)
Decrease (increase) in accrued interest receivable. 6,016 (3,501)
Increase in accrued interest payable............... 19,118 12,163
Change in current taxes payable.................... 36,316 53,732
Other, net......................................... 60,472 79,752
---------- ----------
Net cash provided by operating activities...... 323,136 249,870
Cash flows from investing activities:
Proceeds from maturities of securities
held to maturity................................. 348,723 901,570
Purchases of securities held to maturity........... (32,015) (668,577)
Proceeds from sales of securities available
for sale......................................... 421,612 162,720
Proceeds from maturities of securities
available for sale............................... 78,578 175,537
Purchases of securities available for sale......... (603) (474,477)
Net (disbursements) from lending activities........ (307,791) (45,398)
Purchases of premises and equipment................ (15,438) (12,889)
Proceeds from sales of premises and equipment...... 1,033 2,759
Net change in acceptances.......................... (2,278) (5,161)
Net cash paid on acquisitions...................... (4,430) (14,392)
---------- ----------
Net cash provided by
investing activities......................... 487,391 21,692
Cash flows from financing activities:
Change in demand, savings/NOW, and money market
deposits......................................... (1,028,294) 253,649
Change in corporate certificates of deposit and
deposits in overseas offices..................... (55,843) 177
Change in other consumer time deposits............. 96,020 (232,454)
Change in short-term borrowings.................... 82,413 (391,750)
Issuance of long-term debt......................... - 200,000
Payments on long-term debt......................... (9) (67)
Purchases of treasury stock........................ (97,585) (82,695)
Issuance of common stock........................... 8,946 66,396
Dividends paid..................................... (45,664) (38,704)
---------- ----------
Net cash (used in) financing activities........ (1,040,016) (225,448)
---------- ----------
8 of 28
Net change in cash and cash equivalents........ (229,489) 46,114
Cash and cash equivalents at beginning
of period (A)................................ 2,168,244 2,826,039
---------- ----------
Cash and cash equivalents at end
of period (A)................................ $1,938,755 $2,872,153
========== ==========
Supplemental disclosures:
Total amount of interest paid for the period....... $208,222 $152,257
========== ==========
Total amount of income taxes paid for
the period....................................... $12,074 $4,000
========== ==========
Total amount of loans transferred to OREO.......... $10,483 $13,934
========== ==========
(A) Reconciliation: March 31 December 31
---------------------- ----------------------
1995 1994 1994 1993
---------- ---------- ---------- ----------
Cash and due from banks......... $1,796,869 $2,069,777 $2,082,002 $1,831,270
Interest-bearing time deposits.. 131,886 611,196 35,567 979,769
Federal funds sold and
securities purchased under
agreements to resell.......... 10,000 191,180 50,675 15,000
---------- ---------- ---------- ----------
Total cash and cash
equivalents................... $1,938,755 $2,872,153 $2,168,244 $2,826,039
========== ========== ========== ==========
See accompanying notes to consolidated financial statements.
SUMMARIZED NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(1) In Management's opinion, the financial information, which
is unaudited, reflects all adjustments (consisting solely
of normal recurring adjustments) necessary for a fair
presentation of the financial information as of and for the
three month periods ended March 31, 1995 and March 31, 1994
in conformity with generally accepted accounting
principles. These financial statements should be read in
conjunction with First Fidelity Bancorporation's ("First
Fidelity" or "the Company" herein) 1994 Annual Report on
Form 10-K.
(2) Primary earnings per share is based on the weighted average
number of common shares outstanding during each period,
including the assumed exercise of dilutive stock options
and warrants, using the treasury stock method. Primary
earnings per share also reflects provisions for dividend
requirements on all outstanding shares of the Company's
preferred stock.
Fully diluted earnings per share is based on the weighted
average number of common shares outstanding during each
period, including the assumed conversion of convertible
preferred stock into common stock and the assumed exercise
of dilutive stock options and warrants using the treasury
stock method. Fully diluted earnings per share also
reflects provisions for dividend requirements on
non-convertible preferred stock.
(3) Effective January 1, 1995, the Company adopted Statement of
Financial Accounting Standards ("SFAS") 114, "Accounting by
Creditors for Impairment of a Loan" and SFAS 118,
"Accounting by Creditors for Impairment of a Loan--Income
Recognition and Disclosures". A loan is considered
impaired when, based on current information and events, it
is probable that a creditor will be unable to collect all
amounts due. Under SFAS 114 and SFAS 118, "impaired" loans
must be measured based on the present value of expected
future cash flows, discounted at the loan's effective
interest rate, or, as a practical expedient, at the loan's
observable market price, or the fair value of the
collateral if the loan is collateral-dependent. SFAS 114
and SFAS 118 do not apply to large groups of
smaller-balance homogeneous loans that are collectively
evaluated for impairment, loans that are measured at fair
value or at the lower of cost or fair value, leases, or
debt securities. Prior to January 1, 1995, the Company's
"impaired" loans were described as, and included in,
"non-accrual" loans. The adoption of the Statements had no
effect on First Fidelity's non-performing assets or
financial statements.
SFAS 114 and SFAS 118 also require additional disclosures.
As a result, the Company has expanded its accounting policy
regarding the recognition of interest income on loans to
read as follows:
"Interest income is not accrued on loans where management
has determined that the borrowers may be unable to meet
contractual principal and/or interest obligations, or where
interest or principal is 90 days or more past due, unless
the loans are adequately secured and in the process of
collection. When a loan is placed on non-accrual (which
includes "impaired" loans),
interest accruals cease and uncollected accrued interest is
reversed and charged against current income. Non-accrual
loans are generally not returned to accruing status until
principal and interest payments have been brought current
and full collectibility is reasonably assured. Cash
receipts on non- accrual loans are generally applied to the
principal balance until the remaining balance is considered
fully collectible, at which time interest income may be
recognized when received. Interest on loans that have been
restructured is recognized according to the revised terms."
(4) As of March 31, 1995, under SFAS 114 and SFAS 118, First
Fidelity's impaired loans totaled $186.0 million. The
Company calculated a total "impairment" of $48.0 million
related to $138.9 million of such loans at March 31, 1995.
The remaining $47.1 million of impaired loans have been
reduced (through write-downs or cash collections) to the
point where, at March 31, 1995, no specific impairment was
associated with such loans. The Company's impaired loans
averaged $202.3 million for the first quarter of 1995.
Interest income of approximately $.4 million was
recognized, all on a cash basis, on impaired loans for the
three months ended March 31, 1995. Activity in the reserve
for possible credit losses for the three months ended March
31, 1995 is shown in "Item 2--FINANCIAL CONDITION--ASSET
QUALITY--Provision and Reserve for Possible Credit
Losses".