FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1996
Commission File No. 0-10585
Mid Am, Inc.
(Exact Name of Registrant as Specified in its Charter)
Ohio 34-1580978
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
222 South Main Street, Bowling Green, Ohio 43402
(Address of Principal Executive Offices) (Zip Code)
(419)352-5271
(Registrant's Telephone Number)
Indicate by check number 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
Indicate the number of shares outstanding of each of the
issuer's classes of common stock as of the close of business
on July 31, 1996.
Common Stock, without par value - 18,648,364 shares
MID AM, INC.
INDEX
PART I - FINANCIAL INFORMATION Page Number
Item 1. Financial Statements
Consolidated Statement of Condition
(Unaudited)
June 30, 1996 and December 31, 1995 3
Consolidated Statement of Earnings
(Unaudited)
Six months ended June 30, 1996 and 1995 4
Consolidated Statement of Cash Flows
(Unaudited)
Six months ended June 30, 1996 and 1995 5
Notes to Consolidated Financial Statements 7
Item 2. Management's Discussion/Analysis and
Statistical Information 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 21
Item 2. Changes in Securities 21
Item 3. Defaults Upon Senior Securities 21
Item 4. Submission of Matters to a Vote
of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
EXHIBIT INDEX 24
Page 2
PART I. - FINANCIAL INFORMATION
MID AM, INC. Consolidated Statement of Condition-(Unaudited)
June 30, 1996 December 31, 1995
Assets (Dollars in thousands)
Cash and due from banks $ 74,807 $ 102,600
Int-bearing deposits in banks 1,557 3,372
Federal funds sold 16,915 72,558
Securities available for sale 471,089 461,997
Loans held for sale 5,614 12,642
Loans, net of unearned fees 1,472,227 1,475,651
Allowance for credit losses (14,665) (14,859)
Net loans 1,457,562 1,460,792
Bank premises and equipment 48,905 49,489
Int receivable/other assets 48,420 41,301
Total Assets $2,124,869 $2,204,751
Liabilities
Demand deposits(non-interest)$ 184,774 $ 223,945
Savings deposits 588,988 593,807
Other time deposits 1,029,408 1,042,390
Total Deposits 1,803,170 1,860,142
Federal funds purchased and
securities sold under
agreements to repurchase 88,128 87,548
Capitalized lease
obligations and debt 33,069 48,405
Int payable/other liabilities 14,629 13,818
Total Liabilities 1,938,996 2,009,913
Shareholders' Equity
Preferred stock - no par value
Authorized - 2,000,000
Issued - 1,331,727 and
1,422,744 shares 33,293 35,569
Common stock - stated value
of $3.33 per share
Authorized - 35,000,000
Issued - 19,710,372
and 19,492,726 shares 65,700 64,975
Surplus 93,201 91,723
Retained earnings 14,968 9,529
Treasury stock
1,005,891 and 522,361 shares (17,232) (8,424)
Unrealized (losses)/gains on
securities avail for sale (4,057) 1,466
Total Shareholders' Equity 185,873 194,838
Total Liabilities and
Shareholders' Equity $2,124,869 $2,204,751
Page 3
MID AM, INC. Consolidated Statement of Earnings-(Unaudited)
Three Mths Ended Six Mths Ended
June 30, June 30,
1996 1995 1996 1995
(Dollars in thousands)
Interest Income
Int and fees on loans $32,365 $32,606 $65,606 $63,863
Int on deposits in banks 41 54 64 85
Int on federal funds sold 795 1,023 1,708 1,247
Int on taxable investments 6,704 6,403 12,708 12,620
Int on tax exempt investment 726 783 1,484 1,633
Total Interest Income 40,631 40,869 81,570 79,448
Interest Expense
Int on deposits 18,045 18,393 36,615 34,368
Int on borrowed funds 1,724 1,924 3,562 4,015
Total Interest Expense 19,769 20,317 40,177 38,383
Net Interest Income 20,862 20,552 41,393 41,065
Provision for credit losses 1,076 734 1,635 1,144
Net Interest Income After
Provision Credit Losses 19,786 19,818 39,758 39,921
Non-interest Income
Service charge deposit accts 1,684 1,543 3,312 3,002
Mortgage banking 2,571 1,924 5,413 3,488
Brokerage commissions 2,960 2,466 6,460 4,219
Collection agency fees 1,008 785 2,022 1,669
Net gains on security sales 461 22 786 56
Other income 2,707 2,165 4,952 3,961
Total Non-interest Income 11,391 8,905 22,945 16,395
Non-interest Expense
Salaries/employee benefits 10,146 8,281 20,188 17,040
Net occupancy expense 1,284 1,260 2,575 2,531
Equipment expense 2,005 1,816 3,908 3,571
