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 March 31, 1997
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)
221 South Church Street, Bowling Green, Ohio 43402
(Address of Principal Executive Offices) (Zip Code)
(419)327-6300
(Registrant's Telephone Number)
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
Indicate the number of shares outstanding of each of the
issuer's classes of common stock as of the close of business
on April 30, 1997.
Common Stock, without par value - 20,990,273 shares
MID AM, INC.
INDEX
PART I - FINANCIAL INFORMATION Page Number
Item 1. Financial Statements
Consolidated Statement of Condition
(Unaudited)
March 31, 1997 and December 31, 1996 3
Consolidated Statement of Earnings
(Unaudited)
Three months ended March 31, 1997 and 1996 4
Consolidated Statement of Cash Flows
(Unaudited)
Three months ended March 31, 1997 and 1996 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 21
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
EXHIBIT INDEX 24
PART I. - FINANCIAL INFORMATION
MID AM, INC. Consolidated Statement of Condition-(Unaudited)
March 31, 1997 December 31, 1996
Assets (Dollars in thousands)
Cash and due from banks $ 79,018 $ 85,657
Int-bearing deposits in banks 1,455 1,631
Federal funds sold 34,014 4,476
Loans held for sale 4,549 7,927
Securities available for sale 379,563 432,791
Loans, net of unearned fees 1,591,557 1,574,880
Allowance for credit losses (16,752) (15,672)
Net loans 1,574,805 1,559,208
Bank premises and equipment 52,587 50,111
Int receivable/other assets 39,899 39,173
Total Assets $2,165,890 $2,180,974
Liabilities
Demand deposits(non-interest)$ 194,835 $ 205,306
Savings deposits 564,468 593,885
Other time deposits 988,694 1,033,718
Total Deposits 1,747,997 1,832,909
Federal funds purchased and
securities sold under
agreements to repurchase 148,123 92,805
Debt and capitalized
lease obligations 57,468 42,247
Int payable/other liabilities 21,412 19,809
Total Liabilities 1,975,000 1,987,770
Shareholders' Equity
Preferred stock - no par value
Authorized - 2,000,000
Issued - 956,431 and
1,203,725 shares 23,911 30,093
Common stock - stated value
of $3.33 per share
Authorized - 35,000,000
Issued - 21,175,914
and 20,887,675 shares 70,585 69,625
Surplus 88,180 89,299
Retained earnings 11,802 6,034
Treasury stock
64,361 and 46,610 shares (1,091) (834)
Unrealized losses on
securities avail for sale (2,497) (1,013)
Total Shareholders' Equity 190,890 193,204
Total Liabilities and
Shareholders' Equity $2,165,890 $2,180,974
MID AM, INC. Consolidated Statement of Earnings-(Unaudited)
Three Months Ended
(Dollars in thousands) March 31,
1997 1996
Interest Income
Int and fees on loans $34,942 $33,241
Int on deposits in banks 85 23
Int on federal funds sold 354 913
Int on taxable investments 5,635 6,004
Int on tax exempt investment 528 758
Total Interest Income 41,544 40,939
Interest Expense
Int on deposits 17,417 18,570
Int on borrowed funds 2,182 1,838
Total Interest Expense 19,599 20,408
Net Interest Income 21,945 20,531
Provision for credit losses 1,885 559
Net Interest Income After
Provision Credit Losses 20,060 19,972
Non-interest Income
Trust department 381 368
Service charge deposit accts 1,894 1,628
Mortgage banking 2,327 2,842
Brokerage commissions 1,480 3,500
Collection agency fees 1,242 1,014
Net (losses) gains on
sales of securities (726) 325
Other income 13,320 1,877
Total Non-interest Income 19,918 11,554
Non-interest Expense
Salaries/employee benefits 13,796 10,042
Net occupancy expense 1,372 1,291
Equipment expense 2,008 1,903
Other expenses 8,025 8,525
Total Non-interest Expense 25,201 21,761
Income before income taxes 14,777 9,765
Applicable income taxes 5,210 3,158
Net Income $ 9,567 $ 6,607
Net Income Available to
Common Shareholders $ 9,151 $ 5,968
Earnings per Common Share:
Primary $ .43 $ .28
Fully diluted $ .40 $ .27
MID AM, INC. Consolidated Statement of Cash Flows-(Unaudited)
Three Months Ended March 31,
1997 1996
(Dollars in thousands)
Operating Activities
Net income $ 9,567 $ 6,607
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for credit losses 1,885 559
Provision for depreciation
