SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
QUARTERLY REPORT UNDER SECTION 13 OR 15 (d) OF THE
SECURITIES EXCHANGE ACT OF 1934
For Quarter Ended Commission File No.
June 30, 1997 1-10534
FIRST OF AMERICA BANK CORPORATION
(Exact name of Registrant as specified in its Charter)
Michigan 38-1971791
(State or other jurisdiction of (I.R.S. Employer
Incorporation or Organization) Identification No.)
211 South Rose Street, Kalamazoo, Michigan 49007
(Address of principal Executive Offices) (Zip Code)
Registrant's telephone number, including area code
616-376-9000
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 the number of shares outstanding of each of the issuer's
classes of common stock, as of the latest practicable date.
Class Outstanding at
Common Stock, July 31, 1997
$10 Par Value 88,167,006
FIRST OF AMERICA BANK CORPORATION
INDEX
PART I. FINANCIAL INFORMATION Page
No.
Consolidated Balance Sheets (Unaudited),
June 30, 1997 and December 31, 1996. . . . 1
Consolidated Statements of Income
(Unaudited) - Three and Six Months ended . 2
June 30, 1997. . . . . . . . . . . . . . .
Consolidated Statements of Cash Flows
(Unaudited) - Six Months Ended June 30,
1997 and 1996 . . . . . . . . . . . . . . 3
Notes to Consolidated Financial Statements
(Unaudited) . . . . . . . . . . . . . . . 4
Management's Discussion and Analysis of
Financial Condition and Results of
Operations . . . . . . . . . . . . . . . . 6
PART II. OTHER INFORMATION
FIRST OF AMERICA BANK COPORATION
CONSOLIDATED BALANCE SHEETS
(Unaudited)
June 30 December 31
($ In thousands) 1997 1996
- ------------------------------- --------- ---------
ASSETS
Cash and due from banks $ 1,079,797 1,205,962
Money market investments 138,405 163,400
Securities:
Securities available for sale, amortized cost of $4,615,046 at
June 30, 1997 and $4,549,383 at December 31, 1996 4,624,623 4,562,381
Loans, net of unearned income:
Consumer 3,427,953 3,774,803
Commercial, financial and agricultural 2,301,289 2,722,676
Commercial real estate 4,503,231 3,918,248
Residential real estate 4,329,524 4,531,868
Loans held for sale, market value of $75,037 at June 30, 1997
and $109,955 at December 31, 1996 73,343 108,411
----------- -----------
Total loans 14,635,340 15,056,006
Less: Allowance for loan losses 257,953 252,846
----------- -----------
Net loans 14,377,387 14,803,160
Premises and equipment, net 421,267 433,408
Other assets 923,670 893,868
- ------------------------------------------------------------------- ------------- -----------
TOTAL ASSETS $21,565,149 22,062,179
=================================================================== ============= ===========
LIABILITIES AND SHAREHOLDERS' EQUITY
LIABILITIES
Deposits:
Non-interest bearing $ 2,918,445 3,009,252
Interest bearing 13,901,125 14,610,044
----------- -----------
Total deposits 16,819,570 17,619,296
Securities sold under repurchase agreements -- 493,556
Other short term borrowings 1,622,170 1,344,434
Long term debt 816,951 521,124
Company Obligated Mandatorily Redeemable New Capital Securities
of Subsidiary Trust Holding Solely Debentures of the Company 150,000 --
Other liabilities 350,589 299,571
----------- -----------
Total liabilities 19,759,280 20,277,981
----------- -----------
SHAREHOLDERS' EQUITY
Common stock-$10 par value 881,402 598,132
Capital surplus 83,116 145,950
Net unrealized gain/(loss) on securities available for sale, net
of tax expense of $3,352 at June 30, 1997 and net of tax
expense of $4,561 at December 31, 1996 6,225 8,438
Retained earnings 835,126 1,031,678
----------- -----------
Total shareholders' equity 1,805,869 1,784,198
- ------------------------------------------------------------------- ----------- -----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY $21,565,149 22,062,179
=================================================================== ============ ===========
See accompanying notes to consolidated financial statements.
/TABLE
FIRST OF AMERICA BANK COPORATION
CONSOLIDATED STATEMENTS OF INCOME
(Unaudited)
Three Months Ended, Six Months Ended,
June 30, June 30,
($ in thousands except per share data) 1997 1996 1997 1996
- ------------------------------- --------- --------- --------- ---------
INTEREST INCOME
Loans and fees on loans $ 325,217 340,569 650,494 689,795
Securities:
Taxable income 65,975 68,288 130,839 140,864
Tax exempt income 6,392 3,645 12,173 7,093
Money market investments 2,158 2,861 4,762 4,647
--------- --------- --------- ---------
Total interest income 399,742 415,363 798,268 842,399
--------- --------- --------- --------
INTEREST EXPENSE
Deposits 143,462 160,510 286,797 327,783
Short term borrowings 23,471 20,492 46,969 44,279
Long term debt 13,903 9,062 25,033 18,614
--------- --------- --------- --------
Total interest expense 180,836 190,064 358,799 390,676
--------- --------- --------- --------
NET INTEREST INCOME 218,906 225,299 439,469 451,723
Provision for loan losses 18,416 23,230 41,232 47,831
--------- --------- --------- --------
NET INTEREST INCOME AFTER PROVISION FOR LOAN LOSSES 200,490 202,069 398,237 403,892
--------- --------- --------- ---------
NON-INTEREST REVENUE
Service charges on deposit accounts 29,531 27,640 57,928 53,777
Trust and financial services revenue 32,877 29,067 65,874 56,432
Investment securities transactions, net (635) (472) (1,216) (759)
Bank card revenue 20,428 18,321 37,499 35,478
Mortgage banking revenue 7,245 7,030 17,452 13,105
Other operating revenue 20,845 14,367 59,797 32,089
--------- --------- --------- ---------
Total non-interest revenue 110,291 95,953 237,334 190,122
--------- --------- --------- ---------
NON-INTEREST EXPENSE
Personnel 114,844 111,770 232,799 223,112
Occupancy, net 14,745 15,323 31,015 32,153
Equipment 14,281 14,289 28,662 29,016
Outside data processing 4,784 4,482 9,425 9,191
Amortization of intangibles 5,280 5,237 10,561 10,474
Other operating expenses 46,994 52,142 94,142 104,757
--------- --------- --------- ---------
Total non-interest expense 200,928 203,243 406,604 408,703
--------- --------- --------- ---------
Income before income taxes 109,853 94,779 228,967 185,311
Income taxes 36,699 32,508 76,388 63,419
--------- --------- --------- ---------
NET INCOME $ 73,154 62,271 152,579 121,892
========= ========= ========= =========
EARNINGS PER SHARE
Primary 0.82 0.67 1.70 1.30
Fully Diluted 0.82 0.67 1.70 1.30
See accompanying notes to consolidated financial statements.
