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 September 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 October 31, 1996.
Common Stock, without par value - 20,595,855 shares
MID AM, INC.
INDEX
PART I - FINANCIAL INFORMATION Page Number
Item 1. Financial Statements
Consolidated Statement of Condition
(Unaudited)
September 30, 1996 and December 31, 1995 3
Consolidated Statement of Earnings
(Unaudited)
Nine months ended September 30, 1996 and 1995 4
Consolidated Statement of Cash Flows
(Unaudited)
Nine months ended September 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 22
Item 2. Changes in Securities 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote
of Security Holders 23
Item 5. Other Information 23
Item 6. Exhibits and Reports on Form 8-K 23
SIGNATURES 24
EXHIBIT INDEX 25
Page 2
PART I. - FINANCIAL INFORMATION
MID AM, INC. Consolidated Statement of Condition-(Unaudited)
September 30, 1996 December 31, 1995
Assets (Dollars in thousands)
Cash and due from banks $ 78,292 $ 102,600
Int-bearing deposits in banks 1,116 3,372
Federal funds sold 2,188 72,558
Securities available for sale 454,207 461,997
Loans held for sale 4,630 12,642
Loans, net of unearned fees 1,540,641 1,475,651
Allowance for credit losses (14,972) (14,859)
Net loans 1,525,669 1,460,792
Bank premises and equipment 49,097 49,489
Int receivable/other assets 48,229 41,301
Total Assets $2,163,428 $2,204,751
Liabilities
Demand deposits(non-interest)$ 194,394 $ 223,945
Savings deposits 585,794 593,807
Other time deposits 1,030,196 1,042,390
Total Deposits 1,810,384 1,860,142
Federal funds purchased and
securities sold under
agreements to repurchase 115,478 87,548
Capitalized lease
obligations and debt 30,710 48,405
Int payable/other liabilities 19,759 13,818
Total Liabilities 1,976,331 2,009,913
Shareholders' Equity
Preferred stock - no par value
Authorized - 2,000,000
Issued - 1,302,410 and
1,422,744 shares 32,560 35,569
Common stock - stated value
of $3.33 per share
Authorized - 35,000,000
Issued - 20,623,609
and 19,492,726 shares 68,745 64,975
Surplus 87,619 91,723
Retained earnings 906 9,529
Treasury stock
38,998 and 522,361 shares (614) (8,424)
Unrealized (losses)/gains on
securities avail for sale (2,119) 1,466
Total Shareholders' Equity 187,097 194,838
Total Liabilities and
Shareholders' Equity $2,163,428 $2,204,751
Page 3
MID AM, INC. Consolidated Statement of Earnings-(Unaudited)
Three Mths Ended Nine Mths Ended
September 30, September 30,
1996 1995 1996 1995
(Dollars in thousands)
Interest Income
Int and fees on loans $33,807 $33,025 $99,413 $96,896
Int on deposits in banks 31 76 95 153
Int on federal funds sold 245 1,111 1,953 2,358
Int on taxable investments 6,422 6,252 19,130 18,606
Int on tax exempt investment 638 931 2,122 2,830
Total Interest Income 41,143 41,395 122,713 120,843
Interest Expense
Int on deposits 18,181 19,054 54,796 53,422
Int on borrowed funds 1,601 1,897 5,163 5,912
Total Interest Expense 19,782 20,951 59,959 59,334
Net Interest Income 21,361 20,444 62,754 61,509
Provision for credit losses 1,305 864 2,940 2,008
Net Interest Income After
Provision Credit Losses 20,056 19,580 59,814 59,501
Non-interest Income
Service charge deposit accts 1,773 1,602 5,085 4,604
Mortgage banking 2,166 2,452 7,579 5,940
Brokerage commissions 1,391 2,520 7,851 6,739
Collection agency fees 1,053 841 3,075 2,510
Net gains on security sales 488 86 1,274 142
Other income 3,600 1,947 8,552 5,908
Total Non-interest Income 10,471 9,448 33,416 25,843
Non-interest Expense
Salaries/employee benefits 10,227 8,471 30,415 25,511
Net occupancy expense 1,376 1,353 3,951 3,884
Equipment expense 1,979 1,796 5,887 5,367
Other expenses 10,805 7,778 28,040 22,862
Total Non-interest Expense 24,387 19,398 68,293 57,624
Income before income taxes 6,140 9,630 24,937 27,720
Applicable income taxes 1,895 3,158 7,974 8,973
Net Income $ 4,245 $ 6,472 $16,963 $18,747
Net Income Available to