and amortization of assets 2,717 2,283
Proceeds from sales of mortgage
and other loans held for sale 95,027 169,036
Mortgage and other loans
originated for sale (91,140) (169,247)
Net gains on sales of assets (3,334) (2,375)
Increase in interest receivable
and other assets (323) (4,092)
Increase in interest payable
and other liabilities 1,603 3,784
Net Cash Provided By
Operating Activities 16,002 6,555
Investing Activities
Net decrease in interest-bearing
deposits in other banks 176 992
Net (increase) decrease in
federal funds sold (29,538) 8,743
Proceeds from sales of securities
available for sale 54,494 8,129
Proceeds from maturities and paydowns
of securities available for sale 16,120 25,924
Purchases of securities
available for sale (17,434) (53,984)
Proceeds from sales of loans 3,952 911
Net (increase) decrease in loans (22,049) 18,461
Proceeds from sales of
other real estate owned 332 247
Proceeds from sales of bank
premises and equipment 1,406 181
Purchases of bank premises
and equipment (5,330) (1,313)
Net Cash Provided By
Investing Activities 2,129 8,291
MID AM, INC. Consolidated Statement of Cash Flows-(Unaudited)
Three Months Ended March 31,
1997 1996
(Dollars in thousands)
Financing Activities
Net decrease in demand
deposits and savings accounts (39,888) (46,474)
Net decrease in other time deposits (45,024) (376)
Net increase in short-term
borrowings 55,318 13,324
Repayment of capitalized lease
obligations and debt (2,301) (271)
Proceeds from issuance of
long-term debt 17,522
Preferred stock retired (6,162)
Proceeds from issuance of
common stock 289 234
Cash dividends paid (3,798) (3,666)
Treasury stock acquisitions,
fractional shares and other items (726) (4,079)
Net Cash Used For
Financing Activities (24,770) (41,308)
Net decrease in cash and
due from banks (6,639) (26,462)
Cash and due from banks at the
beginning of the period 85,657 102,600
Cash and due from banks at the
end of the period $ 79,018 $ 76,138
Supplemental Schedule of Noncash
Investing and Financing Activities
Securitization of loans held for
sale and transferred to
securities available for sale $ 3,145 $ 27,463
Transfers from loans to other
real estate owned $ 774 $ 363
Unrealized losses on
securities available for sale $ (2,282) $ (2,747)
Adjustment to deferred tax (798) (962)
Adjustment to shareholders' equity $ (1,484) $ (1,785)
MID AM, INC.
Notes to Consolidated Financial Information - (unaudited)
1. Accounting Policies
The accounting and reporting policies followed by Mid Am, Inc.
conform to generally accepted accounting principles and to
general practices within the financial services industry. The
preparation of financial statements in conformity with generally
accepted accounting principles requires management to make
estimates and assumptions that affect the reported amount of
assets and liabilities and disclosure of contingent assets and
liabilities at the date of the financial statements. Actual
results could differ from those estimates.
Mid Am, Inc.'s business is primarily commercial banking and
related services which for financial reporting purposes was
considered a single business segment. Since 1994, six collection
companies were acquired, in 1995, a broker-dealer company was
acquired, in 1996, a commercial finance company was organized and
commenced operations, and in 1997, a mortgage brokerage business
was acquired, and a private trust bank and personal finance
company were organized and commenced operations which are
considered to be additional business segments; however, the
revenues, operating profit and assets of the collection business,
broker dealer business, finance companies and trust bank are not
material for separate disclosure and Mid Am's predominant
business continues to be banking.
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 Private Trust, N.A. (MAPT), Mid Am Recovery Services, Inc.
(MARSI), MFI Investments Corp. (MFI), Mid Am Credit Corp.(MACC),
Mid Am Financial Services, Inc. (MAFSI), Simplicity Mortgage
Consultants, Inc. (Simplicity), and Mid Am Information Services,
Inc.(MAISI). All significant intercompany transactions and
accounts have been eliminated in consolidation.