Other expenses 8,710 7,757 17,235 15,084
Total Non-interest Expense 22,145 19,114 43,906 38,226
Income before income taxes 9,032 9,609 18,797 18,090
Applicable income taxes 2,921 3,142 6,079 5,815
Net Income $ 6,111 $ 6,467 $12,718 $12,275
Net Income Available to
Common Shareholders $ 5,500 $ 5,764 $11,468 $10,844
Earnings per Common Share:
Primary $ .29 $ .30 $ .60 $ .57
Fully diluted $ .28 $ .28 $ .57 $ .54
Page 4
MID AM, INC. Consolidated Statement of Cash Flows-(Unaudited)
Six Months Ended June 30,
1996 1995
Operating Activities (Dollars in thousands)
Net income $ 12,718 $ 12,275
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for credit losses 1,635 1,144
Provision for depreciation
and amortization of assets 4,599 4,268
Proceeds from sales of mortgage
and other loans held for sale 267,525 94,029
Mortgage and other loans
originated for sale (257,251) (108,265)
Net gains on sales of assets (5,186) (1,737)
Increase in interest receivable
and other assets (5,053) (6,814)
Increase in interest payable
and other liabilities 810 1,372
Net Cash Provided By (Used For)
Operating Activities 19,797 (3,728)
Investing Activities
Net decrease (increase) in interest-
bearing deposits in other banks 1,815 (417)
Net decrease (increase) in
federal funds sold 55,643 (47,009)
Proceeds from sales of securities
available for sale 26,633 7,264
Proceeds from maturities and paydowns
of securities available for sale 44,461 19,338
Purchases of securities
available for sale (34,812) (36,155)
Proceeds from maturities and paydowns
of investment securities 2,572
Purchases of investment securities (340)
Proceeds from maturities and paydowns
of mortgage-backed securities 8,528
Proceeds from sales of loans 5,748 40,174
Net increase in loans (57,081) (62,832)
Proceeds from sales of OREO 413 333
Proceeds from sales of bank
premises and equipment 698 526
Purchases of bank premises
and equipment (3,221) (2,178)
Cash acquired through acquisitions 31
Net Cash Provided By (Used For)
Investing Activities 40,297 (70,165)
Page 5
MID AM, INC. Consolidated Statement of Cash Flows-(Unaudited)
Six Months Ended June 30,
1996 1995
Financing Activities (Dollars in thousands)
Net decrease in demand
deposits and savings accounts (43,990) (27,905)
Net (decrease) increase in
other time deposits (12,982) 106,086
Net increase in federal
funds purchased and securities
sold under agreements repurchase 580 6,507
Repayment of capitalized lease
obligations and debt (15,335) (63,063)
Proceeds from issuance of debt 48,950
Cash dividends paid (7,279) (7,483)
Treasury stock
(net of reissuance, 303 and 462) (8,808) (2,805)
Preferred stock conversions,
fractional shares and other items (73) (30)
Net Cash (Used For) Provided By
Financing Activities (87,887) 60,257
Net decrease in cash and
due from banks (27,793) (13,636)
Cash and due from banks at the
beginning of the period 102,600 85,356
Cash and due from banks at the
end of the period $ 74,807 $ 71,720
Supplemental Schedule of Noncash
Investing and Financing Activities
Securitization of loans and
transferred to securities
available for sale $ 53,198 $ 3,430
Transfers from loans to other
real estate owned $ 518 $ 464
Loans on other real estate
owned sold $ 152
Unrealized (losses) gains on
securities available for sale $ (8,498) $ 7,681
Adjustment to deferred tax (2,975) 2,686
Adjustment to shareholders' equity $ (5,523) $ 4,995
Page 6
MID AM, INC.
Notes to Consolidated Financial Information - (unaudited)
1. Accounting Principles
The consolidated financial statements of Mid Am, Inc. (the
"Company") include the accounts of Mid American National Bank and
Trust Company ("Mid Am Bank"), First National Bank Northwest Ohio
("First National"), American Community Bank, N.A. ("AmeriCom"),
AmeriFirst Bank, N.A. ("AmeriFirst"), Adrian State Bank
("Adrian"), Mid Am Recovery Services, Inc., successor company
to International Credit Service, Inc. and CCB Services, Inc.,
MFI Investments Corp. ("MFI"), MFI Insurance Agency, Inc.,
Mid Am Information Services, Inc., Mid Am Credit Corp. ("MACC")
and Mid Am of Michigan, Inc. All significant intercompany
transactions and accounts have been eliminated in consolidation.