Common Shareholders $ 3,657 $ 5,798 $15,125 $16,642
Earnings per Common Share:
Primary $ .18 $ .27 $ .72 $ .79
Fully diluted $ .18 $ .26 $ .70 $ .75
Page 4
MID AM, INC. Consolidated Statement of Cash Flows-(Unaudited)
Nine Months Ended September 30,
1996 1995
Operating Activities (Dollars in thousands)
Net income $ 16,963 $ 18,747
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for credit losses 2,940 2,008
Provision for depreciation
and amortization of assets 6,818 6,511
Proceeds from sales of mortgage
and other loans held for sale 353,071 211,031
Mortgage and other loans
originated for sale (340,762) (212,052)
Net gains on sales of assets (8,336) (3,853)
Increase in interest receivable
and other assets (6,476) (10,261)
Increase in interest payable
and other liabilities 5,941 1,964
Net Cash Provided By
Operating Activities 30,159 14,095
Investing Activities
Net decrease (increase) in interest-
bearing deposits in other banks 2,256 (2,641)
Net decrease (increase) in
federal funds sold 70,370 (65,506)
Proceeds from sales of securities
available for sale 38,749 13,689
Proceeds from maturities and paydowns
of securities available for sale 72,798 31,012
Purchases of securities
available for sale (37,525) (53,012)
Proceeds from maturities and paydowns
of investment securities 6,244
Purchases of investment securities (340)
Proceeds from maturities and paydowns
of mortgage-backed securities 14,704
Proceeds from sales of loans 8,043 41,054
Net increase in loans (144,687) (62,148)
Proceeds from sales of OREO 504 1,042
Proceeds from sales of bank
premises and equipment 719 536
Purchases of bank premises
and equipment (5,053) (4,458)
Cash acquired through acquisitions 575
Net Cash Provided By (Used For)
Investing Activities 6,174 (79,249)
Page 5
MID AM, INC. Consolidated Statement of Cash Flows-(Unaudited)
Nine Months Ended September 30,
1996 1995
Financing Activities (Dollars in thousands)
Net decrease in demand
deposits and savings accounts (37,564) (29,367)
Net (decrease) increase in
other time deposits (12,194) 96,197
Net increase in federal
funds purchased and securities
sold under agreements repurchase 27,930 13,443
Repayment of capitalized lease
obligations and debt (17,695) (64,138)
Proceeds from issuance of debt 48,950
Cash dividends paid (10,950) (11,190)
Treasury stock
(net of reissuance, 339 and 556) (10,065) (5,844)
Preferred stock conversions,
fractional shares and other items (103) 48
Net Cash (Used For) Provided By
Financing Activities (60,641) 48,099
Net decrease in cash and
due from banks (24,308) (17,055)
Cash and due from banks at the
beginning of the period 102,600 85,332
Cash and due from banks at the
end of the period $ 78,292 $ 68,277
Supplemental Schedule of Noncash
Investing and Financing Activities
Securitization of loans and
transferred to securities
available for sale $ 71,299 $ 3,430
Transfers from loans to other
real estate owned $ 708 $ 507
Loans on other real estate
owned sold $ 208
Fair value of assets acquired $ 48
Intangible assets 246
Fair value of liabilities assumed (44)
Common stock issued $ 250
Unrealized (losses) gains on
securities available for sale $ (5,516) $ 7,547
Adjustment to deferred tax (1,931) 2,641
Adjustment to shareholders' equity $ (3,585) $ 4,906
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. ("MARSI"),
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. Stock Dividend
On August 16, 1996, the Board of Directors of the Company
declared a 10 percent stock dividend on its common stock to all
shareholders of record on September 10, 1996. The stock dividend
was paid on September 30, 1996 and fractional shares were paid in
cash. As a result of the stock dividend, the Company distributed
approximately 1.9 million shares of common stock to approximately
8,300 shareholders of record. Per common share data for all
periods presented and the statement of condition at September 30,
1996 have been adjusted to reflect this 10 percent stock
dividend.