/TABLE
FIRST OF AMERICA BANK COPORATION
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
Six Months Ended,
June 30,
----------------------
($ in thousands) 1997 1996
- ------------------------------- --------- ---------
CASH FLOW FROM OPERATING ACTIVITIES:
Net income $ 152,579 121,892
Adjustments to reconcile net income to cash
provided by operating activities:
Depreciation and amortization 22,974 23,550
Provision for loan losses 41,232 47,831
Provision for deferred taxes (2,659) (2,308)
Amortization of intangibles 10,561 10,474
(Gain) loss on sale of securities available for sale 200 758
(Gain) loss on sale of mortgage loans held for sale (12,937) (8,865)
(Gain) loss on sale of other assets (21,766) (4,571)
Proceeds from the sales of mortgage loans held for sale 555,679 626,622
Originations of mortgage loans held for sale (507,674) (623,907)
Change in assets and liabilities net of acquisitions:
(Increase) decrease in interest and other income receivable (7,956) 56,519
(Increase) decrease in other assets (5,957) 60,338
Increase (decrease) in accrued expenses and other liabilities 55,524 7,426
--------- ---------
Net cash provided by operating activities 279,800 315,759
--------- ---------
CASH FLOWS FROM INVESTING ACTIVITIES:
Proceeds from the sale of securities available for sale 510,801 686,554
Proceeds from the maturities of securities available for sale 526,657 542,791
Purchases of securities available for sale (1,095,062) (714,794)
Net other (increase) decrease in loans and leases 349,473 557,661
Premises and equipment purchased (22,993) (23,259)
Proceeds from the sale of premises and equipment 33,926 16,706
(Acquisition) sale of affiliates, net of cash acquired -- 944
--------- ---------
Net cash provided by investing activities 302,802 1,066,603
--------- ---------
CASH FLOWS FROM FINANCING ACTIVITES:
Net increase (decrease) in short term deposits (215,990) (82,203)
Net increase (decrease) in time deposits (583,736) (865,422)
Net increase (decrease) in short term borrowings (215,820) (278,610)
Proceeds from issuance of long term debt 499,901 925
Repayments of long term debt (54,094) (58,173)
Proceeds from issuance of common stock (303) 402
Dividends paid (56,029) (55,362)
Payments for purchase and retirement of common stock (82,716) (110,581)
--------- ---------
Net cash provided by financing activities (708,767) (1,449,024)
--------- ---------
Net increase(decrease) in cash and cash equivalents (126,165) (66,662)
Cash and cash equivalents at beginning of period 1,205,962 1,207,062
--------- ---------
CASH AND CASH EQUIVALENTS AT END OF PERIOD $1,079,797 1,140,400
========= =========
See accompanying notes to consolidated financial statements.
/TABLE
NOTE 1: GENERAL
The accompanying interim financial statements are unaudited. In
the opinion of management, all adjustments necessary for a fair
statement of the consolidated financial results have been
included and all such adjustments are of a normal recurring
nature. Certain amounts included in the prior period financial
statements have been reclassified to conform with the current
financial statement presentation.
NOTE 2: NON-PERFORMING ASSETS
June 30,
-------------------------
(in thousands) 1997 1996
- ----------------------------- ----------- ---------
Non-accrual loans $ 86,174 95,705
Restructured loans 4,323 9,531
Other real estate owned 19,366 30,933
----------- ---------
Total non-performing assets $ 109,863 136,169
============ ==========
NOTE 3: ALLOWANCE FOR LOAN LOSSES
Three Months Ended Six Months Ended
June 30, June 30,
------------------ ----------------
(in thousands) 1997 1996 1997 1996
- ------------------- ------- ------- ------- -------
Balance, beginning of period $255,776 245,207 252,846 241,182
Provision charged against income 18,416 23,230 41,232 47,831
Recoveries 15,189 15,395 28,664 31,838
Loans charged off (31,428) (34,444) (64,789) (71,463)
--------- -------- -------- --------
Balance, end of period $257,953 249,388 257,953 249,388
========= ======== ======== ========
At June 30, 1997, total loans considered to be impaired under
Statement No. 114 were $68.3 million with an average for the quarter
of approximately $67.7 million. At June 30, 1996, total loans
considered impaired were $85.6 million with an average for the quarter
of approximately $82.3 million. At quarter-end, the allowance for
impaired loans was $12.4 million and $19.0 million, respectively. At
June 30, 1997, the impaired allowance related to $21.3 million of
identified impaired loans, while the remaining $47.0 million of
impaired loans did not require a specific allowance for loan losses
based on the requirements of Statement No. 114.
NOTE 4: COMMON STOCK AND CALCULATION OF EARNINGS PER SHARE
At the 1997 annual meeting, shareholders approved an increase in the
number of authorized common stock of the company from 100,000,000 to
200,000,000 shares.
On May 30, 1997, a 3-for-2 stock split, effected in the form of a 50
percent stock dividend, was distributed to shareholders.
All prior period data presented in this filing regarding the number of
common shares outstanding and amounts per share have been restated to
reflect the above two events.
At June 30, 1997 and 1996, there were 88,140,213 and 91,477,073 common
shares outstanding, respectively. At the same dates, there were
200,000,000 authorized shares of $10 par value common stock. Common
and common equivalent earnings per share amounts were calculated by
dividing net income applicable to common stock by the weighted average
number of common and common equivalent shares outstanding during the
respective periods adjusted for outstanding stock options.
Three Months Ended Six Months Ended
June 30, June 30,
----------------------------- -----------------------------
1997 1996 1997 1996
------------ ------------ ------------ ------------
Average common and common
equivalents shares outstanding 89,025,515 92,801,144 89,538,717 94,050,585
NOTE 5: MERGERS AND ACQUISITIONS
Date of Total Assets Financial
($ in thousands) Acquisition Acquired Reporting Value
- --------------------------------- ---------------- ----------- --------------
Scott, Doerschler, Messner &
Gauntlett, Inc. January 1, 1997 $ 73 5,455
Elliot & Sons Insurance Agency Inc.,/
Michigan Benefit Plans Inc. January 7, 1997 1,424 4,259
Huttenlochers Kerns Norvell, Inc. February 12, 1996 3,994 3,912
/TABLE
NOTE 6: ACCOUNTING POLICIES FOR DERIVATIVE FINANCIAL INSTRUMENTS
Interest Rate Swaps -
To manage interest rate sensitivity, First of America and its
subsidiaries enter into interest rate swaps as a hedge against certain
debt. The contracts represent an exchange of interest payments.The
underlying principal balances of the assets or liabilities are not
affected. Net settlement amounts are reported as adjustments to
interest income or interest expense. Gains or losses on the
termination of interest rate swaps are deferred and amortized over the
remaining life of the designated balance sheet liability. When the
swap becomes uncovered during the swap agreement, the swap is
immediately marked-to-market with a corresponding charge to current
earnings.