2. Recent Accounting Pronouncement
In February 1997, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 128, "Earnings
Per Share," which supersedes existing standards for determining
earnings per share. The statement will be effective for the
Company for the year ending December 31, 1997. Primary earnings
per share will be replaced by "basic earnings per share," which
will be determined solely by the weighted average number of
shares outstanding for the period. Fully diluted earnings per
share will be replaced by "diluted earnings per share," which
will reflect the potential dilution that could occur if
securities or other contracts to issue common stock were
exercised or converted into common stock or resulted in the
issuance of common stock that then shared in the earnings of the
Company. The statement will also require a reconciliation of the
numerator and denominator of basic earnings per share with the
numerator and denominator of diluted earnings per share. Under
the new pronouncement, the Company will exclude common stock
equivalents, as defined by APB No.15 "Earnings Per Share," from
the computation of bank earnings per share which in prior years
and the three months ended March 31, 1997 and 1996 were composed
of the net shares that would be issuable upon the exercise of
common stock options outstanding. Management does not believe
the new statement will result in a significant difference in
amounts per share determined for diluted earnings per share.
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. 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 March 31, 1997 the
Company had repurchased approximately 278,000 shares of common
stock pursuant to its 1996 repurchase program. As of April 30,
1997, the Company has repurchased approximately 426,000 shares of
common stock pursuant to its 1996 repurchase program.
Item 2. - Management's Discussion/Analysis and Statistical
Information
Three Months Ended March 31, 1997 and 1996
Results of Operations
For the three months ended March 31, 1997, net income increased
$2,960,000 or 45% to $9,567,000 compared to $6,607,000 for the
same period in 1996. Primary and fully diluted earnings per
share for the first quarter of 1997 were $.43 and $.40,
respectively, compared to $.28 and $.27 for the same period in
the prior year. Return on average common equity (ROE) for the
first quarter of 1997 was 22.51% while return on average assets
(ROA) was 1.79%, as compared to ROE and ROA ratios of 15.06% and
1.23%, respectively, for the first quarter of 1996.
The Company's results for the first quarter of 1997 reflect the
previously announced sale of seven branch offices and $95,000,000
of deposits of AmeriFirst to another bank, resulting in a pre-tax
gain of $8,500,000. Substantially all of the loans were retained
by AmeriFirst in connection with the transaction. The pre-tax
gain was partially offset by certain costs and other charges
related to the branch sale, which in the aggregate were
$2,000,000 on a pre-tax basis. The charges associated with the
branch sale include the recognition of losses in the sale of
low-yielding securities at several of the Company's affiliates,
including AmeriCom which enabled it to acquire loans of
AmeriFirst and thereby enhance AmeriCom's net interest margin
and future earnings potential, and certain formula-driven
expenses affected by the gain from the sale of the branches. The
Company believes that the sale of the branches will enable
AmeriFirst to focus on its core Greene County market, and that
the actions taken will enhance the Company's future earnings
prospects. In addition, during the quarter, the Company
increased its normal planned provision for credit losses by
approximately $1,000,000. The increase in the Company's
provision for credit losses was made in response to continued
loan growth.
The Company's first quarter of 1997 net income, excluding the
gain and charges related to the branch sale and the additional
provision for credit losses, were $6,100,000, which represents a
return on average common equity and return on average assets of
14.18% and 1.14%, respectively.
Net Interest Income
Net interest income increased $1,414,000 to $21,945,000 in the
first quarter of 1997 as compared to $20,531,000 for the same
period in 1996. 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
March 31, 1997 was 4.49% compared to 4.19% for the same period in
1996. The Company's net interest margin improved primarily due
to higher-yielding earning assets caused by increased average
loan levels which rose $108,000,000 or 7% from March 31, 1996.
The improvement in the net interest margin is also the result of
the sale of certain low-yielding securities which, combined with
higher-yielding earning assets, is expected to sustain the
Company's net interest margin at current levels in the near term.
