UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 10-Q
[x] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF
THE SECURITIES EXCHANGE ACT OF 1934
For the quarterly period ended June 30, 1998
Commission File No. 0-10585
Mid Am, Inc.
(Exact Name of Registrant as Specified in its Charter)
Ohio 34-1580978
(State or Other Jurisdiction of (IRS Employer
Incorporation or Organization) Identification Number)
221 South Church Street, Bowling Green, Ohio 43402
(Address of Principal Executive Offices) (Zip Code)
(419) 327-6300
(Registrant's Telephone Number)
Indicate by check mark whether the registrant (1) has filed all
reports required to be filed by Section 13 or 15(d) of the
Securities Exchange Act of 1934 during the preceding 12 months
(or for such shorter period that the registrant was required to
file such reports), and (2) has been subject to such filing
requirements for the past 90 days.
Yes X
Indicate the number of shares outstanding of each of the
issuer's classes of common stock as of the close of business
on July 31, 1998.
Common Stock, without par value - 23,358,898 shares
<PAGE 2>
MID AM, INC.
INDEX
PART I - FINANCIAL INFORMATION Page Number
Item 1. Financial Statements
Consolidated Statement of Condition
(Unaudited)
June 30, 1998 and December 31, 1997 3
Consolidated Statement of Earnings
(Unaudited)
Three months ended June 30, 1998 and 1997 4
Consolidated Statement of Cash Flows
(Unaudited)
Three months ended June 30, 1998 and 1997 5
Notes to Consolidated Financial Statements
(Unaudited) 7
Item 2. Management's Discussion and Analysis and
Statistical Information 9
PART II - OTHER INFORMATION
Item 1. Legal Proceedings 22
Item 2. Changes in Securities 22
Item 3. Defaults Upon Senior Securities 22
Item 4. Submission of Matters to a Vote
of Security Holders 22
Item 5. Other Information 22
Item 6. Exhibits and Reports on Form 8-K 22
SIGNATURES 23
EXHIBIT INDEX 24
<PAGE 3>
PART I. - FINANCIAL INFORMATION
MID AM, INC. Consolidated Statement of Condition (Unaudited)
(Dollars in thousands) June 30, December 31,
1998 1997
Assets
Cash and due from banks $ 101,787 $ 84,062
Interest-bearing deposits
in other banks 3,989 1,728
Federal funds sold 24,025 14,566
Loans held for sale 4,046 11,376
Securities available for sale 421,020 385,961
Loans, net of unearned fees 1,649,323 1,619,895
Allowance for credit losses (18,824) (17,625)
Net loans 1,630,499 1,602,270
Bank premises and equipment 53,599 53,903
Interest receivable
and other assets 43,017 38,009
Total Assets $2,281,982 $2,191,875
Liabilities
Demand deposits (non-interest) $ 244,475 $ 220,441
Savings deposits 555,793 545,667
Other time deposits 1,011,428 994,204
Total Deposits 1,811,696 1,760,312
Federal funds purchased and
securities sold under
agreements to repurchase 106,408 103,174
Debt and FHLB advances 179,463 122,604
Interest payable
and other liabilities 21,210 25,025
Total Liabilities 2,118,777 2,011,115
Shareholders' Equity
Preferred stock - no par value
Authorized - 2,000,000 shares -- --
Common stock - stated value
of $3.33 per share
Authorized - 35,000,000 shares
Issued - 24,459,511 shares
in 1998 and 1997 81,531 81,531
Surplus 93,677 94,594
Retained earnings 14,606 6,321
Treasury stock
1,106,155 and 197,206 shares (29,096) (3,874)
Unrealized gains on securities
available for sale 2,487 2,188
Total Shareholders' Equity 163,205 180,760
Total Liabilities and
Shareholders' Equity $2,281,982 $2,191,875
<PAGE 4>
MID AM, INC. Consolidated Statement of Earnings (Unaudited)
(Dollars in thousands, Three Months Ended Six Months Ended
except per share data) June 30, June 30,
1998 1997 1998 1997
Interest Income
Int and fees on loans $37,449 $36,253 $74,596 $71,195
Int on deposits in banks 47 45 85 130
Int on federal funds sold 672 221 1,062 575
Int on taxable investments 5,471 5,336 10,808 10,971
Int on tax exempt investment 491 543 987 1,071
Total Interest Income 44,130 42,398 87,538 83,942
Interest Expense
Int on deposits 17,398 16,996 34,493 34,413
Int on borrowed funds 4,226 3,066 8,015 5,248
Total Interest Expense 21,624 20,062 42,508 39,661
Net Interest Income 22,506 22,336 45,030 44,281
Provision for credit losses 1,433 874 2,450 2,759
Net Interest Income After
Provision Credit Losses 21,073 21,462 42,580 41,522
Non-interest Income
Trust department 695 499 1,283 880
Service charges on
deposit accounts 2,091 2,136 4,197 4,030
Mortgage banking 5,518 3,142 11,346 5,712
Brokerage commissions 2,618 1,661 4,841 3,141
Collection agency fees 1,184 1,322 2,581 2,564
Net gains (losses) on
sales of securities 7 78 105 (648)
Net gains on sales of loans
at commercial financing
affiliate 4,715 2,527 8,865 4,716
Other income 3,854 2,601 6,098 13,489
Total Non-interest Income 20,682 13,966 39,316 33,884
Non-interest Expense
Salaries and employee benefits 15,454 12,879 31,166 26,675