NOTE 7: COMPANY OBLIGATED MANDATORILY-REDEEMABLE NEW CAPITAL SECURITIES
OF FIRST OF AMERICA CAPITAL TRUST I
First of America Capital Trust I (the "Trust") was formed for the purpose
of issuing capital securities and investing the proceeds from the sale of
such capital securities in junior suborinated deferrable interest debentures
issued by the corporation. The corporation is the owner of all of the
beneficial interests of the Trust represented by common securities, the
proceeds from the sale of which were also invested in the junior subordinated
deferrable interest debentures issued by the corporation. On January
28, 1997, the Trust issued $4.64 million Common Securites, $150 million
8.12% Capital Securities, Series A and invested the proceeds from the sale
of such securities in $154,640,000 8.12% Junior Subordinated Deferrable
Interest Debentures due January 31, 2027, Series A, issued by the corporation
(the "Series A Debentures"). Pursuant to an exchange offer consummated
on July 30, 1997, the Trust exchanged all of the Series A Debentures held
by the Trust for $154,640,000 8.12% Junior Subordinated Deferrable Interest
Debentures due January 31, 2027, Series B, issued by the corporation
(the "Series B Debentures"). The sole assets of the Trust are these
Series B Debentures.
Item 2. Managements' Discussion and Analysis of Financial Condition
and Results of Operations
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
Summary: The following table sets forth the period to period
changes in the principal items included in the
consolidated statement of income for the three and six
months ended June 30, 1997, compared with the
corresponding 1996 period. The bracketed amounts
represent decreases.
Three Months Ended Six Months Ended
June 30, June 30,
1997 vs 1996 1997 vs 1996
-------------------- ---------------------
($ in thousands) Change Percent Change Percent
- ----------------------------- -------- --------- ---------- ---------
Interest and fee income on loans $ (15,352) (4.5)% $ (39,301) (5.7)%
Interest income on investments 434 0.6 (4,945) (3.3)
Interest income on money market
investments (703) (24.6) 115 2.5
--------- --------- ---------- ---------
Total interest income (15,621) (3.8) (44,131) (5.2)
--------- --------- ---------- ---------
Interest expense on deposits (17,048) (10.6) (40,986) (12.5)
Interest expense on borrowed funds 7,820 26.5 9,109 14.5
--------- --------- ---------- ---------
Total interest expense (9,228) (4.9) (31,877) (8.2)
--------- --------- ---------- ---------
Net interest income (6,393) (2.8) (12,254) (2.7)
Provision for loan losses (4,814) (20.7) (6,599) (13.8)
Non-interest income 14,338 14.9 47,212 24.8
Non-interest expense (2,315) (1.1) (2,099) (0.5)
--------- --------- ---------- ---------
Income before income taxes 15,074 15.9 43,656 23.6
Income taxes 4,191 12.9 12,969 20.4
--------- --------- ---------- ---------
Net income $ 10,883 17.5 % $ 30,687 25.2 %
========= ========= ========== =========
OVERVIEW
Net income for the second quarter was $73.2 million, up 17.5 percent
from the $62.3 million reported for the second quarter of 1996 and
earnings per share of $0.82 compared with $0.67, an increase of 22.4
percent. Second quarter net income for 1997 and 1996, on an after-tax
basis, included net one-time charges of $0.8 million. On a core
basis, excluding one-time events for both periods, net income for the
quarter would have been $74.0 million, up 17.3 percent, and earnings
per share would have been $0.83, up 22.1 percent.
For the year-to-date period, net income was $152.6 million, up 25.2
percent from 1996, and earnings per share were $1.70, up 30.8 percent
over 1996. One-time events during the first six months of 1997
included (net of tax): gains from branch sales of $13 million,
severance charges of $1.3 million, and a gain of $1.2 million on the
sale of certain affinity card receivables. The 1996 year-to-date
period included after tax gains from branch sales of $2.9 million.
Excluding one-time events from both periods, net income would have
been $143.0 million for 1997 compared with $119 million for 1996;
and earnings per share would have been $1.60 and $1.27, respectively.
A higher net interest margin, growing non-interest revenue, and
stabilizing non-interest expense, excluding one-time charges, were the
primary reasons for the stronger core results.
As part of the ongoing efforts to manage capital for the benefit of
the shareholders, 2.0 million shares of First of America Common Stock
were repurchased this year increasing earnings per share $0.01 for the
year-to-date period. Additionally In January of 1997, we privately
placed $150 million of fixed rate trust preferred securities. These
securities reduced our cost of capital and improved our risk based capital
ratios. The net interest margin for the current year-to-date period
was 4.66 percent compared with 4.44 percent for the same period a year
ago and 4.67 percent for the current quarter compared to 4.49 percent
a year ago.
At June 30, 1997, total assets were $21.6 billion, down from $22.1
billion a year ago, mainly as a result of the continued restructuring
of the balance sheet to yield a more profitable earning asset and
deposit mix. Loan growth strategies for 1997 are targeted toward
increasing the commercial, commercial mortgage, and home equity loan
portfolios. Commercial loan and commercial mortgage balances for the
second quarter of 1997 increased 3.2 percent to $6.7 billion from a
year ago. Home equity loans grew 29.4 percent from a year ago.
Residential mortgage and indirect consumer loans, combined, decreased
$1.3 billion, or 15.3 percent, from the same period a year ago.
Growth in consumer and small business deposits continue to be
emphasized for 1997. Core deposits were $1.4 billion lower than a
year ago as a result of branch sales completed in 1996 and 1997 and
the run off experienced within certain savings and CD products.
Excluding sold deposits, transaction deposits increased 3.4 percent
and time deposits decreased 17.4 percent from the same period in 1996.
The return on average assets for the second quarter and year-to-date
period of 1997 were 1.38 percent and 1.44 percent, respectively. For
the same comparable periods of 1996, the same ratios were 1.12 percent
and 1.09 percent, respectively. Return on equity was 16.61 percent
for the second quarter of 1997 and 14.09 percent for the same 1996
quarter. Year-to-date, the return on equity ratio was 17.32 percent
for 1997 and 13.52 percent for 1996. Excluding one-time events,
year-to-date return on average assets would have been 1.35 percent
compared with 1.07 percent in 1996, and return on equity would have
been 16.23 percent compared with 13.35 percent a year ago.
At the end of 1996, we announced a restructuring effort that would focus
on specific lines of business versus geographic boundaries. Since April
1997, we have been functioning organizationally as one operating unit,
even though we will continue a legal charter in Illinois in addition to
our Michigan charter. The Illinois charter will be retained to facilitate
banking relationships with governmental entities throughout Illinois.
In June 1997, we announced that we had entered into an agreement to sell
our Florida operations to Barnett Banks, Inc. for approximately $160
million. We expect to realize a gain on the transaction of between $0.10
and $0.12 per share. The transaction is expected to close early in the
fourth quarter of 1997. At June 30, 1997, our Florida operations had
$1.2 billion in assets.
CONSOLIDATED INCOME ANALYSIS
Net interest income for the second quarter, on a fully taxable
equivalent basis, was $224.6 million, down 2.1 percent from second
quarter 1996, while year-to-date net interest income was down 2.0
percent. Earning assets decreased 5.7 percent to $19.3 billion from
the year ago quarter primarily because of smaller residential mortgage
and consumer installment loan balances.
The net interest margin was up 18 basis points to 4.67 percent from
4.49 percent a year ago. Net interest margin for the year-to-date
period was also higher, at 4.66 percent compared with 4.44 percent for
1996. The improvement is a result of the balance sheet restructuring
and the pricing discipline exercised with new loans and deposits,
particularly in consumer indirect installment loans and residential
mortgage loans.