Provision for Credit Losses
The provision for credit losses increased $1,326,000 or 237% to
$1,885,000 in the first quarter of 1997 compared to $559,000 in
the first quarter of 1996. 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 $805,000 or 0.20% (annualized) of average loans during the
three months ended March 31, 1997, compared to $729,000 or 0.20%
(annualized) for the same period in 1996. 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 March 31, 1997, the Company's allowance for credit losses
as a percentage of loans was 1.05% compared to 1.00% at
December 31, 1996 and 1.01% at March 31, 1996. At March 31,
1997, the Company's allowance for credit losses represented 269%
of non-performing loans as compared to 237% and 179% at December
31, 1996 and March 31,1996, respectively. The increase in the
Company's allowance for credit losses as a percentage of loans is
due to an increase in the provision for credit losses.
Management believes that the Company's allowance for credit
losses is adequate. (See "Asset Quality".)
Non-Interest Income
The table below summarizes the sources of the Company's non-
interest income.
Three months ended March 31, Percentage
(Dollars in thousands) 1997 1996 Change
Non-Interest Income:
Trust department $ 381 $ 368 4%
Service charges on
deposit accounts 1,894 1,628 16
Mortgage banking 2,327 2,842 (18)
Brokerage commissions 1,480 3,500 (58)
Collection agency fees 1,242 1,014 22
Net (losses) gains on
sales of securities (726) 325 (323)
Net gains on sales
of other loans 2,331 65 3486
Credit card fees 488 477 2
International dept fees 235 211 11
ATM card fees 345 154 124
Gain of sale of branch offices 8,500
Other 1,421 970 46
Total non-interest income $19,918 $11,554 72
As seen from the above table, non-interest income is an
increasingly important source of revenue to the Company as it
continues to expand its offerings of non-bank-related financial
services. Non-interest income for the three months ended March
31, 1997, non-interest income increased $8,364,000 or 72 percent
to $19,918,000 compared to $11,554,000 for the same period in
1995. The increase is due primarily to an increase of $8,500,000
in other income as a result of the sale of seven branch offices
of AmeriFirst to another bank. Other increases in non-interest
income for the first quarter of 1997 as compared to the same
period in 1996 was an increase of $2,266,000 in net gains on
sales of loans from the Company's leasing and financing company,
an increase of $228,000 or 22% in collection agency fees and an
increase of $266,000 or 16% in service charges on deposit
accounts. Collection agency fees increased due to an increase in
commercial collection fees and service charges on deposit
accounts increased due to higher fees. The increases in
non-interest income was partially offset by a decrease of
$2,020,000 or 58% in brokerage commissions and a decrease of
$515,000 or 18% in mortgage banking. 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. Net gains on
sales of securities decreased $1,051,000 due to charges
associated with the branch sale which included the recognition of
losses in the sale of low-yielding securities at several of the
Company's affiliates, including AmeriCom, which enabled it to
acquire loans of AmeriFirst and thereby enhance AmeriCom's net
interest margin and future earnings potential.
Non-Interest Expense
Non-interest expense includes costs, other than interest, that
are incurred in the operations of the Company. The table below
summarizes the components of the Company's non-interest expense.
Three months ended March 31, Percentage
(Dollars in thousands) 1997 1996 Change
Non-Interest Expense:
Salaries and employee benefits $13,796 $10,042 37%
Net occupancy expense 1,372 1,291 6
Equipment expense 2,008 1,903 6
Brokerage commissions 805 2,245 (64)
FDIC expense 122 424 (71)
Marketing 654 443 48
Franchise taxes 646 629 3
Telephone 645 494 31
Printing and supplies 535 493 9
Legal and other
professional fees 724 491 47
Credit card processing costs 519 374 39
Amortization of intangible
assets 843 397 112
Postage 436 422 3
Other 2,096 2,113 1
Total non-interest expense $25,201 $21,761 16
For the three months ended March 31, 1997, non-interest expense
increased $3,440,000 or 16% to $25,201,000 compared with
$21,761,000 for the same period in 1996. Of the increase in non-
interest expense, approximately $2,000,000 represented costs and
charges related to the branch office sale at AmeriFirst.