Net occupancy expense 1,454 1,393 2,883 2,765
Equipment expense 2,432 2,255 4,776 4,263
Other expenses 10,430 8,311 19,869 16,336
Total Non-interest Expense 29,770 24,838 58,694 50,039
Income before income taxes 11,985 10,590 23,202 25,367
Applicable income taxes 3,539 3,427 7,313 8,637
Net Income $ 8,446 $ 7,163 $15,889 $16,730
Net Income Available to
Common Shareholders $ 8,446 $ 6,974 $15,889 $16,125
Earnings per Common Share:
Basic $ 0.36 $ 0.30 $ 0.67 $ 0.69
Diluted $ 0.35 $ 0.28 $ 0.66 $ 0.65
<PAGE 5>
MID AM, INC. Consolidated Statement of Cash Flows (Unaudited)
(Dollars in thousands) Six Months Ended June 30,
1998 1997
Operating Activities
Net income $ 15,889 $ 16,730
Adjustments to reconcile net
income to net cash provided
by operating activities:
Provision for credit losses 2,450 2,759
Depreciation and
amortization of assets 4,480 5,053
Proceeds from sales of mortgage
and other loans held for sale 541,680 201,386
Mortgage and other loans
originated for sale (514,875) (198,382)
Net gains on sales of assets (20,135) (17,188)
Increase in interest receivable
and other assets (5,993) (4,697)
Decrease in interest payable
and other liabilities (3,815) (370)
Net Cash Provided By
Operating Activities 19,681 5,291
Investing Activities
Net (increase) decrease in interest-
bearing deposits in other banks (2,261) 429
Net increase in
federal funds sold (9,459) (17,901)
Proceeds from sales of securities
available for sale 10,458 57,439
Proceeds from maturities and paydowns
of securities available for sale 73,943 38,966
Purchases of securities
available for sale (118,543) (46,815)
Proceeds from sales of loans 6,093 15,197
Net increase in loans (36,716) (57,875)
Proceeds from sales of
other real estate owned 425 558
Proceeds from sales of bank
premises and equipment 95 1,455
Purchases of bank premises
and equipment (3,725) (9,155)
Net Cash Used For
Investing Activities (79,690) (17,702)
<PAGE 6>
MID AM, INC. Consolidated Statement of Cash Flows (Unaudited)
(Dollars in thousands) Six Months Ended June 30,
1998 1997
Financing Activities
Cash transferred in connection
with the sale of branch deposits (84,927)
Net increase in demand deposits
and savings accounts 34,160 6,474
Net increase in other time deposits 17,224 22,230
Net increase in short-term
borrowings 3,234 53,137
Repayment of debt and FHLB advances (23,141) (6,650)
Proceeds from issuance of debt
and FHLB advances 80,000 49,000
Preferred stock retired (21,801)
Proceeds from issuance of
common stock 1,000 419
Cash dividends paid (7,504) (7,423)
Treasury stock acquisitions (27,139) (7,014)
Other items (100) (31)
Net Cash Provided By
Financing Activities 77,734 3,414
Net increase (decrease) in cash
and due from banks 17,725 (8,997)
Cash and due from banks at the
beginning of the period 84,062 85,657
Cash and due from banks at the
end of the period $ 101,787 $ 76,660
Supplemental Schedule of Noncash
Investing and Financing Activities
Securitization of loans held for
sale and transferred to
securities available for sale $ 241 $ 6,344
Transfers from loans to other
real estate owned $ 300 $ 1,112
Loans on other real estate sold $ 29
Unrealized losses on
securities available for sale $ 461 $ 683
Adjustment to deferred tax 162 239
Adjustment to shareholders' equity $ 299 $ 444
<PAGE 7>
MID AM, INC.
Notes to Consolidated Financial Information (Unaudited)
1. Accounting Principles
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. In the opinion of management of the Company, all adjustments
necessary to present fairly the financial position, results of operations
and cash flows as of and for the periods presented have been made. Such
adjustments consisted only of normal recurring items.
Mid Am, Inc.'s predominant business is commercial banking. The Company also
has businesses relating to collection activities, broker-dealer operations,
commercial finance lending and consumer finance lending. However, the
revenues, operating profit and assets of these businesses are not material
for separate disclosure.
The consolidated financial statements of Mid Am, Inc. (the Company) include
the accounts of the banking 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); and the financial service subsidiaries, 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. (MAPT) and Mid Am
Information Services, Inc. (MAISI). All significant intercompany transactions
and accounts have been eliminated in consolidation.
2. Recent Accounting Pronouncements
In 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 Stockholders'
Equity. Upon adoption, the financial statements of earlier periods will be
restated for comparative purposes.
<PAGE 8>
In 1997, the Financial Accounting Standards Board issued Statement of
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.