Table 3 provides detail on the average yields on earning assets and
the average rates paid on interest-bearing liabilities for the last
six quarters.
Management currently expects that earning assets will remain level or
decline slightly during the remainder of 1997, although commercial loans
are expected to increase. Deposits overall are also expected to decrease
slightly, primarily in the CD category, while other deposit types should
remain stable. The net interest margin is expected to remain level or
increase slightly during the last six months of 1997 while return on equity
should remain above 16 percent for 1997 and between 16
and 17 percent for 1998. The preceding statements in this paragraph
are forward-looking, and First of America's actual results may differ
from those currently expected. Such differences could result from a
variety of factors including the potential sale of additional bank
branches as well as changes in loan demand and the interest rate environment.
The allowance for loan losses was $258 million at June 30 1997,
compared with $249 million a year ago and $253 million at December 31,
1996. The provision for loan losses for the second quarter decreased
19.3 percent to $18.4 million from the first quarter of 1997 as a
result of lower net charge-offs in the consumer installment loan
portfolio. Second quarter net charge-offs in the credit card
portfolio were down marginally from the first quarter. The allowance
for loan losses to total loans ratio at June 30, 1997, was 1.76
percent, up from 1.61 percent a year ago and 1.68 percent at year end
1996. Charge-offs and recoveries by portfolio type are detailed in
Table 3.
Total non-interest revenue for the quarter increased 14.9 percent from
a year ago and increased 24.8 percent for the year-to-date period.
The year-to-date increase is due in part to $21.7 million of branch sale
gains recorded this year compared with the $4.5 million recorded during
the same year-to-date period last year. Excluding the impact of branch
sale gains from both periods, non-interest revenue increased 16.2 percent
for the first six months of 1997 over the same period of 1996. Bank card
revenue for the quarter included a $1.9 million gain from the sale of
$9.4 million of consumer credit card receivables.
Trust and financial services revenue for the quarter was $32.9
million, up from the $29.1 reported for the year ago quarter, and for
the year-to-date period was up $9.4 million to $65.9 million.
Revenues from the Trust and Financial Services Division continued to
benefit from expanding insurance business and the higher market values
of managed assets upon which fees are assessed. At quarter-end, total
assets under management were $21.6 billion compared with $18.8 billion
a year ago. Traditional trust fees were $37.1 million for the six
month period, up $1.4 million from last year. Other financial
services revenue, generated by cash management, investment management,
brokerage and insurance services, was $28.7 million for the six month
period compared with $20.7 million a year ago, benefiting from the
sales and services strategies implemented in partnership with the
branch employees. Insurance revenue for the same periods was $5.7
million and $2.4 million, respectively, reflecting our original and
continuing commitment to this product line.
Mortgage banking revenue increased 3.1 percent to $7.2 million for the
quarter and was up $4.3 million to $17.5 million for the year-to-date
period. The main reason for the year-to-date increase was a $4.0
million increase in total gains on mortgage loan sales, which included
a $3.1 million gain on an $89 million portfolio sale.
Bank card revenue for the quarter included a $1.9 million gain on
the sale of $9.4 of consumer credit card receivables. If this gain is
excluded from the comparisons, bank card revenue was approximately
level for the quarter and year-to-date periods. We expect to record
an additional gain of approximately $6.0 million on the sale of $36.0
million of credit card receivables in the third quarter. The preceding
is a forward-looking statement, and First of America's actual results may
differ from those currently expected.
Total non-interest expense was down 1.1 percent for the quarter and
0.5 for the year-to-date period. If severance charges of $3.2 million
for the quarter and $7.3 million year-to-date were excluded, non-
interest expense would be down $4.1 million for the quarterly
comparison and $8.1 million, or 2.0 percent, for the year-to-date
comparison. Total personnel costs, excluding severance charges, were
up slightly for the comparable periods, primarily due to higher sales
incentives.
On a core operating basis, the burden ratio was 1.69 percent versus
1.91 percent for the comparative quarters, and 1.75 percent versus
1.99 percent for the six month periods. On the same basis, the
efficiency ratio was 59.37 percent for the quarter and 60.10 for the
year-to-date period, which compares favorably with last year's core
operating ratios of 62.04 percent and 63.09 percent, respectively. The
efficiency ratio is expected to be, on an annualized basis, at or
slightly below 60 percent for full year 1997. The preceding is a
forward-looking statement, and First of America's actual results may
differ from what has been stated.
LINE OF BUSINESS RESULTS
An objective of First of America's recent restructuring effort was to
define specific lines of business which would cross legal entity lines
and focus its management and information systems accordingly. As a
result, First of America currently measures the individual
performance of four business lines -- Commercial Lending, Retail Sales
& Delivery, Consumer Finance & Mortgage, and Trust & Financial
Services -- as well as the performance of certain product lines within
those businesses. A fifth category, Corporate Investments & Funding,
includes activities that are not directly attributable to any one of
the four major lines of business.
In developing the management accounting system for line of business
reporting, certain assumptions and allocations were necessary. Equity
was allocated on the basis of required regulatory levels, inherent
operational risk or market-determined factors as evidenced by similar
independent single business line companies. Support services which
were centrally provided were allocated on a per-unit cost basis or in
proportion to the balances of assets and liabilities associated with a
particular business line. Funds transfer pricing was used to allocate
a cost of funds used or a credit for funds provided from market-
determined indices. Because of the assumptions and allocations
utilized, the financial results of the individual business lines might
vary from the actual results if those lines were in fact separate
operating entities.
For reporting purposes this quarter, Commercial Lending and Retail
Sales & Delivery are combined and shown as Total Community Banking.
Table 1 presents summarized income statements for the second quarter
of 1997 and selected quarterly information for the past six quarters
for the business lines. The results for the prior quarters have been
restated to reflect this new organizational structure.
Net income for each of the lines of business for the second quarter of
1997 was higher than last year except Trust & Financial Services which
was down 17.0 percent due to higher non-interest expenses of $3.4
million offset by a $2.9 million increase in non-interest income.
Expenses for this line of business were higher due in part to the ongoing
investments we continue to make to expand new businesses within the area.
Total Community Banking's net income was up 16.4 percent for the
second quarter of 1997 over the same period of 1996 as a result of a
$6.6 million increase in non-interest income and an $11.7 reduction in
non-interest expense. Consumer Finance & Mortgage's net income
increased 20.4 percent due to higher net interest income of $5.8
million.
