MID AM, INC.
1997 ANNUAL REPORT SUPPLEMENT
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Contents Page
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A Message to our Shareholders............................... S-1
Financial Highlights........................................ S-2
Shareholder Information..................................... S-3
Corporate Information....................................... S-4
Selected Quarterly Data..................................... S-5
Summary of Financial Data................................... S-6
Management's Discussion and Analysis and Statistical
Information............................................... S-7
Report of Independent Accountants........................... S-27
Consolidated Statement of Condition......................... S-28
Consolidated Statement of Earnings.......................... S-29
Consolidated Statement of Changes in Shareholders' Equity... S-30
Consolidated Statement of Cash Flows........................ S-31
Notes to Consolidated Financial Statements.................. S-32
Mid Am, Inc. Ten Year Performance Summary (Unaudited)....... S-53
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A MESSAGE TO OUR SHAREHOLDERS
This Annual Report Supplement to our Proxy Statement contains our audited
financial statements, management discussion and analysis and other information
previously presented in our annual report to shareholders. This Supplement
contains all of the information that regulations of the Securities and Exchange
Commission (the "SEC") requires to be presented in annual reports to
shareholders. For legal purposes, this Supplement is part of the Mid Am, Inc.
Annual Report to Shareholders. Although attached to our Proxy Statement, this
Supplement is not part of our Proxy Statement, is not deemed to be soliciting
material, and is not deemed to be filed with the SEC except to the extent that
it is expressly incorporated by reference in a document filed with the SEC.
Our 1997 Annual Report to Shareholders accompanies the Proxy Statement. That
report presents the financial results of our company in a format and level of
detail that we believe our shareholders will find useful and informative.
Shareholders who would like to receive more detail than provided in the
following Annual Report Supplement are invited to request our Annual Report on
Form 10-K.
Our Annual Report on Form 10-K, as filed with the SEC, will be provided without
charge to any shareholder upon written request to Mid Am, Inc., Shareholder
Relations Department, 221 South Church Street, Bowling Green, Ohio 43402.
S-1
FINANCIAL HIGHLIGHTS
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(Dollars in thousands, Percentage
except per share and ratio data) 1997 1996 Change
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FOR THE YEAR
Net income......................................... $30,881 $25,992 18.8%
Return on:
Average assets................................... 1.42% 1.20%
Average common shareholders' equity.............. 17.58% 15.01%
PER COMMON SHARE DATA
Basic net income................................... $1.27 $1.04 22.1%
Diluted net income................................. 1.22 0.98 24.5
Dividends.......................................... 0.60 0.55 9.1
Book value at year end............................. 7.45 7.12 4.6
AT YEAR END
Assets............................................. $2,191,875 $2,180,974 0.5%
Loans.............................................. 1,619,895 1,574,880 2.9
Deposits........................................... 1,760,312 1,832,909 (4.0)
Common shareholders' equity........................ 180,760 163,111 10.8
Total shareholders' equity......................... 180,760 193,204 (6.4)
AVERAGE FOR THE YEAR
Assets............................................. $2,177,200 $2,162,122 0.7%
Loans.............................................. 1,612,461 1,500,941 7.4
Deposits........................................... 1,752,956 1,813,889 (3.4)
Common shareholders' equity........................ 172,186 157,084 9.6
Total shareholders' equity......................... 182,449 190,598 (4.3)
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QUARTERLY FINANCIAL HIGHLIGHTS Net Provision Basic Diluted
(Dollars in thousands, Interest For Credit Net Earnings Earnings
except per share data) Income Losses Income Per Share Per Share
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1997
Fourth Quarter..................... $22,654 $1,578 $7,030 $0.29 $0.28
Third Quarter...................... 22,591 1,190 7,121 0.29 0.29
Second Quarter..................... 22,336 874 7,163 0.30 0.28
First Quarter...................... 21,945 1,885 9,567 0.40 0.37
1996
Fourth Quarter..................... $22,160 $1,597 $9,029 $0.37 $0.34
Third Quarter...................... 21,361 1,305 4,245 0.16 0.16
Second Quarter..................... 20,862 1,076 6,111 0.24 0.23
First Quarter...................... 20,531 559 6,607 0.26 0.25
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S-2
SHAREHOLDER INFORMATION
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QUARTERLY COMMON STOCK PRICES,
DIVIDENDS AND YIELDS Book Value Dividend Dividend
1997 High Low Per Share Per Share Yield
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Fourth Quarter................................ $25.75 $19.50 $7.45 $0.16 2.83%
Third Quarter................................. 20.25 16.70 7.33 0.15 3.25
Second Quarter................................ 16.93 15.11 7.15 0.145 3.63
First Quarter................................. 15.80 15.00 7.19 0.145 3.78
1996
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Fourth Quarter................................ $16.59 $15.45 $7.12 $0.145 3.63%
Third Quarter................................. 16.59 15.18 6.83 0.14 3.43
Second Quarter................................ 15.50 15.08 6.74 0.13 3.46
First Quarter................................. 15.29 13.54 6.91 0.13 3.67
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STOCK INFORMATION Common
At December 31, 1997 Stock
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Shares authorized........................................... 35,000,000
Shares issued............................................... 24,459,511
Treasury shares............................................. 197,206
Number of shareholders of record............................ 8,358
Closing market price per share.............................. $25.75
Book value per share........................................ $7.45
Stock exchange.............................................. NASDAQ
Stock symbol................................................ MIAM
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DIVIDEND REINVESTMENT PLAN
The Company offers a Dividend Reinvestment Plan which allows shareholders to
reinvest their Mid Am, Inc. dividends in additional Company common stock at the
prevailing market price. The plan has 4,729 participants, or 57 percent of our
common shareholders of record. Plan information may be obtained by calling the
Shareholder Relations Department at (419) 327-6331, or by writing: Mid Am, Inc.
Dividend Reinvestment Plan, P.O. Box 428, 221 South Church Street, Bowling
Green, Ohio 43402.
S-3
CORPORATE INFORMATION
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Annual Meeting
Place: ........................... The Toledo Club Date: April 24, 1998
Toledo, Ohio Time: 10:00 a.m.
Headquarters
Write: ........................... Mid Am, Inc. Telephone: (419) 327-6331
221 South Church Street
P.O. Box 428
Bowling Green, Ohio 43402
Form 10-K
Write: ........................... Mid Am, Inc. Telephone: (419) 327-6331
Shareholder Relations Department
221 South Church Street
P.O. Box 428
Bowling Green, Ohio 43402
Investor Relations
Write: ........................... Kelly Semer Telephone: (419) 327-6300
Mid Am, Inc.
221 South Church Street
P.O. Box 428
Bowling Green, Ohio 43402
Transfer Agent
Write: ........................... Boston Equiserve Telephone: (800) 426-5523
P.O. Box 8200
Boston, Mass. 02266-8200
Online Information
Internet: ........................ Information concerning the
Company and its affiliates can
also be found on our website at
http://www.midaminc.com
S-4
MID AM, INC. SELECTED QUARTERLY DATA
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Quarter Ended
(Dollars in thousands,
except per share and ratio data) December 31 September 30 June 30 March 31
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1997
Net interest income............................. $22,654 $22,591 $22,336 $21,945
Provision for credit losses..................... 1,578 1,190 874 1,885
Net income...................................... 7,030 7,121 7,163 9,567(3)
Earnings per common share:
Basic......................................... 0.29 0.29 0.30 0.40
Diluted....................................... 0.28 0.29 0.28 0.37
Return on average total assets (1).............. 1.27% 1.29% 1.33% 1.79%
Return on average common shareholders' equity
(1)........................................... 15.57 16.04 16.60 22.51
Net interest margin (1)(2)...................... 4.47 4.50 4.55 4.49
Net charge-offs to average loans (1)............ 0.20 0.27 0.22 0.20
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1996
Net interest income............................. $22,160 $21,361 $20,862 $20,531
Provision for credit losses..................... 1,597 1,305 1,076 559
Net income...................................... 9,029(4) 4,245(5) 6,111 6,607
Earnings per common share:
Basic......................................... 0.37 0.16 0.24 0.26
Diluted....................................... 0.34 0.16 0.23 0.25
Return on average total assets (1).............. 1.65% 0.79% 1.14% 1.23%
Return on average common shareholders' equity
(1)........................................... 21.37 9.42 14.08 15.06
Net interest margin (1)(2)...................... 4.44 4.35 4.28 4.19
Net charge-offs to average loans (1)............ 0.30 0.20 0.29 0.20
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(1) Calculated on an annualized basis.
(2) Net interest income as a percentage of interest-earning assets, on a tax
equivalent basis.
(3) Includes a pre-tax gain of $8,703 from the sale of seven branch offices of
AmeriFirst Bank, N.A., partially offset by certain costs and other charges
related to the branch sale aggregating $2,000 on a pre-tax basis. In
addition, the Company increased its provision for credit losses by $1,000 in
response to continued loan growth.
(4) Includes a pre-tax gain of $4,568 from the sale of credit card accounts.
(5) Includes a pre-tax charge of $3,563 for a special FDIC assessment for
Savings Association Insurance Fund (SAIF) deposits.
The following discussion and analysis represents a review of Mid Am, Inc.'s
consolidated financial condition and results of operations. Mid Am, Inc. (the
"Company"), a financial services holding company, has five bank subsidiaries:
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"); and Adrian State Bank
("Adrian"); a collection and credit services company, Mid Am Recovery Services,
Inc. ("MARSI"); a securities broker/dealer, MFI Investments Corp ("MFI"); a data
processing company, Mid Am Information Services, Inc. ("MAISI"); a commercial
finance company, Mid Am Credit Corp. ("MACC"); a mortgage brokerage company,
Simplicity Mortgage Consultants, Inc. ("Simplicity"); a consumer finance
company, Mid Am Financial Services, Inc. ("MAFSI"); and a national trust bank,
Mid Am Private Trust ("MAPT"). This review should be read in conjunction with
the consolidated financial statements and other financial data presented
elsewhere herein. All per share data for prior periods reflect the
implementation of Statement of Financial Accounting Standards No. 128 "Earnings
per Share" (see Note 1 to the consolidated financial statements) and have been
restated to reflect the stock dividend declared and paid in 1997. The major
components of the Company's results of operations and statements of condition
and selected financial ratios for the past five years are summarized in the
following table:
S-5
MID AM, INC. SUMMARY OF FINANCIAL DATA
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Year Ended December 31,
(Dollars in thousands, except shares,
per share and ratio data) 1997 1996 1995 1994 1993
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CONSOLIDATED STATEMENT OF EARNINGS DATA
Interest income........................... $ 171,202 $ 164,983 $ 162,543 $ 140,571 $ 139,387
Interest expense.......................... 81,676 80,069 80,316 59,564 61,057
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Net interest income....................... 89,526 84,914 82,227 81,007 78,330
Provision for credit losses............... 5,527 4,537 3,002 1,224 3,991
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Net interest income after provision for
credit losses........................... 83,999 80,377 79,225 79,783 74,339
Non-interest and other income............. 66,569 49,501 35,955 32,554 34,002
Non-interest and other expense............ 104,052 91,419 78,416 78,579 72,962
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Income before income taxes................ 46,516 38,459 36,764 33,758 35,379
Applicable income taxes................... 15,635 12,467 11,797 10,505 10,698
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Net income................................ $ 30,881 $ 25,992 $ 24,967 $ 23,253 $ 24,681
========== ========== ========== ========== ==========
Net income available to common
shareholders............................ $ 30,276 $ 23,585 $ 22,216 $ 20,336 $ 21,763
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CONSOLIDATED STATEMENT OF CONDITION DATA
(YEAR END)
Total assets.............................. $2,191,875 $2,180,974 $2,204,751 $2,078,789 $2,067,371
Securities available for sale............. 385,961 432,791 461,997 212,437 238,125
Investment and mortgage-backed
securities.............................. 252,009 270,623
Loans held for sale....................... 11,376 7,927 12,642 12,963 88,131
Loans, net of unearned income............. 1,619,895 1,574,880 1,475,651 1,433,289 1,265,945
Allowance for credit losses............... 17,625 15,672 14,859 14,722 15,157
Total deposits............................ 1,760,312 1,832,909 1,860,142 1,736,492 1,769,083
Shareholders' equity...................... 180,760 193,204 194,838 185,252 183,425
Weighted average common shares outstanding
-- basic................................ 23,836,000 22,734,000 23,070,000 23,009,000 22,610,000
Weighted average common shares outstanding
-- diluted.............................. 25,227,000 26,554,000 27,241,000 27,356,000 26,965,000
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PER COMMON SHARE DATA
Cash dividends declared................... $ 0.60 $ 0.55 $ 0.52 $ 0.49 $ 0.45
Shareholders' equity...................... 7.45 7.12 6.95 6.29 6.41
Basic:
Net income................................ 1.27 1.04 0.96 0.88 0.96
Diluted:
Net income................................ 1.22 0.98 0.92 0.85 0.92
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SELECTED FINANCIAL RATIOS
Return on average total assets............ 1.42% 1.20% 1.17% 1.14% 1.23%
Return on average common shareholders'
equity.................................. 17.58 15.01 14.51 13.88 16.39
Net interest margin....................... 4.50 4.32 4.23 4.38 4.30
Average loans to average deposits......... 91.99 82.75 81.11 76.94 71.54
Leverage ratio............................ 9.06 8.44 8.37 8.66 8.19
Average total shareholders' equity to
average total assets.................... 8.38 8.82 8.93 9.16 8.65
Allowance for credit losses to period end
loans................................... 1.09 1.00 1.01 1.03 1.20
Allowance for credit losses to total
non-performing loans.................... 387.70 236.63 173.22 231.99 170.67
Non-performing loans to period end
loans................................... 0.28 0.42 0.58 0.44 0.70
Net charge-offs to average loans.......... 0.22 0.25 0.20 0.12 0.41
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S-6
MANAGEMENT'S DISCUSSION AND ANALYSIS
AND STATISTICAL INFORMATION
(Dollars in thousands, except per share data)
The following discussion and analysis represents a review of the Company's
consolidated financial condition, results of operations, liquidity and capital
resources. This review should be read in conjunction with the consolidated
financial statements.
RESULTS OF OPERATIONS
Net income in 1997 increased $4,889 or 19% to $30,881, as compared to net
income in 1996 of $25,992 and $24,967 in 1995. Diluted earnings per share were
$1.22, up from $.98 in 1996 and $.92 in 1995. In 1997, return on average common
shareholders' equity was 17.58% and return on average assets was 1.42% as
compared to 15.01% and 1.20% in 1996, and 14.51% and 1.17% in 1995. The increase
in 1997 earnings was primarily due to a net pre-tax gain of $8.7 million on the
sale of $95 million of deposits and seven branch offices of AmeriFirst Bank,
N.A., an increase in gain on sale of loans at the commercial financing affiliate
of $10,035, the result of increased loan volume, an increase in mortgage banking
revenues of $3,093 caused by increased volume and profit margins in mortgage
loan sales, and an increase in other fee-based revenue. These increases were
partially offset by certain costs and other charges related to the deposit and
branch sale, which in the aggregate were $2 million on a pre-tax basis, higher
employee expense caused by the growth of MACC, the formation of MAFSI, and the
growth in other fee-based financial service businesses. The increase in 1996
earnings compared to 1995 was primarily attributable to a net pre-tax gain on
the sale of the Company's credit card portfolio of $4,568, an improved net
interest margin, and an increase in mortgage banking revenues, offset partially
by a one-time Savings Association Insurance Fund ("SAIF") assessment of $3,568
and increased employee expenses from the acquisition of various Florida
collection agencies and the formation of MACC.
The provision for credit losses increased $990 or 22% in 1997 to $5,527.
The 1996 provision for credit losses compared to 1995 was $1,535 higher, an
increase of 51%. The increases in the 1997 and 1996 provisions were due
primarily to increased loan volume occurring in each year.
ACQUISITIONS AND BUSINESS FORMATIONS
In January, 1997, MAFSI commenced operations as a consumer finance unit,
which specializes in non-conforming residential mortgage and consumer loans on a
nationwide basis. MAFSI is headquartered in Indianapolis, Indiana.
In January, 1997, MAPT was formed to provide leading edge service to
families and individuals with substantial assets and to corporate trustees by
providing a wholly-integrated approach to investment management and fiduciary
responsibilities. MAPT is headquartered in Cincinnati, Ohio.
During 1996, the Company completed its acquisition of Simplicity, an
Indiana-based mortgage brokerage company with annual revenues of approximately
$900, and National Recovery Services, Professional Adjustment of Ft. Myers,
Florida, and Gulf Coast Collection Bureau, Inc., Florida-based collection
agencies with annual revenues of approximately $1,000. The aggregate purchase
price of the four transactions was $1,500 and included $551 cash and the
issuance of 60,918 shares of Mid Am, Inc. common stock. The results of
operations includes the results of the acquired entities from the dates of their
respective acquisitions.
In April, 1996, Mid Am Credit Corp. commenced operations as a full-service
loan and leasing financing unit. MACC's lending and leasing efforts are
concentrated primarily on medical and dental equipment and practice acquisition
financing on a nationwide basis. MACC, a wholly-owned subsidiary of the Company,
is headquartered in Columbus, Ohio, with a satellite office in Los Angeles,
California. MACC sells substantially all of the loans and leases to investors in
the secondary market.
On July 31, 1995, the Company completed its merger with MFI Investments
Corp of Bryan, Ohio, a full-service, independent broker/dealer which had
approximately 250 financial consultants in over 19 states at the date of
S-7
acquisition. The transaction was accounted for as a pooling-of-interests and was
consummated by the issuance of 380,581 shares of Mid Am, Inc. common stock to
MFI shareholders.
On March 1, 1995, the Company completed its merger with ASB Bankcorp, Inc.
("ASB"), parent company of $128,000 asset Adrian State Bank, headquartered in
Adrian, Michigan. The transaction was accounted for as a pooling-of-interests
and was consummated by the issuance of 1,871,460 shares of Mid Am, Inc. common
stock.
NET INTEREST INCOME
Net interest income, the difference between interest income earned on
interest-earning assets and interest expense incurred on interest-bearing
liabilities, is the most significant component of the Company's earnings. 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 following table, presented on a tax equivalent basis, summarizes net
interest income for each of the three years in the period ended December 31,
1997.
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Year ended December 31,
(Dollars in thousands) 1997 1996 1995
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Interest income (1)...................................... $173,044 $166,954 $164,794
Interest expense......................................... 81,676 80,069 80,316
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Net interest income (tax equivalent basis)............... $ 91,368 $ 86,885 $ 84,478
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1997 vs. 1996 1996 vs. 1995
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Change from prior year Amount Percent Amount Percent
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Interest income (1)................................ $6,090 3.65% $2,160 1.31%
Interest expense................................... 1,607 2.01 (247) (0.31)
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Net interest income (tax equivalent basis)......... $4,483 5.16 $2,407 2.85
====== ======
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(1) Interest income on securities of states and political subdivisions and
certain loans is exempt from federal income tax. A tax equivalent adjustment
has been made to income received from these sources to provide comparability
to taxable income. Tax equivalent adjustments reflect a federal tax rate of
35% for 1997, 1996 and 1995. Included in interest income are amortized loan
fees of $2,600 in 1997, $1,427 in 1996 and $1,965 in 1995.
AVERAGE INTEREST-EARNING ASSET MIX
Average interest-earning assets in 1997 totaled $2,029,301 as compared with
$2,013,106 in 1996 and $1,995,004 in 1995. In 1997, average loans (including
loans held for sale) and securities available for sale, the two largest
components of interest-earning assets, comprised 80% and 19%, respectively, of
average interest-earning assets as compared to 75% and 23%, respectively, in
1996 and 73% and 23%, respectively, in 1995.