3. Repurchase Program
On January 15, 1998, the Board of Directors of the Company authorized
management to undertake purchases of up to 1,200,000 shares of the Company's
outstanding common stock over a twelve month period in the open market or in
privately negotiated transactions. This new authorization follows the
expiration of the Company's 1997 authorization to repurchase up to 1,650,000
shares of common stock. The shares reacquired are held as treasury stock and
reserved for use in the Company's stock option plan and for future stock
dividend declarations. As of June 30, 1998, the Company had repurchased
approximately 749,000 shares of common stock pursuant to its 1998 repurchase
program. Subsequent to June 30, 1998, the Company has not repurchased
additional shares of common stock pursuant to its 1998 repurchase program.
4. Other Events
On May 21, 1998, Mid Am, Inc. and Citizens Bancshares, Inc., Salineville, Ohio
announced that their Boards of Directors unanimously approved a definitive
agreement for a merger of equals. The merger will be accomplished through a
tax-free exchange of shares and will be accounted for as a "pooling-of-
interests." Mid Am, Inc. shareholders will receive 0.770 of a share of
Citizens Bancshares, Inc. common stock for each share of Mid Am, Inc. common
stock owned. This merger is expected to close in October, 1998. The combined
company intends to take a one-time pre-tax restructuring charge to cover the
expenses of the transaction of between $20 million and $30 million prior to
closing. Mid Am, Inc. and Citizens Bancshares, Inc. also recently approved an
agreement to affiliate The Ohio Bank, a $600 million bank headquartered in
Findlay, Ohio.
<PAGE 9>
Item 2. - Management's Discussion and Analysis and Statistical
Information
(Dollars in thousands, except per share data)
Three Months Ended June 30, 1998 and 1997
Results of Operations
Net income for the second quarter of 1998 was $8,446, an increase of $1,283
or 18% over the second quarter of 1997 earnings of $7,163. Diluted earnings
per share for the second quarter of 1998 was $.35 ($.36 basic), up 25% when
compared to $.28 ($.30 basic) for the same period in 1997. Return on average
common equity (ROE) for the second quarter of 1998 was 20.92% while return on
average assets (ROA) was 1.50%. This compares to ROE and ROA ratios of 16.60%
and 1.33%, respectively, for the second quarter of 1997. The Company's
earnings for the second quarter of 1998 reflect a favorable legal settlement
of $1,475 (pre-tax). Excluding this settlement, the Company's second quarter
1998 core earnings were $7,029, which represents a ROE of 17.47% and an ROA of
1.25%. Second quarter 1998 earnings remained level as compared with 1997
second quarter earnings primarily due to an increase in non-interest income
offset by a lower net interest margin and increased provision for credit
losses due to growth in the loan portfolio.
Net Interest Income
Net interest income increased $170 to $22,506 in the second quarter of 1998 as
compared to $22,336 for the same period in 1997. Net interest income is
affected by changes in the volumes and rates of interest-earning assets and
interest-bearing liabilities and the type and mix of interest-earning assets
and interest-bearing liabilities. The Company's net interest margin for the
three months ended June 30, 1998 was 4.37% compared to 4.55% for the same
period in 1997. The decline in the net interest margin is primarily due to
a flattening of the yield curve and various competitive factors. A decline in
the Company's residential real estate loan portfolio also contributed to
lowering the margin. This decline was caused by a high level of refinancings
of residential real estate loans in the first six months of 1998 which were
sold in the secondary market. The net interest margin has stabilized,
evidenced by a slight increase in the margin for the month of June to 4.42%.
Provision for Credit Losses
The provision for credit losses increased $559 or 64% to $1,433 in the second
quarter of 1998 compared to $874 in the second quarter of 1997. In the second
quarter of 1998, the Company increased its provision for credit losses by
approximately $500 in response to continued loan portfolio growth. Net
charge-offs were $1,059 or 0.26% (annualized) of average loans during the
three months ended June 30, 1998, compared to $872 or 0.22% (annualized) for
the same period in 1997. The provision for credit losses reflects the amount
necessary in management's opinion to maintain an adequate allowance, based
upon its analysis of the loan portfolio (including the loan growth rate and
change in the mix of the loan portfolio) and general economic conditions.
<PAGE 10>
At June 30, 1998, the Company's allowance for credit losses as a percentage of
loans was 1.14% compared to 1.09% at December 31, 1997 and 1.04% at June 30,
1997. At June 30, 1998, the Company's allowance for credit losses represented
292% of non-performing loans as compared to 388% and 250% at December 31, 1997
and June 30, 1997, respectively. The increase in the Company's allowance for
credit losses as a percentage of loans is due primarily to a large recovery on
a commercial loan at one of the Company's bank subsidiaries during the first
quarter of 1998. The decrease in the Company's allowance for credit losses as
a percentage of non-performing loans is due to an increase of $1,904 in non-
performing loans from $4,546 at December 31, 1997 to $6,450 at June 30, 1998.
This increase appears to be temporary and not a sign of any significant
deterioration in credit quality. Management believes that the Company's
allowance for credit losses is adequate. (See "Asset Quality".)
Non-Interest Income
The table below summarizes the sources of the Company's non-interest income.