Page 7
3. Repurchase Program
On May 16, 1996, the Board of Directors of the Company
authorized management to undertake purchases of up to 1,100,000
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 1,512,500
shares of common stock. Under the 1995 authorization, the
Company reacquired approximately 880,000 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
dividend declarations. As of September 30, 1996 the Company had
repurchased approximately 255,000 shares of common stock pursuant
to its 1996 repurchase program. In connection with the payment
of the 10 percent common stock dividend paid on September 30,
1996, the Company issued 1,135,000 shares that were held as
treasury stock.
Page 8
Item 2. - Management's Discussion/Analysis and Statistical
Information
Three Months Ended September 30, 1996 and 1995
Results of Operations
For the three months ended September 30, 1996, net income
decreased $2,227,000 to $4,245,000 compared to $6,472,000 for the
same period in 1995. The decrease is primarily due to a
non-recurring pre-tax charge of $3,560,000 assessed by the
Federal Deposit Insurance Corp. The assessment is the result
of long-awaited legislation passed on September 30, 1996, to
recapitalize the Savings Association Insurance Fund ("SAIF").
Earnings per common share for the three months ended September
30, 1996 were $.18 ($.18 fully diluted) and $.27 ($.26 fully
diluted) for the same period in 1995. For the three months ended
September 30, 1996, the annualized return on average common
shareholders' equity was 9.42 percent and the annualized return
on average assets was 0.79 percent compared to 14.76 percent and
1.19 percent, respectively, for the same period in 1995. For the
three months ended September 30, 1996, net income and earnings
per common share without the non-recurring SAIF assessment would
have been $6,560,000 and $.29 ($.27 fully diluted), respectively.
Net Interest Income
Net interest income increased $917,000 to $21,361,000 in the
third quarter of 1996, as compared to $20,444,000 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
September 30, 1996 was 4.36 percent compared to 4.13 percent for
the same period in 1995. The Company's net interest margin
improved primarily due to a shift in the asset mix from lower
interest rate short term assets such as federal funds sold to
higher interest rate loans, as well as an increase in average
noninterest-bearing deposits that funded interest-earning assets.
Provision for Credit Losses
The provision for credit losses increased $441,000 or 51 percent
to $1,305,000 in the third quarter of 1996 compared to $864,000
in the third quarter of 1995. The additional provision was
necessary to maintain an adequate allowance for credit losses on
the Company's increasing loan portfolio size. Net charge-offs
were $773,000 or 0.20 percent (annualized) of average loans
during the three months ended September 30, 1996, compared to
Page 9
$764,000 or 0.21 percent (annualized) for the same period in
1995. 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.
At September 30, 1996, the Company's allowance for credit losses
as a percentage of loans was 0.97 percent compared to 1.01
percent at December 31, 1995 and 1.03 percent at September 30,
1995. At September 30, 1996, the Company's allowance for credit
losses represented 175 percent of non-performing loans as
compared to 151 percent and 140 percent at December 31, 1995 and
September 30, 1995, respectively. The decrease in the Company's
allowance for credit losses as a percentage of loans is due to
growth in the loan portfolio. However, management believes that
the Company's allowance for credit losses is adequate. (See
"Asset Quality".)
Non-Interest Income
For the three months ended September 30, 1996, non-interest
income increased $1,023,000 or 11 percent to $10,471,000 compared
to $9,448,000 for the same period in 1995. The increase is due
primarily to an increase of $1,268,000 in net gains on sales of
loans from the Company's leasing and financing company, an
increase of $212,000 or 25 percent in collection agency fees, an
increase of $115,000 in international department fee income and
an increase of $402,000 in net gains on sales of securities in
the third quarter of 1996 as compared to the same period in 1995.