Prior to 1994, Mid Am, Inc.'s business related solely to
commercial banking and related services which for financial
reporting purposes was considered a single business segment. In
1994, two collection companies were acquired, in 1995, a
retail brokerage firm was acquired and in 1996, a full service
equipment leasing and financing unit was formed which are
considered to be additional business segments. The revenues,
operating profit and assets of the collection business,
retail brokerage business and leasing and financing business
however, are not material for separate disclosure and the
Company's predominant business continues to be banking.
In the opinion of management of the Company, all adjustments
necessary to present fairly the financial position, results of
operations and cash flows as of and for the periods presented
have been made. Such adjustments consisted only of normal
recurring items.
2. Repurchase Program
On May 16, 1996, the Board of Directors of the Company
authorized management to undertake purchases of up to 1,000,000
shares of the Company's outstanding common stock over a twelve
month period in the open market or in privately negotiated
transactions. This new authorization follows the expiration of
the Company's 1995 authorization to repurchase up to 1,375,000
shares of common stock. Under the 1995 authorization, the
Company reacquired approximately 792,000 shares of common stock.
The shares reacquired are held as treasury stock and reserved for
use in the Company's stock option plan and for future stock
Page 7
dividend declarations. As of June 30, 1996 the Company had
repurchased approximately 173,000 shares of common stock pursuant
to its 1996 repurchase program.
3. Subsequent Events
As of July 31, 1996, the Company has repurchased approximately
228,000 shares of common stock pursuant to its 1996 repurchase
program.
Page 8
Item 2. - Management's Discussion/Analysis and Statistical
Information
Three Months Ended June 30, 1996 and 1995
Results of Operations
For the three months ended June 30, 1996, net income
decreased $356,000 to $6,111,000 compared to $6,467,000 for the
same period in 1995. Earnings per common share for the three
months ended June 30, 1996 were $.29 ($.28 fully diluted)
and $.30 ($.28 fully diluted) for the same period in 1995. For
the three months ended June 30, 1996, the annualized return
on average common shareholders' equity was 14.08 percent and the
annualized return on average assets was 1.14 percent compared to
15.21 percent and 1.21 percent, respectively, for the same period
in 1995.
Net Interest Income
Net interest income increased $310,000 to $20,862,000 in the
second quarter of 1996, as compared to $20,552,000 for the same
period in 1995. Net interest income is affected by changes in
the volumes and rates of interest-earning assets and
interest-bearing liabilities and the type and mix of
interest-earning assets and interest-bearing liabilities. The
Company's net interest margin for the three months ended June 30,
1996 was 4.29 percent compared to 4.24 percent for the same
period in 1995. The Company's net interest margin and interest
rate spread improved primarily due to a decrease in the cost of
funds and an increase in average noninterest-bearing deposits
that funded interest-earning assets.
Provision for Credit Losses
The provision for credit losses increased $342,000 or 47 percent
to $1,076,000 in the second quarter of 1996 compared to $734,000
in the second quarter of 1995. Net charge-offs were $1,047,000
or 0.29 percent (annualized) of average loans during the three
months ended June 30, 1996, compared to $606,000 or 0.17 percent
(annualized) for the same period in 1995. The increase in net
charge-offs was primarily due to an increase of $416,000 in
charge-offs of installment loans. The provision for credit
losses reflects the amount necessary in management's opinion to
maintain an adequate allowance, based upon its analysis of the
loan portfolio (including the loan growth rate and change in the
mix of the loan portfolio) and general economic conditions.
Page 9
At June 30, 1996, the Company's allowance for credit losses as a
percentage of loans was 1.00 percent compared to 1.01 percent at
December 31, 1995 and 1.02 percent at June 30, 1995. At June
30, 1996, the Company's allowance for credit losses represented
145 percent of non-performing loans as compared to 151 percent
and 185 percent at December 31, 1995 and June 30, 1995,
respectively. The decrease in the Company's asset quality ratios
is primarily due to the lease receivables from Bennett Funding
Group, Inc. (See "Asset Quality".)
Non-Interest Income
For the three months ended June 30, 1996, non-interest income
increased $2,486,000 or 28 percent to $11,391,000 compared to
$8,905,000 for the same period in 1995. The increase is due
primarily to an increase of $647,000 or 34 percent in mortgage
banking, an increase of $494,000 or 20 percent in brokerage
commissions, an increase of $223,000 or 28 percent in collection
agency fees and an increase of $439,000 in net gains on sales of
securities in the second quarter of 1996 as compared to the same
period in 1995. Net gains on sales of securities increased
due to the Company taking advantage of market conditions by
selling selected securities and reinvesting the proceeds in
higher yielding assets. Mortgage banking increased primarily due
to an increase in net gains on sales of loans, brokerage
commissions increased primarily due to an increase in
transactions resulting from increases in the volume of the level
of customer transactions and collection agency fees increased due
to an increase in commercial collection fees.
