<PAGE> 1
Filed pursuant to Rule 424(b)(3)
Registration No. 33-50079
(FIRST FIDELITY BANCORPORATION LOGO)
January 4, 1994
Dear Peoples Westchester Savings Bank Shareholder:
On December 30, 1993, First Fidelity Bancorporation ("First Fidelity")
acquired Peoples Westchester Savings Bank ("Peoples") pursuant to an Agreement
and Plan of Merger between Peoples and First Fidelity ("Merger Agreement") which
provided for the merger of Peoples with and into First Fidelity Bank, N.A., New
York (the "Merger").
As described in the Proxy Statement-Prospectus referred to below, the
Merger Agreement provides that upon consummation of the Merger each Peoples
shareholder will receive either all cash or all shares of First Fidelity common
stock in exchange for all his or her shares of Peoples common stock.
Accordingly, First Fidelity is now asking you to indicate whether you wish
to elect to receive either all cash or all First Fidelity common stock in
exchange for your shares of Peoples common stock. To assist you in making this
election, enclosed are an Election Form and Letter of Transmittal (the "Election
Form") and a Prospectus Supplement to the original Proxy Statement-Prospectus,
dated August 24, 1993, which was sent to Peoples shareholders of record as of
August 19, 1993. The Prospectus Supplement is attached to this letter; for those
of you who did not previously receive a copy of the original Proxy
Statement-Prospectus, a copy is also enclosed.
As a result of the Merger, each Peoples shareholder of record as of
December 30, 1993 is entitled to elect to receive for each of such holder's
shares of Peoples common stock either (i) $40.86 in cash or (ii) 0.9390 of a
share of First Fidelity common stock (except that cash will be received in lieu
of a fractional share interest). Because the value of First Fidelity common
stock changes in the market, it is possible that the value of First Fidelity
common stock to be received for each share of Peoples common stock will be worth
more or less than the $40.86 per share to be received under the cash payment
alternative when it is received. For example, based upon the closing price per
share of First Fidelity common stock of $45.50 on December 30, 1993 and on the
exchange ratio of 0.9390 of a share of First Fidelity common stock per share of
Peoples common stock, the market value of the First Fidelity common stock to be
received would be $42.72 per share of Peoples common stock. Each Peoples
shareholder is urged to check current market price information of First Fidelity
common stock prior to making an election. First Fidelity common stock trades on
the New York Stock Exchange under the symbol "FFB."
Pursuant to the Merger Agreement, the number of shares of Peoples common
stock to be exchanged for cash has been fixed at approximately 3.0 million
shares, or approximately 54% of the Peoples shares outstanding, and the number
of shares of Peoples common stock to be exchanged for First Fidelity common
stock has been fixed at approximately 2.6 million, or approximately 46% of the
Peoples shares outstanding. Accordingly, there can be no guarantee that any
given shareholder's election will be honored. Each election will be subject to
the results of the procedures set forth in the Merger Agreement for allocating
the amounts available for cash and First Fidelity common stock payments among
Peoples shareholders. To the extent that shareholder elections exceed the total
amounts available for cash or First Fidelity common stock payments, the Exchange
Agent will be required to select, on a random basis, certain shareholders whose
shares will be converted into First Fidelity common stock or cash, respectively,
notwithstanding their elections.
You will need to complete and return the accompanying Election Form to the
Exchange Agent, First Fidelity Bank, N.A., New Jersey, in order to indicate
whether you wish to receive either all cash or all First Fidelity common stock.
You also may indicate on the Election Form that you do not have a preference as
to cash or First Fidelity common stock.
We urge you to consult your own financial advisor before making your
election. Moreover, although certain federal income tax consequences of the
Merger to Peoples shareholders are described in the Prospectus Supplement, you
should consult your own tax advisor because of the complexities of the federal,
state and local tax laws. We make no recommendation as to whether you should
elect cash or stock or indicate no preference.
IT IS IMPORTANT THAT YOU READ THE ACCOMPANYING DOCUMENTS CAREFULLY,
COMPLETE THE ENCLOSED ELECTION FORM, AND ENSURE THAT IT, TOGETHER WITH ALL STOCK
CERTIFICATES REPRESENTING YOUR PEOPLES COMMON STOCK TO WHICH THE ELECTION FORM
RELATES, IS ACTUALLY RECEIVED BY THE EXCHANGE AGENT AT ONE OF THE PROPER
LOCATIONS SPECIFIED IN THE ELECTION FORM BY 5:00 P.M., NEW YORK TIME, ON
FEBRUARY 2, 1994. IF SUCH MATERIALS ARE NOT ACTUALLY RECEIVED BY THE EXCHANGE
AGENT AT ONE OF THE PROPER LOCATIONS BY THE PROPER TIME, YOU WILL BE DEEMED TO
HAVE EXPRESSED NO PREFERENCE AND WILL RECEIVE EITHER CASH OR FIRST FIDELITY
COMMON STOCK, DEPENDING UPON THE CHOICES MADE BY OTHER PEOPLES SHAREHOLDERS.
Sincerely,
Anthony P. Terracciano
Chairman of the Board, President
and Chief Executive Officer
<PAGE> 2
(FIRST FIDELITY BANCORPORATION LOGO)
PROSPECTUS SUPPLEMENT
TO
PROXY STATEMENT-PROSPECTUS
DATED AUGUST 24, 1993
------------------------
FIRST FIDELITY BANCORPORATION
This Prospectus Supplement ("Supplement") is being furnished to holders of
common stock, par value $1.00 per share ("Peoples Common Stock"), of Peoples
Westchester Savings Bank, which was, until December 30, 1993, a New York State-
chartered stock-form savings bank ("Peoples"), as a supplement to the Proxy
Statement-Prospectus, dated August 24, 1993 (the "Proxy Statement-Prospectus"),
of Peoples and First Fidelity Bancorporation, a New Jersey corporation ("First
Fidelity"). The Proxy Statement-Prospectus was previously sent to holders of
record of Peoples Common Stock as of August 19, 1993 in connection with the
Special Meeting of Shareholders of Peoples held on October 7, 1993 (the "Special
Meeting"). A copy of the Proxy Statement-Prospectus is enclosed herewith for
shareholders to whom a Proxy Statement-Prospectus has not previously been sent.
At the Special Meeting, Peoples shareholders approved the Agreement and Plan of
Merger, dated as of April 14, 1993, by and between First Fidelity and Peoples,
as amended and supplemented by a letter agreement, dated as of April 26, 1993,
between First Fidelity and Peoples and by an Agreement to Merge, dated as of
December 23, 1993, between First Fidelity Bank, N.A., New York ("FFB-NY") and
Peoples (as so amended and supplemented, the "Merger Agreement"), a copy of
which is attached to the Proxy Statement-Prospectus as Appendix A, and the
transactions contemplated thereby, which provided for the acquisition of Peoples
by First Fidelity and the matters contemplated thereby (the "Merger"). The
Merger of Peoples with and into FFB-NY was consummated on December 30, 1993.
Subject to the election and allocation procedures described herein, all of the
shares of Peoples Common Stock held by each holder have been converted into the
right to receive for each share of Peoples Common Stock either (i) $40.86 in
cash, without interest, or (ii) 0.9390 of a share of common stock, par value
$1.00 per share, of First Fidelity ("First Fidelity Common Stock").
Pursuant to and as provided in the Merger Agreement, the number of shares
of Peoples Common Stock to be converted into the right to receive cash in the
Merger has been fixed at approximately 3.0 million shares, or approximately 54%
of Peoples shares outstanding, and the number of shares of Peoples Common Stock
to be converted into the right to receive First Fidelity Common Stock in the
Merger has been fixed at approximately 2.6 million shares, or approximately 46%
of Peoples shares outstanding. Accordingly, there can be no assurance that each
Peoples shareholder will receive the form of consideration which such holder
elects. In the event that the elections result in an oversubscription of either
First Fidelity Common Stock or cash, the Exchange Agent will be required to
select on a random basis certain shareholders whose shares will be converted
into First Fidelity Common Stock or cash, respectively, notwithstanding their
elections.
This Supplement updates certain information contained in the Proxy
Statement-Prospectus and, together with the Proxy Statement-Prospectus, is for
the use of Peoples shareholders of record as of December 30, 1993 in determining
whether they would elect to receive either all cash or all First Fidelity Common
Stock or would have no preference as between cash and First Fidelity Common
Stock for all their shares of Peoples Common Stock. Depending upon the market
value of First Fidelity Common Stock at the time of receipt, it is possible that
the market value of First Fidelity Common Stock to be received for each share of
Peoples Common Stock will be worth more or less than the $40.86 per share of
Peoples Common Stock to be received under the cash payment alternative. Based
upon the closing price per share of First Fidelity Common Stock of $45.50 on
December 30, 1993, as reported on the New York Stock Exchange (the "NYSE")
Composite Transactions Tape and the exchange ratio of 0.9390 of a share of First
Fidelity Common Stock per share of Peoples Common Stock, the market value of the
First Fidelity Common Stock to be received would be $42.72 per share of Peoples
Common Stock. As the market price for First Fidelity Common Stock is likely to
fluctuate, a Peoples shareholder should consider current price information prior
to making an election. In addition, shareholders who receive First Fidelity
Common Stock can expect to receive the dividend typically declared by First
Fidelity in January and payable in early February. Under the terms of the Merger
Agreement, no consideration will be paid to holders of Peoples Common Stock
until the completion of the election and allocation procedures described herein,
which will not occur until February 2, 1994 at the earliest. Furthermore, as
discussed under "ELECTION AND ALLOCATION PROCEDURES," no guarantee can be given
that an election by any given shareholder will be honored.
PLEASE READ THIS SUPPLEMENT AND THE PROXY STATEMENT-PROSPECTUS CAREFULLY.
FAILURE OF A HOLDER OF PEOPLES COMMON STOCK TO PROPERLY COMPLETE AND DELIVER THE
ACCOMPANYING ELECTION FORM AND LETTER OF TRANSMITTAL (THE "ELECTION FORM"),
TOGETHER WITH THE CERTIFICATES REPRESENTING SHARES OF PEOPLES COMMON STOCK TO
WHICH THE ELECTION FORM RELATES, TO ONE OF THE PROPER LOCATIONS SPECIFIED IN THE
ELECTION FORM, BY 5:00 P.M., NEW YORK TIME, ON FEBRUARY 2, 1994 (THE "ELECTION
DEADLINE") AND TO COMPLY WITH THE PROCEDURES DESCRIBED IN THIS SUPPLEMENT WILL
CAUSE SUCH HOLDER TO BE DEEMED TO HAVE EXPRESSED NO PREFERENCE AND TO RECEIVE
EITHER ALL CASH OR ALL FIRST FIDELITY COMMON STOCK, DEPENDING UPON THE ELECTIONS
MADE BY OTHER PEOPLES SHAREHOLDERS. IF YOUR STOCK CERTIFICATE(S) IS LOST, STOLEN
OR DESTROYED, YOU ARE URGED TO REFER TO INSTRUCTION 12 SET FORTH IN THE
ACCOMPANYING ELECTION FORM.
This Supplement and the Proxy Statement-Prospectus constitute a prospectus
of First Fidelity with respect to the shares of First Fidelity Common Stock
issuable pursuant to the Merger. This Supplement shall not constitute an offer
to sell or solicitation of an offer to purchase unless accompanied or preceded
by the Proxy Statement-Prospectus.
The outstanding shares of First Fidelity Common Stock are listed on the
NYSE under the symbol "FFB".
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION, NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS SUPPLEMENT TO THE PROXY STATEMENT-PROSPECTUS
DATED AUGUST 24, 1993. ANY REPRESENTATION TO THE
CONTRARY IS A CRIMINAL OFFENSE.
------------------------
The date of this Supplement is January 4, 1994.
<PAGE> 3
AVAILABLE INFORMATION
First Fidelity and Peoples are subject to the informational requirements of
the Securities Exchange Act of 1934, as amended (the "Exchange Act"), and the
rules and regulations thereunder. In accordance therewith, First Fidelity files
reports, proxy statements and other information with the Securities and Exchange
Commission (the "Commission") and Peoples filed reports, proxy statements and
other information with the Federal Deposit Insurance Corporation (the "FDIC").
Such reports, proxy statements and other information filed by First Fidelity
should be available for inspection and copying, upon payment of prescribed fees,
at the public reference facilities maintained by the Commission at 450 Fifth
Street, N.W., Washington, D.C. 20549 and at the Commission's regional offices at
Northwestern Atrium Center, 500 West Madison Street, Chicago, Illinois 60661,
and 7 World Trade Center, New York, New York 10048. Such reports, proxy
statements and other information filed by Peoples should be available for
inspection and copying, upon payment of prescribed fees, at the public reference
facilities maintained by the FDIC at 550 17th Street, Room F-250, N.W.,
Washington, D.C. 20429 and should be available for inspection in the Public
Inspection File maintained by the Public Information Department of the Federal
Reserve Bank in New York at 33 Liberty Street, New York, New York 10045. In
addition, the equity securities of First Fidelity are listed on the NYSE, and
such reports, proxy statements and other information concerning First Fidelity
also should be available for inspection at the offices of the NYSE, 20 Broad
Street, New York, New York 10005. The Peoples Common Stock was quoted on the
National Association of Securities Dealers, Inc. (the "NASD")Automated Quotation
National Market System (the "NASDAQ-NMS"), and such reports, proxy statements
and other information concerning Peoples also should be available for inspection
at the offices of the NASD, 33 Whitehall Street, New York, New York 10004 and
for inspection and copying at the offices of the NASD, 1735 K Street, N.W.,
Washington, D.C. 20006.
This Supplement and the Proxy Statement-Prospectus do not contain all of
the information set forth in the Registration Statement on Form S-4 and exhibits
thereto (the "Registration Statement") which First Fidelity has filed with the
Commission under the Securities Act of 1933, as amended (the "Securities Act"),
and the rules and regulations thereunder, certain portions of which have been
omitted pursuant to the rules and regulations of the Commission and to which
reference is hereby made. Any statements contained herein concerning the
provisions of any document are not necessarily complete and, in each instance,
reference is made to the copy of such document filed as an exhibit to the
Registration Statement or otherwise filed with the Commission. Each such
statement is qualified in its entirety by such reference. The Registration
Statement (and exhibits thereto) should be available for inspection at the
office of the Commission at 450 Fifth Street, N.W., Washington, D.C. 20549, and
copies thereof may be obtained from the Commission at prescribed rates.
THIS SUPPLEMENT INCORPORATES BY REFERENCE FIRST FIDELITY DOCUMENTS WHICH
ARE NOT PRESENTED HEREIN OR DELIVERED HEREWITH. FIRST FIDELITY WILL PROVIDE
WITHOUT CHARGE TO ANY PERSON TO WHOM THIS SUPPLEMENT IS DELIVERED, INCLUDING ANY
BENEFICIAL OWNER OF PEOPLES COMMON STOCK, UPON WRITTEN OR ORAL REQUEST OF SUCH
PERSON, A COPY OF ANY OR ALL OF THE DOCUMENTS INCORPORATED HEREIN BY REFERENCE
(OTHER THAN EXHIBITS TO SUCH DOCUMENTS WHICH ARE NOT SPECIFICALLY INCORPORATED
THEREIN BY REFERENCE). WRITTEN REQUESTS FOR DOCUMENTS RELATING TO FIRST FIDELITY
SHOULD BE DIRECTED TO INVESTOR RELATIONS, FIRST FIDELITY BANCORPORATION, 550
BROAD STREET, NEWARK, NEW JERSEY 07102. TELEPHONE REQUESTS MAY BE DIRECTED TO
INVESTOR RELATIONS AT (201) 565-3150. FURTHERMORE, ADDITIONAL COPIES OF THE
PROXY STATEMENT-PROSPECTUS, ELECTION FORM AND THIS SUPPLEMENT ARE AVAILABLE UPON
REQUEST FROM THE EXCHANGE AGENT, FIRST FIDELITY BANK, N.A., NEW JERSEY AT 10
BANK STREET, FOURTH FLOOR, NEWARK, NEW JERSEY 07102. IN ORDER TO ENSURE TIMELY
DELIVERY OF ANY OF THE DOCUMENTS, REQUESTS SHOULD BE MADE BY JANUARY 18, 1994.
NO PERSON IS AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATIONS NOT CONTAINED IN THIS SUPPLEMENT OR INCORPORATED BY REFERENCE
HEREIN AND, IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE
RELIED UPON AS HAVING BEEN AUTHORIZED BY FIRST FIDELITY OR PEOPLES. THIS
SUPPLEMENT DOES NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO
PURCHASE ANY SECURITIES IN ANY JURISDICTION TO OR FROM ANY PERSON TO OR FROM
WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER, OR SOLICITATION OF AN OFFER WITHIN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS SUPPLEMENT NOR THE DISTRIBUTION OF
SECURITIES HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE AN IMPLICATION THAT
THERE HAS BEEN NO CHANGE IN THE AFFAIRS OF FIRST FIDELITY OR PEOPLES SINCE THE
DATES HEREOF OR THEREOF OR THAT THE INFORMATION HEREIN OR IN THE DOCUMENTS
INCORPORATED HEREIN BY REFERENCE IS CORRECT AS OF ANY TIME SUBSEQUENT TO THE
DATE HEREOF OR THE DATES THEREOF.
2
<PAGE> 4
INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE
The following documents and information heretofore filed with the
Commission by First Fidelity (File No. 1-9839) are incorporated by reference in
this Supplement:
(1) First Fidelity's Annual Report on Form 10-K for the year ended December
31, 1992 (the "First Fidelity Form 10-K"); provided, however, that the
information referred to in Item 402(a)(8) of Regulation S-K promulgated by the
Commission shall not be deemed to be specifically incorporated by reference
herein;
(2) First Fidelity's Quarterly Reports on Form 10-Q for the quarters ended
March 31, 1993 (as amended by Form 10-Q/A as filed with the Commission on June
2, 1993), June 30, 1993 and September 30, 1993;
(3) The description of the First Fidelity Common Stock contained in the
Registration Statement on Form 8-B, as amended, filed with the Commission,
pursuant to which First Fidelity registered, among other things, the First
Fidelity Common Stock pursuant to Section 12(b) of the Exchange Act;
(4) The description of the Preferred Share Purchase Rights (the "First
Fidelity Rights") issued by First Fidelity pursuant to the Preferred Share
Purchase Rights Plan, dated as of August 17, 1989, as amended (the "First
Fidelity Rights Agreement"), between First Fidelity and First Fidelity Bank,
N.A., New Jersey, contained in the Registration Statement on Form 8-A, as
amended, filed with the Commission, pursuant to which First Fidelity registered
the First Fidelity Rights pursuant to Section 12(b) of the Exchange Act; and
(5) First Fidelity's Current Reports on Form 8-K, dated March 21, 1991,
April 14, 1993, May 4, 1993 (as amended and supplemented by Form 8-K/A filed
with the Commission on June 2, 1993 and Current Reports on Form 8-K filed by
First Fidelity with the Commission on August 13, 1993 and November 10, 1993).
All documents filed by First Fidelity pursuant to Section 13(a), 13(c), 14
or 15(d) of the Exchange Act after the date of this Supplement and prior to the
last possible day for which elections may be made as described herein shall be
deemed to be incorporated by reference into this Supplement and to be a part
hereof from the date of filing of such documents. Any statement contained in a
document incorporated or deemed to be incorporated by reference herein shall be
deemed to be modified or superseded for purposes of this Supplement to the
extent that a statement contained herein, or in any subsequently filed document
which also is or is deemed to be incorporated by reference herein, modifies or
supersedes such statement. Any statement so modified or superseded shall not be
deemed, except as so modified or superseded, to constitute a part of this
Supplement.
INFORMATION RELATING TO PEOPLES
The Peoples Annual Report on Form F-2 for the year ended December 31, 1992
(without the exhibits thereto) (the "Peoples Form F-2"), and the Financial
Section of Peoples' 1992 Annual Report to Shareholders (the "Peoples Financial
Section") appear as Appendices C-1 and C-2, respectively, to the Proxy
Statement-Prospectus and the Peoples Quarterly Report on Form F-4 for the
quarter ended September 30, 1993 (the "Peoples Form F-4") appears as Appendix A
to this Supplement. The foregoing Peoples documents attached as Appendices
hereto and thereto are hereby incorporated by reference into this Supplement.
Notwithstanding any statement to the contrary contained in any of the foregoing
Peoples documents, no effect shall be given to any incorporation by reference
provided for therein and any such documents or information so incorporated shall
not be deemed a part hereof.
* * *
Unless the context requires otherwise, references to the First Fidelity
Common Stock also include the attached First Fidelity Rights.