AVERAGE INTEREST-BEARING LIABILITY MIX
Average interest-bearing liabilities in 1997 totaled $1,767,673 as compared
with $1,764,738 in 1996 and $1,756,602 in 1995. In 1997, average time deposits
and savings deposits, the two largest components of interest-bearing
liabilities, comprised 56% and 22%, respectively, of average interest-bearing
liabilities as compared to 59% and 25%, respectively, in 1996, and 59% and 26%,
respectively, in 1995. Average time deposits and saving deposits decreased
during 1997 due in part to the sale of $95,000 of deposits in the first quarter
as well as a shift to wholesale funding. There was virtually no change in the
percentage of time deposits to total interest-bearing liabilities from 1995 to
1996, and a slight decrease for the same period for savings deposits.
S-8
The following table reflects the components of the Company's net interest
income for each of the three years ended December 31, 1997, setting forth: (i)
average assets, liabilities, and shareholders' equity, (ii) interest income
earned on interest-earning assets and interest expense incurred on
interest-bearing liabilities, (iii) average yields earned on interest-earning
assets and average rates incurred on interest-bearing liabilities, (iv) the net
interest rate spread (i.e., the average yield earned on interest-earning assets
less the average rate incurred on interest-bearing liabilities), and (v) the net
interest margin (i.e., net interest income divided by average interest-earning
assets). Rates are computed on a tax equivalent basis. Non-accrual loans have
been included in the average balances.
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1997 1996 1995
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Interest Average Interest Average Interest
Year Ended December 31, Average Income/ Yields/ Average Income/ Yields/ Average Income/
(Dollars in thousands) Balance Expense Rates Balance Expense Rates Balance Expense
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ASSETS
Interest-earning assets:
Securities available for
sale...................... $ 389,148 $ 25,475 6.55% $ 461,598 $ 29,760 6.45% $ 250,886 $ 15,023
Fair value adjustment....... (1,323) (1,991) (4,754)
Investment securities:
Taxable..................... 165,773 10,793
Tax exempt.................. 53,925 4,606
Federal funds sold.......... 19,030 1,036 5.44 39,387 2,093 5.31 62,095 3,610
Loans held for sale......... 8,412 718 8.54 10,455 1,049 10.03 12,641 1,170
Loans....................... 1,612,461 145,735 9.04 1,500,941 133,887 8.92 1,450,629 129,374
Time deposits in other
banks..................... 1,573 80 5.09 2,716 165 6.08 3,809 218
---------- -------- ---------- -------- ---------- --------
Total interest-earning
assets.................... 2,029,301 173,044 8.53 2,013,106 166,954 8.30 1,995,004 164,794
-------- -------- --------
Noninterest-earning assets:
Cash and due from banks..... 71,145 69,049 66,647
Premises and equipment...... 53,231 48,980 49,530
Other assets................ 40,453 45,847 42,496
Allowance for credit
losses.................... (16,930) (14,860) (15,039)
---------- ---------- ----------
Total noninterest-earning
assets.................... 147,899 149,016 143,634
---------- ---------- ----------
Total assets................ $2,177,200 $2,162,122 $2,138,638
========== ========== ==========
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing liabilities:
Savings deposits............ $ 382,669 9,027 2.36% $ 438,274 9,745 2.22% $ 455,149 10,981
Money market accounts....... 171,197 5,420 3.17 151,887 5,286 3.48 121,459 4,230
Time deposits............... 995,032 54,854 5.51 1,037,331 58,097 5.60 1,037,277 57,316
---------- -------- ---------- -------- ---------- --------
Total interest-bearing
deposits.................. 1,548,898 69,301 4.47 1,627,492 73,128 4.49 1,613,885 72,527
Short-term borrowings....... 103,823 4,653 4.48 97,370 4,239 4.35 87,128 3,963
Debt and FHLB advances...... 114,952 7,722 6.72 39,876 2,702 6.78 55,589 3,826
---------- -------- ---------- -------- ---------- --------
Total interest-bearing
liabilities............... 1,767,673 81,676 4.62 1,764,738 80,069 4.54 1,756,602 80,316
-------- -------- --------
Noninterest-bearing
liabilities:
Demand deposits............. 204,058 186,397 174,501
Other liabilities........... 23,020 20,389 16,463
---------- ---------- ----------
Total noninterest-bearing
liabilities............... 227,078 206,786 190,964
Shareholders' equity........ 182,449 190,598 191,072
---------- ---------- ----------
Total liabilities and
shareholders' equity...... $2,177,200 $2,162,122 $2,138,638
========== ========== ==========
Net interest income (tax
equivalent basis)......... 91,368 86,885 84,478
Reversal of tax equivalent
adjustment................ (1,842) (1,971) (2,251)
-------- -------- --------
Net interest income......... $ 89,526 $ 84,914 $ 82,227
======== ======== ========
Net interest rate spread (tax
equivalent basis)........... 3.91% 3.76%
===== ====
Net interest margin (net
interest income as a
percentage of
interest-earning assets,
tax equivalent basis)..... 4.50% 4.32%
===== ====
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1995
- -------------------------------------------
Average
Year Ended December 31, Yields/
(Dollars in thousands) Rates
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ASSETS
Interest-earning assets:
Securities available for
sale...................... 5.99%
Fair value adjustment.......
Investment securities:
Taxable..................... 6.51
Tax exempt.................. 8.54
Federal funds sold.......... 5.81
Loans held for sale......... 9.26
Loans....................... 8.92
Time deposits in other
banks..................... 5.72
Total interest-earning
assets.................... 8.26
Noninterest-earning assets:
Cash and due from banks.....
Premises and equipment......
Other assets................
Allowance for credit
losses....................
Total noninterest-earning
assets....................
Total assets................
LIABILITIES AND SHAREHOLDERS'
EQUITY
Interest-bearing liabilities:
Savings deposits............ 2.41%
Money market accounts....... 3.48
Time deposits............... 5.53
Total interest-bearing
deposits.................. 4.49
Short-term borrowings....... 4.55
Debt and FHLB advances...... 6.88
Total interest-bearing
liabilities............... 4.57
Noninterest-bearing
liabilities:
Demand deposits.............
Other liabilities...........
Total noninterest-bearing
liabilities...............
Shareholders' equity........
Total liabilities and
shareholders' equity......
Net interest income (tax
equivalent basis).........
Reversal of tax equivalent
adjustment................
Net interest income.........
Net interest rate spread (tax
equivalent basis)........... 3.69%
=====
Net interest margin (net
interest income as a
percentage of
interest-earning assets,
tax equivalent basis)..... 4.23%
=====
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S-9
The net interest margin increased 18 basis points to 4.50% in 1997 and
increased 9 basis points to 4.32% in 1996. The increase in the Company's net
interest margin in 1997 was due primarily to higher-yielding earning assets
resulting from increased average loan levels and the sale of certain
low-yielding securities during the first quarter of 1997. Average total loans in
1997 were $1,612,461 an increase of $111,520 or 7.4% over 1996 average total
loans of $1,500,941. The increase in the Company's net interest margin in 1996
was due primarily to changes in the Company's earning asset mix. The Company
lowered its levels of securities available for sale through maturities and
various sales to fund higher yielding loans, primarily commercial and commercial
real estate loans.
Net interest income may also be analyzed by segregating the volume and rate
components of interest income and interest expense. The following table presents
an analysis of increases and decreases in interest income and expense in terms
of changes in volume and interest rates during the three years ended December
31, 1997. Changes not due solely to either a change in volume or a change in
rate have been allocated based on the respective percentage changes in average
balances and average rates. The table is presented on a tax equivalent basis.
- -------------------------------------------------------------------------------------------------------------------
1997 vs. 1996 1996 vs. 1995
- -------------------------------------------------------------------------------------------------------------------
Increase (Decrease) Increase (Decrease)
Due to Change in Due to Change in
-------------------- Total -------------------- Total
Average Average Increase Average Average Increase
(Dollars in thousands) Volume Rate (Decrease) Volume Rate (Decrease)
- -------------------------------------------------------------------------------------------------------------------
Interest Income:
Securities available for sale.......... $(4,671) $ 386 $(4,285) $12,617 $2,120 $14,737
Investment securities:
Taxable.............................. 0 0 0 (10,793) 0 (10,793)
Tax exempt........................... 0 0 0 (4,606) 0 (4,606)
Federal funds sold..................... (1,082) 25 (1,057) (1,320) (197) (1,517)
Interest on loans held for sale........ (205) (126) (331) (202) 81 (121)
Interest and fees on loans (1)......... 9,948 1,900 11,848 4,487 26 4,513
Time deposits in other banks........... (69) (16) (85) (63) 10 (53)
------- ------ ------- ------- ------ -------
Total interest income.................. 3,921 2,169 6,090 120 2,040 2,160
------- ------ ------- ------- ------ -------
Interest Expense:
Savings................................ (1,236) 518 (718) (407) (829) (1,236)
Money market accounts.................. 672 (538) 134 1,060 (4) 1,056
Time................................... (2,369) (874) (3,243) 3 778 781
------- ------ ------- ------- ------ -------
Total.................................. (2,933) (894) (3,827) 656 (55) 601
Short-term borrowings.................. 281 133 414 466 (190) 276
Debt and FHLB advances................. 5,087 (67) 5,020 (1,081) (43) (1,124)
------- ------ ------- ------- ------ -------
Total interest expense................. 2,435 (828) 1,607 41 (288) (247)
------- ------ ------- ------- ------ -------
Change in net interest income.......... $ 1,486 $2,997 $ 4,483 $ 79 $2,328 $ 2,407
======= ====== ======= ======= ====== =======
- -------------------------------------------------------------------------------------------------------------------
(1) Included in loan interest income are amortized loan fees of $2,600 in 1997,
$1,427 in 1996 and $1,965 in 1995.
PROVISION FOR CREDIT LOSSES
The provision for credit losses increased $990 or 22% to $5,527 in 1997.
The increase in 1997 was primarily due to additional provisions in response to
increased loan levels. The Company's allowance for credit losses as a percentage
of loans at December 31, 1997 was 1.09% as compared to 1.00% and 1.01% at
December 31, 1996 and 1995, respectively. At December 31, 1997, the Company's
allowance for credit losses represented 388% of non-performing loans as compared
to 237% and 173% at December 31, 1996 and 1995, respectively. See "Summary of
Credit Loss Experience."
S-10
NON-INTEREST INCOME
The table below summarizes the sources of the Company's non-interest
income.
- ---------------------------------------------------------------------------------------------------------
Percentage Change
- ---------------------------------------------------------------------------------------------------------
1997 1996
Year ended December 31, compared to compared to
(Dollars in thousands) 1997 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------
Non-Interest Income:
Trust department........................ $ 2,044 $ 1,590 $ 1,337 29% 19%
Service charges on deposit accounts..... 8,575 6,878 6,200 25 11
Mortgage banking........................ 13,507 10,414 8,185 30 27
Brokerage commissions................... 6,083 9,156 9,540 (34) (4)
Collection agency fees.................. 5,053 4,213 3,399 20 24
Net gains (losses) on sales of
securities........................... (132) 1,574 350 (108) 350
Gain from sale of credit card
accounts............................. 4,568
Gain from sale of deposits and branch
offices.............................. 8,703
Net gains from sales of commercial
financing loans...................... 13,027 2,992 335
Net gains from sales of other loans..... 953 375 352 154 7
Credit card and merchant fees........... 2,039 1,961 1,696 4 16
International department fees........... 971 1,009 762 (4) 32
Banclub fees............................ 371 993 904 (63) 10
ATM card fees........................... 1,837 877 504 109 74
Credit life insurance................... 648 470 551 38 (15)
Other................................... 2,890 2,431 2,175 19 12
------- ------- -------
$66,569 $49,501 $35,955 34 38
======= ======= =======
- ---------------------------------------------------------------------------------------------------------
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 has
increased by $30,614 since 1995, of which $17,068 occurred between 1996 and
1997. Mortgage banking remains the largest component of non-interest income and
consists of net gains on sales of mortgage loans and mortgage loan servicing
fees. The increase in 1997 compared to 1996 was the result of an increase in the
volume of mortgages sold and higher profit margins on sales which increased from
$413,597 to $448,705. The increase in mortgage banking revenue in 1996 compared
to 1995 was primarily attributable to an increase in the volume of mortgage
loans sold.
In February, 1997, AmeriFirst sold seven of its branch offices located in
the metropolitan Cincinnati area. The branch sale included the transfer of $95
million of deposits. The Company believes that the sale of the branches will
enable AmeriFirst to focus on its Greene County market area.
The gain on sale of credit cards which was realized in 1996 was the result
of management's decision to exit the credit card business as a stand alone card
issuer. In connection with this decision, substantially all of the Company's
credit card relationships and outstanding balances were sold to a national
credit card issuer. The Company continues to earn fee income and incur costs
from its credit card merchant activities.
MACC increased its gain on sale of loans to $13,027 in 1997 from $2,992 in
1996. The significant increase in gains was primarily due to an increase in
volume of loans sold ($98,193 in 1997 compared to $28,466 in 1996) and to higher
profit margins. The unit commenced operations in April of 1996.
The decrease in brokerage commission fees in 1997 compared to 1996, and a
slight decrease in 1996 compared to 1995, were caused by a reduction in the
number of independent registered representatives (brokers) which occurred in the
middle of 1996 after a change in the clearinghouse used by the Company's
broker/dealer subsidiary. The Company increased the number of registered
representatives in 1997 through advertising and recruiting efforts;
S-11
however, not to the level of the number of representatives prior to the
clearinghouse change. Through continuing efforts to recruit new registered
representatives, the Company expects revenues to increase in 1998 to 1995
levels.
Collection agency fee income increased $840 in 1997 compared with an
increase of $814 in 1996. The increases in 1997 and 1996 were due to increased
volume of collections, which was the result of several acquisitions in 1996, and
a small ambulance and medical billing agency acquired in 1997.
ATM card fees increased $960 to $1,837 in 1997 compared to $877 in 1996.
The increase was primarily due to the implementation of ATM access fees at the
end of 1996 and in 1997.
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.
- ---------------------------------------------------------------------------------------------------------
Percentage Change
- ---------------------------------------------------------------------------------------------------------
1997 1996
Year Ended December 31, compared to compared to
(Dollars in thousands) 1997 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------
Non-Interest Expense:
Salaries and employee benefits......... $ 54,256 $42,564 $34,674 27% 23%
Net occupancy expense.................. 5,775 5,279 5,113 9 3
Equipment expense...................... 9,124 7,930 7,385 15 7
Brokerage commissions.................. 3,597 5,604 6,608 (36) (15)
FDIC expense........................... 443 4,667 2,754 (91) 69
Marketing.............................. 3,359 2,301 2,247 46 2
Franchise taxes........................ 2,569 2,501 2,473 3 1
Telephone.............................. 2,744 2,157 1,884 27 14
Printing and supplies.................. 2,219 2,229 1,868 -- 19
Legal and other professional fees...... 3,900 2,237 1,915 74 17
Credit card merchant processing
costs............................... 2,330 1,761 1,431 32 23
Amortization of intangible assets...... 1,863 1,579 1,600 18 (1)
Postage................................ 1,669 1,626 1,442 3 13
Other.................................. 10,204 8,984 7,022 14 28
-------- ------- -------
$104,052 $91,419 $78,416 14 17
======== ======= =======
- ---------------------------------------------------------------------------------------------------------
The tables below present an analysis of the components of salary and
employee benefit expense and of the number of full-time equivalent employees.
- ---------------------------------------------------------------------------------------------------------
Percentage Change
- ---------------------------------------------------------------------------------------------------------
1997 1996
Year Ended December 31, compared to compared to
(Dollars in thousands) 1997 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------
Salaries and employee benefits:
Salaries and wages...................... $40,397 $32,525 $27,418 24% 19%
Commissions paid to employees........... 4,263 2,065 859 106 140
Employee benefits....................... 9,596 7,974 6,397 20 25
------- ------- -------
$54,256 $42,564 $34,674 27 23
======= ======= =======
- ---------------------------------------------------------------------------------------------------------
S-12
- ---------------------------------------------------------------------------------------------------------
Percentage Change
- ---------------------------------------------------------------------------------------------------------
1997 1996
Full time equivalent (FTE) employees compared to compared to
at December 31, 1997 1996 1995 1996 1995
- ---------------------------------------------------------------------------------------------------------
Employee headcount:
FTE's banking operations...................... 901 869 845 4% 3%
FTE's financial services...................... 254 149 100 70 49
FTE's corporate services...................... 283 244 227 16 7
----- ----- -----
1,438 1,262 1,172 14 8
===== ===== =====
- ---------------------------------------------------------------------------------------------------------
Salaries and employee benefits comprise the largest component of
non-interest expense and were 52%, 47% and 44% of non-interest expense in 1997,
1996, and 1995, respectively. Salary and wages increased 24% in 1997 due to
increases in salary rates and in full-time equivalent employees, primarily at
the Company's financial service affiliates. Commissions paid to employees
increased primarily due to growth in revenues from its fee-based financial
service affiliates and higher mortgage loan originations. Salaries, wages and
commissions increased in 1996 compared to 1995 due to the formation of MACC, the
acquisition of three credit agencies in Florida, increased employee commission
expense related to higher mortgage loan origination and salary increases.
Employee benefits and retirement benefit expenses increased in 1997 and 1996
because of improved earnings performance by the Company. Certain portions of
employees' incentive and retirement compensation are tied to levels of the
Company's financial performance. The Company does not offer any post-employment
benefits other than through its retirement plans. At December 31, 1997, the
Company had 747 employees who were receiving health care benefits. In 1997, the
Company's total health care expense was $1,603 as compared to $1,510 in 1996 and
$1,325 in 1995. The increase in health care expense in 1997 was primarily due to
an increase in the number of employees receiving health care benefits. The
increase in 1996 was the result of a higher level of claims experienced by the
Company.
Net occupancy increased 9% in 1997 compared to 1996 due to increases in
building rent and other related expenses primarily from the Company's newly
formed fee-based financial services affiliates. The increases in 1997 and 1996
equipment expense was principally depreciation expense related to the purchase
of state-of-the-art computer equipment and software. The Company believes that
technology plays an important role in providing excellent service to its
customers.
FDIC expense decreased in 1997 due to lower premium rates necessary to fund
servicing of FICO bonds. FDIC expense increased in 1996 due to the special
assessment of sixty-seven cents per one hundred dollars of deposits insured
through the SAIF which aggregated $3,563. At December 31, 1996, the Company had
approximately $616,000 of SAIF-based deposits which related to prior mergers and
acquisitions of thrift institutions and branches.
Marketing expense increased significantly in 1997 primarily in the
advertising, travel and public relations areas. Most of these expenses occurred
at the Company's newly-formed financial services affiliate, which primarily
generated its business through telemarketing, mailings and various business
related conferences.
Legal and other professional fees increased due to legal costs incurred in
various routine lawsuits and increased other professional fees, primarily
consulting fees related to the Company's three-year strategic plan, Mid Am 2000.
INCOME TAXES
The provision for income taxes increased to $15,635 in 1997 from $12,467 in
1996 due to an increase in pre-tax income. The effective income tax rates for
1997, 1996 and 1995 were 33.6%, 32.4% and 32.1%, respectively. The higher
effective rates in 1997 and 1996 were primarily due to a lower amount of tax
exempt income relative to taxable income. In addition, the Company became
subject to state income taxes in 1997 because of expansion of its fee-based
financial service businesses into new states.
S-13
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.
Since the Company is a holding company and does not conduct operations, its
primary sources of liquidity are borrowings from outside sources and 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
December 31, 1997 dividends which could be paid to the Company by its bank
subsidiaries were limited to $13,037.