TABLE 1
LINE OF BUSINESS FINANCIAL PERFORMANCE
For quarter ended June 30, 1997 Total Consumer Trust & Corporate
Community Finance & Financial Investments Consolidated
INCOME STATEMENT Banking Mortgage Services & Funding Results
--------- --------- --------- --------- ---------
- - - ($ in thousands) - - -
Net interest income (FTE) $ 173,354 44,941 1,490 4,821 224,606
Provision for loan losses 6,179 12,237 -- -- 18,416
Non-interest income 45,987 29,521 31,839 2,944 110,291
Non-interest expense 127,520 31,837 23,724 9,363 196,444
Corporate support 6,522 1,628 1,213 (9,363) --
Income tax expense (FTE) 29,420 10,695 3,121 1,012 44,248
--------- --------- --------- --------- ---------
Income before one-time gains and charges $ 49,700 18,065 5,271 6,753 79,789
Gains from branch sales, severance and
other one time charges (net of tax) (1,967)
Goodwill (net of tax) 4,668
---------
Net Income $ 73,154
=========
Contribution to consolidated results 62.3% 22.6 6.6 8.5 100.0
1997 1996
---------------------- --------------------------------------------------
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
QUARTER RESULTS June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
--------- --------- --------- --------- --------- ---------
TOTAL COMMUNITY BANKING
Net income $ 49,700 44,451 51,065 46,320 42,682 38,485
Return on equity 18.69 % 16.93 18.76 16.92 16.07 14.32
Efficiency ratio 61.11 64.33 62.51 64.26 65.84 68.64
CONSUMER FINANCE & MORTGAGE
Net income $ 18,065 15,883 16,288 16,468 15,831 14,625
Return on equity 16.61 % 14.38 14.05 13.67 12.90 11.56
Efficiency ratio 44.94 46.06 45.34 45.96 45.36 45.91
TRUST & FINANCIAL SERVICES
Net income $ 5,271 5,345 5,325 6,004 6,347 5,313
Return on equity 28.33 % 29.06 30.20 34.18 36.49 30.64
Efficiency ratio 74.82 74.86 74.88 68.94 67.37 70.60
CORPORATE INVESTMENT & FUNDING
Net income $ 6,753 7,976 5,732 2,985 2,859 3,055
Return on equity -- -- -- -- -- --
Efficiency ratio -- -- -- -- -- --
/TABLE
ASSET QUALITY AND CREDIT RISK PROFILE
First of America's loan portfolio has no significant concentrations of
credit to any specific borrower or within any geographic region,
effectively reducing credit risk exposure.
Also reducing credit risk are First of America's conservative lending
policies and loan review process. At June 30, 1997, the loan
portfolio was comprised of residential mortgages (30.1 percent),
consumer loans (23.4 percent), commercial mortgages (27.5 percent)
and commercial loans (19.0 percent).
The allowance for loan losses was 1.76 percent of total loans compared
with 1.61 percent a year ago. The allowance coverage of
non-performing loans was 285.04 percent compared with 236.98 percent a
year ago. Non-performing loans and loans 90 days past due are
detailed by portfolio in Table 6.
The asset quality in the commercial loan and residential mortgage
portfolios, approximately three-quarters of total loans, remains
strong. Over the last two years, these portfolios have experienced
minimal net charge-offs.
Across the banking industry there has been a deterioration of consumer
loan quality, and since mid-1995, First of America also experienced a
rise in both delinquencies and net losses in its installment loan and
credit card portfolios from the favorable levels previously
experienced.
To reverse this trend, First of America intensified its collection
efforts and tightened credit controls. As a result, the consumer
installment loan portfolio's net charge-offs began to stabilize in
1996 and decreased during the first six months of 1997. The consumer
installment net charge-offs to average loans for the second quarter
was 0.63 percent compared with 1.00 percent for the same quarter of
1996. For the managed credit card portfolio, net charge-offs to
average loans was 4.73 percent and 4.35 percent, respectively.
FUNDING, LIQUIDITY AND INTEREST RATE RISK
First of America continues to monitor interest rate risk, provide
liquidity and moderate changes in the market value of the investment
securities portfolio through a centralized funds management division.
Liquidity is measured by a financial institution's ability to raise
funds through deposits, borrowed funds, capital or the sale of
assets. First of America relies primarily upon core deposits for its
liquidity. At June 30, 1997, core deposits equalled 96.3 percent of
total deposits. First of America does not issue negotiated CD's in
the national money markets, and limits its level of purchased funds
through corporate policy to less than ten percent of assets. The
majority of negotiated CD's and purchased funds originate from the
core deposit customer base, including downstream correspondents.
First of America's interest rate risk policy is to minimize the
effect on net income resulting from a change in interest rates
through asset/liability management at all levels in the company.
Each quarter an interest rate sensitivity analysis is completed for
each line of business, as well as the corporation as a whole, using an
asset/liability model. Additional analysis is completed and reviewed
each month related to the interest rate sensitivity of the
corporation. The Asset and Liability Committees, which exist within
each line of business and at the corporate level, review the analysis
and as necessary, take appropriate action to ensure compliance with
policy and strategic objectives relating to prudent risk rate
management.
The difference between rate sensitive assets and liabilities,
including the impact of off-balance sheet interest rate swaps, is
presented in Table 7. The GAP reports' reliability in measuring the
risk to income from a change in interest rates is tested through the
use of simulation models. The most recent simulation models, using
various interest rate shock scenarios, show that less than 4.0 percent
of First of America's annual net income is at risk if interest rates
were to move up or down an immediate one percent. Management has
determined that these simulation models provide a more accurate
measurement of the company's interest rate risk position than the GAP
tables.
TABLE 2
INTEREST RATE SWAPS
($ in thousands) Net Interest Income
Impact for the
Weighted Average Average Six Months Ended
Notional Fair Market Average Rate Received Rate Paid June 30,
Hedged Asset/Liability Amount Value Maturity (Mos.) Variable/Fixed Variable/Fixed 1997 1996
- ------------------------ --------- ------------ -------------- --------------- --------------- ---------- ---------
Market Rate CDs * -- -- -- -- -- -- (62)
FirstRate Fund deposits -- -- -- -- -- -- (22)
Bank notes $ 30,000 577 3.6 5.80%/fixed 5.54/variable 35 (36)
Long term debt 50,000 (377) 15.6 5.60%/fixed 5.61/variable (30) (3)
- ------------------------ --------- ------------ -------------- --------------- --------------- --------- ----------
Total $ 80,000 200 11.1 $ 5 $ (123)
========================= ========== ============= ============== ========= ==========
* This represents a basis swap.
See Note 6 to the consolidated financial statements regarding First of
America and its subsidiaries use of interest rate swaps as a hedge
against certain debt. Although notional amounts are often used to
express the volume of these transactions, the amounts potentially
subject to credit risk are much smaller. The company minimizes this
risk by performing normal credit reviews of its counterparties and
collateralizing its exposure when it exceeds a predetermined limit.
Table 2 outlines First of America's outstanding interest rate swaps
at June 30, 1997.
First of America had outstanding interest rate swaps with a notional
value of $80.0 million which included $50.0 million as a hedge against
parent company debt and $30.0 million as a hedge against subsidiary
bank debt. The outstanding swaps had a positive market value of $200
thousand. At June 30, 1996, outstanding swaps totalled $72.3 million
in notional amounts with a negative market value of $656 thousand.
At times First of America also utilizes interest rate caps to manage
its interest rate risk. Interest rate caps are contracts that protect
the holder from a rise, beyond a certain point, in interest rates or
some other underlying index. The contract is based on a notional
amount and a premium is paid for the right to exercise the option.