Non-Interest Expense
For the three months ended June 30, 1996, non-interest expense
increased $3,031,000 or 16 percent to $22,145,000 compared with
$19,114,000 for the same period in 1995. For the three months
ended June 30, 1996, salaries and employee benefits expense
increased $1,865,000 or 23 percent to $10,146,000 compared to
$8,281,000 for the same period in 1995. The increase was
primarily due to an increase in the number of employees. The
increase in the number of employees was primarily due to the
startup of MACC in April, 1996, the acquisiton of small
collection agencies in the Florida area, new bank branch
locations and new employees at the bank subsidiaries to handle
increases in lending activity. Equipment expense increased
$189,000 or 10 percent to $2,005,000 for the second quarter of
1996 as compared to $1,816,000 for the same period in 1995. The
increase in equipment expense was primarily due to an increase of
$166,000 in depreciation expense. Other expenses increased
$953,000 or 12 percent to $8,710,000 for the three months ended
June 30, 1996 as compared to the same period in 1995. The
Page 10
increase was primarily due to increases in brokerage commission
expense ($308,000), printing and supplies ($155,000), other
professional fees ($110,000), telephone expense ($108,000), loan
origination expenses ($110,000), marketing expenses ($87,000),
miscellaneous expense ($286,000) and various other expenses
(postage, travel, credit card processing fees, losses on sales of
fixed assets which aggregated $266,000), offset by a decrease of
$667,000 in FDIC premiums. The decrease in FDIC premiums was due
to the Bank Insurance Fund premiums of $.23 per $100 of deposits
in 1995 being eliminated in 1996. The U.S. Congress is currently
considering legislation which may result in a significant
one-time assessment for the Savings Association Insurance Fund
("SAIF"). At December 31, 1995, the Company has in excess of
$600,000,000 of its deposits which are insured through SAIF. If
the one-time assessment is enacted by Congress, the Company will
incur a material nonrecurring deposit insurance expense in the
period that the legislation is effective.
Income Taxes
The provision for income taxes for the second quarter of 1996
decreased $221,000 or 7 percent to $2,921,000 compared to
$3,142,000 for the same period in 1995. The decrease was due
primarily to lower pretax income and a lower effective tax rate
of 32.3 percent for the second quarter of 1996 as compared to
32.7 percent for the same period in 1995.
Six Months Ended June 30, 1996 and 1995
Results of Operations
For the six months ended June 30, 1996, net income increased
$443,000 to $12,718,000 compared to $12,275,000 for the same
period in 1995. Earnings per common share for the six months
ended June 30, 1996 were $.60 ($.57 fully diluted) and $.57
($.54 fully diluted) for the same period in 1995. For the six
months ended June 30, 1996, the annualized return on average
common shareholders' equity was 14.57 percent and the annualized
return on average assets was 1.18 percent compared to 14.61
percent and 1.18 percent, respectively, for the same period in
1995.
Net Interest Income
Net interest income increased $328,000 to $41,393,000 in the
first half of 1996, as compared to $41,065,000 for the same
period in 1995. Net interest income is affected by changes in
the volumes and rates of interest-earning assets and
interest-bearing liabilities and the type and mix of
Page 11
interest-earning assets and interest-bearing liabilities. The
Company's net interest margin for the six months ended June 30,
1996 was 4.24 percent compared to 4.32 percent for the same
period in 1995. The Company's net interest margin decreased
primarily due to higher cost of funds in the first half of 1996
as compared to the same period in 1995.
Provision for Credit Losses
The provision for credit losses increased $491,000 or 43 percent
to $1,635,000 in the first half of 1996 compared to $1,144,000
in the first half of 1995. Net charge-offs were $1,776,000
or 0.24 percent (annualized) of average loans during the six
months ended June 30, 1996, compared to $988,000 or 0.14 percent
(annualized) for the same period in 1995. The increase in net
charge-offs was primarily due to an increase of $942,000 in
charge-offs of installment loans. The provision for credit
losses reflects the amount necessary in management's opinion to
maintain an adequate allowance, based upon its analysis of the
loan portfolio (including the loan growth rate and change in the
mix of the loan portfolio) and general economic conditions.
Non-Interest Income
For the six months ended June 30, 1996, non-interest income
increased $6,550,000 or 40 percent to $22,945,000 compared to
$16,395,000 for the same period in 1995. The increase is due
primarily to an increase of $1,925,000 or 55 percent in mortgage
banking revenue, an increase of $2,241,000 or 53 percent in
brokerage commissions, an increase of $353,000 or 21 percent in
collection agency fees, an increase of $954,000 or 29 percent in
other income and an increase of $730,000 in net gains on sales of
securities in the first half of 1996 as compared to the same
period in 1995. Net gains on sales of securities increased due
to the Company taking advantage of market conditions by selling
selected securities and reinvesting the proceeds in higher
yielding assets. Mortgage banking increased primarily due to an
increase in net gains on sales of loans, brokerage commissions
increased primarily due to an increase in transactions related to
the volatility in the stock market, and collection agency fees
increased due to an increase in retail and commercial collection
fees. Other income increased primarily due to gains on sales of
other loans ($274,000), credit card fees ($159,000), electronic
banking fees ($102,000) and international banking fees ($99,000).