Collection agency fees increased due to an increase in commercial
collection fees and 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 loan assets. The increases in non-interest
income was partially offset by a decrease of $286,000 or 12
percent in mortgage banking and a decrease of $1,129,000 or 45
percent in brokerage commissions. Mortgage banking decreased
primarily due to a decrease in net gains on sales of loans due to
the lower volume of loan sales. Brokerage commission income
decreased primarily due to a decrease in the number of registered
representatives causing a lower volume of business.
Non-Interest Expense
For the three months ended September 30, 1996, non-interest
expense increased $4,989,000 or 26 percent to $24,387,000
compared with $19,398,000 for the same period in 1995. For the
three months ended September 30, 1996, salaries and employee
benefits expense increased $1,756,000 or 21 percent to
Page 10
$10,227,000 compared to $8,471,000 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 the Company's leasing and financing company
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 $183,000 or 10 percent to $1,979,000
for the third quarter of 1996 as compared to $1,796,000 for the
same period in 1995. The increase in equipment expense was
primarily due to an increase of $161,000 in depreciation expense
resulting from various equipment purchases. Other expenses
increased $3,027,000 or 39 percent to $10,805,000 for the three
months ended September 30, 1996 as compared to the same period in
1995. The increase was primarily due to a non-recurring pre-tax
SAIF charge of $3,560,000 assessed by the Federal Deposit
Insurance Corp. The assessment is the result of long-awaited
legislation passed on September 30, 1996, to recapitalize the
Savings Association Insurance Fund. The charge applied to
approximately $616,000,000 of SAIF deposits acquired by the
Company since 1989. Also, there were increases in printing and
supplies ($94,000), credit card processing fees ($95,000),
telephone expense ($70,000), loan origination expenses
($103,000), miscellaneous expense ($298,000) and various other
expenses (postage, travel, state franchise taxes which aggregated
$199,000), offset by a decrease of $1,172,000 in brokerage
commission expense and a decrease of $267,000 in non-recurring
professional fees. The decrease in brokerage commission expense
is primarily due to a decrease in the number of registered
representatives causing a lower volume of business.
Income Taxes
The provision for income taxes for the third quarter of 1996
decreased $1,263,000 or 40 percent to $1,895,000 compared to
$3,158,000 for the same period in 1995. The decrease was due
primarily to lower pretax income and a lower effective tax rate
of 30.9 percent for the third quarter of 1996 as compared to
32.8 percent for the same period in 1995.
Nine Months Ended September 30, 1996 and 1995
Results of Operations
For the nine months ended September 30, 1996, net income
decreased $1,784,000 to $16,963,000 compared to $18,747,000 for
the same period in 1995. Earnings per common share for the nine
months ended September 30, 1996 were $.72 ($.70 fully diluted)
and $.79 ($.75 fully diluted) for the same period in 1995. For
Page 11
the nine months ended September 30, 1996, the annualized return
on average common shareholders' equity was 12.87 percent and the
annualized return on average assets was 1.05 percent compared to
14.66 percent and 1.18 percent, respectively, for the same period
in 1995. For the nine months ended September 30, 1996, net
income and earnings per common share without the non-recurring
SAIF assessment would have been $19,278,000 and $.83 ($.79 fully
diluted), respectively.
Net Interest Income
Net interest income increased $1,245,000 to $62,754,000 for the
nine months ended September 30, 1996, as compared to $61,509,000
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 nine months ended
September 30, 1996 was 4.28 percent compared to 4.26 percent for
the same period in 1995. The slight improvement in the Company's
net interest margin was primarily due to the increase in average
loans being funded by a greater percentage of noninterest-bearing
deposits than interest-bearing deposits which occurred primarily
in the third quarter of the nine month period ended September 30,
1996.