The Company's liquidity position decreased in 1997 and 1996. However, it is
management's belief that the Company's liquidity position is adequate. The
Company continues to emphasize loan originations primarily in commercial and
commercial real estate loans because of attractive yields. The funding of loans
in 1997 and 1996 and the Company's decreased emphasis of investing in securities
available for sale was responsible for the 1997 and 1996 declines in liquidity.
The Company's bank subsidiaries have lines of credit with the Federal Home Loan
Bank (FHLB) and can borrow up to $144,463, of which $77,590 is currently
outstanding. In December, 1996, the Company entered into an agreement with an
unrelated financial institution which enabled the Company to borrow up to
$20,000 for a period of one year. The agreement was renewed in December, 1997
and permits the Company to borrow up to $25,000 through December 30, 1998. At
December 31, 1997, $15,000 was borrowed against the available credit facility.
During the second quarter of 1997, the Company issued, through a special
purpose subsidiary, $27,500 of 10.20% Trust Preferred Securities. The mandatory
redemption date of the securities is June 1, 2027. However, the Company may
redeem the securities commencing June 1, 2007 at a redemption price of 105.10%
of the face value of the capital securities and thereafter at a premium which
declines annually. On or after June 1, 2017, the capital securities may be
redeemed at face value. The capital securities are reflected as long-term debt
in the Company's financial statements; however, for regulatory purposes the
capital securities are considered Tier I capital.
On January 16, 1998, the Company issued $50,000 of 7.08% subordinated
ten-year debt in a private placement transaction. The proceeds from this debt
will be used for general corporate purposes, including funding of consumer
finance subsidiary loans, reduction of borrowings under the Company's line of
credit, investment securities and the buyback of the Company's common stock
under a systematic plan for funding future stock dividends and issuance of
shares under its stock option plan. The subordinated debt is considered Tier II
capital for regulatory purposes.
As shown in the consolidated statement of cash flows presented elsewhere
herein, cash and due from banks decreased $1,595 during 1997 to $84,062 at
December 31, 1997. The decrease in 1997 is composed of $10,458 used for
investing activities and $19,646 used for financing activities, offset in part
by net cash provided by operating activities of $28,509.
S-14
- ----------------------------------------------------------------------------------------------------------
Dollar Change
- ----------------------------------------------------------------------------------------------------------
1997 1996
Year Ended December 31, compared to compared to
(Dollars in thousands) 1997 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------
Operating activities:
Net income......................... $ 30,881 $ 25,992 $ 24,967 $ 4,889 $ 1,025
Provisions for credit losses,
depreciation and amortization... 15,195 13,581 11,852 1,614 1,729
Proceeds from sales of mortgages
and other loans held for sale... 570,949 449,672 302,655 121,277 147,017
Mortgages and other loans
originated for sale............. (556,690) (437,680) (301,399) (119,010) (136,281)
--------- --------- --------- --------- ---------
Net cash provided by secondary
market activity............... 14,259 11,992 1,256 2,267 10,736
Net gains on sales of assets....... (33,897) (16,885) (5,962) (17,012) (10,923)
Other items........................ 2,071 7,896 (8,553) (5,825) 16,449
--------- --------- --------- --------- ---------
Net cash provided by operating
activities.................... $ 28,509 $ 42,576 $ 23,560 $ (14,067) $ 19,016
========= ========= ========= ========= =========
- ----------------------------------------------------------------------------------------------------------
Net cash provided by operating activities decreased in 1997 compared to
1996 primarily from increased net gains on the sale of assets, including the
gain from the sale of branch offices ($225) and the premium from deposits sale
($8,703) where proceeds from these sales are reflected in investing and
financial activities. Cash flows from both sales of mortgages and other loans
and originations of these loans increased substantially in 1997 and 1996. Of
$121,277 and $119,010 increases in 1997 proceeds and cash origination costs,
respectively, $82,754 and $68,392 related to increases in MACC loan sales and
originations, respectively. The increase in cash provided by operating
activities in 1996 compared to 1995 was due primarily to the increase in cash
generated in mortgage banking activities and a decrease in interest receivable
and other assets of $12,777.
- ----------------------------------------------------------------------------------------------------------
Dollar Change
- ----------------------------------------------------------------------------------------------------------
1997 1996
Year Ended December 31, compared to compared to
(Dollars in thousands) 1997 1996 1995 1996 1995
- ----------------------------------------------------------------------------------------------------------
Investing activities:
Net increase in loans............... $ (78,689) $(207,138) $(86,949) $128,449 $(120,189)
Proceeds from sales of portfolio
loans............................ 30,309 38,021 41,580 (7,712) (3,559)
--------- --------- -------- -------- ---------
Net loan activities.............. (48,380) (169,117) (45,369) 120,737 (123,748)
Proceeds from securities
activities....................... 180,934 142,868 104,087 38,066 38,781
Purchases of securities............. (123,301) (43,390) (87,145) (79,911) 43,755
--------- --------- -------- -------- ---------
Net securities activities........ 57,633 99,478 16,942 (41,845) 82,536
Purchases of bank premises and
equipment........................ (12,994) (7,765) (6,063) (5,229) (1,702)
Net change in federal funds sold
position......................... (10,090) 68,082 (64,398) (78,172) 132,480
Other items......................... 3,373 3,084 1,451 289 1,633
--------- --------- -------- -------- ---------
Net cash used for investing
activities..................... $ (10,458) $ (6,238) $(97,437) $ (4,220) $ 91,199
========= ========= ======== ======== =========
- ----------------------------------------------------------------------------------------------------------
Comparing 1997 to 1996, net cash used for investing activities increased
slightly. The rate of growth in loans slowed in 1997 compared to 1996. The
decrease in securities available for sale in 1997 was also lower than the
decrease experienced in 1996, as the need for funding loans was lower. For 1996,
loan balances increased significantly, which was partially funded by the sale of
securities and federal funds sold. Net cash used for investing activities
S-15
decreased $91,199 from 1995 to 1996 primarily due to the decrease in federal
funds sold and increases in net loan activities offset by a decrease in net
securities activities.
- --------------------------------------------------------------------------------------------------------
Dollar Change
- --------------------------------------------------------------------------------------------------------
1997 1996
Year Ended December 31, compared to compared to
(Dollars in thousands) 1997 1996 1995 1996 1995
- --------------------------------------------------------------------------------------------------------
Financing activities:
Net change in deposit activities..... $ (63,846) $(27,233) $123,650 $(36,613) $ (150,883)
Proceeds from long-term and net
short-term borrowings............. 137,889 18,157 56,433 119,732 (38,276)
Repayments of long-term borrowings... (47,163) (19,058) (66,050) (28,105) 46,992
Cash dividends paid.................. (14,959) (14,851) (14,862) (108) 11
Preferred stock retired, treasury
stock acquisitions and other
items............................. (31,567) (10,296) (8,171) (21,271) (2,125)
--------- -------- -------- -------- -----------
Net cash (used for) provided by
financing activities............. $ (19,646) $(53,281) $ 91,000 $ 33,635 $ (144,281)
========= ======== ======== ======== ===========
- --------------------------------------------------------------------------------------------------------
Net cash used for financing activities of $19,646 for 1997 was primarily
due to a reduction in deposits from the sale at AmeriFirst, cash dividends paid,
buyback of the Company's common and preferred stocks offset by net proceeds from
short and long-term borrowings, which includes the $27,500 trust preferred
securities.
Comparing 1997 with 1996, the decrease in net cash used for financing
activities was primarily due to the increase in borrowings in 1997 offset
partially by the decline in deposits. Net cash used for financing activities
increased $144,281 from 1995 to 1996, primarily due to a net increase in deposit
balances in 1995 compared to a decrease in bank deposits in 1996. The decrease
in bank deposits in 1996 was primarily attributable to the Company using
alternative lower cost funds instead of higher rate deposits, primarily
certificates of deposit.
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.
The difference between a financial institution's interest rate sensitive
assets (i.e., assets which will mature or reprice within a specific time period)
and interest rate sensitive liabilities (i.e., liabilities which will mature or
reprice within the same time period) is commonly referred to as its "interest
rate sensitivity gap" or "gap." An institution having more interest rate
sensitive assets than interest rate sensitive liabilities within a given time
period is said to have a "positive gap," which generally means that if interest
rates increase, a company's net interest income will increase and if interest
rates decrease, its net interest income will decrease. An institution having
more interest rate sensitive liabilities than interest rate sensitive assets
within a given time period is said to have a "negative gap," which generally
means that if interest rates increase, a company's net interest income will
decrease and if interest rates decrease, its net interest income will increase.
At December 31, 1997, the Company had a manageable positive gap and
therefore does not expect to experience any significant fluctuations in its net
interest income as a consequence of changes in interest rates.
The following table sets forth the cumulative maturity distributions as of
December 31, 1997 of the Company's interest-earning assets and interest-bearing
liabilities, its interest rate sensitivity gap, cumulative interest rate
sensitivity gap for such assets and liabilities, and cumulative interest rate
sensitivity gap as a percentage of total interest-earning assets. This table
indicates the time periods in which certain interest-earning assets and certain
interest-bearing liabilities will mature or may reprice in accordance with their
contractual terms. However, this table does not necessarily indicate the impact
of general interest rate movements on the Company's net interest yield because
the repricing of various categories of assets and liabilities is discretionary
and is subject to competition and other pressures. As a result, various assets
and liabilities indicated as repricing within the same period may in fact
reprice at
S-16
different times and at different rate levels. Subject to these qualifications,
the table reflects a cumulative positive gap for assets and liabilities maturing
or repricing in 1998. The Company's Asset/Liability Management Committee
monitors the interest rate sensitivity position and currently intends to
maintain a slightly positive gap during 1998 primarily as a result of the
Company's view of the economy and the anticipated interest rate scenario for
1998.
- -----------------------------------------------------------------------------------------------------------
After 3 After 6 After 1
Months Months Year
Within 3 But Within But Within But Within After
(Dollars in thousands) Months 6 Months 1 Year 5 Years 5 Years Total
- -----------------------------------------------------------------------------------------------------------
Interest-earning assets:
Loans (net of unearned
income).................... $532,071 $166,643 $278,928 $597,773 $ 44,480 $1,619,895
Securities available for
sale....................... 66,172 21,034 48,970 179,074 70,711 385,961
Loans held for sale.......... 11,376 11,376
Federal funds sold........... 14,566 14,566
Interest-bearing deposits in
other banks................ 1,728 1,728
-------- -------- -------- -------- -------- ----------
Total........................ $625,913 $187,677 $327,898 $776,847 $115,191 $2,033,526
======== ======== ======== ======== ======== ==========
Interest-bearing liabilities:
Interest-bearing deposits.... $453,911 $177,624 $271,360 $635,774 $ 1,202 $1,539,871
Short-term borrowings, debt
and FHLB advances.......... 157,256 1,243 5,537 25,028 36,714 225,778
-------- -------- -------- -------- -------- ----------
Total........................ $611,167 $178,867 $276,897 $660,802 $ 37,916 $1,765,649
======== ======== ======== ======== ======== ==========
Interest rate sensitivity
gap........................ $ 14,746 $ 8,810 $ 51,001 $116,045 $ 77,275 $ 267,877
Cumulative interest rate
sensitivity gap............ 14,746 23,556 74,557 190,602 267,877
Cumulative interest rate
sensitivity gap as a
percentage of total
interest-earning assets.... 0.73% 1.16% 3.67% 9.37% 13.17%
- -----------------------------------------------------------------------------------------------------------
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 December 31, 1997, a minimum Tier I capital ratio of 4.00% and a total
capital ratio of 8.00% were required. The Company's qualifying capital at
December 31, 1997 exceeded 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 total
assets adjusted for certain items. Included in Tier I capital are
S-17
$27,500 of 10.20% capital securities issued by the Company through a special
purpose trust subsidiary in 1997. The following table presents the various
capital and leverage ratios of the Company.
- ------------------------------------------------------------------------------------------------------
December 31,
(Dollars in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------------
Total adjusted average assets for leverage ratio........ $2,183,157 $2,172,679 $2,165,421
Risk-weighted assets and off-balance-sheet financial
instruments for capital ratio......................... 1,889,799 1,681,787 1,541,004
Tier I capital.......................................... 197,893 183,422 181,263
Total risk-based capital................................ 218,567 199,712 196,122
Leverage ratio.......................................... 9.06% 8.44% 8.37%
Tier I capital ratio.................................... 10.47 10.91 11.76
Total capital ratio..................................... 11.57 11.87 12.73
- ------------------------------------------------------------------------------------------------------
Capital ratios applicable to the Company's banking subsidiaries at December
31, 1997 were 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............................................... 8.02 9.57 10.63
First National............................................ 7.71 10.24 10.97
AmeriCom.................................................. 6.99 9.31 10.51
AmeriFirst................................................ 8.09 11.71 12.91
Adrian.................................................... 6.68 9.53 10.78
- -------------------------------------------------------------------------------------------------
As indicated in the "Liquidity" section above, the Company issued $50,000
of 7.08% subordinated debt in a private placement transaction subsequent to
December 31, 1997. For regulatory capital purposes, the debt will be considered
Tier II capital.
SECURITIES AVAILABLE FOR SALE
The following table sets forth the carrying value at market at the
respective year end for each of the last three years and the aggregate cost of
the Company's securities available for sale at December 31, 1997.
- ----------------------------------------------------------------------------------------------------
Carrying Value at Market
- ----------------------------------------------------------------------------------------------------
(Dollars in thousands) Cost 1997 1996 1995
- ----------------------------------------------------------------------------------------------------
U.S. Treasury securities............................ $ 63,887 $ 64,255 $ 56,591 $ 73,792
Securities of other U.S. Government agencies and
corporations...................................... 55,755 55,740 46,765 67,526
Mortgage-backed securities.......................... 185,523 186,537 249,454 230,417
Obligations of states and political subdivisions.... 41,552 42,509 45,640 58,996
Other securities.................................... 35,878 36,920 34,341 31,266
-------- -------- -------- --------
Total............................................... $382,595 $385,961 $432,791 $461,997
======== ======== ======== ========
- ----------------------------------------------------------------------------------------------------
The portfolio contains mortgage-backed securities and to a limited extent,
other securities, which have unknown cash flow characteristics. The variable
cash flows present additional risk to the bondholders in the form of prepayment
or extension risk primarily caused by market interest rate changes. This
additional risk is generally rewarded in the form of higher yields to the
investor.
S-18
The Company utilizes tools to minimize and monitor this risk, requiring the
security to pass a stress test at the time of purchase. This testing measures
prepayment and extension risk under severe changes in interest rates.
Additionally, the corporate investment policy defines certain types of high risk
securities as ineligible for purchase, including securities which may not return
full principal to the Company. It is also the practice of the Company to
minimize premiums paid on mortgage securities to avoid yield reduction if
prepayments increase. These policies help insure that there will be no material
impact from these investments to the financial statements due to changing
interest rates.
The internal accounting systems and controls are in place to account for
amortization and accretion of premiums and discounts. As prepayments of
principal are received, the system automatically adjusts premiums and discounts
to reflect the proper book values.
There are no securities available for sale of any single issuer where the
aggregate carrying value of such securities exceeded 10% of shareholders'
equity, except those of the U.S. Treasury, U.S. Government agencies and
substantially all mortgage-backed securities issued by Federal Home Loan
Mortgage Corporation ("FHLMC"), Federal National Mortgage Association ("FNMA")
and Government National Mortgage Association.
The following table shows the contractual maturities and weighted average
yields of the Company's securities available for sale as of December 31, 1997.
Expected maturities will differ from contractual maturities because issuers may
have the right to call or prepay obligations with or without call or prepayment
penalties. Mortgage-backed securities are presented in the table based on
current assumptions as to prepayments. The weighted average yields on income
from tax exempt obligations of state and political subdivisions have been
adjusted to a tax equivalent basis.
- ----------------------------------------------------------------------------------------------------------------------
After 1 Year But After 5 Years But
Within 1 Year Within 5 Years Within 10 Years After 10 Years
--------------- ---------------- ------------------ --------------------
(Dollars in thousands) Amount Yield Amount Yield Amount Yield Amount Yield
- ----------------------------------------------------------------------------------------------------------------------
U.S. Treasury securities..... $13,964 5.46% $ 43,061 5.96% $ 7,230 6.17%
Securities of other U.S.
Government agencies and
corporations............... 7,014 5.37 34,592 6.27 9,526 6.30 $ 4,608 6.77%
Mortgage-backed securities... 1,265 6.18 16,229 6.44 36,388 6.30 132,655 6.59
Obligations of states and
political subdivisions..... 5,490 6.76 27,249 7.59 7,246 7.71 2,524 8.18
Other securities............. 203 10.50 36,717 8.23
------- -------- ------- --------
Total...................... $27,936 5.76 $121,131 6.48 $60,390 6.45 $176,504 6.96
======= ======== ======= ========
- ----------------------------------------------------------------------------------------------------------------------
S-19
LOAN PORTFOLIO
The amount of loans outstanding and the percent of the total represented by
each type on the dates indicated were as follows.
- ----------------------------------------------------------------------------------------------------------------------------------
December 31,
(Dollars in thousands) 1997 1996 1995 1994 1993
- ----------------------------------------------------------------------------------------------------------------------------------
Real estate loans:
Construction....... $ 78,738 4.9% $ 72,416 4.6% $ 63,086 4.3% $ 69,942 4.9% $ 39,150 3.1%
Residential
mortgage......... 494,444 30.5 524,704 33.3 580,004 39.3 598,989 41.7 534,229 42.1
Non-residential
mortgage......... 461,885 28.5 418,781 26.6 305,710 20.7 272,715 19.0 249,406 19.7
Commercial, financial
and agricultural
loans.............. 385,629 23.8 379,268 24.1 357,290 24.2 327,871 22.8 294,297 23.2
Installment and credit
card loans......... 193,295 11.9 175,742 11.1 164,055 11.1 155,380 10.8 138,534 10.9
Other loans.......... 7,182 0.4 5,384 0.3 6,335 0.4 10,040 0.8 11,690 1.0
---------- ----- ---------- ----- ---------- ----- ---------- ----- ---------- -----
Total loans........ 1,621,173 100.0 1,576,295 100.0 1,476,480 100.0 1,434,937 100.0 1,267,306 100.0
===== ===== ===== ===== =====
Less:
Unearned interest.... (9) (14) (22) (38) (50)
Unamortized loan
fees............... (1,269) (1,401) (807) (1,610) (1,311)
Allowance for credit
losses............. (17,625) (15,672) (14,859) (14,722) (15,157)
---------- ---------- ---------- ---------- ----------
Total net loans.... $1,602,270 $1,559,208 $1,460,792 $1,418,567 $1,250,788
========== ========== ========== ========== ==========
- ----------------------------------------------------------------------------------------------------------------------------------
Real estate loans, including construction and mortgage loans, approximated
64% of total loans at December 31, 1997. Collateral evaluations and the
historical data of the Company's mortgage loan losses are used to determine the
amount necessary for the allowance for credit losses. The Company's general
collateral policy for residential real estate mortgages is to follow FNMA and
FHLMC guidelines, which generally require a loan-to-value ratio of 80% or
private mortgage insurance for loan-to-value ratios in excess of 80%.
A significant portion (24%) of the loan portfolio is composed of commercial
loans. Personal and business financial status, credit standing, and available
collateral of commercial borrowers, plus management's judgment as to prevailing
and anticipated economic conditions and the historical data of the Company's
commercial loan losses, are taken into consideration when determining the amount
of the allowance for credit losses needed for commercial loans. The amount of
collateral required on commercial loans is generally determined based on a
loan-by-loan assessment. Average loan-to-value ratios for commercial loans
typically range from 50% to 80%. Factors which are considered include, among
other things, the purpose of the loan, the current financial status of the
borrower and the borrower's prior credit history.
