PHILADELPHIA — First Pennsylvania Corp. said Wednesday that it had reacquired the last of some 20 million stock warrants once held by the federal government, effectively completing a $1.5-billion rescue plan for what an analyst said was a new, "leaner and meaner" First Pennsylvania Bank.
George Zimmermann, regional director of research for Gruntal & Co. here, said the nation's oldest commercial bank was the first to enter and complete a federally guaranteed rescue program.
"The bank has returned to profitability, has targeted their markets and is in there exploiting those markets," he said.
Richard Bove, chief banking analyst for Shearson Lehman Bros. in New York, said: "Clearly, the new management has done almost miraculous things in terms of improving basic lines and making it a viable company."
First Pennsylvania Corp. said it had reacquired the last FDIC-held warrants, which gave the Federal Deposit Insurance Corp. the right to buy First Pennsylvania stock, with $30.1 million generated through a recent public stock offering. The announcement came on the fifth anniversary of the start of what was then the largest federal rescue plan in U.S. banking history.
"At this point, I'm elated," said Chairman George A. Butler, who touched a ceremonial match to 6.5 million stock warrants in New York on Wednesday. "It's been a very challenging five years, but I think we've made a great deal of progress."
The settlement terms of a $1.5-billion package of loans and credit lines were agreed upon by First Pennsylvania, the FDIC and 26 commercial and savings banks on May 29, 1980. The $500 million in loans was repaid in 1983, and the warrants have been reacquired periodically through offerings of common and preferred stock.
The company said 200,000 of 20 million warrants issued in the 1980 rescue plan--about 1% of the total--remained in the hands of some banks that took part in the plan. But all federal warrants have been returned, it said.
"This is a happy anniversary for the FDIC, and me personally, as well as for First Pennsylvania Bank," said FDIC Director Irvine H. Sprague in a statement.
"Relinquishing the last federal hold on the bank and returning it to the private sector, where it belongs, was our objective from the moment we entered into the transaction," said Sprague, who was chairman of the FDIC in 1980.
Butler said the bank has been transformed since 1980, having learned lessons from its previous problems.
In the early 1970s, the bank invested heavily in government securities paying fixed rates of interest, the purchase of which was funded through short-term borrowings. When interest rates began to rise in the late 1970s, the cost of funding the securities purchases exceeded their return, and the bank ran into serious liquidity problems. In 1980, First Pennsylvania had a net loss of $164 million.
The bank, which went from the nation's 23rd largest in 1980 to the 73rd largest at the end of last year, reported its first annual profit since 1979, earning $30 million for 1984.
Zimmermann and Bove said the bank's current strengths were its consumer operations and its "middle market" program aimed at writing loans of between $250,000 and $1 million for smaller businesses.
"They've made a strong thrust to the blue-collar market in Philadelphia, which is good, not bad," said Bove. "Their consumer business is their most profitable area."
Zimmermann said the bank had gone after the middle market in a big way.
"Your risks can be spread there. Everybody's after that market, but they (First Pennsylvania) have been successful at attacking it."
The bank still feels the effects of its 1970s policies: a large part of its bond portfolio is locked into long-term, low-yield paper, while some $475 million in loans to Latin American countries, about 15% of the total outstanding, remains on the books.
"Clearly, that's the Achilles heel," said Bove.
But Zimmermann said the "leaner and meaner" First Pennsylvania could prove attractive to outsiders. "They may be absorbed," he said.
"It's very realistic that in the future there's going to be some kind of merger," said Bove.