First of America had no outstanding interest rate caps at June 30,
1997 or 1996.
First of America had no securities classified as held to maturity at
June 30, 1997 or 1996. In accordance with Financial Accounting
Standards Board Statement No. 115 "Accounting for Certain Investments
in Debt and Equity Securities," securities available for sale are
carried at market value which totalled $4.6 billion at June 30, 1997.
Amortized book value was also $4.6 billion at quarter-end. The $9.6
million net unrealized gain in securities available for sale resulted
in a corresponding, after-tax positive market value adjustment to
equity of $6.2 million. At December 31, 1996, the positive market
value adjustments to securities and equity from the securities
available for sale portfolio were $13.0 million and $8.4 million,
respectively.
CAPITAL STRENGTH
First of America began its share repurchase program during March
1996, continuing its capital management strategy. At June 30, 1997,
7.4 million shares of First of America Common Stock had been
repurchased at a total cost of $258 million. No shares were
repurchased during the second quarter. The repurchase of a remaining
1.1 million shares is currently authorized. Any shares repurchased to
date and any additional repurchases under the current authorization
will be used for general corporate purposes and may be available for
reissuance in connection with the company's stock based compensation
plans, dividend reinvestment plan or employee savings plan.
In January 1997, First of America privately placed $150 million of
fixed rate capital securities through the First of America Capital
Trust I, a newly formed Delaware business trust, controlled by the
corporation. The 8.12% Capital Securities of First of America Capital
Trust I were priced at par. Cash distributions are payable
semi-annually on January 31 and July 31, beginning July 31, 1997. The
proceeds from the issuance were used for general corporate purposes
and will further enhance the corporation's strong capital position,
while reducing its cost of capital.
In June 1997, we distributed a Prospectus for an offer to exchange
"New Capital Securities", with substantially the same terms, for any
and all of the outstanding "Old Capital Securities" relating to the
above private placement. The exchange offer was made in order to
satisfy obligations under the Registration Rights Agreement relating
to the Old Capital Securities. The New Capital Securities were registered
with the Securities and Exchange Commission prior to the exchange offer.
The exchange offer expired on July 23, 1997, and was fully subscribed.
Total shareholders' equity of $1.8 billion at June 30, 1997, increased
slightly from the $1.7 billion reported at June 30, 1996. Net
earnings retained and the positive change in the market value
adjustment to equity for available for sale securities since June 30,
1996, more than offset the effect of the share repurchase program.
For the first six months of 1997, the change in the adjustment in the
market value of such securities reduced total equity by $2.2 million.
Book value per share rose to $20.15 from the $18.99 reported a year
ago.
First of America continues to maintain, both on a consolidated level
and an affiliate basis, capital levels within the parameters of "well
capitalized" as defined by regulatory guidelines. The consolidated
total capital to risk adjusted assets ratio at June 30, 1997, was
14.12 percent, the tier I ratio was 10.72 percent and the tier I
leverage ratio was 8.14 percent.
UPDATE
In June 1997, the Financial Accounting Standards Board issued
Statement No. 130, "Reporting Comprehensive Income." This Statement
is effective for fiscal years beginning after December 15, 1997.
Statement No. 130 establishes standards for reporting and display of
comprehensive income and its components in a full set of general-
purposes financial statements. Comprehensive income includes all
changes in equity during a period except those resulting from
investments by owners and distributions to owners. The market
adjustment for "available for sale" securities is an example of an
item which would be included in comprehensive income. The Statement
does not change the display of or components of present-day net
income.
Implementation of this Statement will not effect how banks are rated
by the regulators. When regulators assess a bank's capital for safety
and soundness, they ignore the impact of unrealized gains and losses
on securities held for sale.
In June 1997, the Financial Accounting Standards Board issued
Statement No. 131, "Disclosures about Segments of an Enterprise and
Related Information." This Statement is effective for fiscal years
beginning after December 15, 1997. Statement No. 131 establishes
standards for the way that public business enterprises report
information about operating segments in annual financial statements
and requires that those enterprises report selected information about
operating segments in interim financial reports issued to
shareholders. It also establishes standards for related disclosures
about products and services, geographic areas, and major customers.
Operating segments are components of an enterprise about which
separate financial information is available that is evaluated
regularly by the chief operating decision maker in deciding how to
allocate resources and in assessing performance.
The objective of requiring the disclosures is to provide information
about the different types of business activities in which an
enterprise engages and the different economic environments in which it
operates to help users of financial statements.
Our lines of business meet the criteria for operating segments. The
current disclosure meets the basic requirements of the proposal, but
further information will be disclosed in the full year 1997 Form 10-K.
Management's statements of expectations for certain financial results
for the remainder of 1997 and into 1998, as included in this report,
are forward-looking statements. First of America's actual
performance and financial results may differ from these projections as
a result of a variety of factors, including but not limited to changes
in the economy, assumed rates of revenue growth, expense reductions,
competition and the implementation of internal business plans.
TABLE 3
CONSOLIDATED YIELD ANALYSIS (a)
1997 1996
------------------ ----------------------------------------
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
-------- -------- -------- -------- -------- --------
Average Prime Rate (b) 8.5 % 8.3 8.3 8.3 8.3 8.3
EARNING ASSETS
Money Market Investments 6.57 % 5.12 6.03 5.83 5.75 7.30
U.S. Government and agencies 6.50 6.41 6.33 6.18 6.13 6.12
securities
State and municipal securities 8.14 8.12 8.13 8.22 8.32 8.35
Other securities 6.48 6.51 6.39 6.32 6.24 6.28
-------- -------- -------- -------- -------- --------
Total securities 6.68 6.57 6.47 6.38 6.28 6.18
-------- -------- -------- -------- -------- --------
Consumer installment loans 8.76 8.67 8.59 8.76 8.53 8.46
Commercial revolving loans 13.97 14.08 14.28 14.16 13.96 14.38
Commercial loans 8.79 8.68 8.74 8.66 8.69 8.87
Commercial mortgage loans 9.13 9.11 9.13 9.12 9.16 9.18
Residential real estate loans 8.05 7.99 7.99 7.97 7.97 7.96
-------- -------- -------- -------- -------- --------
Total loans 8.98 8.92 8.91 8.89 8.85 8.90
-------- -------- -------- -------- -------- --------
Total earning assets 8.42 % 8.34 8.33 8.31 8.23 8.24
======== ======== ======== ======== ======== ========
INTEREST-BEARING LIABILITIES
Checking 2.22 % 2.13 2.11 2.07 2.17 2.11
Savings 3.41 3.35 3.23 3.24 3.17 3.19
CD's 5.38 5.36 5.48 5.50 5.44 5.48
-------- -------- -------- -------- -------- --------
Core deposits 4.03 4.00 4.07 4.11 4.09 4.16
Negatiated CD's 5.47 5.35 5.37 5.31 5.27 5.50
Short term borrowings 5.67 5.44 5.43 5.45 5.46 5.66
Long term debt 7.57 7.68 7.98 7.94 7.83 7.83
-------- -------- -------- -------- -------- --------
Total borrowed funds 6.22 5.99 6.00 6.11 6.02 6.15
-------- -------- -------- -------- -------- --------
Total interest-bearing liabilities 4.03 % 4.34 4.34 4.35 4.36 4.46
======== ======== ======== ======== ======== ========
NET INTEREST MARGIN
Interest income to average earning 8.42 % 8.34 8.33 8.31 8.23 8.24
assets
Interest expense to average earning 3.75 3.68 3.69 3.72 3.74 3.84
assets
Net interest margin 4.67 4.66 4.64 4.59 4.49 4.40
(a) Fully taxable equivalent, based on a marginal federal income tax rate of 35%.