Non-Interest Expense
For the six months ended June 30, 1996, non-interest expense
increased $5,680,000 or 15 percent to $43,906,000 compared with
$38,226,000 for the same period in 1995. For the six months
Page 12
ended June 30, 1996, salaries and employee benefits expense
increased $3,148,000 or 19 percent to $20,188,000 compared to
$17,040,000 for the same period in 1995. The increase was
primarily due to an increase in the number of employees. The
increase in the number of employees was primarily due to the
startup of MACC in April, 1996, the acquisition of small
collection agencies in the Florida area, new bank branch
locations and new employees at the bank subsidiaries to handle
increases in lending activity. Equipment expense increased
$337,000 or 9 percent to $3,908,000 for the first half of 1996 as
compared to $3,571,000 for the same period in 1995. The increase
in equipment expense was primarily due to an increase of $308,000
in depreciation expense. Other expenses increased $2,151,000 or
14 percent to $17,235,000 for the six months ended June 30, 1996
as compared to the same period for 1995. The increase was
primarily due to increases in brokerage commission expense
($1,249,000), printing and supplies ($216,000), other
professional fees ($245,000), telephone expense ($116,000),
collection and repossesion expenses ($117,000), credit card
processing fees ($149,000), travel expenses ($110,000), losses on
sales of fixed assets ($154,000) and miscellaneous expense
($596,000), offset by a decrease of $1,228,000 in FDIC premiums.
The decrease in FDIC premiums was due to the Bank Insurance Fund
premiums of $.23 per $100 of deposits in 1995 being eliminated in
1996. (See "Three Months Ended June 30, 1996 and 1995,
Non-Interest Expense".)
Income Taxes
The provision for income taxes for the first half of 1996
increased $264,000 or 5 percent to $6,079,000 compared to
$5,815,000 for the same period in 1995. The increase was due
primarily to higher pretax income and a higher effective tax rate
of 32.3 percent for the first half of 1996 as compared to 32.1
percent for the same period in 1995.
Liquidity
The liquidity of a financial institution reflects its ability
to provide funds to meet loan requests, to accommodate
possible outflows in deposits and to take advantage of
interest rate market opportunities. Funding of loan requests,
providing for liability outflows, and management of interest
rate fluctuations require continuous analysis in order to
match the maturities of specific categories of short-term
loans and investments with specific types of deposits and
borrowings. Financial institution liquidity is thus normally
considered in terms of the nature and mix of the institution's
sources and uses of funds.
Page 13
For the Company's bank subsidiaries, the primary sources of
liquidity at June 30, 1996 were federal funds sold of
$16,915,000, securities available for sale of $471,089,000 and
loans held for sale of $5,614,000. At December 31, 1995, the
primary sources of liquidity were federal funds sold of
$72,558,000, securities available for sale of $461,997,000 and
loans held for sale of $12,642,000.
Since the Company is a holding company and does not conduct
operations, its primary source of liquidity is dividends paid
to it by its subsidiary financial institutions. However, certain
restrictions exist regarding the ability of its bank subsidiaries
to transfer funds to the Company in the form of cash dividends,
loans or advances. For national banks, the approval of the
Office of the Comptroller of the Currency is required to pay
dividends in excess of the subsidiaries' earnings retained for
the current year plus retained net profits for the preceding
two years. Adrian State Bank can pay dividends up to the total
amount of retained earnings as long as certain minimum capital
ratios are maintained. As of June 30, 1996, $10,835,000 was
available for distribution to the Company as dividends without
prior regulatory approval.
Cash and due from banks decreased by $27,793,000 during the
six months ended June 30, 1996 to $74,807,000 from $102,600,000
at December 31, 1995. Cash and due from banks decreased
primarily due to a decrease of approximately $21,000,000 in cash
letters in the process of collection and a decrease of
approximately $6,000,000 in due from other banks. Operating
activities provided $19,797,000 of cash in the six months ended
June 30, 1996 as compared to cash used for operating activities
of $3,728,000 for the same period in 1995. For the six months
ended June 30, 1996, cash provided by operating activities was
primarily attributable to net income. For the same period in
1995, the cash used for operating activities was primarily due to
higher originations of loans held for sale, offset by net income
and proceeds from sales of mortgage and other loans held for
sale. The Company originated approximately $257,251,000 of
mortgage loans in the six months ended June 30, 1996, as compared
to $108,265,000 for the same period in 1995. The increase in
mortgage originations was primarily due to a decrease in market
rates which led to an increase in refinancing and new mortgage
activity. The higher mortgage banking activity in 1996 compared
to 1995 resulted in an increase in the amount of cash required to
fund mortgage loans. The higher activity also resulted in an
increase in volume of sales of mortgage loans providing cash
(from $94,029,000 in 1995 to $267,525,000 in 1996) which more
than offset the cash used for higher originations.