3
<PAGE> 5
TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
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<S> <C>
AVAILABLE INFORMATION.......................... 2
INCORPORATION OF CERTAIN DOCUMENTS BY
REFERENCE.................................... 3
INFORMATION RELATING TO PEOPLES................ 3
SUMMARY........................................ 5
The Parties.................................. 5
The Merger................................... 5
Allocation Procedures........................ 7
Certain Federal Income Tax Consequences...... 7
Recent Developments.......................... 7
Market Prices and Dividends.................. 8
Comparative Per Share Data................... 9
SELECTED FINANCIAL DATA OF FIRST FIDELITY...... 10
SELECTED FINANCIAL DATA OF PEOPLES............. 12
INTRODUCTION................................... 14
SUMMARY OF THE MERGER.......................... 14
Consummation................................. 14
Consideration for Peoples Shares............. 15
ELECTION AND ALLOCATION
PROCEDURES................................... 15
<CAPTION>
PAGE
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<S> <C>
Description of Elections..................... 15
Allocation................................... 16
Issuance of Stock and Payment of Cash to
Exchange Agent............................. 17
Delivery of First Fidelity Common
Stock and Cash............................. 18
Completion of the Election Form.............. 19
CERTAIN FEDERAL INCOME TAX CONSEQUENCES........ 19
Exchange of Peoples Common Stock Solely for
First Fidelity Common Stock................ 19
Exchange of Peoples Common Stock Solely for
Cash....................................... 20
Dissenters' Shares........................... 20
Backup Withholding........................... 20
DESCRIPTION OF FIRST FIDELITY CAPITAL STOCK.... 21
CERTAIN REGULATORY CONSIDERATIONS.............. 21
EXPERTS........................................ 21
APPENDIX A: Peoples Form F-4 for the quarter
ended September 30, 1993
</TABLE>
4
<PAGE> 6
SUMMARY
The following is a summary of certain information relating to First
Fidelity and Peoples, the Merger and the related shareholder election and
allocation procedures contained elsewhere in this Supplement, the Proxy
Statement-Prospectus and the documents incorporated herein and therein by
reference. Reference is made to, and this summary is qualified in its entirety
by, the more detailed information contained elsewhere in this Supplement and the
Proxy Statement-Prospectus, contained in the accompanying Appendices hereto and
thereto and the documents incorporated by reference in this Supplement and the
Proxy Statement-Prospectus and contained in the documents referred to herein and
therein. Shareholders are urged to read this Supplement and the Proxy
Statement-Prospectus, the documents incorporated herein and therein by reference
and the accompanying Appendices hereto and thereto in their entirety.
THE PARTIES
First Fidelity. First Fidelity Bancorporation ("First Fidelity") is a New
Jersey corporation registered as a bank holding company under the Bank Holding
Company Act of 1956, as amended. First Fidelity serves the mid-Atlantic region
and provides a full range of banking services through its flagship banks. As of
September 30, 1993, First Fidelity had total assets, deposits and stockholders'
equity of $32.6 billion, $27.4 billion and $2.6 billion, respectively. With over
600 branch offices throughout New Jersey, eastern Pennsylvania, Connecticut and
Westchester County and Riverdale in New York, First Fidelity ranks as one of the
25 largest United States bank holding companies. The address of First Fidelity's
principal executive offices is 2673 Main Street, P.O. Box 6980, Lawrenceville,
New Jersey 08648 and its telephone number is (609) 895-6800. See "THE
PARTIES -- First Fidelity," in the Proxy Statement-Prospectus.
FFB-NY. First Fidelity Bank, N.A., New York ("FFB-NY") is a wholly-owned
national bank subsidiary of First Fidelity, with its principal executive offices
located in Riverdale, New York. On December 30, 1993, the effective time of the
Merger (the "Effective Time"), Peoples merged with and into FFB-NY, with FFB-NY
being the surviving entity. See "THE PARTIES -- FFB-NY" in the Proxy
Statement-Prospectus.
Peoples. Prior to the Merger, Peoples was a New York State-chartered
stock-form savings bank conducting business through its principal office and
through 31 branch offices located in Westchester County, New York. As of
September 30, 1993, Peoples had total assets, deposits and stockholders' equity
of $1.7 billion, $1.4 billion and $174.0 million, respectively. As a result of
the Merger, all the assets and liabilities of Peoples are now held by FFB-NY.
See "THE PARTIES -- Peoples" in the Proxy Statement-Prospectus.
THE MERGER
Consummation. The Merger was consummated on December 30, 1993 pursuant to
the terms contained in the Merger Agreement and as described in the Proxy
Statement-Prospectus. See "THE MERGER -- The Merger" in the Proxy
Statement-Prospectus.
Consideration for Peoples Common Stock. The Merger Agreement provides that
upon consummation of the Merger, and subject to the election and allocation
procedures provided for therein and described herein, all the issued and
outstanding shares of Peoples Common Stock held by a holder of Peoples Common
Stock immediately prior to the Effective Time are converted into the right to
receive for each share of Peoples Common Stock either (i) $40.86 in cash without
interest (such cash amount being hereinafter referred to as the "Cash Price") or
(ii) 0.9390 of a share of First Fidelity Common Stock and cash in lieu of
fractional shares (such number of shares being hereinafter referred to as the
"Exchange Ratio" or the "Stock Consideration").
Pursuant to and as provided in the Merger Agreement, the number of shares
of Peoples Common Stock to be converted into the right to receive cash in the
Merger has been fixed at approximately 3.0 million shares (the "Cash Conversion
Number"), or approximately 54% of the Peoples shares outstanding, and the number
of shares of Peoples Common Stock to be converted into the right to receive
shares of First Fidelity Common Stock in the Merger has been fixed at
approximately 2.6 million shares (the "Stock Conversion Number"), or
approximately 46% of the Peoples shares outstanding. See "ELECTION AND
ALLOCATION PROCEDURES."
5
<PAGE> 7
Depending upon the market value of First Fidelity Common Stock at the time
of receipt, it is possible that the market value of the First Fidelity Common
Stock to be received for each share of Peoples Common Stock will be worth more
or less than the $40.86 to be received under the Cash Price alternative. Based
upon the closing price of First Fidelity Common Stock of $45.50 on December 30,
1993 and on the exchange ratio of 0.9390 of a share of First Fidelity Common
Stock, the market value of the First Fidelity Common Stock to be received would
be $42.72 per share of Peoples Common Stock. As the market price for First
Fidelity Common Stock is likely to fluctuate, a shareholder should consider more
recent price information prior to making an election. In addition, shareholders
who receive First Fidelity Common Stock can expect to receive the dividend
typically declared by First Fidelity in January and payable in early February.
The foregoing discussion does not take into account various factors that may
affect the value to a particular Peoples shareholder of any consideration
received, including, for example, federal, state and local tax consequences. See
"FEDERAL INCOME TAX CONSEQUENCES."
Election Procedures. Each holder of record of Peoples Common Stock as of
December 30, 1993 is now being asked to indicate on the enclosed Election Form
whether such holder would elect (subject to the limitations described below) to
receive cash for all of such holder's shares of Peoples Common Stock (a "Cash
Election") or First Fidelity Common Stock for all of such holder's shares of
Peoples Common Stock (a "Stock Election") or that such holder would have no
preference as to cash or First Fidelity Common Stock in the Merger. As described
below, such election may not necessarily be honored. See "ELECTION AND
ALLOCATION PROCEDURES." It is essential that you complete your Election Form
properly and that First Fidelity Bank, N.A., New Jersey, as exchange agent (the
"Exchange Agent"), actually receive it, together with the certificates
representing your shares of Peoples Common Stock to which your Election Form
relates, at one of the proper locations specified in the Election Form by the
Election Deadline, which is 5:00 P.M., New York Time, on February 2, 1994.
A record holder of Peoples Common Stock who does not, by the Election
Deadline, properly complete, sign and deliver the enclosed Election Form along
with such holder's certificates will be deemed to have indicated no preference
for cash or First Fidelity Common Stock and will be allocated cash or First
Fidelity Common Stock depending upon the elections made by other Peoples
shareholders. If a record holder does not make an effective election (which
would result, for example, from the failure to send to the Exchange Agent a
properly completed Election Form together with the certificates representing all
shares of Peoples Common Stock to which the Election Form relates or from the
Exchange Agent not actually receiving the proper documents at one of the proper
locations specified in the Election Form by the Election Deadline), the holder
will be deemed not to have made an election and will be deemed to have indicated
no preference with respect to receiving shares of First Fidelity Common Stock or
cash for all of such holder's shares.
Each holder of record is entitled to make an election and submit an
Election Form covering all shares of Peoples Common Stock actually held of
record by such holder. Nominee record holders, which includes any nominee, any
trustee or any other person that holds shares of Peoples Common Stock in any
capacity whatsoever on behalf of another person or entity, are entitled to make
an election for such nominee record holder as well as an election on behalf of
each beneficial owner of shares of Peoples Common Stock held through such
nominee record holder, but such elections must be made on one Election Form.
Beneficial owners who are not record holders are not entitled to submit Election
Forms.
Any Cash Election, Stock Election or indication of no preference may be
revoked, but only by written notice actually received by the Exchange Agent at
one of the proper locations specified in the Election Form by the Election
Deadline. NEITHER FIRST FIDELITY NOR THE EXCHANGE AGENT WILL BE UNDER ANY
OBLIGATION TO NOTIFY ANY PERSON OF ANY DEFECT IN AN ELECTION FORM OR NOTICE OF
REVOCATION SUBMITTED TO THE EXCHANGE AGENT. See "ELECTION AND ALLOCATION
PROCEDURES" in this Supplement.
Because the tax consequences of receiving cash or First Fidelity Common
Stock will differ, shareholders of Peoples are urged to read carefully the
information under the caption "CERTAIN FEDERAL INCOME TAX CONSEQUENCES" in this
Supplement.
6
<PAGE> 8
ALLOCATION PROCEDURES
PURSUANT TO AND AS PROVIDED IN THE MERGER AGREEMENT, THE NUMBER OF SHARES
OF PEOPLES COMMON STOCK TO BE CONVERTED INTO THE RIGHT TO RECEIVE FIRST FIDELITY
COMMON STOCK HAS BEEN FIXED AT APPROXIMATELY 2.6 MILLION SHARES, OR
APPROXIMATELY 46% OF THE PEOPLES SHARES OUTSTANDING, AND THE NUMBER OF SHARES OF
PEOPLES COMMON STOCK TO BE CONVERTED INTO THE RIGHT TO RECEIVE CASH IN THE
MERGER HAS BEEN FIXED AT APPROXIMATELY 3.0 MILLION SHARES, OR APPROXIMATELY 54%
OF THE PEOPLES SHARES OUTSTANDING. ACCORDINGLY, NO GUARANTEE CAN BE GIVEN THAT
AN ELECTION BY ANY GIVEN SHAREHOLDER WILL BE HONORED. RATHER, THE ELECTION BY
EACH HOLDER OF PEOPLES COMMON STOCK WILL BE SUBJECT TO THE RESULTS OF THE
ALLOCATION PROCEDURES AS DESCRIBED HEREIN.
Holders of Peoples Common Stock are urged to read carefully the more
complete description of the election and allocation procedures under "ELECTION
AND ALLOCATION PROCEDURES."
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
In the opinion of Wachtell, Lipton, Rosen & Katz, counsel for Peoples, the
Merger qualifies as a reorganization within the meaning of Section 368(a) of the
Internal Revenue Code of 1986, as amended (the "Code") and, accordingly, for
federal income tax purposes, (i) no gain or loss will be recognized by Peoples,
First Fidelity or FFB-NY as a result of the Merger, (ii) Peoples shareholders
who exchange their Peoples Common Stock for First Fidelity Common Stock will not
recognize any gain or loss on the exchange, other than with respect to the
receipt of cash for fractional shares, and (iii) Peoples shareholders who
exchange their Peoples Common Stock for cash will generally recognize gain or
loss on such exchange to the extent of the difference between the amount of cash
received and such shareholders' tax basis in the Peoples Common Stock exchanged.
See "CERTAIN FEDERAL INCOME TAX CONSEQUENCES."
RECENT DEVELOPMENTS
On October 21, 1993, First Fidelity's Board of Directors (the "Board")
authorized the acquisition of up to 2% of the outstanding shares of First
Fidelity Common Stock in any calendar year, through open market or
privately-negotiated transactions. On November 18, 1993, the Board authorized
the acquisition of up to an additional 1% of the outstanding shares of First
Fidelity Common Stock during 1993. This repurchase program is in addition to the
more limited repurchase program implemented earlier in 1993 in connection with
First Fidelity's dividend reinvestment plan and its stock option and restricted
stock plans. From September 30, 1993 through December 30, 1993, First Fidelity
had repurchased 2,380,451 shares of First Fidelity Common Stock, at an average
price of $42.22 per share, which constitutes approximately 2.98% of the
outstanding shares of First Fidelity Common Stock.
7
<PAGE> 9
MARKET PRICES AND DIVIDENDS
The following table presents, for the periods indicated, the per-share high
and low sales prices for First Fidelity Common Stock, as reported on the NYSE
composite transactions tape, and for Peoples Common Stock, as reported on the
NASDAQ-NMS, as well as dividends paid by First Fidelity and Peoples in the
respective quarters.
<TABLE>
<CAPTION>
FIRST FIDELITY PEOPLES
COMMON STOCK COMMON STOCK
----------------------------- -----------------------------
CALENDAR PERIOD HIGH LOW DIVIDENDS HIGH LOW DIVIDENDS
- ----------------------------------------- ------- ------- --------- ------- ------- ---------
<S> <C> <C> <C> <C> <C> <C>
1991:
First Quarter.......................... $26.000 $14.000 $ .30 $15.500 $ 8.000 $ .12
Second Quarter......................... 30.250 23.750 .30 16.750 13.500 .12
Third Quarter.......................... 34.500 27.250 .30 15.500 13.250 .12
Fourth Quarter......................... 33.125 26.625 .30 14.750 9.250 .12
1992:
First Quarter.......................... $36.125 $30.500 $ .30 $15.750 $10.500 $ .12
Second Quarter......................... 38.500 32.125 .30 19.500 14.000 .12
Third Quarter.......................... 39.375 33.750 .30 20.250 16.250 .12
Fourth Quarter......................... 46.000 34.500 .33* 24.000 18.750 .15**
1993:
First Quarter.......................... $52.250 $42.875 $ .33 $44.250 $22.250 $ .15
Second Quarter......................... 51.000 42.375 .37* 44.500 36.500 .15
Third Quarter.......................... 49.500 45.375 .37 40.750 39.250 .15
Fourth Quarter***...................... 47.000 40.125 .37 41.250 37.250 .15
</TABLE>
- ---------------
* On October 15, 1992, First Fidelity raised its regular quarterly dividend on
First Fidelity Common Stock to $.33 per share, and on April 20, 1993, First
Fidelity again raised its regular quarterly dividend on First Fidelity
Common Stock, to $.37 per share.
** On October 20, 1992, Peoples raised its regular quarterly dividend on
Peoples Common Stock to $.15 per share.
*** Information is provided through December 30, 1993. Trading in Peoples Common
Stock was halted as of the close of business on December 29, 1993.
8
<PAGE> 10
COMPARATIVE PER SHARE DATA
The following table sets forth certain historical per share, pro forma
combined per share and pro forma equivalent per share information with respect
to First Fidelity Common Stock and Peoples Common Stock for the year ended
December 31, 1992 and the nine months ended September 30, 1993. The pro forma
equivalent per share information for the Peoples Common Stock reflects the pro
forma effects of the Merger and the acquisition by First Fidelity of Northeast
Bancorp, Inc. ("Northeast") for the holder of one share of Peoples Common Stock
which is converted into First Fidelity Common Stock based on the Exchange Ratio.
First Fidelity acquired Northeast on May 4, 1993. The information set forth
below should be read in conjunction with the historical and financial
information of First Fidelity, Northeast and Peoples incorporated by reference
herein or appearing elsewhere in this Supplement and the Proxy
Statement-Prospectus. See "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE" in
this Supplement and Appendix A hereto and "THE PARTIES" and "INCORPORATION OF
CERTAIN DOCUMENTS BY REFERENCE" in the Proxy Statement-Prospectus and Appendices
C-1, C-2 and C-3 thereto.
<TABLE>
<CAPTION>
PER COMMON SHARE
-----------------------------------------------------------
PRO FORMA
HISTORICAL --------------------------
------------------------------ EQUIVALENT
FIRST PER PEOPLES
PEOPLES FIDELITY NORTHEAST COMBINED(1) SHARE(2)
------- -------- --------- ----------- ------------
<S> <C> <C> <C> <C> <C>
For the year ended December 31, 1992:
Net Income (Loss):
Primary.................................................. $ 1.34 $ 3.89 $(10.53) $ 2.66 $ 2.50
Fully diluted............................................ 1.34 3.77 (10.53) 2.62 2.46
Cash dividends declared.................................... .51 1.23 -- 1.23 1.15
Book value at end of period................................ 31.29 27.33 12.62 27.80 26.10
For the nine months ended September 30, 1993:
Income from Continuing Operations(3):
Primary.................................................. $ .01 $ 3.43 $ .24 $ 3.14 $ 2.95
Fully diluted............................................ .01 3.37 .24 3.09 2.90
Cash dividends declared.................................... .45 1.07 -- 1.07 1.00
Book value at end of period................................ 31.75 30.07 N/A 30.35 28.50
</TABLE>
- ---------------
(1) The Merger is a business combination accounted for by the purchase method.
Accordingly, purchase accounting adjustments consisting of mark-to-market
valuation adjustments for significant tangible net assets acquired and
adjustments for intangible assets established, and the resultant
amortization/accretion of all such adjustments over appropriate periods have
been reflected. The table also includes the effect of the acquisition of
Northeast, which was also accounted for as a purchase. The combined amounts
also assume that the percentage of shares of Peoples Common Stock exchanged
for First Fidelity Common Stock is approximately 46% and that the Exchange
Ratio is 0.9390. See "THE MERGER -- Merger Consideration."
(2) The Peoples pro forma equivalent per-share amounts are calculated by
multiplying pro forma combined per-share amounts by an Exchange Ratio of
0.9390. See "THE MERGER -- Merger Consideration."
(3) Computations are based on Net Income from Continuing Operations before the
cumulative effect of changes in accounting principles.
9
<PAGE> 11
SELECTED FINANCIAL DATA OF FIRST FIDELITY
The following is selected consolidated financial data for First Fidelity and
its subsidiaries for the nine-month periods ended September 30, 1993 and 1992
and for each of the five years ended December 31, 1988 through 1992. The
consolidated financial information for the nine-month periods ended September
30, 1993 and 1992 has not been audited, but in the opinion of the management of
First Fidelity, all adjustments necessary for a fair presentation have been
included. All such adjustments are of a normal, recurring nature, other than the
adjustments made for the cumulative effect of changes in accounting principles
described in note 3 to the table below. The results of operations for the nine
months ended September 30, 1993 are not necessarily indicative of the results of
operations that may be expected for the entire year. The data is qualified in
its entirety by the detailed information and financial statements included in
the First Fidelity documents incorporated by reference herein, available as
described above under "INCORPORATION OF CERTAIN DOCUMENTS BY REFERENCE," and the
other information contained or incorporated by reference elsewhere in this
Supplement and the Proxy Statement-Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
1993 1992 1992 1991 1990 1989 1988
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Interest income (taxable-equivalent)(1)....... $1,565,420 $1,624,093 $2,168,744 $2,431,462 $2,773,458 $2,753,913 $2,602,581
Interest expense.............................. 529,107 709,436 920,712 1,327,889 1,712,137 1,693,812 1,502,302
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income (taxable-equivalent)(1)... 1,036,313 914,657 1,248,032 1,103,573 1,061,321 1,060,101 1,100,279
Less: tax equivalent adjustment(1)............ 26,382 30,326 39,463 47,502 53,890 76,136 85,869
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income......................... 1,009,931 884,331 1,208,569 1,056,071 1,007,431 983,965 1,014,410
Provision for possible credit losses.......... 119,000 176,000 228,000 298,000 498,000 200,254 289,461
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net interest income after provision for
possible credit losses.................... 890,931 708,331 980,569 758,071 509,431 783,711 724,949
Net securities transactions................... 3,921 4,905 4,825 53,566 24,387 18,244 4,653
Other non-interest income(2).................. 277,428 240,434 327,551 340,124 338,083 332,006 284,084
Non-interest expense.......................... 752,379 670,983 916,846 871,747 883,151 945,797 935,087
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before income taxes (benefit)
and cumulative
effect of changes in accounting
principles.................................. 419,901 282,687 396,099 280,014 (11,250) 188,164 78,599
Income taxes (benefit)........................ 127,818 58,546 82,362 58,773 (5,125) 28,616 44,680
---------- ---------- ---------- ---------- ---------- ---------- ----------
Income (loss) before cumulative effect of
changes in
accounting principles....................... 292,083 224,141 313,737 221,241 (6,125) 159,548 33,919
Cumulative effect of changes in accounting
principles,
net of tax(3)............................... 2,373 -- -- -- -- -- --
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss)........................... 294,456 224,141 313,737 221,241 (6,125) 159,548 33,919
Dividends on preferred stock.................. 15,523 15,840 21,061 17,176 13,283 13,343 17,981
---------- ---------- ---------- ---------- ---------- ---------- ----------
Net Income (Loss) Applicable to First
Fidelity Common Stock..................... $ 278,933 $ 208,301 $ 292,676 $ 204,065 $ (19,408) $ 146,205 $ 15,938
---------- ---------- ---------- ---------- ---------- ---------- ----------
---------- ---------- ---------- ---------- ---------- ---------- ----------
</TABLE>
- ---------------
(1) Information presented herein on a taxable equivalent basis represents income
that is exempt from federal income taxes or taxed at a preferential rate,
such as interest on state and municipal securities, adjusted to a
taxable-equivalent basis using a federal income tax rate of 35% for 1993 and
34% for 1992 and prior years.
