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SECURITIES AND EXCHANGE COMMISSION FORM 10-K
WASHINGTON, D.C. 20549
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(MARK ONE)
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/X/ Annual Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [Fee Required]
For the Fiscal Year Ended December 31, 1993
/ / Transition Report Pursuant to Section 13 or 15(d) of the Securities
Exchange Act of 1934 [No Fee Required]
For the transition period from to
Commission File Number 1-9839
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FIRST FIDELITY BANCORPORATION
(Exact name of registrant as specified in its charter)
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NEW JERSEY 22-2826775
(State or other jurisdiction of incorporation or organization) (I.R.S. Employer Identification
No.)
2673 MAIN STREET, POST OFFICE BOX 6980, LAWRENCEVILLE, NEW
JERSEY 08648-0980
(609) 895-6800
(Address and telephone number, including area code, of
registrant's principal executive office)
Securities registered pursuant to Section 12(b) of the Act:
Title of each class Name of each exchange on which
registered
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Common Stock, par value $1.00 per share New York Stock Exchange, Inc.
Series B Convertible Preferred Stock,
par value $1.00 per share New York Stock Exchange, Inc.
Series D Adjustable Rate Cumulative Preferred Stock,
par value $1.00 per share New York Stock Exchange, Inc.
Depositary Shares, each representing a 1/40th interest in a
share of
Series F 10.64% Preferred Stock, par value $1.00 per share New York Stock Exchange, Inc.
Preferred Share Purchase Rights New York Stock Exchange, Inc.
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Securities registered pursuant to Section 12(g) of the Act:
Title of each class
None
Indicate by check mark whether the Registrant (1) has filed all reports required
to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during
the preceding 12 months (or for such shorter period that the Registrant was
required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of Registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. /X/
Aggregate market value of voting stock held by non-affiliates as of January 31,
1994 was approximately $2.9 billion.
Number of shares of Common Stock outstanding as of December 31, 1993:
79,901,005.
Documents incorporated by reference:
Portions of the definitive proxy statement for the 1994 Annual Meeting of
Stockholders to be filed with the Securities and Exchange Commission pursuant to
Regulation 14A are incorporated by reference in Part III.
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FIRST FIDELITY BANCORPORATION
Table of Contents
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PAGE
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Part I
Item 1. Business..................................................... 1
Item 2. Properties................................................... 11
Item 3. Legal Proceedings............................................ 11
Item 4. Submission of Matters to a Vote of Security Holders.......... 11
Item 4A. Executive Officers of the Registrant......................... 11
Part II
Item 5. Market for the Registrant's Common Equity and Related
Stockholder Matters.......................................... 14
Item 6. Selected Financial Data...................................... 15
Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations.................................... 16
Item 8. Financial Statements and Supplementary Data.................. 40
Item 9. Changes in and Disagreements with Accountants on Accounting
and Financial Disclosure..................................... 75
Part III
Item 10. Directors of the Registrant.................................. 75
Item 11. Executive Compensation....................................... 75
Item 12. Security Ownership of Certain Beneficial Owners and
Management................................................... 75
Item 13. Certain Relationships and Related Transactions............... 75
Part IV
Item 14. Exhibits, Financial Statement Schedules, and Reports on Form
8-K.......................................................... 75
Signatures................................................................ 77
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PART I
ITEM 1. BUSINESS
GENERAL
First Fidelity Bancorporation (the "Company" or "First Fidelity") is a bank
holding company which was organized as a corporation under New Jersey law in
1987. On February 29, 1988, the Company became the successor to and the holder
of all of the capital stock of First Fidelity Incorporated ("FFI"), a New Jersey
bank holding company, and Fidelcor, Inc. ("Fidelcor"), a Pennsylvania bank
holding company.
The Company has a centralized organizational structure, with uniform
policies and procedures. Functions such as asset and liability management,
corporate operations and systems, credit policy, audit, legal services, employee
hiring and benefits and financial planning are conducted at the holding company
level, while day-to-day banking activities are managed by the Company's bank
subsidiaries (collectively, the "Subsidiary Banks"). Important management
decisions are addressed at bi-weekly meetings of the Office of the Chairman of
the Company, chaired by Anthony P. Terracciano, Chairman of the Board of
Directors, Chief Executive Officer and President of the Company, and including
Wolfgang Schoellkopf, Vice Chairman and Chief Financial Officer of the Company,
Peter C. Palmieri, Vice Chairman and Chief Credit Officer of the Company, Leslie
E. Goodman, Senior Executive Vice President of the Company and Roland K. Bullard
II, Senior Executive Vice President of the Company.
As of December 31, 1993, the Subsidiary Banks operated a general banking
business from 647 full-service offices located in New Jersey, eastern
Pennsylvania, Connecticut and in New York State (Westchester County and
Riverdale). The Subsidiary Banks also have offices in London, the Cayman Islands
and New York City. As of December 31, 1993, the Company and its subsidiaries
employed approximately 12,000 persons on a full-time basis.
Recent Transactions
During 1993, the Company entered into a variety of transactions which, in
the aggregate, were significant to its business, operations and structure,
including the following:
(i) Acquisitions and Joint Ventures. During 1993, the Company
expanded its branch network into Connecticut, significantly strengthened
its presence in Westchester County, New York, and filled in gaps in its
branch network in New Jersey. The Company also entered into two strategic
joint ventures during the year, including a venture to market
check-processing and related services to depository institutions and a
marketing alliance to provide private banking services in the Philadelphia
area. In addition, during 1993 the Company announced that it had entered
into agreements to acquire banking institutions in Fairfield County,
Connecticut, Wilkes-Barre, Pennsylvania and Rockland County, New York.
These acquisitions are expected to be consummated in the first half of
1994. The transactions are summarized below:
Recent Acquisitions & Joint Ventures
a. On April 8, 1993, the Company acquired $17 million of performing
assets and assumed $16.8 million of deposits of Pitcairn Private Bank
located in Jenkintown, Pennsylvania. In connection with the acquisition,
the Company entered into a marketing alliance with Pitcairn Trust
Company, an affiliate of Pitcairn, under which Pitcairn will refer its
customers to the Company's private banking group for general banking and
credit services.
b. In May, 1993, the Company acquired all of the capital stock of
Northeast Bancorp, Inc. ("Northeast"). On May 4, 1993 (the date on which
the first of two mergers was completed between Northeast and subsidiaries
of the Company), Northeast had $2.5 billion in assets, $2.4 billion in
deposits and, through its Union Trust Company ("Union Trust") bank
subsidiary, operated 67 bank branches throughout Fairfield and other
counties in Eastern and Central Connecticut. In the acquisition, the
Company issued 610,845 shares of its common stock, par value $1.00 per
share (the "Common Stock") to holders of Northeast common stock. The
Company also contributed capital of $130 million to that entity in
connection with the acquisition, of which $125 million was contributed to
Union Trust. After such contribution, Northeast and Union Trust had
capital ratios in excess of all regulatory minimums.
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c. On June 30, 1993, the Company acquired 8 branches of The Dime
Savings Bank of New Jersey ("Dime"). In connection with such acquisition,
the Company assumed approximately $329 million of deposits.
d. On July 1, 1993, First Fidelity and Bankers Trust Company of New
York ("Bankers Trust") announced a joint venture to create a bank service
corporation, Global Processing Alliance, Inc. ("Global"), which will
provide check-processing and related services to depository institutions.
The Company (through First Fidelity Bank, N.A.) and Bankers Trust each
owns 50 percent of Global, which will sell its services to other
depository institutions as well as provide these services to the founding
institutions and their affiliates. Global is headquartered in Totowa, New
Jersey.
e. On August 11, 1993, First Fidelity acquired Village Financial
Services, Ltd. ("Village") and its 9 branch bank subsidiary, Village
Bank, for approximately $40 million in cash and approximately $26.8
million (or 552,678 shares) of Common Stock. Village Bank operates
primarily in Westchester County, New York. At closing, Village had assets
of $736 million and deposits of $489 million.
f. On December 30, 1993, the Company acquired the 31 branch Peoples
Westchester Savings Bank ("Peoples"), a savings bank operating in
Westchester County, New York, for a combination of cash ($123 million)
and Common Stock (2,442,083 shares), for an aggregate value of $234.9
million. At closing, Peoples had approximately $1.7 billion in assets and
$1.5 billion in deposits. Banco Santander, S.A. ("Santander"), a 20.1%
shareholder of First Fidelity, did not acquire Common Stock in connection
with the acquisition as had been previously contemplated. Substantially
all of the Common Stock issued to Peoples stockholders in the acquisition
came from Treasury Stock, all of which was recently acquired by First
Fidelity through open market purchases.
g. On January 31, 1994, First Fidelity acquired Greenwich Financial
Corporation and its 7 branch subsidiary, Greenwich Federal Savings and
Loan Association ("Greenwich Federal"), for $41.9 million in cash.
Greenwich Federal, which reported assets of $425 million and deposits of
$255 million at December 31, 1993, operates in the Greenwich/Stamford
area of Fairfield County, Connecticut.
Pending Acquisitions
a. On August 27, 1993, First Fidelity entered into a definitive
agreement to acquire BankVest, Inc. and its 2 branch subsidiary, First
Peoples National Bank of Edwardsville, Pennsylvania, for $19.6 million in
cash. Subject to receipt of the applicable regulatory approvals, the
acquisition is expected to close by the end of the first quarter of 1994.
b. On October 27, 1993, the Company, through First Fidelity Bank,
N.A., New York ("FFB-NY"), entered into a definitive agreement to acquire
The Savings Bank of Rockland County ("Rockland") for approximately $5.9
million in cash. Rockland has 4 offices, all in Rockland County, New
York. Subject to receipt of the applicable regulatory approvals, the
acquisition is expected to be consummated during the second quarter of
1994.
c. On January 27, 1994, the Company entered into a definitive
agreement to acquire First Inter-Bancorp Inc., of Fishkill, New York and
its 16 branch, federally-chartered savings bank subsidiary, Mid-Hudson
Savings Bank FSB ("Mid-Hudson") for approximately $56 million in cash.
Mid-Hudson, which operates throughout Dutchess, Ulster, Orange and Putnam
Counties in New York State, had approximately $522 million in assets and
$460 million in deposits at December 31, 1993. The Company intends to
merge Mid-Hudson's operations with those of FFB-NY. The acquisition is
subject to shareholder and regulatory approval.
(ii) Internal Consolidation. As part of the Company's ongoing program
of consolidation, on January 11, 1994, the Company consolidated (the "Bank
Consolidation") its two largest subsidiary banks, First Fidelity Bank,
N.A., New Jersey ("FFB-NJ") and First Fidelity Bank, N.A., Pennsylvania
(formerly Fidelity Bank, N.A. ("Fidelity")) into a new entity, First
Fidelity Bank, N.A. ("First Fidelity Bank"). This Bank Consolidation was
effected following the relocation of the head office of Fidelity from
Philadelphia, Pennsylvania to Salem, New Jersey, which location became the
resulting head office of First Fidelity Bank.
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During 1993, in contemplation of the Bank Consolidation, the Company
combined a number of its subsidiary banks as well as its holding company
subsidiaries. On March 19, 1993, First Fidelity Bank, N.A., South Jersey
was merged into FFB-NJ. On June 15, 1993, First Fidelity Trust Company, New
York was merged into FFB-NY and on June 18, 1993, Merchants Bank, N.A. and
Merchants Bank, North were merged into Fidelity, which changed its name to
First Fidelity Bank, N.A., Pennsylvania. On August 25, 1993, the Company
merged its second-tier holding company, Fidelcor, Inc. ("Fidelcor"), into
First Fidelity Incorporated ("FFI"), the second-tier holding company parent
of First Fidelity Bank.
(iii) Capital Markets Activities. During 1993, First Fidelity issued
$150 million of 6.80% subordinated notes due June 15, 2003 and on February
2, 1994 the Company issued $200 million of floating rate senior notes due
August 2, 1996. The Company redeemed several outstanding debt issues during
1993. On April 1, 1993, the Company redeemed at maturity $50 million of
11 1/2% notes at face value plus accrued interest. On May 15, 1993, the
Company redeemed prior to scheduled maturity its $16.2 million 7 3/4%
Capital Debentures, and on July 16, 1993, the Company redeemed $50 million
of floating rate subordinated notes originally due to mature in 1997.
The Company implemented two separate Common Stock open market purchase
programs during 1993. Beginning in April 1993, the Company commenced open market
purchases through an independent agent to acquire Common Stock for issuance
under its dividend reinvestment plan and stock option plans. On October 21,
1993, the Company's Board of Directors (the "Board") authorized the acquisition
of up to 2% of First Fidelity's outstanding Common Stock in any calendar year,
through open market or privately-negotiated transactions, which amount does not
include purchases made in connection with Company employee or stockholder
benefit plans. On November 18, 1993, the Board authorized the acquisition of up
to an additional 1% of the Company's outstanding Common Stock during 1993. As of
December 30, 1993, the Company had repurchased 2,383,451 shares of its Common
Stock, at an average price of $42.22 per share, which constituted substantially
all of the 3% authorized for repurchase in 1993. All of the acquired shares were
reissued in connection with the Company's acquisition of Peoples. Pursuant to
the 2% repurchase program, the Company repurchased 654,300 shares of its Common
Stock between January 1 and March 7, 1994, at an average price of $43.53 per
share. On March 7, 1994, the Board authorized the acquisition of up to an
additional 1,300,000 shares of Common Stock in 1994.
The Board increased the dividend on the Company's Common Stock on April 20,
1993 from $.33 to $.37 per share. On January 20, 1994, the Board raised the
quarterly dividend on the Common Stock by $.05 per share to $.42 per share.
In connection with the acquisition of Northeast, the Company issued
3,284,207 shares of its Common Stock to Santander, pursuant to the terms of the
Investment Agreement (the "Investment Agreement"), dated as of March 18, 1991,
between Santander and the Company. 2,376,250 of such shares were issued pursuant
to Santander's partial exercise of Warrants to purchase up to 9,505,000 shares
of Common Stock at $25.50 per share and the remainder represented the exercise
by Santander of its acquisition gross up rights (the "Acquisition Gross Up
Rights") to acquire Common Stock in connection with certain "acquisition events"
for consideration of $30.00 per share.
Similarly, in connection with the acquisition of Village, First Fidelity
issued 893,956 shares of Common Stock to Santander for $30 per share pursuant to
its exercise of Acquisition Gross Up Rights. After consummation of the Village
acquisition (taking into account the Acquisition Gross Up Rights exercised in
connection with the Northeast acquisition), Santander retained Acquisition Gross
Up Rights to acquire $45.9 million (remaining from the original $100 million
amount under the Investment Agreement) in value of Common Stock (or other equity
securities of First Fidelity) and Warrants (exercisable at $25.50 per share) to
acquire 4,752,500 shares of Common Stock. By its terms, the Investment Agreement
and Santander's rights to exercise its Warrants and Acquisition Gross Up Rights
terminate on December 27, 1995. In November 1993, the Board of Governors of the
Federal Reserve System (the "Federal Reserve Board") extended its approval for
Santander to acquire up to 24.9% of the Company's voting stock to November 25,
1994.
The existence of Santander's Warrants and the Acquisition Gross Up Rights
held by Santander may affect the Company's acquisition strategy. The Warrants
and Acquisition Gross Up Rights provide the Company with convenient access to
capital and additional flexibility in terms of timing of an acquisition bid,
while at the same time they potentially increase the dilutive effect to earnings
per share of Common Stock of an acquisition in which Common Stock is issued.
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The Investment Agreement also provides Santander with gross up rights in
the event that First Fidelity issues equity (other than pursuant to an employee
benefit plan or upon conversion of convertible securities) in order to insure
that Santander maintains the same proportional interest in any class of
outstanding equity. These gross up rights give Santander the right to acquire
such equity securities on the same terms (including price) as the terms on which
the equity being issued by the Company is issued to third parties.
BUSINESS OF FIRST FIDELITY'S SUBSIDIARIES
Bank Subsidiaries
First Fidelity's Subsidiary Banks consist of First Fidelity Bank, FFB-NY
and Union Trust (a Connecticut-chartered commercial bank). First Fidelity's
Subsidiary Banks operate primarily in New Jersey, eastern Pennsylvania,
Westchester County, New York and Connecticut. This marketplace is characterized
by a diversified industry base (including a number of well known large companies
as well as many successful smaller and mid-sized businesses), three key ports on
the East Coast (Philadelphia, New York/Newark and New Haven/New London) and a
well-educated work force.
First Fidelity, through its Subsidiary Banks, offers a broad range of
lending, depository and related financial services to individual consumers,
businesses and governmental units. Commercial lending services provided by the
Subsidiary Banks include short and medium term loans, revolving credit
arrangements, lines of credit, asset-based lending, equipment leasing, real
estate construction loans and mortgage loans. Consumer banking services include
various types of deposit accounts, secured and unsecured loans, consumer
installment loans, mortgage loans, automobile leasing and other
consumer-oriented services.
The Subsidiary Banks offer a wide range of money-market services. They
underwrite and distribute general obligations of municipal, county and state
governments and agencies. In their respective money-center activities, the
Subsidiary Banks deal in U.S. Treasury and U.S. Government agency securities,
certificates of deposit, foreign exchange, commercial paper, bankers'
acceptances, Federal funds and repurchase agreements.
Fiduciary services are available through all of the Subsidiary Banks and
include trustee services for corporate and municipal securities issuers and
investment management and advisory services to individuals, corporations,
organizations and other institutional investors. The Subsidiary Banks act as
investment adviser to and provide management services for a number of mutual
funds, including several proprietary funds of First Fidelity designed primarily
for trust customers and corporate and retail banking customers of the Subsidiary
Banks. The Subsidiary Banks administer, in a fiduciary capacity, pensions,
personal trusts and estates. They also act as transfer agent, registrar, paying
agent and in other corporate agency capacities.
The Subsidiary Banks offer international banking services through their
domestic offices, correspondent banks, and foreign offices. The Subsidiary
Banks' foreign banking and international activities presently consist primarily
of short-term trade related financings and the extension of credit to foreign
banks and governments and foreign and multinational companies.
Nonbank Subsidiaries
The Company has several nonbank subsidiaries, including entities which
provide insurance brokerage services, community development assistance,
securities brokerage services and consumer leasing.
COMMITMENTS AND LINES OF CREDIT
The Subsidiary Banks are obligated under standby and commercial letters of
credit on behalf of customers. In addition, the Subsidiary Banks issue lines of
credit to customers, generally for periods of up to one year and usually in
connection with the provision of working capital for borrowers. For further
information regarding such obligations, see Part II, Item 8, "Financial
Statements and Supplementary Data -- Note 16 of the Notes to Consolidated
Financial Statements".
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COMPETITION
The Company and its subsidiaries face vigorous competition from a number of
sources, including other bank holding companies and commercial banks, consumer
finance companies, thrift institutions, other financial institutions and
financial intermediaries. In addition to commercial banks, federal and state
savings and loan associations, savings banks, credit unions and industrial
savings banks actively compete to provide a wide variety of banking services.
Mortgage banking firms, real estate investment trusts, finance companies,
insurance companies, leasing companies, brokerage and factoring companies,
financial affiliates of industrial companies and government agencies provide
additional competition for loans and for many other financial services. The
Subsidiary Banks also currently compete for interest-bearing funds with a number
of other financial intermediaries, including brokerage firms and mutual funds,
which offer a diverse range of investment alternatives.
First Fidelity's competition is not limited to financial institutions based
in New Jersey, Pennsylvania, Connecticut and New York. A number of large
out-of-state and foreign banks, bank holding companies, consumer finance
companies and other financial institutions have an established market presence
in New Jersey, Pennsylvania, Connecticut and the greater New York City area,
including Westchester County. Many of the financial institutions operating in
First Fidelity's market area engage in local, regional, national and
international operations and some of such institutions are larger than the
Company.
SUPERVISION AND REGULATION
General
The Company, Northeast and FFI are bank holding companies within the
meaning of the Bank Holding Company Act of 1956, as amended (the "Act"), and are
registered as such with the Federal Reserve Board. As bank holding companies,
the Company and FFI also are subject to regulation by the New Jersey Department
of Banking (the "New Jersey Department"), and the Company and Northeast are
subject to regulation by the Connecticut Department of Banking (the "Connecticut
Department").
First Fidelity Bank and FFB-NY are national banks subject to the regulation
and supervision of, and regular examination by, the Office of the Comptroller of
the Currency (the "OCC"), as well as regulation by the Federal Deposit Insurance
Corporation (the "FDIC") and the Federal Reserve Board. Union Trust is subject
to the regulation and supervision of, and regular examination by, the FDIC and
the Connecticut Department.
Bank holding companies and banks are extensively regulated under both
federal and state law. To the extent that the following information describes
statutory and regulatory provisions, it is qualified in its entirety by
reference to the particular statutory and regulatory provisions. A change in
applicable law or regulation could have a material effect on the business and
prospects of the Subsidiary Banks and the Company.
Government Regulation
Each of First Fidelity, FFI and Northeast is required to file with the
Federal Reserve Board an annual report and such additional information as the
Federal Reserve Board may require pursuant to the Act. Annual and other periodic
reports also are required to be filed with the New Jersey Department and the
Connecticut Department. In addition, the Federal Reserve Board makes
examinations of bank holding companies and their subsidiaries. The Act requires
each bank holding company to obtain the prior approval of the Federal Reserve
Board before it may acquire substantially all of the assets of any bank, or
before it may acquire, directly or indirectly, ownership or control of any
voting shares of any company, including a bank, if, after such acquisition, it
would own or control, directly or indirectly, more than 5% of the voting shares
of such company. See "Acquisitions -- Interstate Banking".
Capital adequacy guidelines may impede a bank holding company's ability to
consummate acquisitions involving consideration with a cash component. For a
description of certain applicable guidelines, see "Capital", "FDICIA" and Part
II, Item 7, "Management's Discussion and Analysis of Financial Condition and
Results of Operations -- Financial Condition -- Asset and Liability Management"
and "-- Capital".
Under Federal Reserve Board policy, the Company is expected to act as a
source of strength to each Subsidiary Bank and to commit resources to support
each Subsidiary Bank. Such support may be required at times when, absent
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such Federal Reserve Board policy, the Company would not otherwise provide it.
In addition, any capital loans by the Company or any subsidiary to any of the
Subsidiary Banks would be subordinate in right of payment to deposits and to
certain other indebtedness of such Subsidiary Bank.
The Act also restricts the types of businesses and operations in which a
bank holding company and its subsidiaries may engage. Generally, permissible
activities are limited to banking and activities found by the Federal Reserve
Board to be so closely related to banking as to be a proper incident thereto.
The operations of the Subsidiary Banks are subject to requirements and
restrictions under federal and state law, including requirements to maintain
reserves against deposits, restrictions on the types and amounts of loans that
may be made and the types of services which may be offered and restrictions on
the ability to purchase deposits under certain circumstances. Various consumer
laws and regulations also affect the operations of the Subsidiary Banks.
Approval of the OCC is required for branching of Subsidiary Banks that are
national banks and for bank mergers in which the continuing bank is a national
bank. Approval of the Office of Thrift Supervision is required in connection
with certain acquisitions of thrift institutions as well as for establishment of
a de novo federal savings bank. In addition, approval of the relevant state
banking authorities and the FDIC is required in connection with certain
fundamental corporate changes involving state-chartered banks (such as Union
Trust) or other banking entities.
Federal law provides for the enforcement of any pro rata assessment of
stockholders of a national bank to cover impairment of capital stock by sale, to
the extent necessary, of the stock of any assessed stockholder failing to pay
the assessment. FFI and Northeast, as stockholders of the Subsidiary Banks, are
subject to such provisions.
Acquisitions -- Interstate Banking
First Fidelity is continually evaluating acquisition opportunities and
frequently conducts due diligence activities in connection with possible
acquisitions. Acquisitions that may be under consideration at any time include,
without limitation, acquisitions of banking organizations and thrift or savings
type associations or their assets or liabilities or acquisitions of other
financial services companies or their assets or liabilities. Companies targeted
by First Fidelity for acquisition would generally be based in markets in which
the Company presently operates or in markets in proximity to one of the
Company's then existing markets. First Fidelity contemplates that any such
acquisitions would be financed through a combination of working capital and
issuances of equity and debt securities.
Federal law precludes the Federal Reserve Board from approving the
acquisition by a bank holding company of the voting shares of, or substantially
all the assets of, any bank (or its holding company) located in a state other
than that in which the acquiring bank holding company's banking subsidiaries
conducted their principal operations on the date such company became a bank
holding company unless such acquisition is specifically authorized by the laws
of the state in which the bank to be acquired is located. Many states, including
New Jersey, Pennsylvania, Connecticut and New York, have adopted legislation
which permits banks and bank holding companies resident in such states to
acquire banks and bank holding companies in states with reciprocal legislation.
Dividend Restrictions
The Company is a legal entity separate and distinct from the Subsidiary
Banks and its nonbank subsidiaries. Virtually all of the revenue of the Company
available for payment of dividends on its capital stock will result from amounts
paid to the Company by FFI and Northeast from dividends received from their
respective Subsidiary Banks. All such dividends are subject to various
limitations imposed by federal and state laws and by regulations and policies
adopted by federal and state regulatory agencies.
Each Subsidiary Bank that is a national association is required by federal
law to obtain the approval of the OCC for the payment of dividends if the total
of all dividends declared by the Board of Directors of such bank in any year
will exceed the total of such bank's net profits (as defined and interpreted by
regulation) for that year and the retained net profits (as defined) for the
preceding two years, less any required transfers to surplus. The OCC's
regulations define the calculation of net profits to include the provision for
possible credit losses and exclude actual charge-offs. National banks can only
pay dividends to the extent that retained net profits (including the portion
transferred to surplus) exceed bad debts (as defined).
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In addition, payment of dividends by a Subsidiary Bank will be prohibited
under the Federal Deposit Insurance Corporation Improvement Act of 1991
("FDICIA") in the event such Subsidiary Bank would become "undercapitalized"
under the guidelines described below as a result of such distribution. Moreover,
in connection with its approval of deposit insurance for newly-formed national
banks, the FDIC has adopted a general policy of restricting the ability of any
newly-formed insured entity from paying dividends for a 3 year period following
formation. In connection with the formation of FFB-NY in June 1992, First
Fidelity agreed to obtain the approval of the FDIC prior to causing FFB-NY to
pay out dividends during the bank's first 3 years of existence. Connecticut
banking statutes provide that Connecticut-chartered banks may pay dividends only
out of "net profits", defined as the remainder of earnings from current
operations, and limited in amount per year to the total of net profits for that
year combined with retained net profits of the preceding two years.
Under the above-mentioned restrictions, in 1994 the Subsidiary Banks,
without affirmative governmental approvals, could declare aggregate dividends of
approximately $281 million plus an amount approximately equal to the net profits
(as measured under current regulations), if any, earned by the Subsidiary Banks
for the period from January 1, 1994 through the date of declaration less
dividends previously paid in 1994, subject to the limitations described
elsewhere herein. See Part II, Item 7, "Management's Discussion and Analysis of
Financial Condition and Results of Operations -- Financial Condition -- Asset
and Liability Management" and "-- Capital".
If, in the opinion of the applicable regulatory authority, a bank or bank
holding company under its jurisdiction is engaged in or is about to engage in an
unsafe or unsound practice (which, depending on the financial condition of the
bank or bank holding company, could include the payment of dividends), such
authority may require that such bank or bank holding company cease and desist
from such practice or, as a result of an unrelated practice, require the bank or
bank holding company to limit dividends in the future. In addition, the Federal
Reserve Board, the OCC and the FDIC have issued policy statements which provide
that insured banks and bank holding companies should generally only pay
dividends out of current operating earnings. Finally, as described elsewhere
herein, the regulatory authorities have established guidelines and under FDICIA
have adopted regulations (and may in the future adopt additional regulations)
with respect to the maintenance of appropriate levels of capital by a bank or
bank holding company under their jurisdiction. Compliance with the standards set
forth in such policy statements, guidelines and regulations could limit the
amount of dividends which the Company and its bank and bank holding company
affiliates may pay. In addition, the Company and its Subsidiary Banks discuss
overall capital adequacy, including the payment of dividends, on at least a
quarterly basis with their respective appropriate Federal regulatory
authorities.
Borrowings by the Company
Federal law prevents the Company and certain of its affiliates (with
certain exceptions), including FFI and Northeast, from borrowing from the
Subsidiary Banks, unless such borrowings are secured by specified amounts and
types of collateral. Additionally, such secured loans to any one affiliate are
generally limited to 10% of each such Subsidiary Bank's capital and surplus and,
in the aggregate with respect to the Company and all of such affiliates, to 20%
of each such Subsidiary Bank's capital and surplus. Further, a bank holding
company and its subsidiaries are prohibited from engaging in certain tie-in
arrangements in connection with any extension of credit, lease or sale of
property or furnishing of services.
Capital
The Federal Reserve Board measures capital adequacy for bank holding
companies on the basis of a risk-based capital framework and a leverage ratio.
The minimum ratio of total risk-based capital to risk-adjusted assets (including
certain off-balance sheet items, such as standby letters of credit) is 8%. At
least half of the total capital must be common equity and qualifying perpetual
preferred stock, less goodwill ("Tier I capital"). The remainder ("Tier II
capital") may consist of mandatory convertible debt securities, a designated
amount of qualifying subordinated debt, other preferred stock and a portion of
the reserve for possible credit losses.
In addition, the Federal Reserve Board has established minimum leverage
ratio guidelines for bank holding companies. These guidelines currently provide
for a minimum leverage ratio (Tier I capital to quarterly average total assets
less goodwill) of 3% for bank holding companies that meet certain criteria,
including that they maintain the highest regulatory rating. All other bank
holding companies are required to maintain a leverage ratio of 3% plus an
additional cushion of at least 1 to 2 percentage points. The Federal Reserve
Board has not advised First Fidelity of
<PAGE> 10
8
any specific minimum leverage ratio under these guidelines which would be
applicable to First Fidelity. The guidelines also indicate that, when
appropriate, including when a bank holding company is undertaking expansion,
engaging in new activities or otherwise facing unusual or abnormal risk, the
Federal Reserve Board will consider a "tangible Tier I leverage ratio"
(deducting all intangibles) in making an overall assessment of capital adequacy.
Failure to satisfy regulators that a bank holding company will comply fully with
capital adequacy guidelines upon consummation of an acquisition may impede the
ability of a bank holding company to consummate such acquisition, particularly
if the acquisition involves payment of consideration other than common stock. In
most cases, the regulatory agencies will not approve acquisitions by bank
holding companies and banks unless their capital ratios are well above
regulatory minimums.
In 1993, the Federal Reserve Board adopted changes to the risk-based
capital and leverage ratio calculations which require that most intangibles,
including core deposit intangibles and goodwill (but excluding qualifying
purchased credit card relationships and purchased mortgage servicing rights), be
deducted for the purpose of calculating Tier I and total capital. Under the
rule, bank holding companies are permitted (for supervisory purposes but not for
application purposes) to include certain identifiable intangible assets, such as
core deposit intangibles, in calculating capital to the extent that such
intangibles were acquired prior to February 19, 1992. Institutions must deduct
all intangible assets (other than qualifying purchased credit card relationships
and purchased mortgage servicing rights) in the calculation of capital for
application purposes. The rule applies to bank holding companies as well as to
state member banks. The OCC adopted similar rules applicable to the Subsidiary
Banks. See Part II, Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Financial Condition -- Asset and
Liability Management" and "-- Capital".
The Company's Subsidiary Banks are subject to capital requirements which
generally are similar to those affecting the Company. As described below under
"FDICIA", the federal banking agencies have established certain minimum levels
of capital which are consistent with statutory requirements. As of December 31,
1993 and 1992, the Company and the Subsidiary Banks had capital in excess of all
regulatory minimums, including the higher minimum capital and leverage ratios
agreed to by the Company in connection with acquisitions during 1990, 1991 and
1992.
The Federal Reserve Board, the FDIC and the OCC issued a proposed rule in
September 1993 (to become effective for First Fidelity on December 31, 1994) to
implement the requirement under FDICIA that risk-based capital standards take
account of interest rate risk. The proposed rule focuses on institutions having
relatively high levels of measured interest rate risk, and considers the effect
that changing interest rates would have upon the value of an institution's
assets, liabilities, and off balance-sheet positions. First Fidelity's risk
profile (as defined) is such that the rule, if adopted in substantially the form
proposed, is expected to have no impact on the capital ratios or operations of
the Company and its Subsidiary Banks.
FDICIA
Upon its enactment in December 1991, FDICIA substantially revised the bank
regulatory and funding provisions of the Federal Deposit Insurance Act and made
revisions to several other federal banking statutes.
Among other things, FDICIA requires the federal banking agencies to take
"prompt corrective action" in respect of depository institutions that do not
meet minimum capital requirements in order to minimize losses to the FDIC.
FDICIA establishes five capital classifications: "well capitalized", "adequately
capitalized", "undercapitalized", "significantly undercapitalized" and
"critically undercapitalized" and imposes significant restrictions on the
operations of a bank that is not at least adequately capitalized. A depository
institution's capital classification depends upon its capital levels in relation
to various relevant capital measures, which include a risk-based capital
measure, a leverage ratio capital measure and certain other factors.
A depository institution is considered well capitalized if it significantly
exceeds the minimum level required by regulation for each relevant capital
measure, adequately capitalized if it meets each such measure, undercapitalized
if it fails to meet any such measure, significantly undercapitalized if it is
significantly below any such measure and critically undercapitalized if it fails
to meet any critical capital level set forth in regulations. The critical
capital level is a level of tangible equity equal to not less than 2% of total
assets and not more than 65% of the minimum leverage ratio at levels prescribed
by regulation (except to the extent that 2% would be higher than such 65%
level). An institution may be deemed to be in a capitalization category that is
lower than is indicated by its actual capital position if, among other things,
it receives an unsatisfactory examination rating or is deemed to be in an unsafe
or
<PAGE> 11
9
unsound condition or to be engaging in unsafe or unsound practices. Under
applicable regulations, for an institution to be well capitalized it must have a
total risk-based capital ratio of at least 10%, a Tier I risk-based capital
ratio of at least 6% and a Tier I leverage ratio of at least 5% and not be
subject to any specific capital order or directive. As of December 31, 1993, all
of the Company's Subsidiary Banks were "well capitalized" as defined under
FDICIA. See Part II, Item 7, "Management's Discussion and Analysis of Financial
Condition and Results of Operations -- Financial Condition -- Asset and
Liability Management" and "-- Capital".
FDICIA generally prohibits a depository institution from making any capital
distribution (including payment of a dividend) or paying any management fee to
its holding company if the depository institution would thereafter be
undercapitalized. Undercapitalized depository institutions are subject to growth
limitations and prohibitions on the payment of interest rates on deposits in
excess of 75 basis points above the average market yields for comparable
deposits. In addition, such institutions must submit a capital restoration plan
which is acceptable to applicable federal banking agencies and which must
include a guarantee from the parent holding company that the institution will
comply with such plan.
Significantly undercapitalized depository institutions may be subject to a
number of requirements and restrictions, including orders to sell sufficient
voting stock to become adequately capitalized, requirements to reduce total
assets or to cease accepting deposits from correspondent banks and restrictions
on senior executive compensation and on inter-affiliate transactions. Critically
undercapitalized institutions are subject to a number of additional
restrictions, including the appointment of a receiver or conservator.
Regulations promulgated under FDICIA also require that an institution
monitor its capital levels closely and notify its appropriate federal banking
regulators within 15 days of any material events that affect the capital
position of the institution. FDICIA also contains a variety of other provisions
that affect the operations of the Company, including certain reporting
requirements, regulatory standards for real estate lending, "truth in savings"
provisions, the requirement that a depository institution give 90 days prior
notice to customers and regulatory authorities before closing any branch,
certain restrictions on investments and activities of state-chartered insured
banks and their subsidiaries, limitations on credit exposure between banks,
restrictions on loans to a bank's insiders, guidelines governing regulatory
examinations and a prohibition on the acceptance or renewal of brokered deposits
by depository institutions that are not well capitalized or are adequately
capitalized and have not received a waiver from the FDIC.
FDICIA directs that each federal banking agency prescribe standards for
depository institutions and depository institution holding companies relating to
internal controls, information systems, internal audit systems, loan
documentation, credit underwriting, interest rate exposure, asset growth, a
maximum ratio of classified assets to capital, minimum earnings sufficient to
absorb losses, a minimum ratio of market value to book value for publicly traded
shares (if feasible) and such other standards as the agency deems appropriate.