Provision for Credit Losses
The provision for credit losses increased $932,000 or 46 percent
to $2,940,000 for the nine months ended September 30, 1996, as
compared to $2,008,000 for the same period in 1995. Net
charge-offs were $2,549,000 or 0.23 percent (annualized) of
average loans during the nine months ended September 30, 1996,
compared to $1,752,000 or 0.16 percent (annualized) for the same
period in 1995. The increase in net charge-offs was primarily
due to an increase of $964,000 in charge-offs of installment
loans and an increase of $424,000 in charge-offs of commercial
real estate loans, partially offset by a decrease of $539,000 in
charge-offs of commercial 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 nine months ended September 30, 1996, non-interest income
increased $7,573,000 or 29 percent to $33,416,000 compared to
$25,843,000 for the same period in 1995. The increase is due
primarily to an increase of $1,639,000 or 28 percent in mortgage
Page 12
banking revenue, an increase of $1,112,000 or 17 percent in
brokerage commissions, an increase of $565,000 or 23 percent in
collection agency fees, an increase of $2,559,000 or 52 percent
in other income and an increase of $1,132,000 in net gains on
sales of securities for the nine months ended September 30, 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 loan assets. Mortgage banking
increased primarily due to an increase in net gains on sales of
loans that occurred in the first six months of 1996. Brokerage
commissions increased primarily due to an strong increase in
transactions related to the volatility in the stock market during
the first six months of 1996, which was partially offset by a
decrease in commissions during the third quarter of 1996.
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 ($1,542,000), credit card fees
($231,000), electronic banking fees ($145,000) and international
banking fees ($219,000).
Non-Interest Expense
For the nine months ended September 30, 1996, non-interest
expense increased $10,669,000 or 19 percent to $68,293,000
compared with $57,624,000 for the same period in 1995. For the
nine months ended September 30, 1996, salaries and employee
benefits expense increased $4,904,000 or 19 percent to
$30,415,000 compared to $25,511,000 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 the Company's leasing and financing company
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 $520,000 or 10 percent to $5,887,000
for the nine months ended September 30, 1996, as compared to
$5,367,000 for the same period in 1995. The increase in
equipment expense was primarily due to an increase of $470,000 in
depreciation expense. Other expenses increased $5,178,000 or 23
percent to $28,040,000 for the nine months ended September 30,
1996, as compared to the same period for 1995. The increase was
primarily due to a non-recurring pre-tax charge of $3,560,000
assessed by the Federal Deposit Insurance Corp. Also, there were
increases in postage expense ($155,000), printing and supplies
($290,000), other professional fees ($302,000), telephone expense
($186,000), loan origination expenses ($261,000), collection and
repossesion expenses ($125,000), credit card processing fees
($244,000), travel expenses ($185,000), losses on sales of fixed
assets ($189,000) and ticket charges from the Company's brokerage
Page 13
clearing firms ($644,000), offset by a decrease of $104,000 in
legal expenses and a decrease of $1,158,000 in FDIC premiums.
The decrease in FDIC premiums was due to the Bank Insurance Fund
premiums ($.23 per $100 of deposits) of $1,194,000 for the nine
months ended September 30, 1995, which were eliminated in 1996.
(See "Three Months Ended September 30, 1996 and 1995,
Non-Interest Expense".)
Income Taxes
The provision for income taxes for the nine months ended
September 30, 1996, decreased $999,000 or 11 percent to
$7,974,000 compared to $8,973,000 for the same period in 1995.
The decrease was due primarily to lower pretax income and a lower
effective tax rate of 32.0 percent for the nine months ended
September 30, 1996, as compared to 32.4 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.
For the Company's bank subsidiaries, the primary sources of
liquidity at September 30, 1996 were federal funds sold of
$2,188,000, securities available for sale of $454,207,000 and
loans held for sale of $4,630,000. 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
Page 14
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 September 30, 1996, $11,709,000 was
available for distribution to the Company as dividends without
prior regulatory approval.
Cash and due from banks decreased by $24,308,000 during the
nine months ended September 30, 1996 to $78,292,000 from
$102,600,000 at December 31, 1995. Cash and due from banks
decreased primarily due to a decrease of approximately
$19,000,000 in checks in the process of collection and a
decrease of approximately $5,000,000 in due from other banks.
Operating activities provided $30,159,000 of cash in the nine
months ended September 30, 1996 as compared to cash provided by
operating activities of $14,095,000 for the same period in 1995.
For the nine months ended September 30, 1996, cash provided by
operating activities was primarily attributable to net income and
proceeds from sales of mortgage and other loans held for sale.