(2) Non-interest income less net securities transactions.
(3) Cumulative effect at January 1, 1993 of changes in accounting principles for
postretirement benefits, postemployment benefits and income taxes, net of
income tax.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
---------------------- ----------------------------------------------------------
1993 1992 1992 1991 1990 1989 1988
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
PER COMMON SHARE:
Net Income (Loss):
Primary:
Before cumulative effect of changes in
accounting principles..................... $ 3.43 $ 2.80 $ 3.89 $ 3.37 $ (.33) $ 2.51 $ .29
Cumulative effect of changes in accounting
principles,
net of tax................................ .03 -- -- -- -- -- --
Net income (loss)........................... 3.46 2.80 3.89 3.37 (.33) 2.51 .29
Fully diluted(1):
Before cumulative effect of changes in
accounting principles..................... 3.37 2.76 3.77 3.31 -- -- --
Cumulative effect of changes in accounting
principles,
net of tax................................ .03 -- -- -- -- -- --
Net income.................................. 3.40 2.76 3.77 3.31 -- -- --
Dividends(2).................................. 1.07 .90 1.23 1.20 1.10 2.00 1.92
Book value (at period-end).................... 30.07 26.50 27.33 24.35 22.22 24.07 23.52
Average shares outstanding:
Primary..................................... 80,579,969 74,415,982 75,219,642 60,562,567 59,189,692 58,266,909 54,826,319
Fully diluted............................... 84,359,232 78,230,227 80,523,116 64,785,955 63,005,045 62,082,312 61,654,603
</TABLE>
- ---------------
(1) Anti-dilutive in years prior to 1991.
(2) Represents the historical dividend of a predecessor corporation for the
first quarter of 1988. As a result of a change in the schedule of First
Fidelity Common Stock dividend declaration dates in 1990, the fourth quarter
of 1990 regular First Fidelity Common Stock dividend was declared January
17, 1991, payable on February 8, 1991, to shareholders of record on January
28, 1991.
10
<PAGE> 12
SELECTED FINANCIAL DATA OF FIRST FIDELITY (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------------- -------------------------------------------------------------------
1993 1992 1992 1991 1990 1989 1988
----------- ----------- ----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
RATIOS:
Capital ratios at period-end:
(regulatory minimum in
parentheses):
Tier I Capital/Risk-Adjusted
Assets (4.0%)(1)............ 10.44% 10.44% 9.93% 8.65% 5.92% 5.62% N/A
Total Risk-Based
Capital/Risk-Adjusted Assets
(8.0%)(1)................... 13.98 14.05 13.35 12.47 9.89 9.61 N/A
Tier I Capital/Total Assets
Less Intangibles (Leverage
Ratio) (3.0% to 5.0%)(1).... 7.20 6.76 6.47 5.98 4.31 4.46 N/A
Performance ratios:
Return on average assets(2)... 1.26 1.03 1.06 0.77 (0.02) 0.55 0.12%
Return on average
stockholders' equity(2)..... 16.29 14.80 15.18 13.69 (0.40) 10.13 2.03
Return on average common
stockholders' equity(3)..... 17.07 15.54 15.96 14.35 (1.42) 10.31 1.08
Average stockholders' equity
to
average assets.............. 7.73 6.98 7.01 5.63 5.10 5.47 5.69
Common dividend
payout(4)(5)................ 31 32 30 35 -- 80 662
FINANCIAL CONDITION AT PERIOD-END:
Assets.......................... $32,602,706 $28,866,745 $31,480,297 $30,215,229 $29,110,344 $30,727,815 $29,776,982
Loans........................... 20,275,840 16,673,476 18,377,695 17,341,517 18,530,304 19,631,808 19,537,090
Deposits........................ 27,378,006 23,595,758 27,004,835 25,218,550 23,080,110 22,872,460 21,562,439
Long-term debt.................. 613,184 589,543 581,508 918,885 1,116,987 780,438 563,094
Preferred stock................. 230,422 232,236 232,172 232,236 157,271 157,271 157,273
Common stockholders' equity..... 2,397,466 1,889,116 2,025,478 1,712,546 1,325,182 1,407,695 1,356,619
</TABLE>
- ---------------
(1) For 1993 and December 31, 1992, gives effect to recent changes to the
risk-based and leverage ratio calculations requiring the deduction of
intangibles except for limited amounts of purchased mortgage servicing
rights and purchased credit card rights and certain previously recorded
goodwill and other intangibles.
(2) Net income (loss) after cumulative effect of changes in accounting
principles.
(3) Net income (loss) applicable to First Fidelity Common Stock after cumulative
effect of changes in accounting principles.
(4) For the nine months ended September 30, 1993, dividend paid ($1.07) divided
by primary net income after cumulative effect of changes in
accounting principles.
(5) Not statistically meaningful in 1990.
11
<PAGE> 13
SELECTED FINANCIAL DATA OF PEOPLES
The following is selected consolidated financial data for Peoples and its
subsidiaries for the nine-month periods ended September 30, 1993 and 1992 and
for each of the five years ended December 31, 1988 through 1992. The
consolidated financial information for the nine-month periods ended September
30, 1993 and 1992 has not been audited, but in the opinion of the management of
Peoples, all adjustments necessary for a fair presentation have been included.
All such adjustments are of a normal, recurring nature, other than the
adjustments made for the cumulative effect of the change in the accounting
principle described in note 2 to the table below. The results of operations for
the nine months ended September 30, 1993 are not necessarily indicative of the
results of operations that may be expected for the entire year. The data is
qualified in its entirety by the detailed information and financial statements
included in the Peoples Form F-4 appearing as Appendix A to this Supplement and
the Peoples Form F-2 and the Financial Section of the Peoples 1992 Annual Report
appearing as Appendices C-1 and C-2, respectively, to the Proxy
Statement-Prospectus, and the other information contained in this Supplement and
the Proxy Statement-Prospectus.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
------------------ ----------------------------------------------------
1993 1992 1992 1991 1990 1989 1988
------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Interest and dividend income(1)....................... $84,616 $101,928 $133,252 $148,892 $153,740 $153,787 $136,292
Interest expense...................................... 36,067 50,326 63,960 90,769 100,556 102,154 84,591
------- -------- -------- -------- -------- -------- --------
Net interest income................................. 48,549 51,602 69,292 58,123 53,184 51,633 51,701
Provision for loan losses............................. (13,000) (6,425) (8,995) (7,885) (4,125) (2,370) (1,300)
------- -------- -------- -------- -------- -------- --------
Net interest income after provision for loan
losses............................................ 35,549 45,177 60,297 50,238 49,059 49,263 50,401
Net investment security gains (losses)................ 279 (443) 515 3,958 2,711 2,944 1,828
Other non-interest income............................. 4,722 4,325 6,490 5,661 4,152 4,815 4,710
Non-interest expense.................................. 40,675 38,353 51,454 49,731 47,621 39,760 34,419
------- -------- -------- -------- -------- -------- --------
(Loss) income before income tax (benefit) expense and
cumulative effect of change in accounting principle
and extraordinary item.............................. (125) 10,706 15,848 10,126 8,301 17,262 22,520
Income tax (benefit) expense.......................... (209) 5,794 8,728 5,500 5,116 7,175 8,557
------- -------- -------- -------- -------- -------- --------
Income before cumulative effect of change in
accounting principle and extraordinary item......... 84 4,912 7,120 4,626 3,185 10,087 13,963
Cumulative effect of change in accounting for income
taxes(2)............................................ 4,933 -- -- -- -- -- --
Extraordinary item -- Federal income tax benefit from
utilization of net operating loss carryforwards..... -- -- -- -- -- -- 340
------- -------- -------- -------- -------- -------- --------
Net income.......................................... $ 5,017 $ 4,912 $ 7,120 $ 4,626 $ 3,185 $ 10,087 $ 14,303
------- -------- -------- -------- -------- -------- --------
------- -------- -------- -------- -------- -------- --------
</TABLE>
- ---------------
(1) Interest and dividend income is not shown on a tax-equivalent basis, as the
effect thereof is not material.
(2) Cumulative effect at January 1, 1993 of change in accounting principle for
income taxes.
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
--------------------- ---------------------------------------------------------
1993 1992 1992 1991 1990 1989 1988
--------- --------- --------- --------- --------- --------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
PER COMMON SHARE(1):
Net income:
Primary and fully diluted:
Income before cumulative effect of change in
accounting principle and extraordinary
item...................................... $ .01 $ .93 $ 1.34 $ .87 $ .60 $ 1.90 $ 2.64
Cumulative effect of change in accounting
for income taxes.......................... .87 -- -- -- -- -- --
Extraordinary item -- Federal income tax
benefit from utilization of net operating
loss carryforwards........................ -- -- -- -- -- -- .06
Net income.................................. .88 .93 1.34 .87 .60 1.90 2.70
Dividends..................................... .45 .36 .51 .48 .48 .42 .10
Book value (at period-end).................... 31.75 31.06 31.29 30.09 29.51 30.38 28.50
Average shares outstanding:
Primary and fully diluted................... 5,681,233 5,307,919 5,308,933 5,307,863 5,307,863 5,307,651 5,306,502
</TABLE>
- ---------------
(1) Shares subject to option under Peoples' stock option plan are considered
common stock equivalents for earnings per share calculations; however, these
options had no material dilutive effect prior to 1993.
12
<PAGE> 14
SELECTED FINANCIAL DATA OF PEOPLES (CONTINUED)
<TABLE>
<CAPTION>
NINE MONTHS
ENDED SEPTEMBER 30, YEAR ENDED DECEMBER 31,
----------------------- --------------------------------------------------------------
1993 1992 1992 1991 1990 1989 1988
---------- ---------- ---------- ---------- ---------- ---------- ----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
RATIOS:
Capital ratios at period-end:
(regulatory minimum in parentheses):
Tier 1 Capital/Risk-Adjusted Assets
(4.0%)............................. 15.41% 13.07% 13.71% 11.60% 12.61% N/A N/A
Total Risk-Based
Capital/Risk-Adjusted Assets
(8.0%)............................. 16.58 13.80 14.53 12.21 13.22 N/A N/A
Tier 1 Capital/Total Assets Less
Intangibles (Leverage Ratio) (3.0%
to 5.0%)........................... 10.11 9.07 9.11 8.60 9.44 9.59% 9.14%
Performance ratios:
Return on average assets(1).......... .38 .36 0.40 0.27 0.19 0.61 0.92
Return on average stockholders'
equity(1).......................... 3.90 4.07 4.41 2.87 1.96 6.40 9.94
Average stockholders' equity to
average assets..................... 9.82 8.92 8.99 9.32 9.67 9.51 9.29
Common dividend payout............... 48.46 38.90 38.03 55.08 80.00 21.33 3.53
FINANCIAL CONDITION AT PERIOD-END:
Assets................................. $1,696,708 $1,785,361 $1,797,273 $1,814,575 $1,658,946 $1,681,122 $1,654,625
Loans.................................. 950,687 1,027,030 980,767 1,096,614 1,015,327 995,787 1,067,027
Deposits............................... 1,447,892 1,541,418 1,551,499 1,578,210 1,404,383 1,402,665 1,329,954
Stockholders' equity................... 173,590 164,867 166,262 159,722 156,634 161,253 151,264
</TABLE>
- ---------------
(1) Net income after cumulative effect of change in accounting principle and
extraordinary item.
13
<PAGE> 15
INTRODUCTION
This Supplement contains important information for the holders of record of
Peoples Common Stock as of December 30, 1993 concerning the elections to be made
in connection with the Merger.
PLEASE READ THIS SUPPLEMENT AND THE PROXY STATEMENT-PROSPECTUS CAREFULLY.
THE FAILURE OF A PEOPLES SHAREHOLDER OF RECORD TO PROPERLY COMPLETE AND DELIVER
THE ACCOMPANYING ELECTION FORM, TOGETHER WITH CERTIFICATES REPRESENTING THE
SHARES OF PEOPLES COMMON STOCK TO WHICH THAT ELECTION FORM RELATES, TO ONE OF
THE PROPER LOCATIONS SPECIFIED BELOW BY 5:00 P.M., NEW YORK TIME, ON FEBRUARY 2,
1994 (THE "ELECTION DEADLINE") AND TO COMPLY WITH THE PROCEDURES DESCRIBED IN
THIS SUPPLEMENT AND THE INSTRUCTIONS TO THE ELECTION FORM WILL CAUSE SUCH
SHAREHOLDER TO BE DEEMED TO HAVE EXPRESSED NO PREFERENCE AND TO RECEIVE EITHER
CASH OR FIRST FIDELITY COMMON STOCK, DEPENDING UPON THE ELECTIONS MADE BY OTHER
PEOPLES SHAREHOLDERS. IF A SHAREHOLDER IS DEEMED TO HAVE EXPRESSED NO PREFERENCE
AND IF EITHER THE NUMBER OF SHARES OF PEOPLES COMMON STOCK WITH RESPECT TO WHICH
CASH ELECTIONS ARE MADE EXCEEDS THE NUMBER OF SHARES WHICH CAN BE CONVERTED INTO
CASH OR THE NUMBER OF SHARES OF PEOPLES COMMON STOCK WITH RESPECT TO WHICH STOCK
ELECTIONS ARE MADE EXCEEDS THE NUMBER OF SHARES WHICH CAN BE CONVERTED INTO
SHARES OF FIRST FIDELITY COMMON STOCK, SUCH SHAREHOLDER WILL RECEIVE THE FORM OF
CONSIDERATION THAT WAS NOT OVERSUBSCRIBED.
- --------------------------------------------------------------------------------
IMPORTANT: To make a valid election, record holders of Peoples Common Stock
as of December 30, 1993 must complete and return the accompanying Election Form
and the certificates with respect to all of the shares of Peoples Common Stock
to which the Election Form relates, in accordance with the instructions on the
Election Form. A properly completed Election Form must be received by the
Exchange Agent at one of the proper locations specified in the Election Form by
the Election Deadline (5:00 P.M., New York Time, on February 2, 1994) together
with certificate(s) representing all of the Peoples Common Stock to which the
Election Form relates (see Instructions to the accompanying Election Form).
- --------------------------------------------------------------------------------
ALL ELECTION FORMS MUST BE ACTUALLY RECEIVED BY THE EXCHANGE AGENT AT ONE
OF THE PROPER LOCATIONS LISTED BELOW BY THE ELECTION DEADLINE. THE EXCHANGE
AGENT AND THE PROPER LOCATIONS ARE:
FIRST FIDELITY BANK, N.A., NEW JERSEY
<TABLE>
<S> <C>
By Hand/Overnight Delivery: By Mail:
First Fidelity Bank, N.A., New Jersey First Fidelity Bank, N.A., New Jersey
Corporate Trust/ P.O. Box 1380
Reorganization Department Newark, New Jersey 07101
10 Bank Street, 4th Floor
Newark, New Jersey 07102
</TABLE>
It is recommended that certificates be sent via certified mail and
appropriately insured.
If you have any questions, you should contact the Exchange Agent toll-free
at (800) 458-0924.
Stock certificates representing the shares of First Fidelity Common Stock
issued in the Merger, checks in payment of fractional shares, and checks in
payment of cash paid in the Merger are expected to be distributed to holders of
First Fidelity Common Stock within ten (10) business days after the Election
Deadline.
SUMMARY OF THE MERGER
CONSUMMATION
The Merger of Peoples with and into FFB-NY was consummated on December 30,
1993 pursuant to the terms contained in the Merger Agreement and as described in
the Proxy Statement-Prospectus. See "THE MERGER -- the Merger" in the Proxy
Statement-Prospectus.
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<PAGE> 16
CONSIDERATION FOR PEOPLES SHARES
The Merger Agreement provides that upon consummation of the Merger, and
subject to the election and allocation procedures provided for therein and
described herein, all the issued and outstanding shares of Peoples Common Stock
held by a holder of Peoples Common Stock immediately prior to the Effective Time
were converted into the right to receive for each share of Peoples Common Stock
either (i) $40.86 in cash without interest (such cash amount being hereinafter
referred to as the "Cash Price") or (ii) 0.9390 of a share of First Fidelity
Common Stock and cash in lieu of fractional shares (such number of shares being
hereinafter referred to as the "Exchange Ratio" or the "Stock Consideration").
Pursuant to and as provided in the Merger Agreement, the number of shares
of Peoples Common Stock to be converted into the right to receive cash in the
Merger has been fixed at approximately 3.0 million shares (the "Cash Conversion
Number"), or approximately 54% of the Peoples shares outstanding, and the number
of shares of Peoples Common Stock to be converted into the right to receive
shares of First Fidelity Common Stock in the Merger has been fixed at
approximately 2.6 million shares (the "Stock Conversion Number"), or
approximately 46% of the Peoples shares outstanding. See "ELECTION AND
ALLOCATION PROCEDURES."
Depending upon the market value of First Fidelity Common Stock at the time
of receipt, it is possible that the market value of the First Fidelity Common
Stock to be received for each share of Peoples Common Stock will be worth more
or less than the $40.86 to be received under the Cash Price alternative. Based
upon the closing price of First Fidelity Common Stock of $45.50 on December 30,
1993 and on the exchange ratio of 0.9390 of a share of First Fidelity Common
Stock, the market value of the First Fidelity Common Stock to be received would
be $42.72 per share of Peoples Common Stock. As the market price for First
Fidelity Common Stock is likely to fluctuate, a shareholder should consider
current price information prior to making an election. In addition, shareholders
who receive First Fidelity Common Stock can expect to receive the dividend
typically declared by First Fidelity in January and payable in early February.
The foregoing discussion does not take into account various factors that may
affect the value to a particular Peoples shareholder of any consideration
received, including, for example, federal, state and local tax consequences. See
"FEDERAL INCOME TAX CONSEQUENCES."
ELECTION AND ALLOCATION PROCEDURES
The following is a summary of information concerning the election and
allocation procedures which are applicable to the Merger. The procedures for
completing the enclosed Election Form are described in detail in such Election
Form and the accompanying instructions, which shareholders are urged to read
carefully. The terms of such conversion and such procedures are set forth in the
Merger Agreement and are also described in the Proxy Statement-Prospectus under
the heading "THE MERGER."
DESCRIPTION OF ELECTIONS
Each record holder of Peoples Common Stock as of December 30, 1993 is
requested to indicate, by completing and delivering to the Exchange Agent an
Election Form, whether such shareholder would prefer to make a (i) cash election
("Cash Election" or "Peoples Cash Election Shares"), (ii) a stock election
("Stock Election" or "Peoples Stock Election Shares") or (iii) to indicate that
such holder makes no election ("No Election" or "Peoples No-Election Shares").
Such elections will be subject to the allocation procedures described below.
Failure to make an election, as well as an ineffective election, will result in
a record holder's shares being deemed Peoples No-Election Shares. See "ELECTION
AND ALLOCATION PROCEDURES."
Each holder of record is entitled to make an election and submit an
Election Form covering all shares of Peoples Common Stock actually held of
record by such holder. Nominee record holders, which includes any nominee, any
trustee or any other person that holds shares of Peoples Common Stock in any
capacity whatsoever on behalf of another person or entity, are entitled to make
an election for such nominee record holder as well as an election on behalf of
each beneficial owner of shares of Peoples Common Stock held through such
nominee record holder, but such election must be made on one Election Form.
Beneficial owners who are not record holders are not entitled to submit Election
Forms.
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<PAGE> 17
Pursuant to and as provided in the Merger Agreement, the number of shares
of Peoples Common Stock to be converted into the right to receive cash in the
Merger has been fixed at approximately 3.0 million shares (the "Cash Conversion
Number"), or approximately 54% of the Peoples shares outstanding, and the number
of shares of Peoples Common Stock to be converted into the right to receive
First Fidelity Common Stock in the Merger has been fixed at approximately 2.6
million shares (the "Stock Conversion Number"), or approximately 46% of the
Peoples shares outstanding. The actual numbers of shares of Peoples Common Stock
to be converted into cash or First Fidelity Common Stock may vary slightly from
such numbers. Accordingly, there can be no assurance that each Peoples
shareholder will receive the form of consideration which such holder elects. In
the event that the elections result in an oversubscription of either First
Fidelity Common Stock or cash, the procedures for allocating First Fidelity
Common Stock and cash, described below under "Allocation," will be followed by
the Exchange Agent.
Neither a Cash Election nor a Stock Election will be effective if the
Election Form is not properly completed and signed by each holder of record of
Peoples Common Stock as of December 30, 1993, and actually received by the
Exchange Agent at one of the proper locations specified in the Election Form by
the Election Deadline. For a Cash Election or a Stock Election to be effective,
a properly completed and signed Election Form must be received on time and be
accompanied by the certificate or certificates representing all of the Peoples
Common Stock held of record by the holder of record submitting the Election
Form. If a certificate for Peoples Common Stock has been lost, stolen or
destroyed, the holder is requested to immediately contact the Exchange Agent for
instructions as to how to submit a valid election. See Instruction 12 set forth
in the accompanying Election Form. THE ELECTION DEADLINE IS 5:00 P.M., NEW YORK
TIME, ON FEBRUARY 2, 1994. Shareholders who indicate No Election on the Election
Form are also asked to send in the certificate or certificates representing
their Peoples Common Stock when they return their completed Election Form. Any
Cash Election, Stock Election or No Election may be revoked, but only by written
notice actually received by the Exchange Agent at one of the proper locations
specified in the Election Form by February 2, 1994.