The remaining portion (12%) of the Company's loan portfolio are
installment, credit card loans and other loans and leases. A thorough credit
examination is done at the time of the extension of credit. The Company sold
substantially all of its credit card loans in the fourth quarter of 1996. The
Company makes consumer loans on both a secured and unsecured basis depending, in
part, on the nature, purpose and term of the loan. Loan-to-value ratios for
secured consumer loans range from 70% to 90% as a general rule. The historical
data of the Company's consumer loan losses and the Company's credit evaluations
are used to determine the necessary amount for its allowance for credit losses.
S-20
The following table shows the amount of commercial, financial and
agricultural loans and real estate construction loans outstanding as of December
31, 1997 which, based on remaining scheduled repayments of principal, are due in
the periods indicated. Also, the amounts due after one year are classified
according to their sensitivity to changes in interest rates.
- ------------------------------------------------------------------------------------------------------------
After 1 Year But After 5 Years But
(Dollars in thousands) Within 1 Year Within 5 Years Within 10 Years After 10 Years
- ------------------------------------------------------------------------------------------------------------
Commercial, financial and
agricultural....................... $211,674 $ 98,852 $47,225 $27,878
Real estate -- construction.......... 62,175 3,593 4,839 8,131
-------- -------- ------- -------
Total................................ $273,849 $102,445 $52,064 $36,009
======== ======== ======= =======
- ------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------
Fixed Variable
(Dollars in thousands) Rate Rate
- --------------------------------------------------------------------------------
Due after one but within five years......................... $26,909 $ 75,536
Due after five years........................................ 14,350 73,723
------- --------
Total....................................................... $41,259 $149,259
======= ========
- --------------------------------------------------------------------------------
Actual maturities of loans will differ from the contractual maturities
presented in the table above because of prepayments, rollovers and renegotiation
of payment terms, among other factors.
The following table presents the aggregate amounts of non-performing assets
and respective ratios on the dates indicated.
- -----------------------------------------------------------------------------------------------
December 31,
(Dollars in thousands) 1997 1996 1995 1994 1993
- -----------------------------------------------------------------------------------------------
Non-accrual....................................... $4,282 $6,550 $8,499 $6,017 $ 8,660
Restructured...................................... 264 73 79 329 221
------ ------ ------ ------ -------
Total non-performing loans........................ 4,546 6,623 8,578 6,346 8,881
Other real estate owned........................... 363 1,143 763 1,102 1,836
------ ------ ------ ------ -------
Total non-performing assets....................... $4,909 $7,766 $9,341 $7,448 $10,717
====== ====== ====== ====== =======
Loans 90 days or more past due and not on
non-accrual..................................... $2,834 $5,934 $1,253 $1,140 $ 813
====== ====== ====== ====== =======
Non-performing loans to total loans............... 0.28% 0.42% 0.58% 0.44% 0.70%
Non-performing assets to total loans plus other
real estate owned............................... 0.30 0.49 0.63 0.52 0.85
Allowance for credit losses to total
non-performing loans............................ 387.70 236.63 173.22 231.99 170.67
Allowance for credit losses to total
non-performing assets........................... 359.03 201.80 159.07 197.66 141.43
Loans 90 days or more past due and not on
non-accrual to total loans...................... 0.17 0.38 0.08 0.08 0.06
- -----------------------------------------------------------------------------------------------
SFAS 114 "Accounting by Creditors for Impairment of a Loan," and SFAS 118
"Accounting by Creditors for Impairment of a Loan-Income Recognition and
Disclosures." were adopted effective January 1, 1995. Residential mortgage,
installment and other consumer loans are collectively evaluated for impairment.
Individual commercial loans exceeding size thresholds established by management
are evaluated for impairment. Impaired loans are recorded at the loan's fair
value by the establishment of a specific allowance where necessary. The fair
value of the underlying collateral-dependent loans is determined by the fair
value of the underlying collateral. The fair value of noncollateral-dependent
loans is determined by discounting expected future interest and principal
payments at the loan's effective interest rate.
At December 31, 1997, the recorded investment on impaired loans measured in
accordance with SFAS 114 amounted to $1,442, of which $1,442 or 100% of impaired
loans have a specific allowance of $463. The average
S-21
recorded investment in impaired loans for the year ended December 31, 1997 was
$2,852. Interest income recognized in 1997 related to impaired loans was $124,
of which $23 was recognized on a cash basis. At December 31, 1996, the recorded
investment in impaired loans measured in accordance with SFAS 114 amounted to
$7,241, of which $5,915 of impaired loans had a specific allowance of $2,206 and
the remaining $1,326 of impaired loans had no specific allowance because the
fair value of the collateral securing the loan exceeded the investment in the
loan. The decrease in impaired loans from 1996 to 1997 was the result of certain
1996 impaired loans paying off in 1997, and no new significant loans becoming
impaired during 1997.
The following table reflects impaired loans by type of loan.
- -----------------------------------------------------------------------------
December 31,
(Dollars in thousands) 1997 1996
- -----------------------------------------------------------------------------
Commercial real estate...................................... $ 592 $3,165
Commercial.................................................. 600 3,576
Financial................................................... 250 500
------ ------
Total impaired loans........................................ $1,442 $7,241
====== ======
- -----------------------------------------------------------------------------
The total amount of impaired loans using (1) the present value of expected
future cash flows was $850, and (2) the fair value of the loans' collateral was
$592. No impaired loans were valued using an observable market price at December
31, 1997.
Non-accrual loans are comprised principally of loans 90 days past due, as
well as certain loans which are current but where serious doubts exist as to the
ability of the borrower to comply with the repayment terms. Interest previously
accrued and not yet paid on non-accrual loans is reversed or charged against the
allowance for credit losses during the period in which the loan is placed in a
non-accrual status, except where the Company has determined that such loans are
adequately secured as to principal and interest. Interest earned thereafter is
included in income only to the extent that it is received in cash. In certain
cases, interest received may be credited against principal outstanding under the
cost recovery method.
AmeriCom and First National have purchased certain lease receivables and
extended loans with an aggregate outstanding balance at December 31, 1997 of
$4,985 to The Bennett Funding Group, Inc. and related entities (Bennett) which
remain subject to the Bennett bankruptcy proceeding commenced in March, 1996. On
December 29, 1997 and January 7, 1998, the bankruptcy judge ruled that AmeriCom
and First National, respectively, are secured creditors with respect to $1,484
and $1,831, respectively, of their outstanding Bennett portfolios. In early
1998, AmeriCom and First National received $1,247 and $1,421, respectively from
the Trustee in bankruptcy pursuant to the judge's order. These decisions have
been appealed by the bankruptcy trustee and the appeals are pending. No decision
has been rendered with respect to $1,671 in loans from AmeriCom and First
National which present different issues from the issues decided by the
bankruptcy judge. Due to the complexity of the remaining legal issues,
management and the Company's legal counsel are currently unable to form an
opinion as to the likely outcome of the Banks' position with respect to the
remaining Bennett portfolio. The aggregate outstanding balance of the Bennett
portfolio after receipt of payout was $2,317 including $250 on non-accrual and
$2,067 ninety days past due and still accruing.
Loans 30 to 89 days past due, excluding non-accrual and restructured loans,
amounted to $6,752 or .42% of total loans at December 31, 1997 as compared to
$8,944 or .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 $29,106 and $31,503 at
December 31, 1997 and 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. 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
S-22
specific concerns relating to each individual borrower and do not relate to any
concentrated risk elements common to all loans in this group.
Other real estate owned amounted to $363 and $1,143 at December 31, 1997
and 1996, respectively. The Company has been able to maintain other real estate
owned balances at a low level since 1992, through improved asset quality,
improved controls, and timely sales of foreclosed properties.
As of December 31, 1997, the Company did not have any loan concentrations
which exceeded 10% of total loans.
The following table presents asset quality information for each of the
Company's bank subsidiaries.
- ------------------------------------------------------------------------------------------------------------
December 31, 1997 Mid Am First
(Dollars in thousands) Bank National AmeriCom AmeriFirst Adrian
- ------------------------------------------------------------------------------------------------------------
Non-accrual (1).................... $ 1,398 $ 802 $ 584 $1,344 $ 64
Restructured....................... 138 67 59
------- ------ ------ ------ --------
Total non-performing loans......... 1,398 940 651 1,344 123
Other real estate owned (2)........ 10 22
------- ------ ------ ------ --------
Total non-performing assets........ $ 1,408 $ 962 $ 651 $1,344 $123
======= ====== ====== ====== ========
Loans 90 days or more past due and
not on non-accrual............... $ 64 $ 887 $1,480 $ 37 $366
======= ====== ====== ====== ========
Non-performing loans to total
loans............................ 0.21% 0.24% 0.23% 0.88% 0.09%
Non-performing assets to total
loans plus other real estate
owned............................ 0.21 0.25 0.23 0.88 0.09
Allowance for credit losses to
total non-performing loans....... 579.61 315.00 517.51 124.48 1,205.69
Allowance for credit losses to
total non-performing assets...... 575.50 307.80 517.51 124.48 1,205.69
Net charge-offs to average loans
outstanding...................... 0.35 0.04 0.08 0.51 0.05
Allowance for credit losses to
total loans...................... 1.22 0.77 1.18 1.10 1.14
Loans 90 days or more past due and
not on non-accrual to total
loans............................ 0.01 0.23 0.52 0.02 0.28
- ------------------------------------------------------------------------------------------------------------
(1) MAFSI has $90 of loans on non-accrual.
(2) The parent company has $331 of other real estate owned.
S-23
SUMMARY OF CREDIT LOSS EXPERIENCE
The following table presents a summary of credit loss experience for the
periods indicated.
- ---------------------------------------------------------------------------------------------------------
December 31,
(Dollars in thousands) 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
Balance of allowance at beginning of
year................................ $15,672 $14,859 $14,722 $15,157 $15,718
Loans actually charged-off:
Real estate........................... 652 742 167 455 558
Commercial, financial and
agricultural........................ 2,570 2,048 2,783 2,122 4,767
Installment and credit card........... 1,611 2,694 1,429 815 1,768
Industrial development bonds.......... 67
Other................................. 68 14 14 15
------- ------- ------- ------- -------
4,901 5,498 4,379 3,406 7,175
------- ------- ------- ------- -------
Recoveries of loans previously
charged-off:
Real estate........................... 160 312 305 127 221
Commercial, financial and
agricultural........................ 588 757 727 1,059 1,082
Installment and credit card........... 533 648 446 561 816
Other................................. 46 57
------- ------- ------- ------- -------
1,327 1,774 1,478 1,747 2,119
------- ------- ------- ------- -------
Net charge-offs....................... 3,574 3,724 2,901 1,659 5,056
Addition to allowance charged to
expense............................. 5,527 4,537 3,002 2,864 3,991
Reversal of allowance credited to
expense............................. (1,640)
Effect of conforming year-ends of
pooled entities..................... 504
Transfer of other real estate owned
allowance relating to in-substance
foreclosure loans................... 36
------- ------- ------- ------- -------
Balance of allowance at end of year... $17,625 $15,672 $14,859 $14,722 $15,157
======= ======= ======= ======= =======
Net charge-offs to average loans
outstanding......................... 0.22% 0.25% 0.20% 0.12% 0.41%
Allowance for credit losses to total
loans............................... 1.09 1.00 1.01 1.03 1.20
Allowance for credit losses to total
non-performing loans................ 387.70 236.63 173.22 231.99 170.67
- ---------------------------------------------------------------------------------------------------------
The provision for credit losses reflects the amount necessary in
management's opinion to maintain an adequate reserve, 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 and the necessity to state
certain individual loans at their estimated fair value. The 1994 reduction of
$1,640 in allowance occurred at First National and was the culmination of a
number of events and factors. Asset quality and charge-off experience at First
National improved rapidly in 1992. In recognition of the favorable loss
experience and asset quality, management suspended provisions to First
National's allowance for credit losses in September 1992 and reduced the
allowance $1,640 in 1994.
The Company's banking subsidiaries monitor the adequacy of their allowances
for credit losses on a monthly basis. The banking subsidiaries formally document
their evaluations of the adequacy of their allowances for credit losses on a
quarterly basis and the evaluations are reviewed and discussed with each bank's
respective Board of Directors. The Company's Asset Quality Department presents a
quarterly consolidated evaluation of the adequacy of the allowance for credit
losses to the Company's Board of Directors. These evaluations of potential
losses include, without limitation, a review of the current financial status and
credit standing of commercial borrowers and their prior history, an evaluation
of available collateral, a review of loss experience in relation to outstanding
loans, and management's judgment as to prevailing and anticipated economic
conditions. Such factors include, among others, changes in the credit grade
assigned to the loan by either the assigned officer or by the Company's Asset
Quality Department from its periodic reviews of segments of the loan portfolios,
and increases or decreases in specific reserves
S-24
assigned to individual loans. Residential mortgage and consumer portfolios are
collectively evaluated giving consideration to the trend of delinquencies and
charge-offs and current and anticipated economic conditions.
The following table sets forth the allocation of the allowance for credit
losses for the periods indicated.
- ---------------------------------------------------------------------------------------------------------
December 31,
(Dollars in thousands) 1997 1996 1995 1994 1993
- ---------------------------------------------------------------------------------------------------------
Specific allowance:
Real estate........................... $ 199 $ 372 $ 320 $ 1,178 $ 708
Commercial............................ 2,415 2,974 3,989 2,384 2,334
Installment........................... 101 250 560 50 76
------- ------- ------- ------- -------
2,715 3,596 4,869 3,612 3,118
------- ------- ------- ------- -------
Allocated allowance:
Real estate........................... 232 233 206 729 1,186
Commercial............................ 5,347 3,229 2,270 3,609 3,394
Installment........................... 1,585 1,369 659 1,364 1,640
Other................................. 355 1,106 474 422 579
------- ------- ------- ------- -------
7,519 5,937 3,609 6,124 6,799
------- ------- ------- ------- -------
Unallocated allowance................. 7,391 6,139 6,381 4,986 5,240
------- ------- ------- ------- -------
Allowance for credit losses........... $17,625 $15,672 $14,859 $14,722 $15,157
======= ======= ======= ======= =======
- ---------------------------------------------------------------------------------------------------------
Increased loan balances in 1997 and 1996 required additional provisions to
maintain an adequate level of the Company's allowance for credit losses to total
loans. Since 1993, the Company's asset quality has shown improvement as
non-performing assets to total loans and OREO decreased to .30% from .85%, and
the non-performing loan ratio improved to .28% from .70%. Non-performing loans
to total loans were .28%, .42%, and .58% at December 31, 1997, 1996, and 1995,
respectively. The Company's provision for credit losses increased $990 to $5,527
in 1997 compared to $4,537 in 1996.
DEPOSITS
The following table sets forth the average balances of and average rates
paid on deposits for the periods indicated.
[CAPTION]
- -----------------------------------------------------------------------------------------------------------
December 31,
(Dollars in thousands) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------------
Average Average Average Average Average Average
Balance Rate Balance Rate Balance Rate
- -----------------------------------------------------------------------------------------------------------
Demand
Non-interest-bearing.......... $ 204,058 $ 186,397 $ 174,501
Interest-bearing.............. 165,298 2.21% 195,089 1.90% 185,841 2.09%
Savings......................... 217,371 2.47 243,185 2.49 269,308 2.63
Money market.................... 171,197 3.17 151,887 3.48 121,459 3.48
Time............................ 995,032 5.51 1,037,331 5.60 1,037,277 5.53
---------- ---------- ----------
Total........................... $1,752,956 $1,813,889 $1,788,386
========== ========== ==========
- -----------------------------------------------------------------------------------------------------------
S-25
The following table sets forth the maturity distribution of time
certificates of deposit issued in amounts of $100 or more.
- ------------------------------------------------------------------------
December 31, 1997
(Dollars in thousands)
- ------------------------------------------------------------------------
Three months or less........................................ $ 64,659
Over three months to six months............................. 31,927
Over six months to twelve months............................ 68,451
Over twelve months.......................................... 60,970
--------
Total....................................................... $226,007
========
- ------------------------------------------------------------------------
SHORT-TERM BORROWINGS
A summary of certain information regarding federal funds purchased and
securities sold under agreements to repurchase is presented below. The latter
represent securities sold to customers subject to an obligation of the Company
to repurchase such securities at a specified time, usually 30 to 60 days after
the date of the sale. Such agreements provide customers with the opportunity to
make short-term investments of substantial sums, usually in excess of $100,
secured by obligations of the United States Treasury or United States government
agencies.
- ------------------------------------------------------------------------------------------------
Year Ended December 31,
(Dollars in thousands) 1997 1996 1995
- ------------------------------------------------------------------------------------------------
Average for the year:
Amount outstanding......................................... $103,823 $ 97,370 $87,128
Weighted average interest rate............................. 4.48% 4.35% 4.55%
At year end:
Amount outstanding......................................... $103,174 $ 92,805 $87,548
Weighted average interest rate............................. 4.36% 4.37% 4.43%
Maximum amount outstanding at any month-end during the
year..................................................... $121,379 $115,478 $93,579
- ------------------------------------------------------------------------------------------------
YEAR 2000 SOFTWARE INITIATIVES
Management has initiated a company-wide assessment, remediation and
conversion program to address the effect of the year 2000 on the Company's
information systems and application software. The Company's Year 2000 Readiness
Project contains assessment, renovation, validation and implementation phases. A
substantial majority of the significant application software utilized by the
Company is licensed from a third-party vendor and management is working with the
vendor to ensure that the software will operate properly in the year 2000. At
this time, the estimated cost to remediate the Company's year 2000 issues is not
expected to be material.
FORWARD-LOOKING STATEMENTS
From time to time, the Company may publish forward-looking statements
relating to such matters as anticipated operating results, prospects for new
lines of business, technological developments, economic trends (including
interest rates), reorganization transactions and similar matters. The Private
Securities Litigation Reform Act of 1995 provides a safe harbor for
forward-looking statements, and the purpose of this paragraph is to secure the
use of the safe harbor provisions. While the Company believes that the
assumptions underlying the forward-looking statements contained herein and in
other public documents are reasonable, any of the assumptions could prove to be
inaccurate, and accordingly, actual results and experience could differ
materially from the anticipated results or other expectations expressed by the
Company in its forward-looking statements. Factors that could cause actual
results or experience to differ from results discussed in the forward-looking
statements include, but are not limited to: economic conditions; volatility and
direction of market interest rates; capital investment in and operating results
of non-banking business ventures of the Company; the ability of the Company's
broker/dealer subsidiary to recruit registered representatives; governmental
legislation and regulation; material unforeseen changes in the financial
condition or results of operations of the Company's customers; customer reaction
to and unforeseen complications with respect to the Company's product redesign
initiative; the effect of the year 2000 on the Company's computer systems; and
other risks identified, from time-to-time in the Company's other public
documents on file with the Securities and Exchange Commission.
S-26
REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors and Shareholders of Mid Am, Inc.
In our opinion, the accompanying consolidated statement of condition and the
related consolidated statements of earnings, of changes in shareholders' equity
and of cash flows present fairly, in all material respects, the financial
position of Mid Am, Inc. and its subsidiaries at December 31, 1997 and 1996, and
the results of their operations and their cash flows for each of the three years
in the period ended December 31, 1997, in conformity with generally accepted
accounting principles. These financial statements are the responsibility of the
Company's management; our responsibility is to express an opinion on these
financial statements based on our audits. We conducted our audits of these
statements in accordance with generally accepted auditing standards which
require that we plan and perform the audit to obtain reasonable assurance about
whether the financial statements are free of material misstatement. An audit
includes examining, on a test basis, evidence supporting the amounts and
disclosures in the financial statements, assessing the accounting principles
used and significant estimates made by management, and evaluating the overall
financial statement presentation. We believe that our audits provide a
reasonable basis for the opinion expressed above.