Salaries and employee benefits comprise the largest component of
non-interest expense and was 55% and 46% for the three months
ended March 31, 1997 and 1996, respectively. Salary
costs increased in 1997 due to the formation of MACC, MAFSI,
MAPT, the acquisition of Simplicity, the acquisition of three
credit agencies in Florida, new employees at the bank
subsidiaries to handle increases in lending activity and salary
rate increases. In addition, certain benefit expenses determined
under formulas which take into account pre-tax income also
increased in the three months ended March 31, 1997 compared to
the same period in 1996 because of the increase in pre-tax
income. Equipment expense and net occupancy expense increased
approximately 6% due to new offices for Simplicity, MAFSI and
MAPT. The decrease in other non-interest expenses is primarily
due to decreases in ticket charges from the Company's brokerage
clearing firms ($1,440,000) and FDIC premiums ($302,000). The
decreases were partially offset by increases in amortization of
intangible assets ($446,000), marketing ($211,000), legal and
other professional fees ($233,000), credit card processing fees
($145,000) and telephone expense ($151,000).
Income Taxes
The provision for income taxes for the first quarter of 1997
increased $2,052,000 or 65% to $5,210,000 compared to $3,158,000
for the same period in 1996. The increase was due primarily to
higher pre-tax income and a higher effective tax rate of 35.3%
for the first quarter of 1997 as compared to 32.3% for the same
period in 1996.
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 March 31, 1997 were federal funds sold of
$34,014,000, securities available for sale of $379,563,000 and
loans held for sale of $4,549,000. At December 31, 1996, the
primary sources of liquidity were federal funds sold of
$4,476,000, securities available for sale of $432,791,000 and
loans held for sale of $7,927,000.
Since the Company is a holding company and does not conduct
operations, its primary source of liquidity is dividends paid
to it by its subsidiaries. For national banks, the approval of
the Office of the Comptroller of the Currency is required in
order to pay dividends in excess of the subsidiaries' earnings
retained for the current year plus retained net profits since
January 1, 1995. As a result of these restrictions, at March 31,
1997 dividends which can be paid to the Company by its bank
subsidiaries are limited to $7,456,000.
The Company's liquidity position decreased in 1997 due to the
Company's sale of seven branch offices at AmeriFirst with
deposits of approximately $94,000,000 at the date of sale and
increased loan activity. The sale of the branch offices caused a
decrease in deposits, which was offset by a decrease in
securities available for sale and an increase in Federal Home
Loan Bank (FHLB) borrowings. However, management believes that
the Company's liquidity is adequate because the Company's bank
subsidiaries have lines of credit with the Federal Home Loan Bank
and can borrow up to $159,943,000, of which $94,657,000 is
currently outstanding. In December, 1996, the Company entered
into an agreement with an unrelated financial institution which
enables the Company to borrow up to $20,000,000 for a period of
one year. As of March 31, 1997, the Company has borrowed
$10,000,000 against the available credit facility.
Cash and due from banks decreased by $6,639,000 during the
three months ended March 31, 1997 to $79,018,000 from
$85,657,000 at December 31, 1996. Cash and due from banks
decreased primarily due to decreases of approximately $8,000,000
in currency and $3,000,000 in checks in the process of
collection, partially offset by an increase of approximately
$4,000,000 in balances due from other banks. Operating
activities provided $16,002,000 of cash in the three months ended
March 31, 1997 as compared to cash provided by operating
activities of $6,555,000 for the same period in 1996. For the
three months ended March 31, 1997, cash provided by operating
activities was primarily attributable to net income and proceeds
from sales of mortgage and other loans held for sale net of cash
used to originate such loans during the period. For the same
period in 1996, 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
$91,140,000 of mortgage and other loans in the three months ended
March 31, 1997, as compared to $169,247,000 for the same period
in 1996. The decrease in mortgage and other loan originations
was primarily due to a increase in market rates which led to a
decrease in refinancing and new mortgage activity. The lower
mortgage banking and financing activity in 1997 compared to 1996
resulted in a decrease in the amount of cash required to fund
mortgage and other loans. The lower activity also resulted in a
decrease in volume of sales of mortgage and other loans providing
cash (from $169,036,000 in 1996 to $95,027,000 in 1997).