Finally, FDICIA limits the discretion of the FDIC with respect to deposit
insurance coverage by requiring that, except in very limited circumstances, the
FDIC's course of action in resolving a problem bank must constitute the "least
costly resolution" for the Bank Insurance Fund ("BIF") or the Savings
Association Insurance Fund ("SAIF"), as the case may be. The FDIC has
interpreted this standard as requiring it not to protect deposits exceeding the
$100,000 insurance limit in more situations than was previously the case. In
addition, FDICIA prohibits payments by the FDIC on uninsured deposits in foreign
branches of U.S. banks, and effective no later than 1994, will severely limit
the "too big to fail" doctrine under which the FDIC formerly protected deposits
exceeding the $100,000 insurance limit in certain failed banking institutions.
FIRREA
Under the Financial Institutions Reform, Recovery, and Enforcement Act of
1989 ("FIRREA"), a depository institution insured by the FDIC can be held liable
for any loss incurred by, or reasonably expected to be incurred by, the FDIC
after August 9, 1989 in connection with (i) the default of a commonly controlled
FDIC-insured depository institution or (ii) any assistance provided by the FDIC
to a commonly controlled FDIC-insured depository institution in danger of
default. "Default" is defined generally as the appointment of a conservator or
receiver and "in danger of default" is defined generally as the existence of
certain conditions indicating that a "default" is likely to occur in the absence
of regulatory assistance. FIRREA and the Crime Control Act of 1990 expand the
enforcement powers available to federal banking regulators, including providing
greater flexibility to impose enforcement action, expanding the category of
persons dealing with a bank who are subject to enforcement
<PAGE> 12
10
action, and increasing the potential civil and criminal penalties. In addition,
in the event of a holding company insolvency, the Crime Control Act of 1990
affords a priority in respect of capital commitments made by the holding company
on behalf of its Subsidiary Banks. The consummation of the Investment Agreement
caused the FDIC-insured depository institutions controlled by Santander and the
FDIC-insured depository institutions controlled by the Company to become
commonly controlled for FIRREA purposes, and would have subjected these
institutions to the foregoing provisions were it not for the grant of an
exemption from liability by the FDIC which was granted effective December 27,
1991. A condition to effectiveness of such exemption is a requirement that
Santander not control 25% or more of the voting securities of the Company. See
also "FDICIA".
Annual Insurance Assessments
Under FIRREA, the Federal Savings and Loan Insurance Corporation, which
insured savings and loan associations and federal savings banks, was replaced by
the SAIF, which is administered by the FDIC. A separate fund, the BIF, which was
essentially a continuation of the FDIC's then existing fund, was established for
banks and state savings banks. The Subsidiary Banks generally are subject to
deposit insurance assessments by BIF. As a result, however, of the Company's
acquisition of various branches and deposits of SAIF insured depository
institutions, a portion of the Company's deposit base is subject to deposit
insurance assessment by SAIF.
The FDIC developed a transitional risk-based assessment system, under
which, beginning on January 1, 1993, the assessment rate for an insured
depository institution varies according to its level of risk. An institution's
risk category is based upon whether the institution is well capitalized,
adequately capitalized or less than adequately capitalized. Each insured
depository institution also is to be assigned to one of the following
"supervisory subgroups": Subgroup A, B or C. Subgroup A institutions are
financially sound institutions with few minor weaknesses; Subgroup B
institutions are institutions that demonstrate weaknesses which, if not
corrected, could result in significant deterioration; and Subgroup C
institutions are institutions for which there is a substantial probability that
the FDIC will suffer a loss in connection with the institution unless effective
action is taken to correct the areas of weakness. Based on its capital and
supervisory subgroups, each BIF or SAIF member institution will be assigned an
annual FDIC assessment rate per $100 of insured deposits varying between 0.23%
per annum (for well capitalized Subgroup A institutions) and 0.31% per annum
(for undercapitalized Subgroup C institutions), and the FDIC has indicated that
it may expand the differential between the maximum and minimum rates. Well
capitalized Subgroup B and Subgroup C institutions will be assigned assessment
rates per $100 of insured deposits of 0.26% per annum and 0.29% per annum,
respectively. As of December 31, 1993, all Subsidiary Banks were well
capitalized.
Although it remains possible that BIF and SAIF insurance assessments could
be further increased and/or that there may be a special additional assessment,
based upon public statements by regulatory authorities regarding the insurance
funds, the Company does not anticipate that there will be any material increase
in assessments in the near future. A significant increase in the assessment
could have an adverse impact on the Company's results of operations.
Other Matters
First Fidelity's Common Stock, preferred stock, par value $1.00 per share
(the "Preferred Stock"), and Preferred Share Purchase Rights are registered
under the Securities Exchange Act of 1934. As a result, the Company and such
securities are subject to the Securities and Exchange Commission's rules
regarding, among other things, the filing of public reports, the solicitation of
proxies, the disclosure of beneficial ownership of certain securities, short
swing profits and the conduct of tender offers.
EFFECT OF GOVERNMENTAL POLICIES
The earnings of the Subsidiary Banks and, therefore, of the Company are
affected not only by domestic and foreign economic conditions, but also by the
monetary and fiscal policies of the United States and its agencies (particularly
the Federal Reserve Board), foreign governments and other official agencies. The
Federal Reserve Board can and does implement national monetary policy, such as
the curbing of inflation and combating of recession, by its open market
operations in United States Government securities, control of the discount rate
applicable to borrowings and the establishment of reserve requirements against
deposits and certain liabilities of depository institutions. The actions of the
Federal Reserve Board influence the level of loans, investments and deposits and
also
<PAGE> 13
11
affect interest rates charged on loans or paid on deposits. The nature and
impact of future changes in monetary and fiscal policies are not predictable.
From time to time, various proposals are made in the United States Congress
and the New Jersey, Pennsylvania, New York and Connecticut legislatures and
before various regulatory authorities which would alter the powers of different
types of banking organizations or remove restrictions on such organizations and
which would change the existing regulatory framework for banks, bank holding
companies and other financial institutions. It is impossible to predict whether
any of such proposals will be adopted and the impact, if any, of such adoption
on the business of the Company.
ITEM 2. PROPERTIES
As of December 31, 1993, the Company had 765 properties, of which 397 were
owned (including 30 on leased land) and 368 were leased. The owned properties
aggregate approximately 4.6 million square feet. The leased properties aggregate
approximately 2.7 million square feet and, in 1993, required (with the 30 land
leases) approximately $29.5 million in rental payments.
ITEM 3. LEGAL PROCEEDINGS
The Company is a party (as plaintiff or defendant) to a number of lawsuits.
While any litigation carries an element of uncertainty, management is of the
opinion that the liability, if any, resulting from these actions will not have a
material effect on the financial condition or results of operations of the
Company.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
Not applicable.
ITEM 4A. EXECUTIVE OFFICERS OF THE REGISTRANT
The following table sets forth the name and age (as of December 31, 1993)
of each current executive officer of the Company, the positions and offices with
the Company and its subsidiaries presently held by each such officer and a brief
account of the business experience of each such officer for the past five years.
Each officer is appointed by the Company's Board of Directors to serve for a
term of one year. Unless otherwise noted, each officer has held the position
indicated for at least five years.
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER POSITION WITH FIRST FIDELITY AND ITS
NAME AND AGE SINCE SUBSIDIARIES; BUSINESS EXPERIENCE
- --------------------------- ---------- -----------------------------------------------------
<S> <C> <C>
Jay A. Anglada, 54 1988 Executive Vice President and Head of Trust Activities
(1989 to date) of the Company; Executive Vice
President and Senior Trust Officer (1989 to date)
of First Fidelity Bank
Roland K. Bullard II, 49 1991 Senior Executive Vice President (May 1991 to date) of
the Company; held various executive positions with
CoreStates Financial Corp. and its Subsidiaries
(prior years to April 1991)
Anthony R. Burriesci, 46 1990 Executive Vice President and Corporate Controller
(April 1990 to date) of the Company; Executive Vice
President (1989 to April 1990) of The Bank of New
York
</TABLE>
<PAGE> 14
12
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER POSITION WITH FIRST FIDELITY AND ITS
NAME AND AGE SINCE SUBSIDIARIES; BUSINESS EXPERIENCE
- --------------------------- ---------- -----------------------------------------------------
<S> <C> <C>
Michael A. Gallagher, 46 1993 Executive Vice President, Corporate Operations and
Systems (June 1993 to date) of the Company; Senior
Vice President, Staff Services (June 1990 to May
1993) of the Company; Vice President (prior years
to May 1990) of Chase Manhattan Bank, N.A.
Leslie E. Goodman, 50 1988 Senior Executive Vice President (February 1990 to
date) of the Company; held various executive
positions with the Company and its subsidiaries
(prior years to February 1990)
William A. Karmen, 52 1988 Executive Vice President, Human Resources (1989 to
date) of the Company
Michael L. LaRusso, 48 1990 Executive Vice President (December 1990 to date) and
Senior Vice President and Director of Audit and
Policy Development (February 1990 to December 1990)
of the Company; Senior National Bank Examiner
(prior years to February 1990) of the OCC
James L. Mitchell, 56 1990 General Counsel (May 1990 to date) and Executive Vice
President and Secretary (July 1990 to date) of the
Company; Deputy General Counsel (prior years to May
1990) of Citicorp and Citibank, N.A.
Thomas H. O'Brien, Jr., 50 1993 Executive Vice President (January 1992 to date) of
the Company; President and Chief Operating Officer
(June 1993 to date) of Union Trust; Senior Vice
President (March 1990 to December 1992) of the
Company; Executive Vice President/Chief Credit
Policy Officer and various other positions (prior
years to March 1990) of Chemical New Jersey
Holdings, Inc. and Senior Vice President of
Chemical Banking Corp.
Peter C. Palmieri, 59 1990 Vice Chairman and Chief Credit Officer (February 1990
to date) of the Company; Senior Executive Vice
President (prior years to February 1990) of The
Bank of New York
Donald C. Parcells, 50 1990 Executive Vice President (June 1993 to date) for
Consumer Banking; Executive Vice President
(December 1990 to June 1993) and Senior Vice
President and Project Director for Corporate
Operations and Systems (February 1990 to December
1990) of the Company; Managing Director,
Institutional Product Group (prior years to
February 1990) of Marine Midland Bank, N.A.
Frederick H. Pennekamp, 45 1988 Executive Vice President (1989 to date) and Treasurer
(1988 to date) of the Company
</TABLE>
<PAGE> 15
13
<TABLE>
<CAPTION>
EXECUTIVE
OFFICER POSITION WITH FIRST FIDELITY AND ITS
NAME AND AGE SINCE SUBSIDIARIES; BUSINESS EXPERIENCE
- --------------------------- ---------- -----------------------------------------------------
<S> <C> <C>
Wolfgang Schoellkopf, 61 1990 Vice Chairman and Chief Financial Officer (March 1990
to date) of the Company; Executive Vice President
(prior years to March 1990) of Shearson Lehman
Hutton Inc.
Anthony P. Terracciano, 55 1990 Chairman of the Board, President and Chief Executive
Officer (February 1990 to date) of the Company;
President and Chief Operating Officer (prior years
to February 1990) of Mellon Bank Corporation and
Mellon Bank
Kenneth H. Thorn, 45 1991 Executive Vice President (May 1991 to date) of the
Company; President and Chief Operating Officer,
FFB-NY (August 1993 to date); President, Chief
Operating Officer and Director (July 1989 through
December 1990) of United Savings Association of
Texas F.S.B. and United Savings Association of the
Southwest F.S.B.; Executive Vice President and
Manager, Consumer Banking Department (prior years
to June 1989) of Texas Commerce Bancshares and
Texas Commerce Bank N.A.
</TABLE>
<PAGE> 16
14
PART II
ITEM 5. MARKET FOR THE REGISTRANT'S COMMON EQUITY AND RELATED STOCKHOLDER
MATTERS
First Fidelity's Common Stock is listed on the New York Stock Exchange. The
following table sets forth the high and low sales prices of the Common Stock, as
reported in the consolidated transaction reporting system, and the dividends
declared thereon, for the periods indicated below:
<TABLE>
<CAPTION>
HIGH LOW DIVIDEND
----- ----- --------
<S> <C> <C> <C>
1993
-----------------------------------------------------------------------
Quarter ended December 31, 1993...................................... $47 $40 1/8 $.37
Quarter ended September 30, 1993..................................... 49 1/2 45 3/8 .37
Quarter ended June 30, 1993.......................................... 51 42 3/8 .37
Quarter ended March 31, 1993......................................... 52 3/8 42 7/8 .33
1992
-----------------------------------------------------------------------
Quarter ended December 31, 1992...................................... 46 34 1/2 .33
Quarter ended September 30, 1992..................................... 39 3/8 33 3/4 .30
Quarter ended June 30, 1992.......................................... 38 1/2 32 1/8 .30
Quarter ended March 31, 1992......................................... 36 1/8 30 1/2 .30
</TABLE>
- ---------------
On January 20, 1994, the Company raised its regular quarterly dividend on its
Common Stock to $.42 per share.
Federal and state laws and regulations contain restrictions on the ability
of the Company, the Subsidiary Banks and the Company's intermediate bank holding
companies to pay dividends. For information regarding restrictions on dividends,
see Part I, Item 1, "Business -- Supervision and Regulation -- Dividend
Restrictions" and Part II, Item 8, "Financial Statements and Supplementary
Data -- Note 12 of the Notes to Consolidated Financial Statements". In addition,
in connection with the formation of FFB-NY, the Company agreed to certain
restrictions on the ability of that entity to pay dividends. See Part I, Item 1,
"Business -- Supervision and Regulation -- Dividend Restrictions".
As of December 31, 1993, the Company had approximately 29,600 holders of
record of its Common Stock.
<PAGE> 17
15
ITEM 6. SELECTED FINANCIAL DATA
The following selected financial data should be read in conjunction with
First Fidelity's Consolidated Financial Statements and the accompanying notes
presented elsewhere herein.
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
-----------------------------------------------------------------------
1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- -----------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C>
SUMMARY OF OPERATIONS:
Interest income (taxable equivalent).................... $ 2,078,936 $ 2,168,744 $ 2,431,462 $ 2,773,458 $ 2,753,913
Interest expense........................................ 691,513 920,712 1,327,889 1,712,137 1,693,812
----------- ----------- ----------- ----------- -----------
Net interest income (taxable equivalent)................ 1,387,423 1,248,032 1,103,573 1,061,321 1,060,101
Less: tax equivalent adjustment......................... 33,740 39,463 47,502 53,890 76,136
----------- ----------- ----------- ----------- -----------
Net Interest Income................................... 1,353,683 1,208,569 1,056,071 1,007,431 983,965
Provision for possible credit losses.................... 148,000 228,000 298,000 498,000 200,254
----------- ----------- ----------- ----------- -----------
Net Interest Income after Provision for
Possible Credit Losses.............................. 1,205,683 980,569 758,071 509,431 783,711
Net securities transactions............................. 7,017 4,825 53,566 24,387 18,244
Other non-interest income............................... 376,483 327,551 340,124 338,083 332,006
Non-interest expense.................................... 1,014,699 916,846 871,747 883,151 945,797
----------- ----------- ----------- ----------- -----------
Income (loss) before income taxes and cumulative effect
of changes in
accounting principles................................. 574,484 396,099 280,014 (11,250) 188,164
Income taxes (benefit).................................. 178,025 82,362 58,773 (5,125) 28,616
----------- ----------- ----------- ----------- -----------
Income (loss) before cumulative effect of changes in
accounting principles................................. 396,459 313,737 221,241 (6,125) 159,548
Cumulative effect of changes in accounting principles,
net of tax............................................ 2,373 -- -- -- --
----------- ----------- ----------- ----------- -----------
Net Income (Loss)..................................... 398,832 313,737 221,241 (6,125) 159,548
Dividends on Preferred Stock............................ 20,653 21,061 17,176 13,283 13,343
----------- ----------- ----------- ----------- -----------
Net Income (Loss) Applicable to Common Stock.......... $ 378,179 $ 292,676 $ 204,065 $ (19,408) $ 146,205
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
PER COMMON SHARE:
Primary:
Income (loss) before cumulative effect of changes in
accounting principles............................... $ 4.63 $ 3.89 $ 3.37 $ (.33) $ 2.51
Cumulative effect of changes in accounting principles,
net of tax.......................................... .03 -- -- -- --
Net income (loss) -- primary.......................... 4.66 3.89 3.37 (.33) 2.51
Fully diluted (1):
Income (loss) before cumulative effect of changes in
accounting principles............................... 4.55 3.77 3.31 -- --
Cumulative effect of changes in accounting principles,
net of tax.......................................... .03 -- -- -- --
Net income (loss) -- fully diluted.................... 4.58 3.77 3.31 -- --
Dividends(2)............................................ 1.44 1.23 1.20 1.10 2.00
Book value.............................................. 31.39 27.33 24.35 22.22 24.07
Average shares outstanding:
Primary............................................... 81,207,162 75,219,642 60,562,567 59,189,692 58,266,909
Fully diluted......................................... 84,980,978 80,523,116 64,785,955 63,005,045 62,082,312
RATIOS:
Return on average assets(3)............................. 1.27% 1.06% .77% (.02)% .55%
Return on average stockholders' equity(3)............... 16.19 15.18 13.69 (.40) 10.13
Return on average common stockholders' equity(4)........ 16.94 15.96 14.35 (1.42) 10.31
Average stockholders' equity to average assets.......... 7.82 7.01 5.63 5.10 5.47
Common dividend payout(5)............................... 31 30 35 -- 80
FINANCIAL CONDITION AT YEAR-END:
Assets.................................................. $33,762,585 $31,480,297 $30,215,229 $29,110,344 $30,727,815
Loans................................................... 21,386,911 18,377,695 17,341,517 18,530,304 19,631,808
Deposits................................................ 28,143,022 27,004,835 25,218,550 23,080,110 22,872,460
Long-term debt.......................................... 613,058 581,508 918,885 1,116,987 780,438
Preferred Stock......................................... 230,422 232,172 232,236 157,271 157,271
Common stockholders' equity............................. 2,508,006 2,025,478 1,712,546 1,325,182 1,407,695
</TABLE>
- ---------------
(1) Anti-dilutive in years prior to 1991.
(2) As a result of a change in the schedule of Common Stock dividend declaration
dates in 1990, the fourth quarter of 1990 regular common dividend was
declared on January 17, 1991, payable on February 8, 1991, to stockholders
of record on January 28, 1991.
(3) Net income (loss).
(4) Net income (loss) applicable to Common Stock.
(5) Not statistically meaningful in 1990.
<PAGE> 18
16
ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The following discussion and analysis of financial condition and results of
operations should be read in conjunction with the Consolidated Financial
Statements and accompanying notes appearing later in this document. When
necessary, reclassifications have been made to prior years' data throughout the
following discussion and analysis for purposes of comparability with 1993 data.
Summary
First Fidelity's net income before the cumulative effect of changes in
accounting principles for the year ended December 31, 1993 was $396.5 million,
or $4.63 per common share on a primary basis and $4.55 per common share on a
fully-diluted basis. These results compare to net income of $313.7 million, or
$3.89 per common share on a primary basis and $3.77 per common share on a
fully-diluted basis for the year 1992. The Company's net income in 1991 was
$221.2 million, or $3.37 per common share on a primary basis and $3.31 per
common share on a fully-diluted basis. The cumulative effect of changes in
accounting principles, net of related taxes, increased net income $2.4 million,
or $.03 per common share on both a primary and fully-diluted basis for 1993. Net
income including the cumulative effect of changes in accounting principles was
$398.8 million, or $4.66 per common share on a primary basis and $4.58 per
common share on a fully-diluted basis.
The 27.1% improvement in 1993 net income over 1992 reflects stronger net
interest income, a lower provision for possible credit losses and higher
non-interest income, partly offset by higher non-interest expense, primarily due
to acquisitions, and an increased provision for income taxes.
Total non-performing assets decreased 29% to $494.7 million at December 31,
1993, from $695.7 million at December 31, 1992, due to continuing workout and
collection efforts, including repayments, charge-offs, transfers to "assets held
for sale" and fewer additions to non-performing loans. Excluding non-performing
assets related to 1993 acquisitions of $61.0 million at December 31, 1993, and
including assets classified as "held for sale" of $88.4 million at December 31,
1993, total non-performing assets would have declined by $173.6 million from
December 31, 1992. The ratio of non-performing loans to total loans declined
from 2.76% at December 31, 1992 to 1.77% at December 31, 1993. The ratio
reflects significant improvements in the Company's asset quality as well as the
transfer of non-performing assets to the "assets held for sale" portfolio. The
significant decline in non-performing loans, in combination with a slight
decrease in the reserve for possible credit losses, resulted in the coverage of
non-performing loans by the reserve increasing to 159% at December 31, 1993 from
121% at December 31, 1992.
The Company's capital base was further strengthened by $480.8 million in
1993, primarily through the retention of earnings, the issuance of Common Stock
in connection with acquisitions, and the exercise of Warrants and Acquisition
Gross Up Rights by Santander in connection with the Company's acquisitions of
Northeast and Village. Return on average stockholders' equity was 16.19% in
1993, compared to 15.18% in 1992 and 13.69% in 1991. Return on average assets
was 1.27% in 1993 compared to 1.06% in 1992 and 0.77% in 1991.
During 1993, the Company expanded its branch network into Connecticut with
the acquisition of Northeast and enhanced its New York and New Jersey presence
through the acquisitions of Peoples, Village and Dime. The Peoples acquisition,
which was consummated on December 30, 1993 and accounted for as a purchase, is
reflected in the Company's Consolidated Statement of Condition at December 31,
1993 but had no significant impact on the Company's 1993 earnings.
In the last half of 1993, the Company entered into agreements to acquire
three banks in Connecticut, Pennsylvania and New York for a total of
approximately $67.4 million in cash. The combined assets and deposits at
December 31, 1993 of the three banks were approximately $705 million and $508
million, respectively. The proposed acquisitions are not expected to have a
significant impact on First Fidelity's liquidity or financial position. The
Company also believes that the acquisitions, if consummated as planned, will
have a modestly positive effect on its consolidated results of operations for
1994. See Part I, Item 1, "Business -- Recent Transactions -- Acquisitions and
Joint Ventures".
<PAGE> 19
17
RESULTS OF OPERATIONS
Net Interest Income
Net interest income is the largest component of First Fidelity's operating
income. Net interest income, on a taxable equivalent basis, totaled $1,387
million and $1,248 million in 1993 and 1992, respectively. The increase in net
interest income for 1993 was primarily due to a higher level of average earning
assets. The increase also reflected a wider spread between the rates earned on
earning assets and the average cost of interest-bearing liabilities, as rates
paid on deposits and short-term borrowings continued to decline more rapidly
than rates earned on loans and securities. In addition, higher
noninterest-bearing liabilities, increased stockholders' equity, and a steady
decline in non-performing assets had a positive impact. The increase in net
interest income also reflects growth in residential mortgage and installment
loans, due primarily to acquisitions.
Earning assets averaged $28.4 billion in 1993, which was $1.4 billion or 5%
above the 1992 level. The increase primarily resulted from a $1.6 billion or 29%
increase in average mortgage loans, a $564.5 million or 11% increase in average
installment loans and a $496.1 million or 8% increase in average securities,
partially offset by a $601.8 million or 29% decrease in time deposits with
banks, a $420.2 million or 45% decrease in average federal funds sold and
securities purchased under agreements to resell and a $215.7 million or 3%
decrease in average commercial loans. The increase in average mortgage and
installment loans was the result of The Howard Savings Bank ("Howard"),
Northeast and Village acquisitions, partially offset by paydowns on outstanding
loan balances.
For 1993, average core deposits, comprised of demand deposits, savings and
Negotiable Order of Withdrawal ("NOW") accounts, money market deposits and
consumer certificates of deposit, increased 8% over the prior year level (as a
result of 1993 acquisitions, as well as the full year effect of the Howard
acquisition on October 2, 1992) to $25.9 billion and funded 91% of average
earning assets. In comparison, average core deposits were $24.1 billion and
funded 89% of average earning assets during 1992. The increase consisted of
higher levels of savings and NOW account deposits and demand deposits, partially
offset by slightly lower levels of consumer certificates of deposit and money
market deposit accounts. The higher average deposit balances reflect the impact
of acquisitions, partially offset by deposit run-off, which, the Company
believes, largely resulted from a shift by consumers to alternative market
instruments.
The overall increase in relatively inexpensive core deposits enabled the
Company to reduce its reliance on funds purchased in the financial markets.
Short-term borrowings, primarily federal funds purchased, securities sold under
repurchase agreements, demand notes issued to the United States Treasury, and
commercial paper, averaged $1.2 billion in 1993 compared to $1.3 billion in
1992. The Company also reduced average long-term debt from $738.2 million in
1992 to $591.4 million in 1993. In June, 1993, the Company issued $150 million
of 6.8% subordinated notes. Additionally, on February 2, 1994, the Company
issued $200 million of floating rate senior notes. During 1993, average
corporate certificates of deposit and deposits in overseas offices remained
relatively unchanged from the 1992 level.
Non-performing assets (which exclude loans 90 days past due and still
accruing, segregated assets and assets held for sale) continued to decline
during 1993. Total non-performing assets declined 29%, or $200.9 million to
$494.7 million at December 31, 1993, compared to $695.7 million at December 31,
1992. Non-accruing and restructured loans were $365.0 million and $13.9 million,
respectively, at December 31, 1993 as compared to $470.7 million and $35.6
million, respectively, at December 31, 1992.
The net interest margin -- taxable equivalent net interest income as a
percentage of earning assets -- increased in 1993 to 4.86% from 4.59% for 1992.
The increase in the net interest margin was primarily due to a more rapid
decline in the average rates paid on interest-bearing liabilities than earned on
earning assets during 1993. Net interest income continued to benefit from a
relative shift in the loan portfolio mix to higher-yielding consumer and
residential mortgage loans from commercial loans, as well as a shift in the mix
of deposits from the currently higher cost consumer time deposits to savings/NOW
accounts. A lower level of non-performing assets, as well as an increase in
non-interest-bearing sources of funds such as stockholders' equity and demand
deposits, also contributed to the improvement in net interest margin.
In 1993, the net interest margin percentage continued to increase during
the first and second quarters, declined in the third quarter but increased
slightly in the fourth quarter. See Item 8, "Financial Statements and
Supplementary
<PAGE> 20
18
Data -- (b) Summary of Quarterly Financial Information". After the first quarter
of 1993, average rates paid on interest-bearing liabilities and earned on
earning assets declined at nearly the same pace for the remainder of the year.
First Fidelity presently expects that its net interest margin percentage may
decline modestly in 1994, as higher yielding assets mature, as certain deposit
rates may trend higher in 1994, and as recent acquisitions initially tend to
reduce the overall average margin while adding to net interest income.
The following table reflects the components of net interest income, setting
forth, for each of the three years in the period ended December 31, 1993, (i)
average assets, liabilities and stockholders' equity, (ii) interest income
earned on earning assets and interest expense paid on interest-bearing
liabilities, (iii) average rates earned on earning assets and average rates paid
on interest-bearing liabilities, (iv) the Company's net interest income/spread
(i.e., the difference between the average rate earned on earning assets and the
average rate paid on interest-bearing liabilities) and (v) the net interest
margin.
NET INTEREST INCOME SUMMARY
<TABLE>
<CAPTION>
1993 1992 1991
------------------------------- ------------------------------- -------------------------------
INTEREST AVERAGE INTEREST AVERAGE INTEREST AVERAGE
AVERAGE INCOME/ INTEREST AVERAGE INCOME/ INTEREST AVERAGE INCOME/ INTEREST
BALANCE EXPENSE RATE BALANCE EXPENSE RATE BALANCE EXPENSE RATE
----------- ---------- ------- ----------- ---------- ------- ----------- ---------- -------
(DOLLARS IN THOUSANDS -- TAXABLE EQUIVALENT BASIS)(1)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C>
ASSETS
Earning Assets(2)
Loans in domestic offices
Commercial.............. $ 6,609,912 $ 486,812 7.26% $ 6,825,594 $ 553,667 7.98% $ 7,748,509 $ 707,064 9.00%
Installment............. 5,521,449 460,482 8.34 4,956,929 467,527 9.43 4,966,324 525,471 10.58
Mortgage................ 7,112,717 590,303 8.30 5,522,811 497,834 9.01 4,686,871 462,895 9.88
Loans in overseas
offices................. 120,890 5,724 4.73 123,986 7,976 6.43 127,963 11,048 8.63
----------- ---------- ----------- ---------- ----------- ----------
Total Loans............. 19,364,968 1,543,321 7.94 17,429,320 1,527,004 8.71 17,529,667 1,706,478 9.68
Taxable mortgage-backed
securities(3)........... 3,888,499 248,667 6.39 4,053,684 310,005 7.65 -- -- --
Other taxable
securities.............. 2,356,125 127,302 5.40 1,545,303 103,885 6.72 5,229,548 457,382 8.75
Tax-exempt securities..... 638,858 70,425 11.02 788,352 82,831 10.51 907,395 96,199 10.60
Time deposits with
banks................... 1,487,121 66,308 4.40 2,088,964 104,524 4.92 1,550,567 103,347 6.57
Federal funds sold and
securities purchased
under agreements to
resell.................. 508,408 16,176 3.14 928,574 33,578 3.56 961,234 59,778 6.13
Trading account........... 160,997 6,737 4.18 134,634 6,917 5.14 107,058 8,278 7.73
----------- ---------- ----------- ---------- ----------- ----------
Total Earning Assets.... 28,404,976 2,078,936 7.29 26,968,831 2,168,744 8.00 26,285,469 2,431,462 9.20
Reserve for possible credit
losses.................... (646,137) (633,361) (605,544)
Cash and due from banks..... 1,751,760 1,645,225 1,562,972
Other assets................ 1,998,617 1,494,174 1,483,863
----------- ----------- -----------
Total Assets............ $31,509,216 $29,474,869 $28,726,760
----------- ----------- -----------
----------- ----------- -----------
LIABILITIES AND STOCKHOLDERS'
EQUITY
Demand deposits............. $ 4,847,958 $ 4,355,861 $ 4,007,090
----------- ----------- -----------
Interest-bearing liabilities
Savings/NOW deposits...... 8,290,859 175,348 2.11 6,689,758 216,292 3.23 5,515,033 255,456 4.63
Money market deposit
accounts................ 3,943,278 95,765 2.43 3,983,421 129,133 3.24 3,822,295 199,270 5.21
Other consumer time
deposits................ 8,850,184 329,486 3.72 9,090,882 449,186 4.94 9,887,671 665,025 6.73
Corporate certificates of
deposit................. 427,825 13,247 3.10 436,357 20,708 4.75 645,351 41,198 6.38
Deposits in overseas
offices................. 221,437 6,884 3.07 216,714 9,134 4.15 242,747 15,546 6.32
Short-term borrowings..... 1,165,307 32,199 2.73 1,314,087 43,469 3.25 1,350,563 72,052 5.26
Long-term debt............ 591,397 38,584 6.52 738,200 52,790 7.15 1,004,882 79,342 7.90
----------- ---------- ----------- ---------- ----------- ----------
Total Interest-Bearing
Liabilities........... 23,490,287 691,513 2.94 22,469,419 920,712 4.09 22,468,542 1,327,889 5.90
Other liabilities........... 708,216 583,078 634,991
Preferred stockholders'
equity.................... 230,940 232,235 193,619
Common stockholders'
equity.................... 2,231,815 1,834,276 1,422,518
----------- ----------- -----------
Total Liabilities and
Stockholders'
Equity................ $31,509,216 $29,474,869 $28,726,760
----------- ---------- ----------- ---------- ----------- ----------
----------- ----------- -----------
Net interest
income/spread............. $1,387,423 4.35 $1,248,032 3.91 $1,103,573 3.30
---------- ---------- ----------
---------- ---------- ----------
Net interest margin......... 4.86 4.59 4.16
Tax equivalent adjustments:
Loans..................... $ 11,421 $ 13,559 $ 16,798
Tax-exempt securities..... 22,087 25,904 29,738
Trading account assets.... 232 -- 966
---------- ---------- ----------
Total................... $ 33,740 $ 39,463 $ 47,502
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
- ---------------
(1) In this table and in other data presented herein on a taxable equivalent
basis, income that is exempt from federal income taxes or taxed at a
preferential rate, such as interest on state and municipal securities, has
been adjusted to a taxable equivalent basis using a federal income tax rate
of 35% for 1993 and 34% for 1992 and 1991.
(2) Includes non-performing loans. The effect of including such loans is to
reduce the average rate earned on the Company's loans.
(3) Includes Collateralized Mortgage Obligations. Detail not available for 1991,
as such securities are included in "Other Taxable Securities" for 1991.
<PAGE> 21
19
The following table demonstrates the relative impact on net interest income
of changes in the volume of earning assets and interest-bearing liabilities and
changes in rates earned and paid by the Company on such assets and liabilities.
For purposes of constructing this table, earning asset averages include
non-performing loans.
NET INTEREST INCOME
CHANGES DUE TO VOLUME AND RATE(1)
<TABLE>
<CAPTION>
1993 VS. 1992 1992 VS. 1991
---------------------------------- -----------------------------------
INCREASE (DECREASE) INCREASE (DECREASE)
--------------------- ----------------------
TOTAL DUE TO DUE TO TOTAL DUE TO DUE TO
CHANGE VOLUME RATE CHANGE VOLUME RATE
--------- -------- --------- --------- --------- ---------
(THOUSANDS -- TAXABLE EQUIVALENT BASIS)
<S> <C> <C> <C> <C> <C> <C>
Interest Income
Loans -- Domestic offices............ $ 18,569 $160,478 $(141,909) $(176,402) $ (9,341) $(167,061)
-- Overseas offices............. (2,252) (171) (2,081) (3,072) (300) (2,772)
Taxable mortgage-backed securities... (61,338) (11,449) (49,889) N/A N/A N/A
Other taxable securities(2).......... 23,417 49,151 (25,734) (43,492) 29,978 (73,470)
Tax-exempt securities................ (12,406) (16,070) 3,664 (13,368) (12,585) (783)
Time deposits with banks............. (38,216) (28,482) (9,734) 1,177 31,067 (29,890)
Federal funds sold and securities
purchased under agreements to
resell............................ (17,402) (14,230) (3,172) (26,200) (1,749) (24,451)
Trading account...................... (180) 1,233 (1,413) (1,361) 1,772 (3,133)
--------- -------- --------- --------- --------- ---------
Total Interest Income............. (89,808) 140,460 (230,268) (262,718) 38,842 (301,560)
--------- -------- --------- --------- --------- ---------
Interest Expense
Savings/Time deposits................ (194,012) 45,151 (239,163) (325,140) 26,141 (351,281)
Purchased funds:
-- Domestic offices.......... (18,731) (5,214) (13,517) (49,073) (11,478) (37,595)
-- Overseas offices.......... (2,250) 143 (2,393) (6,412) (1,394) (5,018)
Long-term debt....................... (14,206) (10,025) (4,181) (26,552) (20,041) (6,511)
--------- -------- --------- --------- --------- ---------
Total Interest Expense............ (229,199) 30,055 (259,254) (407,177) (6,772) (400,405)
--------- -------- --------- --------- --------- ---------
Net Interest Income.................... $ 139,391 $110,405 $ 28,986 $ 144,459 $ 45,614 $ 98,845
--------- -------- --------- --------- --------- ---------
--------- -------- --------- --------- --------- ---------
</TABLE>
- ---------------
(1) Changes in interest income and interest expense attributable to changes in
both volume and rate have been allocated equally to changes due to volume
and changes due to rate.
(2) Includes mortgage-backed securities for 1992 vs. 1991.
1993 vs. 1992: The table above indicates an increase in taxable equivalent
net interest income of $139.4 million, reflecting an increase due to volume
changes of $110.4 million and an increase due to rate changes of $29.0 million.
The increase in net interest income for 1993 was primarily due to the higher
levels of earning assets as a result of acquisitions. Earning assets averaged
$28.4 billion in 1993, $1.4 billion or 5% above the 1992 level. The
volume-related change resulted from increased average balances for consumer
loans, primarily mortgage loans. An increase in taxable securities was more than
offset by reductions in time deposits with banks, other types of securities and
money market instruments. Average total loans increased, resulting in an
increase to net interest income, which was offset, in part, by the costs
associated with the higher level of deposits used to fund such loans. Average
core deposits increased nearly 8% over the 1992 level (as a result of
acquisitions) to $25.9 billion and funded 91% of average earning assets. The
increase consisted of $1.6 billion in savings and NOW accounts and $.5 billion
in demand deposits, partly offset by a $.2 billion decrease in consumer
certificates of deposit. The rate-related change was primarily attributable to a
wider spread between the rates earned on assets and the average cost of
interest-bearing liabilities, as such liabilities continued to reprice more
rapidly than earning assets in the declining rate environment which prevailed
early in 1993.