First Fidelity has the discretion, which it may delegate in whole or in
part to the Exchange Agent, to determine whether Election Forms have been
properly completed, signed and submitted or revoked and to disregard immaterial
defects in Election Forms and revocations. The decisions of First Fidelity or of
the Exchange Agent with respect to the effectiveness of any Election Form will
be conclusive and binding. Allocations will be made by the Exchange Agent and
will be conclusive and binding on holders of Peoples Common Stock.
IF A SHAREHOLDER DOES NOT MAKE AN EFFECTIVE CASH ELECTION, STOCK ELECTION
OR NO ELECTION (WHICH WOULD RESULT, FOR EXAMPLE, FROM THE FAILURE TO SEND TO THE
EXCHANGE AGENT CERTIFICATES REPRESENTING PEOPLES COMMON STOCK WITH A PROPERLY
COMPLETED ELECTION FORM OR FROM THE EXCHANGE AGENT NOT ACTUALLY RECEIVING THE
PROPER DOCUMENTS AT ONE OF THE PROPER LOCATIONS SPECIFIED IN THE ELECTION FORM
BY THE ELECTION DEADLINE), THE SHAREHOLDER WILL BE DEEMED NOT TO HAVE MADE AN
ELECTION AND WILL BE DEEMED TO HAVE INDICATED NO ELECTION WITH RESPECT TO
RECEIVING EITHER FIRST FIDELITY COMMON STOCK OR CASH FOR ALL OF SUCH
SHAREHOLDER'S SHARES. NEITHER FIRST FIDELITY NOR THE EXCHANGE AGENT WILL BE
UNDER ANY OBLIGATION TO NOTIFY ANY PERSON OF ANY DEFECT IN AN ELECTION FORM OR
REVOCATION SUBMITTED TO THE EXCHANGE AGENT.
In determining whether to make a Cash Election, a Stock Election or No
Election, shareholders of Peoples should consult their own financial and tax
advisors. NO RECOMMENDATION IS MADE WITH RESPECT TO WHETHER A CASH ELECTION,
STOCK ELECTION OR NO ELECTION SHOULD BE MADE.
ALLOCATION
Within five business days after the Election Deadline, the Exchange Agent
will be required to effectuate the allocation among holders of Peoples Common
Stock to receive First Fidelity Common Stock or cash in the Merger, as described
below.
If the number of Peoples Stock Election Shares is less than the Stock
Conversion Number (which, pursuant to the Merger Agreement, has been fixed at
approximately 2.6 million shares, or approximately 46% of the Peoples shares
outstanding), then:
(i) all Peoples Stock Election Shares will be converted into First
Fidelity Common Stock;
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<PAGE> 18
(ii) the Exchange Agent will select first from among the holders of
Peoples No-Election Shares and then (if necessary) from among the holders
of Peoples Cash Election Shares, by random selection, a sufficient number
of such holders ("Stock Designees") so that the number of shares of Peoples
Common Stock held by the Stock Designees will, when added to the number of
Peoples Stock Election Shares, equal as closely as practicable the Stock
Conversion Number, and all shares held by the Stock Designees will be
converted into First Fidelity Common Stock; and
(iii) the Peoples Cash Election Shares and the Peoples No-Election
Shares not held by Stock Designees will be converted into cash.
If the number of Peoples Stock Election Shares is greater than the Stock
Conversion Number (which, pursuant to the Merger Agreement, has been fixed at
approximately 2.6 million shares or approximately 46% of the Peoples shares
outstanding), then:
(i) all Peoples Cash Election Shares will be converted into cash;
(ii) the Exchange Agent will select first from among the holders of
Peoples No-Election Shares and then (if necessary) from among the holders
of Peoples Stock Election Shares, by random selection, a sufficient number
of such holders ("Cash Designees") so that the number of shares of Peoples
Common Stock held by the Cash Designees will, when added to the number of
Peoples Cash Election Shares, equal as closely as practicable the Cash
Conversion Number, and all shares held by the Cash Designees will be
converted into the right to receive cash; and
(iii) the Peoples Stock Election Shares and Peoples No-Election Shares
not held by Cash Designees will be converted into First Fidelity Common
Stock.
If the number of Peoples Stock Election Shares is equal or nearly equal (as
determined by the Exchange Agent) to the Stock Conversion Number, then all
Peoples Stock Election Shares will be converted into First Fidelity Common
Stock, and all Peoples Cash Election Shares and Peoples No-Election Shares will
be converted into the right to receive cash.
If the number of Peoples Cash Election Shares is equal or nearly equal (as
determined by the Exchange Agent) to the Cash Conversion Number, then all
Peoples Cash Election Shares will be converted into the right to receive cash,
and all Peoples Stock Election Shares and Peoples No-Election Shares will be
converted into First Fidelity Common Stock.
In the event that both the number of Peoples Cash Election Shares is less
than the Cash Conversion Number and the number of Peoples Stock Election Shares
is less than the Stock Conversion Number, then all Peoples Cash Election Shares
will be converted into the right to receive cash and all Peoples Stock Election
Shares will be converted into the right to receive First Fidelity Common Stock.
All other shares of Peoples Common Stock will be converted into the right to
receive cash or First Fidelity Common Stock by random selection so that the
Stock Conversion Number and the Cash Conversion Number are equalled as closely
as possible.
As agreed upon by Peoples and First Fidelity, the random selection process
to be used by the Exchange Agent for purposes of the foregoing will consist of
drawing by lot or such other process as the Exchange Agent deems equitable and
necessary to effect such allocations.
ISSUANCE OF STOCK AND PAYMENT OF CASH TO EXCHANGE AGENT
On the Effective Date, First Fidelity issued to the Exchange Agent
2,442,083 shares of First Fidelity Common Stock and $122,853,990 of cash payable
in the Merger. Upon completion of the allocation procedure described above,
First Fidelity will, if necessary, issue to the Exchange Agent additional shares
of First Fidelity Common Stock in exchange for cash or will pay to the Exchange
Agent additional cash in exchange for First Fidelity Common Stock, as may be
required to effect the conversion of Peoples Common Stock as contemplated by the
Merger Agreement. The Exchange Agent will not be entitled to vote or exercise
any rights of ownership with respect to the shares of First Fidelity Common
Stock held by it pursuant to the
17
<PAGE> 19
Merger Agreement, except that it will receive and hold all dividends or other
distributions paid or distributed with respect to such shares for the account of
the persons entitled thereto.
DELIVERY OF FIRST FIDELITY COMMON STOCK AND CASH
On December 30, 1993, holders of certificates representing Peoples Common
Stock ceased to have any rights as shareholders of Peoples and now only have the
right to receive the cash or First Fidelity Common Stock into which their
Peoples Common Stock are to be converted. First Fidelity will mail a Letter of
Transmittal (for use in submitting to the Exchange Agent certificates which
represented Peoples Common Stock prior to the Merger) as promptly as practicable
after the Election Deadline to all Peoples shareholders of record on December
30, 1993 who do not submit such certificates to the Exchange Agent in connection
with the Election Form. No further action will be required of those record
holders of Peoples Common Stock who submit such certificates to the Exchange
Agent with their Election Form.
After the completion of the foregoing allocation, each holder of an
outstanding certificate or certificates, which prior thereto represented
outstanding shares of Peoples Common Stock, who surrenders to the Exchange Agent
such certificate or certificates, will be entitled, upon acceptance of such
certificates by the Exchange Agent, to (i) a certificate or certificates
representing the number of full shares of First Fidelity Common Stock or the
amount of cash into which the aggregate number of shares of Peoples Common Stock
previously represented by such certificate or certificates surrendered has been
converted pursuant to the Merger Agreement and (ii) any other distribution
theretofore paid with respect to the First Fidelity Common Stock issuable to
such holder in the Merger, if such holder's shares of Peoples Common Stock have
been converted into First Fidelity Common Stock in the Merger, in each case
without interest. The Exchange Agent will accept such certificates upon
compliance with such reasonable terms and conditions as the Exchange Agent may
impose to effect an orderly exchange thereof in accordance with normal exchange
practices.
No holder of certificates formerly representing Peoples Common Stock will
be entitled to receive either cash or First Fidelity Common Stock until he or
she surrenders such certificates to the Exchange Agent and no interest will
accrue in respect thereof. Each share of First Fidelity Common Stock for which
shares of Peoples Common Stock are exchanged in the Merger will be deemed to
have been issued on December 30, 1993. Accordingly, Peoples shareholders who
receive First Fidelity Common Stock in the Merger will be entitled to receive
any dividends or other distributions, without interest and less any applicable
withholding taxes imposed thereon, which may be payable to holders of record of
First Fidelity Common Stock after December 30, 1993. However, no dividends or
other distributions will actually be paid on such First Fidelity Common Stock to
any holder until the certificate or certificates formerly representing the
Peoples Common Stock have been surrendered.
Stock certificates will not be delivered for fractional shares resulting
from the exchange of Peoples Common Stock for First Fidelity Common Stock.
Instead, each holder of Peoples Common Stock who would otherwise be entitled to
a fractional share will receive in lieu thereof a check in an amount equal to
such fractional share multiplied by $45.875.
It is expected that within ten business days after the Election Deadline,
the Exchange Agent will distribute First Fidelity Common Stock and cash with
respect to shares of Peoples Common Stock covered by effective Election Forms.
No dividends which have been declared on First Fidelity Common Stock will be
remitted to any person whose shares of Peoples Common Stock have been converted
into shares of First Fidelity Common Stock in the Merger until such person
surrenders the certificate or certificates previously representing Peoples
Common Stock, at which time such dividends shall be remitted to such person
without interest.
Neither First Fidelity nor the Exchange Agent will be liable to any former
holder of Peoples Common Stock for any amount properly delivered to a public
official pursuant to applicable abandoned property, escheat or similar laws.
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COMPLETION OF THE ELECTION FORM
Elections by record holders of shares of Peoples Common Stock must be made
by properly completing and signing an Election Form (a copy of which is
enclosed) or a photocopy thereof, and delivering it to the Exchange Agent at one
of the proper locations specified in the Election Form by the Election Deadline.
Detailed instructions for completing the Election Form are set forth on the
Election Form.
An election will have been validly made by a holder of shares of Peoples
Common Stock only if that holder's properly completed and signed Election Form,
accompanied by the certificates representing all shares of Peoples Common Stock
to which such Election Form relates, is actually received by the Exchange Agent
at one of the proper locations specified in the Election Form by the Election
Deadline (5:00 P.M., New York Time, on February 2, 1994). See Instructions 1 and
3 to the Election Form.
Special rules are provided for elections made by nominee record holders.
See Instruction 13 and Box A to the Election Form.
Peoples shareholders who have made elections will be permitted to change
their elections or revoke their elections in accordance with the procedures and
within the time deadlines set forth in Instruction 2 to the Election Form.
Peoples shareholders who wish to have certificates for First Fidelity
Common Stock or checks for fractional shares or cash to be paid in the Merger
issued in names or mailed to addresses different than those of the record
holders of Peoples Common Stock must comply with Instruction 10 to the Election
Form.
NO ELECTION WILL BE EFFECTIVE UNLESS (I) THE ELECTION FORM IS SIGNED BY A
HOLDER OF RECORD OF PEOPLES COMMON STOCK AS OF DECEMBER 30, 1993, (II) THE
ELECTION FORM IS PROPERLY COMPLETED AND ACCOMPANIED BY THE CERTIFICATE(S)
REPRESENTING ALL OF THE SHARES OF PEOPLES COMMON STOCK TO WHICH THE ELECTION
FORM RELATES AND (III) ALL SUCH MATERIALS ARE ACTUALLY RECEIVED BY THE EXCHANGE
AGENT AT ONE OF THE PROPER LOCATIONS SPECIFIED IN THE ELECTION FORM BY THE
ELECTION DEADLINE.
CERTAIN FEDERAL INCOME TAX CONSEQUENCES
The following discussion of the principal federal income tax consequences
of the Merger is based upon the provisions of the Code, the regulations
thereunder, judicial authority, administrative rulings and practice as of the
date hereof and the opinion of Wachtell, Lipton, Rosen & Katz ("Wachtell"). The
following discussion does not address the federal income tax consequences to
special classes of taxpayers, including, without limitation, foreign
corporations, tax exempt entities and persons who acquired their Peoples Common
Stock pursuant to the exercise of an employee option or otherwise as
compensation. Each of First Fidelity and Peoples have received an opinion of
Wachtell, counsel for Peoples, dated as of the Effective Date, substantially to
the effect that the Merger will be treated as a reorganization within the
meaning of Section 368(a) of the Code and, accordingly, no gain or loss will be
recognized by Peoples, First Fidelity or FFB-NY as a result of the Merger. This
discussion is based upon representations contained in certificates provided by
officers of Peoples and First Fidelity, respectively. No ruling has been
requested from the Internal Revenue Service (the "Service") with respect to the
federal income tax consequences of the Merger.
Peoples shareholders are encouraged to consult a tax advisor concerning the
federal income tax consequences of the Merger in their particular circumstances,
as well as any tax consequences arising under foreign, state or local law.
EXCHANGE OF PEOPLES COMMON STOCK SOLELY FOR FIRST FIDELITY COMMON STOCK
A Peoples shareholder who, pursuant to the Merger, exchanges all of the
Peoples Common Stock that such holder owns solely for First Fidelity Common
Stock will not recognize any gain or loss upon such exchange. The aggregate tax
basis of First Fidelity Common Stock received by such a holder in exchange for
Peoples Common Stock will equal such holder's tax basis in the Peoples Common
Stock surrendered. If such shares of Peoples Common Stock are held as capital
assets at the Effective Time, the holding period of the
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First Fidelity Common Stock received will include the holding period of the
Peoples Common Stock surrendered therefor. Peoples shareholders should consult a
tax advisor as to the determination of their tax basis and holding period in any
one share of First Fidelity Common Stock, as several methods of determination
may be available.
No fractional shares of First Fidelity Common Stock will be issued pursuant
to the Merger. A Peoples shareholder who receives cash pursuant to the Merger in
lieu of a fractional share interest will be treated as having received such
fractional share pursuant to the Merger, and then as having exchanged such
fractional share for cash in a redemption by First Fidelity subject to Section
302(a) of the Code, provided that such deemed redemption is "substantially
disproportionate" with respect to such Peoples shareholder or is "not
essentially equivalent to a dividend." If the First Fidelity Common Stock
represents a capital asset in the hands of the shareholder, then the shareholder
will generally recognize capital gain or loss on such a deemed redemption of the
fractional share in an amount determined by the difference between the amount of
cash received for such fractional share and the shareholder's tax basis in the
fractional share.
EXCHANGE OF PEOPLES COMMON STOCK SOLELY FOR CASH
A Peoples shareholder who, pursuant to the Merger, exchanges such holder's
Peoples Common Stock for cash will be treated as having had such Peoples Common
Stock redeemed. Such deemed redemption will be subject to Section 302 of the
Code, with the result that such a holder will recognize capital gain or loss
equal to the difference between the amount of cash received and the holder's tax
basis in the Peoples Common Stock exchanged if (x) the shares of Peoples Common
Stock exchanged are held as capital assets at the Effective Time and (y) the
deemed redemption is "substantially disproportionate" with respect to such
holder or is "not essentially equivalent to a dividend." Peoples shareholders
should consult a tax advisor concerning the possibility that all or a portion of
any cash received in exchange for Peoples Common Stock will be treated as
dividend income.
DISSENTERS' SHARES
Peoples shareholders who exercise appraisal rights will be treated as
having received the fair value of the Peoples Common Stock, as determined in the
appraisal rights proceeding, in redemption of the Peoples Common Stock subject
to the proceeding. Such deemed redemption will be subject to Section 302(a) of
the Code, if such deemed redemption is "substantially disproportionate" with
respect to the Peoples shareholder who exercises appraisal rights or is "not
essentially equivalent to a dividend," with the result that a holder who
exercises appraisal rights will recognize gain or loss equal to the difference
between the amount realized and such holder's tax basis in the Peoples Common
Stock subject to the proceeding. Any such gain or loss recognized on such
redemption will be treated as capital gain or loss if the Peoples Common Stock
with respect to which appraisal rights were exercised were held as capital
assets.
BACKUP WITHHOLDING
Unless an exemption applies under the applicable law and regulations, the
Exchange Agent will be required to withhold 31 percent of any cash payments to
which a stockholder or other payee is entitled pursuant to the Merger unless the
stockholder or other payee provides its taxpayer identification number (social
security number or employer identification number) and certifies that such
number is correct. Each stockholder and, if applicable, each other payee should
complete and sign the substitute Form W-9 included as part of the transmittal
letter that accompanies the Election Form, so as to provide the information and
certification necessary to avoid backup withholding, unless an applicable
exemption exists and is established in a manner satisfactory to First Fidelity
and the Exchange Agent.
THE FEDERAL INCOME TAX DISCUSSION SET FORTH ABOVE DOES NOT NECESSARILY SET
FORTH ALL OF THE TAX CONSEQUENCES OF THE MERGER THAT MAY BE RELEVANT TO ALL
PEOPLES SHAREHOLDERS IN ALL CIRCUMSTANCES. PEOPLES SHAREHOLDERS SHOULD THEREFORE
CONSULT A TAX ADVISOR AS TO THE SPECIFIC TAX CONSEQUENCES OF THE MERGER IN THEIR
PARTICULAR CIRCUMSTANCES, INCLUDING THE APPLICATION AND EFFECT OF FEDERAL,
STATE, LOCAL AND OTHER TAX LAWS.
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DESCRIPTION OF FIRST FIDELITY CAPITAL STOCK
See "DESCRIPTION OF FIRST FIDELITY CAPITAL STOCK" in the Proxy Statement-
Prospectus.
CERTAIN REGULATORY CONSIDERATIONS
See "CERTAIN REGULATORY CONSIDERATIONS" in the Proxy Statement-Prospectus.
EXPERTS
The consolidated statements of condition of Peoples and its subsidiaries as
of December 31, 1992 and 1991, and the related consolidated statements of income
and changes in stockholders' equity and cash flows for each of the years in the
three-year period ended December 31, 1992, included in the Peoples Form F-2 for
the year ended December 31, 1992, have been incorporated by reference herein in
reliance upon the report of KPMG Peat Marwick, included in the Peoples Financial
Section and upon the authority of KPMG Peat Marwick as experts in accounting and
auditing.
The consolidated statements of condition of First Fidelity and its
subsidiaries as of December 31, 1992 and 1991, and the related consolidated
statements of income and changes in stockholders' equity and cash flows for each
of the years in the three-year period ended December 31, 1992, included in the
First Fidelity Form 10-K and incorporated by reference in this Supplement, have
been incorporated by reference herein in reliance upon the report of KPMG Peat
Marwick, incorporated by reference herein, and upon the authority of KPMG Peat
Marwick as experts in accounting and auditing.
The consolidated statements of condition of Northeast and its subsidiaries
as of December 31, 1992 and 1991 and the related consolidated statements of
income, changes in capital and cash flows for each of the years in the
three-year period ended December 31, 1992 have been included in First Fidelity's
Current Report on Form 8-K dated May 4, 1993, as amended by Form 8-K/A, filed
with the Commission on June 2, 1993, which is incorporated by reference in this
Supplement. Such financial statements have been so incorporated in reliance on
the report (which contains an explanatory paragraph relating to Northeast's
ability to continue as a going concern as described in Note 16 to Northeast's
1992 consolidated financial statements) of Price Waterhouse, independent
accountants, given on the authority of said firm as experts in auditing and
accounting.