(b) The First National Bank of Chicago Corporate Base Rate.
/TABLE
TABLE 4 FIRST OF AMERICA BANK CORPORATION
Analysis of Net Interest Income
Second Quarter 1997 Versus Second Quarter 1997 Versus
($ in thousands) Second Quarter 1996 First Quarter 1997
- ------------------------------ -------------------------------- --------------------------------
CHANGES IN RATE AND VOLUME Total Change Due To Total Change Due To
INCREASE (DECREASE): Change Volume Rate Change Volume Rate
------- ------- ------- ------- ------- -------
INTEREST INCOME
Loans (FTE) $ (15,169) (20,622) 5,453 (48) (4,693) 4,645
Taxable securities (2,361) (6,202) 3,841 1,129 (22) 1,151
Tax exempt securities (FTE) 4,191 4,306 (115) 913 890 23
Money market investments (703) (1,093) 390 (446) (1,115) 669
------- ------- ------- ------- ------- -------
Total Interest Income (14,042) (23,611) 9,569 1,548 (4,940) 6,488
------- ------- ------- ------- ------- -------
INTEREST EXPENSE
Interest-bearing deposits (17,048) (15,509) (1,539) 127 (2,644) 2,771
Short term borrowings 2,979 2,153 826 (27) (1,190) 1,163
Long term borrowings 4,841 5,127 (286) 2,773 3,073 (300)
------- ------- ------- ------- ------- -------
Total Interest Expense (9,228) (8,229) (999) 2,873 (761) 3,634
------- ------- ------- ------- ------- -------
Change in net interest income (FTE) $ (4,814) (15,382) 10,568 (1,325) (4,179) 2,854
======= ======= ======= ======= ======= =======
NOTE: The change in income attributable to volume is calculated by multiplying the change in volume times
the prior year's rate. The change in income attributable to rate is calculated by multiplying the change in rate
times the prior year's volume. Any variance attributable jointly to volume and rate changes is allocated to
volume and rate in proportion to the relationship of the absolute dollar amount of the change in each. Fully
taxable equivalent income on certain tax exempt loans and securities is calculated using a 35% tax rate.
/TABLE
TABLE 5
SUMMARY OF LOAN LOSS EXPERIENCE
($ in thousands) 1997 1996
- ----------------------------- --------------------- --------------------------------------------
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
ALLOWANCE FOR LOAN LOSSES --------- --------- --------- --------- --------- ---------
Balance, at beginning of period $ 255,766 252,846 252,807 249,388 245,207 241,182
Provision charged against income 18,416 22,816 23,659 21,966 23,230 24,601
Recoveries:
Consumer installment 9,530 9,964 10,933 10,954 10,839 12,508
Consumer revolving 2,227 1,837 1,815 2,043 2,084 1,820
Commercial 1,580 986 1,032 1,411 1,632 1,012
Commercial mortgage 1,771 611 962 1,194 789 1,060
Residential mortgage 81 77 34 33 51 43
--------- --------- --------- --------- --------- ---------
Total recoveries 15,189 13,475 14,776 15,635 15,395 16,443
--------- --------- --------- --------- --------- ---------
Charge-offs:
Consumer installment 14,160 17,659 20,737 19,149 17,781 22,785
Consumer revolving 13,681 13,043 12,391 11,628 11,824 11,534
Commercial 2,596 1,377 3,577 1,531 2,868 988
Commercial mortgage 608 811 1,416 1,415 1,635 1,590
Residential mortgage 383 471 275 459 336 122
--------- --------- --------- --------- --------- ---------
Total charge-offs 31,428 33,361 38,396 34,182 34,444 37,019
--------- --------- --------- --------- --------- ---------
Net charge-offs 16,239 19,886 23,620 18,547 19,049 20,576
--------- --------- --------- --------- --------- ---------
Balance, at end of period $ 257,953 255,776 252,846 252,807 249,388 245,207
========= ========= ========= ========= ========= =========
Average loans outstanding (net of
unearned income) $14,662,478 14,833,677 15,111,023 15,346,731 15,546,597 15,854,148
========== ========== ========== ========== ========== ==========
NET CHARGE-OFFS BY PORTFOLIO
AS % OF LOANS OUTSTANDING (A)
Consumer installment 0.72 % 1.17 1.37 1.05 0.86 1.22
Consumer revolving 4.85 4.62 4.47 4.18 4.30 4.13
Commercial 0.15 0.06 0.38 0.02 0.19 --
Commercial mortgage (0.12) 0.02 0.05 0.02 0.09 0.06
Residential mortgage 0.03 0.04 0.02 0.04 0.02 0.01
MANAGED BANKCARD NET CHARGE-OFFS
On balance sheet $ 10,224 10,068 9,482 8,431 8,740 8,711
Securitized 4,826 5,475 5,197 4,739 4,811 4,313
-------- -------- -------- -------- -------- --------
Total managed bankcard net
charge-offs $ 15,050 15,543 14,679 13,170 13,551 13,024
======== ======== ======== ======== ======== ========
Net charge-offs as % of managed
loans (s) 4.73% 4.81 4.60 4.21 4.35 4.07
CHARGE-OFFS AS RECOVERIES RATIOS
Net charge-offs to average
loans (a) 0.45 % 0.54 0.62 0.48 0.49 0.52
Earnings coverage of net
charge-offs 7.90 x 7.14 6.22 5.21 6.20 5.60
Recoveries to total charge-offs 48.33 % 40.39 38.48 45.74 44.70 44.42
Provision to average loans 0.51 0.62 0.62 0.57 0.60 0.62
Allowance to total period
end loans 1.76 1.74 1.68 1.65 1.61 1.56
(a) Annualized
/TABLE
TABLE 6
MEASUREMENT OF ASSET QUALITY
($ in thousands) 1997 1996
- ----------------------------- ------------------- -------------------------------------------
2nd Qtr. 1st Qtr. 4th Qtr. 3rd Qtr. 2nd Qtr. 1st Qtr.