Price Waterhouse LLP
PRICE WATERHOUSE LLP
January 19, 1998
Toledo, Ohio
S-27
MID AM, INC.
CONSOLIDATED STATEMENT OF CONDITION
- -----------------------------------------------------------------------------------------
December 31,
(Dollars in thousands) 1997 1996
- -----------------------------------------------------------------------------------------
ASSETS
Cash and due from banks..................................... $ 84,062 $ 85,657
Interest-bearing deposits in other banks.................... 1,728 1,631
Federal funds sold.......................................... 14,566 4,476
Loans held for sale......................................... 11,376 7,927
Securities available for sale............................... 385,961 432,791
Loans, net of unearned fees and income of $1,278 and
$1,415.................................................... 1,619,895 1,574,880
Allowance for credit losses................................. (17,625) (15,672)
---------- ----------
Net loans................................................. 1,602,270 1,559,208
Bank premises and equipment................................. 53,903 50,111
Interest receivable and other assets........................ 38,009 39,173
---------- ----------
TOTAL ASSETS.............................................. $2,191,875 $2,180,974
========== ==========
LIABILITIES
Demand deposits (non-interest-bearing)...................... $ 220,441 $ 205,306
Savings deposits............................................ 545,667 593,885
Other time deposits......................................... 994,204 1,033,718
---------- ----------
Total deposits............................................ 1,760,312 1,832,909
Federal funds purchased and securities sold under agreements
to repurchase............................................. 103,174 92,805
Debt and FHLB advances...................................... 122,604 42,247
Interest payable and other liabilities...................... 25,025 19,809
---------- ----------
TOTAL LIABILITIES......................................... 2,011,115 1,987,770
---------- ----------
Commitments and contingencies (Notes 13 and 14)............. -- --
SHAREHOLDERS' EQUITY
Preferred stock -- no par value
Authorized -- 2,000,000 shares
Issued and outstanding -- 1,203,725 in 1996............... -- 30,093
Common stock -- stated value of $3.33 per share
Authorized -- 35,000,000 shares
Issued -- 24,459,511 and 20,887,675 shares in 1997 and
1996, respectively..................................... 81,531 69,625
Surplus..................................................... 94,594 89,299
Retained earnings........................................... 6,321 6,034
Treasury stock -- 197,206 and 46,610 common shares in 1997
and 1996, respectively.................................... (3,874) (834)
Unrealized gains (losses) on securities available for
sale...................................................... 2,188 (1,013)
---------- ----------
TOTAL SHAREHOLDERS' EQUITY................................ 180,760 193,204
---------- ----------
TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY................ $2,191,875 $2,180,974
========== ==========
- -----------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
S-28
MID AM, INC.
CONSOLIDATED STATEMENT OF EARNINGS
- ----------------------------------------------------------------------------------------------------
Year Ended December 31,
(Dollars in thousands, except per share data) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------
INTEREST INCOME
Interest and fees on loans............................. $146,266 $134,721 $130,300
Interest on deposits in other banks.................... 80 165 218
Interest on federal funds sold......................... 1,036 2,093 3,610
Interest on taxable investments........................ 21,692 25,311 25,209
Interest on tax exempt investments..................... 2,128 2,693 3,206
-------- -------- --------
171,202 164,983 162,543
-------- -------- --------
INTEREST EXPENSE
Interest on deposits................................... 69,301 73,128 72,527
Interest on borrowed funds............................. 12,375 6,941 7,789
-------- -------- --------
81,676 80,069 80,316
-------- -------- --------
Net interest income.................................. 89,526 84,914 82,227
Provision for credit losses............................ 5,527 4,537 3,002
-------- -------- --------
Net interest income after provision for credit
losses............................................ 83,999 80,377 79,225
-------- -------- --------
NON-INTEREST INCOME
Trust department....................................... 2,044 1,590 1,337
Service charges on deposit accounts.................... 8,575 6,878 6,200
Mortgage banking....................................... 13,507 10,414 8,185
Brokerage commissions.................................. 6,083 9,156 9,540
Collection agency fees................................. 5,053 4,213 3,399
Net gains (losses) on sales of securities.............. (132) 1,574 350
Net gains on sales of loans at commercial financing
affiliate............................................ 13,027 2,992
Other income........................................... 18,412 12,684 6,944
-------- -------- --------
66,569 49,501 35,955
-------- -------- --------
NON-INTEREST EXPENSE
Salaries and employee benefits......................... 54,256 42,564 34,674
Net occupancy expense.................................. 5,775 5,279 5,113
Equipment expense...................................... 9,124 7,930 7,385
Other expenses......................................... 34,897 35,646 31,244
-------- -------- --------
104,052 91,419 78,416
-------- -------- --------
Income before income taxes........................... 46,516 38,459 36,764
-------- -------- --------
APPLICABLE INCOME TAXES
Current................................................ 17,668 13,488 9,587
Deferred............................................... (2,033) (1,021) 2,210
-------- -------- --------
15,635 12,467 11,797
-------- -------- --------
Net income........................................... $ 30,881 $ 25,992 $ 24,967
======== ======== ========
Net income available to common shareholders.......... $ 30,276 $ 23,585 $ 22,216
======== ======== ========
EARNINGS PER COMMON SHARE
Basic.................................................. $ 1.27 $ 1.04 $ 0.96
======== ======== ========
Diluted................................................ $ 1.22 $ 0.98 $ 0.92
======== ======== ========
- ----------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
S-29
MID AM, INC.
CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY
- -----------------------------------------------------------------------------------------------------------------------
Unrealized
Gains
(Losses)
on Securities Total
(Dollars in thousands, Preferred Common Retained Treasury Available Shareholders'
except per share data) Stock Stock Surplus Earnings Stock For Sale Equity
- -----------------------------------------------------------------------------------------------------------------------
Balances at December 31, 1994..... $40,200 $57,865 $75,624 $ 17,769 $ (20) $(6,186) $185,252
Net income for the year........... 24,967 24,967
Dividends declared:
Preferred cash dividends........ (2,751) (2,751)
Common cash dividends of $.52
per share.................... (12,111) (12,111)
10% common stock dividend
(1,705,761 shares)........... 5,686 12,314 (18,000)
Unrealized gains on securities
available for sale.............. 7,652 7,652
Treasury shares acquired.......... (9,197) (9,197)
Treasury shares issued............ 793 793
Preferred stock conversions....... (4,631) 1,358 3,273
Fractional shares and other
items........................... 66 512 (345) 233
------- -------- ------- -------- -------- ------- --------
Balances at December 31, 1995..... 35,569 64,975 91,723 9,529 (8,424) 1,466 194,838
Net income for the year........... 25,992 25,992
Treasury shares acquired.......... (10,697) (10,697)
Treasury shares issued............ 412 412
Dividends declared:
Preferred cash dividends........ (2,407) (2,407)
Common cash dividends of $.55
per share.................... (12,444) (12,444)
10% common stock dividend
(1,975,509 shares including
1,134,995 shares issued
from treasury)............. 2,802 (6,073) (14,604) 17,875
Unrealized losses on securities
available for sale.............. (2,479) (2,479)
Preferred stock conversions....... (5,476) 1,696 3,780
Fractional shares and other
items........................... 152 (131) (32) (11)
------- -------- ------- -------- -------- ------- --------
Balances at December 31, 1996..... 30,093 69,625 89,299 6,034 (834) (1,013) 193,204
Net income for the year........... 30,881 30,881
Treasury shares acquired.......... (10,339) (10,339)
Treasury shares issued............ (262) 887 625
Dividends declared:
Preferred cash dividends........ (605) (605)
Common cash dividends of $.60
per share.................... (14,354) (14,354)
10% common stock dividend
(2,259,581 shares including
407,578 shares issued from
treasury).................... 6,173 3,019 (15,604) 6,412
Unrealized gains on securities
available for sale.............. 3,201 3,201
Preferred stock conversions....... (17,213) 5,601 11,612
Preferred stock retired........... (12,880) (8,921) (21,801)
Fractional shares and other
items........................... 132 (153) (31) (52)
------- ------- ------- -------- -------- ------- --------
Balances at December 31, 1997..... $ -- $81,531 $94,594 $ 6,321 $ (3,874) $ 2,188 $180,760
======= ======= ======= ======== ======== ======= ========
- -----------------------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
S-30
MID AM, INC.
CONSOLIDATED STATEMENT OF CASH FLOWS
- -------------------------------------------------------------------------------------------------------
Year Ended December 31,
(Dollars in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
OPERATING ACTIVITIES
Net income.................................................. $ 30,881 $ 25,992 $ 24,967
Adjustments to reconcile net income to net cash provided by
operating activities:
Provision for credit losses................................. 5,527 4,537 3,002
Provision for depreciation and amortization of assets....... 9,668 9,044 8,850
Proceeds from sales of mortgage and other loans held for
sale...................................................... 570,949 449,672 302,655
Mortgage and other loans originated for sale................ (556,690) (437,680) (301,399)
Net gains on sales of assets................................ (33,897) (16,885) (5,962)
(Increase) decrease in interest receivable and other
assets.................................................... (3,145) 1,905 (10,872)
Increase in interest payable and other liabilities.......... 5,216 5,991 2,319
--------- --------- ---------
NET CASH PROVIDED BY OPERATING ACTIVITIES................. 28,509 42,576 23,560
--------- --------- ---------
INVESTING ACTIVITIES
Net (increase) decrease in interest-bearing deposits in
other banks............................................... (97) 1,741 (1,140)
Net (increase) decrease in federal funds sold............... (10,090) 68,082 (64,398)
Proceeds from sales of securities available for sale........ 85,559 47,503 27,771
Proceeds from maturities and paydowns of securities
available for sale........................................ 95,375 95,365 49,105
Purchases of securities available for sale.................. (123,301) (43,390) (83,063)
Proceeds from maturities and paydowns of investment
securities................................................ 7,213
Purchases of investment securities.......................... (1,579)
Proceeds from maturities and paydowns of mortgage-backed
securities................................................ 19,998
Purchases of mortgage-backed securities..................... (2,503)
Proceeds from sales of loans................................ 30,309 38,021 41,580
Net increase in loans....................................... (78,689) (207,138) (86,949)
Proceeds from sales of other real estate owned.............. 1,492 481 1,712
Proceeds from sales of bank premises and equipment.......... 1,978 782 848
Purchases of bank premises and equipment.................... (12,994) (7,765) (6,063)
Cash acquired through acquisitions.......................... 80 31
--------- --------- ---------
NET CASH USED FOR INVESTING ACTIVITIES.................... (10,458) (6,238) (97,437)
--------- --------- ---------
FINANCING ACTIVITIES
Cash transferred in connection with the sale of branch
deposits.................................................. (84,927)
Net (decrease) increase in demand deposits and savings
accounts.................................................. (638) (18,561) 41,189
Net increase (decrease) in other time deposits.............. 21,719 (8,672) 82,461
Net increase in short-term borrowings....................... 10,369 5,257 7,412
Repayment of debt and FHLB advances......................... (47,163) (19,058) (66,050)
Proceeds from issuance of debt and FHLB advances............ 127,520 12,900 49,021
Preferred stock retired..................................... (21,801)
Proceeds from issuance of common stock...................... 625 412 793
Cash dividends paid......................................... (14,959) (14,851) (14,862)
Treasury stock acquisitions, fractional shares and other
items..................................................... (10,391) (10,708) (8,964)
--------- --------- ---------
NET CASH (USED FOR) PROVIDED BY FINANCING ACTIVITIES...... (19,646) (53,281) 91,000
--------- --------- ---------
Net (decrease) increase in cash and due from banks........ (1,595) (16,943) 17,123
Effect on cash of conforming the year-ends of pooled
entities.................................................. 145
Cash and due from banks at the beginning of the year........ 85,657 102,600 85,332
--------- --------- ---------
Cash and due from banks at the end of the year............ $ 84,062 $ 85,657 $ 102,600
========= ========= =========
Supplemental Schedule of Noncash Investing and Financing
Activities:
Securitization of loans held for sale..................... $ 6,344 $ 73,527 $ 3,685
Investment securities..................................... 66,096
Mortgage-backed investment securities transfer............ 162,477
--------- --------- ---------
Transfers to securities available for sale.............. $ 6,344 $ 73,527 $ 232,258
========= ========= =========
Transfers from loans to other real estate owned........... $ 1,329 $ 780 $ 893
========= ========= =========
Loans on other real estate owned sold..................... $ 586 $ 208 $ 16
========= ========= =========
Noncash portion of acquisitions (Note 2)
Fair value of assets acquired (excluding cash) including
intangible assets of $278 and $246...................... $ 863 $ 263
Fair value of liabilities assumed......................... (371) (44)
--------- ---------
Noncash cost of acquisitions............................ $ 492 $ 219
========= =========
Unrealized gains (losses) on securities available for
sale.................................................... $ 4,924 $ (3,813) $ 11,748
Adjustment to deferred tax asset.......................... 1,723 (1,334) 4,096
--------- --------- ---------
Adjustment to shareholders' equity...................... $ 3,201 $ (2,479) $ 7,652
========= ========= =========
- -------------------------------------------------------------------------------------------------------
The accompanying notes are an integral part of the financial statements.
S-31
MID AM, INC.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Dollars in thousands, except per share data)
NOTE 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.
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. Since 1994, the Company has either acquired or
commenced businesses relating to collection activities, broker-dealer operations
and commercial finance lending. However, the revenues, operating profit and
assets of the collection business, broker-dealer business and finance company
are not material for separate disclosure. Mid Am's predominant business
continues to be banking. In 1997, the Financial Accounting Standards Board
issued Financial Accounting Standards No. 131 "Disclosures about Segments of an
Enterprise and Related Information" (SFAS 131). SFAS 131 establishes new
standards for the way public companies report information about their operating
segments in annual and interim financial statements. The Company will be
required to adopt SFAS 131 no later than December 31, 1998. SFAS 131 adopts a
"management approach" to determine operating segments and then imposes
quantitative criteria to determine which operating segments, if any, must be
reported. The Company is currently evaluating SFAS 131 and has not determined
what operating segments will be reported under the new standards' disclosure
rules which, on an annual basis, will include information regarding each
reportable operating segment's products and services, factors used to determine
reportable segments, and certain operating information such as interest revenue,
interest expense, and profit or loss of the operating segment.
A summary of the significant accounting policies follows.
Consolidation -- 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), Mid Am Credit Corp. (MACC), Mid Am Financial Services, Inc. (MAFSI),
Simplicity Mortgage Consultants, Inc. (Simplicity), Mid Am Private Trust, N.A.,
and Mid Am Information Services, Inc. (MAISI). All significant intercompany
transactions and accounts have been eliminated in consolidation.
Cash and Due from Banks -- The Company is required to maintain average
reserve balances with the Federal Reserve Bank. The average reserve balance
maintained at December 31, 1997 and 1996 approximated $24,151 and $27,125,
respectively.
Securities Available for Sale -- Securities classified as available for
sale are carried at market value. The unrealized appreciation or depreciation
from the securities' acquisition cost is recorded in a valuation account, net of
applicable income tax effect, in the shareholders' equity section of the
statement of condition. The amount of unrealized appreciation or depreciation
relating to a security which is available for sale is recognized in the income
statement upon sale of the security using the specific identification method to
determine the security's cost.
Derivative Financial Instruments -- The Company's hedging policies permit
the use of interest rate swaps, caps and floors to manage interest rate risk or
to hedge specified assets and liabilities. Derivative financial instruments are
not used for trading purposes. Through December 31, 1997, the Company has not
used any derivative financial instruments for hedging purposes, but may do so in
the future.
Pledged Securities -- The carrying value of securities pledged to secure
public and trust deposits, securities sold under agreements to repurchase and
for other purposes as required by law amounted to $259,643 and $268,543 at
December 31, 1997 and 1996, respectively.
S-32
NOTE 1. ACCOUNTING POLICIES -- CONTINUED
Mortgage Servicing Rights -- The cost of mortgage loans which the Company
originates or purchases under a definitive plan to sell or securitize is
allocated between the mortgage servicing rights and the cost of the mortgage
based on the relative fair values at date of origination or purchase. The fair
value of the mortgage servicing rights is determined by discounting expected
servicing income cash flows, net of certain servicing costs, by a rate which is
comparable to the then current interest-only strip rate. The cost of those
mortgage loans which are originated or purchased without a definitive plan to
sell or securitize is not allocated between mortgage servicing rights and the
cost of the mortgage until the date of sale or securitization.
Mortgage servicing rights assets are amortized in proportion to and over
the period of estimated net servicing income. Management periodically evaluates
mortgage servicing assets for impairment by discounting the expected future cash
flows, taking into consideration the estimated level of prepayments based upon
current industry expectations.
Loans --Interest income on loans is calculated using the simple-interest
method on the outstanding principal amounts. All non-refundable fees and costs
associated with the Company's lending activities are recognized over the life of
the related loan or lease as an adjustment of yield.
Residential mortgage loans and other loans and leases held for sale are
stated at the lower of the cost to originate or purchase the loan (net of
deferred loan fees and costs and amounts assigned to mortgage servicing rights),
or market. Market is determined on the basis of rates quoted in the respective
secondary market for the type of loan or lease held for sale. The Company
generally sells its residential mortgage loans and MACC originated loans and
leases at a premium or discount from the carrying amount of the loans or leases.
Such premium or discount is recognized at the date of sale.
Accrual of interest on loans is discontinued when principal or interest
remains due and unpaid for 90 days or more, unless the loan is well secured and
is in the process of collection. Income on such loans is then recognized only to
the extent that cash is received and when the future collection of principal is
probable. Interest accruals are resumed on such loans only when they are brought
fully current with respect to interest and principal and when, in the judgment
of management, the loans are estimated to be fully collectible as to both
principal and interest. Restructured loans are those loans on which concessions
in terms have been granted because of a borrower's financial difficulty.
Interest is generally accrued on such loans in accordance with their original
contractual rates.
Allowance for Credit Losses -- The allowance for credit losses is
established through a provision for credit losses charged to expense. Loans and
leases are charged against the allowance for credit losses when management
believes the full collectibility of the loan is unlikely. The allowance is an
amount that management believes will be adequate to absorb losses inherent in
existing loans and commitments to extend credit. The allowance and provision
take into consideration such factors as changes in the nature and volume of the
portfolio, overall portfolio quality, loan concentrations, specific problem
loans, leases and commitments, and current and anticipated economic conditions
that may affect the borrowers' ability to pay. Allowances established to provide
for losses under commitments to extend credit, or recourse provisions under loan
and lease sales agreements or servicing agreements are classified with other
liabilities.
Residential mortgage, installment and other consumer loans are collectively
evaluated for impairment. Individual commercial loans exceeding size thresholds
established by management are evaluated for impairment. Impaired loans are
recorded at the loan's fair value by the establishment of a specific allowance
where necessary. The fair value of collateral-dependent loans is determined by
the fair value of the underlying collateral. The fair value of noncollateral-
dependent loans is determined by discounting expected future interest and
principal payments at the loan's effective interest rate.