Three months ended June 30, Percentage
(Dollars in thousands) 1998 1997 Change
Non-Interest Income:
Trust department $ 695 $ 499 39%
Service charges on
deposit accounts 2,091 2,136 (2)
Mortgage banking 5,518 3,142 76
Brokerage commissions 2,618 1,661 58
Collection agency fees 1,184 1,322 (10)
Net gains (losses) on sales
of securities 7 78 (91)
Net gains on sales of loans at
commercial financing affiliate 4,715 2,527 87
Legal settlement 1,475 NA
Credit card fees 541 500 8
International department fees 251 296 (15)
ATM card fees 509 472 8
Other 1,078 1,333 (19)
Total non-interest income $20,682 $13,966 48
As seen from the above table, non-interest income is an increasingly important
source of revenue to the Company as it continues to expand its offerings of
non-bank related financial services. Non-interest income for the second
quarter of 1998 was $20,682, an increase of $6,716 or 48% from the $13,966,
reported for the same quarter of 1997. The increase was primarily due to a
favorable legal settlement of $1,475, an increase of $2,376 in mortgage
banking, an increase of $2,188 in net gains on sales of loans at MACC, the
Company's commercial leasing and financing company, and to an increase of $957
in brokerage commissions. Mortgage banking increased primarily due to an
increase in net gains on sales of loans from the higher volume of loan sales
in the second quarter of 1998 compared to 1997 (approximately $200,000 in 1998
compared to $84,000 in 1997). Net gains on sales of loans at MACC increased
primarily due to increased sales volume and improved profit margins.
Brokerage commissions increased due to the growth in the number of independent
registered representatives (brokers) and to the increase in the volume of
business generated by these representatives.
<PAGE 11>
Non-Interest Expense
Non-interest expense includes costs, other than interest, that are incurred in
the operations of the Company. The table below summarizes the components of
the Company's non-interest expense.
Three months ended June 30, Percentage
(Dollars in thousands) 1998 1997 Change
Non-Interest Expense:
Salaries and employee benefits $15,454 $12,879 20%
Net occupancy expense 1,454 1,393 4
Equipment expense 2,432 2,255 8
Brokerage commissions 1,764 1,051 68
FDIC expense 105 110 (5)
Marketing 958 831 15
Franchise taxes 719 648 11
Telephone 836 675 24
Printing and supplies 568 602 (6)
Legal and other
professional fees 1,401 752 86
Credit card merchant
processing costs 563 579 (3)
Amortization intangible assets 326 333 (2)
Postage 426 406 5
Other 2,764 2,324 19
Total non-interest expense $29,770 $24,838 20
The table below presents an analysis of the components of salary and employee
benefit expense and of the number of full-time equivalent employees.
Three months ended June 30, Percentage
(Dollars in thousands) 1998 1997 Change
Salaries and employee benefits:
Salaries and wages $11,566 $ 9,569 21%
Commissions paid to employees 1,344 943 43
Employee benefits 2,544 2,367 7
Total salaries and employee
benefits $15,454 $12,879 20
Full-time equivalent employees 1,460 1,353 8%
Salaries and employee benefits comprise the largest component of non-interest
expense and were 52% of total non-interest expense for both the three months
ended June 30, 1998 and 1997. Salary and wages increased 21% in the second
quarter of 1998 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. In addition, certain employee benefit expenses determined under
formulas which take into account pre-tax income also increased in the three
months ended June 30, 1998 compared to the same period in 1997 because of the
increase in pre-tax income. Net occupancy expense and equipment expense
increased due to new offices for MAFSI and new computer equipment at MAISI.
The increase in other non-interest expenses was primarily due to increases in
brokerage commissions ($713), legal and other professional fees ($649),
telephone expense ($161) and marketing expense ($127).
<PAGE 12>
Income Taxes
The provision for income taxes for the second quarter of 1998 increased $112
or 3% to $3,539 compared to $3,427 for the same period in 1997. The effective
tax rate for the second quarter of 1998 was 29.5% as compared to 32.4% for the
same period in 1997. The decrease in effective tax rate was due primarily to
the favorable tax treatment of the legal settlement.
Six Months Ended June 30, 1998 and 1997
Results of Operations
For the six months ended June 30, 1998 net income decreased $841 or 5% to
$15,889 compared to $16,730 for the same period in 1997. Diluted earnings
per share for the first six months of 1998 were $.66 ($.67 basic), compared to
$.65 ($.69 basic) for the same period in 1997. Return on average common
equity (ROE) for the first six months of 1998 was 19.37% while return on
average assets (ROA) was 1.43%. This compares to ROE and ROA ratios of 19.51%
and 1.56%, respectively, for the first six months of 1997. The Company's
earnings for the six months ended June 30, 1998 reflect a favorable legal
settlement of $1,475 (pre-tax). Excluding this settlement, the Company's
first six months of 1998 core earnings were $14,472, which represents a ROE
of 17.67% and a ROA of 1.30%. The Company's earnings for the six months ended
June 30, 1997 include a gain and certain charges related to the February 1997
sale of various branch offices. Excluding the net gain, the Company's first
six months of 1997 core earnings were $13,313, which represents a ROE of
15.46% and a ROA of 1.24%. Core earnings for the first six months of 1998
compared to the same period in 1997 increased primarily due to an increases in
mortgage banking, brokerage commissions income and net gains on sales of loans
at MACC. The increases in non-interest income were partially offset by a
lower net interest margin, an increase in brokerage commission expense and an
increase in salaries and employee benefits due to growth in the financial
service companies.