1992 vs. 1991: Net interest income, on a taxable equivalent basis, totaled
$1,248 million and $1,104 million in 1992 and 1991, respectively. The increase
in net interest income for 1992 was primarily due to a wider spread between the
rates earned on earning assets and the average cost of interest-bearing
liabilities, along with slightly higher levels of average earning assets as a
result of acquisitions. Earning assets averaged $27.0 billion in 1992, $683
million or 3% above the 1991 level. The increase primarily resulted from a $538
million, or 35%, increase in average time deposits with banks and a $369
million, or 7%, increase in average taxable securities along with a $267
million,
<PAGE> 22
20
or 27%, reduction in long-term debt, partially offset by a $539 million, or 3%,
increase in total average savings and time deposits.
Average total loans in 1992 were $17.4 billion compared to $17.5 billion in
1991, reflecting a decrease of $923 million in average commercial loans,
primarily the result of modest loan demand in a sluggish economic environment,
in addition to repayments and charge-offs. The decrease in average commercial
loans was nearly offset by an increase in average mortgage loans (mostly
consumer) of $836 million. Average core deposits increased 4% for 1992 over the
prior year level to $24.1 billion and funded 89% of average earning assets.
Average core deposits funded 88% of average earning assets during 1991. The
increase was attributable to higher levels of savings and NOW account deposits,
demand deposits, and money market deposit accounts, partially offset by a
decrease in consumer certificates of deposit. The higher deposit balances
reflected the assumption of deposit balances from branch acquisitions. The
overall increase in core deposits enabled the Company to reduce average
long-term debt by $267 million to $738 million, and reduce its reliance on funds
purchased in the financial markets, which averaged $1.3 billion in 1992 compared
to $1.4 billion in 1991. The Company reduced relatively higher cost corporate
certificates of deposit and deposits in overseas offices from averages of $645
million and $243 million, respectively, during 1991 to $436 million and $217
million, respectively, in 1992.
Non-Interest Income
MAJOR COMPONENTS OF NON-INTEREST INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------
1993 1992 1991
-------- -------- --------
<S> <C> <C> <C>
(THOUSANDS)
Trust income...................................... $104,517 $ 86,396 $ 83,784
Service charges on deposit accounts............... 152,340 139,310 114,406
Other service charges, commissions and fees....... 85,741 76,374 81,522
Trading revenue................................... 16,932 16,685 12,254
Net securities transactions....................... 7,017 4,825 53,566
Other income...................................... 16,953 8,786 48,158
-------- -------- --------
Total........................................... $383,500 $332,376 $393,690
-------- -------- --------
-------- -------- --------
</TABLE>
Various types of non-interest income, such as service charges on deposit
accounts, trust income, and other service charges, commissions and fees are
generated through the Company's core business operations. In addition,
non-interest income is derived from other sources, such as gains on the sale of
other assets, which may vary significantly in type and amount from period to
period. For 1993, total non-interest income increased $51.1 million, or 15%, to
$383.5 million from $332.4 million in 1992.
Trust income increased from $86.4 million in 1992 to $104.5 million for
1993, primarily as a result of the Northeast acquisition and trust marketing
campaigns conducted through account relationships and the branch network.
Personal trust income and corporate trust income increased 31% and 15%,
respectively.
Service charges on deposit accounts and other service charges, commissions
and fees accounted for 62% of total non-interest income in 1993. Primarily as a
result of additional deposit accounts attributable to acquisitions consummated
during 1992 and 1993, as well as changes in the service fee structure, service
charges on deposit accounts increased 9% in 1993, to $152.3 million, from $139.3
million in 1992. Other service charges, commissions and fees of $85.7 million
were 12% higher than in the prior year, primarily as a result of increased
customer relationships from recent acquisitions.
Net securities transactions were $7.0 million in 1993, compared to $4.8
million in 1992. Other income amounted to $17.0 million in 1993, compared to
$8.8 million in 1992. The increase in other income resulted primarily from $7.8
million in net gains on the sale of various assets.
Prior Years: Non-interest income of $332.4 million in 1992 decreased $61.3
million, or 16%, from 1991. Net securities transactions decreased from $53.6
million in 1991 to $4.8 million in 1992. Primarily during 1991, First Fidelity
restructured its investment portfolio. Other income decreased $39.4 million, to
$8.8 million in 1992 from $48.2 million in 1991, largely due to the inclusion in
1991 income of the $30.7 million gain on the sale of Fidelcor Business Credit
Corporation. Service charges on deposit accounts increased 22% from 1991,
primarily as a
<PAGE> 23
21
result of increases in certain fees for deposit products, as well as additional
deposit accounts attributable to branch acquisitions during 1992 and 1991. Other
service charges, commissions and fees declined by $5.1 million from 1991 to
1992, largely as a result of reduced credit card transaction volume.
Non-Interest Expense
MAJOR COMPONENTS OF NON-INTEREST EXPENSE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1993 1992 1991
---------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Salary expense.................................. $ 383,007 $331,910 $318,225
Employee benefit expense........................ 85,043 76,931 72,768
Occupancy expense............................... 112,729 107,269 103,814
Equipment expense............................... 43,983 41,418 42,051
FDIC premium expense............................ 63,164 56,231 48,455
External data processing expense................ 48,200 46,959 46,973
Communication expense........................... 33,450 33,139 34,201
Amortization of intangibles..................... 30,824 22,828 19,464
Other real estate owned expenses................ 28,417 29,854 20,290
Other operating expenses........................ 185,882 170,307 165,506
---------- -------- --------
Total......................................... $1,014,699 $916,846 $871,747
---------- -------- --------
---------- -------- --------
</TABLE>
Non-interest expense was $1,014.7 million for the year, $97.9 million, or
11%, above the 1992 level. The increase resulted primarily from the incremental
operating expenses associated with acquisitions completed in 1992 and 1993,
including $64.1 million related to Northeast.
The productivity plan initiated in 1990 includes rationalizing and
consolidating all support and processing operations along service or product
lines, and branch and legal entity consolidations. The consolidation program has
resulted in significant reductions in the Company's cost structure; management
intends to continue this program in 1994 in connection with acquisitions and to
continue to maintain strict expense control in future years.
Salaries and benefits expense totaled $468.1 million in 1993 compared with
$408.8 million in 1992. The $59.2 million, or 15% increase from the prior year,
primarily reflects the additional personnel expenses associated with
acquisitions completed in 1993 and the full year impact of acquisitions
completed in 1992. At December 31, 1993, the Company had approximately 12,000
full-time employees compared to approximately 10,600 at the end of 1992 and
1991. In 1993, personnel increases related to acquisitions were partially offset
by the effect of staff reductions arising from the consolidations of certain
support and operating departments and branches.
Statement of Financial Accounting Standards ("SFAS") 106, "Employers'
Accounting for Postretirement Benefits Other Than Pensions", which was adopted
in 1993, requires accrual, during an employee's active years of service, of the
expected costs of providing postretirement benefits (principally health care) to
employees and their beneficiaries and dependents. Through 1992, First Fidelity,
like most other companies, recognized this expense on an "as paid" basis.
Primarily due to this change in accounting principle, the Company's
postretirement benefit expense increased from $5.8 million in 1992 to $8.2
million for 1993, and the Company recorded a one-time cumulative effect
adjustment of $53.3 million (net of tax effect) to recognize the accumulated
postretirement benefit obligation in the first quarter of 1993. For information
regarding the cumulative effect of the change in accounting principle, see Item
8, "Financial Statements and Supplementary Data -- Note 2 of the Notes to
Consolidated Financial Statements".
SFAS 112, "Employers' Accounting for Postemployment Benefits", was adopted
by the Company beginning in 1993. SFAS 112 requires employers to recognize any
obligation to provide postemployment (as differentiated from postretirement)
benefits (for example, disability payments) by accruing the estimated liability.
The Company's accumulated postemployment benefit obligation at December 31, 1992
of approximately $7.4 million (net of tax effect) was recognized by a one-time
cumulative effect adjustment during the first quarter of 1993. For information
regarding the cumulative effect of the change in accounting principle, see Item
8, "Financial Statements and Supplementary Data -- Note 2 of the Notes to
Consolidated Financial Statements". The Company's annual
<PAGE> 24
22
postemployment benefit expense was approximately $900 thousand for 1993, as
compared with approximately $2 million on the "as paid" basis for 1992.
Occupancy expense, which includes the costs of leasing office space and
branches and the expenses associated with owning and maintaining these
facilities, increased $5.5 million, or 5% in 1993, due primarily to acquisitions
in 1993 and late 1992, partially offset by the effect of branch consolidations.
Equipment expense increased $2.6 million, or 6%, for essentially similar
reasons.
FDIC premium expense increased $6.9 million, or 12%, to $63.2 million for
1993 as compared to $56.2 million in 1992. The increase is primarily the result
of a higher level of deposits due to acquisitions in 1993 and late 1992.
Subsequent changes in deposit insurance assessment rates are possible. See Part
I, Item 1, "Business -- Supervision and Regulation -- FDICIA" and "-- Annual
Insurance Assessments".
External data processing expense increased less than 3% over the 1992 and
1991 levels to $48.2 million. To assist in the timely completion of the
consolidation program, First Fidelity entered into an agreement with Electronic
Data Systems ("EDS") in 1990, under which EDS is managing the Company's data
center operations. The cost of EDS services is determined by volume
considerations and an inflation factor, in addition to an agreed base rate.
Communication expense, consisting of telephone and postage, has remained
flat despite growth through acquisitions, primarily due to cost control measures
which reduced telephone expense.
Amortization of intangibles increased $8.0 million, or 35%, to $30.8
million for 1993. The increase was related to intangibles generated in
conjunction with several acquisitions, primarily Howard in late 1992. This does
not reflect the effect of the acquisition of Peoples, which occurred on December
30, 1993.
Expenses incurred in connection with other real estate owned ("OREO") were
$28.4 million in 1993 compared to $29.9 million in 1992. The expenses relate
primarily to OREO provisions necessitated by property write-downs resulting from
declines in OREO property appraisal values and write-downs due to transfers of
OREO to the "assets held for sale" classification.
Other expenses increased $15.6 million, or 9%, to $185.9 million in 1993,
from $170.3 million in 1992. The overall increase was due primarily to
acquisitions, with the largest increases being in advertising and public
relations expenses, and professional fees.
Prior Years: Non-interest expense totaled $916.8 million for 1992, $45.1
million, or 5%, above the 1991 level. This increase resulted primarily from the
incremental operating expenses associated with acquisitions completed in 1991
and 1992, as well as higher FDIC insurance rates which took effect in July, 1991
and an increase in expenses related to OREO, partially offset by operating
expense reductions related to the ongoing productivity program. Salaries and
benefits expense totaled $408.8 million in 1992 compared with $391.0 million in
1991. The $17.8 million, or 5%, increase from the prior year's level reflects
the additional staff expenses associated with acquisitions completed in 1991 and
1992. Occupancy expense increased $3.5 million, or 3%, in 1992, due primarily to
acquisitions in 1991 and 1992, partially offset by the effect of branch
consolidations. Equipment expense decreased $.6 million, or 2%, primarily due to
productivity efforts and the effect of branch consolidations, partially offset
by acquisitions. FDIC premium expense totaled $56.2 million in 1992 compared to
$48.5 million in 1991; premium increases plus a higher level of deposits
combined to produce the increase. Total OREO expenses were $29.9 million in 1992
compared to $20.3 million in 1991, due primarily to property write-downs related
to valuation adjustments resulting from declines in OREO property appraisal
values and to some OREO sales.
Income Tax Expense
During the first quarter of 1993, the Company recognized a one-time
cumulative benefit and a related deferred tax asset of $63.1 million due to the
adoption of SFAS 109, "Accounting for Income Taxes". Largely because SFAS 109
required realizable future tax benefits (primarily related to the reserve for
possible credit losses, alternative minimum tax credit carryforwards, and
accrued postretirement benefits) to be recorded at the adoption date as the
cumulative effect of a change in accounting principle, rather than a reduction
of future income tax expense, First Fidelity's effective tax rate has increased
from approximately 21% in 1992 to 31% in 1993. Income tax expense for 1993 was
$178.0 million compared to $82.4 million for 1992. For information regarding the
cumulative effect of the change in accounting principle and alternative minimum
tax credit carryforwards, see Item 8, "Financial Statements
<PAGE> 25
23
and Supplementary Data -- Note 15 of the Notes to Consolidated Financial
Statements". Other factors affecting income tax expense were the higher level of
pretax income and the continuing reduction in tax-exempt interest income.
Prior Years: Income tax expense increased $23.6 million in 1992, from
$58.8 million in 1991 to $82.4 million in 1992. This increase was primarily due
to the increase in 1992 pre-tax income and a decrease in tax-exempt interest
income compared to 1991, partially offset by the utilization of alternative
minimum tax credits available from prior years.
FINANCIAL CONDITION
Asset and Liability Management
The major objectives of the Company's asset and liability management are to
(i) manage exposure to changes in the interest rate environment to achieve a
neutral interest sensitivity position within reasonable ranges, (ii) ensure
adequate liquidity and funding, (iii) maintain a strong capital base, and (iv)
maximize net interest income opportunities. First Fidelity manages these
objectives centrally through the Asset and Liability Management Committee.
Members of the Committee meet weekly to develop balance sheet and product
pricing strategies affecting the future level of net interest income, liquidity
and capital. Factors that are considered in asset and liability management
include forecasts of balance sheet mix, the economic environment and anticipated
direction of interest rates, and the Company's earnings sensitivity to changes
in these rates.
Interest Rate Sensitivity
The Company analyzes its interest sensitivity position to manage the risk
associated with interest rate movements through the use of "gap analysis" and
"income simulation". Interest rate risk arises from mismatches in the repricing
of assets and liabilities within a given time period. Gap analysis is an
approach used to quantify these differences. A "positive" gap results when the
amount of interest-sensitive assets exceeds that of interest-sensitive
liabilities within a given time period. A "negative" gap results when the amount
of interest-sensitive liabilities exceeds that of interest-sensitive assets.
While gap analysis is a general indicator of the potential effect that
changing interest rates may have on net interest income, the gap itself does not
present a complete picture of interest rate sensitivity. First, changes in the
general level of interest rates do not affect all categories of assets and
liabilities equally or simultaneously. Second, assumptions must be made to
construct a gap table. Money market deposits, for example, which have no
contractual maturity, are assigned a repricing interval of 91-180 days.
Management can influence the actual repricing of these deposits independent of
the gap assumption. Third, the gap table represents a one-day position and
cannot incorporate a changing mix of assets and liabilities over time as
interest rates change.
For this reason, the Company primarily uses simulation techniques to
project future net interest income streams, incorporating the current "gap"
position, the forecasted balance sheet mix, and the anticipated spread
relationships between market rates and bank products under a variety of interest
rate scenarios. The Company's interest sensitivity in 1993 was essentially
neutral within reasonable ranges; for example, at December 31, 1993, interest
rate increases or decreases of 200 basis points would not be expected to have a
significant impact on the Company's net interest income.
Interest Rate Gap
The following table illustrates First Fidelity's interest rate gap position
as of December 31, 1993. At that date, the Company had a positive gap on a
90-day basis and a cumulative negative gap on a 180-day and one-year basis. In
view of the Company's expectation of higher interest rates, management reduced
the one-year cumulative negative gap to $2.4 billion, or 7.1% of total assets,
from last year's $4.0 billion cumulative negative gap (12.8% of total assets).
This $1.6 billion change in the Company's one-year cumulative gap position was
due to actions taken by management to shorten repricing intervals for assets and
lengthen them for liabilities. During the year, the Company's balance sheet grew
by $2.3 billion. Interest sensitive assets under one year increased by $2.1
billion while assets beyond one year increased $0.2 billion. Interest sensitive
liabilities under one year increased by only
<PAGE> 26
24
$0.4 billion while liabilities and equity beyond one year increased by $1.9
billion, or 83% of the total increase in liabilities and equity. Although the
securities portfolio increased by $1.5 billion, securities with maturities in
excess of one year increased only $0.4 billion. The impact of derivatives on
First Fidelity's gap positions was essentially unchanged from December 31, 1992.
INTEREST RATE GAPS AS OF DECEMBER 31, 1993(1)
<TABLE>
<CAPTION>
RATE SENSITIVE
---------------------------------------------------------------------
1 TO 90 91 TO 180 181 TO 365 1 TO 5 BEYOND NOT RATE
DAYS DAYS DAYS YEARS 5 YEARS SENSITIVE TOTAL
---------- ----------- ----------- ----------- ---------- ----------- -----------
(THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C>
Loans....................... $6,655,096 $ 1,726,907 $ 2,096,484 $ 7,517,082 $3,391,342 -- $21,386,911
Interest-bearing time
deposits(2)............... 459,769 320,000 200,000 -- -- -- 979,769
Money Market Assets(3)...... 164,182 705 -- -- -- -- 164,887
Mortgage-Backed
Securities(4)............. 887,893 523,138 986,743 2,291,369 126,778 -- 4,815,921
Other securities............ 170,533 100,861 380,505 2,045,802 275,912 $ 109,174 3,082,787
Cash, premises and other.... 297,849 28,186 56,372 385,110 584,051 1,980,742 3,332,310
---------- ----------- ----------- ----------- ---------- ----------- -----------
Total Assets............ $8,635,322 $ 2,699,797 $ 3,720,104 $12,239,363 $4,378,083 $ 2,089,916 $33,762,585
---------- ----------- ----------- ----------- ---------- ----------- -----------
---------- ----------- ----------- ----------- ---------- ----------- -----------
Demand deposits(5).......... $ 797,007 -- -- -- -- $ 4,550,000 $ 5,347,007
Savings/Time deposits....... 3,558,586 $ 6,876,903 $ 3,625,748 $ 7,862,059 $ 169,392 88,512 22,181,200
Purchased funds:
-- Domestic offices....... 1,959,878 21,747 19,005 3,289 14,641 -- 2,018,560
-- Overseas offices....... 210,522 5,858 -- -- -- -- 216,380
Long-term debt.............. 325,857 -- 48 137,153 150,000 -- 613,058
Other liabilities........... 20,762 -- -- -- -- 627,190 647,952
Stockholders' equity........ 25,258 -- -- -- -- 2,713,170 2,738,428
---------- ----------- ----------- ----------- ---------- ----------- -----------
Total Liabilities and
Stockholders'
Equity................ $6,897,870 $ 6,904,508 $ 3,644,801 $ 8,002,501 $ 334,033 $ 7,978,872 $33,762,585
---------- ----------- ----------- ----------- ---------- ----------- -----------
---------- ----------- ----------- ----------- ---------- ----------- -----------
Interest rate
sensitivity gap....... $1,737,452 $(4,204,711) $ 75,303 $ 4,236,862 $4,044,050 $(5,888,956)
---------- ----------- ----------- ----------- ---------- -----------
---------- ----------- ----------- ----------- ---------- -----------
Cumulative gap.......... $1,737,452 $(2,467,259) $(2,391,956) $ 1,844,906 $5,888,956
---------- ----------- ----------- ----------- ----------
---------- ----------- ----------- ----------- ----------
</TABLE>
- ---------------
(1) Repricing intervals as shown reflect the effects of interest rate swaps and
forward commitments, where applicable.
(2) Amounts shown reflect the effects of futures contracts.
(3) Trading account securities and Federal funds sold and securities purchased
under agreements to resell.
(4) Includes Collateralized Mortgage Obligations.
(5) The amount shown as not rate sensitive is that portion which, based upon
average balances, is considered stable and not sensitive to changes in
interest rates. The Company's historical experience has been that total
demand deposit account balances exhibit minimal movement with changes in
interest rates. Accordingly, a large percentage of the Company's demand
deposit account balances are considered "Not Rate Sensitive", with the
remainder classified as "1 to 90 days".
Derivatives
First Fidelity uses certain off balance-sheet instruments to assist in
managing its interest rate sensitivity. The Company's aggregate derivative
positions used for asset/liability management are shown in the following table.
DERIVATIVES AS OF DECEMBER 31, 1993
<TABLE>
<CAPTION>
RATE SENSITIVE
------------------------------------------------------------
1 TO 90 91 TO 180 181 TO 365 1 TO 5 BEYOND
DAYS DAYS DAYS YEARS 5 YEARS TOTAL
------- --------- ---------- ------ ------- ------
(MILLIONS)
<S> <C> <C> <C> <C> <C> <C>
Swaps (Receive Fixed Rates)
Loans........................................................ $ 200 $ 350 $125 $2,430 -- $3,105
Consumer time deposits....................................... -- 7 243 467 -- 717
Long-term debt............................................... 150 -- -- 150 $ 150 450
------- --------- ----- ------ ------- ------
Total Swaps.......................................... $ 350 $ 357 $368 $3,047 $ 150 $4,272
------- --------- ----- ------ ------- ------
------- --------- ----- ------ ------- ------
Futures
Interest-bearing time deposits (placings).................... $ 500 $ 200 $ 50 $ -- $ -- $ 750
------- --------- ----- ------ ------- ------
------- --------- ----- ------ ------- ------
</TABLE>
As of December 31, 1993, the Company employed a total of $4.3 billion
(notional value) of swaps to manage its interest rate sensitivity. Approximately
$3.1 billion of fixed interest rate swaps were used to adjust the Company's
<PAGE> 27
25
sensitivity to floating rate loans. An additional $1.2 billion of fixed interest
rate swaps were used at December 31, 1993 to hedge certain fixed-rate
longer-term consumer certificates of deposit and long-term debt. These positions
compare with a total of $3.7 billion (notional value) of swaps used for hedging
purposes as of December 31, 1992.
At December 31, 1993, the Company also held 90 day eurodollar futures
contracts with a notional value of $750 million. Such contracts are used to lock
in future interest rates on eurodollar placings. As of December 31, 1992, the
Company held similar contracts with a notional value of $3.8 billion.
The following table sets forth information, based on notional values,
regarding the Company's derivatives activity:
<TABLE>
<CAPTION>
1993 1992
------------------ ------------------
SWAPS(1) FUTURES SWAPS(1) FUTURES
-------- ------- -------- -------
(MILLIONS)
<S> <C> <C> <C> <C>
Balance at beginning of period......................................... $3,692 $ 3,800 $ 3,936 $ 1,800
Additions.............................................................. 1,552 600 865 5,300
Expirations............................................................ (972) (3,650) (1,109) (3,300)
-------- ------- -------- -------
Balance at end of period............................................... $4,272 $ 750 $ 3,692 $ 3,800
-------- ------- -------- -------
-------- ------- -------- -------
</TABLE>
- ---------------
(1) Receive fixed rates.
Net interest income from interest rate swaps and futures positions was
$141.9 million in 1993, down 7% from 1992, and compares to total net interest
income on a tax-equivalent basis of $1.4 billion in 1993. The Company believes
it could have achieved its objective of an essentially neutral
interest-sensitive asset/liability position by making correspondingly greater
use of appropriate fixed rate assets. The income effect of such an alternative
hedging approach, albeit less efficient, would have approximated the result
achieved by using derivatives.
The Company from time to time also enters into derivative contracts,
including forward foreign exchange contracts, to accommodate customer needs. As
of December 31, 1993, customer activity in derivative products was not material
in amount and virtually all such instruments were covered by offsetting
positions.
The Company may also use derivatives as part of its trading activity. All
positions are marked to market and carried in the Company's trading account, and
such activity is strictly monitored by management through the use of trading
limits. These positions were insignificant at December 31, 1993.
The Company has not experienced a credit loss associated with any such
derivative instruments.
For additional information regarding derivatives, see Notes 16 and 17 to
the consolidated financial statements in Item 8, "Financial Statements and
Supplementary Data".
Liquidity and Funding
First Fidelity's liquidity position remained strong during 1993 despite
large increases in loans and securities. Total assets grew by $2.3 billion from
$31.5 billion at December 31, 1992 to $33.8 billion at December 31, 1993. Total
loans increased $3.0 billion, securities increased $1.5 billion, money market
assets decreased by $2.4 billion and other assets increased by $.2 billion.
Although the size of the investment portfolio increased, the average maturity of
the portfolio was shortened by approximately one year to 2.2 years by the end of
1993. Cash flow from the portfolio is expected to provide additional liquidity.
Much of the change in liquidity was the result of management's decision to
make more efficient use of its resources. During the year, money market assets
were reduced and replaced by generally higher-yielding investment securities
with average maturities of from 1 to 1 1/2 years.
The increase in assets was funded mainly by increases in consumer deposits
of $1.2 billion and equity of $.5 billion during the year. The mix of deposits
changed, however, as time deposits, primarily certificates of deposit, decreased
by $.6 billion and the generally more stable and lower cost savings and money
market deposits and NOW account balances increased by $1.8 billion. There was
also an increase of $.6 billion in purchased funds and other liabilities.
<PAGE> 28
26
At December 31, 1993, core deposits represented 129% of total loans,
compared to 143% at December 31, 1992. On an average balance basis, this ratio
declined from 138% in 1992 to 134% in 1993, as the increase in average core
deposits during 1993 was more than offset by growth in average total loans.
The Company has other potential sources of liquidity, including its ability
to enter into repurchase agreements, primarily using investment securities as
collateral. Management believes that First Fidelity's liquidity position is
strong, based on its levels of cash, cash equivalents and core deposits, the
stability of its other funding sources and the support provided by its capital
base.
Cash Flows
Cash and cash equivalents (cash and due from banks, interest-bearing time
deposits, federal funds sold and securities purchased under agreements to
resell) are the Company's most liquid assets. At December 31, 1993, cash and
cash equivalents totaled $2.8 billion, a decrease of $2.5 billion from December
31, 1992. The decrease was primarily attributable to financing activities, which
absorbed $3.4 billion in cash and cash equivalents. This was primarily the
result of a decline in other consumer time deposits, and secondarily a decline
in other core deposits (both exclusive of acquisitions), compared to December
31, 1992, reflecting, in the Company's view, the industrywide shift by consumers
to alternative market instruments. The Company increased its long-term debt
outstanding during 1993 by $31.6 million. The issuance of Common Stock to
Santander, pursuant to the exercise of a portion of the Warrants and Acquisition
Gross Up Rights, contributed $114.7 million in cash flows from financing
activities. Cash and cash equivalents of $70.3 million were used in investing
activities, including net disbursements of $574.6 million for lending activities
and $93.4 million for securities, offset by net cash received on acquisitions of
$641.4 million. Operating activities provided $963.7 million of cash and cash
equivalents for the year.
The following table presents certain information regarding the major
components of short-term borrowings for each of the years presented:
SHORT-TERM BORROWINGS
<TABLE>
<CAPTION>
AVERAGE MAXIMUM
INTEREST OUTSTANDING
AVERAGE AVERAGE BALANCE RATE AT AT ANY
BALANCE INTEREST AT END END OF MONTH-END
OUTSTANDING RATE OF PERIOD PERIOD DURING YEAR
----------- ------- --------- ------- -----------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C>
DECEMBER 31, 1993
Federal funds purchased and
securities sold under repurchase
agreements........................ $ 991,587 2.71% $1,405,766 2.77% $1,602,289
Commercial paper and master notes.... 162,764 2.68 211,785 2.67 224,154
DECEMBER 31, 1992
Federal funds purchased and
securities sold under repurchase
agreements........................ 1,078,540 3.23 947,668 2.99 1,601,263
Commercial paper and master notes.... 145,498 3.16 136,060 2.72 165,005
Student Loan Marketing Association
borrowings........................ 83,607 3.43 -- -- 255,000
DECEMBER 31, 1991
Federal funds purchased and
securities sold under repurchase
agreements........................ 1,174,455 5.25 1,134,850 4.67 1,188,242
Demand notes issued to U.S.
Treasury.......................... 10,626 5.57 43 4.18 5,149
Commercial paper and master notes.... 155,918 5.18 152,960 4.11 168,638
</TABLE>
<PAGE> 29
27
At December 31, 1993, corporate certificates of deposit and other time
deposits in amounts of $100,000 and over issued by domestic offices matured as
follows:
DOMESTIC TIME DEPOSITS $100,000 AND OVER
<TABLE>
<CAPTION>
DECEMBER 31, 1993
----------------------------
CORPORATE
CERTIFICATES OTHER TIME
OF DEPOSIT DEPOSITS
------------ ----------
(THOUSANDS)
<S> <C> <C>
Within three months............................... $ 349,201 $258,112
Three to six months............................... 22,882 81,987
Six to twelve months.............................. 18,558 95,456
More than twelve months........................... 6,000 128,294
------------ ----------
Total........................................... $ 396,641 $563,849
------------ ----------
------------ ----------
</TABLE>
Substantially all of the Company's deposits in overseas offices of $216.4
million were interest-bearing time deposits in denominations of $100,000 and
over.
Capital
The maintenance of appropriate levels of capital is a management priority.
Overall capital adequacy and dividend policy are monitored on an ongoing basis
by management and are reviewed quarterly by the Company's Board of Directors.
Management discusses the Company's capital plans with the Board of Directors on
a frequent basis. First Fidelity's principal capital planning goals are to
provide an attractive return to stockholders while maintaining the capital
levels of the Company and the Subsidiary Banks above the well capitalized level
as defined by bank regulatory agencies, and thus provide a sufficient base from
which to provide for future growth.
For information regarding regulatory agency requirements with respect to
capital for bank holding companies and subsidiary banks, see Part I, Item I,
"Business -- Supervision and Regulation -- Capital".
The following tables present information regarding the Company's risk-based
capital at December 31, 1993, 1992 and 1991 and selected overall capital ratios.
CAPITAL ANALYSIS
<TABLE>
<CAPTION>
DECEMBER 31
-------------------------------------------
1993 1992 1991
----------- ----------- -----------
(THOUSANDS)
<S> <C> <C> <C>
Tier I:
Common stockholders' equity (excluding fair value
adjustment of $27.3 million for 1993).............. $ 2,480,711 $ 2,025,478 $ 1,712,546
Qualifying perpetual preferred stock.................. 230,422 232,172 232,236
Less: goodwill and other intangibles.................. (412,534) (276,823) (211,765)
----------- ----------- -----------
Total Tier I capital.......................... 2,298,599 1,980,827 1,733,017
----------- ----------- -----------
Tier II:
Allowable portion of the reserve for possible credit
losses............................................. 291,878 253,851 255,169
Includable subordinated debt.......................... 327,350 253,950 335,649
Mandatory convertible debt securities................. 174,150 174,150 174,150
----------- ----------- -----------
Total Tier II capital......................... 793,378 681,951 764,968
----------- ----------- -----------
Total risk-based capital...................... $ 3,091,977 $ 2,662,778 $ 2,497,985
----------- ----------- -----------
----------- ----------- -----------
Risk-adjusted assets.................................... $23,033,788 $19,945,252 $20,037,139
----------- ----------- -----------
----------- ----------- -----------
</TABLE>
<PAGE> 30
28
CAPITAL RATIOS
<TABLE>
<CAPTION>
DECEMBER 31
REGULATORY -------------------------------------------
MINIMUMS 1993 1992 1991
------------ ----------- ----------- -----------
<S> <C> <C> <C> <C>
Tier I capital/risk-adjusted assets.......................... 4.0% 9.98% 9.93% 8.65%
Total risk-based capital/risk-adjusted assets................ 8.0% 13.42 13.35 12.47
Tier I capital/total assets less goodwill (leverage ratio)... 3.0 to 5.0% 7.22 6.47 5.98
Equity/loans................................................. N/A 12.80 12.28 11.21
Equity/assets................................................ N/A 8.11 7.17 6.44
Equity and reserve/loans..................................... N/A 15.62 15.61 14.73
Equity and reserve/assets.................................... N/A 9.89 9.11 8.45
</TABLE>
The Federal Reserve Board, the FDIC and the OCC issued a proposed rule in
September 1993 (to become effective for First Fidelity on December 31, 1994) to
implement the requirement under FDICIA that risk-based capital standards take
account of interest rate risk. The proposed rule focuses on institutions having
relatively high levels of measured interest rate risk, and considers the effect
that changing interest rates would have upon the value of an institution's
assets, liabilities, and off balance-sheet positions. First Fidelity's risk
profile (as defined) is such that the rule, if adopted in substantially the form
proposed, is expected to have no impact on the capital ratios or operations of
the Company and its Subsidiary Banks.
For a discussion of regulatory capital requirements affecting the Company
and its Subsidiary Banks, see Part I, Item 1, "Business -- Supervision and
Regulation -- Capital" and "-- FDICIA".
Stockholders' equity at December 31, 1993, was $2.7 billion, compared to
$2.3 billion at the end of 1992. This increase resulted primarily from net
income for the year of $398.8 million less the payment of dividends to
stockholders of $131.0 million. The sale of 4,178,163 shares of Common Stock to
Santander, pursuant to the exercise of Acquisition Gross Up Rights and a portion
of the Warrants acquired by Santander in 1991, resulted in additional capital of
$114.7 million. The issuance of 1,222,155 shares of Common Stock for
acquisitions, primarily to the former shareholders of Northeast and Village,
resulted in additional capital of $65.2 million. An additional 2,383,451 shares
of Treasury Stock, acquired at a cost of $100.6 million, was reissued in the
Peoples acquisition. In addition, during 1993, the exercise of stock options and
the Employee Stock Purchase Plan generated $13.9 million and the Company's
Dividend Reinvestment Plan added another $7.8 million of capital. The cost of
Treasury Stock acquired and reissued under the stock option plans and Dividend
Reinvestment Plan totaled $11.0 million and $3.6 million, respectively. Net
unrealized gains on securities available for sale included in stockholders'
equity were $27.7 million. Total dividends declared on Common Stock by the
Company in 1993 were $110.3 million, a 25% increase from the previous year. The
year-to-year increase was primarily the result of dividend increases of $.03 per
share in the fourth quarter of 1992 and $.04 per share in the second quarter of
1993. In addition, the sale of Common Stock to Santander in late 1992 and 1993
and stock issued in acquisitions contributed significantly to the increase in
common shares outstanding. Dividends declared on Preferred Stock totaled $20.7
million and $21.1 million for 1993 and 1992, respectively.
The Company implemented two separate Common Stock open market purchase
programs during 1993. Beginning in April 1993, the Company commenced open market
purchases through an independent agent to acquire Common Stock for issuance
under its dividend reinvestment plan and stock option plans. On October 21,
1993, the Board authorized the acquisition of up to 2% of First Fidelity's
outstanding Common Stock in any calendar year through open market or
privately-negotiated transactions, which amount does not include purchases made
in connection with Company employee or stockholder benefit plans. On November
18, 1993, the Board authorized the acquisition of up to an additional 1% of the
Company's outstanding Common Stock during 1993. As of December 30, 1993, the
Company had repurchased 2,383,451 shares of its Common Stock at an average price
of $42.22 per share, which constitutes substantially all of the 3% authorized
for purchase in 1993. All such acquired shares were reissued in connection with
the Company's acquisition of Peoples.
<PAGE> 31
29
Securities
General
The Company's securities portfolios are comprised of U.S. government and
federal agency securities, the tax-exempt issues of states and municipalities,
and equity and other securities. The portfolios generate substantial interest
income and provide liquidity.
The Company adopted SFAS 115, "Accounting for Certain Investments in Debt
and Equity Securities", as of December 31, 1993. Debt and equity securities are
classified in one of three categories, and are accounted for as follows:
Securities are classified as securities held to maturity based on
management's intent and the Company's ability to hold them to maturity.
Such securities are stated at cost, adjusted for unamortized purchase
premiums and discounts.
Securities that are bought and held principally for the purpose of
selling them in the near term are classified as trading securities, which
are carried at market value. Realized gains and losses and gains and losses
from marking the portfolio to market value are included in trading revenue.
Securities not classified as securities held to maturity or trading
securities are classified as securities available for sale, and are stated
at fair value. Unrealized gains and losses are excluded from earnings, and
are reported as a separate component of stockholders' equity, net of taxes.
Management determines the appropriate classification of securities at the
time of purchase. Securities classified as available for sale include securities
that may be sold in response to changes in interest rates, changes in prepayment
risks, the need to increase regulatory capital or other similar requirements.
Such securities were accounted for at the lower of cost or market prior to the
adoption of SFAS 115.
At December 31, 1993, securities held to maturity are comprised of debt
obligations with a weighted average yield of 5.86% and a remaining weighted
average life of 2.5 years.
At December 31, 1993, securities available for sale were primarily U.S.
Treasury and Federal agencies securities having a weighted average yield of
5.36% and a remaining weighted average life of 1.6 years.
The adoption of SFAS 115 had no effect on the Company's net income or
liquidity. Total stockholders' equity was increased by $27.3 million, net of
taxes, at December 31, 1993 as a result of net unrealized gains on securities
available for sale.