June 30 Mar. 31 Dec. 31 Sept. 30 June 30 Mar. 31
NON-PERFORMING ASSETS --------- --------- --------- --------- --------- ---------
Non-accrual loans:
Commercial $ 21,255 22,383 27,973 37,739 36,454 30,636
Commercial mortgage 43,255 37,568 34,959 36,610 40,398 41,391
Residential mortgage 20,435 20,958 20,684 19,198 18,251 19,800
Revolving mortgage 1,229 1,264 569 469 602 615
Consumer installment -- -- -- -- -- --
Consumer revolving -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Total non-accrual loans $ 86,174 82,173 84,185 94,016 95,705 92,442
--------- --------- --------- --------- --------- ---------
Renegotiated loans:
Commercial $ 2,093 3,449 3,492 3,881 6,895 6,521
Commercial mortgage 1,665 2,242 2,249 2,438 1,895 934
Residential mortgage 565 613 673 733 741 749
Revolving mortgage -- -- -- -- -- --
Consumer installment -- -- -- -- -- --
Consumer revolving -- -- -- -- -- --
--------- --------- --------- --------- --------- ---------
Total renegotiated loans $ 4,323 6,304 6,414 7,052 9,531 8,204
--------- --------- --------- --------- --------- ---------
Total non-performing loans $ 90,497 88,477 90,599 101,068 105,236 100,646
--------- --------- --------- --------- --------- ---------
Other real estate owned $ 19,366 25,230 24,190 28,026 30,933 30,621
--------- --------- --------- --------- --------- ---------
Total non-performing assets $ 109,863 113,707 114,789 129,094 136,169 131,267
========= ========= ========= ========= ========= =========
Loans past due 90 days or more:
Commercial $ 1,618 1,542 1,464 2,960 1,479 1,387
Commercial mortgage 1,461 549 704 5,044 2,853 3,235
Residential mortgage 481 1,793 1,214 2,839 3,010 1,637
Revolving mortgage 1,830 1,745 1,746 1,534 1,411 1,123
Consumer installment 9,787 9,216 12,612 13,700 12,347 12,833
Consumer revolving 8,857 9,729 8,986 7,716 7,000 7,385
--------- --------- --------- --------- --------- ---------
Total loans past due 90 days or
more $ 24,034 24,574 26,726 33,793 28,100 27,600
========= ========= ========= ========= ========= =========
ASSET QUALITY RATIOS
Non-performing assets as a % of total 0.51 % 0.53 0.52 0.58 0.61 0.58
assets
Non-performing assets as a % of
total loans + OREO 0.75 0.77 0.76 0.84 0.88 0.83
Allowance coverage of non-performing
loans 285.04 289.09 279.09 250.13 236.98 243.63
Allowance coverage of non-performing
assets 234.80 224.94 220.27 195.83 183.15 186.80
NONPERFORMING ASSET SUMMARY
At December 31, 1996 1995 1994 1993 1992 1991
- ------------------------------ --------- --------- --------- --------- --------- ---------
Non-accrual loans $ 84,185 104,174 96,814 121,186 126,619 116,995
Renegotiated loans 6,414 12,327 4,852 10,879 20,669 16,837
Other real estate owned 24,190 31,103 38,662 50,595 48,699 34,601
--------- --------- --------- --------- --------- ---------
Total non-performing assets $ 114,789 147,604 140,328 182,660 195,987 168,433
========= ========= ========= ========= ========= =========
Loans past due 90 days or more $ 26,726 28,124 18,208 23,462 20,887 32,499
/TABLE>
TABLE 7
INTEREST RATE SENSITIVITY
June 30, 1997
0 to 0 to 0 to 0 to 0 to
($ in millions) 30 Days 60 Days 90 Days 180 Days 365 Days
- ----------------------------- --------- --------- --------- --------- ---------
ASSETS
Other earning assets $ 231 232 232 232 232
Investment securities -- 1 3 36 45
Loans, net of unearned discount 502 505 83 110 112
--------- --------- --------- --------- ---------
Total rate sensitive assets (RSA) $ 733 738 318 378 389
========= ========= ========= ========= =========
LIABILITIES
Money market type deposits $ 70 70 70 70 70
Other core savings and time deposits 47 30 41 18 164
Negotiated deposits (36) (37) (41) (28) (61)
Borrowings (95) (20) (49) (149) 1
Interest rate swap agreements -- (5) -- -- --
Interest rate cap agreements -- -- -- -- --
--------- --------- --------- --------- ---------
Total rate sensitive liabilities (RSL) $ (14) 38 21 (89) 174
========= ========= ========= ========= =========
GAP (RSA - RSL) $ 747 700 297 467 215
========= ========= ========= ========= =========
RSA divided by RSL 11.82 % 9.84% 3.77% 4.92% 2.21%
GAP divided by total assets 3.55 3.35 1.48 2.27 1.09
Assumptions:
(1) Maturities of rate sensitive securities are based on contractual maturities and estimated prepayments.
(2) Maturities of rate sensitive loans are based contractual maturities, esitmated prepayments and
estimated repricing impact.
(3) Maturities of rate sensitive liabilities, interest rate swaps and interest rate caps are based on contractual
maturities and estimated repricing.
/TABLE
II - OTHER INFORMATION
Item 4. Submission of Matters to a Vote of Security Holders
(a) The Registrant's Annual Meeting of Shareholders was
held on April 16, 1997.
(c) At the Annual Meeting, shareholders elected as
directors the nominees listed in the following table:
Number of Shares Number of
Nominees Voted For Shares Withheld
--------------------- ------------------------ ---------------------
Jon E. Barfield 48,419,264 443,987
Richard F. Chormann 48,458,432 404,819
Joel N. Goldberg 48,451,043 412,208
James S. Ware 48,430,540 432,711
Shareholders also voted to approve an increase in the number
of shares of authorized common stock of the Registrant to
200,000,000 from 100,000,000 with 44,652,116 shares voting
in favor, 3,280,471 shares voting against, 930,664 shares abstaining,
and no broker non-votes.
Shareholders also voted to approved the First of America Bank
Corporation Director Stock Compensation Plan with 43,236,058
shares voting in favor, 3,965,717 shares voting against,
1,661,476 shares abstaining, and no broker non-votes.
Shareholders also voted to ratify the selection of KPMG Peat
Marwick LLP as the Registrant's independent auditors for 1997;
48,130,643 shares voting in favor of the ratification, 201,583
shares voting against, 531,025 shares abstained, and no broker
non-votes.
Item 6. Exhibits and Reports on Form 8-K
(a) Exhibits
(3) (i) Articles of Incorporation
(a) A copy of the Restated Articles
of Incorporation is filed herewith
as an Exhibit.
(b) A copy of the Amendment to the
Articles of Incorporation is
filed herewith as an Exhibit.
(11) Statement regarding computation of per
share earnings.
The computation of common and common
equivalents per share is described in Note
4 to the Consolidated Financial Statements
of this report.
(27) Financial Data Schedule
(b) Reports on Form 8-K
No reports on Form 8-K were filed by the
Registrant during the three months ended June
30, 1997.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, First of America has duly caused this report to be
signed on its behalf by the undersigned thereunto duly
authorized.
FIRST OF AMERICA BANK CORPORATION
REGISTRANT
Date: August 11, 1997 /s/ THOMAS W. LAMBERT
Thomas W. Lambert
Executive Vice President and
and Chief Financial and
Accounting Officer)
EXHIBIT INDEX
(3)(i)(a) Restated Articles of Incorporation
(3)(i)(b) Amendment to the Articles of
Incorporation, dated April 16, 1997.
(27) Financial Data Schedule