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Appendix A
FEDERAL DEPOSIT INSURANCE CORPORATION
WASHINGTON, D.C. 20429
Form F-4
QUARTERLY REPORT
UNDER SECTION 13 OF THE
SECURITIES EXCHANGE ACT OF 1934 FOR
THE QUARTER ENDED SEPTEMBER 30, 1993
FDIC Insurance Certificate No. 16044
PEOPLES WESTCHESTER SAVINGS BANK
(Exact name of bank as specified in its charter)
Three Skyline Drive, Hawthorne, New York 10532
(Address of principal executive offices)
New York
(State or other jurisdiction of incorporation or organization)
13-1737024
(I.R.S. Employer Identification Number)
(914) 347-3800
(Bank's telephone number, including area code)
Indicate by check mark whether the Bank (1) has filed all reports required to
be filed by Section 13 of the Securities Exchange Act of 1934 during the
preceding 12 months (or for such shorter period that the Bank was required to
file such reports), and (2) has been subject to such filing requirements for
the past 90 days. Yes [X] No [ ]
Indicate the number of shares outstanding of each of the Bank's classes of
common stock, as of the latest practicable date:
5,470,702 shares of Common Stock, par value
$1.00 per share as of November 5, 1993
<PAGE> 24
TABLE OF CONTENTS
<TABLE>
<S> <C>
I. CONSOLIDATED FINANCIAL STATEMENTS Page
A. STATEMENTS OF CONDITION 1
B. STATEMENTS OF INCOME 2
C. STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY 3
D. STATEMENTS OF CASH FLOWS 4
E. NOTES TO FINANCIAL STATEMENTS 5
II. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL
CONDITION AND RESULTS OF OPERATIONS 7
III. SIGNATURES 29
IV. EXHIBITS TO MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
EXHIBIT A. SUPPLEMENTAL FINANCIAL INFORMATION
QUARTERLY STATEMENTS OF INCOME 30
EXHIBIT B. SUPPLEMENTAL FINANCIAL INFORMATION
AVERAGE BALANCES AND YIELD/RATES 31
EXHIBIT C. SUPPLEMENTAL FINANCIAL INFORMATION
INTEREST RATE SENSITIVITY ANALYSIS 32
</TABLE>
<PAGE> 25
ITEM I
CONSOLIDATED STATEMENTS OF CONDITION
Peoples Westchester Savings Bank
<TABLE>
<CAPTION>
(Unaudited) September 30, December 31,
In thousands, except share data 1993 1992(1)
-----------------------------------------------------------------------------------
<S> <C> <C>
ASSETS
Cash and due from banks $ 36,843 $ 40,923
Federal funds sold 45,296 56,239
Investment securities, net
(estimated market value of $364,007
in 1993 and $314,097 in 1992) 357,538 310,434
Mortgage backed and related securities,
(estimated market value of $254,033
in 1993 and $352,977 in 1992) 246,479 347,173
Loans, net:
Mortgage 640,121 627,886
Commercial 161,838 197,957
Consumer 148,728 154,924
Less allowance for loan losses (15,106) (10,882)
---------- ----------
Loans, net 935,581 969,885
---------- ----------
Accrued interest receivable 11,583 13,731
Real estate investments, net 25,630 26,555
Premises and equipment, net 14,618 15,075
Other assets 23,140 17,258
---------- ----------
Total assets $1,696,708 $1,797,273
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Deposits $1,447,892 $1,551,499
Borrowings 44,628 49,600
Other liabilities 30,598 29,912
---------- ---------
Total liabilities 1,523,118 1,631,011
Stockholders' equity: ---------- ---------
Preferred stock, par value $1.00 per share;
3,000,000 shares authorized; - -
none issued or outstanding
Common stock, par value $1.00 per share;
10,000,000 shares authorized;
shares issued and outstanding---
5,466,601 in 1993 and 5,313,963 in 1992 5,467 5,314
Paid-in capital 74,856 72,546
Retained earnings 93,267 90,681
Net unrealized depreciation on
marketable equity securities - (2,279)
---------- ----------
Total stockholders' equity 173,590 166,262
---------- ----------
Total liabilities and stockholders' equity $1,696,708 $1,797,273
========== ==========
</TABLE>
(1) Amounts for December 31, 1992 are derived from audited consolidated
financial statements.
See accompanying notes to consolidated financial statements.
1
<PAGE> 26
CONSOLIDATED STATEMENTS OF INCOME
Peoples Westchester Savings Bank
<TABLE>
<CAPTION>
Three Months Ended Nine Months Ended
(Unaudited) September 30, September 30,
------------------ -----------------
In thousands, except per share data 1993 1992 1993 1992
--------------------------------------------------------------------------------------
<S> <C> <C> <C> <C>
Interest and dividend income:
Loans:
Mortgage $11,886 $13,757 $36,042 $43,824
Commercial 2,643 3,760 8,746 13,003
Consumer 3,055 3,773 9,862 12,051
------- ------- ------- -------
Total interest on loans 17,584 21,290 54,650 68,878
Investment securities 4,490 3,186 12,779 8,856
Mortgage backed and related securities 4,431 7,130 15,296 21,487
Other 631 848 1,891 2,707
------- ------- ------- -------
Total interest and dividend income 27,136 32,454 84,616 101,928
Interest expense: ------- ------- ------- -------
Deposits 10,139 14,106 33,015 47,050
Borrowings 979 1,068 3,052 3,276
------- ------- ------- -------
Total interest expense 11,118 15,174 36,067 50,326
------- ------- ------- -------
Net interest income 16,018 17,280 48,549 51,602
Provision for loan losses (3,000) (2,175) (13,000) (6,425)
Net interest income after provision ------- ------- ------- -------
for loan losses 13,018 15,105 35,549 45,177
Non-interest income: ------- ------- ------- -------
Net investment security gains (losses) 657 (299) 279 (443)
Service charges and fees 1,182 1,278 3,667 3,721
Other 350 201 1,055 604
------- ------- ------- -------
Total non-interest income 2,189 1,180 5,001 3,882
Non-interest expense: ------- ------- ------- -------
General and administrative expense:
Compensation and benefits 6,279 6,041 19,603 17,475
Occupancy and equipment 2,203 2,038 6,479 6,323
Advertising 841 645 2,220 1,927
FDIC deposit insurance premiums 858 897 2,624 2,694
Other 2,938 2,624 8,580 7,965
------- ------- ------- -------
Total general and administrative expense 13,119 12,245 39,506 36,384
Loss on real estate investments 271 948 1,169 1,969
------- ------- ------- -------
Total non-interest expense 13,390 13,193 40,675 38,353
------- ------- ------- -------
Income (loss) before income tax expense
(benefit) and cumulative effect of
accounting change 1,817 3,092 (125) 10,706
Income tax expense (benefit) 245 1,410 (209) 5,794
Income before cumulative effect of ------- ------- ------- -------
accounting change 1,572 1,682 84 4,912
Cumulative effect of change in accounting
for income taxes - - 4,933 -
------- ------- ------- -------
Net income $ 1,572 $ 1,682 $ 5,017 $ 4,912
Earnings per common share: ======= ======= ======= =======
Income before cumulative effect of
accounting change $ 0.27 $ 0.32 $ 0.01 $ 0.93
Cumulative effect of change in accounting
for income taxes - - 0.87 -
------- ------- ------- -------
Net income $ 0.27 $ 0.32 $ 0.88 $ 0.93
======= ======= ======= =======
</TABLE>
See accompanying notes to consolidated financial statements.
2
<PAGE> 27
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
Peoples Westchester Savings Bank
<TABLE>
<CAPTION>
Net Unrealized
Depreciation
(Unaudited) on Marketable
(In thousands, except share data) Common Paid-in Retained Equity
Nine months ended September 30, 1992 Stock Capital Earnings Securities Total
-------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Balance at December 31, 1991 $5,308 $72,457 $86,269 $(4,312) $159,722
Net income - - 4,912 - 4,912
Cash dividends paid on
common stock ($0.36 per share) - - (1,911) - (1,911)
Issuance of 600 common shares upon
exercise of options - 8 - - 8
Decrease in net unrealized depreciation
on marketable equity securities - - - 2,136 2,136
------ ------- ------- ------- --------
Balance at September 30, 1992 $5,308 $72,465 $89,270 $(2,176) $164,867
====== ======= ======= ======= ========
1993
Balance at December 31, 1992 5,314 $72,546 $90,681 $(2,279) $166,262
Net income - - 5,017 - 5,017
Cash dividends paid on
common stock ($0.45 per share) - - (2,431) - (2,431)
Issuance of 152,638 common shares upon
exercise of options 153 2,310 - - 2,463
Decrease in net unrealized depreciation
on marketable equity securities - - - 2,279 2,279
------ ------- ------- ------- --------
Balance at September 30, 1993 $5,467 $74,856 $93,267 $ - $173,590
====== ======= ======= ======= ========
</TABLE>
See accompanying notes to consolidated financial statements.
3
<PAGE> 28
CONSOLIDATED STATEMENTS OF CASH FLOWS
Peoples Westchester Savings Bank
<TABLE>
<CAPTION>
Nine Months Ended
(Unaudited) September 30
----------------------
In thousands 1993 1992
--------------------------------------------------------------------------------
<S> <C> <C>
Cash flows from operating activities:
Interest and dividends received $ 89,216 $ 104,731
Non-interest cash receipts 4,493 3,836
Interest paid (35,508) (49,900)
Compensation and benefits paid (18,212) (17,829)
Payments for other non-interest expenses (18,965) (18,101)
Income taxes paid (3,682) (5,880)
--------- ---------
Net cash provided by operating activities 17,342 16,857
Cash flows from investing activities: --------- ---------
Investment securities purchased (152,182) (150,309)
Proceeds from sales of investment securities 29,508 107,368
Proceeds from maturities and redemptions
of investment securities 76,246 36,015
Mortgage backed and related securities purchased - (131,410)
Principal collections on mortgage backed
and related securities 99,588 53,121
Net receipts for loan originations
and principal collections 31,892 35,722
Disbursements for loan purchases (19,400) (26,418)
Proceeds from sales of loans 8,956 57,666
Expenditures for investments in real estate (3,133) (3,852)
Return of investments in real estate 3,658 7,631
Purchases of premises and equipment (1,032) (2,348)
Other investing cash flows, net 1,304 (1,215)
Net cash (used in) provided by --------- ---------
investing activities 75,405 (18,029)
Cash flows from financing activities: --------- ---------
Net decrease in deposits (103,503) (36,792)
Repayment of other borrowings (4,972) (854)
Cash dividends paid on common stock (2,431) (1,911)
Other financing cash flows, net 3,136 3,667
--------- ---------
Net cash used in financing activities (107,770) (35,890)
--------- ---------
Net decrease in cash and cash equivalents (15,023) (37,062)
Cash and cash equivalents at beginning of period 97,162 104,024
--------- ---------
Cash and cash equivalents at end of period $ 82,139 $ 66,962
Reconcilation of net income to net cash ========= =========
provided by operating activities:
Net income $ 5,017 $ 4,912
Net investment security gains (579) (357)
Provision for losses on equity securities 300 800
Provision for loan losses 13,000 6,425
Provision for losses on real estate investments 1,091 1,308
Depreciation and amortization 1,462 1,561
Amortization of intangible assets 531 849
Net decrease in accrued interest receivable 2,148 2,368
Net increase in prepaid expenses (1,674) (2,133)
Net increase in accrued expenses 2,132 323
Net change in income tax assets and liabilities (3,891) (86)
Cumulative effect of change in accounting
for income taxes (4,933) -
Other reconciling items, net 2,738 887
--------- ---------
Net cash provided by operating activities $ 17,342 $ 16,857
Supplemental disclosure of non-cash investing ========= =========
and financing activities:
Foreclosed and in-substance foreclosed loans
transferred to real estate investments $ 809 $ 1,708
Loans originated in connection with sales
of foreclosed real estate - 4,253
========= =========
</TABLE>
See accompanying notes to consolidated financial statements.
4
<PAGE> 29
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
Peoples Westchester Savings Bank
(Unaudited)
September 30, 1993
NOTE 1
GENERAL
The consolidated financial statements in this report have not been audited,
with the exception of the information derived from the audited Consolidated
Statement of Condition as of December 31, 1992. In the opinion of management,
all adjustments necessary for a fair presentation of the financial position
and results of operations for the interim periods have been made. All such
adjustments are of a normal recurring nature. In preparing the consolidated
financial statements, management is required to make estimates and assumptions
that affect the reported amounts of assets, liabilities, revenues, and
expenses. Material estimates that are particularly susceptible to significant
change in the near term relate to the determination of the allowances for
losses on loans and real estate investments.
These statements should be read in conjunction with the bank's 1992 Annual
Report on Form F-2. Results of operations for the three- and nine-month
periods ended September 30, 1993 are not necessarily indicative of the results
of operations which may be expected for the full year 1993 or any other
interim periods.
NOTE 2
STOCKHOLDERS' EQUITY
The authorized common stock of the bank consists of 10,000,000 shares of
common stock at $1.00 par value. Common shares issued and outstanding were
5,466,601 at September 30, 1993; 5,313,963 at December 31, 1992; and 5,308,463
at September 30, 1992.
The bank is also authorized to issue up to 3,000,000 shares of preferred
stock, the preferences, limitations, and relative rights of which may be
established by resolution of the Board of Directors. The bank has not issued
any preferred stock.
NOTE 3
EARNINGS PER COMMON SHARE
Earnings per common share were based on the weighted average number of common
shares outstanding, 5,728,602 and 5,681,233, respectively, for the three- and
nine-month periods ended September 30, 1993, and 5,308,029 and 5,307,919,
respectively, for the three- and nine-month periods ended September 30, 1992.
Shares granted but not yet issued under the bank's stock option plan were
reflected in the calculation for the three- and nine-month periods ended
September 30, 1993. The weighted average shares for these two periods
respectively include 265,656 shares and 285,788 shares of common stock option
grants that have not yet been exercised.
5
<PAGE> 30
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued)
(Unaudited)
NOTE 4
LOAN COMMITMENTS, LINES OF CREDIT, AND LETTERS OF CREDIT
In the normal course of business, there are various outstanding commitments
and contingent liabilities, such as commitments to extend credit and other
transactions, which are not reflected in the consolidated financial
statements. A summary of these commitments and contingent liabilities at
September 30, 1993 is presented below.
LOAN COMMITMENTS, LINES OF CREDIT, AND LETTERS OF CREDIT
<TABLE>
<CAPTION>
September 30, 1993
(in thousands) Amounts
-----------------------------------------------------------------------
<S> <C>
Loan origination commitments and unadvanced lines of credit:
Mortgage loans $ 48,700
Commercial loans 64,600
Consumer loans 9,300
--------
Total $122,600
========
Standby letters of credit $ 5,300
========
</TABLE>
At September 30, 1993, the bank had forward commitments to sell mortgage loans
of approximately $0.6 million. The bank also has agreed to sell to the Student
Loan Marketing Association ("Sallie Mae") substantially all of the student
loans it originates through October 31, 1995. The balance of loans held for
sale to Sallie Mae at September 30, 1993 was $3.4 million. These student loan
sales will be made at prices equal to or in excess of the carrying value of
the loans.
NOTE 5
ACCOUNTING STANDARDS
Statement of Financial Accounting Standard ("SFAS") No. 106, "Accounting for
Postretirement Benefits Other Than Pensions," was issued in December 1990.
This standard, which requires that the cost of postretirement benefits other
than pensions be recognized on an accrual basis as employees perform services
to earn such benefits, was adopted by the bank on a prospective basis in the
first quarter of 1993. The periodic expense recognized in the first, second,
and third quarters of 1993 for the cost of these benefits was $652,000,
$649,000, and $650,000, respectively.
The bank also adopted SFAS No. 109, "Accounting for Income Taxes," which
requires the use of an asset and liability method of accounting for income
taxes. The cumulative effect of the accounting change resulted in an increase
to net income of $4.9 million in the consolidated statement of income for the
three months ended March 31, 1993.
6
<PAGE> 31
ITEM II
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF
OPERATIONS
On October 7, 1993, at a Special Meeting of Shareholders held at the
Westchester Marriott Hotel in Tarrytown, New York, more than 80% of outstanding
shares of Peoples Westchester Savings Bank common stock were voted in favor of
the bank's proposed merger with and into First Fidelity Bank, N.A., New York
("FFB-NY"), a wholly-owned national bank subsidiary of First Fidelity
Bancorporation ("First Fidelity").
Of 5,464,501 shares outstanding and eligible to vote at the meeting, 4,379,830,
or 80.15%, were voted in favor of the merger; 112,493 shares, or 2.06%, were
voted against the merger, and 34,584 shares, or 0.63%, abstained.
The merger is now pending the approval of the Office of the Comptroller of the
Currency ("OCC").
In connection with the proposed merger, the bank has incurred higher
professional service fees and printing and postage expenses than would
otherwise be expected. These expenses are included in general and
administrative ("G&A") expense on the bank's Consolidated Statements of Income
for both the three- and nine-month periods of 1993.
Earnings Summary
For the third quarter of 1993, the bank reported net income of $1.6 million, or
$0.27 per share, in contrast to a second quarter 1993 loss of $1.8 million, or
$0.31 per share, and third quarter 1992 net income of $1.7 million, or $0.32
per share.
Compared to the third quarter of 1992, the current third quarter net income
reflected a $1.3 million decrease in net interest income to $16.0 million; an
$825,000 increase in the provision for loan losses to $3.0 million; and an
$874,000 increase to $13.1 million in the bank's G&A expense. These factors
were largely offset by a $1.0 million increase in non-interest income to $2.2
million; a $677,000 decline in losses on real estate investments to $271,000;
and a $1.2 million decrease to $245,000 in income tax expense.
Compared to 1992 nine-month net income of $4.9 million, the bank's 1993 net
income of $5.0 million included $4.9 million stemming from its first quarter
adoption of Statement of Financial Accounting Standard ("SFAS") No. 109,
"Accounting for Income Taxes," and $84,000 in income before the cumulative
effect of this accounting change.
7
<PAGE> 32
Excluding the impact of SFAS No. 109, the current nine-month earnings reflected
a $3.1 million decrease in net interest income to $48.5 million; a $6.6 million
rise in the provision for loan losses to $13.0 million; and a $3.1 million
increase to $39.5 million in G&A expense.
These factors were only partly offset by a $1.1 million rise in non-interest
income to $5.0 million; an $800,000 decline in the loss on real estate
investments to $1.2 million; and an income tax benefit of $209,000, as opposed
to income tax expense of $5.8 million for the first nine months of 1992.
SELECTED STATISTICAL DATA
TABLE 1
<TABLE>
<CAPTION>
1993 1992 1993 1992
At or for the At or for the At or for the At or for the
Quarter Ended Quarter Ended Nine Months Ended Nine Months Ended
------------------------- ------------- ----------------- -----------------
September 30 June 30 September 30 September 30 September 30
-------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Return on average assets 0.36% (0.41)% 0.37% 0.38% 0.36%
Return on average stockholders' equity 3.65 (4.11) 4.15 3.90 4.07
Earnings (loss) per common share:
Income (loss) before cumulative effect
of accounting change $ 0.27 $(0.31) $ 0.32 $ 0.01 $ 0.93
Cumulative effect of change in accounting
for income taxes - - - 0.87 -
------ ------ ------ ------ ------
Net income (loss) $ 0.27 $(0.31) $ 0.32 $ 0.88 $ 0.93
====== ====== ====== ====== ======
Net interest margin 3.87% 3.86% 3.98% 3.86% 3.97%
Net interest spread 3.49 3.46 3.57 3.47 3.53
Common equity to total assets:
Period end 10.23 9.94 9.23 10.23 9.23
Average 9.99 9.95 8.99 9.82 8.92
Book value per common share $31.75 $31.64 $31.06 $31.75 $31.06
Dividends declared per common share 0.15 0.15 0.12 0.45 0.36
Common dividend payout ratio 52.16% n/m 37.87% 48.46% 38.90%
Nonperforming assets as a percent
of total assets 3.08 3.11 2.48 3.08 2.48
Allowance for loan losses as a percent
of total loans 1.59 1.57 0.96 1.59 0.96
Interest rate sensitivity gap (one year) 0.74 (0.22) 0.82 0.74 0.82
Closing market price $40.38 $40.13 $19.00 $40.38 $19.00
n/m = not meaningful ====== ====== ====== ====== ======
</TABLE>
Net Interest Income
Net interest income is the bank's primary source of earnings; its level is
affected significantly by the difference between the yield earned on the bank's
interest earning assets and the rate paid on its interest bearing liabilities
(i.e., its interest rate spread), and by the relative dollar amounts of those
assets and liabilities. These factors are, in turn, affected by current
economic conditions, as well as by the monetary policy of the Federal Reserve
Board of Governors.
8
<PAGE> 33
For the three months ended September 30, 1993, the bank reported net interest
income of $16.0 million, down $1.3 million, or 7.3%, from the $17.3 million
reported for the three months ended September 30, 1992.
For the first nine months of 1993, the bank's net interest income was $48.5
million, representing a decline of $3.1 million, or 5.9%, from the $51.6
million reported for the first nine months of 1992.
These reductions primarily stemmed from a $76.3 million, or 7.4%, decline in
total loans outstanding over the twelve-month period, reflecting continuing
weakness in the bank's local marketplace. Total loans declined to $950.7
million at September 30, 1993 from $1.0 billion at the prior September 30th,
largely due to a $57.8 million decline in commercial loans.
The declines in net interest income also reflect a narrowing of the bank's
interest rate spread and net interest margin, which were 3.49% and 3.87%,
respectively, for the three months ended September 30, 1993. For the
year-earlier third quarter, the bank had reported an interest rate spread and
net interest margin of 3.57% and 3.98%, respectively.
INTEREST EARNING ASSETS:
The average yield on interest earning assets declined by 93 basis points to
6.55% for the third quarter of 1993 from 7.48% for the third quarter of 1992.
This decline reflected substantial reductions in the average yields on each of
the bank's earning assets: loans declined 84 basis points, to 7.43%; investment
securities dropped 58 basis points, to 4.93%; mortgage backed and related
securities fell 76 basis points, to 6.71%; and money market investments and
other earning assets declined 58 basis points, to 3.08%.
For the third quarter of 1993, average earning assets were $1.7 billion, down
$77.7 million from the average in the third quarter of 1992. The 4.5% decline
was due to an $117.7 million, or 30.8%, decrease in average mortgage backed and
related securities; an $82.4 million, or 8.0%, reduction in average loans to
$946.8 million, and a $10.9 million, or 11.7%, decline in average money market
investments and other earning assets. These reductions were largely offset,
however, by a $133.2 million, or 57.5%, increase in average investment
securities to $364.7 million.