Securities Held to Maturity
Gross unrealized gains and losses in the securities held to maturity
portfolio at December 31, 1993 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS NET
UNREALIZED UNREALIZED UNREALIZED
GAINS LOSSES GAINS
---------- ---------- ----------
(thousands)
<S> <C> <C> <C>
U.S. Treasury............................ $ 460 $ (38) $ 422
Federal agencies......................... 37,686 (4,120) 33,566
State and municipal...................... 43,948 (431) 43,517
Other securities......................... 2,976 (1,229) 1,747
---------- ---------- ----------
$ 85,070 $ (5,818) $ 79,252
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
<PAGE> 32
30
At December 31, 1993, the securities held to maturity portfolio totaled
$5.2 billion, a decrease of $335.8 million from December 31, 1992.
Securities Available for Sale
Gross unrealized gains and losses in the securities available for sale
portfolio at December 31, 1993 were as follows:
<TABLE>
<CAPTION>
NET
GROSS GROSS UNREALIZED
UNREALIZED UNREALIZED GAINS
GAINS LOSSES (LOSSES)
---------- ---------- ----------
(THOUSANDS)
<S> <C> <C> <C>
U.S. Treasury............................ $ 42,019 -- $ 42,019
Federal agencies......................... 6,133 $ (598) 5,535
State and municipal...................... -- (441) (441)
Equity securities........................ 6,475 (2,414) 4,061
Other securities......................... 350 (2,369) (2,019)
---------- ---------- ----------
$ 54,977 $ (5,822) $ 49,155
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
The net unrealized gains were reported as a separate component of
stockholders' equity, net of tax effect, at December 31, 1993. Securities
available for sale totaled $2.7 billion at December 31, 1993 and $755.1 million
at December 31, 1992.
Proceeds from sales of debt securities available for sale during 1993 were
$458.3 million. Gains of $7.5 million and losses of $642 thousand were realized
on these sales. In 1992, the sale of debt securities available for sale resulted
in realized gains of $978 thousand and realized losses of $91 thousand. Proceeds
from these sales were $37.4 million.
Maturities
The following tables set forth certain information regarding First
Fidelity's securities held to maturity and securities available for sale.
SECURITIES HELD TO MATURITY --
BOOK VALUE AND MATURITY DISTRIBUTION(1)
<TABLE>
<CAPTION>
FEDERAL AGENCIES OTHER SECURITIES
--------------------- STATE -------------------- TAX
U.S. MORTGAGE- AND MORTGAGE- EQUIV.
DECEMBER 31, 1993 TREASURY BACKED OTHER MUNICIPAL BACKED OTHER TOTAL YIELD
-------- ---------- ------- -------- -------- -------- ---------- ------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stated Maturity -- Book
Value(2):
Within one year............. $121,628 $1,228,675 $ 158 $ 81,282 $ 79,311 $197,327 $1,708,381 6.02%
One to five years........... 267,080 1,788,978 42,933 151,881 322,388 379,998 2,953,258 5.82
Five to ten years........... 2,498 101,079 34,969 148,960 41,095 7,429 336,030 8.94
Over ten years.............. 3,585 -- 3,209 182,033 -- 9,369 198,196 10.87
No stated maturity.......... -- -- -- -- -- 46,122 46,122 N/A
-------- ---------- ------- -------- -------- -------- ----------
December 31, 1993............. $394,791 $3,118,732 $81,269 $564,156 $442,794 $640,245 $5,241,987
-------- ---------- ------- -------- -------- -------- ----------
-------- ---------- ------- -------- -------- -------- ----------
December 31, 1992............. $676,943 $3,711,446 $43,012 $718,728 $189,228 $238,473 $5,577,830
-------- ---------- ------- -------- -------- -------- ----------
-------- ---------- ------- -------- -------- -------- ----------
December 31, 1991(3).......... $643,508 $3,941,114 $840,002 $855,360 $6,279,984
-------- ---------- -------- -------- ----------
-------- ---------- -------- -------- ----------
</TABLE>
- ---------------
(1) For 1992 and 1991, these securities were classified as securities at
amortized cost.
(2) Maturities of mortgage-backed securities are estimated based on projected
cash flows, assuming no change in the current interest rate environment.
(3) Detail not available for 1991 for certain categories of securities.
<PAGE> 33
31
SECURITIES AVAILABLE FOR SALE --
FAIR VALUE AND MATURITY DISTRIBUTION
<TABLE>
<CAPTION>
FEDERAL AGENCIES OTHER SECURITIES
--------------------- STATE ---------------------- TAX
U.S. MORTGAGE- AND MORTGAGE- EQUIV.
DECEMBER 31, 1993 TREASURY BACKED OTHER MUNICIPAL BACKED OTHER TOTAL YIELD
---------- ---------- ------- --------- --------- --------- ---------- ---------
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Stated Maturity -- Fair
Value(1):
Within one year......... $ 158,240 $ 166,575 -- -- $ 10,718 $ 15,396 $ 350,929 6.00%
One to five years....... 1,106,591 544,832 $25,557 $ 1,577 151,221 3,046 1,832,824 5.54
Five to ten years....... 8,445 380,865 3,132 1,589 106 206 394,343 4.39
Over ten years.......... 3,336 78 -- 11,037 -- 1,122 15,573 7.56
No stated maturity(2)... -- -- -- -- -- 63,052 63,052 N/A
---------- ---------- ------- --------- --------- --------- ----------
December 31, 1993......... $1,276,612 $1,092,350 $28,689 $14,203 $ 162,045 $ 82,822 $2,656,721
---------- ---------- ------- --------- --------- --------- ----------
---------- ---------- ------- --------- --------- --------- ----------
December 31, 1992......... $ 734,018 $ -- $10,235 $ 7,049 $ -- $ 3,826 $ 755,128
---------- ---------- ------- --------- --------- --------- ----------
---------- ---------- ------- --------- --------- --------- ----------
</TABLE>
- ---------------
(1) Maturities of mortgaged-backed securities are estimated based on projected
cash flows, assuming no change in the current interest rate environment.
(2) Consists entirely of equity securities.
Loan Portfolio
Details regarding the Company's loan portfolio are presented below:
LOANS OUTSTANDING
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------------------------------------
1993 1992 1991 1990 1989
----------- ----------- ----------- ----------- -----------
(THOUSANDS)
<S> <C> <C> <C> <C> <C>
Domestic Borrowers
Commercial and financial................ $ 6,457,343 $ 5,478,982 $ 6,418,895 $ 7,671,385 $ 8,799,853
Real estate -- construction............. 473,434 603,132 714,411 930,044 1,304,262
Mortgage -- commercial.................. 3,447,554 2,916,375 2,336,217 2,114,938 2,099,577
Mortgage -- residential (1 to 4
family)................................. 4,888,542 3,547,614 2,467,354 2,038,937 1,883,200
Installment............................. 4,825,416 4,760,947 4,510,110 4,891,238 4,464,905
Leasing................................. 1,419,526 1,206,678 1,060,543 1,116,690 1,255,266
----------- ----------- ----------- ----------- -----------
Total................................ 21,511,815 18,513,728 17,507,530 18,763,232 19,807,063
Foreign Borrowers......................... 112,397 116,991 134,686 165,569 278,973
Unearned income........................... (237,301) (253,024) (300,699) (398,497) (454,228)
----------- ----------- ----------- ----------- -----------
Total................................ $21,386,911 $18,377,695 $17,341,517 $18,530,304 $19,631,808
----------- ----------- ----------- ----------- -----------
----------- ----------- ----------- ----------- -----------
</TABLE>
<PAGE> 34
32
LOANS OUTSTANDING -- MATURITY DISTRIBUTION(1)
<TABLE>
<CAPTION>
DECEMBER 31, 1993
-------------------------------------------------------
WITHIN ONE TO OVER
ONE YEAR FIVE YEARS FIVE YEARS TOTAL
---------- ---------- ---------- ----------
(THOUSANDS)
<S> <C> <C> <C> <C>
Commercial and financial.............. $4,450,815 $1,529,907 $476,621 $6,457,343
Real estate -- construction........... 215,095 244,252 14,087 473,434
Foreign............................... 56,362 5,470 50,565 112,397
---------- ---------- ---------- ----------
Total............................... $4,722,272 $1,779,629 $541,273 $7,043,174
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
Loans with predetermined interest
rates............................... $ 813,800 $291,401
Loans with floating rates............. 965,829 249,872
---------- ----------
Total............................... $1,779,629 $541,273
---------- ----------
---------- ----------
</TABLE>
- ---------------
(1) Excludes mortgage, installment and leasing loans.
The economy in First Fidelity's primary marketplace (New Jersey, eastern
Pennsylvania, Connecticut and southern New York) is broad-based and diverse. The
Company's loan portfolio reflects this diversity. Consumer loans constituted
50%, 49% and 42% as a percentage of total loans at December 31, 1993, 1992 and
1991, respectively. The remainder of the portfolio is predominantly domestic
commercial loans and commercial real estate loans in First Fidelity's primary
marketplace. Commercial lending activities are focused primarily on lending to
middle market and small business corporate borrowers engaged in a variety of
industries. Foreign loans are an insignificant portion of total loans.
Loan demand in the Company's primary market area remained flat during most
of 1993, with the exception of stronger demand for certain types of consumer
loans, but signs of overall strengthening emerged toward the end of the year.
The Company's total loans grew in 1993 by $3.0 billion to $21.4 billion,
primarily as a result of acquisitions. The Company's commercial and financial
loans increased $978 million during the year, while commercial mortgages
increased by $531 million, or 18%.
Expansion of the Company's consumer loan portfolio remains an important
objective for First Fidelity. Progress toward this goal continued in 1993 as the
Company increased loan originations in certain categories of consumer loans.
Residential mortgage loans increased 38% to $4.9 billion at December 31, 1993.
Home equity loans rose 22% to $1.5 billion at December 31, 1993. Automobile
leases increased by 37% to $1.1 billion at December 31, 1993, reflecting the
Company's marketing efforts in this area.
Foreign Assets
First Fidelity's foreign loan portfolio was $112.4 million and $117.0
million at December 31, 1993 and 1992, respectively. At December 31, 1993, the
Company had no outstandings to any single foreign country in excess of .75% of
total assets, except for short-term eurodollar outstandings with banks in the
United Kingdom of $333 million, or 1%, of total assets. At December 31, 1992,
the Company had such outstandings of $509 million, or 2% of total assets, with
French banks, and $476 million, or 2% of total assets, with United Kingdom
banks.
Asset Quality
The Company seeks to manage credit risk through diversification of the loan
portfolio and the application of policies and procedures designed to foster
sound underwriting and credit monitoring practices. However, as is the case with
any banking organization, the level of credit risk is dependent in part upon
local and national economic conditions that are beyond the Company's control.
The chief credit officer is charged with monitoring asset quality, establishing
credit policies and procedures, seeking the consistent application of these
policies and procedures across the organization, and adjusting policies as
appropriate for changes in market conditions.
First Fidelity's loan portfolio is diversified by industry of borrower and
type of loan, with limits on the size of loan to any single borrower. At
December 31, 1993 and 1992, domestic commercial and financial loans represented
30% and 29% of the loan portfolio, respectively; installment loans were 22% and
26%, respectively; residential mortgages represented 23% and 19%, respectively;
commercial mortgages were 16% in both years; construction
<PAGE> 35
33
loans were 2% and 3%, respectively; the leasing portfolio (consisting of
equipment and automobile leases) was 6% in both years; and foreign loans
represented 1% in both years.
The risk profile of the loan portfolio is impacted by many external trends
and conditions. Among the more important economic factors which tend to reduce
or increase the risk profile of the loan portfolio are changes in regional or
local real estate values, employment levels and personal income levels. Changes
in property and income tax rates, governmental actions such as spending
cutbacks, and weakened market conditions are also important determinants of the
risk inherent in lending by the Company.
The lending risk for commercial mortgage, real estate/construction,
commercial and financial, and equipment leasing loans is also influenced by
factors such as the specific borrower's financial condition, the demand for
office space, and the long-term success of companies involved in manufacturing
and distribution which operate in the Company's primary marketplace.
Certain of the Company's asset quality ratios are set forth below:
ASSET QUALITY RATIOS
<TABLE>
<CAPTION>
DECEMBER 31
-----------------------------------------
1993 1992 1991 1990 1989
----- ----- ----- ----- -----
<S> <C> <C> <C> <C> <C>
Non-performing loans/loans(a)........................................ 1.77% 2.76% 4.13% 3.97% 2.27%
Non-performing assets/loans and other real estate owned(a)........... 2.30 3.75 5.29 4.87 2.58
Net loan charge-offs/average loans................................... 1.23 1.42 1.62 1.74 .92
Present period recoveries/prior period charge-offs................... 15.49 14.77 10.04 18.93 14.27
Reserve/loans........................................................ 2.82 3.32 3.52 3.00 1.98
Reserve/non-performing loans(a)...................................... 159 121 85 76 87
Reserve/non-performing assets(a)..................................... 122 88 66 61 77
</TABLE>
- ---------------
(a) Non-performing loans and non-performing assets and ratios exclude loans
classified as contractually past due 90 days or more but still accruing,
assets subject to FDIC loss-sharing provisions, and assets classified as
held for sale, which are included in other assets.
The ratios for "Non-performing loans/loans" and "Non-performing
assets/loans and other real estate owned" improved in 1993. The improvement in
these ratios reflects the Company's continuing workout and collection efforts,
which include repayments, charge-offs, transfers of non-performing assets to
"assets held for sale" and fewer additions to non-performing loans.
Total non-performing assets decreased to $494.7 million at December 31,
1993 from $695.7 million at December 31, 1992. Excluding non-performing assets
related to 1993 acquisitions of $61.0 million at December 31, 1993 and including
assets classified as held for sale of $88.4 million at December 31, 1993, total
non-performing assets would have declined by $173.6 million from $695.7 million
at December 31, 1992.
The commercial loan portfolio is monitored continuously, primarily by the
review of risk ratings assigned to each commercial loan, which take into
consideration both the borrower's fundamental condition and the specifics of
each loan. These risk ratings provide the principal basis for managerial and
accounting actions. It is the responsibility of lending groups to monitor these
loans and to make adjustments as appropriate to the risk ratings. In addition,
such loans are periodically examined by the Company's credit audit department,
which is structured to be independent of both the lending and the credit policy
and administration functions. The status of individual loans, portfolio
segments, and the entire portfolio are monitored by credit policy officers and
senior management on a continuous basis. This process is designed to assist the
Company in taking appropriate corrective actions as early as possible.
A quarterly reporting and review process is in place for monitoring those
credits that have been identified as problematic or vulnerable in order to
develop a corrective action program, to assess the Company's progress in working
toward a solution, and to assist in determining an appropriate reserve for
possible credit losses. A separate loan workout unit becomes involved in credits
that have been identified as problems. The Company's loan review procedures are
designed to reduce both non-performing assets and loan losses; however, such
assets and losses are an
<PAGE> 36
34
inevitable element of a banking organization's provision of credit to its
customers. The levels of such assets and losses are dependent in part on
economic, legislative and regulatory factors that are beyond the Company's
control.
For commercial loans, mortgage loans and leases, the necessity for
charge-offs is determined on a case-by-case basis. Installment loans and credit
card receivables are generally charged-off when principal or interest payments
are in arrears for more than 120 and 180 days, respectively, except where the
loan is well secured and in the process of collection.
Commercial real estate lending is an integral part of the Company's middle
market lending business, and continues to be a commercial credit product for
First Fidelity. Commercial real estate loans (commercial mortgages and
construction loans) comprised 18% of total loans at year-end, compared to 19% at
December 31, 1992. First Fidelity's real estate lending policies are designed to
take into consideration the cyclical nature of the real estate business and to
define acceptable transactions specifically in terms of the borrower,
collateral, documentation, loan structure and product.
In addition to internal processes, lending procedures and the loan
portfolio are examined by several banking regulatory agencies as part of their
supervisory activities. For First Fidelity, the most comprehensive of these is
the examination by the OCC. Examinations by regulators are performed
periodically. The Company's independent auditors also review the portfolio and
lending procedures during their annual audit of the Company's financial
statements.
Segregated Assets
On October 2, 1992, in accordance with the agreement to acquire selected
assets and liabilities of Howard, the Company entered into a loss-sharing
arrangement with the FDIC. The Howard non-performing commercial mortgages,
commercial real estate/construction loans and commercial and financial loans
("shared-loss loans"), and any such Howard performing shared-loss loans that
become non-performing through October 2, 1997, are considered "segregated
assets", and are included in the "other assets" caption of the Consolidated
Statements of Condition. Such segregated assets include non-accrual loans,
foreclosed properties and in-substance foreclosures, net of a reserve for
segregated assets, but exclude acquired consumer loans. Under the terms of the
loss-sharing arrangement, the FDIC reimburses the Company for 80% of net
charge-offs and reimbursable expenses associated with such shared-loss loans for
a five year period. Under the terms of the loss-sharing arrangement, First
Fidelity is obligated to pay the FDIC 80% of net recoveries on such assets
during years six and seven after the acquisition. At the end of the seven year
period, the FDIC is obligated to provide additional reimbursement to First
Fidelity for losses so that, subject to certain conditions, First Fidelity bears
only 5% of total losses with respect to such segregated assets over $130 million
of net losses and associated expenses.
In addition to non-performing shared-loss loans reported as segregated
assets, performing loans potentially subject to the loss-sharing arrangement
with the FDIC at December 31, 1993 and 1992, respectively, totaled $324.1
million and $404.9 million of commercial mortgages, and $27.2 million and $62.0
million of commercial and financial loans. There were no construction loans in
this category at December 31, 1993, and $8.8 million of such loans at December
31, 1992.
At December 31, 1993, segregated assets were $247.9 million, net of a $6.5
million reserve, compared to $293.8 million, net of a $16.2 million reserve at
December 31, 1992. The reserve established by First Fidelity in 1992 with
respect to its 20% loss exposure on the segregated assets was $25.0 million.
First Fidelity's share of charge-offs on segregated assets was $10.6 million in
1993 and $8.8 million in 1992. Related recoveries in 1993 were $855 thousand.
Net losses incurred through December 31, 1993 totaled $98.4 million. The
Company's risk share was $17.5 million at December 31, 1993.
Assets Held for Sale
As of September 30, 1993, the Company determined that it would pursue an
accelerated disposition approach on certain of its non-performing assets and,
accordingly, classified $91.0 million (net of market value adjustments) of
assets as "held for sale", and included such assets in other assets. These
assets consisted of $42.0 million of OREO, $35.3 million of non-performing loans
and a $13.7 million performing loan. Related to this strategic decision, $48.8
million in write-downs were taken to record the assets held for sale at their
estimated near-term
<PAGE> 37
35
disposition values. During the fourth quarter, related primarily to the Peoples
acquisition, the Company classified an additional $44.7 million of assets as
"held for sale". During the fourth quarter of 1993, First Fidelity sold $47.3
million of assets held for sale, leaving a balance at December 31, 1993, of
$88.4 million. The Company anticipates that substantially all such assets will
be sold within 18 months of their reclassification. The decision to sell these
assets reflected an improvement in market pricing.
Provision and Reserve for Possible Credit Losses
The levels of the provision and reserve for possible credit losses are
based on management's ongoing assessment of the Company's credit exposure and
consideration of a number of relevant variables. These variables include
prevailing and anticipated domestic and international economic conditions,
assigned risk ratings on credit exposures, the diversification and size of the
loan portfolio, the results of the most recent regulatory examinations available
to the Company, the current and projected financial status and creditworthiness
of borrowers, certain off balance sheet credit risks, the nature and level of
non-performing assets and loans that have been identified as potential problems,
the adequacy of collateral, past and expected loss experience, and other factors
deemed relevant by management. The Company's risk rating system and the
quarterly reporting process for problem and vulnerable credits are utilized by
management in determining the adequacy of the Company's reserve for possible
credit losses.
<PAGE> 38
36
The following table sets forth information regarding the Company's
provision and reserve for possible credit losses and charge-off experience:
RECONCILIATION OF RESERVE FOR POSSIBLE CREDIT LOSSES
<TABLE>
<CAPTION>
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
(THOUSANDS)
<S> <C> <C> <C> <C> <C>
Balance at Beginning of Period:
Domestic................................. $600,406 $594,074 $532,962 $310,805 $254,799
Foreign.................................. 9,947 15,525 23,210 77,979 108,371
-------- -------- -------- -------- --------
610,353 609,599 556,172 388,784 363,170
Provisions:
Domestic................................. 149,853 229,537 309,304 529,474 219,047
Foreign(1)............................... (1,853) (1,537) (11,304) (31,474) (18,793)
-------- -------- -------- -------- --------
148,000 228,000 298,000 498,000 200,254
Charge-Offs:
Domestic
Commercial and financial.............. 100,818 123,128 168,976 161,414 67,642
Real estate -- construction(2)........ 49,932 55,993 45,647 108,276
79,810
Real estate -- mortgage(2)............ 68,417 27,844 11,839 6,941
Installment........................... 47,659 68,753 77,761 43,147 25,205
Leasing............................... 16,319 14,844 14,952 8,920 7,228
Foreign.................................. 471 4,734 1,224 42,077 32,259
-------- -------- -------- -------- --------
Total............................... 283,616 295,296 320,399 370,775 212,144
Recoveries:
Domestic
Commercial and financial.............. 15,769 18,580 12,342 11,033 6,927
Real estate -- construction(2)........ 3,203 849 2,112 1,596
2,114
Real estate -- mortgage(2)............ 3,130 1,256 655 677
Installment........................... 17,759 22,535 15,135 6,729 6,188
Leasing............................... 4,874 3,417 2,139 1,346 1,615
Foreign.................................. 995 693 4,843 18,782 20,660
-------- -------- -------- -------- --------
Total............................... 45,730 47,330 37,226 40,163 37,504
-------- -------- -------- -------- --------
Net Charge-Offs..................... 237,886 247,966 283,173 330,612 174,640
Balance related to sale of subsidiary...... -- -- (10,800) -- --
Acquired reserves.......................... 81,716 20,720 49,400 -- --
-------- -------- -------- -------- --------
Balance at End of Period:
Domestic................................. 593,565 600,406 594,074 532,962 310,805
Foreign.................................. 8,618 9,947 15,525 23,210 77,979
-------- -------- -------- -------- --------
$602,183 $610,353 $609,599 $556,172 $388,784
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
- ---------------
(1) As a result of a significant decrease in the level of foreign assets and
substantial recoveries in its foreign portfolio, management made the
indicated reallocations from the reserve for foreign loans to the general
reserve.
(2) Breakdown between categories of real estate loans is not available for 1989.
The continued decline in the provision for possible credit losses from 1991
through 1993 reflects management's evaluation of the adequacy of the level of
the reserve for possible credit losses in light of, among other factors,
improved asset quality trends, current economic conditions, the continued
decline in non-performing loans and slightly lower levels of charge-offs. The
reduction of the provision for possible credit losses contributed to the
improvement in the Company's net income in 1993, 1992 and 1991.
Key asset quality reserve ratios improved steadily over the three years
ended December 31, 1991, 1992 and 1993. The ratio of the reserve for possible
credit losses to non-performing loans was 85% for 1991, 121% for 1992 and 159%
for 1993. The reserve for possible credit losses to non-performing assets ratio
was 66% for 1991, 88% for 1992 and 122% for 1993. These ratios exclude loans
classified as contractually past due 90 days or more but still accruing, assets
subject to FDIC loss-sharing provisions, and assets classified as held for sale.
<PAGE> 39
37
The reserve for possible credit losses was $602.2 million at December 31,
1993, and represented 2.82% of total loans, compared to $610.4 million and 3.32%
of total loans at December 31, 1992. The Company believes that it has maintained
the reserve for possible credit losses at an adequate level, although
ultimately, the level of credit losses is dependent in part upon factors outside
of management's control which may not be presently foreseeable.
The Company regards the reserve as a general reserve which is available to
absorb losses from all loans. However, for the purpose of complying with
disclosure requirements of the Securities and Exchange Commission, the table
below presents an allocation of the reserve among various loan categories and
sets forth the percentage of loans in each category to total loans. The
allocation of the reserve as shown in the table should neither be interpreted as
an indication of future charge-offs, nor as an indication that charge-offs in
future periods will necessarily occur in these amounts or in the indicated
proportions.
ALLOCATION OF RESERVE FOR POSSIBLE CREDIT LOSSES
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------------------------------------------------------------------
1993 1992 1991 1990 1989
----------------- ----------------- ----------------- ----------------- -----------------
% OF % OF % OF % OF % OF
LOANS LOANS LOANS LOANS LOANS
TO TO TO TO TO
TOTAL TOTAL TOTAL TOTAL TOTAL
AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS AMOUNT LOANS
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
(DOLLARS IN THOUSANDS)
<S> <C> <C> <C> <C> <C> <C> <C> <C> <C> <C>
Commercial and
financial............ $225,311 29.9% $257,341 29.4% $310,580 36.4% $252,960 40.5% $172,605 43.8%
Real estate
-- construction(1)... 98,131 2.2 115,733 3.2 86,260 4.0 134,603 4.9
Real estate 89,300 26.3
-- mortgage(1)....... 169,751 38.5 65,444 34.7 33,440 27.2 45,070 22.0
Installment............ 71,760 22.3 123,761 25.6 128,475 25.6 77,823 25.8 34,800 22.2
Leasing................ 28,612 6.6 38,127 6.5 35,319 6.0 22,506 5.9 14,100 6.3
Foreign................ 8,618 0.5 9,947 0.6 15,525 0.8 23,210 0.9 77,979 1.4
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
Total................ $602,183 100.0% $610,353 100.0% $609,599 100.0% $556,172 100.0% $388,784 100.0%
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
-------- ----- -------- ----- -------- ----- -------- ----- -------- -----
</TABLE>
- ---------------
(1) Breakdown among categories is not available for 1989.
Charge-Offs
First Fidelity's gross charge-offs in 1993 totaled $283.6 million, a
decline of 4% from $295.3 million in 1992. The 1993 charge-offs included $42.8
million in connection with transfers to "assets held for sale". Charge-offs in
1992 were down 8% from $320.4 million in 1991. The current charge-off level
reflects some stabilization in the business climate, which affects both business
and consumers, and continued softness in the regional real estate market.
Real estate-related charge-offs were $118.3 million in 1993, compared to
$83.8 million in 1992. The increase in 1993 was the result of $37.7 million of
charge-offs in connection with transfers to "assets held for sale".
Charge-offs of commercial and financial loans, excluding those related to
commercial real estate loans, were $100.8 million (including $5.1 million on
loans transferred to assets held for sale), representing a $22.3 million
decrease from 1992. Charge-offs unrelated to real estate were not concentrated
in any industry, type of loan or type of borrower.
Installment loan charge-offs of $47.7 million were down $21.1 million from
1992, reflecting lower charge-offs in credit cards and other types of
installment loans. Leasing charge-offs were $16.3 million in 1993, compared to
$14.9 million in 1992.
Recoveries
Recoveries on charged-off commercial and financial loans were $15.8 million
in 1993, compared to $18.6 million in the prior year. Real estate-related
recoveries were $6.3 million in 1993 and $2.1 million in 1992. Installment loan
recoveries were $17.8 million in 1993, compared to $22.5 million a year earlier.
<PAGE> 40
38
Non-Performing Assets
Non-performing assets include those loans that are not accruing interest
(non-accruing loans), loans that have been renegotiated due to a weakening in
the financial position of the borrower (restructured loans) and OREO, which
consists of real estate acquired upon foreclosure and in-substance foreclosures.
A real estate loan is classified as an in-substance foreclosure when the
borrower has little or no equity in the underlying property and the Company can
reasonably expect repayment to come only from the operation or sale of the real
estate.
The following table sets forth information regarding non-performing assets
and accruing contractually past due loans.
NON-PERFORMING ASSETS AND CONTRACTUALLY PAST DUE LOANS
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------------------------------------
1993 1992 1991 1990 1989
-------- -------- -------- -------- --------
(THOUSANDS)
<S> <C> <C> <C> <C> <C>
Non-performing assets(a):
Non-accruing loans:
Domestic:
Real estate................................. $184,610 $236,659 $324,318 $307,675 $178,364
Other....................................... 168,487 230,894 321,190 422,593 192,924
Foreign:
Less developed countries.................... 176 414 414 460 33,590
Other....................................... 11,737 2,754 9,798 4,200 7,045
-------- -------- -------- -------- --------
Total..................................... 365,010 470,721 655,720 734,928 411,923
Restructured loans............................... 13,871 35,604 60,786 1,130 34,565
Other real estate owned:
Foreclosed property............................ 103,344 155,050 79,384 47,473 60,869
In-substance foreclosures...................... 19,145 40,084 140,339 137,835 --
-------- -------- -------- -------- --------
Total..................................... 122,489 195,134 219,723 185,308 60,869
Less reserve................................... (6,622) (5,765) (7,306) (10,120) --
-------- -------- -------- -------- --------
Net....................................... 115,867 189,369 212,417 175,188 60,869
-------- -------- -------- -------- --------
Total Non-Performing Assets............ $494,748 $695,694 $928,923 $911,246 $507,357
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
Contractually past due loans(b):
Consumer(c)...................................... $133,112 $142,077 $134,720 $ 71,101
$128,843
Other(c)......................................... 8,373 12,422 10,686 25,447
-------- -------- -------- -------- --------
Total............................................ $141,485 $154,499 $145,406 $ 96,548 $128,843
-------- -------- -------- -------- --------
-------- -------- -------- -------- --------
</TABLE>
- ---------------
(a) Non-performing assets exclude loans classified as contractually past due 90
days or more and still accruing, segregated shared-loss assets of $254.4
million in 1993 and $310.0 million in 1992, and assets held for sale of
$88.4 million in 1993.
(b) Accruing loans past due 90 days or more.
(c) Breakdown among categories of contractually past due loans is not available
for 1989.
Interest income is not accrued on loans where interest or principal is 90
days or more past due, unless the loans are adequately secured and in the
process of collection. Additionally, interest is not accrued on loans where
management has determined that the borrowers may be unable to meet future
contractual principal and/or interest obligations, even though interest and
principal payments may be current. When a loan is placed on non-accrual status,
interest accruals cease and past due interest is reversed and charged against
current income. Any interest payments subsequently received are credited to
either principal or interest income, depending upon the financial condition of
the borrower. Interest income is not accrued until the financial condition and
payment record of the borrower once again warrant it. Interest on loans that
have been restructured is accrued according to the restructured terms once
regularity of payment is established and management has determined that the
borrower is able to meet all recorded obligations.
Non-performing assets were $494.7 million at December 31, 1993, compared to
$695.7 million at December 31, 1992. The decline reflects the Company's
continuing workout and collection efforts, which include
<PAGE> 41
39
repayments, charge-offs, transfers of non-performing assets to "assets held for
sale" and fewer additions to non-performing loans. Non-performing real estate
loans declined $52.0 million, including a $107.0 million decline in connection
with the assets held for sale reclassification ($72.4 million was transferred to
assets held for sale, including certain non-performing loans acquired in
connection with the Peoples, Northeast and Village transactions, and $34.6
million in related write-downs were taken). The level of non-accruing domestic
commercial loans decreased $62.4 million from December 31, 1992 to December 31,
1993. The decline reflected the reclassification of $6.1 million to assets held
for sale and $5.1 million in related write-downs. Restructured loans decreased
$21.7 million to $13.9 million at December 31, 1993, due primarily to the return
to accruing status of certain loans whose rates and terms are consistent with
market rates and terms, and where a sufficient period of satisfactory
performance by the borrower in accordance with the modified terms had occurred.
Interest recognized as income on loans that were classified as non-accruing
and restructured as of year-end totaled $3.1 million in 1993. Had payments on
year-end non-accruing and restructured loans been made at the original
contracted amounts and due dates, the Company would have recorded additional
interest income of approximately $30.1 million in 1993.
OREO decreased from $189.4 million at December 31, 1992 to $115.9 million
at December 31, 1993. OREO obtained in 1993 acquisitions was $11.9 million at
December 31, 1993. The decline reflected the reclassification of $46.9 million
to assets held for sale and $9.7 million in related write-downs.
Prior to transferring a real estate loan to OREO (due to actual foreclosure
or in-substance foreclosure), it is written-down to the lower of cost or fair
value. This write-down is charged to the reserve for possible credit losses.
Subsequently, OREO is carried at the lower of fair value less estimated cost to
sell or carrying value. An OREO reserve is maintained at a level sufficient to
absorb unidentified declines in the fair value of all OREO properties between
periodic appraisals and for estimated selling costs. The reserve and related
provision for OREO were relatively unchanged in 1993 as compared to 1992.
Charge-offs also include write-downs related to assets held for sale, reflecting
management's plans to dispose of such assets rapidly. The following table sets
forth information regarding the Company's reserve for OREO:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Balance at beginning of period...................... $ 5,765 $ 7,306 $ 10,121
Provision........................................... 22,800 21,155 9,288
Acquired reserves................................... 6,649 -- --
Charge-offs and write-downs......................... (28,592) (22,696) (12,103)
-------- -------- --------
Balance at end of period............................ $ 6,622 $ 5,765 $ 7,306
-------- -------- --------
-------- -------- --------
</TABLE>
At December 31, 1993, loans that were 90 days or more past due but still
accruing interest totaled $141.5 million, including $133.1 million of consumer
loans, compared to $154.5 million at December 31, 1992, a decrease of $13.0
million, or 8%. The decrease was primarily the result of continuing workout and
collection efforts. Management's determination regarding the accrual of interest
on these loans is based on the availability and sufficiency of collateral and
the status of collection efforts. Delays which the Company continues to
experience in pursuing remedies through the court systems have had a significant
impact on this loan category. In the present environment, certain of such loans
could become non-performing assets or result in charge-offs in the future.
While the Company believes it has responded appropriately to the current
economic environment, management remains sensitive to the evolving economic
situation and its potential impact on asset quality and the reserve for possible
credit losses. In addition, regulatory agencies periodically review the level of
the Company's reserve for possible credit losses. Such agencies could require
the Company to increase or decrease the level of the reserve based on their
interpretation of data available to them at the time of their examination.
In May, 1993, SFAS 114, "Accounting by Creditors for Impairment of a Loan",
was issued. SFAS 114 requires that "impaired" loans be measured based on the
present value of expected future cash flows, discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's observable market
price or the fair value of the collateral if the loan is collateral dependent.
Although management is continuing to review SFAS 114 and the expected changes to
that standard, it does not currently expect that the adoption of SFAS 114, which
is required for fiscal years beginning after December 15, 1994, will have a
material effect on the Company's financial statements.
<PAGE> 42
40
ITEM 8. FINANCIAL STATEMENTS AND SUPPLEMENTARY DATA
(a) The following audited consolidated financial statements and related
documents are set forth in this Annual Report on Form 10-K on the following
pages:
<TABLE>
<S> <C>
Report of Independent Auditors..................................................... 41
First Fidelity Bancorporation (and Subsidiaries):
Consolidated Statements of Income............................................. 42
Consolidated Statements of Condition.......................................... 43
Consolidated Statements of Changes in Stockholders' Equity.................... 44
Consolidated Statements of Cash Flows......................................... 45
Notes to Consolidated Financial Statements.................................... 46
</TABLE>
(b) The following supplementary data is set forth in this Annual Report on
Form 10-K on the following pages:
<TABLE>
<S> <C>
Summary of Quarterly Financial Information......................................... 73
Computation of Earnings Per Share.................................................. 74
</TABLE>
<PAGE> 43
41
REPORT OF INDEPENDENT AUDITORS
The Board of Directors
First Fidelity Bancorporation
We have audited the accompanying consolidated statements of condition of
First Fidelity Bancorporation and subsidiaries as of December 31, 1993 and 1992,
and the related consolidated statements of income, changes in stockholders'
equity, and cash flows for each of the years in the three-year period ended
December 31, 1993. These consolidated financial statements are the
responsibility of First Fidelity Bancorporation's management. Our responsibility
is to express an opinion on the consolidated financial statements based on our
audits.
We conducted our audits in accordance with generally accepted auditing
standards. These standards require that we plan and perform the audit to obtain
reasonable assurance about whether the consolidated financial statements are
free of material misstatement. An audit includes examining, on a test basis,
evidence supporting the amounts and disclosures in the consolidated financial
statements. An audit also includes assessing the accounting principles used and
significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for our opinion.
In our opinion, the consolidated financial statements referred to above
present fairly, in all material respects, the consolidated financial position of
First Fidelity Bancorporation and subsidiaries as of December 31, 1993 and 1992
and the results of their operations and their cash flows for each of the years
in the three-year period ended December 31, 1993 in conformity with generally
accepted accounting principles.
As discussed in Note 2 to the consolidated financial statements, First
Fidelity Bancorporation changed its methods of accounting for income taxes,
postretirement benefits other than pensions, postemployment benefits, and
certain investments in debt and equity securities.