Net Interest Income
Net interest income increased $749 to $45,030 in the first six months of 1998
as compared to $44,281 for the same period in 1997. Net interest income is
affected by changes in the volumes and rates of interest-earning assets and
interest-bearing liabilities and the type and mix of interest-earning assets
and interest-bearing liabilities. The Company's net interest margin for the
six months ended June 30, 1998 was 4.44% compared to 4.52% for the same
period in 1997. The decline in the net interest margin is primarily due to
a flattening of the yield curve and various competitive factors. A decline in
the Company's residential real estate loan portfolio also contributed to
lowering the margin. This decline was caused by a high level of refinancings
of residential real estate loans in the first six months of 1998 which were
sold in the secondary market. The net interest margin has stabilized,
evidenced by a slight increase in the margin for the month of June to 4.42%.
<PAGE 13>
Provision for Credit Losses
The provision for credit losses decreased $309 or 11% to $2,450 in the first
six months of 1998 compared to $2,759 in the first six months of 1997. Net
charge-offs were $1,251 or 0.15% (annualized) of average loans during the six
months ended June 30, 1998, compared to $1,677 or 0.21% (annualized) for the
same period in 1997. The decrease in net charge-offs is primarily due to a
large recovery on a commercial loan at one of the Company's bank subsidiaries
during the first quarter of 1998. The provision for credit losses reflects
the amount necessary in management's opinion to maintain an adequate
allowance, based upon its analysis of the loan portfolio (including the loan
growth rate and change in the mix of the loan portfolio) and general economic
conditions.
Non-Interest Income
The table below summarizes the sources of the Company's non-interest income.
Six months ended June 30, Percentage
(Dollars in thousands) 1998 1997 Change
Non-Interest Income:
Trust department $ 1,283 $ 880 46%
Service charges on
deposit accounts 4,197 4,030 4
Mortgage banking 11,346 5,712 99
Brokerage commissions 4,841 3,141 54
Collection agency fees 2,581 2,564 1
Net gains (losses) on sales
of securities 105 (648) NA
Net gains on sales of loans at
commercial financing affiliate 8,865 4,716 88
Gain from sale of deposits and
branch offices 8,703 NA
Legal settlement 1,475 NA
Credit card fees 1,064 988 8
International department fees 548 531 3
ATM card fees 971 881 10
Other 2,040 2,386 (15)
Total non-interest income $39,316 $33,884 16
As seen from the above table, non-interest income is an increasingly important
source of revenue to the Company as it continues to expand its offerings of
non-bank related financial services. Non-interest income for the first six
months of 1998 was $39,316, an increase of $5,432 or 16% from the $33,884,
reported for the same quarter of 1997. The increase was primarily due to a
favorable legal settlement of $1,475, an increase of $5,634 in mortgage
banking, an increase of $4,149 in net gains on sales of loans at MACC, the
Company's commercial leasing and financing company, and to an increase of
$1,700 in brokerage commissions, partially offset by the gain from the sale of
deposits and branch offices in 1997. Mortgage banking increased primarily due
to an increase in net gains on sales of loans due to the higher volume of loan
sales in the first six months of 1998 compared to 1997 (approximately $471,000
in 1998 compared to $158,000 in 1997). Net gains on sales of loans at MACC
increased primarily due to increased sales volume and improved profit margins.
Brokerage commissions increased due to the growth in the number of independent
registered representatives (brokers) and to the increase in the volume of
business generated by these representatives.
<PAGE 14>
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.
Six months ended June 30, Percentage
(Dollars in thousands) 1998 1997 Change
Non-Interest Expense:
Salaries and employee benefits $31,166 $26,675 17%
Net occupancy expense 2,883 2,765 4
Equipment expense 4,776 4,263 12
Brokerage commissions 3,198 1,856 72
FDIC expense 211 232 (9)
Marketing 1,681 1,485 13
Franchise taxes 1,433 1,294 11
Telephone 1,603 1,320 21
Printing and supplies 1,133 1,065 6
Legal and other
professional fees 2,425 1,476 64
Credit card merchant
processing costs 1,076 1,098 (2)
Amortization intangible assets 654 1,176 (44)
Postage 876 842 4
Other 5,579 4,492 24
Total non-interest expense $58,694 $50,039 17
The table below presents an analysis of the components of salary and employee
benefit expense and of the number of full-time equivalent employees.
Six months ended June 30, Percentage
(Dollars in thousands) 1998 1997 Change
Salaries and employee benefits:
Salaries and wages $22,511 $19,801 14%
Commissions paid to employees 2,741 1,774 55
Employee benefits 5,914 5,100 16
Total salaries and employee
benefits $31,166 $26,675 17
Full-time equivalent employees 1,460 1,353 8%
Salaries and employee benefits comprise the largest component of non-interest
expense and were 53% of total non-interest expense for both the six months
ended June 30, 1998 and 1997. Salary and wages increased 14% in the first six
months of 1998 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. In addition, certain employee benefit expenses determined under
formulas which take into account pre-tax income also increased in the six
months ended June 30, 1998 compared to the same period in 1997 because of the
increase in pre-tax income. Net occupancy expense and equipment expense
increased due to new offices for MAFSI and new computer equipment at MAISI.
The increase in other non-interest expenses was primarily due to increases in
brokerage commissions ($1,342), legal and other professional fees ($949), and
telephone expense ($283), partially offset by a decrease in amortization of
intangible assets ($522).