Page 14
Cash of $40,297,000 was provided by investing activities during
the six months ended June 30, 1996 compared to cash used
for investing activities of $70,165,000 during the six months
ended June 30, 1995, an increase in cash flows from investing
activities of $110,462,000. The primary reason for the increase
in cash flows used for investing activities was the net decrease
in federal funds sold in 1996 of $55,643,000 compared to a net
increase of $47,009,000 for the same period in 1995 and the
proceeds from sales, maturities and paydowns of securities
available for sale in 1996 of $71,094,000 compared to
$26,602,000 for the same period in 1995. The net decrease in
federal funds sold and increase in proceeds from securities
available for sale for the first six months of 1996 was partially
offset by the decrease of $34,426,000 of proceeds from sales of
loans.
Cash used for financing activities was $87,887,000 during
the six months ended June 30, 1996 as compared to $60,257,000 of
cash provided by financing activities for the same period in
1995. The cash used for financing activities in 1996 was
primarily due to a decrease in total deposits of $56,972,000 and
repayment of capitalized lease obligations and debt of
$15,335,000. The cash provided by financing activities in 1995
was primarily due to a net increase in other time deposits of
$106,086,000, partially offset by a net decrease of $27,905,000
in demand deposits and savings accounts. The increase in other
time deposits during the first six months of 1995 was primarily
due to the Company marketing time deposits with prepaid interest
and time deposits at current market rates outside the Company's
market area. Common stock repurchases aggregating $8,808,000
were made for the six months ending June 30, 1996 in connection
with the Company's repurchase program authorized by the Board of
Directors.
Liquidity is within the Company's internal guidelines and
adequate to provide funds to meet loan requests and deposit
withdrawals.
Capital Resources
The Federal Reserve Board ("FRB") has established risk-based
capital guidelines that must be observed by bank holding
companies and banks. Under these guidelines, total qualifying
capital is categorized into two components -- Tier I and Tier II
capital. Tier I capital generally consists of common
shareholders' equity, perpetual preferred stock (subject to
limitations) and minority interests in subsidiaries. Subject to
limitations, Tier II capital includes certain other preferred
stock and debentures, and a portion of the reserve for credit
losses. These ratios are expressed as a percentage of
Page 15
risk-adjusted assets, which include various risk-weighted
percentages of off-balance sheet exposures, as well as assets on
the balance sheet. The FRB regulations governing the various
capital ratios do not recognize the effects of SFAS 115,
"Accounting for Certain Investments in Debt and Equity
Securities" on capital relating to changes in market value of
securities available for sale.
At June 30, 1996, a minimum Tier I capital ratio of 4.00 percent
and a total capital ratio of 8.00 percent are required. The
Company's qualifying capital at June 30, 1996 exceeds both the
Tier I and Tier II risk-based capital guidelines. In addition, a
capital leverage ratio is used in connection with the risk-based
capital standards which is defined as Tier I capital divided by
quarterly average total assets adjusted for certain items. The
minimum leverage ratio under this standard is 3 percent for the
highest rated bank holding companies which are not undertaking
significant expansion programs. An additional 1 percent to 2
percent may be required for other companies, depending upon their
regulatory ratings and expansion plans. The primary regulatory
authorities of the Company and its subsidiaries have not advised
the Company of its minimum Tier I leverage ratio, and therefore,
it is not possible to calculate the minimum leverage ratio. At
June 30, 1996, the Company's leverage ratio, Tier I, and
combined Tier I and Tier II (total capital) ratios were 8.13
percent, 11.54 percent and 12.48 percent, respectively.
Capital ratios applicable to the Company's banking subsidiaries
at June 30, 1996 are as follows:
Total
Tier I Risk-based
Leverage Capital Capital
Regulatory Capital Requirements
Minimum 3.00 4.00 8.00
Well-capitalized 6.00 8.00 10.00
Bank Subsidiaries
Mid Am Bank 7.39 9.42 10.61
First National 7.48 10.56 11.00
AmeriCom 6.76 11.83 12.88
AmeriFirst 7.02 10.70 11.56
Adrian 6.31 9.21 10.46
The capital to asset ratios of the Company's non-bank
subsidiaries are significantly different than the bank
subsidiaries.