Cash of $2,129,000 was provided by investing activities during
the three months ended March 31, 1997 compared to cash provided
by investing activities of $8,291,000 during the three months
ended March 31, 1996, a decrease in cash flows from investing
activities of $6,162,000. The primary reason for the decrease in
cash flows used for investing activities was the net increase in
federal funds sold in 1997 of $29,538,000 compared to a net
decrease of $8,743,000 for the same period in 1996 and the
increase of $40,510,000 in loans. Also, the increase in proceeds
from sales, maturities and paydowns of securities available for
sale in 1997 of $70,614,000 compared to $34,053,000 for the same
period in 1996 was offset by the decrease of $36,550,000 in
purchases of securities available for sale. The increase in
federal funds sold and increase in proceeds from securities
available for sale for the first three months of 1997 was
partially offset by the net decrease in purchases of securities.
Cash used for financing activities was $24,770,000 during
the three months ended March 31, 1997 as compared to 41,308,000
of cash used for financing activities for the same period in
1996. The cash used for financing activities in 1997 was
primarily due to a decrease in total deposits of $84,912,000 as a
result of the sale of seven branch offices at AmeriFirst. The
cash used for by financing activities in 1996 was primarily due
to a net decrease in demand deposits and savings accounts of
$46,474,000, partially offset by a net increase of $13,324,000
in short-term borrowings. Common stock repurchases aggregating
$4,080,000 were made for the three months ending March 31, 1996
in connection with the Company's repurchase program authorized by
the Board of Directors.
Asset/Liability Management
Closely related to liquidity management is the management of
interest-earning assets and interest-bearing liabilities. The
Company manages its rate sensitivity position to avoid wide
swings in net interest margins and to minimize risk due to
changes in interest rates. At March 31, 1997, the Company had a
manageable positive gap position and therefore does not expect to
experience any significant fluctuations in its net interest
income as a consequence of changes in interest rates.
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 March 31, 1997, a minimum Tier I capital ratio of 4.00%
and a total capital ratio of 8.00% are required. The Company's
qualifying capital at March 31, 1997 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. At March 31,
1997, the Company's leverage ratio, Tier I, and combined Tier I
and Tier II (total capital) ratios were 8.51%, 10.66% and 11.69%,
respectively.
Capital ratios applicable to the Company's banking subsidiaries
at March 31, 1997 are as follows:
Total
Tier I Risk-based
Leverage Capital Capital
Regulatory Capital Requirements
Minimum 4.00 4.00 8.00
Well-capitalized 5.00 6.00 10.00
Bank Subsidiaries
Mid Am Bank 7.74 9.25 10.32
First National 7.81 10.23 10.77
AmeriCom 7.34 9.83 11.00
AmeriFirst 6.21 9.78 11.03
Adrian 6.64 8.81 10.01
The capital to asset ratios of the Company's non-bank
subsidiaries are significantly different than the bank
subsidiaries.
Asset Quality
At March 31, 1997, the Company's percentage of non-performing
loans (non-accrual loans and restructured loans) to total loans
was 0.39%, as compared to 0.42% at December 31, 1996 and 0.56% at
March 31, 1996. Non-performing loans at March 31, 1997
aggregated $6,218,000, a decrease of $405,000 or 6% from
December 31, 1996. Loans past due 90 days or more at March 31,
1997 aggregated $5,173,000, a decrease of $761,000 or 13% from
December 31, 1996. The Company's percentage of net charge-offs
for the three months ended March 31, 1997 and March 31, 1996 to
average loans outstanding were 0.20% (annualized) and 0.20%
(annualized), respectively. At March 31, 1997, the Company's
allowance for credit losses was 1.05% of total loans, as compared
to 1.00% and 1.01% at December 31, 1996 and March 31, 1996,
respectively. The allowance for credit losses as a percentage of
non-performing loans at March 31, 1997 was 269% compared to 237%
at December 31, 1996 and 179% at March 31, 1996. 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 0.49% at March 31, 1997, compared to 0.49% and
0.62% at December 31, 1996 and March 31, 1996, respectively. As
of March 31, 1997, 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 30 to 89 days past due, excluding non-accrual and
restructured loans amounted to $7,492,000 or 0.47% of total loans
at March 31, 1997 as compared to $8,944,000 or 0.57% at December
31, 1996. 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 $30,399,000
and $31,503,000 at March 31, 1997 and December 31, 1996,
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. At March
31,1997 and December 31, 1996, specific allocations of the
allowance for credit losses related to these loans aggregated
$1,466,000 and $3,219,000, respectively. 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.