For the same period in 1995, the cash provided by operating
activities was primarily due to net income and provision for
depreciation and amortization of assets, offset by an increase in
interest receivable and other assets. The Company originated
approximately $340,762,000 of mortgage and other loans in the
nine months ended September 30, 1996, as compared to $212,052,000
for the same period in 1995. The increase in mortgage and other
loans originations was primarily due to a decrease in market
rates which led to an increase in refinancing and new mortgage
activity, and loan originations at the Company's new leasing and
financing company. The higher mortgage banking and financing
activity in 1996 compared to 1995 resulted in an increase in the
amount of cash required to fund mortgage and other loans. The
higher activity also resulted in an increase in volume of sales
of mortgage and other loans providing cash (from $211,031,000 in
1995 to $353,071,000 in 1996) which more than offset the cash
used for higher originations.
Cash of $6,174,000 was provided by investing activities during
the nine months ended September 30, 1996 compared to cash used
for investing activities of $79,249,000 during the nine months
ended September 30, 1995, an increase in cash flows from
investing activities of $85,423,000. The primary reason for the
increase in cash flows used for investing activities was the net
decrease in federal funds sold in 1996 of $70,370,000 compared to
a net increase of $65,506,000 for the same period in 1995 and the
proceeds from sales, maturities and paydowns of securities
available for sale in 1996 of $111,547,000 compared to
$44,701,000 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 nine months of 1996 was
partially offset by the net increase of $144,687,000 in loans.
Page 15
Cash used for financing activities was $60,641,000 during
the nine months ended September 30, 1996 as compared to
$48,099,000 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 $49,758,000
and repayment of capitalized lease obligations and debt of
$17,695,000. The cash provided by financing activities in 1995
was primarily due to a net increase in other time deposits of
$96,197,000, partially offset by a net decrease of $29,367,000
in demand deposits and savings accounts. The increase in other
time deposits during the first nine 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 $10,065,000
were made for the nine months ending September 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
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 September 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 September 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
Page 16
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 September 30, 1996, the Company's
leverage ratio, Tier I, and combined Tier I and Tier II (total
capital) ratios were 8.26 percent, 10.87 percent and 11.77
percent, respectively.
Capital ratios applicable to the Company's banking subsidiaries
at September 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 7.63 9.03 10.13
First National 7.50 9.97 10.42
AmeriCom 7.03 11.07 12.12
AmeriFirst 7.07 10.13 10.94
Adrian 6.40 8.75 10.00
The capital to asset ratios of the Company's non-bank
subsidiaries are significantly different than the bank
subsidiaries.
Asset/Liability Management
As of September 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 September 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 0.56 percent, as compared
to 0.67 percent at December 31, 1995 and 0.74 percent at
September 30, 1995. Non-performing loans at September 30, 1996
aggregated $8,566,000, a decrease of $1,265,000 or 13 percent
from December 31, 1995. The Company's percentage of net
charge-offs for the nine months ended September 30, 1996 and
Page 17
September 30, 1995 to average loans outstanding were 0.23 percent
(annualized) and 0.16 percent (annualized), respectively. At
September 30, 1996, the Company's allowance for credit losses was
0.97 percent of total loans, as compared to 1.01 percent and 1.03
percent at December 31, 1995 and September 30, 1995,
respectively. The allowance for credit losses as a percentage of
non-performing loans at September 30, 1996 was 175 percent
compared to 151 percent at December 31, 1995 and 140 percent at
September 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
0.60 percent at September 30, 1996, compared to 0.72 percent and
0.79 percent at December 31, 1995 and September 30, 1995,
respectively. As of September 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 $31,670,000 and
$32,715,000 at September 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
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 September 30,
1996 and December 31, 1995, specific allocations of the allowance
for credit losses related to these loans aggregated $1,853,000
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
Page 18
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.
The following table presents asset quality information for each
of the Company's banking subsidiaries at September 30, 1996.