<PAGE 15>
Income Taxes
The provision for income taxes for the first six months of 1998 decreased
$1,324 or 15% to $7,313 compared to $8,637 for the same period in 1997. The
decrease in income taxes is primarily due to lower pre-tax income in 1998 as
compared to 1997. The effective tax rate for the six months ended June 30,
1998 was 31.5% as compared to 34.0% for the same period in 1997. The decrease
in effective tax rate was due primarily to the favorable legal settlement in
the first six months of 1998.
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 awareness, 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. Regardless of the Year 2000
compliance of the Company's systems, there is not complete assurance that the
Company will not be adversely affected to the extent that other entities not
affiliated with the Company such as vendors, services suppliers and loan and
other counter-parties are unsuccessful in addressing this issue.
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. The Company's state
bank can pay dividends up to the total amount of retained earnings as long as
certain capital ratios are maintained. As a result of these restrictions, at
June 30, 1998 dividends which can be paid to the Company by its bank
subsidiaries are limited to $28,946.
As shown in the consolidated statement of cash flows presented elsewhere
herein, cash and due from banks increased $17,725 during the first six months
of 1998 to $101,787 at June 30, 1998. The increase in 1998 is composed of
$19,681 provided by operating activities and $77,734 provided by financing
activities, offset in part by net cash used for investing activities of
$79,690.
<PAGE 16>
Six months ended June 30, Dollar
(Dollars in thousands) 1998 1997 Change
Operating activities:
Net income $ 15,889 $ 16,730 $ (841)
Provisions for credit losses,
depreciation and amortization 6,930 7,812 (882)
Proceeds from sales of mortgages
and other loans held for sale 541,680 201,386 340,294
Mortgages and other loans
originated for sale (514,875) (198,382) (316,493)
Net cash provided by
secondary market activity 26,805 3,004 23,801
Net gains on sales of assets (20,135) (17,188) (2,947)
Other items (9,808) (5,067) (4,741)
Net cash provided by
operating activities 19,681 5,291 14,390
Net cash provided by operating activities increased in 1998 compared to 1997.
The increase in secondary market activity was partially offset by the
decreases in net income, provisions for credit losses, depreciation and
amortization and a decrease in net gains on sales of assets. Cash flows from
the sales of mortgages and other loans and refinancing of loans increased
substantially in the first six months of 1998 as compared to 1997. Of the
$340,294 and $316,493 increases in 1998 proceeds and cash origination costs,
respectively, $26,114 and $20,176 related to increases in MACC loan sales and
originations, respectively.
Six months ended June 30, Dollar
(Dollars in thousands) 1998 1997 Change
Investing activities:
Net increase in loans $ (36,716) $(57,875) $ 21,159
Proceeds from sales of
portfolio loans 6,093 15,197 (9,104)
Net loan activities (30,623) (42,678) 12,055
Proceeds from securities
activities 84,401 96,405 (12,004)
Purchases of securities (118,543) (46,815) (71,728)
Net securities activities (34,142) 49,590 (83,732)
Purchases of bank premises
and equipment (3,725) (9,155) 5,430
Net change in federal funds
sold position (9,459) (17,901) 8,442
Other items (1,741) 2,442 (4,183)
Net cash used for
investing activities (79,690) (17,702) (61,988)
Comparing 1998 to 1997, net cash used for investing activities increased
$61,988 primarily from the growth in securities activities, partially offset
by the decreases in the loan portfolio and in federal funds sold position.
<PAGE 17>
Six months ended June 30, Dollar
(Dollars in thousands) 1998 1997 Change
Financing activities:
Net change in deposit activities $ 51,384 $(56,223) $107,607
Proceeds from long-term and
net short-term borrowings 83,234 102,137 (18,903)
Repayments of long-term
borrowings (23,141) (6,650) (16,491)
Cash dividends paid (7,504) (7,423) (81)
Preferred stock retired,
treasury stock acquisitions
and other items (26,239) (28,427) 2,188
Net cash provided by
financing activities 77,734 3,414 74,320
Net cash provided by financing activities for 1998 was $77,734 as compared to
$3,414 for 1997. The increase of $74,320 was primarily due to an increase in
deposit activities, partially offset by a decrease in proceeds from borrowings
and an increase in repayments of borrowings.
Asset/Liability Management
Closely related to liquidity management is the management of interest-earning
assets and interest-bearing liabilities. The Company manages its rate
sensitivity position to avoid wide swings in net interest margins and to
minimize risk due to changes in interest rates. At June 30, 1998, the Company
had a manageable positive gap position and therefore does not expect to
experience any significant fluctuations in its net interest income as a
consequence of changes in interest rates.