Three of the Company's bank subsidiaries have purchased certain
lease receivables or loans from The Bennett Funding Group
(Bennett) which have an aggregate outstanding balance of
$6,100,000 at March 31, 1997. Bennett was placed into bankruptcy
proceedings in March of 1996. Payments by lessees and borrowers
have been paid into an interest-bearing escrow account with the
bankruptcy court pending resolution of certain issues. Issues
which may affect the Company's ability to ultimately collect
interest and principal on the leases include a determination of
ownership of the receivables and whether the banks have perfected
their security interests in the receivables. Certain lease pools
purchased by the Company (or portions thereof) are the subject of
these issues, while other pools are not. All of the lease pools,
or portions thereof, which the Company believes are subject to
challenge by the Trustee or other parties which aggregate
$1,614,000 at March 31, 1997, have been placed on non-accrual and
are considered impaired under SFAS 114. Those pools or portions
which aggregate $4,486,000 at March 31, 1997 where management
believes it will collect principal and interest from escrow are
classified as loans 90 days past due and not on non-accrual.
The following table presents asset quality information for each
of the Company's banking subsidiaries at March 31, 1997.
(Dollars in thousands)
Mid Am First
Bank National AmeriCom AmeriFirst Adrian
Loans:
Non-accrual $1,048 $1,266 $ 941 $2,318 $433
Restructured 0 141 71 0 0
Total
non-performing
loans 1,048 1,407 1,012 2,318 433
Other real
estate owned(1) 170 0 128 603 0
Total
non-performing
assets $1,218 $1,407 $1,140 $2,921 $433
Loans 90 days
or more past
due and not
on non-accrual $ 21 $2,008 $2,438 $ 612 $ 94
Non-performing
loans to
total loans .16 .37 .36 1.40 .35
Non-performing
assets to total
loans plus
other real
estate owned .19 .37 .41 1.76 .35
Allowance for
credit losses
to total
non-performing
loans 734.26 156.22 320.95 98.19 308.31
Allowance for
credit losses
to total
non-performing
assets 631.77 156.22 284.91 77.92 308.31
Net charge-offs
to average loans
outstanding .33 .08 .07 .32 .05
Allowance for
credit losses
to total loans 1.21 .57 1.16 1.38 1.07
Loans 90 days
or more past
due and not
on non-accrual
to total loans .00 .52 .87 .37 .08
(1) The parent company has $690,000 of other real estate owned at
March 31, 1997.
The following table sets forth the Company's allocation of the
allowance for credit losses as of March 31, 1997 and December 31,
1996.
(Dollars in thousands) March 31, 1997 December 31, 1996
Specific allowance
Real estate $ 291 $ 372
Commercial 2,340 2,974
Installment 222 250
Total specific allowance 2,853 3,596
General allowance
Real estate 319 233
Commercial 2,615 3,229
Installment 2,248 1,369
Other 761 1,106
Total general allowance 5,943 5,937
Unallocated allowance 7,956 6,139
Allowance for credit losses $16,752 $15,672
As of March 31, 1997, no specific allowance has been determined
for the leases from Bennett 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 three months ended March 31, 1997 and
1996.
(Dollars in thousands)
1997 1996
Balance of allowance at
beginning of year $15,672 $14,859
Loans actually charged-off:
Real estate 184 74
Commercial, financial
and agricultural 477 608
Installment and credit card 377 797
Other 54 0
Total loans charged-off 1,092 1,479
Recoveries of loans previously
charged-off:
Real estate 24 162
Commercial, financial
and agricultural 101 407
Installment and credit card 153 181
Other 9 0
Total recoveries of loans 287 750
Net charge-offs 805 729
Addition to allowance
charged to expense 1,885 559
Allowance for credit losses $16,752 $14,689
Net charge-offs to
average loans outstanding .20 .20
Allowance for credit losses
to total loans 1.05 1.01
Allowance for credit losses
to total non-performing
loans 269.41 179.00
For the three months ended March 31, 1997, installment loans
charged-off decreased $420,000 as compared to the same period in
1996. The decrease in installment loans charged-off is primarily
due to a decrease in auto loans charged-off at one bank
subsidiary for 1996 as compared to 1997.