Other Real Estate Owned -- Real estate acquired by foreclosure is carried
in other assets at the lower of the recorded investment in the property or its
fair value. Prior to foreclosure, the value of the underlying loan is written
down to the fair value of the real estate to be acquired by a charge to the
allowance for credit losses, if necessary. At the time of foreclosure, an
allowance is established for estimated selling costs. Any subsequent writedowns
required by changes in estimated fair value or disposal expenses are provided
through this allowance and the provision is charged
S-33
NOTE 1. ACCOUNTING POLICIES -- CONTINUED
to operating expense. Carrying costs of such properties, net of related income,
and gains and losses on their disposition are charged or credited to operating
expense as incurred.
Bank Premises and Equipment -- Bank premises and equipment are stated at
cost, less accumulated depreciation which is computed using the straight-line
method.
Intangible Assets -- Goodwill is amortized using the straight-line method
over periods ranging from 15 to 25 years. Core deposit intangible assets
acquired before 1992 are amortized using the straight-line method over 10 years.
Core deposit intangible assets acquired on or after January 1, 1992 are
amortized using an accelerated method over 10 years. Goodwill and core deposit
intangible assets at December 31, 1997 and 1996 aggregated $18,007 and $18,671
respectively, and the accumulated amortization aggregated $9,093 and $7,893,
respectively.
Income Taxes -- The Company utilizes an asset and liability approach for
financial accounting and reporting of income taxes. The provision for income
taxes is based on pre-tax income which differs in some respects from taxable
income. Deferred income taxes/benefits are provided on cumulative differences
between pre-tax income for income tax and financial reporting purposes using the
current tax rate.
Trust Activities -- Income from trust fiduciary activities has been
recognized on the accrual basis. Assets held by the Company in fiduciary or
agency capacities (other than cash on deposit at the Company's bank
subsidiaries) for its customers are not included in the consolidated statement
of condition as such items are not assets of the Company.
Earnings per Share -- All earnings per share amounts reflect the
implementation of Statement of Financial Accounting Standards No. 128 "Earnings
per Share" (SFAS 128). SFAS 128 established new standards for computing and
presenting earnings per share and requires all prior period earnings per share
data be restated to conform with the provisions of the statement. Basic earnings
per share is computed by dividing net income available to common shareholders by
the weighted average number of shares outstanding during the period, as restated
for shares issued in business combinations accounted for as
poolings-of-interests and stock dividends. Diluted earnings per share is
computed using the weighted average number of shares determined for the basic
computation plus the number of shares of common stock that would be issued
assuming all contingently issuable shares having a dilutive effect on earnings
per share were outstanding for the period.
The weighted average number of common shares outstanding for basic and
diluted earnings per share computations were as follows:
- -----------------------------------------------------------------------------------------------------
Year ended December 31,
(Dollars in thousands, except per share data) 1997 1996 1995
- -----------------------------------------------------------------------------------------------------
Numerator:
Net income............................................. $ 30,881 $ 25,992 $ 24,967
Less: Preferred stock dividends........................ (605) (2,407) (2,751)
---------- ---------- ----------
Net income available to common shareholders
(Basic)........................................... 30,276 23,585 22,216
Effect of Dilutive Securities
Convertible preferred stock............................ 605 2,407 2,751
---------- ---------- ----------
Net income (Diluted)................................. $ 30,881 $ 25,992 $ 24,967
========== ========== ==========
Denominator:
Weighted average common shares outstanding (Basic)..... 23,836,000 22,734,000 23,070,000
Exercise of options.................................... 279,000 221,000 97,000
Convertible preferred stock............................ 1,112,000 3,599,000 4,074,000
---------- ---------- ----------
Weighted average common shares outstanding (Diluted)... 25,227,000 26,554,000 27,241,000
========== ========== ==========
Earnings Per Share
Basic.................................................. $ 1.27 $ 1.04 $ 0.96
========== ========== ==========
Diluted................................................ $ 1.22 $ 0.98 $ 0.92
========== ========== ==========
- -----------------------------------------------------------------------------------------------------
S-34
NOTE 1. ACCOUNTING POLICIES -- CONTINUED
Transfers of Financial Assets -- Effective January 1, 1997, the Company
adopted Financial Accounting Standards Board Statement of Financial Accounting
Standards No. 125 "Accounting for Transfers and Servicing of Financial Assets
and Extinguishments of Liabilities" (SFAS 125). SFAS 125 established new
accounting and reporting standards for transfers and servicing of financial
assets and extinguishment of liabilities. SFAS 125 focuses on the concept of
control. Under this approach, after a transfer of financial assets, the Company
recognizes the financial and servicing assets it controls and the liabilities it
has incurred, and derecognizes financial assets when control has been
surrendered, and derecognize liabilities when extinguished.
The Company transfers certain residential mortgage loans originated by its
bank subsidiaries and MAFSI and loans and leases originated by one of its
non-bank subsidiaries. The Company has accounted for these transfers as sales
under the provisions of SFAS 125; accordingly, the loans and leases transferred
have been derecognized. The Company had accounted for these transfers as sales
prior to the issuance of SFAS 125; therefore, the impact of adopting SFAS 125
was not material to the results of operations for the year ended December 31,
1997.
Treasury Stock -- Shares of the Company's stock are acquired for purposes
of issuance in connection with stock option plans and for future stock dividend
declarations. The treasury shares acquired are recorded at cost.
Stock-Based Compensation -- The Company accounts for stock-based
compensation arrangements under the intrinsic value method. Pro forma
disclosures of compensation cost of stock-based awards have been determined
using the fair value method which considers the time value of the option
considering the volatility of the Company's stock and the risk-free interest
rate over the expected life of the option using a Black-Scholes valuation model.
Statement of Cash Flows -- The Company considers cash on hand, deposits
maintained with the Federal Reserve Bank and cash due from other banks, all of
which are included in the caption Cash and Due from Banks, as cash for purposes
of the Statement of Cash Flows.
Comprehensive Income -- In June 1997, the Financial Accounting Standards
Board issued Statement of Financial Accounting Standards No. 130 "Reporting
Comprehensive Income," which establishes standards for reporting of
comprehensive income and its components. This Statement will be effective for
the Company for the year ending December 31, 1998. This Statement requires that
entities classify items of other comprehensive income by their nature in a
financial statement and display the accumulated balance of other comprehensive
income separately from retained earnings and surplus in the equity section of a
statement of financial condition. Comprehensive income is composed of net income
and "other comprehensive income." Other comprehensive income includes charges or
credits to equity that are not the result of transactions with the entities'
shareholders. Currently, the only item of other comprehensive income from the
activities of the Company relate to the unrealized gains and losses of the
Company's portfolio of available for sale securities. The Company anticipates
reporting comprehensive income in the Statement of Changes in Shareholders'
Equity. Upon adoption, the financial statements of earlier periods will be
restated for comparative purposes.
NOTE 2. MERGERS, ACQUISITIONS, AND DIVESTITURES
On February 17, 1997, the Company sold seven of its branches in the
metropolitan Cincinnati area to Star Banc Corporation. The branch sale included
the transfer of $95,000 of deposits. The branch sales resulted in a pre-tax gain
of $8,703 (after-tax $5,657).
During 1996, the Company completed its acquisitions of Simplicity Mortgage
Consultants, Inc., an Indiana-based mortgage brokerage company with annual
revenues of approximately $900, and National Recovery Systems, Professional
Adjustment of Ft. Myers, and Gulf Coast Collection Bureau, Inc., Florida-based
collection agencies with annual revenues of approximately $1,000. The aggregate
purchase price of the four transactions was $1,500 and included $551 cash and
the issuance of 55,380 shares of Mid Am, Inc. common stock. The results of
operations include the results of the acquired entities from the date of their
respective acquisition. These transactions were accounted for as purchases.
S-35
NOTE 2. MERGERS, ACQUISITIONS, AND DIVESTITURES -- CONTINUED
On December 12, 1996, the Company completed the sale of substantially all
of its credit card business to a national credit card issuer. The Company
received $24,400 cash in connection with this sale and recognized a pre-tax gain
of $4,658 (after-tax $2,969).
NOTE 3. SECURITIES AVAILABLE FOR SALE
The aggregate cost and carrying value at market of securities available for
sale at December 31, 1997 and 1996 are as follows:
- -----------------------------------------------------------------------------------------------------------
Gross Gross Carrying
1997 Unrealized Unrealized Value at
(Dollars in thousands) Cost Gains Losses Market
- -----------------------------------------------------------------------------------------------------------
U.S. Treasury securities................... $ 63,887 $ 504 $ (136) $ 64,255
Securities of other U.S. Government
agencies and corporations................ 55,755 186 (201) 55,740
Obligations of states and political
subdivisions............................. 41,552 1,008 (51) 42,509
Equity securities.......................... 35,878 1,043 (1) 36,920
Mortgage-backed securities................. 185,523 1,696 (682) 186,537
-------- ------ ------- --------
Total.................................... $382,595 $4,437 $(1,071) $385,961
======== ====== ======= ========
- -----------------------------------------------------------------------------------------------------------
- -----------------------------------------------------------------------------------------------------------
Gross Gross Carrying
1996 Unrealized Unrealized Value at
(Dollars in thousands) Cost Gains Losses Market
- -----------------------------------------------------------------------------------------------------------
U.S. Treasury securities................... $ 56,758 $ 192 $ (359) $ 56,591
Securities of other U.S. Government
agencies and corporations................ 47,291 65 (591) 46,765
Obligations of states and political
subdivisions............................. 44,445 1,310 (115) 45,640
Equity securities.......................... 34,369 357 (385) 34,341
Mortgage-backed securities................. 251,486 1,265 (3,297) 249,454
-------- ------ ------- --------
Total.................................... $434,349 $3,189 $(4,747) $432,791
======== ====== ======= ========
- -----------------------------------------------------------------------------------------------------------
Following the issuance of the Financial Accounting Standards Board's Guide
to Implementation of Statement 115 on Accounting for Certain Investments in Debt
and Equity Securities in November 1995, management assessed the held-to-maturity
portfolio. As a result, investment and mortgage-backed securities with an
amortized cost of $66,096 and $162,477, respectively, were transferred from
held-to-maturity to securities available-for-sale in November 1995. The net
unrealized gain (loss) of the investment and mortgage-backed securities
transferred was $1,120 and ($1,553), respectively.
S-36
NOTE 3. SECURITIES AVAILABLE FOR SALE -- CONTINUED
The carrying value and market value of securities available for sale at
December 31, 1997, by contractual maturity, are shown below. Expected maturities
will differ from contractual maturities because issuers may have the right to
call or prepay obligations with or without call or prepayment penalties.
- ------------------------------------------------------------------------------------------------
Carrying Value
(Dollars in thousands) Cost at Market
- ------------------------------------------------------------------------------------------------
Due in one year or less..................................... $ 26,687 $ 26,670
Due after one year through five years....................... 103,967 104,903
Due after five years through ten years...................... 23,681 24,001
Due after ten years......................................... 42,737 43,850
-------- --------
197,072 199,424
Mortgage-backed securities.................................. 185,523 186,537
-------- --------
$382,595 $385,961
======== ========
- ------------------------------------------------------------------------------------------------
Proceeds from sales of securities available for sale were $85,564, $47,503
and $27,771 for 1997, 1996 and 1995, respectively.
Gains of $872, $1,795 and $429 and losses of $1,004, $221 and $79 were
realized on sales of available for sale securities in 1997, 1996 and 1995,
respectively.
NOTE 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES
Loans outstanding are as follows:
- --------------------------------------------------------------------------------------------------
December 31,
(Dollars in thousands) 1997 1996
- --------------------------------------------------------------------------------------------------
Real estate loans
Construction.............................................. $ 78,738 $ 72,416
Residential mortgage...................................... 494,444 524,704
Non-residential mortgage.................................. 461,885 418,781
Commercial, financial and agricultural loans................ 385,629 379,268
Installment and credit card loans........................... 193,295 175,742
Other loans................................................. 7,182 5,384
---------- ----------
Total..................................................... 1,621,173 1,576,295
Less:
Unearned income........................................... (9) (14)
Unamortized loan fees..................................... (1,269) (1,401)
Allowance for credit losses............................... (17,625) (15,672)
---------- ----------
Total net.............................................. $1,602,270 $1,559,208
========== ==========
- --------------------------------------------------------------------------------------------------
Most of the Company's business activity is with customers located within
the respective local business areas of its banks which encompasses Western Ohio
and Southeastern Michigan. The Company's loan portfolio is well diversified,
consisting of commercial, residential, agri-business, consumer and small
business loans. There are no significant concentrations in any one industry and
the amounts related to highly leveraged transactions are not significant. The
Company evaluates each customer's creditworthiness on a case-by-case basis. The
amount of collateral obtained is based on management's evaluation of the
customer. Collateral held relating to commercial, financial, agricultural and
commercial mortgages varies but may include accounts receivable, inventory,
property, plant and equipment and income-producing commercial properties.
S-37
NOTE 4. LOANS AND ALLOWANCE FOR CREDIT LOSSES -- CONTINUED
Changes in the allowance for credit losses are as follows:
- -------------------------------------------------------------------------------------------------------
Year ended December 31,
(Dollars in thousands) 1997 1996 1995
- -------------------------------------------------------------------------------------------------------
Balance at beginning of period........................... $15,672 $14,859 $14,722
Additions (reductions):
Provision for credit losses............................ 5,527 4,537 3,002
Charge-offs............................................ (4,901) (5,498) (4,379)
Recoveries on loans charged off........................ 1,327 1,774 1,478
Other.................................................. 36
------- ------- -------
Balance at end of period................................. $17,625 $15,672 $14,859
======= ======= =======
- -------------------------------------------------------------------------------------------------------
Information relating to loans determined to be impaired at December 31,
1997 and 1996 is as follows:
- --------------------------------------------------------------------------------------
As of and for year ended December 31,
(Dollars in thousands) 1997 1996
- --------------------------------------------------------------------------------------
Investment in impaired loans................................ $1,442 $7,241
Amount of impaired loans with specific allowance............ 1,442 5,915
Amount of impaired loans with no specific allowance......... 1,326
Average investment in impaired loans........................ 2,852 8,447
Cash basis interest income recognized on impaired loans..... 23 532
- --------------------------------------------------------------------------------------
Other non-performing assets at December 31, 1997 and 1996 include other
real estate owned of $363, and $1,143, respectively, which have been recorded at
estimated fair value less estimated selling costs.
In the normal course of business, the Company has made loans to certain
directors, executive officers and their associates under terms consistent with
the Company's general lending policies. Loan activity relating to these
individuals for 1997 and 1996 is as follows:
- -------------------------------------------------------------------------------------------------------------------
Balances at New Balances
Beginning Originations/ Loan at End
(Dollars in thousands) of Period Advances Repayments Other of Period
- -------------------------------------------------------------------------------------------------------------------
Year ended December 31,
1997....................... $21,767 $21,654 $16,300 $(1,995) $25,126
======= ======= ======= ======= =======
Year ended December 31,
1996....................... $19,375 $23,193 $17,055 $(3,746) $21,767
======= ======= ======= ======= =======
- -------------------------------------------------------------------------------------------------------------------
S-38
NOTE 5. BANK PREMISES AND EQUIPMENT
Bank premises and equipment consist of the following:
- ----------------------------------------------------------------------------------------------
December 31,
(Dollars in thousands) 1997 1996
- ----------------------------------------------------------------------------------------------
Land and land improvements.................................. $ 9,756 $ 8,906
Buildings................................................... 45,502 43,247
Furniture and fixtures...................................... 45,842 37,646
Leasehold improvements...................................... 1,283 1,024
Construction-in-progress.................................... 646 2,737
-------- --------
103,029 93,560
Less:
Accumulated depreciation and amortization................. (49,126) (43,449)
-------- --------
$ 53,903 $ 50,111
======== ========
- ----------------------------------------------------------------------------------------------
Included in the above are buildings, land and land improvements which
secure a capitalized lease with a cost of $5,386, less accumulated amortization
and depreciation of $3,549 and $3,288 at December 31, 1997 and 1996,
respectively. Substantially all of the property recorded under capital leases
relates to transactions with Bancsites, Inc., a former subsidiary, which the
Company continues to significantly influence through common shareholders and
management. The capital lease premises represent thirteen branch bank facilities
owned by Bancsites and leased to the Company under long-term lease agreements
entered into in the normal course of business and under terms no more favorable
than those prevailing in the marketplace. Lease payments to Bancsites, Inc.
under capital leases amounted to $496 in 1997, $537 in 1996, and $551 in 1995.
Rental payments for land are treated as operating lease expense. Rent expense
amounted to $1,427 in 1997, $1,516 in 1996, and $1,365 in 1995.
NOTE 6. DEPOSITS
Included in other time deposits are certificates of deposit of $100 or more
totalling $226,007 and $213,496 at December 31, 1997 and 1996, respectively.
Included in savings deposits are negotiable orders of withdrawal (NOW) accounts
totalling approximately $145,792 and $222,822 at December 31, 1997 and 1996,
respectively. The Company paid $81,322, $81,347 and $77,786 in interest on
deposits and other borrowings in 1997, 1996 and 1995, respectively.
NOTE 7. DEBT AND FHLB ADVANCES
The Company's debt and FHLB advances are composed of the following:
- -----------------------------------------------------------------------------------------
December 31,
(Dollars in thousands) 1997 1996
- -----------------------------------------------------------------------------------------
Short-term borrowings under bank line of credit............. $ 15,000
Borrowing under FHLB lines of credit at weighted interest
rates of 6.05% and 6.35%, respectively.................... 77,590 $39,403
Capital lease obligations................................... 2,481 2,814
Mid Am, Inc obligated mandatorily redeemable capital
securities of subsidiary trust, interest at 10.20%, due
June, 2027................................................ 27,500
Other items................................................. 33 30
-------- -------
$122,604 $42,247
======== =======
- -----------------------------------------------------------------------------------------
On December 31, 1996, the Company entered into an agreement with a
financial institution which enabled the Company to borrow up to $20,000 through
December 31, 1997. The agreement was renewed in December, 1997
S-39
NOTE 7. DEBT AND FHLB ADVANCES -- CONTINUED
and permits the Company to borrow up to $25,000 through December 31, 1998.
Interest on advances taken on the facility is accrued at either the financial
institution's prime rate, a formula based on the London Interbank Offering Rate,
or a formula based on the Federal Funds Rate. The Company may elect the interest
rate method to be applied to amounts outstanding in $100 increments. The
agreement provides for an annual fee of .1875% on the average unused portion of
the credit facility. The agreement also contains covenants which require the
Company, among other things, to maintain minimum tangible net worth, as defined,
of $165,000, maintain specified minimum capital ratios, and not permit
non-performing assets to total loans and non-performing assets to total capital
ratios to exceed specified maximums. The weighted average amount outstanding
under the agreement during 1997 was $9,444 and the average 1997 interest cost
was 6.40%.
All of the Company's banking subsidiaries are members of the Federal Home
Loan Bank (FHLB) and have lines of credit with the FHLB which enables the
Company, through its bank subsidiaries, to borrow up to $144,465 at December 31,
1997. Borrowings under the FHLB lines of credit are secured by FHLB stock
totalling $12,200 and $11,153 at December 31, 1997 and 1996, respectively, and
by residential mortgages totalling 150% of outstanding borrowings. The
contractual maturities of the FHLB outstanding borrowings for the five years
subsequent to December 31, 1997 are: 1998, $46,265; 1999, $8,770; 2000, $7,302;
2001, $5,416; 2002, $959; and $8,878 after 2002.
During 1997, the Company, in a private placement, issued $27,500 of 10.20%
capital securities through a wholly-owned special purpose subsidiary. The
Company's obligated mandatorily redeemable capital securities may be redeemed by
the Company prior to their mandatory June 1, 2027 redemption date commencing
June 1, 2007 at a redemption price of 105.10% of the face value the capital
securities and thereafter at a premium which declines annually. On or after June
1, 2017, the capital securities may be redeemed at face value. The Company's
mandatorily redeemable capital securities are considered to be Tier I capital.
