First Fidelity Bancorp., New Jersey's largest bank, reported net income of $111.6 million for this year's second quarter, a 14% increase over the $98 million it earned in the same period last year.

Analysts say earnings growth was fueled by eight acquisitions completed over the past year and a more than 50% decrease in loan-loss provisions.

Despite record earnings in the second quarter, the Lawrenceville-based bank continues to struggle with loan growth, which could hurt earnings in the near future.

Loan-Loss Provision Cut

First Fidelity posted a less than .8% increase in loan volume, from $21.4 million at the end of the first quarter to $21.6 million at June 30.

At the same time, the bank cut its loan-loss provision in half to $20 million from $41 million last year.

Gerard Cassidy, an analyst at Hancock Institutional Equity Services, says First Fidelity's loan-loss provision can't drop much lower because the bank doesn't want to get caught with bad loans and no support.

If loan volume drops, "we will start to see negative year over year earnings comparisons during the next 12 months," he said.

Efficiency Ratio Improves

Analysts did praise the bank's ability to keep costs down, another reason the bank's income rose. First Fidelity's efficiency ratio, excluding securities gains, was 58.4%, down from 58.6% in the first quarter.

Elizabeth Summers, an analyst with Ryan Beck & Co., said: "The efficiency ratio improved slightly in the quarter. Despite their acquisitions, they have one of the best efficiency ratios in New Jersey."

Return on average assets for the second quarter came in at 1.35%, slightly up from 1.32% in the first quarter of this year.

Return on equity improved from 16.11% in the first quarter 1994 to 16.24% at June 30.

Midlantic's Profits Rise

Net interest margin increased slightly to 4.78% from 4.75% at March 31 of this year.

In other New Jersey news, Edison-based Midlantic Corp. reported net income this quarter of $72 million, a 77% increase over last year's second quarter income of $41 million.

The $13.8 billion-asset bank saw a marked improvement in asset quality, partially because of a bulk sale in January of $300 million worth of distressed real estate in New Jersey and Pennsylvania.

Midlantic's ratio of nonperforming assets to overall assets improved dramatically to 3.5% from last year's 7.8%.

Besides the bulk sale, Midlantic is rebalancing its portfolio to improve asset quality. Since the end of last year and the end of this quarter, the bank has gotten rid of $1 million of long-term commercial mortgages and 6% of construction and development loans.


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