(Dollars in thousands)
Mid Am First
Bank National AmeriCom AmeriFirst Adrian
Loans:
Non-accrual $3,139 $760 $1,595 $2,187 $256
Contractually
past due 90
days or more 30 34 302 158 30
Restructured 0 0 75 0 0
Total
non-performing
loans 3,169 794 1,972 2,345 286
Other real
estate owned 152 0 107 95 0
Total
non-performing
assets $3,321 $794 $2,079 $2,440 $286
Non-performing
loans to
total loans .52 .22 .81 1.15 .24
Non-performing
assets to total
loans plus
other real
estate owned .54 .22 .85 1.19 .24
Allowance for
credit losses
to total
non-performing
loans 246.89 216.12 132.45 66.48 440.91
Page 19
Allowance for
credit losses
to total
non-performing
assets 235.59 216.12 125.64 63.89 440.91
Ratio of net
charge-offs to
average loans
outstanding .32 .05 .08 .59 (.01)
Ratio of
allowance for
credit losses
to total loans 1.28 .47 1.07 .76 1.08
The following table sets forth the Company's allocation of
the allowance for credit losses as of September 30, 1996 and
December 31, 1995.
(Dollars in thousands)
September 30, 1996 December 31, 1995
Specific allowance
Real estate $ 334 $ 320
Commercial 1,908 3,989
Installment 234 560
Total specific allowance 2,476 4,869
General allowance
Real estate 683 1,190
Commercial 512 670
Installment 663 659
Other 534 474
Total general allowance 2,392 2,993
Unallocated allowance 10,104 6,997
Allowance for credit losses $14,972 $14,859
As of September 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.
Page 20
The following table presents a summary of the Company's credit
loss experience for the nine months ended September 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 520 96
Commercial, financial
and agricultural 1,483 1,802
Installment and credit card 1,965 944
Other 14 63
Total loans charged-off 3,982 2,905
Recoveries of loans previously
charged-off:
Real estate 278 198
Commercial, financial
and agricultural 592 622
Installment and credit card 531 330
Other 32 3
Total recoveries of loans 1,433 1,153
Net charge-offs 2,549 1,752
Addition to allowance
charged to expense 2,662 2,008
Transfer of other real
estate owned allowance
relating to in-substance
foreclosure loans 36
Allowance for credit losses $14,972 $15,014
Ratio of net charge-offs to
average loans outstanding .23 .16
Ratio of allowance for credit
losses to total loans .97 1.03
Ratio of allowance for credit
losses to total
non-performing loans 174.78 140.03
Addition to allowance
charged to expense 2,662
Addition charged to expense
for loans sold with recourse 278
Total provision for
credit losses 2,940
Page 21
For the nine months ended September 30, 1996, real estate loans
charged-off increased $424,000, and installment loans charged-off
increased $1,021,000 as compared to the same period in 1995. The
increase in real estate loans charged-off is primarily due to the
charge-down of two commercial real estate properties. The
increase in installment loans charged-off is primarily due to an
increase in auto loans charged-off at one bank subsidiary.
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 22
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
The Company filed a report on Form 8-K with the Commission as of
September 13, 1996, describing the Company's 10 percent stock
dividend.
Page 23
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: November 14, 1996
Page 24
MID AM, INC.
EXHIBIT INDEX
Exhibit No. Description Page Number
(1) Statement Re Computation of
Earnings Per Common Share 26
(2) Form 8-K Describing the Company's
10 Percent Stock Dividend
The information required by this exhibit
is incorporated herein by reference
from the Company's Form 8-K dated
September 13, 1996, filed with the
Securities and Exchange Commission on
September 16, 1996.
Page 25
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 September 30, 1996 and 1995, and nine months ended
September 30, 1996 and 1995.
Three Months Ended September 30,
1996 1995
Primary weighted average
number of common shares
for computation of
earnings per common share 20,892,000 21,170,000
Fully diluted weighted
average number of common
shares for computation of
earnings per common share 24,131,000 24,812,000
Nine Months Ended September 30,
1996 1995
Primary weighted average
number of common shares
for computation of
earnings per common share 20,975,000 21,123,000
Fully diluted weighted
average number of common
shares for computation of
earnings per common share 24,329,000 24,923,000
Page 26