On January 16, 1998, the Company issued $50,000 of 7.08% subordinated debt
in a private placement transaction. The subordinated debt matures in 2008. For
regulatory capital purposes, the subordinated debt will be considered Tier II
capital.
S-40
NOTE 8. FAIR VALUE OF FINANCIAL INSTRUMENTS
The following presents the estimated fair value of the Company's financial
instruments at December 31, 1997 and 1996:
- --------------------------------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------------------------
Carrying Fair Carrying Fair
(Dollars in thousands) Amount Value Amount Value
- --------------------------------------------------------------------------------------------------------
Assets
Cash and due from banks,
interest-bearing deposits and
federal funds sold............. $ 100,356 $ 100,356 $ 91,764 $ 91,764
Securities available for sale..... 385,961 385,961 432,791 432,791
Loans held for sale and loans..... 1,631,271 1,582,807
Less: allowance for credit
losses......................... (17,625) (15,672)
---------- ----------
Loans held for sale and loans,
net.......................... 1,613,646 1,585,753 1,567,135 1,528,930
Liabilities
Deposits.......................... 1,760,312 1,763,450 1,832,909 1,837,381
Federal funds purchased and
securities sold under
agreements to repurchase....... 103,174 103,174 92,805 92,805
Debt and FHLB advances............ 122,604 128,661 39,433 38,891
Off-balance-sheet commitments:
Commitments to extend credit
($478,033 and $418,330 at
December 31, 1997 and 1996,
respectively).................. 476,550 416,953
- --------------------------------------------------------------------------------------------------------
Basis of Fair Value Determination:
The table above has presented fair value disclosures in accordance with
SFAS 107 "Disclosure about Fair Value of Financial Instruments" whether or not
the financial instruments are recognized in the balance sheet. In cases where
quoted market prices are not available, fair values are based on estimates using
present value or other valuation techniques. These techniques are materially
affected by the assumptions used (estimates of future cash flows and discount
rates, among others). Because of the judgment and subjective considerations
required in determining appropriate and reasonable assumptions, the derived fair
value estimates cannot be substantiated by comparison to independent markets.
Further, the amounts which could be realized in immediate settlement of the
instrument could vary significantly from the fair value estimate depending upon
bulk versus individual settlements or sales as well as other factors. SFAS 107
excludes certain financial instruments and all nonfinancial instruments from its
disclosure requirements. Accordingly, the aggregate net fair value amounts
presented do not represent the underlying value of the Company.
Cash and due from banks, interest-bearing deposits in other banks and
federal funds sold -- Due to the frequency of repricing of these items, the fair
value is assumed to equal the carrying amount.
Securities available for sale, investment securities and mortgage-backed
investment securities -- The fair value of securities is based on quoted market
prices or dealer quotes. For purposes of determining the fair market value of
Federal Reserve Bank and Federal Home Loan Bank stock, for which quoted market
prices are not available, the carrying amount of the stock has been considered
the fair value.
Loans held for sale and loans -- For certain categories of loans (including
loans held for sale), such as residential mortgages and certain guaranteed
loans, fair value is estimated using the quoted market prices for securities
backed by similar loans, adjusted for differences in loan characteristics. The
fair value of commercial and other types of loans is estimated by discounting
the expected future cash flows based on current rates being offered, the credit
risk involved and the time to maturity. Due to the frequency of repricing of
credit card receivables, the fair value is assumed to equal the carrying amount.
S-41
NOTE 8. FAIR VALUE OF FINANCIAL INSTRUMENTS -- CONTINUED
Deposits -- The fair value of demand deposits, savings accounts and NOW
accounts is assumed to be the carrying amount. The fair value of certificate of
deposit accounts is estimated using the rates currently offered for deposits of
similar remaining maturities.
Federal funds purchased and securities sold under agreements to repurchase
- -- Due to the frequency of repricing of these items, the fair market value is
assumed to equal the carrying amount.
Debt and capitalized lease obligations -- The fair value of debt is
estimated based on the rates currently available to the Company for debt with
similar terms and maturities. The capital lease obligations are not included in
the fair value disclosures.
Commitments to extend credit -- For commitments to extend credit, the fair
value is estimated based on the discounted future cash flows based on current
market interest rates, assuming that the entire commitment will be drawn upon.
NOTE 9. FEDERAL INCOME TAXES
The provision for income taxes consisted of the following:
- ---------------------------------------------------------------------------------------------------
Year ended December 31,
(Dollars in thousands) 1997 1996 1995
- ---------------------------------------------------------------------------------------------------
Current:
Federal................................................ $17,448 $13,488 $ 9,587
State and local........................................ 220
------- ------- -------
17,668 13,488 9,587
------- ------- -------
Deferred:
Federal................................................ (1,960) (1,021) 2,210
State and local........................................ (73)
------- ------- -------
(2,033) (1,021) 2,210
------- ------- -------
Total applicable income taxes............................ $15,635 $12,467 $11,797
======= ======= =======
- -------------------------------------------------------------------------------------------------------
S-42
NOTE 9. FEDERAL INCOME TAXES -- CONTINUED
The deferred tax assets/liabilities consist of the following at December
31, 1997 and 1996:
- ------------------------------------------------------------------------------------------
December 31,
(Dollars in thousands) 1997 1996
- ------------------------------------------------------------------------------------------
Gross deferred tax assets:
Loan loss reserve......................................... $3,385 $2,753
Unrealized losses on securities available for sale........ 576
Deferred compensation..................................... 1,130 1,007
Deferred loan fees........................................ 417 463
Other reserves............................................ 1,278 321
Other..................................................... 431 427
------ ------
6,641 5,547
------ ------
Gross deferred tax liabilities:
Bank premises and equipment............................... 1,530 1,882
Federal Home Loan Bank dividends.......................... 1,613 1,312
Mortgage servicing rights................................. 1,772 1,270
Unrealized gains on securities available for sale......... 1,174
Prepaid deposit interest.................................. 337
Prepaid expenses.......................................... 443
Loan and deposit purchase accounting adjustments -- net... 161 227
Other..................................................... 334 306
------ ------
6,584 5,777
------ ------
Net deferred tax asset (liability) at end of year........... $ 57 $ (230)
====== ======
- ------------------------------------------------------------------------------------------
At December 31, 1997 and 1996 there were no valuation reserves recorded
against the deferred tax assets as realization of the entire deferred tax asset
was considered more likely than not.
The following schedule reconciles the statutory federal income tax rate to
the Company's effective tax rate.
- -------------------------------------------------------------------------------------------------
Year ended December 31, 1997 1996 1995
- -------------------------------------------------------------------------------------------------
Statutory federal income tax rate........................... 35.0% 35.0% 35.0%
Effect of interest income which is not subject to
taxation.................................................. (1.9) (2.8) (3.5)
Other items, net............................................ 0.5 0.2 0.6
---- ---- ----
Effective Income Tax Rate................................... 33.6% 32.4% 32.1%
==== ==== ====
- -------------------------------------------------------------------------------------------------
S-43
NOTE 10. OTHER NON-INTEREST INCOME AND OTHER NON-INTEREST EXPENSE
Other non-interest income and other non-interest expense consist of the
following:
- ----------------------------------------------------------------------------------------------------
Year ended December 31,
(Dollars in thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------
Other non-interest income:
Gain from sale of credit card accounts................... $ 4,568
Gain from sale of deposits and branch offices............ $ 8,703
Credit card and merchant fees............................ 2,039 1,961 $1,696
International department fees............................ 971 1,009 762
Banclub fees............................................. 371 993 904
ATM card fees............................................ 1,837 877 504
Credit life insurance.................................... 648 470 551
Net gains on sales of other loans........................ 953 375 352
Other.................................................... 2,890 2,431 2,175
------- ------- ------
$18,412 $12,684 $6,944
======= ======= ======
- ----------------------------------------------------------------------------------------------------
- ----------------------------------------------------------------------------------------------------
Year ended December 31,
(Dollars in thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------------------------
Other non-interest expense:
Brokerage commissions................................... $ 3,597 $ 5,604 $ 6,608
FDIC expense............................................ 443 4,667 2,754
Marketing............................................... 3,359 2,301 2,247
Franchise taxes......................................... 2,569 2,501 2,473
Telephone............................................... 2,744 2,157 1,884
Printing and supplies................................... 2,219 2,229 1,868
Legal and other professional fees....................... 3,900 2,237 1,915
Credit card and merchant processing costs............... 2,330 1,761 1,431
Amortization of intangible assets....................... 1,863 1,579 1,600
Postage................................................. 1,669 1,626 1,442
Other................................................... 10,204 8,984 7,022
------- ------- -------
$34,897 $35,646 $31,244
======= ======= =======
- ----------------------------------------------------------------------------------------------------
The FDIC expense for the year ended December 31, 1996 includes $3,563 of a
special Savings Association Insurance Fund (SAIF) assessment on deposits of the
Company's subsidiaries which were acquired from thrifts.
NOTE 11. RETIREMENT PLANS
The Company and its subsidiaries provide retirement benefits for
substantially all of their employees under several retirement plans. The Company
does not provide post-retirement benefits other than through its retirement
plans and does not provide post-employment benefits.
The Company has an Employee Stock Ownership and Savings Plan for the
benefit of all eligible employees. Employees may contribute to the plan upon
employment; Company matching provisions commence after the employees have
completed twelve months of service with the Company. The plan provides for
annual contributions by the Company based upon income (as defined by the plan)
after providing for a specified return on shareholders' equity, and under the
401(k) portion of the Plan employees may contribute a percentage of their
eligible compensation with a company-match of such contributions up to a maximum
match of three percent. The Company also sponsors an Employee Stock Ownership
Pension Plan which provides for an annual contribution by the Company equal to
six percent of eligible employees' annual compensation.
The Company has a supplemental employee retirement plan. This plan replaces
retirement benefits eliminated under the Company's qualified retirement plans
because of eligible compensation limitations under current tax law.
S-44
NOTE 11. RETIREMENT PLANS -- CONTINUED
The Company contributes authorized shares of its common stock to a trust
established to hold the shares on behalf of participating employees. The
Company's contribution under the plan is determined by multiplying the excess of
employees' compensation over the established limitation by the contribution
level established by the Board of Directors for the Company's qualified plans
(12%, 12% and 9% in 1997, 1996 and 1995, respectively). At December 31, 1997,
the liability recorded for the participants in the plan was $290. The funding of
shares occurs in January of the succeeding year.
Expenses relating to these plans amounted to $3,593, $2,762 and $2,017 in
1997, 1996 and 1995, respectively.
NOTE 12. STOCK OPTIONS
In 1992, the Board of Directors of the Company approved the Mid Am, Inc.
1992 Stock Option Plan, and in 1997, the Board of Directors approved the Mid Am,
Inc. 1997 Stock Option Plan (collectively, the "Plans") which cover certain key
employees and all Directors of the Company and its subsidiary companies. In
1994, the 1992 Plan was amended to include additional employees and to allow
certain individuals, including Directors, the ability to elect to receive
options, determined under a formula, in lieu of a portion of their salary or
director fees, as applicable. Under the Plans, the maximum number of option
shares which can be granted is limited to 12% of the Company's issued and
outstanding common shares. Options granted under the plan expire 10 years after
the date of grant and are issued at an option price that is not less than the
market price of the Company's stock on the date of grant. Options granted to
Directors are immediately exercisable. Options granted to officers and other key
employees are exercisable in annual 20% increments, except for options received
in lieu of salary, which are immediately exercisable.
Compensation cost determined using the fair value method consistent with
the methodology prescribed by SFAS 123 for the Company's stock option plan would
have the following pro forma effect on net income and earnings per share (in
thousands, except per share amounts):
- -------------------------------------------------------------------------------
(Dollars in thousands, except per share data) 1997 1996
- -------------------------------------------------------------------------------
Net income, as reported..................................... $30,881 $25,992
Net income, pro forma....................................... 30,550 25,810
Earnings per share, as reported............................. 1.27 1.04
Earnings per share, pro forma............................... 1.26 1.03
Fully diluted earnings per share, as reported............... 1.22 0.98
Fully diluted earnings per share, pro forma................. 1.21 0.97
- -------------------------------------------------------------------------------
The fair value of the options granted in 1997 and 1996 was estimated at
$1,263 and $370 on the date of grant. The weighted average assumptions utilized
to determine the estimated fair value were:
- --------------------------------------------------------------------------------------
1997 1996
- --------------------------------------------------------------------------------------
Dividend yield.............................................. 3.00% 4.00%
Volatility.................................................. 0.18 0.24
Risk-free interest rate..................................... 6.15 6.05
Expected life............................................... 6.72 6.34
- --------------------------------------------------------------------------------------
S-45
NOTE 12. STOCK OPTIONS -- CONTINUED
The following table presents a summary of activity with respect to the
Company's stock option plan for the years ended December 31, 1997, 1996 and
1995:
- ----------------------------------------------------------------------------------------------------
Weighted Average
Shares Exercise Price
Under Plan of Shares
- ----------------------------------------------------------------------------------------------------
Balance at December 31, 1994................................ 980,658 $10.25
Granted................................................... 470,701 10.29
Exercised................................................. (98,971) 8.00
Forfeited................................................. (17,795) 11.77
---------
Balance at December 31, 1995................................ 1,334,593 11.13
Granted................................................... 164,826 16.24
Exercised................................................. (43,469) 9.48
Forfeited................................................. (12,995) 13.35
---------
Balance at December 31, 1996................................ 1,442,955 11.76
Granted................................................... 479,488 18.95
Exercised................................................. (53,508) 11.00
Forfeited................................................. (18,647) 13.46
---------
Balance at December 31, 1997................................ 1,850,288 13.63
=========
- ----------------------------------------------------------------------------------------------------
Shares exercisable at December 31, 1997, 1996 and 1995 were 1,250, 1,163,
and 1,106, respectively. Shares authorized under the Plans at December 31, 1997,
1996 and 1995 were 2,935, 1,608 and 1,651, respectively.
The following table summarizes information concerning outstanding and
exercisable options:
- -------------------------------------------------------------------------------------------------------------------
Weighted Average
Number Remaining Weighted Average Number Weighted Average
Range of Exercise Prices Outstanding Contractual Life Exercise Price Exercisable Exercise Price
- -------------------------------------------------------------------------------------------------------------------
$ 4 - $ 8................ 8,632 70 months $ 5.95 8,633 $ 5.95
8 - 12................ 877,458 78 months 10.36 835,639 10.38
12 - 15................ 330,830 95 months 13.55 264,666 13.55
15 - 20................ 328,410 108 months 15.79 87,893 16.14
20 - 25................ 304,958 119 months 21.00 52,958 21.00
--------- ---------
1,850,288 1,249,789
========= =========
- -------------------------------------------------------------------------------------------------------------------
NOTE 13. COMMITMENTS AND CONTINGENCIES
The Company's brokerage subsidiary was 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 sought recovery of losses of
approximately $2,700 plus punitive damages, attorneys' fees and costs of
litigation. On August 26, 1997, the National Association of Securities Dealers
Office of Dispute Resolution denied with prejudice all claims and allegations
against the subsidiary in their entirety.
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.
S-46
NOTE 14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK
The Company is a party to financial instruments with off-balance-sheet risk
in the normal course of business to meet the financing needs of its customers
located primarily within the local business area. These instruments include
commitments to extend credit, standby letters of credit and international
commercial letters of credit. In addition, MACC retains a portion of the credit
risk on loans and leases it sells in the secondary market.
The Company's exposure to credit loss in the event of non-performance by
the other party to the financial instrument for commitments to extend credit,
standby letters of credit and letters of credit is represented by the
contractual amount of those instruments. The Company uses the same credit
policies in making commitments and conditional obligations as it does for
on-balance-sheet instruments.
Financial instruments whose contract amounts represent credit risk are
presented below:
- ------------------------------------------------------------------------------------------
December 31,
(Dollars in thousands) 1997 1996
- ------------------------------------------------------------------------------------------
Commitments to extend credit................................ $478,033 $418,330
Standby letters of credit................................... 47,171 42,916
Letters of credit........................................... 1,459 5,026
- ------------------------------------------------------------------------------------------
Commitments to extend credit are agreements to lend to a customer as long
as there is no violation of any condition established in the contract.
Commitments generally have fixed expiration dates ranging from one to five
years, variable interest rates tied to the prime rate and Treasury bill rates
and may require payment of a fee. Since many of the commitments are expected to
expire without being drawn upon, the total commitment amounts do not necessarily
represent future cash requirements.
Standby letters of credit are conditional commitments issued by the Company
to guarantee the performance of a customer to a third party. Those guarantees
are primarily issued to support public and private borrowing arrangements,
including bond financing and similar transactions. The expiration date of
substantially all standby letters of credit extend for a period ranging from
thirty days to seven years. The credit risk involved in issuing letters of
credit is essentially the same as that involved in extending loan facilities to
customers. The Company holds marketable securities, certificates of deposits,
real estate, inventory and equipment as collateral supporting those commitments
for which collateral is deemed necessary.
Letters of credit are instruments used to facilitate trade, most commonly
international trade, by substituting the Company's credit for that of a
commercial importing company. The terms are generally one to three months. The
letters of credit are primarily unsecured.
Most of the Company's business activity is with customers located within
the respective local business areas of its banks which encompasses Western Ohio
and Southeastern Michigan. However, MACC retains a portion of the credit risk of
loans and leases it sells through stipulated recourse provisions. MACC's loan
and lease activities are with customers in medical and dental related fields
located within the continental United States. Substantially all loans and leases
originated by MACC are sold in the secondary market. In connection with sales of
the loans and leases, MACC retains limited servicing and limited recourse
liability. The servicing is limited to responsibility to collect delinquent
accounts based on information provided by the purchaser of the loans and leases.
A liability is established at the time each loan or lease is sold based on the
fair value of the servicing liability. In addition, MACC records a liability for
the estimated recourse for credit losses which is limited to an aggregate of 10%
of the purchase price of the loans and leases sold. The fair value of the
servicing liability and the estimated recourse liability reduce the amount of
gain or increase the loss of the loans and leases sold. At December 31, 1997,
the outstanding balance of loans and leases sold was $176,242. A portion of the
purchase price is deferred and paid to MACC on a delayed basis. At December 31,
S-47
NOTE 14. FINANCIAL INSTRUMENTS WITH OFF-BALANCE-SHEET RISK -- CONTINUED
1997 and 1996, MACC recorded receivables of $4,339 and $825, respectively, for
deferred sales proceeds. Changes in the liability for recourse provisions
relating to sold loans and leases is as follows:
- ------------------------------------------------------------------------------
Year ended December 31,
(Dollars in thousands) 1997 1996
- ------------------------------------------------------------------------------
Balance at beginning of period.............................. $ 618
Additions (reductions):
Provision for recourse liability.......................... 2,924 $618
Recourse claims paid...................................... (696)
Recoveries of claims paid................................. 204
------ ----
Balance at end of period.................................... $3,050 $618
====== ====
- ------------------------------------------------------------------------------
NOTE 15. MORTGAGE BANKING ACTIVITIES
The Company conducts mortgage banking operations through its banking
subsidiaries. The primary activity relates to the origination and sale of fixed
and variable rate residential mortgages in the secondary market. The Company
usually retains the servicing of the loans it sells. Loans are primarily
originated in the Western Ohio and Southeastern Michigan market areas; however,
the Company also has employees and agents in Kentucky, Indiana, and Colorado who
also originate loans for sale in the secondary market.