Page 16
Asset/Liability Management
As of June 30, 1996, the Company is maintaining a manageable
positive gap position for asset and liability repricing within
a twelve-month period, and therefore does not expect to
experience any significant fluctuations in its net interest
income as a consequence of changes in interest rates.
Asset Quality
At June 30, 1996, the Company's percentage of non-performing
loans (non-accrual loans, loans past due 90 days or more and
restructured loans) to total loans was 0.69 percent, as compared
to 0.67 percent at December 31, 1995 and 0.55 percent at June
30, 1995. Non-performing loans at June 30, 1996 aggregated
$10,101,000, an increase of $270,000 or 3 percent from December
31, 1995. The Company's percentage of net charge-offs for the
six months ended June 30, 1996 and June 30, 1995 to average loans
outstanding were 0.24 percent (annualized) and 0.14 percent
(annualized), respectively. At June 30, 1996, the Company's
allowance for credit losses was 1.00 percent of total loans, as
compared to 1.01 percent and 1.02 percent at December 31, 1995
and June 30, 1995, respectively. The allowance for credit
losses as a percentage of non-performing loans at June 30, 1996
was 145 percent compared to 151 percent at December 31, 1995 and
185 percent at June 30, 1995. The ratio of non-performing
assets (constituting the sum of non-performing loans and other
real estate owned) to total loans plus other real estate owned
was 0.73 percent at June 30, 1996, compared to 0.72 percent and
0.65 percent at December 31, 1995 and June 30, 1995,
respectively. As of June 30, 1996, based upon a review of the
loan portfolio (including the loan growth rate and change in the
mix of the loan portfolio), management believes the allowance for
credit losses is adequate.
Loans now current but where some concerns exist as to the ability
of the borrower to comply with present loan repayment terms,
excluding non-performing loans, approximated $30,930,000 and
$32,715,000 at June 30, 1996 and December 31, 1995,
respectively, and are being closely monitored by management and
the Boards of Directors of the subsidiaries. The classification
of these loans, however, does not mean to imply that management
expects losses on each of these loans, but believes that a higher
level of scrutiny is prudent under the circumstances. The
decrease in loans where some concern exists is primarily
attributable to the Company's continuous process of loan review
which has identified various improvements in the financial
condition of certain of the individual borrowers. In the opinion
of management, these loans require close monitoring despite the
fact that they are performing according to their terms. Such
Page 17
classifications relate to specific concerns relating to each
individual borrower and do not relate to any concentrated risk
elements common to all loans in this group. At June 30, 1996
and December 31, 1995, specific allocations of the allowance for
credit losses related to these loans aggregated $1,780,000 and
$3,359,000, respectively. The provision for these loans is based
on the Company's assessment of the expected cash flows from the
loans, the adequacy of collateral values, the adequacy of the
current level of the allowance for credit losses, recent
charge-off experience, the level of recoveries and other factors
delineated in the Company's reserve policy.
The Company, through its bank subsidiaries, owns approximately
$6,200,000 of lease receivables representing approximately 1,000
leases which were purchased from and are being serviced by The
Bennett Funding Group, Inc., a Syracuse-based company that filed
for bankruptcy in March, 1996. Based upon current information
available to the Company, approximately $1,600,000 of these
leases appear to have been pledged to more than one party.
Therefore, in June, 1996, the Company reclassified $1,600,000 of
Bennett assets to non-performing status. The Company continues
to closely monitor the bankruptcy proceedings and is pursuing all
remedies available, including the removal of the leases from the
bankruptcy estate. As a result of the reclassification of the
leases related to Bennett, the Company's asset quality ratios
have declined slightly, but remain at satisfactory levels.
The following table presents asset quality information for each
of the Company's banking subsidiaries at June 30, 1996.
(Dollars in thousands)
Mid Am First
Bank National AmeriCom AmeriFirst Adrian
Loans:
Non-accrual $3,879 $678 $1,954 $2,227 $184
Contractually
past due 90
days or more 5 326 357 397 18
Restructured 0 0 76 0 0
Total
non-performing
loans 3,884 1,004 2,387 2,624 202
Other real
estate owned 172 0 117 16 0
Total
non-performing
assets $4,056 $1,004 $2,504 $2,640 $202
Page 18
Non-performing
loans to
total loans .68 .28 1.02 1.27 .19
Non-performing
assets to total
loans plus
other real
estate owned .71 .28 1.07 1.27 .19
Allowance for
credit losses
to total
non-performing
loans 197.37 162.65 103.90 62.16 621.29
Allowance for
credit losses
to total
non-performing
assets 189.00 162.65 99.04 61.78 621.29
Ratio of net
charge-offs to
average loans
outstanding .32 .06 .09 .65 (.06)
Ratio of
allowance for
credit losses
to total loans 1.35 .46 1.06 .79 1.15
The following table sets forth the Company's allocation of
the allowance for credit losses as of June 30, 1996 and
December 31, 1995.