/s/ KPMG Peat Marwick
January 14, 1994, except for the sixth paragraph of Note 11 which is as of
February 2, 1994
New York, New York
<PAGE> 44
42
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
------------------------------------------
1993 1992 1991
---------- ---------- ----------
(THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C>
Interest Income
Interest and fees on loans............................................. $1,531,900 $1,513,445 $1,689,680
Interest on federal funds sold and securities purchased under
agreements to resell................................................. 16,176 33,578 59,778
Interest and dividends on securities:
Taxable interest income.............................................. 370,731 409,104 452,614
Tax-exempt interest income........................................... 49,017 57,675 67,298
Dividends............................................................ 4,559 4,037 3,931
Interest on bank deposits.............................................. 66,308 104,524 103,347
Interest on trading account securities................................. 6,505 6,918 7,312
---------- ---------- ----------
Total Interest Income.............................................. 2,045,196 2,129,281 2,383,960
---------- ---------- ----------
Interest Expense
Interest on:
Deposits............................................................. 620,730 824,453 1,176,495
Short-term borrowings................................................ 32,199 43,469 72,052
Long-term debt....................................................... 38,584 52,790 79,342
---------- ---------- ----------
Total Interest Expense............................................. 691,513 920,712 1,327,889
---------- ---------- ----------
Net Interest Income................................................ 1,353,683 1,208,569 1,056,071
Provision for possible credit losses..................................... 148,000 228,000 298,000
---------- ---------- ----------
Net Interest Income after Provision for Possible Credit Losses..... 1,205,683 980,569 758,071
---------- ---------- ----------
Non-Interest Income
Trust income........................................................... 104,517 86,396 83,784
Service charges on deposit accounts.................................... 152,340 139,310 114,406
Other service charges, commissions and fees............................ 85,741 76,374 81,522
Trading revenue........................................................ 16,932 16,685 12,254
Net securities transactions............................................ 7,017 4,825 53,566
Other income........................................................... 16,953 8,786 48,158
---------- ---------- ----------
Total Non-Interest Income.......................................... 383,500 332,376 393,690
---------- ---------- ----------
Non-Interest Expense
Salaries and benefits expense.......................................... 468,050 408,841 390,993
Occupancy expense...................................................... 112,729 107,269 103,814
Equipment expense...................................................... 43,983 41,418 42,051
Other expenses......................................................... 389,937 359,318 334,889
---------- ---------- ----------
Total Non-Interest Expense......................................... 1,014,699 916,846 871,747
---------- ---------- ----------
Income before income taxes and cumulative effect of changes in accounting
principles............................................................. 574,484 396,099 280,014
Income taxes............................................................. 178,025 82,362 58,773
---------- ---------- ----------
Income before cumulative effect of changes in accounting principles...... 396,459 313,737 221,241
Cumulative effect of changes in accounting principles, net of tax........ 2,373 -- --
---------- ---------- ----------
Net Income......................................................... 398,832 313,737 221,241
Dividends on Preferred Stock............................................. 20,653 21,061 17,176
---------- ---------- ----------
Net Income Applicable to Common Stock.............................. $ 378,179 $ 292,676 $ 204,065
---------- ---------- ----------
---------- ---------- ----------
Per Common Share:
Primary:
Income before cumulative effect of changes in accounting
principles.......................................................... $4.63 $3.89 $3.37
Cumulative effect of changes in accounting principles, net of tax.... .03 -- --
Net income -- primary................................................ 4.66 3.89 3.37
Fully diluted:
Income before cumulative effect of changes in accounting
principles.......................................................... 4.55 3.77 3.31
Cumulative effect of changes in accounting principles, net of tax.... .03 -- --
Net income -- fully diluted.......................................... 4.58 3.77 3.31
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 45
43
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CONDITION
<TABLE>
<CAPTION>
DECEMBER 31
--------------------------
1993 1992
----------- -----------
(THOUSANDS)
<S> <C> <C>
Assets
Cash and due from banks................................................................. $ 1,831,270 $ 1,913,177
Interest-bearing time deposits.......................................................... 979,769 2,635,938
Securities held to maturity (market value 1993, $5,321,239; 1992, $5,697,822)........... 5,241,987 5,577,830
Securities available for sale (market value $777,013 at December 31, 1992).............. 2,656,721 755,128
Trading account securities at market value.............................................. 149,887 228,344
Federal funds sold and securities purchased under agreements to resell.................. 15,000 738,000
Loans, net of unearned income........................................................... 21,386,911 18,377,695
Less: Reserve for possible credit losses.............................................. (602,183) (610,353)
----------- -----------
Net Loans........................................................................... 20,784,728 17,767,342
Premises and equipment.................................................................. 404,208 352,611
Customers' acceptance liability......................................................... 187,903 169,131
Other assets............................................................................ 1,511,112 1,342,796
----------- -----------
Total Assets........................................................................ $33,762,585 $31,480,297
----------- -----------
----------- -----------
Liabilities
Deposits in domestic offices:
Demand deposits....................................................................... $ 5,347,007 $ 5,369,685
Savings/NOW deposits.................................................................. 9,650,774 7,826,942
Money market deposit accounts......................................................... 3,893,130 3,904,739
Other consumer time deposits.......................................................... 8,637,296 9,197,683
Corporate certificates of deposit..................................................... 398,435 442,422
Deposits in overseas offices............................................................ 216,380 263,364
----------- -----------
Total Deposits...................................................................... 28,143,022 27,004,835
Short-term borrowings................................................................... 1,620,125 1,084,277
Acceptances outstanding................................................................. 196,117 176,587
Other liabilities....................................................................... 451,835 375,440
Long-term debt.......................................................................... 613,058 581,508
----------- -----------
Total Liabilities................................................................... 31,024,157 29,222,647
Commitments and contingencies (see Notes 16 and 18)
Stockholders' Equity
Preferred stock......................................................................... 230,422 232,172
Common stock ($1.00 par)
Authorized: 150,000,000 shares
Issued: 79,937,719 shares at December 31, 1993
Issued and outstanding: 74,107,949 shares at December 31, 1992........................ 79,938 74,108
Surplus................................................................................. 1,202,373 1,014,905
Retained earnings....................................................................... 1,227,368 936,465
Less treasury stock, at cost: 36,714 shares at December 31, 1993........................ (1,673) --
----------- -----------
Total Common Stockholders' Equity................................................... 2,508,006 2,025,478
----------- -----------
Total Stockholders' Equity.......................................................... 2,738,428 2,257,650
----------- -----------
Total Liabilities and Stockholders' Equity.......................................... $33,762,585 $31,480,297
----------- -----------
----------- -----------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 46
44
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CHANGES IN STOCKHOLDERS' EQUITY
<TABLE>
<CAPTION>
TOTAL
PREFERRED COMMON RETAINED TREASURY STOCKHOLDERS'
STOCK STOCK SURPLUS EARNINGS STOCK EQUITY
-------- ------- ---------- ---------- --------- -------------
(THOUSANDS)
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1990...................... $157,271 $59,627 $ 681,630 $ 583,925 -- $ 1,482,453
Net income.................................... -- -- -- 221,241 -- 221,241
Shares Issued:
Preferred stock issued...................... 75,000 -- -- -- -- 75,000
Preferred stock conversions................. (35) 1 34 -- -- --
Dividend reinvestment plan.................. -- 672 16,853 -- -- 17,525
Stock options............................... -- 534 11,133 -- -- 11,667
Private placement........................... -- 9,505 208,746 -- -- 218,251
Dividends on Common stock..................... -- -- -- (72,112) -- (72,112)
Dividends on Preferred stock.................. -- -- -- (17,176) -- (17,176)
Equity portfolio valuation.................... -- -- -- 7,933 -- 7,933
-------- ------- ---------- ---------- --------- -------------
Balance, December 31, 1991...................... 232,236 70,339 918,396 723,811 -- 1,944,782
Net income.................................... -- -- -- 313,737 -- 313,737
Shares Issued:
Preferred stock conversions................. (64) 2 62 -- -- --
Dividend reinvestment plan.................. -- 531 17,060 -- -- 17,591
Stock options............................... -- 860 21,169 -- -- 22,029
Private placement........................... -- 2,376 58,218 -- -- 60,594
Dividends on Common stock..................... -- -- -- (88,036) -- (88,036)
Dividends on Preferred stock.................. -- -- -- (21,061) -- (21,061)
Equity portfolio valuation.................... -- -- -- 8,014 -- 8,014
-------- ------- ---------- ---------- --------- -------------
Balance, December 31, 1992...................... 232,172 74,108 1,014,905 936,465 -- 2,257,650
Net income.................................... -- -- -- 398,832 -- 398,832
Shares Issued:
Preferred stock conversions................. (1,750) 55 1,695 -- -- --
Dividend reinvestment plan.................. -- 98 4,305 (230) $ 3,598 7,771
Stock options............................... -- 276 6,982 (4,366) 11,047 13,939
Private placement........................... -- 2,376 58,218 -- -- 60,594
Acquisitions................................ -- 3,025 116,268 -- 100,636 219,929
Purchases of treasury stock................... -- -- -- -- (116,954) (116,954)
Dividends on Common stock..................... -- -- -- (110,336) -- (110,336)
Dividends on Preferred stock.................. -- -- -- (20,653) -- (20,653)
Fair value adjustment -- securities available
for sale.................................... -- -- -- 27,656 -- 27,656
-------- ------- ---------- ---------- --------- -------------
Balance, December 31, 1993...................... $230,422 $79,938 $1,202,373 $1,227,368 $ (1,673) $ 2,738,428
-------- ------- ---------- ---------- --------- -------------
-------- ------- ---------- ---------- --------- -------------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 47
45
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
CONSOLIDATED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------
1993 1992 1991
----------- ------------ -----------
(THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income........................................................... $ 398,832 $ 313,737 $ 221,241
Adjustments to reconcile net income to net cash provided by operating
activities:
Provision for possible credit losses................................. 148,000 228,000 298,000
Depreciation, amortization and accretion............................. 53,354 39,201 37,612
Deferred income tax provision........................................ 86,453 1,034 5,159
Gain on sale of assets............................................... (12,288) (13,491) (52,973)
Net securities transactions (gains).................................. (7,017) (4,825) (53,566)
Proceeds from sales of trading account securities.................... 8,951,741 10,324,738 9,126,828
Purchases of trading account securities.............................. (8,860,508) (10,388,715) (9,141,740)
Decrease (increase) in accrued interest receivable................... 39,674 (19,671) 15,957
Decrease in accrued interest payable................................. (32,067) (78,764) (33,468)
Change in current taxes payable...................................... 24,332 (7,334) 18,410
Other, net........................................................... 175,572 (202,118) 66,424
Cumulative effect of changes in accounting principles, net of tax.... (2,373) -- --
----------- ------------ -----------
Net cash provided by operating activities.......................... 963,705 191,792 507,884
Cash flows from investing activities:
Proceeds from sales of securities.................................... 461,596 175,820 1,663,470
Proceeds from maturities of securities............................... 5,267,960 2,894,934 1,507,363
Purchases of securities.............................................. (5,822,987) (2,923,516) (2,556,594)
Net (disbursements) receipts from lending activities................. (574,609) 538,862 1,726,249
Purchases of premises and equipment.................................. (55,248) (93,479) (32,281)
Proceeds from sales of premises and equipment........................ 10,843 14,668 18,542
Net change in acceptances............................................ 758 4,308 2,005
Net cash received on acquisitions.................................... 641,386 723,111 682,478
----------- ------------ -----------
Net cash (used in) provided by investing activities................ (70,301) 1,334,708 3,011,232
Cash flows from financing activities:
Change in demand, savings/NOW, and money market deposits............. (1,428,337) 1,171,050 1,245,975
Change in corporate certificates of deposit and deposits in overseas
offices............................................................. (90,971) (73,097) (550,860)
Change in other consumer time deposits............................... (1,988,007) (2,321,038) (8,957)
Change in short-term borrowings...................................... 228,579 (208,692) (1,599,028)
Issuances of long-term debt.......................................... 150,000 1,069 --
Payments on long-term debt........................................... (118,450) (338,826) (197,596)
Purchases of treasury stock.......................................... (116,954) -- --
Issuance of Common and Preferred stock............................... 140,740 100,214 322,443
Dividends paid....................................................... (131,080) (109,174) (87,349)
----------- ------------ -----------
Net cash (used in) financing activities............................ (3,354,480) (1,778,494) (875,372)
----------- ------------ -----------
Net change in cash and cash equivalents............................ (2,461,076) (251,994) 2,643,744
Cash and cash equivalents at beginning of period(A)................ 5,287,115 5,539,109 2,895,365
----------- ------------ -----------
Cash and cash equivalents at end of period(A)...................... $ 2,826,039 $ 5,287,115 $ 5,539,109
----------- ------------ -----------
----------- ------------ -----------
Supplemental disclosures:
Total amount of interest paid for the period......................... $ 723,580 $ 999,476 $ 1,353,621
----------- ------------ -----------
----------- ------------ -----------
Total amount of income taxes paid for the period..................... $ 108,274 $ 89,888 $ 42,249
----------- ------------ -----------
----------- ------------ -----------
Total amount of loans transferred to OREO............................ $ 115,190 $ 100,553 $ 71,615
----------- ------------ -----------
----------- ------------ -----------
Total amount of loans transferred to assets held for sale............ $ 51,457 $ -- $ --
----------- ------------ -----------
----------- ------------ -----------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31
---------------------------------------------------------
(A) Reconciliation:
1993 1992 1991 1990
--------- --------- --------- ---------
(THOUSANDS)
<S> <C> <C> <C> <C>
Cash and due from banks............................................... $1,831,270 $1,913,177 $2,115,508 $2,244,096
Interest-bearing time deposits........................................ 979,769 2,635,938 2,645,601 519,419
Federal funds sold and securities purchased under agreements to
resell.............................................................. 15,000 738,000 778,000 131,850
--------- --------- --------- ---------
Total cash and cash equivalents....................................... $2,826,039 $5,287,115 $5,539,109 $2,895,365
--------- --------- --------- ---------
--------- --------- --------- ---------
</TABLE>
See accompanying notes to consolidated financial statements.
<PAGE> 48
46
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
NOTE 1. ACCOUNTING POLICIES
The Consolidated Financial Statements of First Fidelity Bancorporation and
Subsidiaries (collectively, the "Company" or "First Fidelity") have been
prepared in conformity with generally accepted accounting principles and
reporting practices applied in the banking industry. The consolidated financial
statements include the accounts of First Fidelity Bancorporation and its
subsidiaries, all of which are directly or indirectly wholly-owned. Significant
intercompany balances and transactions have been eliminated in consolidation.
The Company also presents herein condensed parent company only financial
information regarding First Fidelity Bancorporation (the "Parent Company").
Prior period amounts are reclassified when necessary to conform with the current
year's presentation. The following is a summary of significant accounting
policies:
Securities Held to Maturity: Securities are classified as securities
held to maturity based on management's intent and the Company's ability to
hold them to maturity. Such securities are stated at cost, adjusted for
unamortized purchase premiums and discounts. Purchase premiums and
discounts are amortized over the life of the related security using a
method which approximates the effective interest method.
Trading Account Securities: Securities that are bought and held
principally for the purpose of selling them in the near term are classified
as trading account securities, which are carried at market value. Realized
gains and losses and gains and losses from marking the portfolio to market
value are included in trading revenue.
Securities Available for Sale: At December 31, 1993, securities not
classified as securities held to maturity or trading account securities are
classified as securities available for sale, and are stated at fair value.
Unrealized gains and losses are excluded from earnings, and are reported as
a separate component of stockholders' equity, net of taxes. In 1992, these
securities were stated at the lower of cost or market. Such securities
include those that may be sold in response to changes in interest rates,
changes in prepayment risk or other factors.
Net securities transactions included in non-interest income consist of
realized gains and losses on the sale of securities. Gains or losses on
sale are recorded on the completed transaction basis and are computed under
the identified certificate method.
Loans: Loans are stated net of unearned income. Unearned income is
recognized over the lives of the respective loans, principally on the
effective interest method.
Income from direct financing leases is recorded over the life of the
lease under the financing method of accounting, except for leveraged lease
transactions. Income from leveraged lease transactions is recognized using
a method which yields a level rate of return in relation to the Company's
net investment in the lease. The investment includes the sum of aggregate
rentals receivable and the estimated residual value of leased equipment,
less deferred income and third party debt on leveraged leases.
Interest income is not accrued on loans where interest or principal is
90 days or more past due, unless the loans are adequately secured and in
the process of collection, or on loans where management has determined that
the borrowers may be unable to meet contractual principal and/or interest
obligations. When a loan is placed on non-accrual, interest accruals cease
and uncollected accrued interest is reversed and charged against current
income. Non-accrual loans are generally not returned to accruing status
until principal and interest payments have been brought current and full
collectibility is reasonably assured. Interest on loans that have been
restructured is recognized according to the revised terms.
Loan origination and commitment fees and certain related costs are
deferred and amortized as an adjustment of loan yield in a manner which
approximates the effective interest method.
Reserve for Possible Credit Losses: The level of the reserve for
possible credit losses is based on management's ongoing assessment of the
Company's credit exposure, in consideration of a number of relevant
variables. These variables include prevailing and anticipated domestic and
international economic conditions,
<PAGE> 49
47
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
assigned risk ratings, the diversification and size of the loan portfolio,
the results of the most recent regulatory examinations available to the
Company, the current and projected financial status and creditworthiness of
borrowers, various off balance-sheet credit risks, the nature and level of
non-performing assets and loans that have been identified as potential
problems, the adequacy of collateral, past and expected loss experience and
other factors deemed relevant by management.
Financial Instruments: A financial instrument is defined as cash,
evidence of ownership in an entity, or a contract that imposes an
obligation on one entity and conveys a right to another for the exchange of
cash or other financial instruments. In addition to the financial
instruments shown in the Consolidated Statement of Condition, the Company
enters into interest rate swaps, futures, caps and floors, primarily to
manage interest rate exposure, and also enters into firm commitments to
extend credit.
Hedges: In order to qualify for hedge accounting treatment, the
item being hedged must expose the Company to interest rate risk. Interest
rate swaps, futures, caps and floors which reduce exposure to interest
rate risk associated with identifiable assets, liabilities, firm
commitments or anticipated transactions are designated as hedges.
Interest rate swaps which are hedges of other interest rate swaps (i.e.,
matched swaps) are held to maturity. Gains or losses on contracts
designated as hedges are deferred and amortized to interest income or
expense over the life of the related hedged asset, liability, firm
commitment or anticipated transaction. The net settlement amount to be
received or paid on contracts designated as hedges is accrued over the
life of the contract and recognized as interest income or expense,
respectively.
Trading positions: Interest rate swaps, futures, caps, or floors
not qualifying for hedge accounting treatment or used in trading
activities, if any, are carried at market value, and realized and
unrealized gains and losses are included in trading revenue.
Foreign Currency Translation and Exchange Contracts: Assets and
liabilities of overseas offices are translated at current rates of
exchange. Related income and expenses are translated at average rates of
exchange in effect during the year. All foreign exchange positions are
valued daily at prevailing market rates. Exchange adjustments, including
unrealized gains or losses on unsettled forward contracts, are included in
trading revenue.
Other Real Estate Owned: Real estate acquired in partial or full
satisfaction of loans and loans meeting the criteria of "in-substance
foreclosures" are classified as Other Real Estate Owned ("OREO"). Prior to
transferring a real estate loan to OREO (due to actual or in-substance
foreclosure) it is written down to the lower of cost or fair value. This
write down is charged to the reserve for possible credit losses.
Subsequently, OREO is carried at the lower of fair value less estimated
costs to sell or carrying value.
Premises and Equipment: Premises and equipment are stated at cost,
less accumulated depreciation and amortization. Depreciation and
amortization are computed using the straight-line method. Buildings and
equipment are depreciated over their estimated useful lives. Leasehold
improvements are amortized over the lesser of the term of the respective
lease or the estimated useful life of the improvement.
Income Taxes: Effective January 1, 1993, the Company adopted
Statement of Financial Accounting Standards ("SFAS") 109, "Accounting for
Income Taxes". Deferred tax assets and liabilities are recognized for the
future consequences attributable to differences between the financial
statement carrying amounts of existing assets and liabilities and their
respective tax bases, as well as operating loss and tax credit
carryforwards. Deferred tax assets are recognized for future deductible
temporary differences and tax loss and credit carryforwards if their
realization is "more likely than not". Deferred tax assets and liabilities
are measured using enacted tax rates expected to apply to taxable income in
the years in which those temporary differences are expected to be recovered
or settled. The effect on deferred tax assets and liabilities of a change
in tax rates is recognized in income in the period that includes the
enactment date.
Under Accounting Principles Board Opinion No. 11, which was applied by
the Company in 1992 and prior years, deferred income taxes were recognized
for income and expense items that were reported in different
<PAGE> 50
48
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
years for financial reporting purposes and income tax purposes, using the
tax rate applicable in the year of the calculation. Under that method,
deferred taxes were not adjusted for subsequent changes in tax rates.
The Parent Company's income taxes, as reflected in the Parent
Company's Statement of Income, represent the taxes allocated to the Parent
Company on the basis of its contribution to consolidated income.
Retirement Benefits: The Company maintains self-administered,
non-contributory defined benefit pension plans covering all employees who
qualify as to age and length of service. Plan expense is based on actuarial
computations of current and future benefits for employees and is included
in salaries and benefits expense. In addition, the Company provides health
care and life insurance benefits for qualifying employees. The related
expense is based upon actuarial calculations and is recognized during the
period over which such benefits are earned. Prior to 1993, the Company
recognized health care and life insurance expenses on an "as paid" basis.
Earnings per Share: Primary earnings per share is based on the
weighted average number of common shares outstanding during each period,
including the assumed exercise of dilutive stock options and warrants,
using the treasury stock method. Primary earnings per share also reflects
provisions for dividend requirements on all outstanding shares of the
Company's Preferred Stock.
Fully diluted earnings per share is based on the weighted average
number of common shares outstanding during each period, including the
assumed conversion of convertible preferred stock into common stock and the
assumed exercise of dilutive stock options and warrants, using the treasury
stock method. Fully diluted earnings per share also reflects provisions for
dividend requirements on non-convertible preferred stock.
Statement of Cash Flows: For purposes of reporting cash flows, cash
and cash equivalents include cash and due from banks, interest-bearing time
deposits, federal funds sold and securities purchased under agreements to
resell, none having an original maturity of more than three months.
Excess of Cost Over Net Assets Acquired: The excess of cost over the
fair value of acquired net assets is included in other assets and is being
amortized using the straight-line method over the estimated period of
benefit.
NOTE 2. CHANGES IN ACCOUNTING PRINCIPLES
During 1993, First Fidelity changed its method of accounting for: (a)
postretirement benefits other than pensions, as required by SFAS 106,
"Employers' Accounting for Postretirement Benefits Other Than Pensions", (b)
income taxes, as required by SFAS 109, "Accounting for Income Taxes", (c)
postemployment benefits, as prescribed in SFAS 112, "Employers' Accounting for
Postemployment Benefits" and (d) securities, as prescribed in SFAS 115,
"Accounting for Certain Investments in Debt and Equity Securities".
The cumulative effect of changes in accounting principles, net of tax
effect, in the Company's 1993 Consolidated Statement of Income consists of the
following:
<TABLE>
<CAPTION>
INCREASE (DECREASE)
-------------------
<S> <C>
(MILLIONS)
Income taxes....................................................................... $ 63.1
Postretirement benefits other than pensions........................................ (53.3)
Postemployment benefits............................................................ (7.4)
Investments in debt and equity securities.......................................... --
-------
Total cumulative effect of changes in accounting principles................... $ 2.4
-------
-------
</TABLE>
The Company recorded a cumulative one-time benefit of $63.1 million upon
the adoption of SFAS 109. The major components of the deferred tax asset related
to temporary differences created by the Reserve for Possible Credit Losses,
alternative minimum tax credit carryforwards, and accrued postretirement
benefits.
<PAGE> 51
49
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
SFAS 106 requires accrual, during an employee's active years of service, of
the expected costs of providing postretirement benefits (principally health
care) to employees and their beneficiaries and dependents. Benefit levels and
eligibility are based upon the employee's status (currently employed or
retired), length of service, age at retirement and other factors. The majority
of the costs of providing these benefits relate to current retirees and their
beneficiaries. Through 1992, First Fidelity, like most other companies,
recognized this expense on an "as paid" basis. As a result of this change in
accounting principle, the Company recorded a one-time cumulative effect
adjustment of $80.7 million ($53.3 million, net of tax effect), to recognize the
accumulated postretirement benefit obligation at January 1, 1993.
In addition, as of January 1, 1993, the Company adopted SFAS 112, which
requires employers to recognize any obligation to provide postemployment (as
differentiated from postretirement) benefits (salary continuation, outplacement
services, etc.) by accruing the estimated liability through a charge to expense.
Upon adoption of SFAS 112, the Company's accumulated postemployment benefit
obligation at January 1, 1993 of $11.3 million was recognized by a one-time
cumulative effect adjustment of $7.4 million, net of tax effect, during 1993.
The Company adopted SFAS 115 as of December 31, 1993. Adoption of this
standard resulted in an increase in the carrying value of "Securities Available
for Sale" of $49.2 million and a decrease in the carrying value of "Loans" of
$7.2 million, offset by increases in Retained Earnings of $27.3 million and the
related deferred tax impact of $14.7 million.
NOTE 3. PRINCIPAL ACQUISITIONS
1993
In May 1993, the Company acquired $2.5 billion in assets and assumed $2.5
billion in liabilities of Northeast Bancorp, Inc. ("Northeast") and its
subsidiaries for $27.2 million in an exchange of common stock. In connection
with the acquisition, the Company also issued 3,284,207 shares of its Common
Stock to Banco Santander, S.A. ("Santander") representing the exercise by
Santander of warrants ("Warrants") to purchase 2,376,250 shares and the exercise
by Santander of gross up rights to purchase an additional 907,957 shares ("the
Acquisition Gross Up Rights") pursuant to the Investment Agreement, dated as of
March 18, 1991 (the "Investment Agreement") between the Company and Santander.
The acquisition has been accounted for as a purchase and, accordingly, the
results of operations of Northeast have been included in the Company's
consolidated financial statements from May 4, 1993.
On August 11, 1993, First Fidelity acquired Village Financial Services,
Ltd. ("Village") and its 9 branch bank subsidiary, Village Bank, for $40.0
million in cash and $26.8 million of First Fidelity Common Stock. Village had
$736 million in assets and $489 million in deposits at closing. In connection
with the acquisition, the Company issued 893,956 shares of First Fidelity Common
Stock to Santander pursuant to its exercise of Acquisition Gross Up Rights under
the Investment Agreement. The acquisition has been accounted for as a purchase
and, accordingly, the results of operations of Village have been included in the
Company's consolidated financial statements from August 11, 1993.
On December 30, 1993, the Company acquired the 31 branch Peoples
Westchester Savings Bank ("Peoples"), a savings bank operating in Westchester
County, New York, for a combination of cash and Common Stock with an aggregate
value of $234.9 million. At closing, Peoples had approximately $1.7 billion in
assets and $1.5 billion in deposits. Substantially all of the 2,442,083 shares
of Common Stock issued to Peoples stockholders in the acquisition came from
Treasury Stock, all of which was acquired by First Fidelity late in 1993 through
open market purchases. The acquisition has been accounted for as a purchase and,
accordingly, the results of operations of Peoples have been included in the
Company's consolidated financial statements from December 30, 1993.
The following required unaudited pro forma financial information presents
the combined historical results of operations of First Fidelity, Northeast,
Village and Peoples (the "companies") as if the acquisitions had all occurred as
of January 1, 1993 and 1992, respectively, giving effect to purchase accounting
adjustments. The results do not include certain non-recurring charges and
credits directly attributable to such acquisitions. The pro forma financial
<PAGE> 52
50
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
information does not necessarily reflect the results of operations that would
have been achieved had the companies actually combined at such dates.
COMBINED CONDENSED CONSOLIDATED PRO FORMA STATEMENTS OF INCOME
(UNAUDITED)
<TABLE>
<CAPTION>
YEAR ENDED
DECEMBER 31,
-----------------
1993 1992
------ ------
(THOUSANDS,
EXCEPT PER SHARE
AMOUNTS)
<S> <C> <C>
Interest income.................................................................. $2,234 $2,521
Net interest income.............................................................. 1,461 1,410
Provision for possible credit losses............................................. 180 346
Non-interest income.............................................................. 425 436
Non-interest expense............................................................. 1,147 1,165
Net income....................................................................... 393 242
Earnings per share:
Primary........................................................................ $ 4.46 $ 2.74
Fully diluted.................................................................. 4.38 2.70
</TABLE>
1992
On October 2, 1992, the Company acquired $2.7 billion in assets and assumed
$3.1 billion in deposits and other liabilities of The Howard Savings Bank
("Howard"). The transaction was effected through an emergency purchase and
assumption transaction pursuant to a Purchase and Assumption Agreement (the
"Agreement"). The Company paid a premium of $73.5 million to the Federal Deposit
Insurance Corporation ("FDIC") to acquire Howard. The underlying Agreement
contained FDIC loss-sharing provisions with respect to approximately $860
million in commercial loans, commercial mortgages and certain other loans (the
"shared-loss loans"). During the five-year term of the loss-sharing arrangement,
the Company classifies non-accruing shared-loss loans as "segregated assets".
See Note 9 presented herein.
The Howard acquisition was accounted for under the purchase method;
accordingly, Howard's operations have been included in the Company's
consolidated financial statements only since the date of acquisition.
NOTE 4. CASH AND DUE FROM BANKS
The Company's banking subsidiaries are required to maintain reserve
balances with Federal Reserve Banks. These balances totaled $333 million at
December 31, 1993 and averaged approximately $398 million for the year ended
December 31, 1993.
NOTE 5. SECURITIES HELD TO MATURITY AND SECURITIES AVAILABLE FOR SALE
The Company adopted SFAS 115, "Accounting for Certain Investments in Debt
and Equity Securities", as of December 31, 1993.
<PAGE> 53
51
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Securities Held to Maturity
Securities held to maturity are stated at amortized cost, and at December
31, 1993 and 1992 consisted of the following:
<TABLE>
<CAPTION>
1993 1992
------------------------- -------------------------
AMORTIZED MARKET AMORTIZED MARKET
COST VALUE COST VALUE
---------- ---------- ---------- ----------
(THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury................................... $ 394,791 $ 395,213 $ 676,943 $ 682,728
Federal agencies................................ 3,200,001 3,233,567 3,754,458 3,821,893
State and municipal............................. 564,156 607,673 718,728 762,223
Other securities................................ 1,083,039 1,084,786 427,701 430,978
---------- ---------- ---------- ----------
$5,241,987 $5,321,239 $5,577,830 $5,697,822
---------- ---------- ---------- ----------
---------- ---------- ---------- ----------
</TABLE>
Federal agency securities consisted almost entirely of mortgage-backed
securities (which included collateralized mortgage obligations and pass-through
certificates) at December 31, 1993 and 1992, respectively. Other securities
included mortgage-backed securities with book values of $442.8 million and
$189.2 million and market values of $443.1 million and $192.7 million at
December 31, 1993 and 1992, respectively.
Proceeds from sales of debt securities held as investments in 1992 were
$134.5 million. Gains of $7.7 million and losses of $67 thousand were realized
on such sales in 1992. Proceeds from sales of debt securities held as
investments during 1991 were $1.7 billion. Gains of $63.9 million and losses of
$429 thousand were realized on these sales in 1991.
Gross unrealized gains and losses in the securities held to maturity
portfolio at December 31, 1993 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS NET
UNREALIZED UNREALIZED UNREALIZED
GAINS LOSSES GAINS
---------- ---------- ----------
(THOUSANDS)
<S> <C> <C> <C>
U.S. Treasury...................................................... $ 460 $ (38) $ 422
Federal agencies................................................... 37,686 (4,120) 33,566
State and municipal................................................ 43,948 (431) 43,517
Other securities................................................... 2,976 (1,229) 1,747
---------- ---------- ----------
$ 85,070 $ (5,818) $ 79,252
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Gross unrealized gains and losses in the securities held to maturity
portfolio at December 31, 1992 were as follows:
<TABLE>
<CAPTION>
GROSS GROSS NET
UNREALIZED UNREALIZED UNREALIZED
GAINS LOSSES GAINS
---------- ---------- ----------
(THOUSANDS)
<S> <C> <C> <C>
U.S. Treasury.................................................... $ 9,177 $ (3,392) $ 5,785
Federal agencies................................................. 76,979 (9,544) 67,435
State and municipal.............................................. 45,209 (1,714) 43,495
Other securities................................................. 4,885 (1,608) 3,277
---------- ---------- ----------
$ 136,250 $ (16,258) $ 119,992
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
<PAGE> 54
52
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Securities held to maturity aggregating approximately $2.6 billion at
December 31, 1993 and $2.4 billion at December 31, 1992 were pledged, either
under repurchase agreements or to secure public deposits.
Securities Available for Sale
Securities available for sale are stated at fair value, and at December 31,
1993 and 1992, respectively, consisted of the following:
<TABLE>
<CAPTION>
1993 1992
------------------------- ----------------------
AMORTIZED FAIR AMORTIZED FAIR
COST VALUE COST VALUE
---------- ---------- --------- --------
(THOUSANDS)
<S> <C> <C> <C> <C>
U.S. Treasury...................................... $1,234,593 $1,276,612 $ 734,018 $756,638
Federal agencies................................... 1,115,504 1,121,039 10,235 10,921
State and municipal................................ 14,644 14,203 7,049 6,028
Equity securities.................................. 58,991 63,052 -- --
Other securities................................... 183,834 181,815 3,826 3,426
---------- ---------- --------- --------
$2,607,566 $2,656,721 $ 755,128 $777,013
---------- ---------- --------- --------
---------- ---------- --------- --------
</TABLE>
Gross unrealized gains and losses in the securities available for sale
portfolio at December 31, 1993 were as follows:
<TABLE>
<CAPTION>
NET
GROSS GROSS UNREALIZED
UNREALIZED UNREALIZED GAINS
GAINS LOSSES (LOSSES)
---------- ---------- ----------
(THOUSANDS)
<S> <C> <C> <C>
U.S. Treasury...................................................... $ 42,019 -- $ 42,019
Federal agencies................................................... 6,133 $ (598) 5,535
State and municipal................................................ -- (441) (441)
Equity securities.................................................. 6,475 (2,414) 4,061
Other securities................................................... 350 (2,369) (2,019)
---------- ---------- ----------
$ 54,977 $ (5,822) $ 49,155
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
Consistent with SFAS 115, the net unrealized gains were reported as a
separate component of stockholders' equity, net of tax effect, at December 31,
1993.
Gross unrealized gains and losses in the securities available for sale
portfolio at December 31, 1992 were as follows:
<TABLE>
<CAPTION>
NET
GROSS GROSS UNREALIZED
UNREALIZED UNREALIZED GAINS
GAINS LOSSES (LOSSES)
---------- ---------- ----------
(THOUSANDS)
<S> <C> <C> <C>
U.S. Treasury...................................................... $ 22,620 -- $ 22,620
Federal agencies................................................... 686 -- 686
State and municipal................................................ 26 $ (1,047) (1,021)
Other securities................................................... -- (400) (400)
---------- ---------- ----------
$ 23,332 $ (1,447) $ 21,885
---------- ---------- ----------
---------- ---------- ----------
</TABLE>
<PAGE> 55
53
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Proceeds from the sale of debt securities available for sale during 1993
were $458.3 million. Gains of $7.5 million and losses of $642 thousand were
realized on these sales. In 1992, the sale of such securities resulted in
realized gains of $978 thousand and realized losses of $91 thousand. Proceeds
from these sales were $37.4 million.