9
<PAGE> 34
The rise in investment securities primarily reflects management's decision to
deploy more of the bank's cash flows into U.S. Government and Agency bonds than
into loans and mortgage backed and related securities during an extended period
of economic weakness in the local marketplace. Because the rate of interest
yielded by investment securities is less than that yielded by loans and the
bank's remaining earning assets, the rise in investment securities has
contributed to the decline in the bank's net interest margin and interest rate
spread.
INTEREST BEARING LIABILITIES:
The average cost of interest bearing funds declined 85 basis points to 3.06%
for the third quarter of 1993 from 3.91% for the third quarter of 1992.
Average interest bearing funds declined $99.0 million, or 6.4%, to $1.5
billion, largely reflecting a $95.4 million, or 6.3%, reduction in average
interest bearing deposits, coupled with a $3.6 million, or 7.1%, reduction in
average borrowings.
Savings accounts represented 56.3% of average interest bearing deposits, up
from 48.8% for the third quarter of 1992. Certificates of deposit ("CDs")
represented 23.7% of the average, down from 30.7%.
Average savings account balances rose $58.9 million, or 8.0%, from 1992's third
quarter, while average CD balances declined by $127.4 million, or 27.6%. The
coinciding rise in average savings account balances and decline in average CD
balances reflect the disinclination of consumers to commit their savings to
long-term and low-yielding savings products, such as CDs.
Compared to the third quarter of 1992, the interest cost of savings accounts
declined 90 basis points to 2.75% for the current quarter, while the interest
cost of CDs declined 81 basis points to 3.99%.
Average borrowings declined $3.6 million, or 7.1%, to $46.7 million, while the
average interest cost of borrowings declined 12 basis points to 8.38%.
The difference between the 93-basis point decline in the average yield on
interest earning assets and the 85-basis point decline in the average cost of
interest bearing liabilities was 8 basis points, accounting for the narrowing
of the interest rate spread to 3.49% in the third quarter of 1993 from 3.57% in
the third quarter of 1992.
10
<PAGE> 35
SUMMARY OF NET INTEREST INCOME
Table 2
<TABLE>
<CAPTION>
Average Balance Average Yield/Rate Interest Income/Expense
------------------------------- ------------------------- -------------------------
1993 1992 1993 1992 1993 1992
------------------- ------- ---------------- ------- ---------------- -------
Third Second Third Third Second Third Third Second Third
Dollars in thousands Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter Quarter
------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Earning assets:
Loans (1) $ 946,773 $ 953,887 $1,029,155 7.43% 7.72% 8.27% $17,584 $18,401 $21,290
Investment securities 364,660 343,660 231,493 4.93 4.96 5.51 4,490 4,262 3,186
Mortgage backed and
related securities 264,297 303,072 381,968 6.71 6.72 7.47 4,431 5,090 7,130
Money market investments and
other earning assets (2) 81,940 78,986 92,793 3.08 3.04 3.66 631 600 848
---------- ---------- ---------- ------- ------- -------
Total $1,657,670 $1,679,605 $1,735,409 6.55 6.75 7.48 $27,136 $28,353 $32,454
========== ========== ========== ======= ======= =======
Interest bearing funds:
NOW $ 115,737 $ 116,165 $ 112,876 1.40 1.43 1.91 $ 405 $ 416 $ 538
Savings 792,737 787,843 733,839 2.75 3.12 3.65 5,442 6,148 6,705
Money market 146,892 152,483 176,223 2.35 2.35 2.78 863 894 1,225
Certificates of deposit 333,687 356,429 461,084 3.99 4.01 4.80 3,330 3,575 5,536
Mortgage escrow 19,249 16,583 19,715 2.06 2.15 2.07 99 89 102
---------- ---------- ---------- ------- ------- -------
Total interest bearing deposits 1,408,302 1,429,503 1,503,737 2.88 3.11 3.75 10,139 11,122 14,106
Borrowings 46,705 48,099 50,274 8.38 8.47 8.50 979 1,019 1,068
---------- ---------- ---------- ------- ------- -------
Total interest bearing funds 1,455,007 1,477,602 1,554,011 3.06 3.29 3.91 $11,118 $12,141 $15,174
Excess of interest earning assets
over interest bearing funds 202,663 202,003 181,398
---------- ---------- ----------
Total $1,657,670 $1,679,605 $1,735,409
========== ========== ==========
Net interest income $16,018 $16,212 $17,280
======= ======= =======
Interest rate spread 3.49 3.46 3.57
Net interest margin 3.87 3.86 3.98
==== ==== ====
</TABLE>
(1) Average loan balances include nonperforming loans.
(2) Average money market investments and other earning assets include real
estate investments other than foreclosed and in-substance foreclosed
real estate.
RATE/VOLUME ANALYSIS
Table 3
The following table presents changes in interest and dividend
income, and in interest expense, attributable to (i) changes in rate
(change in average rate multiplied by prior period balance or volume);
(ii) changes in volume (change in average volume multiplied by prior
period rate); and (iii) the combined effect of changes in average rate
and in average volume.
<TABLE>
<CAPTION>
Third Quarter 1993 Compared Third Quarter 1993 Compared
to Second Quarter 1993 to Third Quarter 1992
------------------------------------ ------------------------------------
Change Due to Change Due to
Total ------------------------ Total ------------------------
In thousands Change Rate Volume Combined Change Rate Volume Combined
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest and dividend income:
Loans $ (817) $ (692) $ (137) $ 12 $(3,706) $(2,161) $(1,703) $ 158
Investment securities 228 (26) 260 (6) 1,304 (336) 1,834 (194)
Mortgage backed and
related securities (659) (8) (651) - (2,699) (726) (2,198) 225
Money market investments
and other earning assets 31 8 22 1 (217) (135) (99) 17
Total change in interest ------- ------- ------- ------- ------- ------- ------- -------
and dividend income $(1,217) $ (718) $ (506) $ 7 $(5,318) $(3,358) $(2,166) $ 206
======= ======= ======= ======= ======= ======= ======= =======
Interest expense:
Interest bearing deposits
NOW $ (11) $ (9) $ (2) $ - $ (133) $ (144) $ 14 $ (3)
Savings (706) (729) 38 (15) (1,263) (1,651) 537 (149)
Money market (31) - (33) 2 (362) (189) (204) 31
Certificates of deposit (245) (18) (228) 1 (2,206) (934) (1,529) 257
Mortgage escrow 10 (4) 14 - (3) - (2) (1)
------- ------- ------- ------- ------- ------- ------- -------
Total (983) (760) (211) (12) (3,967) (2,918) (1,184) 135
Borrowings (40) (11) (30) 1 (89) (15) (76) 2
------- ------- ------- ------- ------- ------- ------- -------
Total change in
interest expense $(1,023) $ (771) $ (241) $ (11) $(4,056) $(2,933) $(1,260) $ 137
======= ======= ======= ======= ======= ======= ======= =======
Change in net interest income $ (194) $ 53 $ (265) $ 18 $(1,262) $ (425) $ (906) $ 69
======= ======= ======= ======= ======= ======= ======= =======
</TABLE>
11
<PAGE> 36
Provision For Loan Losses
The provision for loan losses is based on management's periodic evaluation of
the adequacy of the allowance for loan losses, which considers such factors as
the bank's past loan loss experience, its current level of nonperforming and
other past due loans, its estimate of potential losses stemming from other loan
portfolio risk elements, and economic conditions in the marketplace it serves.
Throughout 1993, the bank's asset quality has been compromised by persistent
economic weakness throughout Westchester County and in the surrounding
communities served by the bank. As a result, the bank recorded higher
provisions in both the three- and nine-month periods relative to the
comparable periods in 1992.
For the third quarter of 1993, the bank's provision for loan losses was $3.0
million, down $4.0 million from the $7.0 million reported for the current
year's second quarter but up $825,000 from the $2.2 million reported for the
third quarter of 1992.
For the first nine months of 1993, the bank's provision for loan losses was
$13.0 million, up $3.0 million from the $10.0 provision recorded for the six
months ended June 30, 1993 and up $6.6 million from the $6.4 million reported
for the nine months ended September 30, 1992.
Nonperforming assets totaled $52.2 million, or 3.08% of total assets, a modest
decline from $54.0 million, or 3.11% of total assets, at June 30, 1993, but up
$8.0 million from the $44.2 million, or 2.48% of total assets, recorded at
September 30, 1992.
The bank's allowance for loan losses rose to $15.1 million, or 1.59% of loans
outstanding, from $14.9 million, or 1.57%, at June 30, 1993, and from $9.9
million, or 0.96%, at September 30, 1992. Net charge-offs were $2.8 million at
the close of the current quarter, compared to $4.1 million and $2.1 million,
respectively, at June 30, 1993 and September 30, 1992.
If current economic conditions continue within the bank's lending area,
nonperforming assets and loan charge-offs will likely increase, necessitating
higher provisions for loan losses and greater loan loss reserves.
See "Asset Quality" on page 21 for an additional discussion of the bank's
nonperforming loans and the allowance for loan losses.
12
<PAGE> 37
Non-Interest Income
Non-interest income typically stems from net investment security gains, service
charges and fees, and other sources of non-interest income, including gains on
sales of residential mortgage loans and fees earned on the sale of annuities
and mutual funds.
The sale of annuities and mutual funds has represented a significant source of
non-interest income to the bank since the prior year's third quarter, when
Marketing Distributing Systems, Inc., a New Jersey-based firm, was retained to
sell such alternative investments through the bank's branch network. For the
three months ended September 30, 1993, combined sales of annuities and mutual
funds totaled $14.2 million; for the first nine months of the year, sales
totaled $42.1 million.
In the third quarter of 1993, the bank's non-interest income rose substantially
to $2.2 million from $1.2 million in the comparable quarter of 1992.
The $1.0 million, or 85.5%, rise was substantially due to a $956,000 swing in
net investment security gains from net investment security losses and to a
$214,000 increase in fees earned on the sale of annuities and mutual funds.
The bank reported net investment security gains of $657,000 in the current
third quarter, compared to net investment security losses of $299,000 in the
prior year's third quarter, while fees earned on the sale of alternative
investments rose to $216,000 from $2,000.
These improvements were only partially offset by a $96,000, or 7.5%, decrease
in service charges and fees to $1.2 million, and by an $81,000 decline in net
gains on sales of residential mortgage loans.
For the nine months ended September 30, 1993, the bank reported non-interest
income of $5.0 million, up $1.1 million, or 28.8%, from the $3.9 million
reported for the prior nine-month period.
This increase was primarily due to a $722,000 swing in net investment
securities gains from net investment security losses and from a $700,000
improvement in fees earned on the sale of annuities and mutual funds. In 1993,
the bank reported nine-month net investment security gains of $279,000, versus
net investment security losses of $443,000 in the first nine months of 1992.
Fees earned on combined sales of annuities and mutual funds rose to $712,000
from $12,000 during the same time period.
13
<PAGE> 38
Compared to the nine months ended September 30, 1992, service charges and
fees declined a modest $54,000 to $3.7 million, while net gains on sales of
residential mortgage loans declined $396,000 to $45,000. During the three and
nine months ended September 30, 1993, and in anticipation of its proposed
merger with and into FFB-NY, the bank refrained from selling residential
mortgage loans to the extent that it had in 1992.
SUMMARY OF NON-INTEREST INCOME
Table 4
<TABLE>
<CAPTION>
1993 1992 1993 1992
----------------- ------- ------ ------
Third Second Third Nine Nine Y-T-D
In thousands Quarter Quarter Quarter Months Months Change
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Net investment security gains (losses) $ 657 $ (251) $ (299) $ 279 $ (443) $ 722
Service charges and fees:
Service charges on deposit accounts 859 908 937 2,709 2,772 (63)
Other service charges and fees 323 348 341 958 949 9
------ ------ ------ ------ ------ ------
Total service charges and fees 1,182 1,256 1,278 3,667 3,721 (54)
------ ------ ------ ------ ------ ------
Other:
Net gains on sales of residential mortgage loans 5 33 86 45 441 (396)
Other 345 345 115 1,010 163 847
------ ------ ------ ------ ------ ------
Total other 350 378 201 1,055 604 451
------ ------ ------ ------ ------ ------
Total non-interest income $2,189 $1,383 $1,180 $5,001 $3,882 $1,119
====== ====== ====== ====== ====== ======
</TABLE>
Non-Interest Expense
Non-interest expense, consisting of G&A expense and the loss on real estate
investments, totaled $13.4 million for the three months ended September
30, 1993, up $197,000, or 1.5%, from $13.2 million for the three months ended
September 30, 1992. The increase was substantially due to an $874,000, or 7.1%,
rise in G&A expense to $13.1 million, which was largely offset by a $677,000, or
71.4%, decline in the loss on real estate investments to $271,000.
The third quarter increase in G&A expense primarily stemmed from a $298,000
increase in employee benefits relating to the bank's adoption of SFAS
No. 106, "Accounting for Postretirement Benefits Other Than Pensions" and from a
$254,000 increase in professional service fees (primarily legal) relating to the
proposed merger with and into FFB-NY.
The decline in the loss on real estate investments reflects lower provisions
for losses on real estate development properties and lower operating losses
in the current period.
For the nine months ended September 30, 1993, the bank recorded non-interest
expense of $40.7 million, up $2.3 million, or 6.1%, from $38.4 million for the
year-earlier nine-month period. The increase stemmed from a $3.1 million, or
8.6%, rise in G&A expense to $39.5 million, which was somewhat offset by an
$800,000 or 40.6%, decline in the loss on real estate investments for the
current nine months.
14
<PAGE> 39
The rise in nine-month G&A expense primarily reflects a $1.7 million, or 38.3%,
increase in employee benefits and an $827,000 increase in professional service
fees. The increase in employee benefits stemmed from the bank's first quarter
1993 adoption of SFAS No. 106, as previously mentioned, while the rise in
professional service fees stemmed from consultations with legal and financial
advisors regarding the proposed merger.
G&A EXPENSE:
Compensation and benefits rose $238,000, or 3.9%, to $6.3 million for the
current third quarter from $6.0 million for the third quarter of 1992. While
salaries and wages declined $60,000 to $4.5 million in the current quarter,
benefit-related expenses rose $298,000, or 20.3%, to $1.8 million from $1.5
million during the same period.
The decline in compensation reflects a reduction in the number of bank
employees, to 557 at September 30, 1993 from 611 at September 30, 1992. The
simultaneous rise in benefits reflects $650,000 stemming from the adoption of
SFAS No. 106, as previously mentioned; this rise was partly offset by a
$352,000 decline in other benefit-related expenses corresponding to the
reduction in the number of bank personnel.
Occupancy expense rose $117,000, or 10.0%, to $1.3 million in the current
quarter, while furniture and equipment expense rose $48,000, or 5.6%.
Advertising expense increased $196,000, or 30.4%, to $841,000, the result of an
institutional advertising campaign on local cable television stations and a
consumer loan promotion utilizing direct mail.
FDIC deposit insurance premiums declined a modest $39,000, or 4.3%, to
$858,000, reflecting the decrease in total deposits from the level recorded at
September 30, 1992.
Other G&A expense rose $314,000, or 12.0%, to $2.9 million, substantially due
to the $254,000, or 48.8%, increase in professional service fees to $774,000,
described earlier. To a lesser extent, the rise in other G&A expense stemmed
from a $35,000, or 17.9%, rise in stationery and supplies expense to $231,000
and from a $158,000, or 11.6%, increase in miscellaneous sources of other G&A
expense to $1.5 million. These increases were partly offset by a $106,000, or
37.5%, decline in the amortization of core deposit premiums to $177,000 and by
a $27,000 decline in postage and telephone expense to $236,000.
15
<PAGE> 40
For the nine months ended September 30, 1993, G&A expense was $39.5 million,
up $3.1 million from the $36.4 million reported for the nine months ended
September 30, 1992. The 8.6% increase substantially stemmed from a $2.1
million, or 12.2%, increase in compensation and benefits and an $827,000, or
60.4%, increase in professional service fees. The increase in compensation and
benefits included $2.0 million that was SFAS No. 106-related, while the rise in
professional service fees reflected legal and other advisory fees relating to
the bank's proposed merger and its response to an unsolicited acquisition
proposal in the first quarter of the year.
The increase in nine-month G&A expense also included a $231,000, or 6.5%, rise
in occupancy expense to $3.8 million; a $293,000, or 15.2%, increase in
advertising to $2.2 million; a $103,000, or 17.5%, increase in stationery and
supplies to $693,000; and a $31,000 rise in miscellaneous sources of other G&A
expense to $4.4 million. These increases were only partly offset by a $75,000
decrease in furniture and equipment expense to $2.7 million; a $70,000 decline
in FDIC deposit insurance premiums to $2.6 million; a $28,000 decrease in
postage and telephone expense to $766,000; and a $318,000 reduction in the
amortization of core deposit insurance premiums to $531,000.
LOSS ON REAL ESTATE INVESTMENTS:
The bank's real estate investments ("REI") consist of properties acquired for
development and sale and of properties acquired by foreclosure and loans
classified as in-substance foreclosures ("ORE"). For the third quarter of
1993, the bank's loss on these investments was $271,000, a decline of $677,000,
or 71.4%, from the $948,000 reported for the third quarter of 1992.
The current loss on REI included $195,000 in operating losses on real estate
development properties and $76,000 in operating expenses relating to ORE.
The loss on REI in the year-ago third quarter consisted of a provision for
losses on real estate development properties of $400,000; operating losses on
these properties of $482,000; losses and expenses on ORE of $48,000; and a
provision for losses on ORE of $18,000.
For the nine months ended September 30, 1993, the loss on REI was $1.2
million, down $800,000, or 40.6%, from $2.0 million for the comparable nine
months in 1992.
The nine-month loss on REI in 1993 consisted of a provision for losses on REI
of $1.0 million, an operating loss of $122,000 on these investments, and a
$66,000 provision for losses on ORE. These losses were partially offset by a
$44,000 net gain on the sale of and operating income from ORE during the
current nine-month period.
16
<PAGE> 41
In contrast, the nine-month loss in 1992 consisted of a provision for losses on
REI of $1.2 million, an operating loss on these investments of $815,000, and a
provision for losses on ORE of $107,000. These losses were partly offset by a
$153,000 net gain on the sale of and operating income from ORE.
The provision for losses on the bank's real estate development properties is
based on management's projection of their estimated net realizable values.
Net realizable value refers to the estimated selling prices of said properties,
less the estimated costs of completion, holding, and disposal, and is based on
an appraisal of real estate market conditions in the areas where properties are
located.
Sales activity in the third quarter of 1993 showed some improvement from the
prior year's third quarter, with five closings recorded and six new contracts
signed during the current three months. However, operating losses from these
properties are likely to continue for the foreseeable future, and additional
provisions for losses may be required.
For more information about the bank's real estate investments, see page 23.
SUMMARY OF GENERAL AND ADMINISTRATIVE EXPENSE
TABLE 5
<TABLE>
<CAPTION>
1993 1992 1993 1992
------------------- ------- ------- -------
Third Second Third Nine Nine Y-T-D
In thousands Quarter Quarter Quarter Months Months Change
-----------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Salaries and wages $ 4,514 $ 4,549 $ 4,574 $13,483 $13,049 $ 434
Employee benefits 1,765 1,937 1,467 6,120 4,426 1,694
------- ------- ------- ------- ------- ------
Total compensation and benefits 6,279 6,486 6,041 19,603 17,475 2,128
------- ------- ------- ------- ------- ------
Occupancy expense 1,291 1,234 1,174 3,785 3,554 231
Furniture and equipment 912 891 864 2,694 2,769 (75)
Advertising 841 773 645 2,220 1,927 293
FDIC deposit insurance premiums 858 883 897 2,624 2,694 (70)
Other:
Professional services 774 901 520 2,196 1,369 827
Postage and telephone 236 283 263 766 794 (28)
Stationery and supplies 231 250 196 693 590 103
Amortization of core deposit premiums 177 177 283 531 849 (318)
Other 1,520 1,366 1,362 4,394 4,363 31
------- ------- ------- ------- ------- ------
Total other 2,938 2,977 2,624 8,580 7,965 615
------- ------- ------- ------- ------- ------
Total general and administrative expense $13,119 $13,244 $12,245 $39,506 $36,384 $3,122
======= ======= ======= ======= ======= ======
</TABLE>
Income Tax Expense
For the third quarter of 1993, the bank recorded income tax expense of
$245,000, a decline of $1.2 million from income tax expense of $1.4 million for
the third quarter of 1992. This decline reflects the $1.3 million reduction
in income before income tax expense to $1.8 million from $3.1 million.
17
<PAGE> 42
For the first nine months of 1993, the bank recorded an income tax benefit of
$209,000, in contrast to income tax expense of $5.8 million for the comparable
nine months of 1992. The tax benefit stemmed from the bank's $125,000 loss
before income tax expense for the current period, compared to income of $10.7
million before income tax expense for the comparable period in 1992.