The following table summarizes information relating to the Company's
mortgage banking activity as of December 31, 1997 and 1996:
- ----------------------------------------------------------------------------------------
December 31,
(Dollars in thousands) 1997 1996
- ----------------------------------------------------------------------------------------
Amounts held in agency accounts............................. $ 11,248 $ 7,241
Amounts held in escrow accounts............................. 7,162 7,170
Mortgage banking receivables for advanced funds............. 488 497
Unpaid mortgage loan principal for loans serviced for
investors................................................. 1,533,404 1,447,428
Unpaid mortgage loan principal for loans serviced for
affiliated investors...................................... 1,876 2,747
Mortgage servicing rights, net of accumulated
amortization.............................................. 5,404 3,704
Allowance for impairment of capitalized mortgage servicing
rights.................................................... 341 76
- ----------------------------------------------------------------------------------------
In 1997, 1996 and 1995, the Company sold certain servicing rights on
mortgages which had an outstanding principal balance of $96,691, $41,038 and
$31,471, respectively, and realized gains of $446, $351 and $245, respectively.
At December 31, 1997 the Company had firm commitments for the sale of
approximately $13,841 of loans held for sale. No provision for loss on the
carrying amount on loans held for sale is considered necessary at December 31,
1997.
NOTE 16. REGULATORY MATTERS
Capital Maintenance Requirements
The Company and its bank subsidiaries must observe capital guidelines
established by Federal and state regulatory authorities. Failure to meet
specified minimum capital requirements can result in certain mandatory actions
by the Company's and banks' primary regulators that could have a material effect
on the Company's financial condition or results of operations. Under capital
adequacy guidelines, the Company and its bank subsidiaries must meet specific
quantitative measures of their assets, liabilities and certain off balance sheet
items as determined under regulatory accounting practices. The Company's and
banks' capital amounts and classification are also subject to qualitative
judgments by the regulators about components, risk weightings and other factors.
Management believes, as of December 31, 1997, that the Company and its banks
meet all capital adequacy requirements to which they are subject.
As of December 31, 1997, the Company and its banks have been notified by
their respective regulators that, based on the most recent regulatory
examinations, each is regarded as well-capitalized under the regulatory
framework
S-48
NOTE 16. REGULATORY MATTERS -- CONTINUED
for prompt corrective action. Such determinations have been made evaluating the
Company and its banks under Tier I, total capital, and leverage ratios. There
are no conditions or events since these notifications that management believes
have changed any of the Company's or banks' well-capitalized categorizations.
The Company's and its significant banks' capital ratios are presented in
the following table:
- ------------------------------------------------------------------------------------------------------------
Under Prompt Corrective Action Provisions
------------------------------------------------
Actual Well Capitalized Adequately Capitalized
-----------------------------------------------------------------------
Minimum Minimum Minimum Minimum
Amount Ratio Amount Ratio Amount Ratio
- ------------------------------------------------------------------------------------------------------------
As of December 31, 1997:
Total Capital to Risk-Weighted
Assets
Mid Am, Inc.................... $218,567 11.57% $188,980 10.00% $151,184 8.00%
Mid Am Bank.................... 80,841 10.63 76,041 10.00 60,832 8.00
First National................. 44,269 10.97 40,338 10.00 32,271 8.00
AmeriCom....................... 29,507 10.51 28,084 10.00 22,467 8.00
AmeriFirst..................... 17,994 12.91 13,937 10.00 11,150 8.00
Adrian......................... 12,551 10.78 11,648 10.00 9,318 8.00
Tier I Capital to Risk-Weighted
Assets
Mid Am, Inc.................... $197,893 10.47% $113,388 6.00% $75,592 4.00%
Mid Am Bank.................... 72,738 9.57 45,624 6.00 30,416 4.00
First National................. 41,308 10.24 24,203 6.00 16,135 4.00
AmeriCom....................... 26,138 9.31 16,850 6.00 11,233 4.00
AmeriFirst..................... 16,321 11.71 8,362 6.00 5,575 4.00
Adrian......................... 11,095 9.53 6,989 6.00 4,659 4.00
Tier I Capital to Average Assets
Mid Am, Inc.................... $197,893 9.06% $109,158 5.00% $87,326 4.00%
Mid Am Bank.................... 72,738 8.02 45,324 5.00 36,259 4.00
First National................. 41,308 7.71 26,796 5.00 21,437 4.00
AmeriCom....................... 26,138 6.99 18,701 5.00 14,961 4.00
AmeriFirst..................... 16,321 8.09 10,091 5.00 8,072 4.00
Adrian......................... 11,095 6.68 8,300 5.00 6,640 4.00
As of December 31, 1996:
Total Capital to Risk-Weighted
Assets
Mid Am, Inc.................... $199,712 11.87% $168,179 10.00% $134,543 8.00%
Mid Am Bank.................... 72,029 10.30 69,928 10.00 55,942 8.00
First National................. 41,884 10.39 40,296 10.00 32,237 8.00
AmeriCom....................... 30,629 12.27 24,956 10.00 19,964 8.00
AmeriFirst..................... 20,279 11.04 18,371 10.00 14,697 8.00
Adrian......................... 10,253 10.15 10,098 10.00 8,078 8.00
Tier I Capital to Risk-Weighted
Assets
Mid Am, Inc.................... $183,422 10.91% $100,907 6.00% $67,271 4.00%
Mid Am Bank.................... 64,437 9.21 41,957 6.00 27,971 4.00
First National................. 39,962 9.92 24,177 6.00 16,118 4.00
AmeriCom....................... 27,875 11.17 14,973 6.00 9,982 4.00
AmeriFirst..................... 18,184 9.90 11,023 6.00 7,349 4.00
Adrian......................... 8,991 8.90 6,059 6.00 4,039 4.00
Tier I Capital to Average Assets
Mid Am, Inc.................... $183,422 8.44% $108,634 5.00% $86,907 4.00%
Mid Am Bank.................... 64,437 7.61 42,336 5.00 33,869 4.00
First National................. 39,962 7.69 25,990 5.00 20,792 4.00
AmeriCom....................... 27,875 7.28 19,155 5.00 15,324 4.00
AmeriFirst..................... 18,184 6.86 13,256 5.00 10,604 4.00
Adrian......................... 8,991 6.32 7,111 5.00 5,689 4.00
- ------------------------------------------------------------------------------------------------------------
S-49
NOTE 16. REGULATORY MATTERS -- CONTINUED
Restrictions on Subsidiary Dividends
Dividends paid by the Company are mainly provided by dividends from its
subsidiaries. However, certain restrictions exist regarding the ability of its
banking 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 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 of December 31, 1997, $13,037 was available
for distribution to the Company as dividends without prior regulatory approval.
NOTE 17. CONDENSED PARENT COMPANY FINANCIAL INFORMATION
A summary of condensed financial information of the parent company at
December 31, 1997 and 1996 and for three years then ended is as follows:
Statement of Condition
- ------------------------------------------------------------------------------------------
December 31,
(Dollars in thousands) 1997 1996
- ------------------------------------------------------------------------------------------
Assets:
Cash and due from banks..................................... $ 4,047 $ 1,848
Securities available for sale............................... 951 684
Investment in bank subsidiaries............................. 178,734 167,610
Investment in non-bank subsidiaries......................... 25,185 19,463
Loan to subsidiary.......................................... 7,800
Bank premises and equipment................................. 8,729 3,321
Other assets................................................ 3,508 3,820
-------- --------
Total assets.............................................. $228,954 $196,746
======== ========
Liabilities:
Debt........................................................ $ 43,351
Other liabilities........................................... 4,843 $ 3,543
-------- --------
Total liabilities......................................... 48,194 3,543
-------- --------
Shareholders' equity:
Preferred stock........................................... 30,093
Common stock.............................................. 81,531 69,625
Surplus................................................... 94,594 89,299
Retained earnings......................................... 6,321 6,034
Treasury stock............................................ (3,874) (834)
Unrealized gains (losses) on securities available for
sale................................................... 2,188 (1,013)
-------- --------
Total shareholders' equity 180,760 193,204
-------- --------
Total liabilities and shareholders' equity................ $228,954 $196,747
======== ========
- ------------------------------------------------------------------------------------------
S-50
NOTE 17. CONDENSED PARENT COMPANY FINANCIAL INFORMATION -- CONTINUED
Statement of Earnings
- ----------------------------------------------------------------------------------------------
Year Ended December 31,
(Dollars in thousands) 1997 1996 1995
- ----------------------------------------------------------------------------------------------
Income:
Interest income............................................. $ 321 $ 202 $ 104
Dividends from bank subsidiaries............................ 30,197 18,500 38,021
Dividends from non-bank subsidiaries........................ 2,685
Management fees............................................. 8,782 7,190 5,996
Other income................................................ 70 49 351
------- ------- --------
42,055 25,941 44,472
------- ------- --------
Expenses:
Interest expense............................................ 2,419 14
Salaries and employee benefits.............................. 7,237 5,854 4,648
Net occupancy expense....................................... 300 172 195
Equipment expense........................................... 709 511 415
Other expenses.............................................. 1,859 2,276 2,162
------- ------- --------
12,524 8,827 7,420
------- ------- --------
Income before equity in undistributed net income of
subsidiaries........................................... 29,531 17,114 37,052
Equity in undistributed net income of bank subsidiaries..... 2,611 8,390 (12,418)
Equity in undistributed net income of non-bank
subsidiaries.............................................. (1,261) 488 333
------- ------- --------
Net income................................................ $30,881 $25,992 $ 24,967
======= ======= ========
Net income available to common shareholders............... $30,276 $23,585 $ 22,216
======= ======= ========
- ----------------------------------------------------------------------------------------------
S-51
NOTE 17. CONDENSED PARENT COMPANY FINANCIAL INFORMATION -- CONTINUED
Statement of Cash Flows
- --------------------------------------------------------------------------------------------------------
Year Ended December 31,
(Dollars in thousands) 1997 1996 1995
- --------------------------------------------------------------------------------------------------------
Operating Activities
Net income............................................. $ 30,881 $ 25,992 $ 24,967
Adjustments to reconcile net income to net cash
provided by operating activities:
Equity in undistributed net income of bank
subsidiaries......................................... (2,611) (8,390) 12,418
Equity in undistributed net income of non-bank
subsidiaries......................................... 1,261 (488) (333)
Provision for depreciation and amortization of
assets............................................... 418 213 155
Net gains on sales of assets........................... 34 (8) 1
Increase in other assets............................... (669) (1,627) (213)
Increase (decrease) in other liabilities............... 1,300 707 1,327
-------- -------- --------
NET CASH PROVIDED BY OPERATING ACTIVITIES............ 30,614 16,399 38,322
-------- -------- --------
Investing Activities
Capital contributions to bank subsidiaries............. (2,100)
Capital contributions to non-bank subsidiaries......... (9,503) (1,707) (1,896)
Loan to subsidiary..................................... (7,800)
Proceeds from sales of securities available for sale
Purchases of securities available for sale............. (25) (142) (64)
Proceeds from sales of bank premises and equipment..... 39 30 50
Purchases of bank premises and equipment............... (5,851) (2,581) (732)
-------- -------- --------
NET CASH USED FOR INVESTING ACTIVITIES............... (25,240) (4,400) (2,642)
-------- -------- --------
Financing Activities
Proceeds from issuance of debt......................... 62,851
Repayment of debt...................................... (19,500)
Preferred stock retired................................ (21,801)
Cash dividends paid.................................... (14,959) (14,851) (14,862)
Proceeds from issuance of common stock................. 625 412 793
Treasury stock acquisitions, fractional shares and
other items.......................................... (10,391) (10,708) (8,964)
-------- -------- --------
NET CASH USED FOR FINANCING ACTIVITIES............... (3,175) (25,147) (23,033)
-------- -------- --------
Net (decrease) increase in cash...................... 2,199 (13,148) 12,647
Cash at the beginning of the year...................... 1,848 14,996 2,349
-------- -------- --------
Cash at the end of the year.......................... $ 4,047 $ 1,848 $ 14,996
======== ======== ========
Supplemental Schedule of Noncash Investing and
Financing Activities:
Unrealized gains on securities available for sale.... $ 243 $ 101 $ 46
Adjustment to deferred tax liability................. 85 35 16
-------- -------- --------
Adjustment to shareholders' equity................ $ 158 $ 66 $ 30
======== ======== ========
Affiliates unrealized gains (losses) on securities
available for sale................................ $ 3,043 $ (2,545) $ 7,622
======== ======== ========
- ----------------------------------------------------------------------------------------------------
S-52
MID AM, INC. TEN YEAR PERFORMANCE SUMMARY (UNAUDITED)
- ---------------------------------------------------------------------------------------------------------------
Yearly Average Balances Year-End Balances
(Dollars in thousands, ---------------------------------- ----------------------------------------
except per share and Total Common Earning Loans & Total
ratio data) Year Assets Equity Assets Leases Deposits Assets
- ---------------------------------------------------------------------------------------------------------------
Balance Sheet 1997 $2,177,200 $172,186 $2,029,301 $1,619,895 $1,760,312 $2,191,875
1996 2,162,122 157,084 2,013,106 1,574,880 1,832,909 2,180,974
1995 2,138,638 153,112 1,995,004 1,475,651 1,860,142 2,204,751
1994 2,038,637 146,473 1,897,079 1,433,289 1,736,492 2,078,789
1993 2,001,335 132,822 1,867,140 1,265,945 1,769,083 2,067,371
1992 1,623,070 108,546 1,521,663 1,200,512 1,630,141 1,871,849
1991 1,532,940 101,190 1,440,082 1,028,854 1,447,192 1,573,067
1990 1,286,919 86,140 1,214,041 1,022,765 1,369,486 1,496,026
1989 1,151,287 71,357 1,081,509 840,407 1,096,868 1,207,602
1988 1,086,073 62,450 1,017,116 797,502 1,018,526 1,127,675
- ---------------------------------------------------------------------------------------------------------------
Annual Growth 1997/96 0.70% 9.61% 0.80% 2.86% (3.96)% 0.50%
- ---------------------------------------------------------------------------------------------------------------
Average Growth 1997/88 8.29% 12.12% 8.23% 8.40% 6.58% 7.95%
- ---------------------------------------------------------------------------------------------------------------
Net Income
----------------- Cash Book Stock Total Market
Year Pooled Historic Dividends Value Price Equity $(000)
- ----------------------------------------------------------------------------------------------------
Data per 1997 $1.27 $1.27 $0.60 $7.45 $25.75 $624,754
Common Share 1996 1.04 1.04 0.55 7.12 15.57 356,903
1995 0.96 0.96 0.52 6.95 13.56 311,233
1994 0.88 0.96 0.49 6.29 11.17 232,631
1993 0.96 1.05 0.45 6.41 10.25 197,212
1992 0.85 0.98 0.41 6.02 8.88 166,126
1991 0.36 0.38 0.40 5.30 8.07 137,674
1990 0.61 0.76 0.39 4.97 6.62 103,111
1989 0.66 0.73 0.36 4.15 8.37 104,668
1988 0.70 0.62 0.31 4.03 6.07 75,909
- ----------------------------------------------------------------------------------------------------
Annual Growth 1997/96 22.12% 10.00% 4.66% 65.40% 75.05%
- ----------------------------------------------------------------------------------------------------
Average Growth 1997/88 13.87% 7.69% 7.24% 19.43% 27.86%
- ----------------------------------------------------------------------------------------------------
Average Common
Shares Shares Common Year-End
Outstanding Traded Shareholders Stock Cash Dividend Price/Earnings
Year (000) (000) of Record Dividends Payout Ratio Ratio
- --------------------------------------------------------------------------------------------------------------------
Common Stock Data 1997 23,836 5,030 8,358 10% 47.41% 20.41x
(as originally reported) 1996 20,986 4,189 8,244 10 52.76 15.22
1995 19,205 4,377 8,208 10 54.51 14.36
1994 15,623 3,500 7,899 10 52.23 11.62
1993 12,976 3,097 6,360 41.21 9.80
1992 9,968 1,903 5,543 10 39.92 9.70
1991 9,801 1,580 4,339 88.89 20.38
1990 8,745 1,491 4,379 10 46.76 8.51
1989 6,710 604 3,701 10 42.14 11.14
1988 5,533 264 3,301 5 36.12 9.77
- --------------------------------------------------------------------------------------------------------------------
S-53
MID AM, INC. TEN YEAR PERFORMANCE SUMMARY (UNAUDITED)
- -----------------------------------------------------------------------------------------------
(Dollars in thousands,
except per share Total Net Interest Other Other Net
and ratio data) Year Revenue Income (1) Income Expenses Income
- -----------------------------------------------------------------------------------------------
Income and Expense 1997 $237,771 $91,368 $66,569 $104,052 $30,881
1996 214,484 86,885 49,501 91,419 25,992
1995 198,498 84,478 35,955 78,416 24,967
1994 173,125 83,150 32,554 78,579 23,253
1993 173,389 80,321 34,002 72,962 24,681
1992 149,737 67,453 20,002 56,151 19,209
1991 156,856 59,387 15,566 48,790 7,446
1990 140,158 53,014 10,923 41,995 10,371
1989 126,140 47,368 10,875 37,128 10,343
1988 111,471 42,126 11,048 33,480 10,380
- -----------------------------------------------------------------------------------------------
Annual Growth 1997/96 10.86% 5.16% 34.48% 13.82% 18.81%
- -----------------------------------------------------------------------------------------------
Average Growth 1997/88 8.98% 9.13% 24.25% 13.68% 20.30%
- -----------------------------------------------------------------------------------------------
FTE (4)
Other Income Employees Net Income
Return on Net Interest to Other Overhead Per $ Millions Per FTE (4)
Year Average Assets Margin (2) Expenses Ratio (3) of Assets Employees
- -----------------------------------------------------------------------------------------------------------------------
Operating Ratios 1997 1.42% 4.50% 63.98% 65.88% 0.66 $21
1996 1.20 4.32 54.15 67.03 0.58 21
1995 1.17 4.23 45.85 65.11 0.53 21
1994 1.14 4.38 41.43 67.91 0.53 21
1993 1.23 4.30 46.60 63.82 0.60 20
1992 1.18 4.43 35.62 64.21 0.56 18
1991 0.49 4.12 31.90 65.09 0.54 9
1990 0.81 4.37 26.01 65.68 0.51 14
1989 0.90 4.38 29.29 63.75 0.59 15
1988 0.96 4.14 33.00 62.96 0.59 15
- -----------------------------------------------------------------------------------------------------------------------
Average 1997/88 1.05% 4.32% 40.78% 65.14% 0.57 17.50
- -----------------------------------------------------------------------------------------------------------------------
- --------------------------------------------------------------------------------------------
Average
Return on Common Market Value
Common Equity to to Total Return
Year Equity Average Assets Book Value to Investors (5)
- --------------------------------------------------------------------------------------------
Equity Ratios 1997 17.58% 7.91% 345.64% 69.26%
1996 15.01 7.27 218.71 18.76
1995 14.51 7.16 195.26 26.50
1994 13.88 7.18 177.66 13.94
1993 16.39 6.64 159.75 20.51
1992 16.22 6.69 147.38 15.52
1991 7.36 6.60 152.37 28.72
1990 12.04 6.69 133.28 (16.38)
1989 14.49 6.20 201.57 45.15
1988 16.62 5.75 150.87 12.08
- --------------------------------------------------------------------------------------------
Average 1997/88 14.41% 6.81% 188.25% 21.73%
- --------------------------------------------------------------------------------------------
(1) Net interest income on a tax equivalent basis.
(2) Net interest income as a percentage of interest-earning assets, on a tax
equivalent basis.
(3) Other expenses divided by net interest income on a tax equivalent basis plus
other income.
(4) Full time equivalent.
(5) Market change year to year plus dividends.
S-54