Maturities
Expected maturities of debt securities were as follows at December 31, 1993
(maturities of mortgage-backed securities and collateralized mortgage
obligations are based upon estimated cash flows, assuming no change in the
current interest rate environment):
Securities held to maturity:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------- ----------
(THOUSANDS)
<S> <C> <C>
Due in one year or less................................................... $1,708,381 $1,732,635
Due after one year through five years..................................... 2,953,258 2,968,090
Due after five years through ten years.................................... 336,030 353,991
Due after ten years....................................................... 198,196 220,333
---------- ----------
$5,195,865 $5,275,049
---------- ----------
---------- ----------
</TABLE>
Securities available for sale:
<TABLE>
<CAPTION>
AMORTIZED FAIR
COST VALUE
---------- ----------
(THOUSANDS)
<S> <C> <C>
Due in one year or less................................................... $ 346,727 $ 350,929
Due after one year through five years..................................... 1,791,423 1,832,824
Due after five years through ten years.................................... 394,999 394,343
Due after ten years....................................................... 15,426 15,573
---------- ----------
$2,548,575 $2,593,669
---------- ----------
---------- ----------
</TABLE>
NOTE 6. LOANS
Loans at December 31, 1993 and 1992 consisted of the following:
<TABLE>
<CAPTION>
1993 1992
----------- -----------
(THOUSANDS)
<S> <C> <C>
Commercial and financial................................................. $ 6,457,343 $ 5,478,982
Real Estate -- construction.............................................. 473,434 603,132
Mortgage -- commercial................................................... 3,447,554 2,916,375
Mortgage -- residential (1 to 4 family).................................. 4,888,542 3,547,614
Installment.............................................................. 4,825,416 4,760,947
Leasing.................................................................. 1,419,526 1,206,678
Foreign.................................................................. 112,397 116,991
Unearned income.......................................................... (237,301) (253,024)
----------- -----------
$21,386,911 $18,377,695
----------- -----------
----------- -----------
</TABLE>
Included in loans at December 31, 1993 and 1992, were $351.3 million and
$475.7 million, respectively, of acquired Howard shared-loss loans which, under
the terms of the Agreement with the FDIC, are subject to FDIC
<PAGE> 56
54
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
reimbursement for certain losses if they become non-performing before October 2,
1997. When such assets become non-performing, they are reclassified as
"segregated assets" (see Note 9 herein).
Non-accruing loans at December 31, 1993 and 1992 totaled $365.0 million and
$470.7 million, respectively. Restructured loans totaled $13.9 million and $35.6
million at December 31, 1993 and 1992, respectively. Interest recognized as
income on loans that were classified as non-accruing and restructured as of
year-end totaled $3.1 million in 1993 and $2.4 million in 1992. Had payments on
year-end non-accruing and restructured loans been made at the original
contracted amounts and due dates, the Company would have recorded additional
interest income of approximately $30.1 million in 1993 and $47.8 million in
1992.
During 1993, $78.5 million of non-accruing loans (net of market value
adjustments of $39.7 million taken against the reserve for possible credit
losses) were transferred to the "Assets Held for Sale" portfolio (see Note 9).
In May, 1993, SFAS 114, "Accounting by Creditors for Impairment of a Loan",
was issued. SFAS 114 requires that "impaired" loans be measured based on the
present value of expected future cash flows, discounted at the loan's effective
interest rate or, as a practical expedient, at the loan's observable market
price or the fair value of the collateral if the loan is collateral dependent.
Although management is continuing to review SFAS 114 and the expected changes to
that standard, it does not currently expect that the adoption of SFAS 114, which
is required for fiscal years beginning after December 15, 1994, will have a
material effect on the Company's financial statements.
NOTE 7. RESERVE FOR POSSIBLE CREDIT LOSSES
Changes in the reserve for possible credit losses for 1993, 1992 and 1991
are shown below:
<TABLE>
<CAPTION>
1993 1992 1991
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Balance, January 1................................................ $610,353 $609,599 $556,172
Provision......................................................... 148,000 228,000 298,000
-------- -------- --------
Total........................................................ 758,353 837,599 854,172
-------- -------- --------
Charge-offs....................................................... 283,616 295,296 320,399
Recoveries........................................................ 45,730 47,330 37,226
-------- -------- --------
Net Charge-offs.............................................. 237,886 247,966 283,173
Balance related to sale of subsidiary............................. -- -- (10,800)
Acquired reserves................................................. 81,716 20,720 49,400
-------- -------- --------
Balance, December 31.............................................. $602,183 $610,353 $609,599
-------- -------- --------
-------- -------- --------
</TABLE>
NOTE 8. PREMISES AND EQUIPMENT
Premises and equipment at December 31, 1993 and 1992 consisted of the
following:
<TABLE>
<CAPTION>
1993 1992
--------- ---------
(THOUSANDS)
<S> <C> <C>
Land........................................................................ $ 75,666 $ 68,550
Buildings................................................................... 361,182 288,095
Leasehold Improvements...................................................... 107,734 109,449
Equipment................................................................... 242,925 236,361
--------- ---------
Total.................................................................. 787,507 702,455
Accumulated depreciation and amortization................................... (383,299) (349,844)
--------- ---------
Net.................................................................... $ 404,208 $ 352,611
--------- ---------
--------- ---------
</TABLE>
<PAGE> 57
55
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Depreciation and amortization expenses for 1993, 1992 and 1991 were $46.6
million, $47.9 million and $49.9 million, respectively.
NOTE 9. OTHER ASSETS
Segregated Assets
Segregated assets consist of Howard shared-loss loans acquired October 2,
1992 ("Bank Closing") that were or have since become classified as restructured,
non-accrual or OREO. Such assets at December 31, 1993 were $247.9 million, net
of a $6.5 million reserve. The Company's share of charge-offs on such assets was
$10.6 million in 1993, while recoveries were $855 thousand. Segregated assets at
December 31, 1992 were $293.8 million, net of a $16.2 million reserve. The
initial reserve of $25 million decreased by net charge-offs of $8.8 million in
1992 and $9.7 million in 1993.
The FDIC pays the Company 80 percent of all net charge-offs on acquired
shared-loss loans, during the five-year period that commenced with Bank Closing.
Charge-offs eligible for FDIC reimbursement include accrued interest as of
October 2, 1992 and up to 90 days of additional accrued interest. Subsequent to
a charge-off of a shared-loss loan, the FDIC also reimburses the Company for 80
percent of the aggregate amount of certain actual direct expenses incurred on
such loans, on a prospective basis.
During the sixth and seventh years following Bank Closing, the Company will
pay the FDIC 80 percent of net recoveries of shared-loss loan charge-offs that
occurred during the five years following Bank Closing.
During the seven-year period following Bank Closing, the Company will pay
the FDIC 80 percent of any recoveries on charge-offs of assets acquired that
were effected by Howard prior to Bank Closing. Such payments will be reduced by
80 percent of certain related direct recovery expenses incurred by the Company
during this same period.
After the seven-year period following Bank Closing, the FDIC will pay the
Company 15 percent of the excess over $130 million of the sum of net charge-offs
incurred during the five-year period following Bank Closing, plus all
reimbursable and recovery expenses for the seven-year period following Bank
Closing, minus the aggregate amount of gross recoveries during the sixth and
seventh years following Bank Closing.
The Company is generally required to exercise prudent stewardship over
assets entitled to loss-sharing protection, in the same manner and to the same
degree as any other Company asset.
Intangible Assets
Unamortized goodwill and identified intangibles were $458.3 million and
$325.4 million at December 31, 1993 and 1992, respectively. These amounts are
being amortized over the remaining period of expected benefit, which
approximates 15 years on a weighted average basis. The amortization expense
related to goodwill and identified intangibles was $31.7 million, $23.0 million
and $19.5 million for 1993, 1992 and 1991, respectively.
Other Real Estate Owned
OREO consisted of foreclosed property of $103.3 million and "in-substance
foreclosures" of $19.2 million, less a $6.6 million reserve, as of December 31,
1993. At December 31, 1992, OREO consisted of foreclosed property of $155.1
million and "in-substance foreclosures" of $40.1 million, less a $5.8 million
reserve. During 1993, $46.9 million of OREO (net of market value adjustments of
$6.6 million taken against the OREO reserve) was transferred to the "Assets Held
for Sale" portfolio (see below).
<PAGE> 58
56
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Changes in the OREO reserve for 1993, 1992 and 1991 are shown below:
<TABLE>
<CAPTION>
1993 1992 1991
------- ------- -------
(THOUSANDS)
<S> <C> <C> <C>
Balance, January 1........................................ $ 5,765 $ 7,306 $10,121
Provision................................................. 22,800 21,155 9,288
Acquired reserves......................................... 6,649 -- --
Charge-offs and writedowns................................ (28,592) (22,696) (12,103)
------- ------- -------
Balance, December 31...................................... $ 6,622 $ 5,765 $ 7,306
------- ------- -------
------- ------- -------
</TABLE>
Assets Held for Sale
Assets held for sale totaled $88.4 million at December 31, 1993. Such
assets consisted of $64.6 million of non-performing loans (including $56.4
million related to 1993 acquisitions) and $23.8 million of OREO (including $6.1
million related to 1993 acquisitions), and are carried at the lower of adjusted
cost or fair value.
NOTE 10. SHORT-TERM BORROWINGS
Short-term borrowings at December 31, 1993 and 1992 consisted of the
following:
<TABLE>
<CAPTION>
1993 1992
---------- ----------
(THOUSANDS)
<S> <C> <C>
Federal funds purchased.................................................. $ 611,634 $ 200,538
Securities sold under repurchase agreements.............................. 794,132 747,130
Commercial paper and master notes........................................ 211,785 136,060
Other.................................................................... 2,574 549
---------- ----------
$1,620,125 $1,084,277
---------- ----------
---------- ----------
</TABLE>
NOTE 11. LONG-TERM DEBT
Long-term debt at December 31, 1993 and 1992 consisted of the following:
<TABLE>
<CAPTION>
1993 1992
-------- --------
(THOUSANDS)
<S> <C> <C>
6.80% subordinated notes due 2003............................................. $150,000 --
9 5/8% subordinated notes due 1999............................................ 150,000 $150,000
9 3/4% subordinated notes due 1995............................................ 136,750 136,750
8 1/2% subordinated capital notes due 1998.................................... 149,150 149,150
Floating rate subordinated note due 1997...................................... 25,000 75,000
11 1/2% notes due 1993........................................................ -- 50,000
7 3/4% capital debentures due 1992 to 1996.................................... -- 16,250
Other long-term debt.......................................................... 2,158 4,358
-------- --------
$613,058 $581,508
-------- --------
-------- --------
</TABLE>
The 6.80%, 9 5/8% and 9 3/4% subordinated notes, the 8 1/2% subordinated
capital notes and the floating rate subordinated notes qualify as Tier II
capital for regulatory purposes, subject to certain limitations.
The 6.80%, 9 5/8% and 9 3/4% subordinated notes are not redeemable prior to
maturity and are subordinated in right of payment to all senior indebtedness of
the Parent Company. Interest on the notes is payable semi-annually on various
dates each year.
<PAGE> 59
57
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The 8 1/2% subordinated capital notes are not redeemable prior to maturity
and are subordinated to all indebtedness for borrowed money. At maturity, these
notes are payable either in whole or in part in cash from the proceeds of the
sale of Common Stock, perpetual preferred stock or other securities qualifying
as primary capital securities designated for such purpose or in whole or in part
by the exchange of such securities having a market value equal to the principal
amount of the notes to be so exchanged. If the Company determines that the notes
do not constitute "primary capital" or if the notes cease being treated as
"primary capital" by the Federal Reserve Board, the Company will not exchange
the notes for securities at maturity but instead will pay cash at 100% of the
principal amount, plus accrued interest.
The floating rate subordinated note is a capital note bearing interest at
1/4 of 1% per annum above the London Interbank Offered Rate ("LIBOR") for
three-month eurodollar deposits. It is repayable using any combination of cash
and certain nonvoting securities. Under certain circumstances, the Company may
be obligated to repurchase the note prior to maturity using proceeds of a
secondary offering of certain nonvoting securities. The note is redeemable prior
to maturity at 100% of principal plus accrued interest if the Federal Reserve
Board determines that the note will not be treated as "primary capital" and in
certain other limited circumstances.
The Company redeemed $50 million of floating rate subordinated capital
notes on July 16, 1993. The 11 1/2% notes were redeemed at maturity. On May 15,
1993, the Company redeemed the 7 3/4% capital debentures.
On February 2, 1994, the Company issued $200 million of floating rate
senior notes, which mature August 2, 1996. The notes bear interest at .10% per
annum above LIBOR for three-month eurodollar deposits. Such notes may not be
redeemed prior to maturity.
The aggregate amounts of maturities for long-term debt as of December 31,
1993 are as follows:
<TABLE>
<CAPTION>
(THOUSANDS)
-----------
<S> <C>
1994........................................................... $ 293
1995........................................................... 136,998
1996........................................................... 1,395
1997........................................................... 25,211
1998........................................................... 149,161
Later years.................................................... 300,000
-----------
$ 613,058
-----------
-----------
</TABLE>
NOTE 12. STOCKHOLDERS' EQUITY
Preferred Stock at December 31, 1993 and 1992 consisted of the following:
<TABLE>
<CAPTION>
1993 1992
-------- --------
(THOUSANDS)
<S> <C> <C>
Authorized: 10,000,000 shares, par value $1.00 per share
Issued and outstanding at stated values:
Series B $2.15 cumulative convertible voting preferred stock:
4,816,887 shares and 4,886,863 shares at December 31, 1993 and
1992, respectively............................................ $120,422 $122,172
Series D adjustable rate cumulative preferred stock:
350,000 shares at December 31, 1993 and 1992.................. 35,000 35,000
Series F 10.64% cumulative preferred stock:
75,000 shares at December 31, 1993 and 1992................... 75,000 75,000
-------- --------
$230,422 $232,172
-------- --------
-------- --------
</TABLE>
<PAGE> 60
58
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The Series B Convertible Preferred Stock bears a cumulative annual dividend
of $2.15 per share, votes as a single class with the Common Stock (each share of
Series B Convertible Preferred Stock being entitled to .39 votes, subject to
adjustment in certain events), has a liquidation preference of $25 per share, is
redeemable in whole or in part at the Company's option at $25 per share plus
accrued but unpaid dividends to the redemption date, and is convertible at any
time at the option of the holder into .7801 of a share of Common Stock, subject
to adjustment in the event of a merger, stock split, etc. Holders of Series B
Convertible Preferred Stock are also entitled to vote as a class in certain
limited circumstances.
The Series D Adjustable Rate Cumulative Preferred Stock is non-voting,
subject to certain limited exceptions, has a liquidation preference of $100 per
share, is redeemable in whole or in part at the option of the Company at a
redemption price of $100 per share plus accrued but unpaid dividends to the
redemption date, and cannot be converted into any other class of capital stock.
It bears cumulative dividends at a rate (the "applicable rate") equal to .75%
less than the highest of the three month U.S. Treasury Bill rate, the U.S.
Treasury ten year constant maturity rate or the U.S. Treasury twenty year
constant maturity rate (as defined), adjusted quarterly; however, in no event
will the applicable rate be less than 6 1/4% or more than 12 3/4% per annum. For
the quarter beginning January 1, 1994, the rate is 6.25%.
The Series F 10.64% Cumulative Preferred Stock (the "Series F Preferred
Stock") is non-voting, subject to certain limitations and is not convertible
into any other class of capital stock. The 75,000 outstanding shares of Series F
Preferred Stock were issued in the form of 3,000,000 depositary shares, each of
which represents a one-fortieth interest in a share of Series F Preferred Stock.
Each depositary share bears a cumulative annual dividend of $2.66, has a
liquidation preference of $25.00 and is redeemable in whole or part at the
Company's option on or after July 1, 1996 at $25.00.
Warrants for the Purchase of Common Stock
Pursuant to the Investment Agreement between the Company and Santander, on
December 27, 1991, the Company issued Warrants for the purchase of 9,505,000
shares of Common Stock. At December 31, 1993, Warrants for the purchase of
4,752,500 shares of Common Stock were outstanding. The remaining Warrants are
exercisable through December, 1995 at an exercise price of $25.50 per share, and
are not transferable. In addition, pursuant to the Investment Agreement, the
Company has granted Santander a number of rights, including the right to request
the nomination of two directors to First Fidelity's Board of Directors, gross-up
rights to acquire Common Stock at a price under market price under certain
circumstances and registration rights.
Changes in Number of Shares Outstanding
During 1993, in conjunction with the Northeast and Village acquisitions,
the Company issued 4,178,163 shares (2,376,250 shares from Warrants and
1,801,913 shares from the Acquisition Gross up Rights) of its Common Stock to
Santander, pursuant to the exercise of a portion of the Warrants and Acquisition
Gross Up Rights which Santander acquired in 1991. In addition, 3,605,606 shares
of Common Stock were issued to former shareholders of Northeast, Village and
Peoples, of which 1,222,155 shares were newly-issued and 2,383,451 shares were
Treasury Stock acquired during the year. The Company acquired 370,394 shares of
its Common Stock, in open market purchases through an independent agent, to be
issued under the dividend reinvestment and stock option plans. During 1993, the
Company issued 333,680 such shares from Treasury Stock and 374,868 shares of
newly-issued Common Stock in connection with such plans. Also, 54,584 shares of
Common Stock were issued as a result of conversions of 69,976 shares of Series B
Convertible Preferred Stock.
On October 5, 1992, in conjunction with the Howard acquisition, the Company
issued 2,376,250 shares of its Common Stock to Santander, pursuant to the
exercise of a portion of the Warrants which Santander acquired in 1991. In
addition, during 1992, the Company issued 1,390,392 shares of Common Stock
through the dividend reinvestment and stock option plans and 2,010 shares of
Common Stock as a result of conversions of 2,578 shares of Series B Convertible
Preferred Stock.
<PAGE> 61
59
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Share Purchase Rights Plan
The Company has in effect a preferred share purchase rights plan. The
rights plan provides that each share of Common Stock has attached to it a right
(each, a "Right", together, the "Rights") to purchase one one-hundredth of a
share of Series E Junior Participating Preferred Stock, par value $1.00 per
share (the "Series E Preferred Stock") at a price of $185 per one one-hundredth
of a share of Series E Preferred Stock, subject to adjustment. In general, if a
person or group (other than the Company, its subsidiaries, certain affiliates or
any of the Company's employee benefit plans) acquires 10% or more of the
Company's Common Stock (a "10% Holder"), stockholders (other than such 10%
Holder) may exercise their Rights to purchase Common Stock having a market value
equal to twice the exercise price of the Rights. If the Company is acquired in a
merger, the Rights may be exercised to purchase common shares of the acquiring
company at a similar discount. At any time after a person or group becomes a 10%
Holder but prior to the acquisition by such 10% Holder of 50% or more of the
outstanding Common Stock, First Fidelity's Board may elect to exchange the
Rights (other than Rights owned by such 10% Holder which become void) for Common
Stock or Series E Preferred Stock, at an exchange ratio of one share of Common
Stock or one one-hundredth of a share of Series E Preferred Stock, per Right,
subject to adjustment. The rights plan is designed to protect stockholders in
the event of unsolicited offers or attempts to acquire the Company.
Capital
The Parent Company and the Subsidiary Banks are required by various
regulatory agencies to maintain minimum levels of capital. At December 31, 1993,
the Company and its Subsidiary Banks exceeded all such minimum capital
requirements. In connection with the acquisition of Howard, the Company agreed
with the Office of the Comptroller of the Currency to maintain a minimum Tier I
leverage ratio for First Fidelity Bank, N.A., New Jersey ("FFB-NJ") of 5.5% by
December 31, 1992 and 6% by September 30, 1993. FFB-NJ's Tier I leverage ratio
was 6.24% at December 31, 1992 and 6.97% at September 30, 1993. On January 11,
1994, FFB-NJ and First Fidelity Bank, N.A., Pennsylvania were combined into a
new entity, First Fidelity Bank, N.A.
Dividends Declared
During 1993, dividends declared with respect to the Company's Common Stock,
Series B Convertible Preferred Stock, Series D Adjustable Rate Cumulative
Preferred Stock and per depositary share with respect to the Series F Preferred
Stock were $1.44, $2.15, $6.51, and $2.66, respectively.
Dividend Reinvestment Plan
At December 31, 1993, the Company had reserved 823,099 shares of its Common
Stock for issuance under the Company's dividend reinvestment plan.
Dividend Restrictions
Dividends payable by the Company, its bank holding company subsidiaries and
its banking subsidiaries are subject to various limitations imposed by statutes,
regulations and policies adopted by bank regulatory agencies. Under current
regulations regarding dividend availability, the Company's bank subsidiaries
(other than FFB-NY), without prior approval of bank regulators, may declare
dividends to the respective holding companies totaling approximately $281
million plus additional amounts equal to the net profits earned by the Company's
bank subsidiaries for the period from January 1, 1994 through the date of
declaration, less dividends declared during that period.
Treasury Stock
During 1992, the Company's Board of Directors authorized the purchase of up
to 250,000 shares of Common Stock per quarter for reissuance under the Company's
stock option plans, as well as the purchase by the Company on the open market of
all shares of Common Stock issuable under the Company's Dividend Reinvestment
Plan. Such
<PAGE> 62
60
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
purchases are made in the market by an independent agent from time to time,
subject to market conditions. No such purchases were made in 1992. The Company
held 36,714 shares of Treasury Stock, related to stock options, for such
purposes on December 31, 1993.
During 1993, the Company's Board of Directors authorized the purchase of up
to 2% of its outstanding Common Stock in any calendar year. The purchases may be
made from time to time in the open market or through privately-negotiated
transactions, and acquired shares will be used for general corporate purposes,
including acquisitions. It is anticipated that reacquired shares may be used in
future acquisitions accounted for under the purchase method. This program was
subsequently extended by the Company's Board of Directors for the purchase of up
to 3% of the outstanding Common Stock for the 1993 calendar year.
NOTE 13. BENEFIT PLANS
Pension Plans
The Company maintains self-administered, non-contributory defined benefit
pension plans covering all employees who qualify as to age and length of
service. Benefits are based on years of credited service, highest average
compensation (as defined) and primary social security benefits. Qualified plans
are funded in accordance with statutory and regulatory guidelines. Pension
(benefit) expense for the years ended December 31, 1993, 1992 and 1991, for all
qualified and unqualified plans, aggregated $(130,000), $(937,000) and $950,000,
respectively.
The following table sets forth the plans' funded status and amounts
recognized in the Company's consolidated financial statements at December 31,
1993 and 1992:
<TABLE>
<CAPTION>
FUNDED PLANS UNFUNDED PLANS
-------------------- --------------------
1993 1992 1993 1992
-------- -------- -------- --------
(THOUSANDS)
<S> <C> <C> <C> <C>
Actuarial present value of benefit obligation:
Accumulated benefit obligation, including vested
benefits of $139,363, $65,718, $25,960 and
$17,315, respectively......................... $152,817 $ 73,333 $ 26,613 $ 17,492
-------- -------- -------- --------
-------- -------- -------- --------
Projected benefit obligation for service
rendered to date.............................. $203,334 $105,733 $(28,340) $ 19,052
Plan assets at fair value, primarily listed
stocks and bonds, and commingled funds........ 289,357 201,430 -- --
-------- -------- -------- --------
Plan assets in excess of (less than) projected
benefit obligation............................ 86,023 95,697 (28,340) (19,052)
Unrecognized prior service cost................. 11,150 12,867 1,775 2,059
Unrecognized net loss (gain).................... 26,343 (14,838) 3,338 3,538
Additional minimum liability.................... -- -- (8,226) (9,670)
Unrecognized net (asset) obligation............. (5,264) (6,169) 4,840 5,633
-------- -------- -------- --------
Prepaid pension (liability)..................... $118,252 $ 87,557 $(26,613) $(17,492)
-------- -------- -------- --------
-------- -------- -------- --------
</TABLE>
<PAGE> 63
61
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Net pension expense (benefit) for 1993, 1992 and 1991 included the
following components:
<TABLE>
<CAPTION>
FUNDED PLANS
--------------------------------
1993 1992 1991
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Service cost of benefits earned during the period.......... $ 6,808 $ 6,542 $ 6,120
Interest cost on projected benefit obligation.............. 9,370 8,511 7,129
Actual return on plan assets............................... (18,134) (10,673) (28,917)
Net amortization and deferral.............................. (1,570) (8,335) 13,738
-------- -------- --------
Net periodic pension (benefit)............................. $ (3,526) $ (3,955) $ (1,930)
-------- -------- --------
-------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
UNFUNDED PLANS
--------------------------------
1993 1992 1991
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Service cost of benefits earned during the period.......... $ 124 $ 173 $ 93
Interest cost on projected benefit obligation.............. 1,636 1,597 1,624
Net amortization and deferral.............................. 1,636 1,248 1,163
-------- -------- --------
Net periodic pension expense............................... $ 3,396 $ 3,018 $ 2,880
-------- -------- --------
-------- -------- --------
</TABLE>
The weighted average discount rate assumed in determining the actuarial
present value of the projected benefit obligation was 7.5% at December 31, 1993
and 8.75% at December 31, 1992. The assumed rate of increase in future
compensation levels was 4.0% at December 31, 1993 and 4.5% at December 31, 1992.
The long-term expected rate of return on assets was 9.75% in 1993 and 10.25% in
1992. The change in the weighted average discount rate to 7.5% resulted in an
increase in the actuarial present value of the projected benefit obligation of
approximately $44.0 million. The change in the assumed rate of increase in
future compensation levels to 4.0% resulted in a decrease in the actuarial
present value of the projected benefit obligation of approximately $9.0 million.
Postretirement Benefits
The Company sponsors postretirement benefit plans which provide medical and
life insurance coverage to employees, depending upon the employee's status
(currently retired or still employed), length of service, age at retirement and
other factors.
The plans have no assets. The following table sets forth the plans'
accumulated postretirement benefit obligation as of December 31, 1993, which
represents the liability for accrued postretirement benefit cost:
<TABLE>
<CAPTION>
(THOUSANDS)
-----------
<S> <C>
Accumulated postretirement benefit obligation:
Retirees and beneficiaries eligible for benefits................... $ 93,953
Active employees fully eligible for benefits....................... 9,978
Active employees not fully eligible for benefits................... 11,723
-----------
Accrued postretirement benefit cost............................. $ 115,654
-----------
-----------
</TABLE>
<PAGE> 64
62
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The net periodic postretirement benefit cost for the year 1993 includes the
following:
<TABLE>
<CAPTION>
(THOUSANDS)
-----------
<S> <C>
Service cost-benefits attributed to service during the period........ $ 869
Interest cost on accumulated postretirement benefit obligation....... 7,392
-----------
Net periodic postretirement benefit cost........................ $ 8,261
-----------
-----------
</TABLE>
For measurement purposes, the 1993 health care cost trend rate is projected
to be 13.5% for participants under 65 and 11% for participants over 65. These
rates are assumed to trend downward to 5.5% for participants under 65 and 5% for
participants over 65 by the year 2007 and remain at that level thereafter. The
health care cost trend rate assumption has a significant effect on the amounts
reported. To illustrate, increasing the assumed health care cost trend rates by
1% in each year would increase the accumulated postretirement benefit obligation
as of January 1, 1993 by $5.9 million (7%) and the aggregate of the service and
interest cost components of net periodic retirement benefit cost for the year
1993 by $.6 million (8%). The weighted average discount rate used in determining
the accumulated postretirement benefit obligation was 7.5%. The change in the
weighted average discount rate from 8.75% resulted in an increase in the
actuarial present value of the postretirement benefit obligation of
approximately $19.2 million.
The Company's accumulated postretirement benefit obligation under SFAS 106
of approximately $81 million was recognized in the first quarter of 1993 by a
one-time cumulative effect adjustment of $53.3 million, net of tax effect. In
1992 and 1991, the cost of providing postretirement benefits was recognized as
such benefits were paid and totaled $5.8 million and $5.1 million, respectively.
Postemployment Benefits
The Company's accumulated postemployment benefit obligation under SFAS 112
of $11.3 million was recognized in the first quarter of 1993 by a one-time
cumulative effect adjustment of $7.4 million, net of tax effect. Exclusive of
this one-time adjustment, the Company's annual postemployment benefit expense on
an accrual basis was approximately $900 thousand for 1993, as compared to
approximately $2 million in 1992 under the previous method. No funding is
provided for postemployment benefits.
Savings Plans
The Company maintains a savings plan under Section 401(k) of the Internal
Revenue Code, which covers substantially all full-time employees after one year
of continuous employment. Under the plan, employee contributions are partially
matched by the Company. Such matching becomes vested when the employee reaches
three years of credited service. Total savings plan expense was $12.0 million,
$10.7 million and $10.3 million for 1993, 1992 and 1991, respectively.
Stock Option Plans
The Company maintains stock option plans, pursuant to which an aggregate of
7,775,454 shares of Common Stock have been authorized for issuance to certain
key employees of the Company and its subsidiaries. The options granted under
these plans are, in general, exercisable not earlier than one year after the
date of grant, at a price equal to the fair market value of the Common Stock on
the date of grant, and expire not more than ten years after the date of grant.
There are also options outstanding under other plans, pursuant to which no
further options may be granted. Vesting with respect to certain options granted
to certain senior executive officers may be accelerated. In addition, the
Company assumed certain stock options related to acquisitions during 1993.
The Company also maintains an employee stock purchase plan, under the terms
of which 1,760,000 shares of Common Stock have been authorized for issuance. The
plan's purchase period begins on July 1 and ends June 30 of the following year,
during which options to purchase stock are offered to employees once a year. No
individual
<PAGE> 65
63
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
employee may exercise options to acquire stock in any one year in excess of 10%
of base compensation, or $20,000, whichever is less. The option price equals 90%
of the market price of the Common Stock on the last day of the purchase period.
The aggregate number of shares to be purchased in any given offering, which
cannot be greater than 250,000, is determined by the amount contributed by the
employees and the market price as of the last day of the purchase period.
Changes in total options outstanding during 1993, 1992 and 1991 are as
follows:
<TABLE>
<CAPTION>
1993
---------------------------------
SHARES OPTION PRICE
UNDER OPTION PER SHARE
------------ ----------------
<S> <C> <C>
Outstanding at beginning of year......................................... 3,094,929 $12.31 to $41.38
Granted during year...................................................... 1,654,395 $40.81 to $50.00
Assumed during year...................................................... 312,385 $16.65 to $25.86
Exercised during year.................................................... (568,869) $12.31 to $47.13
Forfeited during year.................................................... (95,500) $16.65 to $47.31
------------ ----------------
Outstanding at end of year............................................... 4,397,340 $12.31 to $50.00
------------ ----------------
------------ ----------------
Options exercisable at end of year under stock option plans.............. 1,993,001 $12.31 to $47.13
------------ ----------------
------------ ----------------
</TABLE>
Certain of the options assumed in the course of 1993 acquisitions (64,831
shares at December 31, 1993), when translated at the applicable exchange rate
for First Fidelity Common Stock, result in an option price as high as $797. In
order to provide more meaningful disclosure, such prices and shares have been
omitted from the tabular presentation above.
<TABLE>
<CAPTION>
1992
---------------------------------
SHARES OPTION PRICE
UNDER OPTION PER SHARE
------------ ----------------
<S> <C> <C>
Outstanding at beginning of year......................................... 3,381,137 $12.31 to $36.25
Granted during year...................................................... 667,483 $31.25 to $41.38
Exercised during year.................................................... (890,348) $13.62 to $36.69
Forfeited during year.................................................... (63,343) $21.38 to $36.25
------------ ----------------
Outstanding at end of year............................................... 3,094,929 $12.31 to $41.38
------------ ----------------
------------ ----------------
Options exercisable at end of year under stock option plans.............. 1,823,592 $12.31 to $36.69
------------ ----------------
------------ ----------------
</TABLE>
<TABLE>
<CAPTION>
1991
---------------------------------
SHARES OPTION PRICE
UNDER OPTION PER SHARE
------------ ----------------
<S> <C> <C>
Outstanding at beginning of year......................................... 3,232,749 $12.31 to $36.25
Granted during year...................................................... 1,169,422 $15.44 to $32.31
Exercised during year.................................................... (557,249) $13.62 to $30.69
Forfeited during year.................................................... (463,785) $12.71 to $36.25
------------ ----------------
Outstanding at end of year............................................... 3,381,137 $12.31 to $36.25
------------ ----------------
------------ ----------------
Options exercisable at end of year under stock option plans.............. 2,032,201 $12.31 to $36.25
------------ ----------------
------------ ----------------
</TABLE>
NOTE 14. OTHER INCOME AND EXPENSE
In 1993 and 1992, there were no individual items of income in excess of one
percent of total income that were not separately disclosed in the Consolidated
Statements of Income. In 1991, Other income included a gain on the
<PAGE> 66
64
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
sale of Fidelcor Business Credit Corporation, a commercial finance subsidiary,
of $30.7 million. Other expenses included FDIC premium expense of $63.2 million,
$56.2 million and $48.5 million in 1993, 1992 and 1991, respectively; external
data processing expense of $48.2 million, $47.0 million and $47.0 million in
1993, 1992 and 1991, respectively; communication expenses of $33.5 million,
$33.1 million and $34.2 million in 1993, 1992 and 1991, respectively; total OREO
expenses of $28.4 million and $29.9 million in 1993 and 1992, respectively; and
amortization of goodwill and core deposit intangibles of $30.8 million in 1993.
NOTE 15. INCOME TAXES
Income tax expense for 1993 was allocated as follows:
<TABLE>
<CAPTION>
(THOUSANDS)
-----------
<S> <C>
Income before cumulative effect of changes in accounting
principles......................................................... $ 178,025
-----------
-----------
Benefit related to cumulative effect of changes in accounting for
employees' postretirement and postemployment benefits.............. $ (32,200)
-----------
-----------
</TABLE>
In addition, the tax effect of the cumulative effect of the change in
accounting for certain investments in debt and equity securities under SFAS 115
was $14.7 million.
Income tax expense is comprised of the following:
<TABLE>
<CAPTION>
1993 1992 1991
-------- ----------- -------
(THOUSANDS)
<S> <C> <C> <C>
Current:
Federal......................................................... $ 90,314 $81,099 $53,187
State and local................................................. 1,258 229 427
-------- ----------- -------
91,572 81,328 53,614
Deferred income tax............................................... 86,453 1,034 5,159
-------- ----------- -------
$178,025 $82,362 $58,773
-------- ----------- -------
-------- ----------- -------
</TABLE>
The components of deferred income tax expense attributable to income from
continuing operations for the year ended December 31, 1993 were as follows:
<TABLE>
<CAPTION>
(THOUSANDS)
<S> <C>
Deferred income tax (exclusive of the effects of component listed below)...... $89,166
Adjustments to deferred tax assets and liabilities for enacted changes in tax
laws and rates.............................................................. (2,713)
-----------
$86,453
-----------
-----------
</TABLE>
The components of deferred income tax for the years ended December 31, 1992
and 1991 were as follows:
<TABLE>
<CAPTION>
1992 1991
------- -------
(THOUSANDS)
<S> <C> <C>
Credit loss deduction................................................................ $(2,206) $(8,160)
Lease financing deduction............................................................ 11,669 15,769
Book over tax depreciation........................................................... (1,149) (4,078)
Pension settlement/expense........................................................... 799 1,862
Difference between book and tax accruals............................................. (818) (2,967)
Other, net........................................................................... (7,261) 2,733
------- -------
$ 1,034 $ 5,159
------- -------
------- -------
</TABLE>
<PAGE> 67
65
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
The tax effects of temporary differences that give rise to significant
portions of the deferred tax assets and liabilities at December 31, 1993 were as
follows:
<TABLE>
<CAPTION>
(THOUSANDS)
-----------
<S> <C>
Deferred tax assets:
Loss reserves.............................................................................. $ 185,563
Difference between book and tax accruals................................................... 24,268
Basis differences of business combinations accounted for under the purchase method......... 33,765
Accrued postretirement and postemployment benefits......................................... 32,200
Alternative minimum tax credit carryforwards............................................... 9,175
Other deferred tax assets.................................................................. 12,065
-----------
Total deferred tax assets.......................................................... 297,036
-----------
Deferred tax liabilities:
Lease financing deduction.................................................................. (120,533)
Pension settlement/expense................................................................. (27,875)
Deferred income on accounting for certain investments in debt and equity securities........ (14,698)
Other deferred tax liabilities............................................................. (28,761)
-----------
Total deferred tax liabilities..................................................... (191,867)
-----------
Net deferred tax asset............................................................. $ 105,169
-----------
-----------
</TABLE>
Management has determined that, based upon recoverable taxes and projected
levels of pretax income, realization of the deferred tax asset is more likely
than not.
The total tax expense for 1993, 1992 and 1991 resulted in effective tax
rates that differed from the applicable U.S. federal income tax rate. A
reconciliation follows:
<TABLE>
<CAPTION>
1993 1992 1991
---- ---- -----
(THOUSANDS)
<S> <C> <C> <C>
U.S. Federal income tax rate......................................... 35.0% 34.0% 34.0%
Increase (reduction) in tax rate resulting from:
Tax-exempt interest income......................................... (4.0) (6.5) (11.2)
Alternative minimum tax (benefit).................................. -- (8.8) (1.7)
Other, net......................................................... -- 2.1 (0.1)
---- ---- -----
31.0% 20.8% 21.0%
---- ---- -----
---- ---- -----
</TABLE>
At December 31, 1993, for income tax purposes, the Company had alternative
minimum tax credit carryforwards of approximately $9.2 million available to
offset future income tax to the extent that it exceeds alternative minimum tax.
These credits have an unlimited life. The Company had capital loss carryforwards
at December 31, 1993 of $2.9 million which are available to offset future
capital gains. Such losses expire on December 31, 1997, if not utilized by that
date.