Balance Sheet Summary
At September 30, 1993, the bank reported total assets of $1.7 billion,
including total loans of $950.7 million (down $76.3 million, or 7.4%, from $1.0
billion a year earlier); mortgage backed and related securities of $246.5
million (down $131.7 million, or 34.8% from $378.2 million); and net investment
securities of $357.5 million (up $108.2 million, or 43.4%, from $249.3
million).
For the third quarter of 1993, the bank reported average earning assets of $1.7
billion, down $21.9 million, or a modest 1.3%, from the year's second quarter
average, and down $77.7 million, or 4.5%, from the third quarter average in
1992. These reductions primarily reflect declines in average loans and
mortgage backed and related securities, which were largely offset by a
significant rise in average investment securities.
Average loans were $946.8 million in the current third quarter, representing a
nominal $7.1 million decrease from the second quarter average but an $82.4
million, or 8.0%, decline from $1.0 billion in the third quarter of 1992.
Comparing the third quarters of 1993 and 1992, the decline in average loans
stemmed primarily from a $53.7 million, or 25.1%, drop in average commercial
loans outstanding; average mortgage loans declined an additional $25.7 million,
or 3.9%, while average consumer loans dropped a comparatively modest $3.0
million, or 1.9%.
Average mortgage backed and related securities declined $38.8 million, or
12.8%, from the year's second quarter average and $117.7 million, or 30.8%,
from the average in the third quarter of 1992.
At $81.9 million, average money market investments and other earning assets
rose $3.0 million, or 3.7%, from the second quarter average but declined
$10.9 million, or 11.7%, from the average in the third quarter of last year.
18
<PAGE> 43
In contrast, average investment securities rose $21.0 million, or 6.1%, to
$364.7 million from $343.7 million in the current year's second quarter and
increased $133.2 million, or 57.5%, from the third quarter of 1992. The rise
in investment securities corresponds to management's cautious approach to
lending during a time of protracted weakness in the local economy.
Deposits totaled $1.4 billion at September 30, 1993, down $93.5 million, or
6.1%, from the year-earlier total; borrowings were $44.6 million, down $5.2
million, or 10.5%.
Interest bearing deposits averaged $1.4 billion during the current third
quarter, representing a $21.2 million, or 1.5%, decline from the second quarter
and a $95.4 million, or 6.3%, decline from the third quarter of 1992. The
reduction in average deposits reflects the movement of funds out of
lower-yielding savings products into higher-yielding investments such as
annuities and mutual funds.
Borrowings averaged $46.7 million during the current third quarter, signifying
a modest $1.4 million, or 2.9%, decline from the year's second quarter average
and a $3.6 million, or 7.1%, decrease from the average in the third quarter of
1992. The bank has maintained a policy of steadily paying down its borrowings,
which bear higher rates of interest than deposits, as a means of enhancing its
net interest spread and income.
Loans
At September 30, 1993, the bank reported total loans of $950.7 million,
including $640.1 million in mortgage loans (down $12.2 million, or 1.9%, from
the prior third quarter average); commercial loans of $161.8 million (down
$57.8 million, or 26.3%); and consumer loans of $148.7 million (down $6.3
million, or 4.1%). The general decline is indicative of the current economic
conditions, as well as management's cautious approach to lending during this
time.
In the third quarter of 1993, loans averaged $946.8 million, a $7.1 million
decrease from the second quarter average of $953.9 million and an $82.4
million decrease from the third quarter 1992 average of $1.0 billion. The
decline stemmed primarily from a reduction in commercial loans outstanding,
which averaged $160.3 million in the current third quarter, down $17.9 million,
or 10.0%, from $178.2 million in the year's second quarter and down $53.7
million, or 25.1%, from $214.0 million in the third quarter of 1992.
19
<PAGE> 44
Compared to the second quarter of 1993, average mortgage and average consumer
loans showed improvement in the third quarter, but declined from the levels
reported for the third quarter of 1992. In the current third quarter, mortgage
loans averaged $634.4 million, representing a $10.3 million, or 1.6% increase
from the second quarter average but a $25.7 million, or 3.9%, decline from the
third quarter of 1992. The higher average of mortgage loans in the current
quarter compared to the year's second quarter was not unexpected, as housing
sales typically increase during the summer months.
Consumer loans, meanwhile, averaged $152.1 million, up $481,000 from the year's
second quarter average of $151.6 million, and down a modest $3.0 million, or
1.9%, from the year-earlier average of $155.1%.
Mortgage Backed and Related Securities
For the third quarter of 1993, average mortgage backed and related securities
were $264.3 million, a reduction of $38.8 million, or 12.8%, from $303.1
million in the year's second quarter and a reduction of $117.7 million, or
30.8%, from $382.0 million in the third quarter of 1992. The reductions were
due to principal paydowns.
At September 30, 1993, the market value of the bank's mortgage backed and
related securities was $254.0 million, or 103.1% of carrying value, compared to
$292.2 million, or 103.4%, at June 30, 1993, and to $388.6 million, or 102.7%,
at September 30, 1992.
AVERAGE LOANS AND MORTGAGE BACKED AND RELATED SECURITIES
Table 6
<TABLE>
<CAPTION>
1993 1992 1993 1992
----------------------------------- ---------------- ---------------- ----------------
Third Second Third Nine Nine
Dollars in thousands Quarter % Quarter % Quarter % Months % Months %
- ------------------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Mortgage $ 634,346 52% $ 624,084 50% $ 660,033 47% $ 629,684 50% $ 676,004 47%
Commercial 160,301 13 178,158 14 213,973 15 170,836 14 231,943 16
Consumer 152,126 13 151,645 12 155,149 11 152,470 12 156,505 11
---------- --- ---------- --- ---------- --- ---------- --- ---------- ---
Total loans 946,773 78 953,887 76 1,029,155 73 952,990 76 1,064,452 74
Mortgage backed and related
securities 264,297 22 303,072 24 381,968 27 299,949 24 379,000 26
---------- --- ---------- --- ---------- --- ---------- --- ---------- ---
Total loans and mortgage
backed and related securities $1,211,070 100% $1,256,959 100% $1,411,123 100% $1,252,939 100% $1,443,452 100%
========== === ========== === ========== === ========== === ========== ===
</TABLE>
20
<PAGE> 45
Asset Quality
In the third quarter of 1993, the bank's asset quality continued to reflect the
persistent weakness of the local economy. At $52.2 million, nonperforming
assets were $1.7 million lower than the June 30, 1993 level of $54.0 million,
but $8.0 million higher than the $44.2 million level reported at September 30,
1992.
As a percentage of total assets, nonperforming assets were 3.08% at the close
of the current third quarter, compared to 3.11% and 2.48%, respectively, at
June 30, 1993 and September 30, 1992.
Nonperforming assets consist primarily of nonperforming loans and, to a lesser
extent, of foreclosed and in-substance foreclosed real estate. At September
30, 1993, nonperforming loans totaled $48.7 million, including $39.4 million in
loans on nonaccrual status and $9.3 million in restructured loans.
By comparison, nonperforming loans totaled $50.2 million at June 30, 1993 and
$40.0 million at September 30, 1992. The June 30th total included $41.3
million in loans on nonaccrual status and $8.9 million in restructured loans.
The September 30, 1992 total included $36.9 million in loans on nonaccrual
status and $3.1 million in restructured loans.
Nonperforming commercial mortgage loans represented $31.6 million, or 64.8%,
of nonperforming loans at the close of the current third quarter, while
nonperforming commercial business loans and leases represented $8.1 million, or
16.6%. Nonperforming residential mortgage loans represented $5.2 million, or
10.7% of nonperformers; nonperforming construction and land development loans
represented $2.7 million, or 5.6%; and nonperforming consumer loans and leases
represented a modest $1.1 million, or 2.3%.
Loan charge-offs were $2.9 million in the current third quarter, down $1.5
million, or 34.3%, from $4.4 million in the year's second quarter but up
$737,000, or 34.6%, from $2.1 million in the quarter ended September 30, 1992.
At $15.1 million, the allowance for loan losses at September 30, 1993
represented 1.59% of total loans and 31.01% of nonperforming loans. By
comparison, the allowance for loans losses was $14.9 million at June 30, 1993
(representing percentages of 1.6% and 29.8%, respectively) and $9.9 million
(representing percentages of 1.0% and 24.7%, respectively) at September 30,
1992.
21
<PAGE> 46
Loans past due ninety days or more but still accruing interest totaled $3.6
million, down $166,000, or 4.4%, from $3.8 million at the end of the year's
second quarter, and down $843,000, or 18.8%, from $4.5 million at September 30,
1992. Interest on these loans continues to be accrued because, in management's
judgment, the loans and accrued interest are adequately secured by the
underlying collateral or are guaranteed.
Foreclosed and in-substance foreclosed real estate totaled $3.3 million at the
end of the current third quarter, representing a $279,000, or 7.8%, decline
from $3.6 million at the close of the year's second quarter and a $709,000, or
17.7%, decline from $4.0 million at September 30, 1992. The lower level in
1993 reflects the sale of a $2.1 million residential property in 1992's third
quarter and sales of additional properties in the first three quarters of 1993.
If current conditions continue within the bank's immediate lending area,
nonperforming assets could very well increase. Further deterioration of assets
would likely result in higher provisions for loans losses, lower interest
earning assets, and diminished net interest income, which would contribute to
reduced earnings overall.
ASSET QUALITY ANALYSIS
TABLE 7
<TABLE>
<CAPTION>
1993 1992 1993 1992
----------------------- ---------- ---------- ----------
Third Second Third Nine Nine
Dollars in thousands Quarter Quarter Quarter Months Months
--------------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Allowance for loan losses:
Balance at beginning of period $ 14,934 $ 12,056 $ 9,790 $ 10,882 $ 9,389
Provision for loan losses
charged to operations 3,000 7,000 2,175 13,000 6,425
Loan charge-offs (2,868) (4,365) (2,131) (9,147) (6,073)
Loan recoveries 40 243 56 371 149
---------- ---------- ---------- ---------- ----------
Net charge-offs (2,828) (4,122) (2,075) (8,776) (5,924)
---------- ---------- ---------- ---------- ----------
Balance at end of period $ 15,106 $ 14,934 $ 9,890 $ 15,106 $ 9,890
========== ========== ========== ========== ==========
Loans:
End of period $ 950,687 $ 950,021 $1,027,030 $ 950,687 $1,027,030
Average 946,773 953,887 1,029,155 952,990 1,064,452
Assets, end of period 1,696,708 1,737,576 1,785,361 1,696,708 1,785,361
========== ========== ========== ========== ==========
Loan portfolio risk elements at period end:
Loans on nonaccural status $ 39,428 $ 41,264 $ 36,928 $ 39,428 $ 36,928
Restructured loans 9,288 8,892 3,072 9,288 3,072
---------- ---------- ---------- ---------- ----------
Total nonperforming loans 48,716 50,156 40,000 48,716 40,000
Loans past due ninety days or more but still
accruing interest (1) 3,646 3,812 4,489 3,646 4,489
---------- ---------- ---------- ---------- ----------
Total loan portfolio risk elements $ 52,362 $ 53,968 $ 44,489 $ 52,362 $ 44,489
========== ========== ========== ========== ==========
Nonperforming assets at period end:
Nonperforming loans $ 48,716 $ 50,156 $ 40,000 $ 48,716 $ 40,000
Foreclosed properties and in-substance
foreclosures 3,298 3,577 4,007 3,298 4,007
Other 210 235 200 210 200
---------- ---------- ---------- ---------- ----------
Total nonperforming assets $ 52,224 $ 53,968 $ 44,207 $ 52,224 $ 44,207
========== ========== ========== ========== ==========
Ratios:
Allowance for loan losses to total loans 1.59% 1.57% 0.96% 1.59% 0.96%
Net charge-offs to average loans outstanding 0.30 0.43 0.20 0.92 0.56
Nonperforming loans to total loans 5.12 5.28 3.89 5.12 3.89
Loan portfolio risk elements to total loans 5.51 5.68 4.33 5.51 4.33
Nonperforming assets to total assets 3.08 3.11 2.48 3.08 2.48
Allowance for loan losses to nonperforming loans 31.01 29.78 24.73 31.01 24.73
===== ===== ===== ===== =====
</TABLE>
(1) These loans have been judged by management to be fully collectible and
thus are not included in nonperforming loans.
22
<PAGE> 47
Real Estate Investments
Real estate investments consist of properties acquired for development and
sale, properties acquired by foreclosure, and loans classified as in-substance
foreclosures. At September 30, 1993, net real estate investments totaled $25.6
million, compared to $25.9 million at June 30, 1993 and $27.8 million at
September 30, 1992.
Properties acquired for development and sale include wholly-owned and joint
venture investments made through wholly-owned subsidiaries of the bank. These
investments had a carrying value of $22.3 million at both September 30 and June
30, 1993, net of allowances for losses of $10.8 million, and a carrying value
of $23.8 million, net of an allowance for losses of $9.4 million, at September
30, 1992. The allowance for losses is based on management's assessment of the
estimated net realizable value of these investments, given current real estate
market conditions. The bank has four properties acquired for development and
sale, including one that consists of land to be marketed for sale upon receipt
of final approval for sub-division. At the remaining three properties, which
represent a net investment of $19.7 million, sales activity improved slightly
during the current third quarter, with six more units closed and five new
contracts signed.
While sales activity has picked up somewhat at the three developed projects,
management does not project a significant rise in sales of units, given the
sluggish state of the economy in the local marketplace.
The balance of the bank's real estate investments at September 30, 1993
consisted of $1.1 million in real estate acquired by foreclosure (down $207,000
from the level at June 30, 1993 and down $348,000 from the level reported at
September 30, 1992), as well as $2.3 million in loans classified as
in-substance foreclosures (down $70,000 from the June 30, 1993 level and down
$314,000 from the level at the year-earlier date). The allowance forlosses on
these investments was $72,000 at September 30, 1993, $70,000 at June 30, 1993,
and $25,000 at September 30, 1992.
SUMMARY OF REAL ESTATE INVESTMENTS
Table 8
<TABLE>
<CAPTION>
1993 1992
---------------------------------- ---------------
In thousands At September 30 At June 30 At September 30
--------------------------------------------------------------------------------------------------------
<S> <C> <C> <C>
Properties acquired for development and sale $ 33,158 $ 33,131 $33,229
Less allowance for losses (10,826) (10,826) (9,401)
-------- -------- -------
22,332 22,305 23,828
-------- -------- -------
Real estate acquired by foreclosure 1,101 1,308 1,449
Loans classified as in-substance foreclosures 2,269 2,339 2,583
Less allowance for losses (72) (70) (25)
-------- -------- -------
3,298 3,577 4,007
-------- -------- -------
Real estate investments, net $ 25,630 $ 25,882 $27,835
======== ======== =======
</TABLE>
23
<PAGE> 48
Investment Securities and Money Market Investments
The bank's level of investment securities and money market investments have
traditionally reflected current trends in loan originations. When
opportunities for lending have been limited, as they have been in recent
quarters, the bank has deployed more of its cash flows into these alternative
earning assets. Conversely, when lending opportunities have been strong,
investment securities and money market investments have typically been reduced.
The levels of these earning assets have also been affected by trends in deposit
flows.
At September 30, 1993, the book value of the bank's investment securities was
$357.5 million, down $5.2 million, or 1.4%, from $362.7 million at June 30,
1993, but up $108.2 million, or 43.4%, from $249.3 million at September 30,
1992.
The market value of the bank's investment securities at September 30, 1993 was
$364.0 million, or 101.8% of book value, compared to $368.3 million, or 101.5%
of book value, at June 30, 1993, and to $254.9 million, or 102.2% of book value
at September 30, 1992. The weighted average maturities of the debt securities
were 2.6 years at September 30 and June 30, 1993 and 3.6 years at September 30,
1993.
United States Government and Agency securities represented $229.3 million, or
64.1%, of the bank's investment securities portfolio at September 30, 1993,
compared to $222.9 million, or 61.5%, and $116.0 million, or 46.5%,
respectively, at June 30, 1993 and September 30, 1992.
Equity securities, including investments in mutual funds, totaled $16.5 million
at September 30, 1993, down $24.7 million, or 60.0%, from $41.2 million at June
30, 1993, and down $26.0 million, or 61.1%, from $42.5 million at September 30,
1992. Management has decided to lessen its emphasis on equity securities and
to reinvest the proceeds from their sale into loan assets or short-term debt
securities. The market value of the bank's equity securities was $17.6
million, or 106.4%, of book value at September 30, 1993.
The bank's money market investments totaled $45.3 million at September 30,
1993, down $1.8 million from $47.1 million at the close of the current year's
second quarter, but up $9.8 million from $35.5 million at September 30, 1992.
24
<PAGE> 49
AVERAGE INVESTMENT PORTFOLIO
Table 9
<TABLE>
<CAPTION>
1993 1992 1993 1992
-------------------- -------- -------- --------
Third Second Third Nine Nine
In thousands Quarter Quarter Quarter Months Months
----------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Federal funds sold $ 56,054 $ 52,732 $ 60,969 $ 54,838 $ 58,242
Interest bearing balances with banks - - 4,130 - 2,299
-------- -------- -------- -------- --------
Total money market investments 56,054 52,732 65,099 54,838 60,541
-------- -------- -------- -------- --------
Bonds, notes, and debentures:
United States Government and Agency 232,401 211,576 102,869 210,012 76,992
Public utility 369 669 2,353 761 8,032
State and municipal 15,471 16,492 17,408 16,380 17,536
Corporate and other 82,667 72,590 66,084 77,477 53,048
Equity securities, including investments
in mutual funds 33,752 42,333 42,779 39,288 44,796
-------- -------- -------- -------- --------
Total investment securities 364,660 343,660 231,493 343,918 200,404
-------- -------- -------- -------- --------
Total investment portfolio $420,714 $396,392 $296,592 $398,756 $260,945
======== ======== ======== ======== ========
</TABLE>
INVESTMENT SECURITIES PORTFOLIO
TABLE 10
<TABLE>
<CAPTION>
1993 1993 1992
------------------- ------------------- -------------------
At September 30 At June 30 At September 30
------------------- ------------------- -------------------
Book Market Book Market Book Market
Dollars in thousands Value Value Value Value Value Value
-------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Bonds, notes, and debentures:
United States Government and Agency $229,303 $232,271 $222,937 $225,703 $116,035 $119,092
Public utilities 296 298 448 452 1,688 1,695
State and municipal 13,787 14,588 16,092 16,825 17,348 17,733
Corporate and other 97,648 99,290 82,029 83,411 71,800 73,885
Equity securities, including
investments in mutual funds 16,504 17,560 41,236 41,884 42,475 42,474
-------- -------- -------- -------- -------- --------
Total investment securities, net $357,538 $364,007 $362,742 $368,275 $249,346 $254,879
======== ======== ======== ======== ======== ========
Market value as a percent of book value 101.81% 101.53% 102.22%
Weighted average maturity of
debt securities (in years) 2.6 2.6 3.6
=== === ===
</TABLE>
Funding
Funding for the bank's lending and investment activities stems primarily from
interest bearing deposits and, to a far lesser extent, from borrowings. In the
third quarter of 1993, the bank had total deposits of $1.4 billion and total
borrowings of $44.6 million, compared to $1.5 billion and $47.5 million,
respectively, at June 30, 1993 and $1.5 billion and $49.8 million, respectively,
at September 30, 1992.
Total funding averaged $1.7 billion in the current third quarter, representing
a decline of $23.4 million, or 1.4%, from the year's second quarter average
and a decline of $79.7 million, or 4.5%, from the average in the third quarter
of last year.
25
<PAGE> 50
Interest bearing deposits averaged $1.4 billion in the current year's third
quarter, down $21.2 million, or 1.5%, from the year's second quarter, and down
$95.4 million, or 6.3%, from the year-ago period. Borrowings averaged $46.7
million, representing a $1.4 million, or 2.9%, decrease from the second quarter
average and a $3.6 million, or 7.1%, drop below the average in the third
quarter of 1992. As previously indicated, the decline in interest bearing
deposits signifies the withdrawal of funds from long-term and/or low-yielding
savings products and their placement into either short-term savings products or
alternative investments that pay higher interest rates.
In point of fact, average savings account balances rose to $792.7 million in
the current quarter from $787.8 million (a modest $4.9 million increase) in
the year's second quarter and from $733.8 million (a $58.9 million, or 8.0%,
increase) in the third quarter of 1992. At the same time, average CD balances
declined to $333.7 million from $356.4 million and $461.1 million,
respectively, representing reductions of $22.7 million, or 6.4%, and $127.4
million, or 27.6%.
In addition, average money market account balances declined to $146.9 million,
from $152.5 million (a $5.6 million or 3.7% decrease) for the year's second
quarter, and from $176.2 million (a $29.3 million, or 16.6%, decrease) for the
third quarter of last year.
As indicated in the prior discussion of non-interest income on page 13, some
of the funds withdrawn from CDs and money market accounts have been invested in
annuities and mutual funds offered throughout the bank's branch network by
Marketing Distribution Systems, Inc., a vendor of the bank.