PART II. - OTHER INFORMATION
Item 1. - Legal Proceedings
One of the Company's non-bank subsidiaries is a co-defendant in
several actions filed by customers of a money manager not
affiliated with the subsidiary who directed business to that
subsidiary. These suits were filed prior to the subsidiary's
merger with the Company. The suits seek recovery of losses of
approximately $2,700,000 plus punitive damages, attorneys' fees
and costs of litigation. The litigation in the matters has been
stayed and the parties have entered into arbitration. The
Company denies liability to the plaintiffs in each of the actions
and is vigorously contesting the claims. Discovery has been
partially completed in these actions, and arbitration proceedings
have commenced. However, due to the complexity of the issues
management and the Company's legal counsel have been unable to
form an opinion as to the likely outcome of the arbitration;
accordingly, no provision for any liability that may result from
the resolution of these matters has been recorded. In the event
of an unfavorable outcome, the effect on the Company's results of
operations could be material. In connection with this action
169,701 of Mid Am, Inc. common shares are being held in escrow
pending resolution of the arbitration. Such shares will be
returned to the Company for any liability which may result from
or for costs incurred in defending the action.
There are also various other lawsuits and claims pending against
the Company, which arise in the normal course of business. In
the opinion of management, any liabilities that may result from
these lawsuits and claims will not materially affect the
financial position or results of operations of the Company.
Item 2. - Changes in Securities
Not applicable.
Item 3. - Defaults Upon Senior Securities
Not applicable.
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
February 19, 1997, describing the Company's sale of seven branch
offices at AmeriFirst.
The Company filed a report on Form 8-K with the Commission as of
May 2, 1997, announcing the Company's call for redemption of all
of the Company's outstanding Cumulative Convertible Preferred
Stock, Series A.
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/ W. Granger Souder
W. Granger Souder
Executive Vice President / General Counsel
DATE: May 9, 1997
MID AM, INC.
EXHIBIT INDEX
Exhibit No. Description Page Number
(1) Statement Re Computation of
Earnings Per Common Share 25
(2) Form 8-K Describing the Company's
Sale of Seven Branch offices
at AmeriFirst
The information required by this exhibit
is incorporated herein by reference
from the Company's Form 8-K dated
February 19, 1997, filed with the
Securities and Exchange Commission on
February 21, 1997.
(3) Form 8-K Announcing the Company's
Call for Redemption of All of the
Company's Outstanding Cumulative
Convertible Preferred Stock, Series A.
The information required by this exhibit
is incorporated herein by reference
from the Company's Form 8-K dated
May 2, 1997, filed with the Securities
and Exchange Commission on May 2, 1997.
EXHIBIT 1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Mid Am, Inc.
Computation of Primary Earnings per Share
Dollars in thousands, Three Months Ended March 31,
except per share data 1997 1996
Reconciliation of net earnings
to amounts used for primary
earnings per share:
Net earnings $9,567 $6,607
Less:
Preferred stock
dividends Series A 416 639
Net earnings applicable
to primary earnings
per share $9,151 $5,968
Reconciliation of weighted
average number of shares
to amount used in
primary earnings per
share computation:
Average shares
outstanding 20,983,000 20,770,000
Average common
equivalent shares:
Assumed exercise
of options 308,000 269,000
Primary average shares
outstanding 21,291,000 21,039,000
Primary earnings per share $0.43 $0.28
Mid Am, Inc.
Computation of Fully Diluted Earnings per Share
Dollars in thousands, Three Months Ended March 31,
except per share data 1997 1996
Reconciliation of net earnings
to amounts used for fully
diluted earnings per share:
Net earnings $9,567 $6,607
Less:
Preferred stock
dividends Series A -- --
Net earnings applicable
to fully diluted
earnings per share $9,567 $6,607
Reconciliation of weighted
average number of shares
to amount used in fully
diluted earnings per
share computation:
Average shares
outstanding 20,983,000 20,770,000
Average common
equivalent shares:
Assumed exercise
of options 308,000 320,000
Assumed conversion of
preferred stock 2,477,000 3,446,000
Fully diluted average
shares outstanding 23,768,000 24,536,000
Fully diluted
earnings per share $0.40 $0.27