NOTE 16. FINANCIAL INSTRUMENTS
Financial Instruments with Off Balance-Sheet Risk
The Company is a party to various financial instruments required in the
normal course of business to meet the financing needs of its customers and to
manage its exposure to changes in interest and foreign exchange rates. The
contract or notional amounts of such instruments are not included in the
Consolidated Statements of Condition at
<PAGE> 68
66
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
December 31, 1993 and 1992. Management does not expect any material losses from
these transactions. The Company's involvement in such financial instruments at
December 31, 1993 and 1992 is summarized as follows:
<TABLE>
<CAPTION>
1993 1992
---------- ----------
(THOUSANDS)
<S> <C> <C>
Amounts representing credit risk:
Commitments to extend credit............................................ $6,038,653 $5,699,697
Standby letters of credit and financial guarantees...................... 626,410 537,966
Other letters of credit................................................. 207,894 194,712
Notional or contract amounts of off balance-sheet financial instruments
not constituting credit risk:
Interest rate swap agreements........................................... 4,302,100 3,732,100
Interest rate caps and floors........................................... 20,031 2,700
Forward and futures contracts........................................... 899,236 4,246,932
Foreign exchange contracts.............................................. 299,573 608,382
</TABLE>
The amounts above indicate gross positions and do not reflect offsetting
positions or participations to other financial institutions.
The Company uses the same credit policies in extending commitments, letters
of credit and financial guarantees as it does for financial instruments recorded
on the Consolidated Statements of Condition. The Company seeks to control its
exposure to loss from these agreements through credit approval processes and
monitoring procedures. Letters of credit and commitments to extend credit are
generally issued for one year or less and may require payment of a fee. The
total commitment amounts do not necessarily represent future cash disbursements,
as many of the commitments expire without being drawn upon. The Company may
require collateral in extending commitments, which may include cash, accounts
receivable, securities, real or personal property, or other assets. For those
commitments which require collateral, the value of the collateral generally
equals or exceeds the amount of the commitment. Total standby letters of credit
of $22.4 million and $20.9 million had been participated to other financial
institutions at December 31, 1993 and 1992, respectively.
The Company enters into interest rate swap, cap and floor agreements
primarily to hedge its interest rate exposure associated with various assets and
liabilities and to meet the needs of its customers. Such instruments generally
do not extend beyond five years, except those swaps related to hedging of the
Company's long-term debt. The Company is exposed to losses from possible
counterparty default in conjunction with movements in interest rates. The
Company's risk of credit loss is limited to any amounts receivable, which
constitute a small fraction of the contract or notional amounts above. At
December 31, 1993, the Company had no deferred gains or losses recorded on the
Consolidated Statement of Condition relating to terminated interest rate swaps.
At December 31, 1993, the remaining terms to maturity of interest rate swaps
ranged from four weeks to ten years.
The Company enters into foreign exchange, futures and forward contracts
which generally extend from several days to two years for the future delivery of
securities, money market instruments, or foreign currencies at specified prices.
Risk arises from the possible inability of the counterparty to perform and from
movements in interest rates, exchange rates or securities prices. The Company's
risk of credit loss constitutes a small fraction of the contract or notional
amounts above.
Concentrations of Credit Risk of Financial Instruments
The Company extends credit in the normal course of business to its
customers, the majority of whom operate or reside within the New Jersey/eastern
Pennsylvania/Connecticut/southern New York business areas. The ability of its
customers to meet contractual obligations is, to some extent, dependent upon the
economic conditions existing in this region.
<PAGE> 69
67
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
In addition, the Company had credit extensions (on and off balance-sheet)
to certain groups which represented 5% or more of total credit extensions, at
December 31, 1993 and 1992, respectively, as follows: consumers (including
residential mortgages), 38% and 34%; U.S. government and agencies, 16% and 15%;
commercial mortgages and commercial real estate, 11% and 10%; and depository
institutions, 10% and 16%.
NOTE 17. FAIR VALUE OF FINANCIAL INSTRUMENTS
The Company is required to disclose certain information about so-called
"fair values" of financial instruments, as defined in SFAS 107.
Limitations: Estimates of "fair value" are made at a specific point
in time, based upon, where available, relevant market prices and
information about the financial instrument. Such estimates do not include
any premium or discount that could result from offering for sale at one
time the Company's entire holdings of a particular financial instrument.
For a substantial portion of the Company's financial instruments, no quoted
market exists. Therefore, estimates of "fair value" are necessarily based
on a number of significant assumptions (many of which involve events
outside the control of management). Such assumptions include assessments of
current economic conditions, perceived risks associated with these
financial instruments and their counterparties, future expected loss
experience and other factors. Given the uncertainties surrounding these
assumptions, the reported "fair values" represent estimates only and,
therefore, cannot be compared to the historical accounting model. Use of
different assumptions or methodologies are likely to result in
significantly different "fair value" estimates.
The estimated "fair values" presented neither include nor give effect
to the values associated with the Company's banking, trust or other
businesses, existing customer relationships, extensive branch banking
network, property, equipment, goodwill or certain tax implications related
to the realization of unrealized gains or losses. Also, the "fair value" of
non-interest bearing demand deposits, savings and NOW accounts and money
market deposit accounts is equal to the carrying amount because these
deposits have no stated maturity. Obviously, this approach to estimating
"fair value" excludes the significant benefit that results from the
low-cost funding provided by such deposit liabilities, as compared to
alternative sources of funding.
The following methods and assumptions were used to estimate the "fair
value" of each major classification of financial instruments at December 31,
1993 and 1992:
Cash, short-term investments, and customers' acceptance
liability: Current carrying amounts approximate estimated "fair value".
Securities: Current quoted market prices were used to determine "fair
value".
Loans: The "fair value" of residential mortgages was estimated based
upon recent market prices of securitized receivables, adjusted for
differences in loan characteristics. The "fair value" of certain
installment loans (e.g., bankcard receivables) was estimated based upon
recent market prices of sales of similar receivables. The "fair value" of
non-accruing and restructured loans which are secured by real estate was
estimated considering recent external appraisals of the underlying
collateral and other factors. The "fair value" of all other loans was
estimated using a method which approximates the effect of discounting the
estimated future cash flows over the expected repayment periods using rates
which consider credit risk, servicing costs and other relevant factors.
Deposits with no stated maturity and short-term time
deposits: Current carrying amounts approximate estimated "fair value".
Other consumer time deposits: "Fair value" was estimated by
discounting the contractual cash flows using current market rates offered
in the Company's market area for deposits with comparable terms and
maturities.
<PAGE> 70
68
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Short-term borrowings and acceptances outstanding: Current carrying
amounts approximate estimated "fair value".
Long-term debt: Current quoted market prices were used to estimate
"fair value".
Commitments to extend credit and letters of credit: The majority of
the Company's commitments to extend credit and letters of credit carry
current market interest rates if converted to loans. Because commitments to
extend credit and letters of credit are generally unassignable by either
the Company or the borrower, they only have value to the Company and the
borrower. The estimated "fair value" approximates the recorded deferred fee
amounts.
Other Off Balance-Sheet Instruments: The estimated amounts that the
Company would receive or pay, based upon current market rates or prices, to
terminate such agreements was used to determine estimated "fair value". The
"fair value" of interest rate swaps, forward and futures contracts at
December 31, 1993 and 1992 was a net receivable of $126 million and $160
million, respectively, of which $3 million and $7 million, respectively,
were recorded as a net receivable on the balance sheet.
The carrying amounts and estimated "fair values" of the Company's financial
instruments were as follows at December 31, 1993 and 1992:
<TABLE>
<CAPTION>
1993 1992
-------------------- --------------------
CARRYING "FAIR CARRYING "FAIR
AMOUNT VALUE" AMOUNT VALUE"
-------- ------- -------- -------
(MILLIONS)
<S> <C> <C> <C> <C>
Financial Assets:
Cash and due from banks................................... $ 1,831 $ 1,831 $ 1,913 $ 1,913
Interest-bearing time deposits............................ 980 980 2,636 2,636
Securities held to maturity............................... 5,242 5,321 5,578 5,698
Securities available for sale............................. 2,657 2,657 755 777
Trading account securities................................ 150 150 228 228
Federal funds sold and securities purchased under
agreements to resell.................................... 15 15 738 738
Net loans (A)............................................. 19,577 20,400 16,772 17,500
Customers' acceptance liability........................... 188 188 169 169
Segregated assets......................................... 248 248 294 294
Loans classified as assets held for sale.................. 65 65 -- --
Financial Liabilities:
Deposits with no stated maturity.......................... 18,891 18,891 17,102 17,102
Deposits with stated maturities........................... 9,252 9,384 9,903 9,963
Short-term borrowings..................................... 1,620 1,620 1,084 1,084
Acceptances outstanding................................... 196 196 177 177
Long-term debt............................................ 613 665 582 620
</TABLE>
- ---------------
(A) Disclosure of the "fair value" of lease receivables is not required and has
not been included above. The carrying amount of Net loans excludes $1.4
billion and $1.2 billion of lease receivables, $183 million and $173 million
of related unearned income and allocated reserves of $29 million and $38
million at December 31, 1993 and 1992, respectively. The reserve for lease
receivables has been allocated only to present the information above on a
comparable basis. Additionally, the Company continues to pursue its
contractual claims on loans which have been charged-off. The "fair value" of
such contractual claims was not included in the estimate of "fair value".
NOTE 18. OTHER COMMITMENTS AND CONTINGENCIES
Legal Proceedings
The Company is a party (as plaintiff or defendant) to a number of lawsuits.
While any litigation carries an element of uncertainty, management is of the
opinion that the liability, if any, resulting from these actions will not have a
material effect on the liquidity, financial condition or results of operations
of the Company.
<PAGE> 71
69
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Operating Leases
At December 31, 1993, the Company was obligated under non-cancelable
operating leases for certain premises and equipment. Minimum rental expenses
under these leases for the year 1994 and later are as follows:
<TABLE>
<CAPTION>
OPERATING LEASES
-----------------------
BUILDINGS EQUIPMENT
--------- ---------
(THOUSANDS)
<S> <C> <C>
1994......................................................................... $ 29,862 $ 3,420
1995......................................................................... 23,739 57
1996......................................................................... 20,362 20
1997......................................................................... 15,259 20
1998......................................................................... 13,053 10
Later years.................................................................. 67,980 --
--------- ---------
Total minimum lease payments............................................... $ 170,255 $ 3,527
--------- ---------
--------- ---------
</TABLE>
Total rental expense under cancelable and non-cancelable operating leases
for 1993, 1992 and 1991 was $36.4 million, $44.3 million and $41.6 million,
respectively.
Long-term Service Contract
In September, 1990, the Company entered into a contract with EDS under
which EDS provides certain data processing services, manages the Company's data
center operations and is integrating various application systems to produce
unified Company-wide operating systems. The cost of the services is determined
by volume considerations and an inflation factor, in addition to an agreed base
rate.
Acquisitions
In January, 1994, First Fidelity acquired Greenwich Financial Corporation
and its 7 branch subsidiary, Greenwich Federal Savings and Loan Association
("Greenwich Federal"), for $41.9 million in cash. Greenwich Federal, which
reported assets of $425 million and deposits of $255 million at December 31,
1993, operates in the Greenwich/Stamford area of Fairfield County, Connecticut.
The Company also entered into a definitive agreement to acquire First
Inter-Bancorp Inc. and its 16 branch subsidiary, Mid-Hudson Savings Bank FSB
("Mid-Hudson"), for approximately $56 million in cash. Mid-Hudson, which
operates throughout Dutchess, Ulster, Orange and Putnam Counties, New York, had
approximately $522 million in assets and $460 million in deposits at December
31, 1993. The Company intends to merge Mid-Hudson's operations with those of
First Fidelity Bank, N.A., New York ("FFB-NY"). The acquisition is subject to
shareholder and regulatory approval.
On August 27, 1993, First Fidelity entered into a definitive agreement to
acquire BankVest, Inc. and its 2 branch subsidiary, First Peoples National Bank
of Edwardsville, Pennsylvania, for $19.6 million in cash. BankVest, Inc.
reported assets of $101 million and deposits of $85 million at December 31,
1993. Completion of the acquisition is expected to occur by the end of the first
quarter of 1994.
On October 27, 1993, the Company, through FFB-NY, entered into a definitive
agreement to acquire The Savings Bank of Rockland County ("Rockland") for $5.9
million in cash. Rockland, which reported assets of $179 million and deposits of
$168 million at December 31, 1993, has 4 offices, all in Rockland County, New
York. The acquisition is expected to be completed during the second quarter of
1994.
NOTE 19. RELATED PARTY TRANSACTIONS
At December 31, 1992, the Company had $15 million of time deposits with
Santander, a principal stockholder of the Company. These deposits were
eurodollar placements, at market terms. In addition, at December 31, 1993 and
1992, the Company had other balances with Santander, typical of and consistent
with a correspondent banking relationship in the normal course of business.
<PAGE> 72
70
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
Loans to directors, executive officers and their associates, which are made
in the ordinary course of business and on substantially the same terms,
including interest rates and collateral, as those prevailing at the time for
comparable transactions with others, approximated $154 million at December 31,
1993 and $117 million at December 31, 1992. During 1993, there were increases of
approximately $253 million and loan repayments of approximately $216 million on
such loans.
NOTE 20. CONDENSED FINANCIAL INFORMATION OF FIRST FIDELITY BANCORPORATION
(PARENT COMPANY ONLY)
CONDENSED BALANCE SHEETS (PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
DECEMBER 31
------------------------
1993 1992
---------- ----------
(THOUSANDS)
<S> <C> <C>
ASSETS
Demand deposits with affiliates...................................................... $ 2,391 $ 1,608
Repurchase agreements................................................................ 15,000 73,125
Subordinated notes receivable from subsidiaries...................................... 160,000 160,000
Investment in subsidiaries at equity:
First Fidelity Incorporated........................................................ 2,471,863 1,435,890
Fidelcor, Inc...................................................................... -- 888,164
Northeast Bancorp, Inc. ........................................................... 199,102 --
First Fidelity Bank, NA, New York.................................................. 356,624 --
Other assets......................................................................... 68,179 47,785
---------- ----------
Total Assets....................................................................... $3,273,159 $2,606,572
---------- ----------
---------- ----------
LIABILITIES
Long-term debt....................................................................... $ 436,750 $ 286,750
Dividends payable.................................................................... 5,131 5,222
Other liabilities.................................................................... 92,850 56,950
---------- ----------
Total Liabilities.................................................................. 534,731 348,922
---------- ----------
STOCKHOLDERS' EQUITY
Preferred stock...................................................................... 230,422 232,172
Common stockholders' equity
Common stock ($1.00 par)
Authorized: 150,000,000 shares
Issued: 79,937,719 shares at December 31, 1993
Issued and outstanding: 74,107,949 shares at December 31, 1992................... 79,938 74,108
Surplus............................................................................ 1,202,373 1,014,905
Retained earnings.................................................................. 1,227,368 936,465
Less treasury stock, at cost: 36,714 shares at December 31, 1993................... (1,673) --
---------- ----------
Total Common Stockholders' Equity................................................ 2,508,006 2,025,478
---------- ----------
Total Stockholders' Equity....................................................... 2,738,428 2,257,650
---------- ----------
Total Liabilities and Stockholders' Equity....................................... $3,273,159 $2,606,572
---------- ----------
---------- ----------
</TABLE>
<PAGE> 73
71
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED STATEMENTS OF INCOME (PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
----------------------------------
1993 1992 1991
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
INCOME
Dividends from subsidiaries:
First Fidelity Incorporated................................................ $316,894 $ 77,800 $ 35,500
Fidelcor, Inc.............................................................. -- 68,470 69,000
Interest and other income from affiliates.................................... 183,819 144,485 111,529
-------- -------- --------
500,713 290,755 216,029
-------- -------- --------
EXPENSE
Interest..................................................................... 21,459 19,493 23,078
Other expenses............................................................... 161,900 134,749 97,120
-------- -------- --------
183,359 154,242 120,198
-------- -------- --------
Income before income tax benefit and equity in
undistributed income of subsidiaries..................................... 317,354 136,513 95,831
Income tax benefit............................................................. 4,754 2,864 11,561
-------- -------- --------
Income before equity in subsidiaries and cumulative effect of changes in
accounting principles.................................................... 322,108 139,377 107,392
Cumulative effect of changes in accounting principles, net of tax.............. 7,899 -- --
Equity in undistributed income of subsidiaries................................. 68,825 174,360 113,849
-------- -------- --------
Net income................................................................. 398,832 313,737 221,241
Dividends on Preferred stock................................................... 20,653 21,061 17,176
-------- -------- --------
Net Income Applicable to Common Stock...................................... $378,179 $292,676 $204,065
-------- -------- --------
-------- -------- --------
</TABLE>
<PAGE> 74
72
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (CONTINUED)
CONDENSED STATEMENTS OF CASH FLOWS (PARENT COMPANY ONLY)
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
----------------------------------
1993 1992 1991
-------- -------- --------
(THOUSANDS)
<S> <C> <C> <C>
Cash flows from operating activities:
Net income................................................................. $398,832 $313,737 $221,241
Adjustments to reconcile net income to net cash provided by operating
activities:
Equity in undistributed (income) of subsidiaries........................... (68,825) (174,360) (113,849)
Change in other assets..................................................... (8,585) (20,872) (3,433)
Change in taxes payable.................................................... (3,148) 7,522 (4,201)
Change in other liabilities................................................ 35,217 27,827 (13,526)
Cumulative effect of changes in accounting principles...................... (7,899) -- --
Other, net................................................................. 4 (1,305) --
-------- -------- --------
Net cash provided by operating activities.............................. 345,596 152,549 86,232
-------- -------- --------
Cash flows from investing activities:
Additional investments in subsidiaries..................................... (447,667) (120,000) (285,000)
Other...................................................................... 2,023 -- --
-------- -------- --------
Net cash used in investing activities.................................. (445,644) (120,000) (285,000)
-------- -------- --------
Cash flows from financing activities:
Issuance of long-term debt................................................. 150,000 -- --
Payments on long-term debt................................................. -- -- (6,500)
Purchases of treasury stock................................................ (116,954) -- --
Issuance of Common and Preferred stock..................................... 140,740 100,214 322,443
Dividends paid............................................................. (131,080) (109,174) (87,349)
-------- -------- --------
Net cash provided by (used in) financing activities.................... 42,706 (8,960) 228,594
-------- -------- --------
Net change in cash and cash equivalents................................ (57,342) 23,589 29,826
Cash and cash equivalents at beginning of year (A)..................... 74,733 51,144 21,318
-------- -------- --------
Cash and cash equivalents at end of year (A)........................... $ 17,391 $ 74,733 $ 51,144
-------- -------- --------
-------- -------- --------
Supplemental disclosure:
Total amount of interest paid for the period............................... $ 22,086 $ 19,720 $ 23,616
-------- -------- --------
-------- -------- --------
Total amount of income taxes paid for the period........................... $ 90,500 $ 83,560 $ 37,250
-------- -------- --------
-------- -------- --------
</TABLE>
<TABLE>
<CAPTION>
DECEMBER 31,
(A) Reconciliation: -----------------------------------
1993 1992 1991
--------- --------- ---------
<S> <C> <C> <C>
Demand deposits with affiliates................................................ $ 2,391 $ 1,608 $ 84
Repurchase agreements.......................................................... 15,000 73,125 51,060
--------- --------- ---------
Total cash and cash equivalents............................................ $ 17,391 $ 74,733 $ 51,144
--------- --------- ---------
--------- --------- ---------
</TABLE>
Regulatory Restrictions
The Federal Reserve Act limits extensions of credit that can be made from
the Company's bank subsidiaries to any affiliate (with certain exceptions),
including the Parent Company. Loans to any one affiliate may not exceed 10% of a
bank subsidiary's capital and surplus, and loans to all affiliates may not
exceed 20% of such bank subsidiary's capital and surplus. Additionally, such
loans must be collateralized and must have terms comparable to those with
unaffiliated companies.
<PAGE> 75
73
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
SUPPLEMENTARY DATA
SUMMARY OF QUARTERLY FINANCIAL INFORMATION
(UNAUDITED)
<TABLE>
<CAPTION>
THREE MONTHS ENDED
----------------------------------------------------------------------------------------------------------
1993 1992
------------------------------------------------- -------------------------------------------------
DECEMBER SEPTEMBER DECEMBER SEPTEMBER
31 30 JUNE 30 MARCH 31 31 30 JUNE 30 MARCH 31
-------- -------- -------- -------- -------- -------- -------- --------
(DOLLARS IN THOUSANDS, EXCEPT PER SHARE AMOUNTS)
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Interest income...... $506,158 $515,170 $513,397 $510,471 $535,514 $514,959 $529,523 $549,285
Interest expense..... 162,406 170,850 173,487 184,770 211,276 211,519 232,676 265,241
-------- -------- -------- -------- -------- -------- -------- --------
Net interest
income.............. 343,752 344,320 339,910 325,701 324,238 303,440 296,847 284,044
Provision for
possible credit
losses.............. 29,000 33,000 41,000 45,000 52,000 56,000 59,000 61,000
Net securities
transactions........ 3,096 50 194 3,677 (80) 6 1,132 3,767
Other non-interest
income (A).......... 99,055 97,452 94,640 85,336 87,117 81,113 81,078 78,243
Non-interest
expense............. 262,320 260,209 253,849 238,321 245,863 224,337 223,419 223,227
Income taxes......... 50,207 47,071 41,967 38,780 23,816 21,886 20,294 16,366
Cumulative effect of
changes in
accounting
principles, net of
tax................. -- -- -- 2,373 -- -- -- --
-------- -------- -------- -------- -------- -------- -------- --------
Net income........... 104,376 101,542 97,928 94,986 89,596 82,336 76,344 65,461
Dividends on
preferred stock..... 5,130 5,135 5,144 5,244 5,221 5,281 5,288 5,271
-------- -------- -------- -------- -------- -------- -------- --------
Net income applicable
to Common Stock..... $ 99,246 $ 96,407 $ 92,784 $ 89,742 $ 84,375 $ 77,055 $ 71,056 $ 60,190
-------- -------- -------- -------- -------- -------- -------- --------
-------- -------- -------- -------- -------- -------- -------- --------
Per common share
Primary:
Income before
cumulative
effect of
changes in
accounting
principles...... $1.22 $1.17 $1.15 $1.11 $1.09 $1.03 $.95 $.82
Cumulative effect
of changes in
accounting
principles, net
of tax.......... -- -- -- .03 -- -- -- --
Net income
-- primary... 1.22 1.17 1.15 1.14 1.09 1.03 .95 .82
Fully diluted:
Income before
cumulative
effect of
changes in
accounting
principles...... 1.19 1.15 1.13 1.09 1.06 1.01 .93 .81
Cumulative effect
of changes in
accounting
principles, net
of tax.......... -- -- -- .03 -- -- -- --
Net income -- fully
diluted......... 1.19 1.15 1.13 1.12 1.06 1.01 .93 .81
Book value........... 31.39 30.07 29.08 28.23 27.33 26.50 25.72 24.97
Net interest
margin.............. 4.84% 4.82% 4.92% 4.87% 4.69% 4.73% 4.59% 4.33%
Return on average
assets (B).......... 1.28 1.24 1.26 1.28 1.15 1.14 1.06 .90
Return on average
stockholders'
equity (B).......... 15.93 15.80 16.33 16.88 16.20 15.70 15.29 13.40
Return on average
common
stockholders' equity
(C)................. 16.61 16.50 17.11 17.75 17.05 16.53 16.10 13.97
</TABLE>
- ---------------
(A) Non-interest income less net securities transactions.
(B) Net income.
(C) Net income applicable to Common Stock.
<PAGE> 76
74
FIRST FIDELITY BANCORPORATION (AND SUBSIDIARIES)
SUPPLEMENTARY DATA
COMPUTATION OF EARNINGS PER SHARE
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31
--------------------------------------------------
1993 1992 1991
------------ ------------ ------------
<S> <C> <C> <C>
A. Income before cumulative effect of changes in accounting
principles................................................. $396,459,000 $313,737,000 $221,241,000
B. Cumulative effect of changes in accounting principles, net
of tax..................................................... 2,373,000 -- --
------------ ------------ ------------
Net income................................................... 398,832,000 313,737,000 221,241,000
C. Less: Total preferred dividends............................. 20,653,000 21,061,000 17,176,000
------------ ------------ ------------
D. Net income applicable to Common Stock....................... $378,179,000 $292,676,000 $204,065,000
------------ ------------ ------------
------------ ------------ ------------
Net income................................................... $398,832,000 $313,737,000 $221,241,000
E. Less: Non-convertible preferred dividends................... 10,255,000 10,549,000 6,663,000
------------ ------------ ------------
F. Net income for Fully diluted earnings per share............. $388,577,000 $303,188,000 $214,578,000
------------ ------------ ------------
------------ ------------ ------------
PRIMARY EARNINGS PER SHARE:
Average shares outstanding................................... 77,590,000 71,630,325 60,345,325
Dilutive average shares outstanding under options and
warrants................................................... 9,106,883 12,268,030 1,278,600
Exercise prices.............................................. $12.31 to $12.31 to $12.31 to
$45.375 $36.25 $24.00
Assumed proceeds on exercise................................. $141,774,237 $316,924,037 $ 26,850,978
Market value per share....................................... $46.12 $36.52 $25.30
Less: Treasury stock purchased with the assumed proceeds from
exercise of options and warrants....................... 5,489,721 8,678,713 1,061,358
------------ ------------ ------------
G. Adjusted average shares -- Primary.......................... 81,207,162 75,219,642 60,562,567
------------ ------------ ------------
Primary Earnings Per Share:
Income before cumulative effect of changes in accounting
principles
(A-C/G).................................................. $4.63 $3.89 $3.37
Cumulative effect of changes in accounting principles, net
of tax (B/G)............................................. .03 -- --
------------ ------------ ------------
Net income (D/G)........................................... $4.66 $3.89 $3.37
------------ ------------ ------------
------------ ------------ ------------
FULLY DILUTED EARNINGS PER SHARE:
Average shares outstanding................................... 77,590,000 71,630,325 60,345,325
Dilutive average shares outstanding under options and
warrants................................................... 9,106,883 12,349,899 2,899,316
Exercise prices.............................................. $12.31 to $12.31 to $12.31 to
$45.375 $41.38 $32.31
Assumed proceeds on exercise................................. $141,774,237 $319,939,515 $ 73,884,005
Market value per share....................................... $46.12 $44.00 $32.50
Less: Treasury stock purchased with the assumed proceeds from
exercise of options and warrants....................... 5,489,721 7,271,352 2,273,354
------------ ------------ ------------
Adjusted average shares...................................... 81,207,162 76,708,872 60,971,287
Common shares from the assumed conversion of Convertible
Preferred Stock............................................ 3,773,816 3,814,244 3,814,668
------------ ------------ ------------
H. Adjusted average shares -- Fully diluted.................... 84,980,978 80,523,116 64,785,955
------------ ------------ ------------
Fully Diluted Earnings Per Share:
Income before cumulative effect of changes in accounting
principles
(A-E/H).................................................. $4.55 $3.77 $3.31
Cumulative effect of changes in accounting principles, net
of tax (B/H)............................................. .03 -- --
------------ ------------ ------------
Net income (F/H)........................................... $4.58 $3.77 $3.31
------------ ------------ ------------
------------ ------------ ------------
</TABLE>
<PAGE> 77
75
ITEM 9. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANTS ON ACCOUNTING AND
FINANCIAL DISCLOSURE
Not applicable.
PART III
ITEM 10. DIRECTORS OF THE REGISTRANT
The Company responds to this item by incorporating by reference the
material responsive to such item in the Company's definitive proxy statement for
its 1994 Annual Meeting of Shareholders.
ITEM 11. EXECUTIVE COMPENSATION
The Company responds to this item by incorporating by reference the
material responsive to such item in the Company's definitive proxy statement for
its 1994 Annual Meeting of Shareholders, provided, however, that such
incorporation by reference shall not be deemed to specifically incorporate by
reference the information referred to in Item 402(a)(8) of Securities and
Exchange Commission Regulation S-K.
ITEM 12. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
The Company responds to this item by incorporating by reference the
material responsive to such item in the Company's definitive proxy statement for
its 1994 Annual Meeting of Shareholders.
ITEM 13. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
The Company responds to this item by incorporating by reference the
material responsive to such item in the Company's definitive proxy statement for
its 1994 Annual Meeting of Shareholders.
PART IV
ITEM 14. EXHIBITS, FINANCIAL STATEMENT SCHEDULES, AND REPORTS ON FORM 8-K
(a) The financial statements listed on the index set forth in Item 8 of
this Annual Report on Form 10-K are filed as part of this Annual Report.
Financial statement schedules are not required under the related
instructions of the Securities and Exchange Commission or are inapplicable and,
therefore, have been omitted.
(b) The following exhibits are incorporated by reference herein or annexed
to this Annual Report:
<TABLE>
<S> <C> <C>
3.1 -- Registrant's Restated Certificate of Incorporation, is incorporated by reference to
Exhibit 4.1 of Registrant's Registration Statement on Form S-8, No. 33-45404, filed
with the Securities and Exchange Commission on January 31, 1992.
3.2 -- Registrant's By-laws, as amended through October 21, 1993.
4.1 -- Upon the request of the Securities and Exchange Commission, the Registrant will
furnish a copy of all instruments defining the rights of holders of long-term debt of
the Registrant.
4.2 -- Deposit Agreement, dated as of June 28, 1991, between the Company, First Fidelity
Bank, N.A., New Jersey and the holders from time to time of depository receipts
issued by the Depository thereunder, is incorporated by reference to Exhibit 4(ii) of
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991.
4.3 -- Investment Agreement, dated as of March 18, 1991, between the Registrant and Banco
Santander, S.A. is incorporated by reference to Exhibit (a) of Registrant's Current
Report on Form 8-K filed with the Commission on March 21, 1991.
</TABLE>
<PAGE> 78
76
<TABLE>
<S> <C> <C>
10.1 -- Employment Agreements between the Registrant and each of Anthony P. Terracciano,
Peter C. Palmieri, Wolfgang Schoellkopf, Roland K. Bullard, II and Leslie E. Goodman,
as amended, are incorporated herein by reference to Exhibit 10.1 of Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992.
10.2 -- First Fidelity Bancorporation Stock Option and Restricted Stock Plan, as amended, is
incorporated herein by reference to Exhibit 10.5 of Registrant's Annual Report on
Form 10-K for the year ended December 31, 1991.
10.3 -- Lease Agreement between 60 West Broad Street Realty Company and The Merchants
National Bank of Allentown, dated October 29, 1982, is incorporated herein by
reference to Exhibit 10.21 of Fidelcor's Annual Report on Form 10-K for the year
ended December 31, 1986.
10.4 -- Lease Agreement between 60 West Broad Street Realty Company and Merchants Bank, N.A.,
dated June 24, 1987, is incorporated herein by reference to Exhibit 10.21(b) of
Fidelcor's Annual Report on Form 10-K for the year ended December 31, 1987.
10.5 -- Lease Agreement between Frank M. Henry Associates and Wyoming National Bank of
Wilkes-Barre, dated April 29, 1982, is incorporated herein by reference to Exhibit
10.22 of Fidelcor's Annual Report on Form 10-K for the year ended December 31, 1986.
10.6 -- Registrant's Deferred Compensation Plan for Non-Employee Directors, as amended, is
incorporated herein by reference to Exhibit 10.14 of Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992.
10.7 -- Registrant's Annual Incentive Plan is incorporated herein by reference to Exhibit
10.23 of Registrant's Annual Report on Form 10-K for the year ended December 31,
1988.
10.8 -- Rights Agreement, and Supplement No. 1 thereto are incorporated by reference to
Exhibit 1 of Registrant's Registration Statement on Form 8-A, dated August 25, 1989,
and Exhibit 4 of Registrant's Form 8 Amendment to such Form 8-A, dated March 12,
1990.
10.9 -- Supplements Nos. 2 and 3 to the Rights Agreement are incorporated herein by reference
to Exhibit 10.17 of Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992.
11.1 -- Statement regarding computation of per share earnings (included in Item 8 of this
Annual Report on Form 10-K).
21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of KPMG Peat Marwick.
</TABLE>
(c) Current Reports on Form 8-K during the quarter ended December 31, 1993.
The Company's Current Report on Form 8-K, dated May 4, 1993, filed with the
Securities and Exchange Commission on November 11, 1993, reporting certain pro
forma financial information relating to the acquisition of Northeast Bancorp,
Inc.
<PAGE> 79
77
SIGNATURES
PURSUANT TO THE REQUIREMENTS OF SECTION 13 OR 15(D) OF THE SECURITIES
EXCHANGE ACT OF 1934, THE REGISTRANT HAS DULY CAUSED THIS REPORT TO BE SIGNED ON
ITS BEHALF BY THE UNDERSIGNED, THEREUNTO DULY AUTHORIZED, THIS 17TH DAY OF
FEBRUARY, 1994.
FIRST FIDELITY BANCORPORATION
By: ANTHONY P. TERRACCIANO
Anthony P. Terracciano
Chairman, President and Chief Executive
Officer
PURSUANT TO THE REQUIREMENTS OF THE SECURITIES EXCHANGE ACT OF 1934, THIS
REPORT HAS BEEN SIGNED BELOW BY THE FOLLOWING PERSONS ON BEHALF OF THE
REGISTRANT AND IN THE CAPACITIES AND ON THE DATES INDICATED.
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
ANTHONY P. TERRACCIANO Chairman, President and
Anthony P. Terracciano Chief Executive Officer
LOUIS E. AZZATO Director
Louis E. Azzato
EDWARD E. BARR Director
Edward E. Barr
ROLAND K. BULLARD II Director
Roland K. Bullard II
LEE A. BUTZ Director
Lee A. Butz
LUTHER R. CAMPBELL, JR. Director
Luther R. Campbell, Jr.
JOHN GILRAY CHRISTY Director
John Gilray Christy
February 17, 1994
JAMES G. CULLEN Director
James G. Cullen
GONZALO DE LAS HERAS Director
Gonzalo de Las Heras
E. JAMES FERLAND Director
E. James Ferland
ARTHUR M. GOLDBERG Director
Arthur M. Goldberg
LESLIE E. GOODMAN Director
Leslie E. Goodman
FRANK M. HENRY Director
Frank M. Henry
</TABLE>
<PAGE> 80
78
<TABLE>
<CAPTION>
SIGNATURE TITLE DATE
--------- ----- ----
<C> <S> <C>
WILLIAM F. HYLAND Director
William F. Hyland
JUAN RODRIGUEZ INCIARTE Director
Juan Rodriguez Inciarte
JOHN R. KENNEDY Director
John R. Kennedy
ROCCO J. MARANO Director
Rocco J. Marano
JAMES D. MORRISSEY, JR. Director
James D. Morrissey, Jr.
JOSEPH NEUBAUER Director
Joseph Neubauer
PETER C. PALMIERI Director
Peter C. Palmieri
February 17, 1994
ROBERT MONTGOMERY SCOTT Director
Robert Montgomery Scott
REBECCA STAFFORD Director
Rebecca Stafford
SEFTON STALLARD Director
Sefton Stallard
BERNARD C. WATSON Director
Bernard C. Watson
WOLFGANG SCHOELLKOPF Director and Principal
Wolfgang Schoellkopf Financial Officer
ANTHONY R. BURRIESCI Principal Accounting
Anthony R. Burriesci Officer
</TABLE>
<PAGE> 81
EXHIBIT INDEX
<TABLE>
<S> <C> <C>
3.1 -- Registrant's Restated Certificate of Incorporation, is incorporated by reference to
Exhibit 4.1 of Registrant's Registration Statement on Form S-8, No. 33-45404, filed
with the Securities and Exchange Commission on January 31, 1992.
3.2 -- Registrant's By-laws, as amended through October 21, 1993.
4.1 -- Upon the request of the Securities and Exchange Commission, the Registrant will
furnish a copy of all instruments defining the rights of holders of long-term debt of
the Registrant.
4.2 -- Deposit Agreement, dated as of June 28, 1991, between the Company, First Fidelity
Bank, N.A., New Jersey and the holders from time to time of depository receipts
issued by the Depository thereunder, is incorporated by reference to Exhibit 4(ii) of
Registrant's Quarterly Report on Form 10-Q for the quarter ended June 30, 1991.
4.3 -- Investment Agreement, dated as of March 18, 1991, between the Registrant and Banco
Santander, S.A. is incorporated by reference to Exhibit (a) of Registrant's Current
Report on Form 8-K filed with the Commission on March 21, 1991.
10.1 -- Employment Agreements between the Registrant and each of Anthony P. Terracciano,
Peter C. Palmieri, Wolfgang Schoellkopf, Roland K. Bullard, II and Leslie E. Goodman,
as amended, are incorporated herein by reference to Exhibit 10.1 of Registrant's
Annual Report on Form 10-K for the year ended December 31, 1992.