AVERAGE FUNDING
Table 11
<TABLE>
<CAPTION>
1993 1992 1993 1992
----------------------- ---------- ---------- ----------
Third Second Third Nine Nine
In thousands Quarter Quarter Quarter Months Months
------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Deposits:
Non-interest bearing checking $ 70,206 $ 69,253 $ 60,372 $ 66,718 $ 58,415
---------- ---------- ---------- ---------- ----------
Interest bearing deposits:
NOW 115,737 116,165 112,876 115,729 113,354
Savings 792,737 787,843 733,839 785,259 688,190
Money market 146,892 152,483 176,223 153,272 187,456
Certificates of deposit 333,687 356,429 461,084 358,974 497,781
Mortgage escrow 19,249 16,583 19,715 17,900 17,544
---------- ---------- ---------- ---------- ----------
Total interest bearing deposits 1,408,302 1,429,503 1,503,737 1,431,134 1,504,325
---------- ---------- ---------- ---------- ----------
Total deposits 1,478,508 1,498,756 1,564,109 1,497,852 1,562,740
Borrowings 46,705 48,099 50,274 48,114 53,030
Other non-interest funding (1) 174,622 176,333 165,181 173,826 163,891
---------- ---------- ---------- ---------- ----------
Total funding $1,699,835 $1,723,188 $1,779,564 $1,719,792 $1,779,661
========== ========== ========== ========== ==========
</TABLE>
(1) Represents stockholders' equity and certain mortgage escrow funds.
26
<PAGE> 51
Liquidity and Capital Resources
The bank's cash flows are derived from operating, investing, and financing
activities.
Cash flows from operating activities consisted primarily of interest and
dividends received of $89.2 million, offset by interest paid of $35.5 million
for the first nine months of 1993. Net cash provided by operating activities
for this period amounted to $17.3 million.
For the nine months ended September 30, 1993, the net cash provided by
investing activities was $75.4 million. Cash flows stemmed primarily from
purchases of investment securities and loans, offset by the repayment of loans
and mortgage backed and related securities and from the sale and maturity of
investment securities.
The net cash used in financing activities was $107.8 million, primarily
reflecting the previously mentioned decrease in deposits and repayment of
borrowings.
The bank has ready access to various wholesale funding sources, including an
existing medium-term note program, a line of credit with another bank,
borrowings under repurchase agreements and, if necessary, short-term borrowings
through the Federal Reserve Bank discount window. Management believes that
these sources of funds, together with the bank's core deposits and balance
sheet sources of liquidity, are sufficient to meet the bank's anticipated
funding requirements.
At September 30, 1993, stockholders' equity equaled $173.6 million, or 10.23%
of total assets, compared to $172.6 million, or 9.94%, at June 30, 1993 and to
$164.9 million, or 9.23%, at September 30, 1992.
The $955,000 rise in stockholders' equity from the close of the year's second
quarter reflects a $751,000 increase in retained earnings (consisting of net
income of $1.6 million less dividends paid of $821,000), and a $193,000
increase in paid-in capital stemming from the issuance of common shares upon
the exercise of stock options.
Compared to September 30, 1992, the $8.7 million increase in stockholders'
equity reflects a $4.0 million increase in retained earnings, a $2.5 million
increase in common stock and paid-in capital triggered by the issuance of
158,138 shares upon the exercise of stock options, and the elimination of net
unrealized depreciation on marketable equity securities which had been $2.2
million at the prior date.
27
<PAGE> 52
Cash dividends paid to common stockholders represented 48.5% of net income for
the nine months ended September 30, 1993 and 38.9% of net income for the nine
months ended September 30, 1992.
Under the Federal Deposit Insurance Corporation Improvement Act, institutions
with a leverage capital ratio above 5.0%, and with Tier 1 and total risk-based
capital ratios above 6.0% and 10.0%, respectively, are categorized as
"well-capitalized."
At September 30, 1993, the bank's leverage capital ratio was 10.11% of total
assets; for risk-based capital purposes, its Tier 1 and total capital ratios
were, respectively, 15.41% and 16.58% of risk-weighted assets.
At June 30, 1993 and September 30, 1992, the bank's leverage capital ratios
were 9.80% and 9.07%, respectively; for risk-based capital purposes, its Tier 1
risk-based capital ratios were, respectively, 14.22% and 13.07%, and its total
risk-based capital ratios were 15.39% and 13.80%.
CAPITAL ADEQUACY
Table 12
<TABLE>
<CAPTION>
At or For the Quarter Ended
----------------------------------------------
September 30 June 30 September 30
Dollars in thousands, except per share data 1993 1993 1992
----------------------------------------------------------------------------------------------
<S> <C> <C> <C>
TOTAL STOCKHOLDERS' EQUITY:
Period-end $ 173,590 $ 172,635 $ 164,867
Average 172,277 173,912 162,002
Return on average stockholders' equity 3.65% (4.11)% 4.15%
Average stockholders' equity to assets 9.99 9.95 8.99
Internal capital generation rate (1) 1.74 n/m 2.58
AT PERIOD-END:
Common stockholders' equity to assets 10.23% 9.94% 9.23%
Book value per common share $ 31.75 $ 31.64 $ 8.99
Primary and total capital 173,590 172,635 164,867
Tangible equity 171,247 170,115 161,551
Primary and total capital ratios 10.23% 9.94% 9.23%
Tangible capital ratio 10.11 9.80 9.07
Tier 1 leverage ratio 10.11 9.80 9.07
RISK-BASED CAPITAL:
Tier 1 capital $ 171,247 $ 170,115 $ 161,551
Total capital 184,232 184,141 170,534
Risk-adjusted assets 1,111,414 1,196,248 1,235,726
Tier 1 ratio 15.41% 14.22% 13.07%
Total ratio 16.58 15.39 13.80
========== ========== ==========
</TABLE>
(1) This ratio indicates the internal rate of return on common
stockholders' equity and is computed by dividing the earnings retained
during a period by the average balance of common stockholders' equity for
the same time period.
n/m = not meaningful
28
<PAGE> 53
ITEM III
SIGNATURES
Under the requirements of the Securities Exchange Act of 1934, the bank has
duly caused this report to be signed on its behalf by the undersigned
thereunto duly authorized.
PEOPLES WESTCHESTER SAVINGS BANK
Date: November 12, 1993 By: /s/ James G. Kane
----------------------------
Executive Vice President
and Chief Financial Officer
By: /s/ James J. Curran, Jr.
----------------------------
First Senior Vice President
and Chief Accounting Officer
29
<PAGE> 54
EXHIBIT A
SUPPLEMENTAL FINANCIAL INFORMATION
QUARTERLY CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
1993 1992
-------------------------- ----------------------------------
Third Second First Fourth Third Second First
In millions, except per share data Quarter Quarter Quarter Quarter Quarter Quarter Quarter
-----------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C>
Interest and dividend income:
Loans:
Mortgage $ 11.9 $ 12.0 $ 12.2 $ 13.3 $ 13.7 $ 14.8 $ 15.3
Commercial 2.6 3.1 3.0 3.7 3.8 4.3 4.9
Consumer 3.1 3.3 3.5 3.6 3.8 4.2 4.1
------ ------ ------ ------ ------ ------ ------
Total interest on loans 17.6 18.4 18.7 20.6 21.3 23.3 24.3
Investment securities 4.5 4.3 4.0 3.7 3.2 2.6 3.0
Mortgage backed and related securities 4.4 5.1 5.8 6.4 7.1 7.6 6.8
Other 0.6 0.6 0.6 0.6 0.9 0.8 1.0
------ ------ ------ ------ ------ ------ ------
Total interest and dividend income 27.1 28.4 29.1 31.3 32.5 34.3 35.1
------ ------ ------ ------ ------ ------ ------
Interest expense:
NOW 0.4 0.4 0.4 0.5 0.6 0.5 0.6
Savings 5.4 6.2 6.2 6.2 6.7 7.4 7.1
Money market 0.9 0.9 1.0 1.1 1.2 1.5 1.7
Certificates of deposit 3.3 3.6 4.0 4.7 5.5 6.3 7.6
Mortgage escrow 0.1 0.1 0.1 0.1 0.1 0.1 0.1
------ ------ ------ ------ ------ ------ ------
Total interest on deposits 10.1 11.2 11.7 12.6 14.1 15.8 17.1
Borrowings 1.0 1.0 1.1 1.1 1.1 1.1 1.1
------ ------ ------ ------ ------ ------ ------
Total interest expense 11.1 12.2 12.8 13.7 15.2 16.9 18.2
------ ------ ------ ------ ------ ------ ------
Net interest income 16.0 16.2 16.3 17.6 17.3 17.4 16.9
Provision for loan losses (3.0) (7.0) (3.0) (2.5) (2.2) (2.4) (1.9)
------ ------ ------ ------ ------ ------ ------
Net interest income after
provision for loan losses 13.0 9.2 13.3 15.1 15.1 15.0 15.0
------ ------ ------ ------ ------ ------ ------
Non-interest income:
Net investment security gains (losses) 0.7 (0.3) (0.1) 1.0 (0.3) 0.0 (0.2)
Service charges and fees 1.2 1.3 1.2 1.2 1.3 1.2 1.2
Other 0.3 0.4 0.3 0.9 0.2 0.3 0.2
------ ------ ------ ------ ------ ------ ------
Total non-interest income 2.2 1.4 1.4 3.1 1.2 1.5 1.2
Non-interest expense:
General and administrative expense:
Compensation and benefits 6.3 6.5 6.8 5.9 6.0 5.8 5.7
Occupancy and equipment 2.2 2.2 2.1 2.1 2.1 2.1 2.1
Advertising 0.8 0.8 0.6 0.6 0.6 0.7 0.6
FDIC deposit insurance premiums 0.9 0.9 0.9 0.9 0.9 0.9 0.9
Other 2.9 2.9 2.7 2.9 2.7 2.8 2.5
------ ------ ------ ------ ------ ------ ------
Total general and
administrative expense 13.1 13.3 13.1 12.4 12.3 12.3 11.8
Loss on real estate investments 0.3 0.2 0.7 0.7 0.9 0.5 0.5
------ ------ ------ ------ ------ ------ ------
Total non-interest expense 13.4 13.5 13.8 13.1 13.2 12.8 12.3
------ ------ ------ ------ ------ ------ ------
Income (loss) before income tax
expense (benefit) and cumulative
effect of accounting change 1.8 (2.9) 0.9 5.1 3.1 3.7 3.9
Income tax expense (benefit) 0.2 (1.1) 0.6 2.9 1.4 2.2 2.2
------ ------ ------ ------ ------ ------ ------
Income (loss) before cumulative effect
of accounting change 1.6 (1.8) 0.3 2.2 1.7 1.5 1.7
Cumulative effect of change in accounting
for income taxes - - 4.9 - - - -
------ ------ ------ ------ ------ ------ ------
Net income (loss) $ 1.6 $ (1.8) $ 5.2 $ 2.2 $ 1.7 $ 1.5 $ 1.7
====== ====== ====== ====== ====== ====== ======
Earnings per common share:
Income (loss) before cumulative effect
of accounting change $ 0.27 $(0.31) $ 0.05 $ 0.41 $ 0.32 $ 0.29 $ 0.32
Cumulative effect of change in accounting
for income taxes - - 0.88 - - - -
------ ------ ------ ------ ------ ------ ------
Net income (loss) $ 0.27 $(0.31) $ 0.93 $ 0.41 $ 0.32 $ 0.29 $ 0.32
====== ====== ====== ====== ====== ====== ======
</TABLE>
30
<PAGE> 55
EXHIBIT B
SUPPLEMENTAL FINANCIAL INFORMATION
AVERAGE BALANCES AND YIELD/RATES
<TABLE>
<CAPTION>
1993
---------------------------------------------------
Third Quarter Second Quarter First Quarter
--------------- --------------- ---------------
Average Yield/ Average Yield/ Average Yield/
Dollars in millions Balance Rate Balance Rate Balance Rate
-----------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C>
Assets
Federal funds sold $ 56.1 2.54% $ 52.7 2.40% $ 55.7 2.56%
Interest bearing balances with banks - - - - - -
Investment securities 364.7 4.93 343.7 4.96 323.0 4.99
Mortgage backed and related
securities 264.3 6.71 303.1 6.72 333.2 6.93
Loans(1):
Mortgage 634.4 7.49 624.1 7.67 630.6 7.73
Commercial 160.3 6.60 178.2 6.93 174.2 6.93
Consumer 152.1 8.03 151.6 8.82 153.6 9.01
-------- -------- --------
Total loans 946.8 7.43 953.9 7.72 958.4 7.79
-------- -------- --------
Real estate investments 22.2 4.26 22.3 4.59 22.5 4.89
Other earning assets 3.6 4.17 3.9 2.83 4.0 2.92
-------- -------- --------
Total earning assets 1,657.7 6.55 1,679.6 6.75 1,696.8 6.87
Allowance for loan losses (15.3) (12.6) (11.0)
Non-earning assets(2) 82.9 81.4 77.0
-------- -------- --------
Total assets $1,725.3 $1,748.4 $1,762.8
======== ======== ========
Liabilities and Stockholders' Equity
Liabilities:
NOW $ 115.7 1.40 $ 116.2 1.43 $ 115.3 1.53
Savings 792.7 2.75 787.8 3.12 775.0 3.23
Money market 146.9 2.35 152.5 2.35 160.6 2.45
Certificates of deposit 333.7 3.99 356.4 4.01 387.4 4.12
Mortgage escrow 19.3 2.06 16.6 2.15 17.8 2.04
-------- -------- --------
Total interest bearing deposits 1,408.3 2.88 1,429.5 3.11 1,456.1 3.23
Borrowings 46.7 8.38 48.1 8.47 49.6 8.51
-------- -------- --------
Total interest bearing funds 1,455.0 3.06 1,477.6 3.29 1,505.7 3.40
Non-interest bearing deposits 87.3 84.9 76.0
Other liabilities 10.7 12.0 13.3
-------- -------- --------
Total liabilities 1,553.0 1,574.5 1,595.0
Stockholders' equity 172.3 173.9 167.8
-------- -------- --------
Total liabilities and
stockholders' equity $1,725.3 $1,748.4 $1,762.8
======== ======== ========
Interest rate spread 3.49 3.46 3.47
Net interest margin 3.87 3.86 3.85
Total funds provided 2.60 2.80 2.93
</TABLE>
<TABLE>
<CAPTION>
1992
---------------------------------------------------------------------
Fourth Quarter Third Quarter Second Quarter First Quarter
--------------- --------------- --------------- ---------------
Average Yield/ Average Yield/ Average Yield/ Average Yield/
Dollars in millions Balance Rate Balance Rate Balance Rate Balance Rate
------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Assets
Federal funds sold $ 46.4 2.32% $ 61.0 2.76% $ 48.2 3.20% $ 65.5 3.55%
Interest bearing balances with banks - - 4.1 3.87 2.7 3.79 - -
Investment securities 269.6 5.39 231.5 5.51 182.2 5.71 187.1 6.56
Mortgage backed and related
securities 366.0 7.04 382.0 7.47 401.4 7.56 353.6 7.66
Loans(1):
Mortgage 641.0 8.29 660.0 8.34 683.5 8.64 684.7 8.94
Commercial 211.1 7.02 214.0 7.03 235.0 7.38 247.0 7.94
Consumer 154.2 9.49 155.1 9.73 157.6 10.72 156.8 10.35
-------- -------- -------- --------
Total loans 1,006.3 8.20 1,029.1 8.27 1,076.1 8.67 1,088.5 8.92
-------- -------- -------- --------
Real estate investments 23.4 5.29 23.9 5.98 23.7 6.40 24.1 6.84
Other earning assets 3.7 3.66 3.8 3.19 5.3 3.40 4.0 3.04
-------- -------- -------- --------
Total earning assets 1,715.4 7.30 1,735.4 7.48 1,739.6 7.90 1,722.8 8.16
Allowance for loan losses (10.4) (9.9) (10.1) (9.5)
Non-earning assets(2) 77.5 75.9 76.7 88.2
-------- -------- -------- --------
Total assets $1,782.5 $1,801.4 $1,806.2 $1,801.5
======== ======== ======== ========
Liabilities and Stockholders' Equity
Liabilities:
NOW $ 114.0 1.74 $ 112.9 1.91 $ 114.2 1.89 $ 113.0 2.16
Savings 758.3 3.30 733.8 3.65 694.7 4.25 635.6 4.47
Money market 165.3 2.60 176.2 2.78 186.3 3.20 199.9 3.41
Certificates of deposit 422.4 4.42 461.1 4.80 492.4 5.12 540.3 5.66
Mortgage escrow 16.2 2.10 19.7 2.07 16.2 2.14 16.7 2.04
-------- -------- -------- --------
Total interest bearing deposits 1,476.2 3.41 1,503.7 3.75 1,503.8 4.20 1,505.5 4.56
Borrowings 49.8 8.50 50.3 8.50 55.2 8.03 53.6 8.20
-------- -------- -------- --------
Total interest bearing funds 1,526.0 3.57 1,554.0 3.91 1,559.0 4.34 1,559.1 4.68
Non-interest bearing deposits 82.1 75.6 75.0 71.2
Other liabilities 10.8 9.8 11.2 11.6
-------- -------- -------- --------
Total liabilities 1,618.9 1,639.4 1,645.2 1,641.9
Stockholders' equity 163.6 162.0 161.0 159.6
-------- -------- -------- --------
Total liabilities and
stockholders' equity $1,782.5 $1,801.4 $1,806.2 $1,801.5
======== ======== ======== ========
Interest rate spread 3.73 3.57 3.56 3.48
Net interest margin 4.13 3.98 4.01 3.92
Total funds provided 3.08 3.40 3.78 4.09
</TABLE>
(1) Average loan balances include non-performing loans.
(2) Average non-earning assets include foreclosed and in-substance
foreclosed real estate.
<PAGE> 56
EXHIBIT C
SUPPLEMENTAL FINANCIAL INFORMATION
INTEREST RATE SENSITIVITY ANALYSIS
The following table sets forth the bank's interest rate sensitive assets and
liabilities according to the time periods in which they are expected to
reprice, and the resulting gap for each time period as well as on a
cumulative basis. The significent assumptions and estimates used in the
preparation of this table are substantially the same as those used in the
preparation of the comparable table as of December 31, 1992, included on page
25 of the 1992 Annual Report to Stockholders, except as noted below.
<TABLE>
<CAPTION>
After One After Three After
At September 30, 1993 One Year Through Through Five
Dollars in thousands or Less Three Years Five Years Years Total
--------------------------------------------------------------------------------------------------------------
<S> <C> <C> <C> <C> <C>
Earning assets:
Loans (1):
Adjustable rate $483,496 $102,693 $ 14,689 $ 2,555 $ 603,433
Fixed rate 75,184 113,626 52,419 122,660 363,889
-------- -------- -------- -------- ----------
Total loans 558,680 216,319 67,108 125,215 967,322
Investment securities (2) 87,980 166,478 45,059 58,021 357,538
Mortgage backed and related securities 91,798 33,152 26,046 95,483 246,479
Other earning assets 67,831 163 930 2,261 71,185
-------- -------- -------- -------- ----------
Total earning assets $806,289 $416,112 $139,143 $280,980 $1,642,524
======== ======== ======== ======== ==========
Interest bearing liabilities:
NOW and savings (3) $399,478 $134,798 $ 79,862 $284,519 $ 898,657
Money market 143,849 - - - 143,849
Certificates of deposit 221,556 61,655 40,528 146 323,885
Mortgage escrow - - - 13,992 13,992
-------- -------- -------- -------- ----------
Total interest bearing deposits 764,883 196,453 120,390 298,657 1,380,383
Borrowings (4) 28,833 15,795 - - 44,628
-------- -------- -------- -------- ----------
Total interest bearing liabilities $793,716 $212,248 $120,390 $298,657 $1,425,011
======== ======== ======== ======== ==========
Excess (deficiency) of earning assets
over interest bearing liabilities:
For the period $ 12,573 $203,864 $ 18,753 $(17,677)
-------- -------- -------- --------
On a cumulative basis 12,573 216,437 235,190 217,513
-------- -------- -------- --------
Cumulative excess (deficiency)
as a percent of total assets 0.74% 12.76% 13.86% 12.82%
======== ======== ======== ========
</TABLE>
(1) Amounts shown include prepayments and repayments at an assumed rate of 12%
per year during each subsequent month on the then outstanding balance. The 12%
annual rate is based on the bank's five-year historical moving average. However
there is no assurance that future prepayments and repayments will occur at this
rate.
(2) The "After Five Years" category includes the bank's equity securities
portfolio of $16.5 million.
(3) The respective totals for NOW accounts ($113.8 million) and savings accounts
($784.8 million) have been allocated as follows: 20% and 48%, respectively, to
the "One Year or Less" category; 15% each to the "After One Through Three Years"
category; 10% and 8%, respectively, to the "After Three Through Five Years"
category and the remaining 55% and 29%, respectively, to the "After Five Years"
category. However, there is no assurance that these balances will actually
remain insensitive to interest rate changes in the future.
(4) The "One Year or Less" category includes $2.3 million borrowed under an
agreement involving the sale of perferred stocks subject to a put back to the
bank at semiannual purchase dates. The "After One Through Three Years"
category includes $13.8 million borrowed under option repurchase agreements in
which the bank sold state and municipal bonds at par, subject to a put back to
the bank upon 14 days' notice.
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