(Dollars in thousands)
June 30, 1996 December 31, 1995
Specific allowance
Real estate $ 359 $ 320
Commercial 1,919 3,989
Installment 216 560
Total specific allowance 2,494 4,869
General allowance
Real estate 747 1,190
Commercial 514 670
Installment 586 659
Other 507 474
Total general allowance 2,354 2,993
Unallocated allowance 9,817 6,997
Allowance for credit losses $14,665 $14,859
Page 19
As of June 30, 1996, no specific allowance has been determined
for the leases from Bennet Funding Group due to the uncertainty
as to whether a loss will occur. However, management has
determined that the allowance for credit losses is adequate to
absorb any future losses from the Bennett Funding Group leases.
The following table presents a summary of the Company's credit
loss experience for the six months ended June 30, 1996 and 1995.
(Dollars in thousands)
1996 1995
Balance of allowance at
beginning of year $14,859 $14,722
Loans actually charged-off:
Real estate 290 78
Commercial, financial
and agricultural 1,114 1,346
Installment and credit card 1,461 423
Total loans charged-off 2,865 1,847
Recoveries of loans previously
charged-off:
Real estate 204 155
Commercial, financial
and agricultural 497 451
Installment and credit card 388 253
Total recoveries of loans 1,089 859
Net charge-offs 1,776 988
Addition to allowance
charged to expense 1,582 1,144
Transfer of other real
estate owned allowance
relating to in-substance
foreclosure loans 36
Allowance for credit losses $14,665 $14,914
Ratio of net charge-offs to
average loans outstanding .24 .14
Ratio of allowance for credit
losses to total loans 1.00 1.02
Ratio of allowance for credit
losses to total
non-performing loans 145.18 185.20
Page 20
Addition to allowance
charged to expense 1,582
Addition charged to expense
for loans sold with recourse 53
Total provision for
credit losses 1,635
PART II. - OTHER INFORMATION
Item 1. - Legal Proceedings
The Company's broker/dealer subsidiary, MFI, is a co-defendant
in a consolidated NASD Arbitration (NASD Case No. 95-05733). The
matter revolves around an investment advisor unaffiliated with
MFI or the Company who is not a party to the arbitration as he is
believed to be insolvent. The four Claimants allege that certain
trades directed by the unaffiliated investment advisor caused an
economic loss of approximately $3,000,000 to the Claimants. As
the trades were executed by brokers of MFI, MFI and the
individual brokers were made parties to the action. The causes
of action are brought under theories of negligence, breach
of contract, negligent hiring and failure to supervise. The
Claimants demand relief of actual damages, attorneys' fees,
interest and costs. Management of the Company intends to oppose
the action vigorously and is currently unable to make an
assessment as to the likely outcome of the arbitration.
Other than as described above, the Company is subject to various
pending and threatened lawsuits in which claims for monetary
damages are asserted in the ordinary course of business. While
any litigation involves an element of uncertainty, in the opinion
of management, liabilities, if any, arising from such litigation
will not have a material adverse effect on the financial
condition or results of operations of the Company.
Item 2. - Changes in Securities
Not applicable.
Item 3. - Defaults Upon Senior Securities
Not applicable.
Page 21
Item 4 - Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5 - Other Information
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
1. Statement Re Computation of Earnings Per
Common Share
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the second quarter of
1996.
Page 22
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act
of 1934, the Registrant has duly caused this report to be
signed on its behalf by the undersigned hereunto duly
authorized.
MID AM, INC.
s/ Donald P. Hileman
Donald P. Hileman
Senior Vice President / Finance
DATE: August 13, 1996
Page 23
MID AM, INC.
EXHIBIT INDEX
Exhibit No. Description Page Number
(1) Statement Re Computation of
Earnings Per Common Share 25
Page 24
EXHIBIT 1
Statement Re Computation of Earnings Per Common Share
Attached to and made part of Part II of Form 10-Q for the three
months ended June 30, 1996 and 1995, and six months ended June
30, 1996 and 1995.
Three Months Ended June 30,
1996 1995
Primary weighted average
number of common shares
for computation of
earnings per common share 19,021,000 19,234,000
Fully diluted weighted
average number of common
shares for computation of
earnings per common share 22,044,000 22,732,000
Six Months Ended June 30,
1996 1995
Primary weighted average
number of common shares
for computation of
earnings per common share 19,074,000 19,183,000
Fully diluted weighted
average number of common
shares for computation of
earnings per common share 22,175,000 22,708,000
Page 25