10.2 -- First Fidelity Bancorporation Stock Option and Restricted Stock Plan, as amended, is
incorporated herein by reference to Exhibit 10.5 of Registrant's Annual Report on
Form 10-K for the year ended December 31, 1991.
10.3 -- Lease Agreement between 60 West Broad Street Realty Company and The Merchants
National Bank of Allentown, dated October 29, 1982, is incorporated herein by
reference to Exhibit 10.21 of Fidelcor's Annual Report on Form 10-K for the year
ended December 31, 1986.
10.4 -- Lease Agreement between 60 West Broad Street Realty Company and Merchants Bank, N.A.,
dated June 24, 1987, is incorporated herein by reference to Exhibit 10.21(b) of
Fidelcor's Annual Report on Form 10-K for the year ended December 31, 1987.
10.5 -- Lease Agreement between Frank M. Henry Associates and Wyoming National Bank of
Wilkes-Barre, dated April 29, 1982, is incorporated herein by reference to Exhibit
10.22 of Fidelcor's Annual Report on Form 10-K for the year ended December 31, 1986.
10.6 -- Registrant's Deferred Compensation Plan for Non-Employee Directors, as amended, is
incorporated herein by reference to Exhibit 10.14 of Registrant's Annual Report on
Form 10-K for the year ended December 31, 1992.
10.7 -- Registrant's Annual Incentive Plan is incorporated herein by reference to Exhibit
10.23 of Registrant's Annual Report on Form 10-K for the year ended December 31,
1988.
10.8 -- Rights Agreement, and Supplement No. 1 thereto are incorporated by reference to
Exhibit 1 of Registrant's Registration Statement on Form 8-A, dated August 25, 1989,
and Exhibit 4 of Registrant's Form 8 Amendment to such Form 8-A, dated March 12,
1990.
10.9 -- Supplements Nos. 2 and 3 to the Rights Agreement are incorporated herein by reference
to Exhibit 10.17 of Registrant's Annual Report on Form 10-K for the year ended
December 31, 1992.
11.1 -- Statement regarding computation of per share earnings (included in Item 8 of this
Annual Report on Form 10-K).
21.1 -- Subsidiaries of the Registrant.
23.1 -- Consent of KPMG Peat Marwick.
</TABLE>
<PAGE> 1
INDEX TO BY LAWS
FIRST FIDELITY BANCORPORATION
(AMENDED OCTOBER 14, 1987, FEBRUARY 25, 1988, JULY 19, 1990
AND OCTOBER 21, 1993)
********************************************************************************
<TABLE>
<S> <C> <C>
ARTICLE I: OFFICES
SECTION 1.1 - Principal Business Office . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.2 - Other Business Offices . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
1.3 - Registered Office . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
ARTICLE II: MEETINGS OF SHAREHOLDERS
SECTION 2.1 - Place of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 1
2.2 - Annual Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.3 - Special Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.4 - Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.5 - Record Date . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 2
2.6 - Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 3
2.7 - Adjourned Meetings and Notice Thereof . . . . . . . . . . . . . . . . . . . . 3
2.8 - Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.9 - Proxies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.10 - Officers of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4
2.11 - Order of Business . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.12 - Voting List . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.13 - Inspectors of Election . . . . . . . . . . . . . . . . . . . . . . . . . . . . 5
2.14 - Notification of Nominations . . . . . . . . . . . . . . . . . . . . . . . . . 6
ARTICLE III: BOARD OF DIRECTORS
SECTION 3.1 - Function of Board . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2(a) - Number of Directors . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.2(b) - Qualifications . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7
3.3 - Classification of Directors . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.4 - Resignation and Removal . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.5 - Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.6 - Place of Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.7 - Regular Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 8
3.8 - Use of communications Equipment . . . . . . . . . . . . . . . . . . . . . . . 9
3.9 - Special Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.10 - Notice of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.11 - Waiver of Notice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 9
3.12 - Action Without Meeting . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.13 - Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.14 - Voting . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.15 - Chairman of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10
3.16 - Adjournment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
3.17 - Presumption of Assent . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
</TABLE>
<PAGE> 2
INDEX TO BY LAWS
FIRST FIDELITY BANCORPORATION
(AMENDED OCTOBER 14, 1987, FEBRUARY 25, 1988, JULY 19, 1990
AND OCTOBER 21, 1993)
********************************************************************************
<TABLE>
<S> <C> <C>
ARTICLE IV: COMMITTEES
SECTION 4.1 - Establishment of Committees . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.2(a) - Executive Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11
4.2(b) - Meetings of the Executive Committee . . . . . . . . . . . . . . . . . . . . . 12
4.3(c) - Chairman of the Executive Committee . . . . . . . . . . . . . . . . . . . . . 12
4.3 - Audit Committee . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12
4.4 - Organization and Compensation Committee . . . . . . . . . . . . . . . . . . . 12
4.5 - Other Committees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.6 - Committee Chairman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.7 - Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.8 - Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.9 - Notices of Meetings . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.10 - Reports . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13
4.11 - Quorum . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
4.12 - Limitation of Powers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
ARTICLE V: OFFICERS
SECTION 5.1 - Executive Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.2 - Additional Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.3 - Election and Term of Office . . . . . . . . . . . . . . . . . . . . . . . . . 14
5.4 - Vacancies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.5 - Powers and Duties . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.6(a) - Chairman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.6(b) - President . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.6(c) - Treasurer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 15
5.6(e) - Secretary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.7 - Compensation of Officers . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
5.8 - Fidelity Bond . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16
ARTICLE VI: CAPITAL STOCK AND OTHER SECURITIES
SECTION 6.1 - Issuance of Stock and Other Securities . . . . . . . . . . . . . . . . . . . . 17
6.2 - Lost, Stolen and Destroyed Certificates . . . . . . . . . . . . . . . . . . . 17
6.3 - Transfer of Securities . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17
6.4 - Record Date for Dividends or Rights . . . . . . . . . . . . . . . . . . . . . 18
6.5 - Issue of New Shares or Sale of
Treasury Stock . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VII: CORPORATE SEAL
SECTION 7.1 - Form and Use . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18
ARTICLE VIII: FISCAL YEAR . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
</TABLE>
<PAGE> 3
INDEX TO BY LAWS
FIRST FIDELITY BANCORPORATION
(AMENDED OCTOBER 14, 1987, FEBRUARY 25, 1988, JULY 19, 1990
AND OCTOBER 21, 1993)
********************************************************************************
<TABLE>
<S> <C> <C>
ARTICLE IX: AMENDMENTS . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 19
ARTICLE X: MISCELLANEOUS
SECTION 10.1 - Inspection of Corporate Records . . . . . . . . . . . . . . . . . . . . . . . 19
10.2 - Assignment and Transfer of Stock,
Bonds and Other Securities . . . . . . . . . . . . . . . . . . . . . . . . . 20
10.3 - Checks, Drafts, Etc . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
10.4 - Execution of Contracts . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20
10.5 - Voting Shares of Other Corporations . . . . . . . . . . . . . . . . . . . . . 20
10.6 - Force and Effect of By-laws . . . . . . . . . . . . . . . . . . . . . . . . . 21
</TABLE>
<PAGE> 4
BY-LAWS
OF
FIRST FIDELITY BANCORPORATION
Adopted: July 30, 1987
(Amended October 14, 1987,
February 25, 1988, July 19, 1990 and
October 21, 1993
ARTICLE I
OFFICES
Section 1.1. Principal Business Office. -- The principal
business offices of the Corporation are 550 Broad Street, Newark, New
Jersey and Broad and Walnut Streets, Philadelphia, Pennsylvania.
Section 1.2. Other Business Offices. -- Branch or subordinate
offices may at any time be established by the board at any place or places
where the Corporation is qualified to do business.
Section 1.3. Registered Office. -- The registered office of the
Corporation in the State of New Jersey is at 550 Broad Street, Newark, New
Jersey. The registered agent of the Corporation at such office is James
L. Mitchell.
ARTICLE II
MEETINGS OF SHAREHOLDERS
Section 2.1. Place of Meetings. -- All meetings of shareholders
shall be held at the principal business office of the Corporation or at
such other place as may from time to time be
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designated by the board and stated in the notice of the meeting.
Section 2.2. Annual Meeting. -- An annual meeting of the
shareholders of the Corporation shall be held at 11:00 a.m. on the second
Thursday of April of each year, or at such other time within ninety days
after that time as shall be fixed by the board or any person or persons
designated by the board and specified in the notice of the meeting. If
that date is a legal holiday, the meeting shall be held at the same hour
on the next succeeding business day.
Section 2.3. Special Meeting. -- Special meetings of the
shareholders may be called for any purpose and at any time by the
chairman, the president or the board. A special meeting of the
shareholders, or of the holders of any class or series entitled to vote
exclusively on a particular matter, shall be called by the Corporation for
good cause shown upon the written application by the holder or holders of
ten percent or more of all stock entitled to vote on the matter or matters
to be considered at the meeting. The application or applications shall
state the purpose or purposes for which the meeting is to be held. The
meeting shall be held within ninety days after receipt by the Corporation
of the application or applications which, in the aggregate, equal ten
percent of the stock which will be entitled to vote at the meeting.
Section 2.4. Notice of Meetings. -- Written notice of the time,
place, and purposes of annual and special meetings of shareholders shall
be given to each shareholder entitled to vote at the meeting at least ten
and not more than sixty days before the date of the meeting, either
personally or by mail or other means of written communication, charges
prepaid, addressed to the shareholder at his address appearing on the
books of the Corporation.
Section 2.5. Record Date. -- The board or any person or persons
designated by the board shall fix the record date for determination of
shareholders entitled to notice of and to vote
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at any annual or special meeting of shareholders. The record date shall
not be more than sixty days nor less than ten days before the date of the
meeting.
Section 2.6. Quorum. -- The presence in person or by proxy of
the holders of a majority of the outstanding shares of any class or series
voting separately at a meeting and a majority of any two or more classes
voting together as a class at the meeting shall constitute a quorum for
the transaction of business; if any matter to come before the meeting
requires a vote of less than all the outstanding classes, then the
presence in person or by proxy of the holders of a majority of the class
or classes or series having the right to vote on the matter or matters
shall constitute a quorum for the transaction of that business. The
shareholders present at a duly called or held meeting at which a quorum is
present may continue to do business until adjournment, notwithstanding the
withdrawal of enough shareholders to leave less than a quorum.
Section 2.7. Adjourned Meetings and Notice Thereof. -- Any
shareholders' meeting, annual or special, whether or not a quorum is
present, may be adjourned from time to time by the vote of a majority of
the shares, the holders of which are either present in person or
represented by proxy at the meeting. In the absence of a quorum, no other
business may be transacted at the meeting.
If any meeting, either annual or special, is adjourned, and the
time and place of the adjourned meeting is announced at the meeting at
which the adjournment is taken, and the only business transacted at the
adjourned meeting is such as might have been transacted at the original
meeting, no further notice of the adjourned meeting need be given to
shareholders. If after adjournment, the board fixes a new record date for
the adjourned meeting, however, a notice of the adjourned meeting shall be
given to each shareholder of record on the new record date.
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Section 2.8. Voting. -- Shareholders shall be entitled to vote
their stock in the manner provided by law and as modified by the
certificate of incorporation, as amended from time to time. Treasury
shares of the Corporation shall not be voted at any meeting of
shareholders for any purpose.
Section 2.9. Proxies. -- Every shareholder entitled to vote at
a meeting of shareholders may authorize another person or persons to act
for him by proxy. Every proxy shall be executed by the shareholder or his
agent. No proxy shall be valid after eleven months from the date of its
execution unless a longer time is expressly provided therein. Unless it
is coupled with an interest, a proxy shall be revocable at will. A proxy
shall not be revoked by the death or incapacity of the shareholder but the
proxy shall continue in force until revoked by the personal representative
or guardian of the shareholder. The presence at a meeting of any
shareholder who has given a proxy shall not revoke the proxy unless the
shareholder shall file written notice of the revocation with the secretary
of the meeting prior to the voting of the proxy. A person named in a
proxy as the attorney or agent of a shareholder may, if the proxy so
provides, substitute another person to act in his place, including any
other person named as an attorney or agent to the same proxy. The
substitution shall not be effective until an instrument effecting it is
filed with the secretary of the Corporation.
Section 2.10. Officers of Meetings. -- The chairman shall
preside at all meetings of shareholders. In the absence of the chairman,
the president shall preside. In the absence of both of them, the board
shall designate a presiding officer. The secretary of the Corporation
shall, if present, act as secretary of all meetings of shareholders. In
his absence, a temporary secretary for that particular meeting shall be
designated by the presiding officer.
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Section 2.11. Order of Business. -- The order of business at
all meetings of the shareholders, unless changed by a majority vote of the
shares entitled to vote at such meeting, shall be as follows: (i) call to
order; (ii) proof of mailing of notice of meeting, proxy and proxy
statement; (iii) report on presence of a quorum; (iv) reading or waiver of
the minutes of the preceding shareholders' meeting; (v) appointment of
inspectors of election, if not appointed by board and if demanded by any
shareholder; (vi) election of directors if applicable; (vii) unfinished
business; (viii) new business; (ix) reports, if applicable; and (x)
adjournment.
Section 2.12. Voting List. -- The secretary shall make and
certify a complete list of the shareholders entitled to vote at a
shareholders' meeting or any adjournment thereof. The list shall
(a) be arranged alphabetically within each class series,
or group of shareholders, with the address of, and the number of
shares held by, each shareholder;
(b) be produced at the time and place of the meeting;
(c) be subject to the inspection of any shareholder
during the whole time of the meeting; and
(d) be prima facie evidence as to who are the shareholders
entitled to examine the list or to vote at any meeting.
Section 2.13. Inspectors of Election. -- The board may, in
advance of any shareholders' meeting, appoint one or more inspectors to
act at the meeting or any adjournment thereof. If the board fails to
appoint an inspector or inspectors, the presiding officer at the
shareholders' meeting may, and on the request of any shareholder entitled
to vote thereat, shall, appoint one or more persons to act in that
capacity. Each inspector shall take and sign an oath faithfully to
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execute the duties of inspector at the meeting with strict impartiality
and to the best of his ability. No person shall be elected a director at
a meeting at which he has served as an inspector.
Section 2.14. Notification of Nominations. Nominations for the
election of directors may be made by the board of directors, or on behalf
of the board by the executive committee or by any stockholder entitled to
vote for the election of the directors. Any stockholder entitled to vote
for the election of directors at a meeting may nominate persons for
election as directors only if written notice of such stockholder's intent
to make such nomination shall have been received by the secretary of the
Corporation not later than (i) with respect to an election to be held at
an annual meeting of stockholders, 60 days in advance of such meeting,
except for the 1994 Annual Meeting where such notice must be given by
close of business on the 10th day following the date on which notice of
such meeting is first given to stockholders, and (ii) with respect to an
election to be held at a special meeting of stockholders for the election
of directors, the close of business on the 7th day following the date on
which notice of such meeting is first given to stockholders. Each such
notice shall set forth: (a) the name and address of the stockholder who
intends to make the nomination and of the person or persons to be
nominated, (b) a representation that such stockholder is a holder of
record of shares of the Corporation entitled to vote at such meeting and
intends to appear in person or by proxy at the meeting to nominate the
person or persons specified in the notice, (c) a description of all
arrangements or understandings between such stockholder and each nominee
and any other person or persons (naming such person or persons) pursuant
to which the nomination or nominations are to be made by such stockholder,
(d) such other information regarding each nominee proposed by such
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stockholder as would have been required to be included in a proxy
statement filed pursuant to the proxy rules of the Securities and Exchange
Commission had each nominee been nominated, or intended to be nominated,
by the board of directors and (e) the consent of each nominee to serve as
a director of the Corporation if so elected and a representation by such
nominee that such person, at the time of notification satisfies, and, on
the date of the annual meeting and thereafter during the continuation of
directorship, will satisfy, the qualifications for service as a director.
The chairman of the meeting, in his discretion, may waive the requirements
of this Section 2.14 and acknowledge the nomination of any person not
otherwise made in compliance with the provisions of this section.
ARTICLE III
BOARD OF DIRECTORS
Section 3.1. Function of Board. -- The business and affairs of
the Corporation shall be managed by the board of directors of the
Corporation (the board), except as otherwise provided by law or the
certificate of incorporation.
Section 3.2(a). Number of Directors. -- The board shall consist
of not less than four nor more than forty members, the actual number to be
determined from time to time by the board.
Section 3.2(b). Qualifications. -- Directors shall be at least
twenty-one years of age and, except as the board may determine, no
director shall stand for election or reelection as a director who has
passed his/her 70th birthday; provided, however, that this restriction
shall not apply to persons who are active officers of the Corporation or
one of its banking subsidiaries.
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Section 3.3. Classification of Directors. -- At the first
meeting of shareholders of the Corporation the board shall be divided into
three classes, the members of each class to serve a term for up to three
years. The number of directors in each class shall be fixed by the board
at the time the number of directors is fixed. The number of directors in
any class shall not exceed by more than two the number of directors in any
other class.
Section 3.4. Resignation and Removal. -- Any director may
resign at any time. Any director may be removed but only for cause, by
the affirmative vote of a majority of votes cast by the holders of shares
entitled to vote for the election of directors.
Section 3.5. Vacancies. -- Any vacancy in the board caused by
any reason, including an increase in the number of directors, may be
filled by a majority of the remaining directors. Each director so elected
shall hold office until the next succeeding annual meeting of the
shareholders.
A vacancy or vacancies in the board shall be deemed to exist in
the case of the death, resignation or removal of any director, or if the
shareholders fail at any meeting of the shareholders at which any director
or directors are elected to elect the authorized number of directors to be
voted for at that meeting. No reduction of the authorized number of
directors shall have the effect of removing any director prior to the
expiration of his term of office.
Section 3.6. Place of Meeting. -- All meetings of the board
shall be held at the principal business office of the Corporation or at
such place or places as the board may from time to time determine.
Section 3.7. Regular Meetings. -- At the next regular meeting
of the board held following the annual meeting of shareholders, the board
shall organize and elect officers. The
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board may, at any meeting at which a quorum is present, determine the time
and place for the holding of additional regular meetings without other
notice than such determination.
Section 3.8. Use of Communications Equipment. -- Any or all
directors may participate in a meeting of the board or any committee
thereof by means of conference telephone or any means of communication by
which all persons participating in the meeting are able to hear each
other.
Section 3.9. Special Meetings. -- Special meetings of the board
for any purpose or purposes may be called at any time by the chairman, the
president, or five directors.
Section 3.10. Notice of Meetings. -- Notice of the time and
place of each special meeting of the board shall be given in writing to
each director personally, by mail, or by telegram, addressed to him at his
address as it is shown upon the records of the Corporation, or notice may
be given by a telephone call to the director. If the notice is mailed, it
shall be sent first class mail, postage prepaid, and shall be deposited in
the United States mails at least one week prior to the time of the holding
of the meeting. In case the notice is delivered personally or made by
telephone, it shall be delivered at least twenty-four hours prior to the
time of the holding of the meeting. In case the notice is telegraphed, it
shall be delivered to a telegraph company for such purpose not less than
twenty-four hours prior to the time of the holding of the meeting.
Notice of a regular meeting of the board need not be given so
long as the meeting is to be held at the time and place specified in these
by-laws or determined by the board in fixing the time and place of regular
meetings.
Section 3.11. Waiver of Notice. -- The actions taken at any
meeting of the board,
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however called and noticed or wherever held, shall be as valid as though
the meeting had been duly held after a regular call and notice, if a
quorum is present at the meeting and if, before or after the meeting, each
of the directors not present signs a waiver of notice of the meeting. All
waivers shall be filed with the corporate records or made a part of the
minutes of the meeting.
Section 3.12. Action Without Meeting. -- Any action required or
permitted to be taken by the board by law, the certificate of
incorporation, or these by-laws may be taken without a meeting, if, prior
or subsequent to the action, all members of the board shall individually
or collectively consent in writing to the action. Each written consent or
consents shall be filed with the minutes of the proceedings of the board.
Action by written consent shall have the same force and effect as a
unanimous vote of the directors, for all purposes. Any certificate or
other document which relates to action so taken shall state that the
action was taken by unanimous written consent of the board without a
meeting.
Section 3.13. Quorum. -- A majority of the entire board shall
constitute a quorum for the transaction of business.
Section 3.14. Voting. -- Every act or decision done or made by a
majority of the directors present at a meeting duly held at which a quorum
is present shall be regarded as the act of the board.
Section 3.15. Chairman of Meetings. -- The chairman shall
preside at all meetings of the board at which he is present. In the
absence of the chairman, the president shall preside. In the absence of
both of them, the chairman shall designate a director who shall preside.
If the secretary of the Corporation is present, he shall record the
minutes of the meeting, and if he is not present, the board shall
designate an acting secretary to record the minutes of the meeting.
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Section 3.16. Adjournment. -- Any meeting of the board at which
a quorum is present may be adjourned to meet again at a time and place
fixed by the board in connection with the meeting. No notice of the time
and place of the adjourned meeting need by given to absent directors.
Section 3.17. Presumption of Assent. -- A director who is
present at a meeting of the board or any committee thereof of which he is
a member at which action on any corporate matter is taken shall be
presumed to have concurred in the action taken unless his dissent shall be
entered in the minutes of the meeting or unless he shall file his written
dissent to such action with the person acting as the secretary of the
meeting before or promptly after the adjournment thereof. The right to
dissent shall not apply to a director who voted in favor of such action.
A director who is absent from a meeting of the board or any committee
thereof of which he is a member at which any such action is taken shall be
presumed to have concurred in the action unless he shall file his dissent
with the secretary of the Corporation within a reasonable time after
learning of such action.
ARTICLE IV
COMMITTEES
Section 4.1. Establishment of Committees. -- The board may, by
resolution adopted by a majority of the entire board, designate an
executive committee and may at any time designate whatever additional
committees the board deems appropriate.
Section 4.2(a). Executive Committee. -- The executive committee
shall consist of not less than five directors. The executive committee
shall have and exercise, except when the board is in session, all the
powers and duties of the board to the fullest extent permitted by law.
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All acts done and powers conferred by the executive committee from time to
time shall be deemed to be, and may be certified as being done or
conferred, under the authority of the board to the fullest extent
permitted by law. The executive committee shall serve as the nominating
committee for nomination of persons to the board.
Section 4.2(b). Meetings of the Executive Committee. -- The
committee shall hold regular meetings at such times as the members shall
agree and whenever called by the chairman of the committee. A majority of
the committee shall constitute a quorum for the transaction of business.
The committee shall keep a record of its proceedings and shall report
these proceedings to the board at the regular meetings thereof.
Section 4.2(c). Chairman of the Executive Committee. -- The
board shall designate a director who shall be chairman of the executive
committee. He shall preside at the meetings of the executive committee
and he shall perform such other duties as the board shall direct. In the
absence of the chairman of the executive committee, another member of the
executive committee designated by the board shall preside at the meetings
of the executive committee.
Section 4.3. Audit Committee. -- The board may appoint an audit
committee consisting of three or more directors. The committee shall
review audit and regulatory examination reports concerning the Corporation
and shall perform such other functions as may be directed of it by the
board.
Section 4.4. Organization and Compensation Committee. -- The
board may appoint an organization and compensation committee consisting of
three or more directors. The committee shall review compensation of the
executive officers of the Corporation and shall perform such other
functions as may be directed to it by the board.
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Section 4.5. Other Committees. -- The board may from time to
time appoint other committees composed of one or more members of the board
and such other persons as the board deems appropriate, for such purposes
and with such powers as the board may determine.
Section 4.6. Committee Chairman. -- Each committee shall choose
one of its members to act as its chairman unless the chairman is
designated by the board.
Section 4.7. Vacancies. -- Vacancies occurring from time to
time in the membership of any committee shall be filled by the board for
the unexpired term of the member whose death, resignation, removal or
disability causes the vacancy. The board may designate one or more
directors as alternate members of any committee, who may replace any
absent member or members at any meetings of the committee.
Section 4.8. Meetings. -- Each committee shall adopt its own
rules of procedure and shall hold regular meetings at such stated times as
it may appoint. It shall also have special meetings whenever called
together by its chairman.
Section 4.9. Notices of Meetings. -- It shall not be necessary
to give any notice of the regular meetings of any committee. Notice of
every special meeting shall be given either by mailing the notice to each
member of the committee at his address, as the same appears on the records
of the Corporation, at least two days before the day of the meeting, or by
notifying each member on or before the day of the meeting by telephone,
telegraph or by personal notice, or by leaving a written notice at his
residence or place of business at least one day before the meeting.
Unless otherwise indicated in the notice thereof, any and all business may
be transacted at any special meeting.
Section 4.10. Reports. -- Each committee shall keep a record of
its proceedings and
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shall report on its activities to the board when required.
Section 4.11. Quorum. -- Unless otherwise required by law or
these by-laws, a quorum at any meeting of any committee shall be not less
than one-half the full number of members.
Section 4.12. Limitation of Powers. -- No committee of the
board shall have authority to take any action which is expressly required
by any applicable provision of state or federal law or regulation to be
taken only at a meeting of the board or by a specified proportion of the
directors.
ARTICLE V
OFFICERS
Section 5.1. Executive Officers. -- The board shall annually
elect a chairman of the board (the chairman), a president, a treasurer,
and a secretary. It may elect one or more vice chairmen of the board and
one or more executive or senior vice presidents. Any two or more offices
may be held by the same person. The chairman, the president and the vice
chairman, if any, shall be directors.
Section 5.2. Additional Officers. -- The president may from
time to time appoint such other officers as he shall deem necessary, who
shall hold their offices for such terms, have such powers, and perform
such duties as shall be designated by the president.
Section 5.3. Election and Term of Office. -- Each officer
elected by the board shall hold office until the succeeding annual
election of officers and until his successor has been elected and has
qualified, unless he is earlier removed. Any officer elected by the board
may be removed with or without cause by the vote of a majority of
directors or by any officer upon whom the power of removal may be
conferred by the board. The removal of an officer shall
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be without prejudice to his contract rights, if any. Election or
appointment of an officer by the board or president shall not of itself
create contract rights.
Section 5.4. Vacancies. -- A vacancy in any office subject to
election by the board shall be filled by the board and a vacancy in any
other office may be filled by the president.
Section 5.5. Powers and Duties. -- The officers shall each have
such authority and perform such duties in the management of the
Corporation as from time to time may be prescribed by the board or the
executive committee, and as may be delegated by the president or by such
other officer to whom the officer is directly responsible.
Section 5.6(a). Chairman. -- The chairman shall preside at
meetings of the shareholders and at meetings of the board. He shall
perform such additional duties and have such additional responsibilities
as are assigned to him from time to time by the board.
Section 5.6(b). President. -- The president shall be the chief
executive officer of the Corporation. He shall, subject only to the
direction and control of the board or the executive committee, have
general charge and supervision over and responsibility for the business
and affairs of the Corporation. He shall perform such duties as the board
or the executive committee shall direct and shall generally possess such
powers and perform such duties as are prescribed in these bylaws and as
usually are incident to the office of chief executive officer.
Section 5.6(c). Treasurer. -- The treasurer shall have custody
of the funds and securities of the Corporation and shall keep or cause to
be kept regular books of account for the Corporation. He shall account to
the president, or the board or the executive committee, whenever they may
require, concerning the financial condition of the Corporation. The
treasurer shall perform such other duties and possess such other powers as
are incident to his office or
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as shall be assigned to him by the president, the executive committee, or
the board. In case of the absence or disability of the treasurer, all his
powers and duties shall devolve upon one or more assistant treasurers.
Section 5.6(e). Secretary. -- The secretary shall attend to the
giving of all notices of the meetings of shareholders and directors and
shall keep the minutes of all shareholders' and directors' meetings and
record the same in the minute books of the Corporation. He shall serve as
secretary for all meetings of the shareholders, the board, the executive
committee and other committees of the board. He shall have custody of the
corporate seal. The secretary shall perform such other duties and possess
such other powers as are incident to his office or as shall be assigned to
him by the president, the executive committee, or the board. In case of
the absence or disability of the secretary, all his powers and duties
shall devolve upon one or more assistant secretaries.
Section 5.7. Compensation of Officers. -- The salary of any
executive officer who is a member of the board is reviewed by the
organization and compensation committee, which makes recommendations to
the board for approval. The salary of any other executive officer may be
determined and fixed by the organization and compensation committee. The
salaries of all other officers may be determined by the president.
Section 5.8. Fidelity Bond. -- Each officer and employee, if so
required by the board of directors, shall give bond with a surety to be
approved by the board, conditioned for the honest discharge of his duties
as an officer or employee. In the discretion of the board, the bonds may
be individual, schedule or blanket form, and the premiums may be paid by
the Corporation.
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ARTICLE VI
CAPITAL STOCK AND OTHER SECURITIES
Section 6.1. Issuance of Stock and Other Securities. --
Certificates of any class of capital stock of the Corporation and
certificates representing any other securities of the Corporation shall be
signed by the chairman, the president or any vice president and by the
secretary or an assistant secretary or the treasurer or an assistant
treasurer, except that where the certificate is signed by a transfer agent
or a registrar, or authenticated by a trustee, who are not officers or
employees of the Corporation, the signatures of the chairman, or the
president, or any vice president, and the secretary, or assistant
secretary, or treasurer or assistant treasurer may be engraved or printed
facsimiles. The certificates shall be sealed with the seal of the
Corporation, or they shall bear a facsimile of the seal. The certificates
shall be countersigned and registered in such manner as the board may
prescribe.
Section 6.2. Lost, Stolen and Destroyed Certificates. -- In
case of lost, stolen or destroyed certificates, new certificates may be
issued to take their place upon receipt by the Corporation of such bond of
indemnity and under such regulations as shall be prescribed by the board,
or any person or committee to whom such authority may be delegated by the
board, but the giving of a bond of indemnity may be waived by the board or
such person or committee.
Section 6.3. Transfer of Securities. -- Shares of capital stock
or any other registered securities of the Corporation shall be
transferable on the books of the Corporation by the holder thereof in
person or by his authorized attorney upon surrender for cancellation to
the transfer agent of an outstanding certificate or certificates for the
same number of shares or other security with an assignment and
authorization to transfer endorsed thereon or attached thereto, duly
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executed, together with such proof of the authenticity of the signature
and of the power of the assignor to transfer the securities as the
Corporation or its agents may require.
Section 6.4. Record Date for Dividends or Rights. -- The board
may fix a record date in advance as of which shares of stock shall be held
of record to entitle a shareholder to the payment of any dividend, to the
allotment of rights, or to exercise rights in respect to any change,
conversion or exchange of capital stock of the Corporation. The record
date shall not precede by more than sixty days the date of the dividend
payment, or the allotment of rights, or the date when the change,
conversion or exchange of capital stock shall take effect. Only
shareholders of record on the record date shall be entitled to receive or
exercise the rights or benefits when they shall accrue, notwithstanding
any transfer of any stock on the books of the Corporation subsequent to
the record date which is fixed.
Section 6.5. Issue of New Shares or Sale of Treasury Stock. --
Shares of the capital stock of the Corporation, which have been authorized
but not issued, may be issued from time to time for such consideration,
not less than the par value thereof, as may be determined by the board.
Treasury shares may be sold from time to time for such consideration as
may be determined by the board.
ARTICLE VII
CORPORATE SEAL
Section 7.1. Form and Use. -- The corporate seal shall have
inscribed thereon the name of the Corporation, the year 1988, and the
words "Corporate Seal, New Jersey." The seal may be used by causing it or
a facsimile thereof to be impressed or reproduced on a document or
instrument, or affixed thereto.
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ARTICLE VIII
FISCAL YEAR
The fiscal year of the Corporation shall commence on the first
day of January of each year.
ARTICLE IX
AMENDMENTS
These by-laws may be altered, amended or repealed by the
shareholders or the board. Any by-law adopted, amended, or repealed by
the shareholders may be amended or repealed by the board unless the
resolution of the shareholders adopting a bylaw expressly reserves to the
shareholders the right to amend or repeal it.
ARTICLE X
MISCELLANEOUS
Section 10.1. Inspection of Corporate Records. -- The share
register, or duplicate share register, and minutes of proceedings of the
shareholders shall be open to inspection for any proper purpose upon the
written demand of any person who shall have been a shareholder of record
or holder of a voting trust certificate for at least six months
immediately preceding his demand, or any person holding, or so authorized
in writing by the holders of, at least twenty percent of the outstanding
shares of any class. The inspection may be made in person or by an agent
or attorney and shall include the right to make extracts. Demand for
inspection other than at a shareholders' meeting shall be made in writing
upon the president or the secretary of the Corporation.
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Section 10.2. Assignment and Transfer of Stock, Bonds and Other
Securities. -- The chairman, the president, any other executive officer,
any vice president, or any other officer authorized by the board or the
executive committee, and each of them, shall have power to assign or to
endorse for transfer under the corporate seal, and to deliver any stock,
bonds, subscription rights, or other securities, or any beneficial
interest therein, held or owned by the Corporation.
Section 10.3. Checks, Drafts, Etc. -- All checks, drafts or
other orders for the payment of money, notes or other evidences of
indebtedness, issued in the name of or payable to the Corporation, shall
be signed or endorsed by such person or persons and in such manner,
manually or by facsimile signature, as shall be determined from time to
time by the board or the executive committee.
Section 10.4. Execution of Contracts. -- The board or the
executive committee may authorize any officer or officers, agent or
agents, to enter into any contract or execute any instrument in the name
of and on behalf of the Corporation. The authority may be general or
confined to specific instances and, unless so authorized by the board, the
executive committee or these by-laws, no officer, agent or employee shall
have any power or authority to bind the Corporation by any contract or
engagement or to pledge its credit or to render it liable for any purpose
or for any amount.
Section 10.5. Voting Shares of Other Corporations. -- The
chairman, the president, any other executive officer, or any vice
president are authorized to vote, represent and exercise on behalf of this
Corporation all rights incident to any and all shares of stock of any
other corporation or corporations standing in the name of this
Corporation. The authority herein
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granted may be exercised by an officer either in person or by proxy or by power
of attorney duly executed by the officer.
Section 10.6. Force and Effect of By-laws. -- These by-laws are
subject to the provisions of the New Jersey Business Corporation Act and the
Corporation's certificate of incorporation, as it may be amended from time to
time. If any provision of these by-laws is inconsistent with a provision in
that Act or the certificate of incorporation, the provision of the Act or the
certificate of incorporation shall govern to the extent of such inconsistency.
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Exhibit 21.1
First Fidelity Subsidiaries at January 31, 1994
HOLDING COMPANY SUBSIDIARIES -
First Fidelity Incorporated - incorporated in New Jersey
Northeast Bancorp, Inc. - incorporated in Connecticut
BANK SUBSIDIARIES -
First Fidelity Bank, N.A., national bank operating in New Jersey and
Pennsylvania
First Fidelity Bank, N.A., New York, national bank operating in New York
Union Trust Company, a Connecticut state bank and trust company
BANKING RELATED COMPANY SUBSIDIARIES -
Broad & Lombardy, Inc., incorporated in New Jersey
Fidelcor Life Insurance Company, incorporated in Arizona
First Fidelity Brokers, Inc., incorporated in New Jersey
First Fidelity Insurance Services, Inc., incorporated in New Jersey
First Fidelity International Bank, incorporated in Delaware (Edge Act
Subsidiary)
First Fidelity Urban Investment Corporation, incorporated in New Jersey
First Fidelity Leasing Group, Inc., incorporated in Delaware
Global Processing Alliance, Inc., incorporated in Delaware (50% ownership)
<PAGE> 1
Consent of Independent Auditors
Board of Directors
First Fidelity Bancorporation
We consent to the incorporation by reference in registration statement No.
33-20087, registration statement No. 33-20088, registration statement No.
33-20089, registration statement No. 33-20090, registration statement No.
33-29177, registration statement No. 33-35613, registration statement 33-45404,
registration statement No. 33-48712 and registration statement No. 33-52469 on
Form S-8 and registration statement No. 33-20121, registration statement No.
33-21480, registration statement No. 33-41710 and registration statement No.
33-41061, on Form S-3 of First Fidelity Bancorporation of our report, dated
January 14, 1994, relating to the consolidated statements of condition of First
Fidelity of our report, dated January 14, 1994, relating to the consolidated
statements of condition of First Fidelity Bancorporation and its subsidiaries
as of December 31, 1993 and 1992 and the related consolidated statements of
income, changes in stockholders' equity and cash flows for each of years in the
three year period ended December 31, 1993, which report appears in the December
31, 1993 annual report on form 10K of First Fidelity Bancorporation.
KPMG PEAT MARWICK
March 11, 1994
New York, New York