Capital Resources
The Federal Reserve Board (FRB) has established risk-based capital guidelines
that must be observed by bank holding companies and banks. Under these
guidelines, total qualifying capital is categorized into two components --
Tier I and Tier II capital. Tier I capital generally consists of common
shareholders' equity, perpetual preferred stock (subject to limitations) and
minority interests in subsidiaries. The $27,500 of the Company's obligated
mandatorily redeemable capital securities of its subsidiary trust, which was
issued in the second quarter of 1997, is considered Tier I capital. Subject
to limitations, Tier II capital includes certain other preferred stock and
debentures, and a portion of the reserve for credit losses. On January 16,
1998, the Company issued $50,000 of 7.08% subordinated ten-year debt in a
private placement transaction. The subordinated debt is considered Tier II
capital for regulatory purposes. 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 June 30, 1998, a minimum Tier I capital ratio of 4.00% and a total capital
ratio of 8.00% are required. The Company's qualifying capital at June 30,
1998 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
<PAGE 18>
capital standards which is defined as Tier I capital divided by quarterly
average total assets adjusted for certain items. Included in Tier I capital
are $27,500 of 10.20% capital securities issued by the Company through a
special purpose trust subsidiary in 1997. At June 30, 1998, the Company's
leverage ratio, Tier I, and Total Capital ratios were 7.96%, 8.95% and 12.63%,
respectively.
Capital ratios applicable to the Company's banking subsidiaries at June 30,
1998 are as follows:
Total
Tier I Risk-based
Leverage Capital Capital
Regulatory Capital Requirements
Minimum 4.00 4.00 8.00
Well-capitalized 5.00 6.00 10.00
Bank Subsidiaries
Mid Am Bank 8.24 9.84 11.00
First National 8.03 10.52 11.21
AmeriCom 7.41 10.16 11.34
AmeriFirst 7.41 9.24 10.38
Adrian 6.61 9.39 10.64
The capital to asset ratios of the Company's financial service subsidiaries
are significantly different than the bank subsidiaries.
Asset Quality
At June 30, 1998, the Company's percentage of non-performing loans
(non-accrual loans and restructured loans) to total loans was 0.39%, as
compared to 0.28% at December 31, 1997 and 0.42% at June 30, 1997.
Non-performing loans at June 30, 1998 aggregated $6,450, an increase of $1,904
or 42% from December 31, 1997. Accruing loans past due 90 days or more at
June 30, 1998 aggregated $2,961, an increase of $127 or 4% from December 31,
1997. The Company's percentage of net charge-offs for the six months ended
June 30, 1998 and June 30, 1997 to average loans outstanding were 0.15%
(annualized) and 0.21% (annualized), respectively. At June 30, 1998, the
Company's allowance for credit losses was 1.14% of total loans, as compared to
1.09% and 1.04% at December 31, 1997 and June 30, 1997, respectively. The
allowance for credit losses as a percentage of non-performing loans at June
30, 1998 was 292% compared to 388% at December 31, 1997 and 250% at June 30,
1997. The ratio of non-performing assets (constituting the sum of non-
performing loans and other real estate owned) to total loans plus other real
estate owned was 0.40% at June 30, 1998, compared to 0.30% and 0.52% at
December 31, 1997 and June 30, 1997, respectively. As of June 30, 1998, based
upon a review of the loan portfolio (including the loan growth rate and change
in the mix of the loan portfolio), management believes the allowance for
credit losses is adequate.
Loans 30 to 89 days past due, excluding non-accrual and restructured loans
amounted to $6,162 or 0.37% of total loans at June 30, 1998 as compared to
$6,752 or 0.42% at December 31, 1997. 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 $23,310 and
$29,106 at June 30, 1998 and December 31, 1997, 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
<PAGE 19>
continuous process of loan review which has identified various improvements in
the financial condition of certain of the individual borrowers. In the
opinion of management, these loans require close monitoring despite the fact
that they are performing according to their terms. Such classifications
relate to specific concerns relating to each individual borrower and do not
relate to any concentrated risk elements common to all loans in this group.
AmeriCom and First National 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.
Since early 1998, AmeriCom and First National have received $1,364 and $1,542,
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. Of the December 31, 1997 balance, no decision has been rendered
by the bankruptcy judge with respect to the remaining $1,671 in loans. 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 Company's position with respect to the remaining Bennett portfolio. As
of June 30, 1998, the aggregate outstanding balance of the Bennett portfolio
after receipt of payments was $1,836, including $255 on non-accrual and
$1,581 ninety days past due and still accruing.
The following table presents asset quality information for each of the
Company's banking subsidiaries at June 30, 1998.
(Dollars in thousands)
Mid Am First
Bank National AmeriCom AmeriFirst Adrian
Loans:
Non-accrual $2,531 $ 852 $1,131 $1,214 $319
Restructured 0 135 64 0 58
Total
non-performing
loans 2,531 987 1,195 1,214 377
Other real
estate owned 40 0 126 0 0
Total
non-performing
assets $2,571 $ 987 $1,321 $1,214 $377
Loans 90 days
or more past
due and not
on non-accrual $ 0 $1,039 $1,338 $ 163 $276
Non-performing
loans to
total loans 0.38 0.25 0.44 0.67 0.28
<PAGE 20>
Non-performing
assets to total
loans plus OREO 0.38 0.25 0.49 0.67 0.28
Allowance for
credit losses
to total
non-performing
loans 361.16 285.51 267.87 159.80 433.69
Allowance for
credit losses
to total
non-performing
assets 355.54 285.51 242.32 159.80 433.69
Net charge-offs
to average loans
outstanding 0.10 0.19 0.26 0.17 0.06
Allowance for
credit losses
to total loans 1.36 0.72 1.18 1.07 1.21
Loans 90 days
or more past
due and not
on non-accrual
to total loans 0.00 0.27 0.49 0.09 0.20
The following table sets forth the Company's allocation of the allowance for
credit losses as of June 30, 1998 and December 31, 1997.
June 30, 1998 December 31, 1997
(Dollars in thousands)
Specific allowance
Real estate $ 84 $ 199
Commercial 2,162 2,415
Installment 50 101
Total specific allowance 2,296 2,715
General allowance
Real estate 263 232
Commercial 5,314 5,347
Installment 1,499 1,585
Other 420 355
Total general allowance 7,496 7,519
Unallocated allowance 9,032 7,391
Allowance for credit losses $18,824 $17,625
<PAGE 21>
The following table presents a summary of the Company's credit loss experience
for the six months ended June 30, 1998 and 1997.
(Dollars in thousands)
1998 1997
Balance of allowance at
beginning of year $17,625 $15,672
Loans actually charged-off:
Real estate 500 225
Commercial, financial
and agricultural 1,792 1,312
Installment and credit card 814 755
Other 54
Total loans charged-off 3,106 2,346
Recoveries of loans previously
charged-off:
Real estate 161 59
Commercial, financial
and agricultural 1,394 254
Installment and credit card 270 336
Other 30 20
Total recoveries of loans 1,855 669
Net charge-offs 1,251 1,677
Addition to allowance
charged to expense 2,450 2,759
Balance of allowance at
end of period $18,824 $16,754
Net charge-offs to
average loans outstanding 0.15 0.21
Allowance for credit losses
to total loans 1.14 1.04
Allowance for credit losses
to total non-performing loans 291.84 249.54
For the six months ended June 30, 1998, commercial loan recoveries increased
$1,140 as compared to the same period in 1997. The increase in commercial
loan recoveries is primarily due to a large recovery on a commercial loan
charged-off in prior years at one of the bank subsidiaries.
<PAGE 22>
PART II. - OTHER INFORMATION
Item 1. - Legal Proceedings
There are lawsuits and claims pending against the Company which arise
in the normal course of business. In the opinion of management, any
liabilities that may result from these lawsuits and claims will not
materially affect the financial position or results of operations of
the Company.
Item 2. - Changes in Securities and Use of Proceeds
Not applicable.
Item 3. - Defaults Upon Senior Securities
Not applicable.
Item 4 - Submission of Matters to a Vote of Security Holders
Not applicable.
Item 5 - Other Information
Not applicable.
Item 6 - Exhibits and Reports on Form 8-K
(a) Exhibits
1. Statement Re Computation of Earnings Per
Common Share
(b) Reports on Form 8-K
The Company filed a report on Form 8-K with the Securities and Exchange
Commission as of May 26, 1998, describing the announcement of the Agreement
and Plan of Merger, pursuant to which Mid Am, Inc. and Citizens Bancshares,
Inc. will combine in a merger-of-equals transaction.
The Company filed a report on Form 8-K with the Securities and Exchange
Commission as of August 3, 1998, reporting the Company's second quarter 1998
earnings.
<PAGE 23>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
Registrant has duly caused this report to be signed on its behalf by the
undersigned hereunto duly authorized.
MID AM, INC.
/s/ Dennis L. Nemec
Dennis L. Nemec
Executive Vice President / Chief Financial Officer
DATE: August 14, 1998
<PAGE 24>
MID AM, INC.
EXHIBIT INDEX
Exhibit No. Description Page Number
(11.1) Statement Re Computation of
Earnings Per Common Share 25
(27.1) Financial Data Schedule 26
(99.1) Form 8-K describing the announcement
of the Agreement and Plan of Merger.
The information required by this exhibit
is incorporated herein by reference
from the Company's Form 8-K dated
May 20, 1998, filed with the Securities
and Exchange Commission on May 26, 1998.
(99.2) Form 8-K reporting the Company's second
quarter 1998 earnings.
The information required by this exhibit
is incorporated herein by reference
from the Company's Form 8-K dated
August 3, 1998, file with the Securities
and Exchange Commission on August 3, 1998.
<PAGE 25>
EXHIBIT 11.1
STATEMENT RE: COMPUTATION OF PER SHARE EARNINGS
Mid Am, Inc.
The weighted average number of common shares outstanding for basic and diluted
earnings per share computations were as follows:
(Dollars and shares in Three Months Ended Six Months Ended
thousands, except per June 30, June 30,
share data) 1998 1997 1998 1997
Numerator:
Net income $8,446 $7,163 $15,889 $16,730
Less: Preferred stock dividends -- 189 -- 605
Net income available to
common shareholders (Basic) 8,446 6,974 15,889 16,125
Effect of Dilutive Securities:
Convertible preferred stock -- 189 -- 605
Net income (Diluted) $8,446 $7,163 $15,889 $16,730
Denominator:
Weighted average common
shares outstanding (Basic) 23,377 23,536 23,567 23,309
Exercise of options 541 215 561 195
Convertible preferred stock -- 1,724 -- 2,224
Weighted average common
shares outstanding (Diluted) 23,918 25,475 24,128 25,728
Earnings per share:
Basic $ 0.36 $ 0.30 $ 0.67 $ 0.69
Diluted $ 0.35 $ 0.28 $ 0.66 $ 0.65